(In U.S. dollars unless noted)

By Susan Taylor

OTTAWA(Reuters) - For all the talk of ageothermal renaissance fueled by government incentives and thequest for clean energy, Canadian investors are cool on thesector, despite a list of compelling business advantages.

Industry claims lauding the renewable, round-the-clock andprofitable power source are more than just hot air, sayanalysts, who believe better times are ahead.

All that's needed are more examples of companies withmoney-making power plants, a better investor understanding ofthe business and a dash of economic recovery.

That's a tall order, but for patient investors prepared totake a risk, now may be the time to buy these distressedstocks.

Geothermal companies, which tap heat stored far below theearth's surface to generate electricity, are starting toattract serious interest from big, traditional power producersthat are preparing carbon offset programs.

Enbridge Inc, Canada's second-biggest pipelineoperator, said earlier this month that it would spend $23.8million for a 20 percent stake in US Geothermal's NealHot Springs project.

"Oil and gas, mining, utilities; they're all circlinggeothermal. However, these companies are generally loaded with... engineers that don't know anything about geothermal and thelast person to try something before it's really proven is anengineer," said Jacob Securities analyst John McIlveen.

"They realize the attraction of geothermal being the onlybaseload (steady flow) renewable power. I think eventuallyyou'll see many of them entering this field, and so Enbridgebeing the first, I think, was a really good sign."

Several analysts raised their stock targets for USGeothermal afterward. Wellington West Capital upgraded thestock to 'buy' from 'speculative buy". Over the past 12 months,the stock has shed more than half its value. It closed at 84Canadian cents Friday.

Enbridge's investment, one of many it has made in renewablepower, but its first in geothermal energy, briefly lifted USGeothermal's stock by more than 18 percent.

"If we do see more of that in the space, it could be afactor which contributes to a geothermal love-in," said MackieResearch analyst Matt Gowing. "And now is a great time forthese guys to get active, because valuations in the sector arevery attractive."

Despite depressed valuations, geothermal companies havesuccessfully raised cash in recent months, sending a positivesignal for future project development and internal growth.

Nevada Geothermal Power, for example, recentlyclosed a $98.5 million loan with John Hancock with thefirst-ever U.S. Department of Energy loan guarantee. It willsave an estimated $9 million in annual interest payments.

CONSOLIDATION PICKS UP STEAM

A consolidation jag that has gathered steam over the pastyear is seen as another catalyst to stock gains. A dwindlingnumber of targets may help drive M&A premiums higher.

The deal-making is driven by the hefty financial and humancapital required to develop geothermal power.

Ram Power merged last year with PolarisGeothermal, Western GeoPower Corp and GTO Resources. This monthit closed a C$28 million ($27 million) deal to buy SierraGeothermal Power.

Magma Energy Corp, Canada's biggest geothermalcompany, has secured a 98.53 percent stake in Iceland's HS Orkathrough a series of transactions.

"Today we have about five or six publicly traded companiesin this space, mostly in Canada," Ram Power's CEO, Hezy Ram,said at a recent conference.

"Eventually, I expect to have just a few champions, largecompanies that are well capitalized and able to develop thoseprojects internationally."

Magma CEO Ross Beaty wants to build his company to the sizeof sector-leading Ormat Technologies and become one ofthe industry champions.

But the one-time mining magnate is frustrated by Magma'sweak valuation -- the stock is well below the initial publicoffering price of just 15 months ago.

Beaty plans to list Magma on a U.S. exchange in the nextsix to seven months and, as part of that process, tell hiscompany's story far and wide.

Gowing said the sector doesn't get the attention itdeserves, but believes that may soon change.

"I'm optimistic that we are in a period of economicrecovery and you're going to see a return energy priceinflation and that's going to be a key driver to pushgeothermal valuations higher," said Gowing.

($1=$1.03 Canadian) (Reporting by Susan Taylor; editing by Rob Wilson and JeffreyHodgson)