Ormat Taps an Opportunity

With a price-to-earnings ratio topping 75, geothermal power specialist Ormat Technologies (NYSE: ORA  ) is stratospherically valued. That keeps me from recommending it to Foolish investors, but news this week does suggest that the company's future growth prospects might justify its sky-high price.

In the latest of a series of new projects, Ormat has signed a deal with Medco Energi International and Itochu to build a 340-megawatt geothermal project in Indonesia. So far this year, the company has signed large deals to build geothermal power plants in New Zealand, Kenya, and California, and agreed to four additional 25-year agreements with Basin Electric Cooperative to supply that company with electricity produced by Recovered Energy Generation. (The latter involves capturing unused heat from industrial processes and converting it into electricity.) The company has also indicated recently that it has secured additional geothermal leases near San Diego and hopes to have the 50MW North Brawley project online by the end of 2008.

I think the prospects for Ormat's future growth are promising. Geothermal power uses heat from deep below the surface of the earth to convert water into steam, which powers turbines that create the electricity. Building geothermal facilities isn't cheap, but Ormat's technology helps the plants easily scale to keep pace with customers' growing needs.  

As a clean, sustainable form of energy, the demand for geothermal power will likely increase in the years ahead, especially as governments worldwide begin to clamp down on carbon emissions from more conventional power plants. Still, given its enormous valuation, Ormat will need to continue to sign additional large-scale deals like the Indonesian one before I warm to an investment.

Further clean-energy Foolishness:

Fool contributor Jack Uldrich does not own stock in any of the companies mentioned in this article. The Fool has a strict disclosure policy.

Editor's Note: A previous version of this article included incorrect details regarding Ormat's operations. We regret the error.

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