Geothermal Energy Offers Alternative To Oil
The Dynamic Wealth Report
June 2, 2008
A Unique Way To Profit From High Oil Prices
The oil frenzy’s still building. Last week we peaked at almost $135 a
barrel. According to CNBC and the talking heads, it’s the story of the
century. Every tick higher on oil prices brought a new flood of
information, concerns, and stories.
Now oil is off $10 per barrel.
Never fear. The story of the century is not getting away. The media has
shifted their reporting. Now instead of asking if this is a new high
they ask if this is the start of the fall.
Unfortunately for most of us, it doesn’t matter. Gasoline prices are now
over $4 per gallon in many areas, and the trend is for higher prices
still. What we need is for oil to fall by $50 not $10.
The way I see it there are a number of good ways to profit from high oil
prices. The first and easiest is to invest in the oil producers. They
benefit from high oil prices. The higher we go the more profits they
make. Buy a basket of the biggest companies and hold on for a wild ride.
Another way takes a bit more thought.
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To profit from oil prices you need to invest in companies that could
help eliminate the world’s dependence on oil as the major source of
energy.
So, what are the alternatives?
The holy grail of alternative energy is to find a source of energy
that’s “on” all the time. Wind and solar power are at the mercy of
Mother Nature. Pollution is also an issue. That’s why nuclear energy
won’t be completely accepted as an alternative energy source.
Coal, oil, and natural gas are fossil fuels which one day may run out. And now they’re becoming prohibitively expensive.
So what’s the solution? I think part of it is geothermal energy.
The future of geothermal energy is bright. The biggest advantage
geothermal plants have is no fuel costs. No coal, no oil, no natural
gas. Power production is never impacted by cloudy days or lack of wind. It’s an “always on” fuel source that’s just waiting to be harnessed.
Give me a moment and let me explain why I like geothermal. Then I’ll
give you an investment idea.
First, what’s geothermal energy?
Geothermal energy is produced from the heat of the earth. The slow decay
of radioactive materials in the center of the earth generates enormous
amounts of heat. The melted core of the earth is a giant ball of molten
hot magma. The most obvious signs of this heat and power are volcanoes.
Other signs of this heat include hot springs and geysers. Magma makes
its way close to the crust of the earth bringing with it significant
amounts of heat. When rainwater reaches these areas it’s often turned
into hot water or steam.
How do geothermal power plants work?
Geothermal power plants are established near these hot areas. Holes are
drilled allowing for water to be injected, and for steam to be
extracted. Water is injected down one hole and is heated by the earth. The hot water and steam naturally look for a way to escape. The steam
rises out of the other holes drilled in the area, and it’s used to power
a turbine.
Most other power plants operate in a similar fashion. They use a fuel
source (like oil) to convert water to steam. The power of the steam
drives a turbine, generating electricity.
The supply of steam generated by the earth is very valuable.
Unfortunately, geothermal won’t ever provide all of our power needs.
Most areas that are great for geothermal power are far from major
cities. However, geothermal can provide an important piece of our energy
needs.
So how do we profit.
When you do your research on geothermal companies you’ll realize there
are lots of small players. Lots of companies own land with great
geothermal potential. Some have drilled test wells. Others are starting
to install generation equipment. Many more are looking for financing.
I’d ignore them all for now. They’re no different than a wildcat oil
driller. It’s a lottery ticket, not an investment. You have no guarantee
that they’ll be able to get a plant up and running. The promises of
great riches are wonderful, but my hunch is that most of them will fail.
However, there’s one company that I do like. It’s the biggest geothermal
company out there right now. Ormat Technologies (ORA). They operate
under the build-own-operate business model. Not only are they working
towards getting new geothermal plants built, once they are built they
handle all of the operations. This gives them a steady stream of revenue
and profits.
The company is huge, they have a $2.0 billion market cap. Last quarter
they had almost $70 million in revenue and generated more than $10
million in profits. No doubt they are the 800 pound gorilla in the
industry. Look at Ormat as a long term energy play. They’re a great
combination of a power plant operator and alternative energy company
rolled into one.
• Airlines Index (Down 15%)
A few months back I wrote about how high oil prices would crush the
airlines. I was right. Almost all of the major airlines are exposed to
higher jet fuel prices, and their operations are suffering. Several of
the majors including American Airlines (AMR) and
United (UAUA) are
trading near their 52 week lows.
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