Magma Chairman Ross Beaty says he had no idea that the acquisition of the HS Orka geothermal operations in Iceland would spark so much local opposition, and an open letter from Bjork.

When he decided to a start geothermal company after a successful career in the mining industry, Ross Beaty says it was partly because he wanted to do something for the environment.

So it came as some surprise when his new Vancouver company, Magma Energy Corp. (TSX: T.MXY, Stock Forum), sparked a firestorm of local criticism by acquiring control of geothermal operations in Iceland in August, 2010.

Critics, including singing superstar Bjork Gudmundsdottir, were opposed to the idea of a foreign company taking control of energy assets in their country.

“I had no idea at all that we would be so controversial in Iceland,’’ said the Magma Energy Chairman and chief executive officer during a recent interview in Vancouver.

Magma bought the assets of Icelandic player HS Orka with the intention of making them the cornerstone of a plan to build a global renewable energy company providing clean energy to utilities and other customers from operations that also include a producing geothermal plant in Nevada.

He had embarked on this plan because he felt that his previous background in the mining sector made him well suited to the task of finding and developing viable geothermal reservoirs buried deep below the earth’s surface. (In a 26-year-career he had started and sold a roster of companies including Equinox Resources Ltd. He remains non-executive Chairman of Pan American Silver Corp. (TSX: T.PAA, Stock Forum), the world’s second largest primary producer of silver).

Companies in the geothermal energy business typically drill into large pools of hot water located in the type of rock formations that can also contain gold and silver deposits. They then bring the water to the surface and use to steam to drive turbines. The water is then cooled and pumped back into the ground.

“It requires very large amounts of capital up front, typically three times the amount that would be needed for a coal or gas plant for the same amount of electricity,’’ said Beaty. “The offsetting fact is that once it is built, [the plant] goes on forever. It doesn’t deplete and you don’t have to pay for your fuel.’’

He estimates that there are geothermal plants operating in 28 countries around the world, producing about 10,000 megawatts of power. “It’s a niche business. It will never be a huge business. But it is super green and super cheap.’’

For all of those reasons Beaty was startled by the level of opposition in Iceland. In a open letter that was published in a local newspaper, Bjork accused Magma of taking advantage of Iceland’s financial difficulties, and acquiring the geothermal assets “behind the nation’s back.’’

Beaty described Bjork’s comments as disappointing and uninformed, but insists that everything his company has done so far has been in compliance with Icelandic laws.

He attributes the high level of interest to the fact that Iceland is much more reliant on geothermal energy than most other countries. He said about 25% of the electricity in Iceland is generated from geothermal reservoirs. That compares to 4% in California and less than 1% globally.

It didn’t help that Magma made its investment in Iceland through a Swedish subsidiary, a move that made it look like the company was trying to find a loophole to get around something that it was prohibited from doing. “It looked terrible and a lot of people objected to that,’’ Beaty said.

But having acquired 98.5% of HS Orca, Magma is hoping to win more support in Iceland by selling back a minority interest in the operations to Icelandic pension funds. “We are very active with them in discussions,’’ said Beaty.

“We think it will reduce the concerns that the average person might feel about this unknown foreign company developing geothermal resources over the next 20 or 30 years if we actually have a partner in Iceland who represents a wide variety of Icelanders who get to benefit from what we are doing. I can’t guarantee that we will get to the end. But I hope we will.’’

After two years of growth, Magma is generating 190 megawatts and has about 140 employees in Vancouver, Iceland, Chile and Nevada. It is currently the second largest primary geothermal company in North America.

On Friday, the stock was trading at $1.33 in a 52-week range of $1.85 and $1, giving Magma a market cap of $384.3 million, based on the 288.9 million shares outstanding.

During calendar 2011, the company expects its revenue to be in the $60 to $65 million range.

Beaty says Icelandic geothermal energy is among the cheapest in the world to produce, costing between 1 cent and 1.5 cents per kilowatt hour to produce electricity. “The bad news is that we can only sell it for between 2 cents and 3.45 cents per kilowatt hour.”

It means that profit margins are not as good as they are in the United States, for example.

In Nevada, by comparison, it is costing about 6 cents per kilowatt hour to produce geothermal energy at its wholly-owned Soda Lake plant. As Magma is selling that electricity to a local utility for around 7 cents per kilowatt hour, the company is planning to double the size of the operation in a bid to lower costs.

Meanwhile, having raised about $230 million since its inception, Beaty said the company is trying to use its equity as sparingly as possible. However, in Chile where the company is planning to develop a very large power plant, Magma is planning to spend $50 million on drilling over the next two years.

“Our budget shows no need for new equity in 2011,’’ Beaty said. “However that can change if we find an acquisition that we love, or if we have great exploration success at one of our projects or need to do more drilling. In that case, we would be going back to the market to raise more capital for sure.”