ENERGY SECTORINITIATING COVERAGE REPORTGeo-Thermal Energy Industry

Senior Analyst: Amit Singh

Junior Analysts: Keshav Agnihotri, Stefan Bell, Erik Carlson, Ryan Cantor, Michael Chiu, Hua Li, Julien Mattei, Roma Patel, Jorge Pio, Ashwin Telukuntla, Edison Vo, and Xun Yao

Research Analysts & Sector Head: Craig Arnoff, Bryan Connely, and Matt Rosen

November 17th, 20091

GEOTHERMAL ENERGY INDUSTRY

Companies engaged in the generation and acquisition of geothermal energies through

the development, ownership and operation of geothermal energy plants. These

companies are concentrated in the western continental United States and serve non-

consumer clients such as the Southern California Edison Company. Companies focus

on direct sales and the actual generation and sale of electric power in MwH from

geothermal energy.

2

Green Movement/Incentives & Funding; higher demand, increased installed capacity

– American Recovery and Reinvestment Act, “CREB’s”, Investment Tax Credits– Renewable Portfolio Standards (RPS)2009

INVESTMENT THESIS

Competitive Pricing and Stability; Base-load powerPrice ranges from $0.06 - $0.08 / kWh WITH PTC

Technology/Flexibilitybinary cycle, EGS, “waste heat”, direct heat , global applications, Untapped resources: estimated13,000 MW of identified resources will be developed by 2025 (Source: WGA).

Geothermal energy is cost effective, reliable, sustainable, and environmentally friendly

MARKET SHARE BY MKT. CAP

4

INDUSTRY BREAKDOWN

Energy$10.6 Trillion (100%)

Geothermal Energy: $1.5 B (.0141%)

Geothermal Energy & Heating: $5.8 B (.0547%)

Alternative/Renewable Energies: $116B (1.094%)

Earth’s Heat

Heat Water

Turns the Electric Generating Turbine

Heat secondary liquid (I.e. isobutane)

GENERATING ELECTRICITY

REVENUE GENERATION

LT Contracts:

Funding: private & govtPatents/Permits to

develop

ELECTRICITY to Client, i.e.

Utilities/Municipalities: Southern California Edison Co

COSTS/PROFITS

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INDUSTRY TRENDS/DRIVERS

I) Increased installed capacity– Green Movement– Competitive prices

• Base load, PTC $0.02/kWh

II) Stimulus for increased project development

III) Technology Advancement– Hot Dry Rock is EGS

TREND I: INSTALLED CAPACITY GROWTH

2820 2950 3040 33730

2000400060008000

Apr-05 Jan-08 Oct-10 Jul-13 Apr-16

US Installed Capacity (MW)

US Installed Capacity (MW)

Average: 4% Growth / Year over last 4 years

Average: 4% Growth / Year over last 4 years

• •RPS Targets:

•CA: 20% by 2010• HI: 20% by 2020

***(GLOBAL— EU, 22% by 2010***

• •RPS Targets:

•CA: 20% by 2010• HI: 20% by 2020

***(GLOBAL— EU, 22% by 2010***

In 2015, 6900MW

TREND II: US PROJECTS DEVELOPMENT

**132 Projects : 6442MW **

3323

1939

368 326 332 1540500100015002000250030003500

MW in Development by States

MW in Development by States

Avg: 6 Years to Develop Avg: 6 Years to Develop

ARRA: $366M funding , cover up to 30% construction costs, PTC extended to 2013

CREB’s: $2.4B, Tax Credits

Private Funding: 2007 Private Equity, $400M+

TREND III: TECHNOLOGY

Source: NY times (Green Inc.)

RISKS• Threat of Substitutes: Wind, Solar, Hydro

– GEOTHERMAL takes only 5% of Renewable Energy Market

• High CAPEX: companies currently incurring losses– Exploration drilling failure rate of 20%

• Revenues highly dependent on: – Availability of financing, adequate thermal sources, project

contracts/development• RECESSION

• Locations

2 miles●

= power plant= wells

KEY PLAYER METRICS

RZ ORA HTM

Stock Price $1.14 $37.90 $1.48

Market Cap 85.25M 1.72B 91.88M

Revenue .172M 344.83M 1.79M

Gross Margin 98.19K 102.03M -1.33M

EBITDA -11.30M 134.34M -4.67M

LT Debt 80.12M 369.5M 39K

Debt/Equity 28.31 0.93 0.06

EPS -0.69 1.28 -0.09

REVENUE GROWTH ($M); ORA, RZ, HTM

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INDUSTRY PERFORMANCE

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Sales Growth (%) 07-08

P/S

Multiples Analysis

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Market Cap

Most Current Revenue (M)

P/S Sales 2007(M)

Sales 2008 (M)

Sales Growth 07-08

Raser 85.25 .172 495.64 .320 .172 -.462

Ormat 1720 344.83 4.99 295.00M 344.00 .166

HTM 91.88 .184 499.34 .090 .184 1.04

Embryonic stage companiesCompanies are overvalued, BESIDES ORA

ORA has the potential to overtake competitors

GROWTH POTENTIAL• Funding and Incentives

Copenhagen (December): Energy Secretary Steven Chu: “plans to pump in another $750 million in stimulus bill funding to support loan guarantees for clean energy companies “

• Untapped Resources– Current production: 3,000 MW, potential for up to 300,000 MW

• = electricity sales from $1.8B /yr $11B/yr– Increased drilling = increased exposure to higher heat

• Technology Advances

– “waste heat”

• Property Appreciation= assets

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Geothermal energy is cost effective, reliable, sustainable, and environmentally friendly

RECOMMENDATION

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Leading EGS Developer

QUESTIONS?

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SUPPLEMENT 1: COST COMP

SUPPLEMENT 2: PORTER’S

LowClosely related to Conventional

Energy Plants

LowClosely related to Conventional

Energy Plants

LowCommon ResourcesVertical Integration

LowCommon ResourcesVertical Integration

HighA Variety of Power

Choices

HighA Variety of Power

Choices

Moderate High Demand for Alt. Energy

Geo Power has its advantages against other Alt. Energy

Moderate High Demand for Alt. Energy

Geo Power has its advantages against other Alt. Energy

Barriers to Entry

Power of Suppliers Power of Buyers

Threat of Substitutes

ModerateDemand for Geothermal

is constantly growing

ModerateDemand for Geothermal

is constantly growing

Rivalry