Geothermal energy a booming business

updated 11:53 a.m. ET Dec. 30, 2008

PROVO, Utah - Within six months of discovering a massive geothermal field, a small Utah company had erected and fired up a power plant — just one example of the speed with which companies are capitalizing on state mandates for alternative energy.

Anticipation of new energy policies has sparked a rush on land leases as companies like Raser Technologies Inc., based in Provo, lock up property that hold geothermal fields and potentially huge profits.

Raser's find, about 155 miles southwest of Provo, could eventually power 200,000 homes.

The company said it will begin routing electricity to Anaheim, Calif., within weeks.

Earlier this month, California adopted the nation's most sweeping plan to cut greenhouse gas emissions.

"We made a pleasant discovery, let's put it that way," said Brent Cook, the company's chief executive.

Geothermal technology creates energy using heat that is stored in the earth. But geothermal still generates less than 1 percent of the world's energy, according to the Paris-based International Energy Agency.

Steady jump in leases
The number of government land leases and drilling permits have risen quickly, said Kermit Witherbee, who heads up the leasing program for the U.S. Bureau of Land Management, with more than two dozen companies now trying to make a score like Raser.

Two years ago, the U.S. Bureau of Land Management approved 18 geothermal drilling permits. That number more than doubled in 2007 and has nearly quadrupled this year.

The government leased a staggering 244,000 acres for geothermal development in the past 18 months. Another 146,339 acres went up for bid earlilier this month in Utah, Oregon and Idaho.

All of it was claimed.

Raser's find "has the potential to become one of the more important geothermal energy developments of the last quarter century," said Greg Nash, a professor of geothermal exploration at the University of Utah.

The company quickly redrew its business plan, bumping up its planned development of 10 megawatts of power to 230 megawatts. That is in line with the field's power potential according to calculations by GeothermEX Inc., a consulting firm.

By comparison, the largest group of geothermal plants in the world are The Geysers, about 60 miles northeast of San Francisco. The Geysers geothermal basin produces about 900 megawatts of energy, enough to power the city, said Ann Robertson-Tait, a senior geologist and vice president of business development for GeothermEX.

"The outlook for geothermal is great," said Brian Yerger, an energy analyst for New York-based Jesup & Lamont.

Financing terms
Geothermal companies are relatively small players in the energy market and have had to scramble to lock up financing, particularly during a recession.

Merrill Lynch & Co. has pledged to fund Raser's first 100 megawatts of projects and says it is staying in the game.

"We've done a lot with Raser," said Merrill Lynch spokeswoman Danielle Robinson. "We're very committed to the company."

Cook said his company can raise additional money from joint ventures and stock sales. "This is where the money flows, to alternative energy projects that pencil out," he said. The company made its first major stock sale Nov. 14 to Fletcher Asset Management of New York.

"We are enthusiastic about our investment," said Kell Benson, Fletcher's vice chairman. The firm bought $10 million in stock at $5 a share, with an option to double the stake.

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