"Geothermal can be a huge source of energy very quickly."

David Suzuki, Scientist

What Are Geothermal Energy Investments?

all you need to know before making geothermal power investments

Geothermal power investments can be defined as investments that are made in companies engaged in the geothermal energy space.

 

This does not only include geothermal energy producers, but also installers, system producers as well as component suppliers.

 

Even though geothermal energy has many upsides which makes it attractive for investors, there are also some risks involved in geothermal energy investments.

 

In this article, I give you an overview regarding everything you need to take into account before investing in geothermal energy financial instruments.

Types of Geothermal Energy Companies you could invest in

  1. Installers
  2. Geothermal system producers
  3. Component manufacturers
  4. Geo-power production companies

Installers

One group that is involved in the geothermal energy industry are installers. Installers are usually responsible for the proper set up of geothermal energy power plants and also provide helpful advice on specific topics regarding the efficiency optimization and planning of geothermal energy systems. They may also be involved into political discussions regarding the expansion of geothermal energy.

 

Geothermal system producers

System producers usually manufacture the large parts for geothermal power plants. Therefore, they can be regarded as the core of the geothermal energy industry. However, they closely rely on component manufacturers and installers and often have to work together in order to provide a functioning geothermal system for power production companies.

 

Component manufacturers

Geothermal component manufacturers often provide smaller and quite specific parts for the construction of geothermal power plants. They are often responsible to provide spare parts and may also produce parts which may not be economically relevant to large system producers.

 

Geo-power production companies

Power production companies are firms that actually produce geothermal energy. However, without installers, system producers or component manufacturers, they would not be able to produce energy at all. Therefore, they are heavily reliant on the proper work of all other manufacturers in the industry in order to ensure the functioning of geothermal power plants.

Types of Financial Instruments related to Geothermal Power

  1. Geothermal stocks
  2. Geothermal bonds
  3. Geothermal derivatives
  4. Geothermal power ETFs
  5. Geothermal mutual funds

Geothermal stocks

The most common investment choice regarding geothermal energy for private investors are usually stocks. Stocks are equity instruments and owners of stocks actually own a small part of the respective company. Therefore, they are also eligible for dividend payments in many cases and directly profit from positive economic developments through increases in stock prices.

 

Geothermal bonds

By investing in geothermal bonds, you will not own a part of the company of the respective firm, but you are rather creditor and lend the firm money on which you get a certain interest payment.

 

Thus, in contrast to stocks, geothermal bonds are not equity but debt instruments, which are preferred over stocks in case of bankruptcy.

 

This means, in case of insolvency of a firm, bond holders have usually a higher chance of getting some of their money back, while the chances for shareholders are often close to zero to get any refund.

 

Geothermal derivatives

Derivatives can be regarded as rather complex financial instruments which rely on the development of stock prices, but are often subject to much higher swings and are therefore only suitable for quite experienced investors. If you are new to the investment world, you should definitely refrain from getting involved in the derivatives market and rely on stocks or funds instead.

 

Geothermal power ETFs

ETFs are a great way to invest in a long-term manner, since they usually do have quite low administration costs and invest in a variety of firms so that the risk of the overall investment can be significantly lowered compared to the investment in single stocks.

 

In case of bankruptcy of a single company, the ETF will only suffer from a small decline in value, since it is usually composed of many different firms and the bankruptcy of one firm will not have too much of an influence on the value of the ETF.

 

Thus, by investing in an ETF, you can profit from the overall development in the geothermal energy market, while hedging at the same time against the impact of bankruptcy of single companies.

 

Geothermal mutual funds

Geothermal mutual funds are financial constructs where large sums of many investors are pooled and then invested in certain financial market instruments. However, since these kinds of funds are often quite difficult to understand for beginners, you should rather go for ETFs or stocks instead if you just start out investing in geothermal funds.

Top Geothermal Energy Investment Opportunities

Below, some of the most popular geothermal investment opportunities are given. Please note that this is not an investment advice but should rather give you a rough overview regarding the financial instruments in this alternative energy niche.

Company Type

Component manufacturer

Installer

Power producer

Component manufacturer

System- and power producer

Power producer

Power producer

Power producer

Power producer

Investment Type

Stock

Stock

Stock

Stock

Stock

Stock

Stock

Stock

Stock


Chances of Geothermal Power Investments

  1. Fully renewable and sustainable energy source
  2. Almost entirely green
  3. Required space for one power plant is relatively low
  4. Government subsidies make investments in geo-energy attractive
  5. Good return prospects
  6. Hedging against certain risks through the investment in funds
  7. Positive impact on our environment

Fully renewable and sustainable energy source

Geothermal energy can be regarded as entirely sustainable and renewable since the heat inside the earth crust will not vanish until the end of human history.

 

This also implies that geothermal energy might play an important part in the transition process from fossil to renewable energies.

 

Therefore, if geothermal power will be one major power source in the future, investors could make huge profits by investing in early stages in this sector.

 

Almost entirely green

Geothermal power can also be considered to be almost entirely green. Only almost, since the parts for the construction of geothermal power plants and other components have to be made out of metals and other non-renewable resources. However, compared to the use of fossil fuels as conventional energy source, geothermal energy can be considered to be much better for our environment, which will make it attractive to the general public.

 

Required space for one power plant is relatively low

Compared to solar or wind parks, the space for geothermal energy power plants that has to be used is rather small. Therefore, for the production of geothermal energy, large areas of land could be protected instead of using it for energy production. This in turn would preserve the habitats a variety of animals and plants.

 

Moreover, since land can be quite expensive, the smaller space for geothermal power plants compared to other renewable energies might also lower the cost of energy production, which in turn would give this kind of energy a competitive advantage and could greatly benefit investors in the long run.

 

Government subsidies make investments in geo-energy attractive

In many countries worldwide, especially in the Western world, governments are often quite generous and give large subsidies to companies who engage in the production of alternative energies.

 

This in turn will also benefit shareholders, since they directly profit from cost savings and subsidies since they own a small fraction of the company.

 

Therefore, due to subsidies, it could be even more interesting to invest in geothermal energy in this early stage.

 

Good return prospects

Every investment in early stages of a technology could lead to enormous financial returns in the long run, even though it also implies high levels of risk. Thus, for investors with a high risk-return profile, it might be quite interesting to invest in geothermal energy companies in order to participate in potential huge gains in the future.

 

Hedging against certain risks through the investment in funds

If you do not want to invest in single stocks since you consider those investments to be too risky, investing in geothermal energy funds or ETFs may be interesting for you.

 

Since these funds are usually composed out of many different stocks, large losses are less likely compared to investments in single shares since you participate in the overall market movements rather than in the development of one single company which may not be able to withstand the competition.

 

Positive impact on our environment

Green investing is not only about making profits, but it is also about making a positive impact on our environment.

 

Therefore, although you might be able to make higher returns from conventional energy stocks, investing in renewable energies like geothermal power can accelerate the transition process from fossil to renewable energies which in turn would improve the quality of millions of people worldwide.

 

Thus, by investing in renewable energies, you could make your contribution to save our environment from several kinds of pollution and also mitigate global warming at the same time.

Risks related to Geothermal Energy Investments

  1. Geothermal energy may lose the race against other renewables
  2. Political regulations may stop the expansion of geo-energy
  3. Political instability may lead to expropriation
  4. Many geothermal energy companies will not survive
  5. Business model may not always be easy to comprehend

Geothermal energy may lose the race against other renewables

Even though geothermal energy can be regarded as promising alternative energy source, it competes with other promising green energies.

 

It might be possible that solar or wind energy might win the race in the green energy competition and geothermal energy may no longer be relevant in a couple of years.

 

Sure, this is just a speculation, however, it may not seem too unrealistic since other alternative energies are also quite efficient and promising.

 

Political regulations may stop the expansion of geo-energy

For every technology, the support of governments is crucial in order to succeed. This means that in the context of the development and reliance on green energies, not only objective facts matter, but also effective lobbying or even corruption.

 

Therefore, geothermal energy might also lose due to political issues, which may prevent the expansion of this kind of green energy. In turn, this may lead to the insolvency of many geothermal companies, which in turn would significantly hurt investors in this sector.

 

Political instability may lead to expropriation

Some countries still suffer from significant political instability. Property is often not protected and land expropriation is on a daily basis due to corruption or political interests. Therefore, geothermal companies which have power plants in those regions may be at great risk to lose their land or their power plants due to expropriation, which in turn would imply great financial downsides for the respective company as well as for investors.

 

Many geothermal energy companies will not survive

Due to the fierce international competition and to the optimization of processes, many companies will not be able to compete in this environment and may go out of business. This may lead to a total loss for shareholder who invested in such companies. Therefore, rather to invest in single stocks, you should consider to invest in funds through which financial swings can be avoided to a certain extent.

 

Business model may not always be easy to comprehend

Most people heard about geothermal energy, however, as an outsider, it may be hard to actually comprehend what is happening inside the respective company and how the business model really works.

 

In some cases, you might think that you invested in a power generation company, but you actually invested in a company which produces components for geothermal energy instead.

 

Thus, it is crucial to inform yourself in detail about the business model and strategy of a company before investing in those titles.

Conclusion

Geothermal energy is a promising technology and might become a main source of energy for the transition from fossil to renewable energy sources. However, investments in geothermal energy companies do not only imply chances, but also significant risks.

 

Thus, it is crucial to inform yourself and make investments regarding your risk-return profile so you can invest with profound know-how and generate significant returns in the long run while also making a positive contribution for our environment at the same time.

Sources

About the author

 

My name is Andreas and my mission is to educate people of all ages about our environmental problems and how everyone can make a contribution to mitigate these issues.

 

As I went to university and got my Master's degree in Economics, I did plenty of research in the field of Development Economics.

 

After finishing university, I traveled around the world. From this time on, I wanted to make a contribution to ensure a livable future for the next generations in every part of our beautiful planet.

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