TER: In the United States, most of the coal-powered plants are on the East Coast and most of the geothermal production is on the West Coast. Because the power can't be transported, how can this be a replacement for coal?

SL: I think over time we're going to start to see power move across states. We're already starting to see some of that between Nevada and California, but you're right, it's not from East to West. It's not going to happen tomorrow but over time, we think geothermal is bound to capture increasing mindshare given its positive attributes and that will drive further advancement in public policy.

And the other thing we really haven't touched on is the number of incentives that are available for geothermal developers. In one of our recent reports we actually looked at the impact incentives have. They amplify the internal rate of return, so it makes it really attractive to develop. So if you take the baseload capacity attributes and add the incentives, I think all of that combined is going to keep driving geothermal development.

TER: And what geothermal opportunities are there in Canada?

SL: Most of the attractive assets are on the West Coast of the U.S.

TER: Can you give us a quick rundown of the differences and similarities of Ram and Magma so our readers can understand those two opportunities?

SL: The way I would differentiate between them is you get more exploration with Magma in the sense that if you look at the land they've been able to accumulate; their land bank is five times the size of Ram's. Now, land bank doesn't guarantee you're going to find something, but what a land bank gives you is the exploration option. So, you have a lot of exploration potential with Magma.
On the other hand, I think Ram is more advanced in terms of development and most of their assets are in regions that are known for world-class geothermal projects. For example, construction has already started on their project in Nicaragua. They've got 70% of steam behind pipe already so it's going to be financed. The financing on the construction is going to be concluded very soon. The construction has started, and you've already proven up the asset and you've got the steam.

A lot of Magma's assets still have to be proven up. So there are different characteristics for the two companies—more exploration with Magma, but higher-quality, and more advanced, assets with Ram Power.

In terms of the cash—both of them are very strong financially because of the financing they just did. And management teams are comparable; Magma has very strong geologists, and Ram's management team is very highly regarded. Much of Ram's key senior management team came over from Ormat Technologies Inc. (NYSE: ORA), which as you know is the market leader in this space, so that bodes well for Ram.

TER: As we look at Magma with more exploration, as some of their properties prove up, is there more upside potential for a Magma than a Ram investment?

SL: Not necessarily. Obviously you create value when you prove an asset but it does not stop there. If you don't have a Power Purchase Agreement (PPA) for example, you don't have a project, right? So, you do need a number of things to come together to have a really valuable asset. You also need to negotiate your project financing so that you can move ahead on a project.

At each and every one of these milestones, the developer can create value—and both Magma and Ram have many of these milestones potentially happening in 2010–2011. At the end of the day, the maximum value is created when you have a producing asset with visible free cash flows. We think overall Ram has significant upside potential but with lower risk given the more advanced stage of its assets.

TER: Very good. Thanks.

By arrangement with: www.theenergyreport.com

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