Google's Green Solution and the Companies That Will Benefit

In recent months, much attention has been paid to the rapid expansion of our nation's power-hungry data centers.

Tuesday's New York Times highlighted it, as did The Economist on May 22, 2008. These server farms, while speeding access to the Internet, are humongous consumers of carbon-emitting fuels as they require ever growing supplies of electricity.

Google (GOOG) is well aware of the problem and has publicly commented that they are working diligently to find solutions to address it.

In searching for stocks which might benefit from it, I came across two very interesting companies - Ormat (ORA) and Raser Technologies (RZ). Although somewhat early stage and faced with the potential risks that nascent technologies can encounter, these geothermal companies seem poised to move meaningfully higher as they become the "story stocks" of 2008.

As any reader knows, an association with Google, particularly if it involves something as scintillating as a clean energy solution, is likely to make quite a big splash in the media. “Splash” is exactly the right word in this case. These companies harness the warmth from water beneath the earth's surface to produce electricity. While Ormat has been doing this for many years, Raser is a bit newer to the game, although they are using a machine from United Technologies (UTX) which has not only won awards recently, but is an adaptation of decades old technology used in air conditioners.

Google seems to be an ideal consumer for these companies for a few key reasons:

1. They have openly spoken about geothermal and their desire to invest in it (read it here). They even met with Ormat recently. One can only speculate if they have also met with Raser.
2. Geothermal power plants carry with them massive tax incentives - credits which the owner of the plant (ORA and RZ are simply the developers - GOOG could be both the consumer and owner of the plants) can use to offset his/her tax burden. At $1.47 billion (2007's figure), this is certainly a number Google would surely benefit from reducing.
3. The power is clean, renewable, and available 24-7 to offset the massive carbon emissions currently being belched into the atmosphere by the power plants supplying Google with their necessary power. 

If Google, Hewlett-Packard (HPQ), Equinex (EQIX) and the other data center companies are not yet in discussions with these emerging clean energy leaders beyond what has been publicly disclosed, then they should.

According to a recent study conducted by MIT, there are ample hot water reserves in the US alone to handle this growing and important drain on our nation's electricity grid. Ormat and Raser seem primed to benefit as we move towards tapping it.

Disclosure: Author holds positions in the above-mentioned securities

Comments

[tim443]

About time! We hear constantly about wind and solar (that don't work when the sun doesn't shine and the wind doesn't blow) but barely a word about Geothermal that works 24/7. Ironically drilling and seismic technology from the oil and Nat gas industry is makine it viable. Disclosure: I have a significant position in Nevada Geothermal

[aquaculture]

In theory, the geothermal sector has the highest EROI of all possible investments, including the entire oil, coal and gas business. Of course EROI is not a pure physical measure of scarcity as it is not independent of economic, political and institutional influences.
Investors who believe in change could do well researching U.S geothermal (AMEX:HTM) and the above mentioned stocks.

In addition the sector could, in the near future, benefit from technology transfer and licensing agreements, innovations such as pulse-hydraulic drilling. More info: turbojack.com
Disclosure: long (ORA).

[aquaculture]

The new MIT study on Geothermal: physorg.com/news886833...

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I own 1200 acres where the nm power plant is to go-they have made very little contact-it is for sale -but they are not talking ??????????????