Geothermal’s chief disadvantage is geographical limitations to large-scale applications. Heat pumps have become commonplace for heating and cooling homes in the US and elsewhere, particularly used in combination hybrid systems run on grid electricity. The guiding principle is the immediate subsurface earth maintains a constant temperature of 50 to 60 degrees Fahrenheit that can be tapped into, for heating as well as cooling. And it works virtually anywhere a hole can be dug safely.

Geothermal plants producing grid power, however, are mainly economic in areas of subsurface or volcanic activity. Mainly for this reasons, geothermal contributed 1 percent of the world’s electricity last year. Some 20 countries are currently producing from it to some extent. Only two countries, Iceland and the Philippines, have greater than 15 percent reliance.

In other words, geothermal energy will never take over the world. But it’s already a profitable business for its leaders. Only a fraction of the globe’s opportunities have yet been tapped in. And developers enjoy enormous tax advantages, including here in the US, where the Obama administration has enacted favorable new rules.

The largest geothermal field in the world is The Geysers, in California. Similarly, much of the world’s other promising areas of development are also on the Pacific Rim, where volcanic activity is historically reliable.

The process for a geothermal power plant basically works like this. A reservoir of high pressure hot water is located underground. Wells are drilled into it to bring steam to the surface, where the steam and separated hot water drive a power plant’s turbines. The heat energy is converted into electrical energy, and the cooled water is injected back to the reservoir, where it’s reheated. This preserves the resource mass balance and sustainability at minimal financial and environmental cost.

Ormat Technologies (NYSE: ORA) currently owns and operates a dozen geothermal power stations worldwide with roughly 600 megawatts of capacity and has another eight in various stages of development. Seven of the operating projects and seven of those under development are located in the US, mostly in California and adjacent Nevada. The remainder is mostly elsewhere on the Pacific Rim, including Guatemala, Indonesia, New Zealand and Nicaragua, with the only exception Olkaria III in Kenya.

The company has built plants with another 600 megawatts of capacity for utilities and other developers. And it has a sizeable presence in the recoverable energy field, basically capturing waste heat and converting to electricity. Waste heat is a common byproduct from industrial processes, and the converted electricity can generally be used on site without any additional fuel consumption and zero emissions, though it can also potentially be sold back to the overall grid.

Unlike many players in its industry, Ormat is no fledgling, having survived and thrived for more than four decades. Neither is it a minnow in the global marketplace with a market capitalization of roughly USD1.26 billion and annual revenue of USD252 million.

Finally, despite an asset-heavy focus, long-term debt is only 42 percent of equity, with no major maturities due in the next five years. And the company has USD222.5 million in unused bank credit. That adds up to considerable financial power and the ability to keep its balance during the current recession.

Fourth quarter 2008 revenue surged 35.2 percent, more than twice the full year growth rate of 16.5 percent. Earnings per share rose at a slower rate of 18.2 percent, compared to 60 percent for the year.

Last year’s revenues were boosted by a 25 percent, or 109 megawatt, increase in operated capacity and higher oil prices that lifted the profit from one of the projects due to its rate schedule. That benefit will reverse somewhat this year on the drop in oil prices. But it will be offset by continue growth in product revenue–up 120.9 percent in the fourth quarter versus 2007 levels–and further build-out of operated projects.

Management’s outlook for 2009 looks for growth of between 11 and 15 percent in revenue from owned projects, not including USD9 million additional revenue generated by a subsidiary investment. The Products segment–which essentially builds plants for others–is looking to increase revenue by 7 to 30 percent, with the spread largely due to uncertainty about converting record backlog into revenue during the current recession. In contrast, revenue from owned products is relatively secure, owing to locked-in power sales contracts with creditworthy entities such as regulated utilities.

Reflecting the general meltdown in renewable energy stocks, Ormat’s New York Stock Exchange-listed shares currently sell for less than half their late 2007 high and just 1.42 times book value. Shares sell for 24 times the low-ball Wall Street earnings estimate for 2008 but barely 10 times the high estimate for next year. That’s actually quite cheap for a company that grew earnings per share by 60 percent in 2008 and for which even the lowest projection for five-year annual earnings growth is 30 percent.

Ormat’s low yield–1.1 percent–may turn off some. But investors can look forward to consistent growth, as the payout was hiked 20 percent this spring. Buy Ormat Technologies up to 30.