Skip to comments.This Company is Harnessing the Cheapest Energy on Earth
Posted on 02/23/2013 7:31:03 AM PST by Kaslin
I just wrote a check this morning for my monthly power bill, made payable to American Electric Power (NYSE: AEP) in the amount of $260.02.
I'm not alone. AEP serves five million residential and business customers in 11 states.
Rain or shine, that's five million checks that pour in each month. They add up fast. AEP's utility segment collected $14 billion in revenue in 2011. But on closer inspection, the company only retained $2.8 billion in operating profits.
Where did the other $11 billion go?
Well, nearly half ($4.4 billion) was spent on fuel needed to run the firm's power plants. AEP burns through a mountain of coal each day. So much, in fact, that the company has its own fleet of 7,600 railcars, 3,300 barges, 61 towboats and a dedicated coal handling terminal with the capacity to move 18 million tons of the black rock annually.
By my math, AEP has to spend about $85 million per week to procure coal and other consumable fuels to generate electricity.
Most other electricity generators are in a similar position.
Exelon (NYSE: EXC) doesn't use much coal, but it does need to stockpile costly uranium to feed its hungry nuclear reactors. Just in the United States, nuclear plants consume about 60 million pounds of enriched uranium per year. Prices have fallen from their $135 a pound peak since Japan's Fukushima disaster nearly two years ago, but at $42 a pound, they can still take a large bite out of profits.
Exelon, AEP and their peers must replenish these feedstocks over and over again, surrendering a good chunk of their income in the process. Without hedges, they are at the mercy of rising commodity prices. So naturally there is some incentive for investors to seek out companies that use the cheapest fuel sources.
There is one company that's found a fuel cheaper than coal, cheaper than gas, and cheaper even than water. In fact, its plants run on a resource that is essentially free. That's right -- zilch, nada, nothing.
Now, the company has salaries and other bills to pay like anybody else. But it doesn't pay a dime for its feedstocks.
Instead of fossil fuels, this power generator is harnessing a power source that is clean, sustainable and costs nothing. No, it's not wind or solar -- they have their advantages, but they rely on heavy government subsidies and are also unreliable at times.
I'm talking about geothermal power.
If you've ever visited Old Faithful at Yellowstone National Park or taken a hot springs bath, then you understand the basic principle. In the simplest terms, geothermal heat is produced deep in the earth's crust and then carried toward the surface by rising magma, the shifting of tectonic plates and other geologic forces.
That heat boils underwater reservoirs (sometimes up to 750 degrees), and the resulting steam and pressure are used to spin turbines. The end result: electricity.
There are already 3,200 megawatts of geothermal generating capacity in place just in the United States -- the energy equivalent of burning 70 million barrels of oil annually. According to the World Geothermal Congress, current global capacity of 10,500 MW is forecast to rise by more than 70% to reach 18,500 MW in 2015.
There are already 146 new projects in various stages of completion in the United States -- and many more in countries such as Mexico and New Zealand. Iceland, for example, is so blessed with inexpensive geothermal energy that Google (Nasdaq: GOOG) is considering installing power-hungry data centers there.
I see one clear-cut winner from all of this. The company doesn't just operate its own geothermal power plants, it's also sharing its superior technology (for a price) and helping design and manufacture power units for other customers around the world.
That company is Ormat Technologies (NYSE: ORA).
Ormat generates power from more than a dozen geothermal and recovered energy waste-heat plants located from California to Guatemala to Kenya. These facilities have a combined generating capacity of 560 megawatts. For context, one megawatt is enough generating capacity to power 800 to 1,000 average U.S. homes.
Electricity generation accounts for the bulk (62%) of Ormat's sales, or about $248 million. But there is even greater potential upside from the faster-growing product division, which utilizes the firm's expertise to design and manufacture power units for other geothermal operators around the world.
There is an active market for this equipment, as well as ongoing maintenance and service. Through the first three quarters of 2012, Ormat's product division chalked up $150 million in sales, more than double the $67 million from the first three quarters of 2011. And there is more on the horizon, as evidenced by a healthy order backlog of $192 million, compared with $50 million just two years ago.
With countries around the world looking to embrace renewable (and locally available) energy, geothermal power is in a great position for growth.
And with a backlog that has quadrupled in size during the past year, Ormat is already benefitting from this emerging energy's success.
Action to Take --> The optimistic growth outlook is already incorporated in the share price at this point, but Ormat would make a strong portfolio candidate on a pullback below $19 a share.
P.S. -- The abundance of natural gas in the United States could lead to a third industrial revolution. One analyst is predicting a stock could rise 1,566%. Another stock has already jumped more than 1,000% and is expected to keep going. To learn more about investing in the natural gas boom, click here.
Geothermal electricity generation is very popular in Iceland.
We should be using more hydroelectric here. Its kind of like geothermal in the sense that you can only produce it in certain places but some places have it in great abundance.
Geothermal power plants have been in the US for around a hundred years.....but its location location location.
Until the Greenies start screaming about robbing Gia of her internal heat.
There is already a movement by the luddites, I mean greenies to stop it claiming it causes earthquakes. In Switzerland, they have already sued one operator.
Right here in little ol’ Boise, Idaho, the state Capitol building is heated by geothermal energy. Apparently it’s the only Capitol in the U.S. that can make that claim.
If we drain all of the heat from the earth’s interior the continents will stop drifting and we will become a dead planet like Mars. /sarc
Environmentalists Sue Over Medicine Lake Geothermal Plans
By Don Thompson, Associated Press
May 20, 2004
From what I've read, that underground water is extremely corrosive. There is no such thing as a free lunch and if it sounds too good to be true, it probably is.
Yeah but these geothermal plants are causing the earths core to cool down quicker thereby causing earthquakes from the crust shrinking. The democrat party will soon put a stop to this madness or perhaps tax it out of business.
The only free lunch is for democrat voters and their masters.
Geothermal is the way to go! After all, according to Al Gore, winner of the Nobel Prize in Climatology, just a couple of thousand feet below the surface, the temperature is two million degrees. And all that energy is just free for the taking! (/s)
1. MOST geothermal resources are not resources that are plentiful in terms of location.
2. The geothermal steam may be “free”, but tapping it, harnessing it and cleaning it (very briney) for running steam turbines is not.
3. Like all “mass production” energy, geothermal energy use depends on the same paradigm that electric energy began with - mass distribution systems; but the paradigm for the future should be in advancing technologies that provide more energy in-situ and reduce the reliance on massive power grids for electricity.
Capitol buildings are naturally heated by an abundance of hot air...:-)
Living in Western Pennsylvania it's well known that coal mines, mushroom and storage caves stay at around 50-60 degrees F year round.
So there is a difference in temperature (as well as pressure I would guess) most of the year. Couldn't that difference in energy levels be used to generate power at some, admittedly low level?
I suppose that is the concept behind heat pumps that are used here with some degree of success. However I'm thinking much deeper, say 1000 - 10,000 feet or more.
IIRC the temperature goes up 1 degree for every hundred feet or so in depth.
Now with the fracking going on there are lots of deep holes being drilled. Could those holes serve double duty especially if the gas flow dwindles?
Utah State prison is geothermally heated. Saves taxpayers over a million per year.
... and the 'pants-on-fire' phenomena... :P
I believe it was considered in Hawaii, but people there feared the weight of the plants would tip the islands over. /s
Nowhere to go but up.
It isn’t cheap if you do it wrong. Drilling for hot water is much like drilling for oil, you have to hit rocks with the right conditions to economically generate energy. Drilling is expensive, and it takes a lot of planning, luck, and money to hit the “free” energy.
I would suspect that anything thermal is popular in Iceland! :-)
And they've been there a LONG time, too.
Drury University in Missouri used it for the chapel to preserve the historic building...
That's funny and sadly, most likely true.
“We should be using more hydroelectric here.”
In Scotland, I beleive, they have a hydroelectric plant that consists of 2 lakes at different altitudes with the power plat in between. During the day, when demand is high, the electricity generated goes out on the grid. At night, when demand is low, the electricity is used to pump the water from the lower lake back up to the upper lake to get ready for the next day. You basically have a closed, self-sustaining electrical generating system.
Why not here?
You rapidly reach a point of diminishing returns. To go that deep would be very expensive. However, it isn't necessary to go that deep to get some benefit.
As you mentioned, heat pumps can tap into geothermal heat much closer to the surface. In fact, one could envision it as annualizing the same heat, extracted during the summer, to warm his house in the winter. Heat pumps have to be powered, of course, and the usual method is to use electricity for the purpose. (I presume that it is technically feasible to power a heat pump using wind power, for instance, but I am not aware of anyone doing it on a commercial basis.)
In any case, the heat being delivered is not the heat of the energy used to operate the pump. It is the heat being extracted from the heat sink of choice. It is for this reason that geothermal storage of the heat at 50oF is preferable to attempting to wrest heat from the winter air at 20oF.
A surprisingly small "footprint" can now be used for geothermal heat extraction. Basically, one can drill several small holes, from six inches to two feet, and only a few dozen feet deep, to have all the thermal mass his heat pump could use.
Anyone who is considering upgrading his whole-house air conditioning, or replacing his furnace, should consider getting a heat pump for both air conditioning and house heating. (One can even use this type of operation to heat domestic hot water!)
Note also that the amount of natural geothermal heat is dependent somewhat on your latitude, how far from the equator you are. In southern states, just circulating a working fluid through a large geothermal mass can provide sufficient temperature conditioning summer and winter.
Thorium from coal, combined with the Fischer-Tropsch process.
I have an aunt and uncle in Boise who pay a pittance for their home power needs. Their neighborhood is able to tape into the same vein that powers the state Capitol building. Basically, all they have to pay for is the piping.
Why, just think what it would do to their fuel tax revenues if everyone had a shorter drive to work (from the crust shrinking).
Okay, I really couldn't type that with a straight face..
Oil wells are commonly drilled in areas where the source rocks have reached thermal maturity (a combination of temperature and pressure which causes the organics to generate oil in the rock). Hotter than that, you will get natural gas.
Likely they are not hot enough to generate the steam needed to run turbines.
Bottom hole temperatures in the Bakken are usually below 300 degrees Fahrenheit, for example.
There is one of those in Bath County, Virginia.
At a shallower depth, it can be used to produce air temps in the high 50s to low 60s (F) via heat exchangers, circulating fluid in a ground loop. Depending on where you live, that alone can save a lot. (A local tribal center in ND cut their energy bills for heating and cooling in half, no mean feat for a large building complex in an area where winter routinely gets to -30F and summer can run in the triple digits.)