As states work to meet renewable energy portfolio standards, or RPS, deadlines, solar power and wind power are usually the ones that get all of the attention. After all, solar power can be developed anywhere the sun shines, and wind power can be developed anywhere the wind blows, but geothermal can only be developed where the geologic conditions allow for it.
Nonetheless, geothermal is garnering increasing attention from certain states and countries, in which the conditions allow for the potential development of geothermal facilities. Of the few players in this space, Ormat Technologies (NYSE: ORA ) is one that deserves a closer look from investors who are considering renewable energy companies.
A hot 2013
Up over 27% in the past twelve months, the company ended 2013 on a high note. Ormat's $533.2 million in total revenue was a 6.3% increase from the $501.8 million in total revenue from 2012. Operating in two segments, Ormat improved both in 2013: The electricity segment rose 4.7% from $314.9 million to $329.7 million, and the product segment increased 8.9% from $186.9 million to $203.5 million. Overall, the company's gross margin also showed improvement, rising from 25.7% to 30%.
Looking further down the income statement, we see that operating income improved 26.8% from $76.5 million (which excludes impairment charges of $236.4 million) in 2012 to $97 million. Adjusted EBITDA also rose, climbing 22.3% from $185.7 million in 2012 to $227.1 million in 2013. On the bottom line, earnings improved from a loss of $4.69 per share to profit of $0.91 per share.
The company increased its annual generation to 4,253 GWh -- a 37% increase over the past five years, and its worldwide operating portfolio rose to 626 MW. Management cites several operation successes which account for the company's rise in revenue. It completed a 58 MW expansion of a geothermal project in Kenya, which brings the facility's total generating capacity to 110 MW. In Honduras, the company completed acquisition of the Plantanares project, and in Guatemala, the company amended a PPA so that it can take over the field O&M. Ormat also had success domestically. In Nevada, the company completed the 16 MW Don A. Campbell geothermal plant, and it completed enhancements to the Jersey Valley facility, bringing the plant to its designed generating capacity; moreover, in California, the company replaced original equipment at the Mammoth G1 facility with Ormat products.
What to expect in 2014 and beyond
Looking to the future, the company is guiding for total revenue between $540 million and $560 million in 2014. The company will achieve this, in part, by working through the approximate $165 million in total backlog -- a total backlog which excludes $254 million of a supply contract from a project in Indonesia. Planning to commit $150 million to developing and constructing new projects in 2014, Ormat believes that these endeavors can add between 120 MW and 150 MW by 2015-2017.
The company is executing its plan for 2014, and its prospects may be even brighter if some California politicians get their way. During a joint committee meeting in California earlier this month, several state senators demonstrated interest in developing California's untapped geothermal potential. Industry experts provided extra insight into the geothermal potential in California. Speaking during the meeting, Karl Gawell, Executive Director of the Geothermal Energy Association, suggested that, "Geothermal power can be a key to achieving an expanded post 33% renewable power portfolio at the lowest total cost."
One company that represents a threat to Ormat, especially in California, is MidAmerican Energy Holdings. Owned by Berkshire Hathaway, the company operates ten geothermal plants, which have 327 MW of capacity, in the Salton Sea area. The company is developing three other facilities in the area that each will have 50 MW of capacity. Experts believe that the Salton Sea area alone has 2,900 MW of geothermal potential.
Calpine (NYSE: CPN ) is another company that has experience with geothermal resources in the state. The company owns the largest geothermal resource in the world. Located in California, The Geysers power plants have a peak net capacity of over 700 MW; however, this is the only geothermal resource that the company has in its portfolio, and it has shown no interest in pursuing other opportunities regarding geothermal projects. Should politicians enact legislation to incentivize the development of geothermal resources, Calpine may reconsider its interest.
The possibilities of developing geothermal resources are not only present in California but around the world, and Ormat is well positioned to profit should the potential be realized. Regardless, the company's improved performance in 2013 may lead to even better performance in 2014.
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