By Carolyn Whelan, contributor

Off a lonely dirt road 30 miles west of Beaver, Utah, (pop: 6,162) on a brisk spring morning last year, wide grins crossed the faces of a handful of men in hardhats. They’d just hit pay dirt, only these modern day miners weren’t prospecting for gold or oil. Their spoils? Tepid water.

The hamlet of Thermo is home to one of the nation’s newest geothermal plants, operated by Provo-based Raser Technologies. (RZ)

The water collected in Thermo is piped from wells to mini-power plants where it is essentially converted into energy and sent over transmission lines to California.

For a century, geothermal plants have supplied heat and power to countries like Iceland, which are abundant with hot and shallow water.  And developers have harnessed energy from lower-temperature (165 degrees and up) waters through such so-called binary cycle power plants for decades. Essentially transferring hot water to another fluid that boils at even lower temperatures through a heat exchanger, steam from the lower-boiling-point fluid in a binary system turns a turbine to generate electricity.

What sets Raser apart from its rivals? The company has rights to 250,000 acres of low-temperature U.S. resources and a key partnership with United Technologies (UTX) for modular machines. With these binary cycle plants Raser hopes to radically cut the time to market and cost of geothermal power.

The author of a famous 2006 Massachusetts Institute of Technology study on the potential of geothermal believes binary systems could provide up to 60,000 megawatts (MW) of geothermal energy by 2050, with some uncertainty, or 19 times the geothermal energy the US taps today.

Propelled by mandates in over half of U.S. states for 10% or more of electricity from green sources by 2025 and some $50 million for low-temperature geothermal research and development in President Obama’s stimulus package, Raser is breaking new ground.

From networking computers to saving the planet

Post-retirement malaise first pushed Kraig Higginson, an early investor in computer networking company Novell, towards saving the planet. In 2003 he founded Raser as an electric motor maker. “I put down my golf clubs and thought, ‘what can I do that is meaningful?’ remembers the Utah native, who worried about the U.S.’s overdependence on dwindling oil.

Frustrated with a stagnant market selling motors to slow-moving U.S. car makers, Higginson wanted to expand into non-coal electricity sources after new federal tax credits made harnessing those energies attractive. But the high cost of wind and solar solutions didn’t square. So he chatted with Brent Cook, a power systems expert with 25 years of experience with energy and geothermal companies.

Cook thought Raser’s motors might work in electricity plant pumps and reckoned that similar incentives loomed for geothermal because it could deliver energy around the clock versus just when wind blew and sun shone. “I did the tax credit calculation and realized that geothermal had a bright future,” recalls Cook, a CPA, who became CEO of Raser in 2005. (The company installed Nick Goodman as CEO in January 2010 after Cook stepped down for health reasons.)

Raser had two challenges: it needed land, and it needed technology. Cook knew that Ormat already harnessed mid-temperature energy using costly and mostly customized machines that took years to build. But his math showed that extracting even lower-temperature sources through binary systems might be profitable with subsidies if prices for rapidly installed modular units fell over time. Such lower-cost technology, developed in-house or outsourced, he reasoned, could make huge overlooked stretches of the U.S. potential underground mines of power.

Land ho!

Turns out securing rights to mine water on land wasn’t that hard back in 2005. Raser was often the only bidder for land parcels other developers had passed up. The company valued prospective rights by discounting prices paid for hotter resources, financing deals with some $24 million it had raised in a mid-05 secondary offering. Raser also used its hometown advantage by prospecting in state and private lands in Utah. “We were very aggressive and very quiet,” says Cook.

Today, one-third of Raser’s rights are on private Utah land, which with its other holdings, the company says, makes it the second-biggest owner of U.S. geothermal rights by acreage, behind Ormat. And in 2007 Raser settled on Thermo for its first power plant because it had the best potential of their properties.

But Raser has little to show investors for its efforts. In the three months prior to September 30, the company reported revenue of $845,000, losses of $3.8 million, and a stock that has gyrated between $38 and $0.88 since it listed on NYSE’s small board six years ago (Razer currently trades at $1.19 a share, not far from its all-time lows).

Cost overruns on high pre-crisis material prices and extraction woes have slowed plans to double Thermo’s output to 10 MW because of the capital intensive and unpredictable nature of geothermal. At about $108 million per 10 MW plant (1.8 times more than original estimates), cost, for now, is its Achilles’ heel (see editor’s note below).

Renewed interest in renewables

Still there are bright spots: Merrill Lynch and Prudential in 2008 ponied up roughly $50 million for the company’s first 155 megawatts of power.  And last month the company secured $19 million in financing from Fletcher Asset Management in a preferred convertible stock sale and investment rights deal, following closure of a $30 million per project (or roughly five plants) co-development agreement with energy fund Evergreen Clean Energy in December. The Treasury Department also gave a green light to a $33 million grant.

Raser expects a faster ramp-up (and payback from power sales) for a 15-MW plant in New Mexico known as Lightning Dock, because of existing, shallow wells there. Another six sites in Utah, Nevada and Oregon are under development. A 25% increase in geothermal funding for the 2011 federal budget should also help. Still, the company has pared back its ambitious plant-building plans as it sorts out financing, and it is mulling more efficient construction tactics, such as using larger modular machines that recently hit the market, which it says could cut costs to $87 million per 20 MW plant.

Some analysts believe the new financing and these moves could bouy the company – and its stock price. “News flow should improve,” says Dale Pfau of Cantor Fitzgerald, noting upsides if new financing, drilling or power purchase pacts are sealed, with the caveat of possible stock dilution. (Pfau rates the stock a buy on a discounted cash flow model.) “If they can get the funding and these projects rolling over the next several years the company could do very well.”

Raser expects to be profitable after three plants deliver power, or within roughly two years. Though some ‘me-too’ companies like Ram Power and Magma Energy are stepping up (most new geothermal projects today are binary, versus 32% in 2007) CEO Goodman is optimistic.

“We stumbled but Raser’s core value is intact,” he says. “We’ve got a great portfolio and even in this economy are successfully raising money. When done properly, geothermal is the king of renewables.”

[cnnmoney-video vid=/video/fortune/2009/01/28/fortune.bg.geothermal.fortune/]

In the original version of this story Fortune reported the cost of a 10-MW plant as $71 million, or 18%  more than original estimates, using information provided by Raser. However, according to Raser’s Third Quarter earnings report, Thermo cost $108 million to build or 1.8 times the original estimates of $60 million.