Geothermal energy is the heat generated and stored in the Earth. It is a clean, renewable source of energy that can provide reliable baseload power. As governments and businesses shift towards renewable energy to tackle climate change, geothermal energy presents an attractive investment opportunity. There are various ways to invest in geothermal energy projects, from direct project investments to buying stocks of geothermal energy companies. This article will explore the drivers of growth in the geothermal energy industry and provide actionable tips for investing in this sector.
Favorable government policies provide incentives for geothermal energy growth
Many countries have implemented policies and incentives to encourage the development of renewable energy like geothermal. These include production tax credits, investment tax credits, renewable portfolio standards, feed-in tariffs and auctions. For example, the U.S. offers a production tax credit of $0.023 per kWh for new geothermal plants. Such policies reduce the payback period of geothermal projects, making them commercially viable investments. This policy support makes the geothermal energy industry an appealing sector for investors.
Technological improvements are making geothermal energy cost-competitive
Advances in drilling techniques and power plant technologies have substantially reduced the levelized cost of electricity from geothermal energy in the past decade. Enhanced geothermal systems (EGS) can economically tap geothermal resources previously considered uneconomical. Investing in companies commercializing such cutting-edge technologies can offer strong growth potential as they expand the geothermal resources available for clean power generation globally.
choose direct project investments for stable cash flows
Investing equity or debt into specific geothermal power projects can provide attractive risk-adjusted returns. Geothermal plants have high upfront costs but very low operating costs, resulting in stable, predictable cash flows over decades-long operating lives. Such direct project investments allocate cash flows to investors as preferred dividends or interest payments. While individual projects carry development risks, a portfolio approach can generate reliable yields exceeding 10%.
Buy stocks in leading geothermal energy companies
Publicly traded geothermal energy companies with proven technologies and expertise make attractive stocks to hold long-term. Ormat Technologies, a pioneer in EGS, operates geothermal and recovered energy plants worldwide. With over 50 power plants, its stock offers liquidity while benefitting from industry growth trends. Such stocks can provide portfolio diversification into renewable energy without the large capital needs of direct projects.
Geothermal energy enjoys strong policy incentives globally, making projects commercially viable. With improving technologies unlocking new resources and reducing costs, the industry offers robust investment prospects. Investors can tap into this potential through direct project equity/debt or stocks of leading geothermal companies.