Every year travelers from around the world shoot over to Yellowstone National Park to see the famous geyser. Hot water and steam from deep within the earth flow up to the surface. Like clockwork, every two hours the pressure builds to the point of explosion. Old Faithful shoots thousands of gallons of boiling hot water more than 100 feet into the air! Tourists never go home disappointed because the geyser always lives up to its name. First documented in the 1870's, Old Faithful hasn't missed a day of work since.
Mining hot water and steam
Compared to a coal or nuclear plant, nearly every city in the world would rather have a geothermal plant in its backyard. Worldwide, the installed geothermal base is estimated to be 11,400 megawatts (MW).
That's enough electricity to power about 12 million households, but just a fraction of the overall demand. Utility-scale geothermal facilities can be found in more than 20 countries. El Salvador, Iceland, and the Philippines rely on it for 25% of their electricity usage.
Ormat Technologies (NYSE:ORA) is a designer, equipment manufacturer, builder, and operator of geothermal plants. With more than three decades of experience, Ormat played a role in building 900 MW of the total 8,900 MW installed base.
In the lower right of the image, you can see how Ormat's technology injects cooled water back into the ground to be used again.
More recently, Ormat announced the successful completion of the world's largest binary geothermal plant: the 100 MW Ngatamariki. Located in New Zealand, Ormat built the $142 million project within 24 months. Perhaps a testament to the company's technical expertise, the plant is operating at 104% of capacity.
Consistent cash flow
The Geysers, located north of San Francisco in the Mayacamas Mountains, is the birthplace of geothermal electric power plants in the US. Starting with one turbine in 1960, The Geysers has grown to become a complex of 350 wells that feed steam into 22 power plants. After all this time, The Geysers is still the largest geothermal-energy-producing area in the U.S., meeting the electricity needs of more than 1 million people.
Calpine (NYSE:CPN) owns the vast majority of active geothermal plants at The Geysers. Reliable hot water and steam means reliable electricity. Power is sold under long-term contracts (10 years or more) to larger utility providers. Feeling confident about future cash flow, Calpine's board has authorized a monstrous $2.1 billion stock repurchase program, which is equivalent to 25% of its market value. Over the past three months, the company has purchased 4.7 million shares at $19.57 per share.
Energy in vs. energy out
Electricity is produced and distributed regionally. Each region is dependent on a steady supply of energy inputs: mainly coal, natural gas, oil, and uranium. Alternatives like geothermal, hydro, solar, and wind round out the difference. Environmental considerations aside, fossil fuel prices tend to be more volatile.
Fossil fuels also use more energy in the transportation process than alternatives (which may require higher upfront costs). As consumers of energy, we need to be aware of the total cost, which accounts for the energy used (energy in) in the process of getting energy (energy out).
TransAlta (NYSE:TAC) owns a 50% interest in 10 geothermal power plants in Southern California. In all, its Imperial Valley facility generates 326 MW, 80% of which is sold under long-term contracts to Southern California Edison.
The larger portion of its power-generation business comes from coal and hydro-power. TransAlta is unique in owning more than 25 hydroelectric plants. Not quite the Hoover Dam, but its Brazeau Plant in Canada's Alberta province is TransAlta's largest by far. With help from the North Saskatchewan River System, it generates up to 355 MW. As a portfolio, TransAlta's run-of-river assets generate upwards of 900 MW worth of electricity each year. Hydro-power and geothermal aren't always the most profitable initially, but once built, they are efficient (in terms of energy-in vs.energy-out) and reliable.
No single energy input is a silver bullet
Smart community planners and energy providers prefer a mixture. There's an investment lesson to be learned here: Never put all of your energy input eggs in one basket. When necessary, grants, low interest loans, and tax credits are a few of the levers being pulled globally to help kick-start the building of geothermal plants. With more than three decades of experience designing, building, and operating, Ormat is on the receiving end of many large government checks.
Consider furthering your research into geothermal energy (old reliable). With the right mix of location and technology, heat from within the earth and other wasted sources can be captured and then distributed for a profit.
Daniel Cook has no position in any stocks mentioned. The Motley Fool owns shares of Ormat Technologies. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. mini-Mutual Funds are offered through Daniel T. Cook & Partners, LLC, registered with the State of Florida as a (RIA) Registered Investment Advisor. Office hours M-F 8am to 8pm. Telephone: (561) 596-5067. Custodial and clearing services are provided through Scottrade Advisor Services, member. SIPC.