New Report: U.S. Geothermal Development – Where do we go from here?
Íslandsbanki has published a new report on the North American geothermal energy industry. The report reviews the performance of publicly listed companies in recent years and offers thoughts on the future of the sector.
The recent poor share performance of North American listed geothermal energy companies broadly reflects the general state of the sector. Low natural gas prices in the United States have affected power prices and squeezed the price at which utilities are willing to buy power. Operational difficulties with individual projects have resulted in negative news flow which, coupled with high perceived project risk, has made it difficult for companies to obtain financing, especially for early stage development. These challenges, made worse by weak share prices, have raised serious concerns about the capability of companies to bring additional MWs online in the near future.
So the question is where does the industry go from here?
Selected highlights from the report:
- The pace of new geothermal megawatts coming online in 2010 slowed to a crawl and development and operational difficulties have dominated industry headlines in 2011. This has led the values of publicly traded geothermal energy companies to decline sharply in 2011. Geothermal energy stocks are not alone as broad measures of renewable energy stocks performance are down close to 80% from their 2008 highs.
- High oil prices have returned the focus of investors to renewable energy, however, natural gas prices remain low in North America tempering the recovery in renewable energy stocks. Natural gas E&P stocks have outperformed public renewable energy companies, despite the low price and the poor outlook for natural gas, as increased reserves are recognized by investors.
- Misperception of development risk and misunderstanding of where projects lay in the development cycle are likely to blame for the industry's inability to persuade investors to value geothermal energy reserves. The industry may also be well served by rethinking its business model. Small cap publicly traded companies with IPP ambitions may need to give up their public status or IPP ambitions to thrive in the new capital constrained environment.
- A collaborative effort on the part of all industry participants, to educate investors on actual risk and the life cycle of a project could have a positive effect on share performance. Currently geothermal energy stocks look oversold as investors have turned into aggressive sellers on the back of negative news. The low valuations could attract private capital to delist companies or served as a catalyst for consolidation. That could create companies with larger balance sheets, better able to support the high upfront costs of geothermal energy development.
- The geothermal energy sector has experienced a setback in 2011 but Íslandsbanki perceives it as a temporary one. The fundamentals of geothermal energy remain strong. With several projects nearing significant milestones much needed positive news, which should provide momentum for the sector, is around the corner.
The full report is available for download at islandsbanki.is/energy where it is also possible to access Íslandsbanki´s Geothermal Dashboard. The Dashboard is a collection of data sets from those following or interested in the geothermal industry. The information is presented through interactive charts and graphs covering geothermal energy usage globally a well as specific data on Iceland and the United States.
Also available on the website is the The Geothermal Dashboard which provides a collection of geothermal data sets on geothermal energy, global overview data and specific data on Iceland and the United States - including stock market developments of geothermal companies.