Update Ormat Technologies (ORA)
On February 23 Ormat Technologies (ORA) reported fourth quarter results that paid the price of the global economic slowdown and of delays in any U.S. plan to promote alternative energy sources.
In the company’s first business segment, electricity generation from its geothermal power plants, Ormat reported an increase in revenue of just 2.9%. Electricity generation went up 14.2% in the quarter but the average price per megawatt hour fell by 12%. That’s exactly what you’d expect in this slow economy.
In the company’s other, much smaller, products segment, the company reported revenues of $31.4 million from the sale of generating equipment to other geothermal power producers. Order backlog climbed to $90 million from $70 million.
The two segments added up to $95.3 million in revenue, essentially flat with the fourth quarter of 2008. Earnings for the quarter came to 35 cents a share. The positive surprise of four cents a share was due to higher than expected revenue in the company’s products segment.
Ormat isn’t projecting any improvement for 2010. Total revenue for the year will fall between $350 and $370 million, down from $415 million for 2009.
I’m generally in favor of waiting when a long term trend takes longer to assert itself than expected. Ormat is still the preeminent geothermal company in the world in my opinion and when the world get’s serious about doing something about global climate change Ormat will occupy a very profitable position.
The question, though, isn’t how long I can wait, but how long Ormat can.
A cynical guide to profits from fighting global climate change
The vague, blatantly inadequate “agreement” wrangled out of the Copenhagen conference—or to give the meeting its official name The United Nations Climate Change Conference—by President Barack Obama is nonetheless a game changer.
Oh, not because any of the countries that the signed on to effort at global saving face have committed to actually do much of anything. But because the very inadequacy of this agreement forces all meaningful action back onto national governments.
If you want to know where the profits—and costs—of global climate change will be for the next decade, then I think you need to study not the technologies of climate change but the nature of the governments and economies that will stumble toward addressing this problem.
The nature of the U.S. economic and political system, for example, tells an investor a great deal about how to make money on global climate change in the next few years.
Sometimes looking at the challenges of global climate change I think this problem was designed by some mad economist temporary sitting in God’s chair: It plays to just about every weakness in capitalist market economies.
While everybody is watching Copenhagen, U.S. gets a climate change policy
Of course, it’s political window-dressing.
It gives President Barack Obama something concrete in hand to take to the global summit on climate change in Copenhagen.
But yesterday’s decision by the U.S. Environmental Protection Agency (EPA) to declare carbon dioxide a health hazard is also a real game changer. Now no matter what does or doesn’t get decided in Copenhagen, the U.S. has a carbon emissions policy.
Some business executives will cheer. What their companies have been arguing for is certainty. Tell us what the rules are so we know where to put our capital to work, said the companies that have broken with knee-jerk climate change opponent the U.S. Chamber of Commerce.
And those industries opposed to any kind of regulation of carbon emissions, which once had the option of trying to kill any legislation in the U.S. Congress, now face a stark choice: face relatively painful regulation by the EPA or hope to get a bill through the legislature that heads off the toughest part of the EPA rules. (I’m sure there will be legal challenges to the EPA rules but the court rulings so far have upheld the agency’s power to regulate carbon dioxide.) Or at least creates a chance to profit from the rules through a program of cap and trade that awards a juicy pot of trading credits to everybody from Jack’s pig farm to Jill’s steel mill.
Right now they’ve got a horrible deal, all stick and no carrot.
Buy Ormat Technologies (ORA)
Procrastination and mindless delay can create profits for investors.
The example I use in my book The Jubak Picks is the environment.
It’s not that we don’t recognize environmental problems; it’s just that it takes so long for us to do anything about them. And then, of course, we rush to find the fastest fix. That delay and then the rushed fix shapes what technologies, what industries, what companies profit from whatever we do to protect the environment—and what technologies and companies get filed under “Great idea. Maybe next universe.”
Well, guess what, we’re doing it again. Environmental delay, that is. And the delay is rearranging where and when the profits lie among environmental industries.
One winner from delay is Ormat Technologies (ORA). The company’s has built, either for itself or for other owners, about 10% of global installed geothermal power capacity. The 27% of the company’s revenues that don’t come from geothermal come from selling or operating power plants that produce electricity from “waste” heat. The company’s recovered energy generation clients include oil pipeline companies, cement makers, and utility companies. (Ormat’s parent company Ormat Industries trades on the Tel Aviv stock exchange, but Ormat Technologies trades on the New York Stock Exchange.)
I think both those technologies are clear winners from global climate change delay.
Capitalism could still get a stem to stern overhaul. To keep score in the Revolution track something economists call “externalities.”
“A crisis is a terrible thing to waste,” said Stanford economist Paul Romer way back in 2007 near the start of the recent (or should that be “current”?) global fiscal and economic crisis.
You certainly understand why if you take a look at U.S. economic history. Most of the time the structure of our economy seems ruled by inertia. It takes a crisis to change anything significant. It took the repeated financial crises of the late nineteenth century to produce the Federal Reserve, antitrust rules, and the Income Tax. The Great Depression to produce Social Security, the Securities & Exchange Commission, and the National Labor Relation, and more. (Hey, it was a BIG crisis.)
And what do we have to show for the crisis that has bankrupted the next generation?
Bubkis is the common conclusion. A tweak of CEO compensation here. A little cosmetic gussying up of bank balance sheets. Maybe, just maybe, some feeble protection against rapacious credit card lenders. Oh, and health care reform that is either “The path to socialism” or “Gee, I wish it went further” depending on your politics.
But compared to the bar set by the Great Depression, the Great Recession seems to have produced remarkably little change.
Well, I say it ain’t so. We’re engaged, final score isn’t in yet folks, in the most far-reaching effort to change the way that capitalism works since Bismarck invented the old age pension.
