Geothermal Energy: The Most Economical Long-Term Energy Solution

Source: The OTCInvestor, Justin Kuepper  (5/19/11)

"Geothermal power providers could see significant upside over the long-term."


The OTCInvestor, Justin Kuepper

Nevada Geothermal Power Inc. (TSX.V:NGP; OTCBB:NGLPF), Ormat Technologies, Calpine Corporation and other geothermal power providers could see significant upside over the long-term as one of the most economical energy solutions ever created.

Geothermal energy is considered one of the most cost effective sources of power on the planet, with more than half of the costs being for initial drilling. The typical breakeven point for a geothermal power plant in 2007 was approximately $0.054 per kWh, while the average cost of U.S. residential electricity was $0.12 per Kwh in 2009, leaving a healthy long-term profit margin.

A typical well in Nevada can generate 4.5 MW at a cost of about $4 million to drill, or roughly $4.5-5 million per MW in total initial costs, with a 20% failure rate. As a result, the business is well suited for public companies, able to raise the large amount of upfront capital and deliver a high long-term return on investment over time to shareholders.

Investors looking for an emerging play may want to consider Nevada Geothermal Power (OTCBB: NGLPF). With a strong management team and one 49.5 MW geothermal plant under its belt, the company is well-positioned to unlock value over the medium-term. Meanwhile, the firm also has a joint venture with Ormat for a new power plant on the Crump Geyser that could nearly double its capacity.

With the recent drop in the geothermal sector, many stocks appear to be significantly undervalued. For instance, Nevada Geothermal's current enterprise value currently stands at around $200 million, while its production is currently at 35-37 MW (net) or 46-48 MW (gross). This low valuation of NGLPF's assets put the company's stock in the bargain bin for potential investors.