Ormat Technologies: Heating Up the Geothermal Landscape

Say the words energy and the Middle East in the same sentence, and what immediately comes to mind is oil, the finite resource responsible for a significant amount of greenhouse gas emissions.

Even so, Yavne, an industrial town of 32,000 in largely desolate and arid central Israel—a nation plagued by limited natural resources including a dwindling freshwater supply—seems like an unlikely geothermal technology hotbed, but one local company has carved out a niche with worldwide energy implications.

Meet Ormat Technologies, Inc. (NYSE: ORA).

This multinational specializes in building power stations fueled by geothermal energy, the heat that naturally emanates from the earth's molten core. Ormat operates in two business segments: Electricity and Products. The Electricity Segment focuses on constructing and operating geothermal and recovered energy power plants, and sells the electricity generated by these operations. The Products Segment designs, manufactures and sells equipment and provides related services.

Ormat currently owns and operates a dozen power plants around the world, with another eight in various stages of development. Seven of the online operations and another seven projects under development are located in the United States, mostly in volcano- and geyser-rich Nevada and California. Other facilities are located in Colorado, Guatemala, Nicaragua, Kenya, Indonesia and New Zealand.

The timing is right for Israel-based Ormat.

American and European venture capitalists, having exhausted many of the other options, have set their sights squarely on cleanteach. Many are currently prospecting across the New Jersey-sized nation of 7 million for potentially profitable investments. Ormat is attracting their attention by taking advantage of a virtually inexhaustible, emissions-free energy source that is economically competitive with conventional fossil fuels (and the company's management team is considering developing solar projects in the U.S. and abroad).

Unlike many newcomers to the industry, Ormat has been around for over 40 years. With a market capitalization of over $2 billion, annual revenues in the neighborhood of $250 million, a healthy debt-to-equity ratio (of 42%) and a surplus of unused commercial credit, it has the financial strength to endure the current recession.

But it's doing better than that. Ormat shares are currently trading in the $40 range, up from their $27 levels of late March.

Investors, keep an eye on this one.