Geothermal energy takes a hit: Raser Technology files for Chapter 11

The announcement comes just over a year after the company was awarded a $33M grant under Obama's American Recovery and Reinvestment Act.

"I just caught up with last week's bankruptcy filing by Raser Technologies, Inc., a small developer of geothermal power plants. Burdened with excessive debt, Raser is filing for Chapter 11 protection to restructure its liabilities and continue operating under new ownership. In the process the current shareholders will see their much-diminished equity wiped out. This outcome is further evidence of just how challenging it is for small, poorly capitalized companies to exploit what is arguably the best, most reliable renewable energy technology in the world, other than hydropower.

Raser's bankruptcy hardly comes as a surprise. The company has been highly leveraged for a long time, and investors were losing patience with the firm. Last year its stock price fell below the minimum listing requirements of the New York Stock Exchange, and it moved to the over-the-counter market, effectively becoming a "penny stock." In the year prior to delisting, Raser had lost more than 80% of its market capitalization, or about $100 million. With only one operating asset generating cash--a 10 MW plant in Utah built with the help of a $33 million renewable energy grant from the US Treasury--and a number of projects under development consuming cash, Raser was losing the race to bootstrap its way into profitability.

Why is it so hard for start-ups to succeed in this space? It's not an accident that the world's largest geothermal operators are mainly big, well-capitalized firms like Chevron, Calpine, or the Green Power spinoff from Italian utility Enel. (Disclosure: I am a Chevron shareholder.) Geothermal developers face some fundamental challenges that require financial flexibility to manage. First is the capital cost of the assets, compared to other power generation technologies. The last figures I saw suggested that the cost of new geothermal capacity per installed megawatt was up to twice that of a wind farm and 4x that of a natural gas turbine. One reason the cost is so high is that it includes a lot more than the above-ground generating hardware."

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