Knobias Clip Report (12-28-2007)
Submitted By Knobias ClipReport
UGTH: Commercial Production Begins to Heat Up
A Wikipedia article on geothermal energy in the United States notes that 9 states in the western US have the potential to produce more than 20% of the electricity needs of the entire country, yet the current contribution from geothermal is less than 1%. Needless to say, geothermal energy is a sustainable and abundant source of energy which the country has yet to tap.
One small cap company involved in the space is U.S. Geothermal Inc. (UGTH). The Company is a renewable energy development company that is operating a geothermal power project at Raft River, Idaho and developing Neal Hot Springs in eastern Oregon. U.S. Geothermal holds, through ownership or lease, geothermal rights of lands that comprise the Raft River Neal Hot Springs projects.
In September, the company announced the signing of a new, 13-megawatt, full output power purchase agreement with Idaho Power Company, a subsidiary of Idacorp, Inc (IDA). The new power purchase agreement replaced an existing 10-megawatt, 20-year power purchase agreement and was part of Idaho Power’s 2006 formal request for geothermal electricity under which the Company was named the sole successful bidder in March 2007.
The new PPA was for electricity sales of an annual average of 13-megawatts and has a 25-year term. It was the first contract signed as part of ongoing negotiations with Idaho Power for a total of 45.5-megawatts and may be used as a template for the additional power purchase agreements.
On Friday, the Company announced a progress update on the company’s Unit One geothermal power plant at Raft River, Idaho. Construction activities associated with the Unit One plant were completed this month when the power plant contractor, Ormat Nevada, achieved substantial completion under the terms of the engineering, construction and procurement contract. The plant operated under a test phase of power production from October 18 to 23. After a number of start-up mechanical issues were successfully addressed, the plant was restarted on November 22 and is continuing operations. Plant operations are dependent upon maintaining a sufficient pressure regime in the production wells.
The operating staff continues to learn about each well’s capabilities and the relationship of injection pressure to production. The test phase is ongoing to allow for a fuller understanding of the geothermal resource capability. The net electrical power output of the plant is currently between 8 and 9 megawatts, which is below the proposed 13 megawatt contract under review but close to the 10 megawatt contract the Company has signed with the Idaho Power Company.
The Company did note that commercial operation will commence within the next 15 days and pending approval of the Idaho Public Utility Commission, the recently executed full-output contract is expected to take effect and replace the existing 10-megawatt contract.
US Geothermal did, however, note that to meet the full 13 megawatt capacity, installation of another production well could be in order.
In any event, with geothermal production coming online, and revenue beginning to come in from its sale, the name is certainly one to watch in 2008 especially if they can meet the 13 megawatt production sales capacity contract without tremendous additional capital expenditure. Investors would be wise to watch.
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