Ram Power, Corp.

Ram Power, Corp. is a renewable energy company based in Reno, Nevada, focused on developing, owning and operating geothermal power plants. It was founded in 2008 as Ram Power, Inc., by former senior executives from Ormat Technologies, which is also in the business of geothermal energy development. “We decided to form Ram Power because we wanted to have a piece of the action, and working at Ormat wasn’t as much fun as it used to be years earlier,” says executive vice president Dan Schochet, whose primary responsibility is business development.

Initially Ram Power had a substantial financial commitment from an Icelandic company and an Icelandic bank, which unfortunately fell through because of the global economic crisis in late 2008, Schochet says. “We began seeking independent financing; we met with a number of US-based private equity firms, but that field didn’t prove productive for the corporate seed capital we needed to get started.

“We were directed,” Schochet continues, “through a series of fortuitous events, into a transaction that culminated on October 20, 2009, with Ram Power amalgamating with two geothermal companies listed on the Toronto Stock Exchange, Western GeoPower and Polaris Geothermal, with Ram Power management in control of the new company—Ram Power, Corp., which was able to raise about C$180 million as a stock offering on the Toronto Stock Exchange. The reason we listed there was that the Canadian capital markets are geared toward investment in resource-based companies, and the risk associated with those kinds of companies is not new to them; the mainly institutional investors we attracted are located everywhere, not just the US and Canada.”

That gave the new Ram Power the impetus it needed to start on its project development, and though the company started out with the intention of securing C$120 million in funding, it soon found itself oversubscribed to C$180 million. “The reason was that we had a good story to tell,” Schochet says. “We highlighted the most advanced project of each of the three companies.” Western GeoPower had a project in Northern California at The Geysers, where enough previous drilling had been successfully performed to mitigate any resource risk, and there was a 20-year contract to sell the power to Northern California Power Agency.

“We’ve put The Geysers on hold temporarily while we consider our options to optimize value,” Schochet explains. “The reason is that the 25-megawatt [MW] power output is relatively small for that area. Our approach, based on our management team’s many, many years of experience, is that every project that we develop should provide a return on investment for the shareholders. So the threshold for development is set high, particularly, for example, in a single geothermal operating project, where the size of the staff will be the same whether the output is 25 or 50 MW.”

Polaris Geothermal’s major project in Nicaragua—the San Jacinto-Tizate project—also had enough previous drilling to mitigate the resource risk, and there was already a relatively inefficient 10-MW backpressure turbine online, with plans to extend to 72 MW, and an agreement to sell the power to a local distribution utility. This project is currently under construction. Ram Power has closed on debt financing, and the first 36-MW Fuji turbo generator is on site and should be operating by early 2011; the second turbo generator will be installed by the end of 2011, only two years after the company took over there. “We have also acquired some concessions in Chile,” says Schochet. “They’re long-term prospects, on the assumption that Chile is one of the most transparent of South American countries to work in, and the resources might be developed in about five or six years.”

Ram Power itself had a 50-MW project called Orita in the Imperial Valley in Southern California, on a leased block that was previously drilled by oil companies in the 1980s. Ram Power had a power sales agreement signed by Southern California Edison Company. Orita was ready for development, permitting was ready to begin, and the management team had experience in that area.

“We used those three as advanced development projects upon which to base the company’s valuation,” Schochet says. “We labeled all the other prospects the company had—which totaled perhaps 700 megawatts—as pipeline prospects, and we gave them a low risk-adjusted probability and valuation. Today in the renewable energy space, whether wind, solar or geothermal, investors aren’t looking for early pipeline projects; they want projects that are advanced enough to become revenue-producing properties with contracts signed by investment-grade firms.”

Ram Power has a number of leaseholds in the Imperial Valley, where the resource prospects are considered among the best in the US. As Schochet explains, “Our experience there, and from the oil companies in the 1980s, is that there are still vast undeveloped areas, and by focusing on those we accomplish two things. First, we’re going into areas of proven geothermal resources. Second, we have a proprietary database that gives us a head start, and we can then do additional geophysical exploration on the ground ourselves and verify that the previous data are still valid.”

The company has a project area in the Clayton Valley in rural central Nevada, where it acquired five greenfield geothermal prospect blocks, each about 5,000 acres and located roughly ten miles apart, that don’t connect geologically but could be connected with power lines. “The utility there knows us well, so they asked us to consider offering them an energy supply arrangement in a portfolio fashion,” says Schochet. “We suggested that if they gave us enough time to explore, we would be able to generate 32 megawatts, possibly a lot more. But if they committed to the first 32 megawatts, we would offer them the right of first offer to anything additional in the Clayton Valley, and they agreed on that basis.

“Our business strategy is simple but effective,” he adds. “Find out what your customer’s needs are and try to meet them. We believe that our business model provides the most value for our investors, our customers and our employees. If we can satisfy all those stakeholders, then we’ll consider ourselves a success.”