A new code that standardizes the public reporting of geothermal energy on the Canadian stock market signals a change in investor confidence in the geothermal energy sector.
Brian Toohey is a Canadian reporting code committee member for the Canadian Geothermal Energy Association who initiated the industry regulation practices applauded by the Toronto Stock Exchange and the Canadian Securities Commission in March 2010.
“The Canadian financial industry all the way down to the average investor has been waiting for something like this,” he said.
Before the code was introduced in January of this year, the public was reluctant to invest in geothermal companies listed on the TSX – the resource industry securities hub in North America – because there was a lack of transparency and understanding about the industry. Prior to now, geothermal investors would have needed to be geology or engineering experts to assess stock values and compare companies. This drove profits down because people didn't know what they were getting into if they put their money into geothermal ventures.
“Right now it's kind of the Wild West of the industry in terms of the fact that one person says P90, P50, one person says this many megawatts, sure we can do this, we can do that...,” said Toohey.
In the oil industry, standardization makes it one of the preferred energy stocks to invest in. A barrel extracted in one part of the country is listed as same as a barrel drilled in another part of the country, something that previously couldn't be measured with geothermal power.
The code makes it easier to analyze geothermal companies' annual and quarterly reports and compare websites like in the oil, gas and mining sectors.
“They want to be able to speak the same language, talk knowledgeably on projects and want to understand the limitations to certain stages of (geothermal) development,” he said.
Now investors are better able to raise money for geothermal companies to get more projects off the ground in Canada, the US and abroad. The hope is that the U.S. will follow suit.
“It would be obviously fantastic if one day the U.S. market was that open to geothermal standardization and offered that sort of treatment to a similar peer geothermal association,” Toohey said.
The code also makes the geothermal industry more environmentally accountable. Although geothermal is by nature a very environmentally-friendly energy resource, companies haven't been uniformly ethical, Toohey said. Projects must now meet the modifying factors set by the code – permission of the government, facilitation with community members, meeting environmental impact standards.
“Beforehand when you get a geologist or an engineer around the table we say, oh well we're pretty confident that it will be this many megawatts subsurface in x place, but no one ever took into consideration social, environmental, first nations issues,” he said,
Already CanGea has seen a marked change.
“We've seen an increase in activity and it's actually been a total buzz around the international community,” said Toohey.
This year it is voluntary for companies to follow the code but next year it will be compulsory for CanGea membership. However, the TSX has yet to make the code a mandatory requirement.