Britannia Radio

Dear Daily Crux reader, Last week we spoke with Marin Katusa about the super-bullish case for coal. But as we were wrapping up our conversation, Marin mentioned there's another energy sector that is just as unloved, but even cheaper. He thinks it's one of the best energy buys in the world today. Even better... unlike coal, this is a "green" energy, like solar or wind, only it doesn't require government subsidies to make money. So this week, we're passing along the rest of the conversation. If you're looking to invest in green energy that's actually profitable – or just looking to buy an undervalued sector with huge upside – you don't want to miss this one. Good investing, Justin Brill Managing Editor, The Daily Crux www.thedailycrux.com –––––––––––––––––––––––––––––––––––––––––– The Daily Crux Sunday Interview Obama hates it... but it's one of the best buys in energy today, part II The Daily Crux: So there's another energy sector that's an even better buy than coal right now? Marin Katusa: That's right... Plus it's actually the number one "green" energy in the world. I'm talking about geothermal. It is by far the most efficient, productive, and cost-effective green power. It's not even close. Unfortunately, Obama and his team are always promoting what's sexy and big, like solar and wind, which doesn't work without substantial government subsidies. This is how I look at it... There are several simple facts that make geothermal extraordinary. ---------- Advertisement ---------- A real secret of the world's richest family If you don't know about the world's richest family and how they built their fortune... It's an incredible story that could help you make 665% or more in the next few years – without touching stocks, bonds, real estate, or any other investment you've likely considered before. Click here for more information. ---------------------------------------- First, as I mentioned, it's the most economic. It's the only one that is profitable and makes sense without government subsidies. That's huge... That's the hurdle few "green" energies have been able to get past. Second, it's got the highest base load factor. The base load factor is how much of the time it's actually producing energy. The base load factor for geothermal is over 90%. By comparison, solar doesn't work at nighttime. Its base load is about 30%. It's a similar percentage for wind... Windmills aren't too productive when the weather's calm. Geothermal is basically working 24/7, day and night. Third, its footprint – the actual size of the plant and materials on the Earth – is smaller than any other product. The only one that may be smaller is hydro, but it's difficult to divert the rivers in the U.S. It's also got very low capital costs, because it has no carbon emissions and requires very few permits. Those two factors can add up to 40% to 60% of the total capital costs for other energy projects. On top of all that, its lifespan is like no other. These things last forever. Italy has geothermal plants that have been operating for over 100 years. Crux: Given those fantastic traits, why is geothermal so cheap and hated right now? Katusa: The main reason is it's real and there's huge front-end risk. See, in the junior resource market, people like sectors where you can spend a little money – where you can do some trenching, take a few samples, do an airborne survey, or drill a couple of holes and then just promote it from there. Geothermal is a completely different situation. You've got to do your drilling first, and you know right off the bat what your well's coming in at. So you've got to spend a great deal upfront, and you can't do the same kind of promotion you see in the junior gold miners for example. Another big reason is the plants are very difficult to build. There just haven't been that many plants built yet. People don't know what to do. Finally, geo isn't as scalable as other energies. Coal plants or nuclear reactors can be built bigger as demand for energy increases. But geothermal typically cannot. The size of the resource is the size of the resource, and there usually aren't other "hot spots" nearby. So there are definitely some drawbacks... But I think the benefits far outweigh them, and things are beginning to line up in its favor. The fundamentals are great, the public is pushing for more green energy, yet, compared to solar and wind, it's relatively unknown. As the relative benefits of geothermal compared to solar and wind become more widely known, I think you'll see states begin to move towards it. It's still very early on for the industry in the U.S. I like to compare it to uranium in 2004. It can change very fast... And I think it will. Right now the government is providing some nice incentives. They're providing government guaranteed construction loans until 2013, which means they'll guarantee the cost of building if you get your project started by 2011. I mentioned before that geothermal is profitable without government incentives, but the government incentives make it much more attractive right now. So I think you'll see more projects getting off the ground soon. Crux: Can you give us some companies you like in the sector? Katusa: Well, there are really only five true players in the U.S. right now. You've got Ormat, Magma, Ram, Nevada Geothermal, and U.S. Geothermal. You could also throw in Raser, but they're kind of struggling. The best value right now is Nevada Geothermal. The symbol on that one is NGP.V on the TSX Venture Exchange. They've built the largest geothermal plant in the Nevada in the last 25 years... It's also the largest in the U.S. in the last 10 years. The reason we're focusing on the U.S. companies right now is because they have the best government construction loan guarantees, like I mentioned before. They're paying about 4.1% on the construction loans. That's what Nevada Geothermal just signed with John Hancock. That's pretty cheap money... Whereas, if you were to go to, say, Iceland or something, you wouldn't get those types of construction guarantees from the government, so companies would pay much more. So the U.S. loan guarantees make these companies even more attractive. Crux: Interesting. Well, I think that's it. Thanks again, Marin. Great talking with you. Katusa: My pleasure. Anytime. Editor's Note: To get all the details on Marin's top energy buys today, and to stay up to date on the latest from the entire energy industry – including oil, natural gas, coal, uranium, and more – get a risk-free subscription to Casey's Energy Report. We consider it a "must-read" around the office. You can learn more here.