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Sierra Geothermal to Benefit From Stimulus Spending

By James West

For some companies, the global recession will be a catalyst for enhanced growth. Sierra Geothermal Power Corp. (TSX.V:SRA) expects to capitalize on the renewed impetus for green power sources that both the recession and the election of Barack Obama have inspired.

Another result of the global recession, or rather, its inciting event, was the stock market meltdown that has taken the prices of equities in the green power space to their lowest levels ever. And that is the opportunity for investors who want to incorporate the upside from the green energy future into their portfolios.

On May 27th this year, President Obama announced an investment of over $467 million under the auspices of the American Reinvestment and Recovery Act to expand and accelerate the development, deployment, and use of geothermal and solar energy throughout the United States.

"We have a choice. We can remain the world's leading importer of oil, or we can become the world's leading exporter of clean energy," said President Obama. "We can hand over the jobs of the future to our competitors, or we can confront what they have already recognized as the great opportunity of our time: the nation that leads the world in creating new sources of clean energy will be the nation that leads the 21st century global economy. That's the nation I want America to be."

Ian Tharp, senior analyst of cleantech and renewable energy with Toronto-based Dundee Capital Markets, noted in a recent report released that Canadian-listed geothermal companies with projects in the U.S. are likely to benefit from the stimulus, including U.S. Geothermal, Nevada Geo, Western GeoPower and Sierra Geothermal, because of the proposed extension of the eligibility period for receipt of the renewable energy Production Tax Credit.

The proposed stimulus package also includes a three-year extension of the production tax credit. This would mean the credit for wind energy would expire in 2012, while incentives for geothermal and other industries will remain in place through 2013.

The Recovery Act gives preference to activities that can rapidly assist in economic recovery. The Department of Energy (DOE) states that it will give "special consideration. to projects that promote and enhance the objectives of the [Recovery Act], especially job creation, preservation and economic recovery, in an expeditious manner." Therefore, Sierra believes that having a completed environmental assessment (a process which can take more than two years) will be a key differentiator in the DOE's assessment of grant applications as it will allow grant applicants to commence their proposed work programs sooner. Sierra has three projects with completed environmental assessments and a fourth project with its environmental assessment nearing completion.

Gary R. Thompson, President and CEO, said, "We are extremely excited about this opportunity and applaud the Obama Administration on this program that has stimulated interest in the geothermal space and should accelerate the pace at which clean, renewable geothermal megawatts are brought online. We believe we are well-positioned to meet the objectives set forth by the DOE. For example, with several of our projects 'drill-ready', we are prepared to quickly put grant funding to work, meeting one of the DOE's criteria for selecting projects."

Sierra Geothermal announced its intention to make an application for funds under this plan earlier this month.
What is Geothermal Power? Electricity from geothermal energy was first produced commercially in 1911 in Larderello, Italy. This facility expanded into major production in the 1930's and continues to generate power to the present day.

Geothermal power (from the Greek roots geo, meaning earth, and thermos, meaning heat) is power extracted from heat stored in the earth. This geothermal energy originates from the original formation of the planet, from radioactive decay of minerals, and from solar energy absorbed at the surface. It has been used for space heating and bathing since ancient roman times, but is now better known for generating electricity. About 10 GW of geothermal electric capacity is installed around the world as of 2007, generating 0.3% of global electricity demand. An additional 28 GW of direct geothermal heating capacity is installed for district heating, space heating, spas, industrial processes, desalination and agricultural applications.

Geothermal power is cost effective, reliable, sustainable and environmentally friendly source of energy. Geothermal power has the potential to help mitigate global warming if widely deployed instead of fossil fuels. Geothermal is the only renewable energy that could replace coal or nuclear power.
Sierra Geothermal Power's Project Lineup

With over 90,000 acres of geothermal properties in Nevada and California, Sierra Geothermal Power's projects have a combined total estimated capacity of nearly 600MW. The company divides its assets into tiers, and describes Tier 1 projects as "properties that have had a significant amount of exploration drilling completed and are classified as at the pre-feasibility and production drilling assessment stage."

Four of Sierra Geothermal's projects are in the Tier 1 category, and an additional 12 projects are classified as "Tier 2" projects. Tier 2 is characterized as properties where previous exploration work has identified significant geothermal potential through geophysics, temperature gradient drilling and geothermal surface features. In addition to possessing geothermal potential, all of Sierra Geothermal's projects are located within close proximity to transmission infrastructure.

Shares Too Cheap? From a high of CA$0.90 at the beginning of 2008, shares in Sierra Geothermal Power have been beaten down hard during the market meltdown, with the announcement in June by Barack Obama making barely a ripple in the company's valuation landscape.

"In light of the recent market meltdown, Sierra has been reduced in its valuation significantly. Given the recent announcement from the new U.S. administration, the U.S. Department of Energy stimulus incentives range from low cost loan guarantees, cash grants for exploration and production tax credits which, for geothermal power specifically are, we think, a game changer for the space. We are starting to see a number of stars aligning for the geothermal power space in general, said Thompson.

"The plan right now is to advance our prefeasibility stage projects to bankable feasibility, we're talking around 200 MW of potential power generation just from our top four projects combined, we're targeting 50 MW coming on line in 2012, and between 2012 and 2015, we hope to have the full 200 MW up and running. So in terms of cash flow, 30 MW generates about $25 million a year but this depends on the power sales contract and other project specifics, so by 2012 we're looking at just over US$40 million a year, and by 2015, that should grow to $160 million a year in gross cash flow. There a number of project specifics that can change the economics just as there are in any resource development projects.

Our strategy is to have a complete range of projects at each stage of development, power generation, construction, advanced stage, intermediate stage and early exploration stage projects so that we can have a reasonably steady flow of new generation coming on line year after year providing growth and value to shareholders."

So you can see how it starts to build quite rapidly having the right projects, and you can see where our market cap is around $20 million right now, this is a major disconnect.

The general market doesn't understand geothermal power yet - it's certainly not mainstream, even in the green tech space - but there are a number of analysts just starting to climb the learning curve and the space is gaining momentum.
Here you have a resource that effectively produces cash flow forever, at a 25% return on equity - why wouldn't you want to have this in your portfolio?"

Exactly. Why wouldn't you?

Learn more about Sierra Geothermal Power at the company's web site http://www.sierrageopower.com.

Also, learn in person and join Sierra Geothermal Power Corp for a presentation and reception on Wednesday, July 15th, 2009 at 2:00 pm at the Fairmont Hotel Vancouver, 900 West Georgia St., Waddington Room. Call 778-960-6553 to RSVP.

DISCLOSURE: No shares owned by author or affiliates.

SOURCE: http://www.midasletter.com/news/09070201_Sierra-geothermal-to-benefit-from-stimulus-spending.php