What is really hot in real estate

January 7, 2015 admin

One of the great things about real estate is that — unlike so many other investments and other things we spend money on — it has intrinsic value. You can get real, usable raw materials out of Mother Earth. We’ve built civilizations on the materials extracted from her womb.

She is clad in metals, adorned by precious and semi-precious stones, her veins flow with fresh-water aquifers, and her rich soils and vast oceans provide our entire food supply. She is also rich in coal, oil and other fossil fuel reserves we burn to create heat, to boil water, to spin turbines, to produce electricity and animate the planet. As we strip, suck and frack all of the coal, oil and natural gas out of Mother Earth’s crust, we are reminded of the need for alternatives.

One of those alternatives — rarely talked about despite its prevalence and around-the-clock availability — is geothermal energy. Yes, Mother Earth has been known to blow off a bit of steam at times, and her hot pockets are capable of producing electricity more directly than fossil fuels. Despite that, solar and wind power dominate discussions about renewable energy. Yet geothermal has significant advantages as a clean energy source compared with solar and wind. In many ways geothermal is the best and most practical of all renewable forms of energy. Consider that:

  • Geothermal energy is the most reliably available of all renewable sources. Other clean energy sources, such as solar or wind, are only available when the weather cooperates. Geothermal does not rely on uncontrollable outside forces.
  • Engineered geothermal systems are less constrained by natural topography. By contrast, to build an effective wind or solar farm the location selected must meet specific natural conditions.
  • Less land is required. A geothermal power plant needs roughly 10 percent of the amount of land required by a solar farm to produce the same amount of energy.

Since ancient times, people have used geothermal energy to bathe in hot springs and to heat their homes and prepare food. It can be used today to directly heat homes, offices and other facilities with more advanced technologies.

As fossil fuels are burned even more furiously with the economic emergence of countries such as Brazil, China and India, we would do well to remind ourselves that heat is stored within the earth and is there for the taking. Already, the United States is the number one producer of geothermal energy (though you would never know it based on its absence from the conversation), followed by the Philippines, Indonesia, Mexico and Italy.

Before you paint me overenthusiastic about geothermal, this is the stage of my disquisition where I acknowledge that, for all its attractiveness, geothermal has its disadvantages as well. To wit:

  • Because geothermal is not widely used, there is a lack of equipment, trained staff and infrastructure, all of which hinders its broader implementation.
  • The installation costs of a geothermal energy plant are high. Tapping heat trapped in the earth requires a major one-time investment.
  • Like coal, oil and natural gas reserves, geothermal sites can run out of heat over time because temperatures can drop if too much water is introduced in the production of steam, potentially resulting in a big financial loss for companies invested in those plants. For that reason, extensive research is necessary before setting up a geothermal facility.
  • Geothermal is only accessible in certain regions that contain rock formations hot enough to produce steam over a long period of time. Again, research must be conducted to ascertain the situation, running up the cost of geothermal projects.
  • Geothermal sites sometimes contain poisonous gases that can escape, meaning a geothermal plant must be outfitted to contain and neutralize the toxic vapors.
  • Finally, geothermal energy cannot be easily transported. It is best used in the area where it is tapped.

Oh well. Perhaps we will figure it out over time. Life can be complicated. In this case, Mother Earth is no exception.

Not a subscriber to IREI Insights blog? Sign up to receive alerts on new blog posts.

MikeCfinalwebMike Consol is editor of The Institutional Real Estate Letter – Americas.

Previous Article
Retail spending went up but …
Retail spending went up but …

In late November, I covered the matter of Black Friday sales beginning...

Next Article
Infrastructure debt investing a la carte
Infrastructure debt investing a la carte

Infrastructure debt funds have made a successful entrance into global...