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Reuters: Expected revival of investment interest in geothermal

Reuters: Expected revival of investment interest in geothermal Strokkur/ Geysir, Iceland (source: flickr/ Pétur Gauti, creative commons)
Alexander Richter 20 Sep 2010

While Canadian investors seem to have been cool on the geothermal sector, there are signs for the market to appreciate the compelling business advantages of geothermal.

A new article at Reuters, talks about that the current talk about a revival for geothermal energy investments, has left Canadian investors cold so far.

The article talks about that the “Industry claims lauding the renewable, round-the-clock and profitable power source are more than just hot air, say analysts, who believe better times are ahead. All that’s needed are more examples of companies with money-making power plants, a better investor understanding of the business and a dash of economic recovery. That’s a tall order, but for patient investors prepared to take a risk, now may be the time to buy these distressed stocks.

Geothermal companies, which tap heat stored far below the earth’s surface to generate electricity, are starting to attract serious interest from big, traditional power producers that are preparing carbon offset programs.

Enbridge Inc (ENB.TO: Quote), Canada’s second-biggest pipeline operator, said earlier this month that it would spend $23.8 million for a 20 percent stake in US Geothermal’s (GTH.TO: Quote) Neal Hot Springs project.

“Oil and gas, mining, utilities; they’re all circling geothermal. However, these companies are generally loaded with … engineers that don’t know anything about geothermal and the last person to try something before it’s really proven is an engineer,” said Jacob Securities analyst John McIlveen.

“They realize the attraction of geothermal being the only baseload (steady flow) renewable power. I think eventually you’ll see many of them entering this field, and so Enbridge being the first, I think, was a really good sign.”

Several analysts raised their stock targets for US Geothermal afterward. Wellington West Capital upgraded the stock to ‘buy’ from ‘speculative buy”. Over the past 12 months, the stock has shed more than half its value. It closed at 84 Canadian cents on Friday.

Enbridge’s investment, one of many it has made in renewable power, but its first in geothermal energy, briefly lifted US Geothermal’s stock by more than 18 percent.

“If we do see more of that in the space, it could be a factor which contributes to a geothermal love-in,” said Mackie Research analyst Matt Gowing. “And now is a great time for these guys to get active, because valuations in the sector are very attractive.”

Despite depressed valuations, geothermal companies have successfully raised cash in recent months, sending a positive signal for future project development and internal growth.

Nevada Geothermal Power (NGP.V: Quote), for example, recently closed a $98.5 million loan with John Hancock with the first-ever U.S. Department of Energy loan guarantee. It will save an estimated $9 million in annual interest payments.

A consolidation jag that has gathered steam over the past year is seen as another catalyst to stock gains. A dwindling number of targets may help drive M&A premiums higher.

The deal-making is driven by the hefty financial and human capital required to develop geothermal power.”

The article then talks about the recent merger between Ram Power and Sierra Geothermal, as well as the ongoing trend for further consolidations as reported here earlier.”

For the full article see link below.

Source: Reuters