The Newest Old Idea in Energy

Our fearless leaders here in the United States have perfected the art of passing off old ideas as new and improved solutions to the country’s problems. This holds especially true when it comes to energy policy.

Take ethanol, for instance. It was the choice fuel for some of the first combustion engines. In the 1820s, Samuel Morey used an ethanol blend in his experimental internal combustion engine. Due to the rise of steam power, ethanol remained an obscure fuel until 40 years later, when the internal combustion engine took off thanks to a more efficient design by German inventor Nikolaus Otto.

But also around that time, America discovered a cheap, domestic oil supply, which would compete with ethanol and later become our preferred fuel despite ethanol’s early success. Even Henry Ford thought ethanol would withstand the test of time. He designed his Model T to run on ethanol, going so far as to call it “the fuel of the future.”

Now, 100 years after the first Model T took to the roads, our leaders are spouting the same tired slogans. Our reliance on oil has not been clipped. Instead, we are faced with new debates over ethanol’s true energy output and its overall effectiveness as a cheap, efficient alternative to gasoline.

While technology can’t always help these old ideas become modern-day miracle cures for oil fever, there is one ancient technology that could provide clean, renewable energy for the planet’s 6.6 billion people.

Geothermal energy has been used for centuries. It helped provide the Vikings with heat and hot water when they settled in Iceland, and it is still a widely used energy source. Geothermal energy produces more than 25% of the power in Iceland, and is used to heat a majority of the homes in the Scandinavian nation.

But that’s in Iceland. For the rest of the world, it will take a little innovation. A 2006 report issued by the Massachusetts Institute of Technology claims that it would be possible to affordably generate 100 gigawatts of electricity or more by 2050 with a $1 billion investment. But it will take a technological boost to make this possible.

For the rest of the world where volcanic activity is minimal, there are two options to extract steam from the earth: water pumping and drilling. Water mixed with chemicals can be pumped into the ground to enlarge the natural cracks and passageways, creating big enough steamholes to effectively run large turbines.

Then there’s drilling. Thanks in part to our never-ending quest for oil, drillers have developed the equipment and techniques to drill farther into the Earth’s crust than ever before.

If we can tap into the deep geothermal wells all over the world, the result will be clean, cheap, reliable power. And that’s an old technology we can live with.

California’s New Energy Boom

Meanwhile, a little closer to home… The state of California and electricity love to make headlines together. It seems there’s never enough juice to go around on the West Coast. But all of this could soon change, thanks to a renewed interest in an efficient, green energy source.

Geothermal energy accounts for about 9,300 megawatts of the world’s electricity. That adds up to 60 million people in 24 countries who are getting their power from the Earth’s heat.

In the United States, more than 2,800 megawatts of electricity from geothermal plants supplies four million people in Alaska, California, Hawaii, Nevada and Utah. Six percent of California’s power comes from geothermal sources, where 15 new projects are under development.

Progressive, nuclear-free California is the perfect place for geothermal expansion. The state of California will require 20% of electricity sales to come from renewable resources by 2010. In 2006, 15% of all electricity used in California came from geothermal, wind, solar and small hydro.

On top of this, The Geysers in Northern California is the largest geothermal development in the world. And there’s one small company that’s paving the way for geothermal expansion.

You may be familiar with Calpine Corp. (NYSE:CPN). Calpine became the world’s biggest geothermal power provider in the late 1990s after completing the largest IPO ever for an independent energy provider in 1996.

This alternative energy star declared bankruptcy in 2005 and was eventually de-listed from the NYSE. And as this former giant rebuilds, one tiny competitor is preparing for operations at The Geysers, as well as a second location on the West Coast.

Unfortunately, I can’t divulge the name of this bulletin board gem in this forum. It’s just too small and too illiquid to reveal to a large audience.

Currently, the company is pursuing two projects that are under development. One of them is a $100 million geothermal facility at The Geysers in Northern California that is projected to go online sometime before the end of the decade. This will be just what California needs to fulfill its green energy needs as 2010 approaches.

We’ll be watching to see how the power giants respond to these developments. Buyouts and consolidation could be eminent in the near future. We could even see geothermal power expand beyond areas like The Geysers. Modern technology and advanced drilling should allow these kinds of operations to spread to locations where geothermal power was thought to be impossible.


July 19, 2007

The Daily Reckoning