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Geothermal: The Under-Appreciated Investment Opportunity in Alternative Energy

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Geothermal: The Under-Appreciated Investment Opportunity in Alternative Energy

These are halcyon days for clean energy adoption and the related investments.

In fact, several of the best-performing, non-leveraged exchange traded funds in the U.S. this year are alternative energy funds and with good reason.

Data indicate utilities are relying less and less on dirty coal and opting for increasingly cost-effective, cleaner alternatives.

“US power generation from coal totaled 60.1 TWh in April, down 23.4% from March and 18.1% lower than the year-ago month,” S&P Global Platts reports, citing the Energy Information Administration (EIA). “The figure was the lowest month in over 47 years, including below the previous record of 62.87 TWh generated from coal in April 1974.”

From the standpoints of adoption and investment, the alternative energy conversation is usually dominated by wind and solar, seemingly glossing over opportunities such as geothermal in the process. Many of the legacy renewable energy funds on the market today isolate wind or solar stocks or feature scant geothermal exposure.

That belies the growth opportunities available with geothermal. Last year, global geothermal investments jumped 10% to $1.8 billion, according to BloombergNEF.

A New Frontier

The premise of geothermal energy is easy to understand. It taps the earth’s core, producing heat that is harnessed into usable energy. Adding to the case for increased adoption of geothermal are compelling long-term costs that help ease some of the initial capital burden associated with constructing new geothermal plants.

“Costs for geothermal generation at some facilities have decreased to half the original price per kilowatt hour of power in 1980, compared to when the first independent geothermal plants were installed,” according to the Geothermal Energy Association. “Their cost falling at a faster rate than coal over this same period. The current price for extensions onto existing projects can be competitive with polluting coal-fired plants. While geothermal’s costs have steadily decreased throughout the years, those of natural gas have increased, often experiencing boom and bust type cycles that can negatively impact the economy.”

From an investment standpoint, geothermal is often viewed as slower moving than wind or solar, but the concept is still attracting some well-known investors.

Earlier this year, it was revealed that Breakthrough Energy Ventures, the new energy investment firm backed by Jeff Bezos, Bill Gates and Jack Ma invested $12.5 million geothermal project development company called Baseload Capital.

Expect Growth

Geothermal may not command comparable slices of the alternative energy pie relative to wind and solar, but nonetheless, its expected growth trajectory is impressive.

“The International Energy Agency (IEA) projects that by 2050 geothermal power could account for 3.5% of global electricity production, with 200 GW of installed capacity, avoiding 760 million tons of CO2 emissions annually,” according to the World Bank.

Currently, over 40 countries around the world rely on geothermal for the bulk of their electric power needs.

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