EQUITY RESEARCH John McIlveen, MBA, Research Director jmcilveen@jacobsecurities.com +1 (416) 866-8303 Mark Vernest, H.B.

Comm, Associate mvernest@jacobsecurities.com +1 (416) 866-8346 Khurram Malik, MBA, Analyst kmalik@jacobsecurities.com +1 (416) 866-8314

September 2008

A Geothermal Primer
Mining Heat

Highlights
Geothermal: • has the highest power generation capacity factor at 95%. • is among the few clean power sources reliable enough to be base-load capacity. • is cost competitive with other methods. • does not use fuel and therefore has no commodity risk exposure. Governments encourage geothermal through carbon credits, grants and tax incentives. Development and operating costs are very site-specific.

Jacob Securities Inc. (“Jacob Securities”) does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. For analyst certification and other important disclosures, refer to the Disclosure Section.

....... 1 What Are the 3 Stages of Development? .......... Exhibit 1: Geothermal Field Source: The University of Utah http://www.........................................pdf....... EQUITY RESEARCH What is Geothermal Power?............... 6 3......................................................jacobsecurities.000 metres (see exhibit 1)............ geothermal drilling is able to utilize the same advancements made in oil & gas drilling................................. it is just a matter of what fuel is used to rotate the turbine.............. Geothermal power is green or renewable power...... 9 Conclusions ................................ 6 2..................... the Earth`s crust is an eggshell that surrounds a hot core............................................................................................ 199 Bay Street.............. 10 What is Geothermal Power? Geothermal power is created through steam turbines from heat deep underground..................... Toronto....... The turbine can be rotated with wind............... All electricity is made the same..............org/GeoEnergy........ Jacob Securities Inc... Suite 2901......... 4 What Does Geothermal Power Cost? ..........................................com Page 1 ... it is mining heat............................................... Capital Cost .................................................. The heat is everywhere but can currently only be extract economically to about 4..............................................000 metres.......000 metres.............. If steam is used...... Gas wells have been drilled to 11............................... and as a result................ However.............................................. 6 1.......................................geothermal..................................................... In effect................ 7 New Technologies ........................................... Geothermal uses naturally occurring heat within the earth at depths of 500 to 4.000 metres but this is cost prohibitive for geothermal..........................................JSI Contents GEOTHERMAL POWER SEPTEMBER 2008 JACOB SECURITIES INC...................................... Relatively speaking......................................... ON M5L 1G1 +1-416-866-8300 www................................................................................. 8 Who Are the Players? .................................................... water or steam generally.......................................................................................... Levelised Cost ............................ Operating Cost ........................................................................................................... water is boiled into steam using heat from burning fossil fuels or heat from nuclear reactions........ geothermal wells are moving deeper than 4.......

also called Hot Dry Rock. The type of plant used is largely dependent on resource temperature. For EGS. Naturally occurring heat from the earth has superheated the water (heated above the water’s boiling point). the steam is condensed to water and re-injected into the reservoir thereby reducing the resource depletion. EGS may not be for everyone – a project in Basel. Advancement in EGS could yield large geothermal resources if research is continued. Much research and pilot projects are examining EGS (Enhanced Geothermal Systems). However. However.000 MW.JSI Geothermal reservoirs are found where tectonic plates meet and the heat source is closer to the surface. Typically. EQUITY RESEARCH Geothermal reservoirs are found in areas where tectonic plates meet such as the Pacific Rim because the heat source is closer to the surface in these areas. hence a longer resource life. Dry Steam Plants. So far. After passing through the turbine. GEOTHERMAL POWER SEPTEMBER 2008 JACOB SECURITIES INC. Binary systems are closed loop systems. The Future of Geothermal Energy (http://geothermal. The secondary fluid has a lower boiling point than water. but is trapped by nonporous rock (cap rock).000 MW). Exhibit 2: Types of Geothermal Power Plants Dry Steam Plant Flash Steam Plant Binary Cycle Plant Source: Boyle. which can then be flashed into steam. Heat is extracted by drilling 12” to 18” diameter wells. There are three types of geothermal power plants (see exhibit 2). Toronto.. Dry Steam or Flash Steam plants require resource temperatures above 200° and lose more than C 35% of the water intended for reinjection. About ~3. Suite 2901. 100. Page 2 Jacob Securities Inc. such as butane. which flashes into steam at the surface. ON M5L 1G1 +1-416-866-8300 www. A 2007 MIT study. water must be shipped in and injected down wells into dry rock of 250° or more. Binary Cycle Plants utilize hot water with lower temperatures (below 200°C) to heat secondary fluids. 1998. The Philippines and Indonesia are major geothermal areas too.000 MW of EGS power could be available within 50 years in the United Sates (versus current capacity from all generation methods of 1. 1. Flash Steam Plants extract super-heated water. typical decline rates (in terms of MWh) are 1% per annum and can be recouped by drilling more wells. The installed capacity of geothermal power worldwide is ~9. 3. it has the space to expand and then “flashes” into steam. Italy and this site still generates 390 MW today using 13 plants. so-called because the extracted heat is in the form of steam without condensed water being present. University of Pennsylvania Binary systems are more expensive to build and operate but are more efficient and lose very little fluid for reinjection. 2. it cannot expand into steam. 199 Bay Street.jacobsecurities. The first geothermal plant was built in 1904 in Larderello. Once the water reaches the surface.inel.com .100. there is one injection well for every 1 or 2 extraction wells. Because the water is under pressure.000 MW of this is in the United States. Plants. Wells not generating sufficient steam are used for re-injecting water. Also C necessary are a base layer of rock and an insulating layer of rock above it and the rock must be fractured using highly pressurized water and sand. Switzerland was halted in 2006 after water injected five km down is believed to have caused a series of small earthquakes strong enough to shatter windows. geothermal power is limited to resources having water or steam. concludes that with a modest R&D investment.gov).

Geothermal power has a number of inherent advantages over other generation methods: • Geothermal has the highest net capacity factor (availability) for all renewables at 95% and all forms of electricity compared to 90% for nuclear.Concentrating PV Solar .. Vol 10:2/3. which are often revealed as the proven reserve is exploited.com .5 3. we anticipate continued interest in this area.Parabolic Trough Solar . • Geothermal is one of the two clean power sources reliable enough to be base-load capacity (non-stop). 199 Bay Street. Exhibit 5: Geothermal Reserves A geothermal reserve is an identified subset of the resource that is proven or probable.0 3. which cannot be exploited economically using current technologies. Toronto.5 1. and tax incentives • Geothermal does not use fuel and therefore has no commodity price risk exposure • Geothermal has the smallest footprint per MW as minimal land is needed for production and none for fuel (see Exhibit 4). 85% for biomass.000 metres). http://iga.0 *Includes mining ** Assumes central station photovotaic. *** Land actually occupied by turbines and service roads Source: Brophy. coal and gas.JSI As the compelling advantages of geothermal are realized. M / MWh 2. 50% for hydro and 35% for wind and 25% for solar (see Exhibit 3).Small Scale Solar .5 4.jacobsecurities.php Page 3 Jacob Securities Inc. GEOTHERMAL POWER SEPTEMBER 2008 JACOB SECURITIES INC.AD Biomass . Exhibit 3: Renewable Power Capacity Factors Average Net Capacity (%) Considered Baseload Bionmass . The vertical axis is the degree of economic feasibility related to the depth of the resource and the horizontal axis is the degree of geological assurance given by consulting engineers. When we talk about geothermal resources. Beyond the economic reserve are further reserves at greater depths (below 4. grants. we refer to the proven economic reserve (see Exhibit 5 below).igg. Suite 2901.0 Sq.t/geo/geoenergy. and undiscovered reserves.Binary Steam Hydro .Gasification Geothermal .5 2. possible. not rooftop PV systems. • Governments encourage geothermal through carbon credits. paul (1997) Renewable Energy.0 1. • Geothermal is cost competitive with other methods.Combustion Biomass .Dual Flash Geothermal .0 0. ON M5L 1G1 +1-416-866-8300 www.PV Wind Ocean . EQUITY RESEARCH Advantages.Wave 0% 20% 40% 60% 80% 100% Source: Navigant Consulting Exhibit 4: 30 Year Land Use Geothermal Wind*** Solar PV** Solar Thermal Coal* 0. Geothermal Energy Association Source: International Geothermal Associatation.cnr. Beyond the proven reserve are the probable.

000 to $500. which enables the equity financing. and flow rates and adds an economic feasibility assessment. 3. magnetic. a 30 MW plant may be proven by a single 10 MW well.000 • Water testing for geothermal elements . These are 12 inches in diameter and 500 to 3. nd At least three production size wells are drilled. Confirmation Activities • Secure land lease rights (license for 1% to 5% of revenue) • Conduct geologic surveys to determine the size. depending on depth.com Page 4 . Toronto. GPS – cost $10. A positive feasibility study is the first domino that enables permitting. location and temperature of the resource • Mapping using satellite photos. and earth conditions (rig and crew $65k-$80k per day for 45-90 days). Suite 2901. Exhibit 6: The Three Stages – 30 MW Example $120m Transmission 5% Steamfield 5% Cumulative Cost Plant 40% Permits Feasibility Drilling 45% Confirmation 5% 12 24 36 Months Source: Jacob Securities Jacob Securities Inc.000 per well (3 to 10 wells required) 2.000m deep.JSI 1. Exploratory slim-hole wells are drilled to map the reservoir. Confirmation Stage The 1 stage is to ensure that there is a resource that can most likely be economically feasible.000 to $500. 199 Bay Street. st GEOTHERMAL POWER SEPTEMBER 2008 JACOB SECURITIES INC. however. site access. size. and seismic . there has never been a case of a geothermal power project not successfully proceeding to power generation.$10. A feasibility study is possible once one-third of the targeted MW is proven by production wells. This stage ends with a feasibility study by independent consultants. wells generally average 5 MW each although can range from a dry hole to the 23 MW well recently drilled by Polaris Geothermal. Wells cost between US$3m and US$6m on each. electrical.$50. once there is a positive feasibility study. Dry wells can be used as reinjection wells. topographic maps. Construction Stage Construction can begin once a PPA is signed and both debt and equity financing are complete. ON M5L 1G1 +1-416-866-8300 www.000 • Soil gas testing for geothermal elements .. which enables debt financing.$150.jacobsecurities. which enables a long-term (20 years or more) PPA with the local grid operator.000 • Geophysical mapping methods including gravity. Drilling and Feasibility Study Stage The 2 stage involves drilling production size wells to estimate total production MW. According to the consultants we have talked to. The confirmation stage ends with an independent consultant’s report verifying the existence of the reservoir and the minimum MW it can support.000 • Slim holes or temperature gradient well drilling (100 to 500m) . So. magneto telluric. The study more practically defines the map.$20. EQUITY RESEARCH What Are the 3 Stages of Development? Geothermal reservoirs are typically discovered by accident through mineral exploration or by visible surface evidence such as hot pools or geysers. A geothermal plant will take 18 months to begin power generation after the drilling program is complete.

the PTCs will improve the project IRR to the point where a marginal looking project becomes attractive. Exhibit 7: Financing Geothermal Source: Jacob Securities Jacob Securities Inc. and a % of cash flow to get desired IRR. called MACRS. up from about one-third three years ago.JSI Drilling and feasibility costs have risen due to increased steel and cement prices. the most junior. The accelerated depreciation. will also utilize the Production Tax Credits (PTC). Ormat. GEOTHERMAL POWER SEPTEMBER 2008 JACOB SECURITIES INC. set to expire in late 2008. depletion. Tax investor will utilize: accelerated D&D allowances. The combination of depreciation. Without the PTCs. add $20/MWh for 10 years. Confirmation. Polaris has a world-class site that eventually may generate 500MW but it is in Nicaragua – at some point the discount to peers should narrow. It typically takes 7 years to generate electricity from initial site identification. about 7 years is required to commence generation from the point of resource identification. PTC. ON M5L 1G1 +1-416-866-8300 www. Depletion allowances are the lesser of 15% of revenue or 50% of earnings before taxes. and finally take a percentage of cash flow to top-up the return to the desired IRR (about 8% but falling). is $500. 199 Bay Street. The tax investor will utilize the tax losses created by accelerated depreciation allowances and depletion allowances. EQUITY RESEARCH Exhibit 6 on the previous page depicts a 30 MW project costing $120 million to be completed in 36 months if capital and permitting are not a constraint. as the cost of drilling has increased as well as cement and steel. taxes to shield and to acquire the project for 10 years before selling it back to the developer.com Page 5 . a lender will also typically fund 75% of the project cost with a feasibility study in hand. activities and sources of capital for geothermal projects. however. angels and venture capital). Tax-driven financing in the United States requires an investor with U. Toronto. The remaining hard costs of the project are written off over 5 years on a front-end loaded schedule (about 35% and 25% in years one and two respectively). allow 100% write-off on intangible drilling costs (the soft costs) in year one. Intangible drilling costs can be written off in one year PTCs.7 million per MW while Sierra. the mature geothermal is valued at $3. Production Tax Credits are set to expire in December 2008 (unless renewed) but if a project is online before that date then it will earn about $20/MWh in tax credits for 10 years.. Each phase requires different sources of capital from early phase (friends and family. Suite 2901.S. drilling and feasibility comprise about half of the project cost. Typically.000 per MW. Intangible drilling costs are usually 3/4 of the total drilling cost. The valuations follow a fairly straight line except for undervalued Polaris at $1 million per MW. We have plotted the market cap per MW of the six geothermal companies (although not to scale). to mid phase private and public equity and project-level joint venture partners. Exhibit 7 shows the timeline. to construction phase bridge and take-out debt or tax-driven financing.jacobsecurities. PTCs and cash flow participation can fund 75% of a project’s cost.

More watts sent down the line increases capacity of the line which lowers the cost per kWh. Transmission costs assume the developer constructs its own line. Jacob Securities estimates. This has increased from $3m/MW since 2001 due to rising cement. Exhibit 8: Levelized Cost Ranges Solar PV Biomass Geothermal Wind Run-of-river hydro Large hydro Coal Natural Gas Conservation Initiatives Exhibit 9: Installed Cost for Electricity Generation (2004) Bionmass . However.000 4. ON M5L 1G1 +1-416-866-8300 www. divided by the units of power produced over the useful life of the project (for example gas 20 years. Levelised cost refers to all cash capital and operating costs. we believe current costs are in the $4 to $4. unadjusted for inflation. EQUITY RESEARCH What Does Geothermal Power Cost? There are three costs we consider. Levelised cost is the way utilities look at projects. 1. geothermal 30 years. etc). Although many sources state that capital costs are in the range of $3-$4m/MW. Further distance from major transmission lines increases cost. respectively. Once capacity factors are considered.Parabolic Trough Solar . Suite 2901.com Page 6 . levelised. 199 Bay Street. The cost breakdown was discussed earlier under the three development stages (Page 4). it is a very competitive source of electricity.Gasification Geothermal .000 0 50 100 150 200 250 Generation Cost Range ($/MWh) Dotted verticle lines: Range of 2006 wholesale electricity prices in Canada Source: B.Small Scale Solar . geothermal has no fuel cost and hence has lower operating costs (see Exhibit 8). A geothermal plant now costs the same as a super-critical coal plant.. Capital Cost Capital costs have been rising close to 5% /year since 2001. Toronto. Levelised Cost Since geothermal has no fuel and minimal O&M. Hydro – Challenges & Choices (2006).5m/MW range (see Exhibit 9).000 6. Project costs are site specific due to the differences in local geology and infrastructure. steel and drilling costs.000 8.PV Wind 0 2.JSI GEOTHERMAL POWER SEPTEMBER 2008 JACOB SECURITIES INC.000 10. capital and operating.Concentrating PV Solar .Combustion Biomass .jacobsecurities.AD Biomass .Dual Flash Geothermal . GeothermEx considers the economic viability zone of a transmission line to be $13 to $236 per kW . The kV of the line also matters as longer distances require higher voltage to minimize dissipation of electricity.000/mile or $167. 2. geothermal is the lowest cost per delivered MW among renewable and costs about the same as a super-critical coal-fired plant and less than a gasification coal-fired plant.Binary Steam Hydro .000/km. 115 kV and 345 kV lines are estimated to cost $164. GeothermEx (2004) estimates the cost to be $268.C. '000 USD / MW Source: Navigant Consulting Jacob Securities Inc. The capital cost for geothermal projects is high because in addition to plant costs there is also exploration and drilling.000/mile. wind 25 years.000/mile and $388.

0025(MW-5) for plants from 5 MW to 150 MW. field maintenance (wells and gathering system).5% of the selling price of power. However. ON M5L 1G1 +1-416-866-8300 www. vehicle fuel. and may or may not include well replacement. field maintenance and well replacement would cost $8/MWh based on average drilling costs of $900/kW. Essentially. Operation costs include all expenses related to the operation of the power plant. Toronto. waste disposal. with a low variable component – essentially all cash costs above the EBITDA line. all cash costs above the EBITDA line.22 Sanyal formularized the O&M costs as O&M = 2e.JSI 3. Other estimates are lower as follows in Exhibit 10: Exhibit 10: Various Estimates of O&M Costs Source Sanyal (2004) Owens (2002) EPRI (2001) Lovekin (2000) * not including well-replacement Source: Geothermal Energy Association $/MWh 14 . as pointed out earlier. This includes labour. EPRI (2001) estimates annual plant maintenance at 5% of the initial plant cost such that a plant costing $1.5% to 5. Suite 2901.com Page 7 . The GEA estimates annual field maintenance costs at 2% of the original field cost and well replacement at 5% of the initial drilling cost. sales.27 20 .20* 18 . at a combined 7%. GEOTHERMAL POWER SEPTEMBER 2008 JACOB SECURITIES INC.jacobsecurities. Jacob Securities Inc. cooling system) and lighting. 199 Bay Street. • EPRI (2001) estimates operating costs at $7/MWh based on a 50 MW plant and 40 employees. • • So. O&M costs total $24/MWh or 2.e. EQUITY RESEARCH Operating or O&M cost (operation and maintenance) are largely fixed with a low variable component. lubricants. spare parts. So. Included is royalties (paid to the field owner) which range from 0. but not income).4 cents per kWh. and parasitic load for various pumps (i.21 16 . Maintenance includes plant maintenance.400/kW would have annual maintenance of $9/MWh.. chemicals for H2S abatement. Operating Cost O&M costs are mostly fixed. Sometimes well replacement costs are capitalized so when comparing costs.0. and various taxes (property. scaling and corrosion control. sales and property taxes and royalties. new plants coming online have one-half or less this number of employees. make sure the treatment is consistent.

which is a thermodynamic cycle that converts externally supplied heat into work (rotating a turbine). 199 Bay Street.JSI New Technologies New technologies being developed are driving down the min avg. which can be used to create power. Post pilot systems include Exorka International’s Kalina Cycle system. Exhibit 12: New Low Temperature Technologies Exhibit 11: Technology/ Market Maturity of Renewables Source: Navigant Consulting. a variety of new technologies are being developed to drive down the minimum temperatures required to generate electricity (see o o Exhibit 12). The system is a closed loop and usually uses water. Another product. or other fluids with a boiling point lower than water. Ormat REG systems are borne from geothermal but its applications are industrial waste heat. efforts have focused on units generating less than one MW.com Page 8 . cement. ON M5L 1G1 +1-416-866-8300 www. Suite 2901. is not Jacob Securities Inc.. So far. ElectraTherm has modified the rankine cycle by adding an “expander” before the generator that more efficiently utilizes steam pressure. The REG system is scalable. EQUITY RESEARCH According to Navigant Consulting. Gas pipeline compressors. The Rankine Cycle generates about 80% of all electric power throughout the world including solar thermal. GEOTHERMAL POWER SEPTEMBER 2008 JACOB SECURITIES INC. oil and gas and industrial waste heat. made-toorder and installations have ranged from 200kW to 22 MW. However. Currently. and biomass processing all create waste heat. Most of the new technologies also have additional applications in utilizing waste heat to make electricity. Jacob Securities.jacobsecurities. LNG re-gasification. binary geothermal plants require 150 C and somewhere between 200 C o and 220 C a flash geothermal plant will be used. In-pilot systems include ElectraTherm and Trimodal Group. as the working fluid. coal and nuclear power plants. geothermal is the most technologically mature renewable and third in terms of market maturity (see Exhibit 11). gas processing. The working fluid is heated by geothermal a water. Toronto. Exorka’s system is used on the front end just like a standard binary turbine and can be adapted for the back end to capture waste heat. Among the commercially available are Ormat Technologies’ REG (recovered energy) system and UTC Power’s PureCycle system. temperature – below the current minimum of 150° C. coalfired power plants. which creates electricity by exciting the electrons contained in the copper coil surrounding the rotating magnetic rod. Source: Company Reports All low temperature technologies utilize a signature closed loop Rankine Cycle design. Exorka’s Kalina Cycle system uses a mixture of ammonia and water as the working fluid. which in the geothermal example cycles heat twice to make electricity before reinjection. The systems use a Rankine Cycle design. the Gas Pressure Reduction Generator. biomass. UTC Power’s PureCycle consists of turbines constructed in a series of 280kW units and are thus scalable. There are also applications in stationary engines.

7) neg (1.29 0 35 347 0.93 38.600 MWs of these sites are regarded as commercially viable now (defined as having a levelized cost under 8 cents per kWh).69 0. EQUITY RESEARCH rankine-based and instead captures the energy in the pressure drop of any gas. Trimodal’s is a closed loop system.7 na 2. Ormat Technologies ORA-N.72 $ 57. Ormat is currently generating on 410 MW and has over 272 MW under development. Raser has no generation yet but a considerable pipeline of development prospects.27 0.4) neg 102 $ 110 (3. Further.44 0.6 MW.org/wga/initiatives/cdeac/Geothermal-full.08 1.05 $ 85 $ 93 (3.5 0.50 0.517 113 22 94 23 $ $ $ $ $ GEO 1.25 0 35 100 1. These are not exploration companies. Clean and Diversified Energy Initiative.40 4. There are 7 public geothermal companies: Nevada Geothermal NGP-TV.JSI GEOTHERMAL POWER SEPTEMBER 2008 JACOB SECURITIES INC. in January 2006 (http://www.68 0 50 150 2. and so has a technology play aspect to it.000 MWs in the Western United States.20 1. Jacob Securities Inc.75 2.6 $ $ $ $ $ WGP 0. o Who Are the Players? There are 7 public geothermal companies. All have confirmed resources and independent estimates of their proven and probable MW. Raser Technologies RZ-N. Jacob Securities.90 0.0 27 16 (2.90 10 82 395 1.00 17 66 97 1.60 0. Polaris on 10 MW and US Geothermal on 16..2 $ $ $ $ $ GTH 2. Raser is not a pure-play geothermal. 5. Exhibit 13: Geothermal Comps: In Order of Time To Generation 15-Aug-08 Price Price Annual high Annual low MW Generating Under development Future estimated $mln Enterprise Value per MW Generating plus under development Including future estimates Market Cap C$mln EV US$mln EBITDA US$mln EV/EBITDA TTM CF from ops Market Cap to CF Source: Company reports. At $4 million per MW. Toronto.3 $ $ $ $ $ SRA 0. The other five geothermals have considerable development pipelines and two are generating now.7) neg $ 1.2 0.1) neg There are also many private players. which they state is economic at 70 C for 500 kW.5) neg 141 $ 132 (5. The Western Governors’ Association published a report entitled.westgov. ON M5L 1G1 +1-416-866-8300 www. Sierra Geothermal SRA-TV. The report states that there are 140 known undeveloped geothermal sites totaling 13.pdf).5 MW.0 0.5) neg (2. Polaris Geothermal GEO-T.7 $ $ $ $ $ NGP 1. US Geothermal GTH-T.6 0. The recommendations of the report include encouraging geothermal development through government incentives and fast tracking the regulatory approval process.3 0.5) neg (5.7) neg 55 $ 44 $ (3.2) neg (0.14 410 272 unknown 3.5) neg (6. Geothermal Task Force Report.184 2. $ US$ C$ @ $ $ $ $ ORA 48.jacobsecurities.com Page 9 .18 50. and Western GeoPower WGP-TV (see Exhibit 13). It is designed for the oil and gas industry and has been tested to 1. these sites would cost over $22 billion to develop. 199 Bay Street. Suite 2901. having an advanced electric motor business.

com Page 10 . high temperatures could be 25% of the per MWh cost versus low temperatures).. GEOTHERMAL POWER SEPTEMBER 2008 JACOB SECURITIES INC.jacobsecurities. ON M5L 1G1 +1-416-866-8300 www. 85% for biomass. The main factors favouring lower levelised cost are plant size (a large plant can be 25% of the per MWh cost versus a small plant). EQUITY RESEARCH The conclusion can be summed up as: it depends. chemistry (the cleaner the better to save on handling and corrosion). higher prioritization.JSI Conclusions There is demand for clean. coal and gas. and • Geothermal does not use fuel and therefore has no commodity risk exposure. Geothermal development and operating costs are very site-specific. 199 Bay Street. Toronto. we restate why geothermal power is worth promoting by industry and government: • Geothermal has the highest net capacity factor (availability) for all renewables at 95% and all forms of electricity compared to 90% for nuclear. Transmission line distance to the grid versus the MW to be carried is also an important variable. To close. grants. • Governments encourage geothermal through carbon credits. the resource depth and permeability (which dictates drilling cost and MW/well). and increased investment. Suite 2901. resource temperature (again. 50% for hydro and 35% for wind and 25% for solar • Geothermal is one of the two clean power sources reliable enough to be base-load capacity (non-stop). geothermal development is one of the best answers to this situation. • Geothermal is cost competitive with other methods. and tax incentives. Jacob Securities Inc. renewable energy. The increased awareness seems to be leading to more government incentive.

completeness or correctness. and for which the related party receives certain fees. To the fullest extent permitted by law. a solicitation to act as a securities broker or dealer in any jurisdiction by any person or company that is not legally permitted to carry on the business of a securities broker or dealer in that jurisdiction. Medium: Moderate financial and operations risk. independent and objective views about any and all of the designated investments or relevant issuers discussed herein that are within such authoring analyst’s coverage universe and (ii) no part of the authoring analyst’s compensation was. however the long term outlook is for a positive return. At times the anticipated total returns may fall outside of the general ranges stated below due to near-term events. As a result. low stock volatility. ON M5L 1G1 +1-416-866-8300 www. A fund managed by a related party to Jacob Securities. none of Jacob Securities. Additional information is available upon request. its affiliated companies or any other person accepts any liability whatsoever for any direct or consequential loss arising from or relating to any use of the information contained in this investment research. assumptions. any person or entity if Jacob Securities is prohibited or restricted by any legislation or regulation in any jurisdiction from making it available to such person or entity. Suite 2901. This material is not directed to. directly or indirectly. Analysts may not execute transactions for 30 days before and 5 days after the issuance of a research report without prior written consent of the compliance department. Speculative Buy: Anticipate total return appreciation generally in excess of 15% over the next 12 months. This investment research is provided for information purposes only and does not constitute an offer or solicitation to buy or sell any designated investments discussed herein in any jurisdiction where such offer or solicitation would be prohibited. Risk Qualifier: Jacob Securities Inc.JSI Appendix: Important Disclosures Analyst Certification: GEOTHERMAL POWER SEPTEMBER 2008 JACOB SECURITIES INC.com Page 11 .This research report in intended to be viewed only by Institutional Investors. Jacob has not independently verified the facts. Ratings & Risk Rankings: We have a three-tiered rating system. as well as certain principals of Jacob Securities. has negative cash flow. (“Jacob Securities”) whose name appears on the front page of this investment research hereby certifies that (i) the recommendations and opinions expressed in this investment research accurately reflect the authoring analyst’s personal. in some cases. and under no circumstances should be construed as. The information contained in this investment research has been compiled by Jacob Securities from sources believed to be reliable. Reduce: Near term price outlook is for a negative return. Sell: Near term and long term return is expected to be negative. however. are subject to change without notice and are provided in good faith but without legal responsibility or liability. Analyst Trading: Jacob Securities permits analysts to own and trade securities of the companies they cover subject to internal procedures. related to the specific recommendations or views expressed by the authoring analyst in the investment research.. high predictability of financial results. This investment research. All estimates. are financially incentivized based on the performance of certain issuers in the sectors discussed in the report. EQUITY RESEARCH Each authoring analyst of Jacob Securities Inc. Jacob Securities Inc. the company is either pre-revenue. Low: Low financial and operations risk. is a member of the Investment Industry Regulatory Organization of Canada (IIROC) and Canadian Investor Protection Fund (CIPF). Trades by analysts that are contrary to their recommendations may only be executed for reasons not related to the stock outlook and with approval from the compliance department. moderate predictability of financial results. is. but no representation or warranty. moderate stock volatility. or intended for distribution to or use by. opinions and other information contained in this investment research constitute Jacob Securities’ judgement as of the date of this investment research. Hold and Sell. re-distributed or passed to any other person or published in whole or in part for any purpose without the prior consent of Jacob Securities. Toronto. with ratings of Buy. is not. All rights reserved. is made by Jacob Securities its affiliated companies or any other person as to its fairness. Risk Rankings. High: High financial and or operation risk. market conditions or stock volatility or.jacobsecurities. company-specific corporate structures that result in consistently high yields. Buy: Anticipate total return appreciation generally in excess of 15% over the next 12 months. express or implied. 199 Bay Street. This report may not be reproduced. Ratings. Each analyst assigns a rating that is appropriate to the analyst`s view of how that stock will perform (total return basis) over the next 12 months on an absolute basis. and estimates contained herein. low predictability of financial results. or will be. the designated investments discussed in this investment research may not be eligible for sale in some jurisdictions. high stock volatility. Hold: Anticipate limited total return (general appreciation less than 15% or decline less than 5%) over the next 12 months. © Jacob Securities Inc. accuracy. Please do not forward without the expressed written consent of Jacob Securities. or a major unpredictable event may occur within 12 months.

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