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Dave Zgodzinski

Dave Zgodzinski

Dave Zgodzinski is the editor of the Green Miner newsletter and thegreenminer.com web site.  The Green Miner is dedicated to searching out valuable investments in…

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Elections and Electrons

Elections and Electrons

The election on Tuesday could shape the deployment of renewable energy in the US for the next several years. It’s peculiar that renewable energy has become a sharp point of debate, because the stance of the two political parties is the opposite of what you might expect.

Renewable energy is a tool of pioneers. Wind energy powered the ships that discovered new continents and then powered intercontinental trade.  Wind and water powered early entrepreneurs’ mills. Solar panels were developed for powering spaceships.

Pioneers with self-reliance, independence, and ingenuity harnessed the power of their environment to make their lives better.  That pioneering entrepreneurial spirit is the inspiration of the Republican Party.

And you’d think, in that spirit, that Republicans would embrace renewable energy as a means whereby the US can become energy independent - not just for a decade or two, but for centuries to come.

Republicans tend to be in favour of a strong military. It’s easy to make a case to support widespread deployment of renewable energy as a strategy for defence of the homeland. Buy an electric car and you will never send another dime to regimes in the Middle East that hate the US.

But it’s the Democrats, not the Republicans, who are somewhat sheepishly defending renewable energy. Democrats support government subsidies, tax credits, feed-in tariffs and government backed loans for renewable energy companies. They are hoping that the payoff for spending all this taxpayer money will be the creation of high-tech jobs.

Democrats view government as nurturing and protecting – a buffer to some of the harsh realities of life. They would tend to distrust and resent some of the libertarian off-the-grid pioneering possibilities of renewable energy technology. Democrats prefer to see renewable energy serving the greater good in a bureaucratic, top-down, rather than bottom-up, entrepreneurial fashion.

Related Article: Why US Energy and Economic Prospects Improve if Obama Loses

But government and entrepreneurship are not necessarily enemies. There is one model of government spearheading a technology that became an entrepreneurial goldmine.

The Advanced Research Projects Agency - ARPA - was a Defence Department sponsored scientific research group. In 1969, ARPA researchers created a packet-switching mechanism to network their computers. This network, ARPANet as it was first known, eventually became the Internet.

 An entrepreneurial tsunami followed wide adoption of the Internet. And that model of government sponsored research producing a gigantic wealth-creating revolution is something that all governments crave.

It strikes a chord with the Democrats. The concept of government sponsored group effort helping society as a whole appeals to them.  It’s evidence that taxing and spending can sometimes produce big benefits, home runs.

The Internet model has been the selling point that convinced governments around the world to drop lots of tax dollars into renewable energy. As is often the case, some of this money has been wasted.

So renewable energy technologies that can promote self-reliance and independence have to some degree devolved into a government subsidized worldwide race for jobs.  And this government intervention and sponsorship of renewable energy has given it a bad rap with many voters in the US.

Despite some successes, the overall history of government investment in renewable energy is not all that great. Government does not have the eye or the gut of a good Venture Capitalist. Democrats flinch at the name of Solyndra and other renewable energy ventures that have gone belly-up despite feasting on lots of government funds.

But big bureaucratic organizations are not limited to government. Entrenched energy businesses are not keen on new technologies muscling in on their turf. And Republicans sometimes find themselves espousing entrepreneurship, but defending the interests of gigantic oil companies, utilities, coal companies and others that benefit from the energy status quo.

So it’s upside down. Republicans who should be all in for renewable energy are dead-set against it. Democrats who might feel threatened by renewable energy are mostly for it.

Related Article: The US is Not Even Close to Being the Next Saudi Arabia

In the end, big government, small government – it doesn’t matter. Renewable energy will embrace both political philosophies. Entrepreneurial spirit will keep the technology changing and progressing.  Eventually governments will come up with useful legislation to support renewable energy deployment.

Renewable energy production, electric vehicles, the creation of a completely new electricity infrastructure, all this will be a damn big business. It will be so big that everyone will get on board.

Ormat Technologies Inc.

Ormat Technologies Inc. is the premier company in the geothermal electricity generation business. The company was founded in 1965 and has about 1000 employees.

Ormat is vertically integrated. The company designs and manufactures equipment used in geothermal electric plants. Ormat has over 80 patents covering products and systems in all aspects of geothermal power production.

The company also engineers and builds geothermal plants for itself and for other parties – primarily utilities. Ormat explores and develops geothermal electricity production properties all over the world. The majority of Ormat’s plants are located in the US, but the company also owns and operates producing plants in Guatemala, Nicaragua and Kenya.  The company has done work in over 70 countries.

The total current capacity of Ormat’s operating geothermal plants is 586 Megawatts. Most recently, in July the company opened its 30 Megawatt  Mcginnis Hills plant Nevada.

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In total, the company has built geothermal plants with a total capacity of over 1500 Megawatts, for itself and others.

Ormat Technologies 2 Year Chart
Ormat Technologies 2 Year Chart: Source - bigcharts.com

Ormat is also very active in what the company calls Recovered Energy – converting waste heat from industrial processes into electricity. One of their specialties is building power plants that convert heat from gas compressor stations on pipelines.

Ormat is about to announce its third quarter report – the day after the election. In the second quarter, the company had $130 million in revenues – a 24% increase from the previous year. The company had $50.8 million or $1.12 in EBITDA for the quarter.

Electricity sales accounted of 65% of revenues while sales of equipment and other products accounted for the rest.

The company pays a small dividend of 4 cents a share per quarter. Ormat has a fair bit of long term debt, roughly $1 billion, which the company has incurred in building its power plants and manufacturing facilities. But as of the end of the last quarter Ormat had $77 million in working capital and has the ability to finance ongoing growth that will generate the long term cash flow to pay off the debts.

The company is eager to grow. Ormat has an ongoing effort to advance greenfields geothermal projects in the US and other parts of the world. In August an Ormat subsidiary secured a $310 million loan to finance the construction of its Olkaria III geothermal project in Kenya. This project should have a capacity of 84 Megawatts when completed.

Ormat is a leader in geothermal power technology and the stock is trading at a reasonable level relative to the company’s cash flow.  No matter who wins the election, geothermal energy development will continue to grow as the technology advances and the value of clean power goes up.

By. The Green Miner

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