Renewable Energy

New Technology Leads to Advancements in Geothermal Energy

In Geldingadalur, Iceland, there lies a flat-topped mountain called Fagradalsfjall. It’s a barren, windblown, rock-strewn area.

Few people ever paid it a visit. But now it’s become a major tourist attraction.

On March 19, molten lava started flowing out of a fissure near the mountain. Except for a few brief pauses, it hasn’t stopped since.

As a result, Iceland – which depends on tourism for about 33% of its GDP – is getting a big boost. The ongoing eruption is one of the world’s most visible geothermal events today.

But this latest volcanic eruption isn’t the only geothermal activity in Iceland. It turns out that the country is a hot spot (pun intended) for geothermal energy.

Geothermal Hot Spot

The North Atlantic island harnesses the heat of Earth. And it’s been getting most of its energy needs that way for decades.

Its geothermal power plants tap superheated water reservoirs. Water is pumped to the surface, flashed to steam and used to spin turbines connected to electric generators.

However, the U.S. is the world’s leader when it comes to geothermal energy. At the end of last year, it had about 3.67 gigawatts of installed geothermal capacity.

That’s almost 25% of the world’s total. About 90% of this capacity is in California and Nevada.

In fact, The Geysers, located in the Mayacamas Mountains in California, is the largest geothermal field in the world.

This area contains 18 geothermal power plants and produces 20% of California’s renewable energy. Still, geothermal accounts for less than 1% of U.S. energy supplies. Though it has the potential to account for as much as 8% by 2050.

The beauty of geothermal energy is that it’s “on” all the time, making it a perfect source of baseload energy. And its fuel source is endless.

Until recently, scientists thought geothermal energy was available only in “hot spots” like Iceland, California and Nevada.

But as I always like to say, technology marches on. And that’s been the case for geothermal energy.

Digging Deep

If you drill deep enough anywhere on the planet, you get to hot rock. Earth does have a molten core, after all.

And now companies are developing drilling techniques and technologies to access that deep heat. Let me explain.

One technique involves drilling one borehole down to hot rock. A second borehole is drilled some distance away.

Using horizontal drilling techniques, the second hole is slowly turned. It meets the first borehole near its bottom and water is circulated between the two. Cold water goes down one hole. The heat of the surrounding rock is transferred to the water. Then, hot water comes up the second borehole.

The extracted heat can be used to warm a home. And in a larger system, it can power a generator.

An even simpler and less expensive system uses a single borehole with two pipes connected at the bottom. One injects cool water that is heated by the time it reaches the bottom of the borehole. The warmer water is then drawn up through the second pipe.

Drilling for Profits

One expert in geothermal energy is Ormat Technologies (NYSE: ORA). It has geothermal power plants in the U.S., Indonesia and Chile, among other countries.

It develops, builds and owns photovoltaic solar power plants. The company also sells equipment related to geothermal and recovered energy-based power plants.

Ormat has some impressive financials. It has a market cap of $3.9 billion and trades with a price-to-earnings ratio of 49.67. It also has a forward dividend yield of 0.69%.

Geothermal is still a small part of global energy supplies, but it’s reliable baseload power.

And new technologies promise to increase its share in the coming decades. I’m watching this sector closely for breakout companies worthy of investment.

Good investing,

Dave

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