October 07, 2015

Schizophrenic Signals Surround Sino Solar Stocks Yingli, ReneSola And Jinko

Doug Young

Bottom line: YIngli’s debt restructuring plan and ReneSola’s early debt repurchase will bring some confidence to solar shares, but pessimism will quickly return as their situations deteriorate without major signals of new government support.

Shares of Yingli (NYSE: YGE) and ReneSola (NYSE: SOL) have taken investors on a wild ride these last few weeks, reflecting the alternating hopes and fears gripping 2 of the shakiest companies in a solar sector crippled by a downturn now entering its fourth year. If I were a betting man, I would say the chances are better than 80 percent that Yingli won’t survive the crisis, especially after the company’s latest announcement that it will miss a debt repayment deadline. Chances for ReneSola look slightly better, but even then I would only put the company’s likelihood of survival at 50-50.

One of the biggest questions fueling the uncertainty is whether Beijing and local governments will step in to rescue these companies. A year ago the answer would almost certainly have been “no”, reflecting China’s desire to clean up a bloated sector plagued with excess capacity. Recent signals show Beijing may still want to let the weakest players fail, but also that China’s slowing economy may be weakening that resolve.

The latest signals appear to still show that Beijing still wants to see consolidation, even though that could cost China’s economy thousands of jobs and other economic activity. One of those signals came from Yingli, which said that one of its subsidiaries would miss repayment of $157 million for notes that are coming due on October 13. (company announcement; English article; Chinese article)

But just a day later, a more positive signal came from ReneSola, which said it had begun to buy back notes that were set to come due as soon as next year. (company announcement) Last but not least, media also reported that another mid-sized player, Jinko Solar (NYSE: JKS) was indefinitely delaying plans to build a new plant in Brazil, again pointing to the shaky finances that are now undermining many companies. (English article)

Looking for Cash

The YIngli news is certainly the most worrisome, and will see the company’s Tianwei Yingli subsidiary miss a deadline to repay 5-year notes coming due on October 13. But Yingli held out hope that it could eventually repay the debt, saying it expects to receive $138 million from the sale of land and demolition of some older facilities. That could cover most of the payment if and when it receives the money, which could happen before the end of the year.

This particular move reflects Yingli’s ongoing woes, but also the weakening resolve of local governments that looked set to allow the failure of poorly performing solar panel makers. That’s because the buyer of Yingli’s land is almost certainly a local government entity, which means the sale would be almost the equivalent of a government rescue.

Next there’s ReneSola, which announced it recently repurchased more than half of about $50 million in convertible notes that will come due in 2018 but have a put option next year. ReneSola also said it has repurchased around 800,000 of its American Depositary Shares (ADSs), as part of a $20 million share buy-back program announced on September 23.

Both of these moves are clearly confidence-building measures despite the small amounts of money involved, and they did provide some support to the broader sector. ReneSola shares jumped about 20 percent after its latest announcement, though they still trade below their levels from early September. Even Yingli stock, which tumbled 20 percent after its earlier debt restructuring announcement, returned to pre-announcement levels.

Finally there was the Jinko Solar news, which looked downbeat as the company indefinitely shelved plans to build a factory in Brazil. That plan was part of a growing wave of new outbound investment announced earlier in the year, which appeared to show the sector might be returning to health. (previous post) But turmoil in the global economy may now put many of those expansion plans on hold.

At the end of the day, all of this news points to the same reality, namely that many Chinese solar companies are struggling and will face closure without government support. Yingli’s bailout shows such support may come in limited amounts for now. But I expect government patience will be short-lived, and we will ultimately see YIngli and one or two other larger players fail.

Doug Young has lived and worked in China for 15 years, much of that as a journalist for Reuters writing about Chinese companies. He currently lives in Shanghai where he teaches financial journalism at Fudan University. He writes daily on his blog, Young´s China Business Blog, commenting on the latest developments at Chinese companies listed in the US, China and Hong Kong. He is also author of a new book about the media in China, The Party Line: How The Media Dictates Public Opinion in Modern China.

October 06, 2015

Velocys: A Key To Advanced Biofuels At Scale

Jim Lane

Velocys-unitFour new technologies approach scaled operations, all with one element in common – Velocys (VLS.L) technology on the back-end.

Why Velocys, why now? The Digest investigates.

In Oklahoma, Southeast Oregon, Eastern Ohio, and a site near London we’re about to see the commercial-scale debut of Velocys technology, a smaller scale gas-to-liquids processing technology that converts natural gas or biomass into premium liquid products, such as diesel and jet fuel. In this case, specifically designed for smaller scales, resulting in standardized modular plants that are economic, easier to ship and faster to install, at lower risk, even in the most remote locations.

velocys logoVelocys makes what’s called micro-channel FT technology, and two of the major aviation biofuels projects, Solena (in partnership with British Airways, in the UK) and Red Rock (in partnership with FedEx and Southwest Airlines) are using it at the back-end to convert syngas to fuel. Fischer-Tropsch has been around as a technology for a long-time, but only at a massive scale — these are among the first small-scale FT projects ever. It’s not entirely correct to say that the future of sustainable aviation rests on this technology, but it’s not entirely incorrect either.

More about Velocys

The Digest’s 2015 8-Slide Guide

The Digest’s 2015 5-Minute Guide

Where will it be seen first?

Where will we see it at a “commercial reference” scale first? Probably in Oklahoma, where the Envia Energy Oklahoma City project is underway and will deploy a number of Velocys’ full-scale reactors. It’s now under construction, after a joint venture between Waste Management, Velocys, NRG Energy (NRG) and Ventech was announced early last year and the final investment decision was made (in July 2014) to proceed with construction of the joint venture’s first plant being developed adjacent to Waste Management’s (WM) East Oak landfill site in Oklahoma, USA. Ground breaking took place last May, and mechanical completion is expected in the first half of 2016.

Next? Could be Red Rock or Solena

In July 2012, Velocys was selected by project developer Solena Fuels as sole Fischer-Tropsch supplier to GreenSky London, Europe’s first commercial-scale sustainable jet fuel facility, being developed in partnership with British Airways. A site for this project was selected in April 2014, and the project is expected to be in operation in 2017.

GreenSky London is the first of several waste-biomass to jet fuel projects planned by Solena. Approximately 575,000 tonnes per year of post-recycled waste, normally destined for landfill or incineration, will instead be converted into 120,000 tonnes of clean burning liquid fuels. British Airways has committed to purchasing all 50,000 tonnes per annum of the jet fuel produced at market competitive rates on a long-term basis.

Meanwhile, in September 2014, Red Rock Biofuels was selected to receive a $70 million grant through the US Department of Defense to construct a biomass-to-liquids plant in Oregon, USA that will incorporate Fischer-Tropsch technology from Velocys. Red Rock Biofuels, a subsidiary of IR1 Group, is experienced in constructing and operating commercial scale biofuel facilities.

What about natgas?

Last year, Velocys announced the acquisition of Pinto Energy LLC and the Ashtabula GTL project. This represents a significant step in the North American oil & gas industry’s adoption of smaller scale GTL and of the Velocys technology, accelerating the development of “shovel ready” projects. As its first facility, Pinto Energy is developing an approximately 2,800 barrels per day (bpd) plant at an 80 acre industrial site that it owns near the Port of Ashtabula, Ohio, USA.

The project will benefit from both access to abundant low-cost natural gas from the Marcellus shale region and substantial existing infrastructure. Initial engineering for the facility is complete and the air permit has been issued. Final investment decision is expected within six to nine months. Future expansions could see installed capacity of 10,000 bpd or more at the site. In addition to Ashtabula, Pinto Energy has a pipeline of smaller scale GTL projects it is seeking to develop throughout North America.

Where can you see it today?

The Velocys Pilot Plant is operating in Plain City, Ohio — this integrated GTL facility includes Velocys’ microchannel FT and steam methane reforming reactors.

How much does Velocys make out of these projects?

Some time back, Velocys indicated that successful implementation of the GreenSky London project and receipt of the notice to proceed is expected to generate more than $30M to Velocys during the construction phase, and additional ongoing revenues of more than $50M over the first 15 years of the plant’s operation.

Why aren’t investors falling all over a technology that can tap new value in stranded gas?

Well, stranded gas may stay stranded a little longer. Just two years ago, we had $2 gas and $90 oil. Now, we have $2 gas and $40 oil — a lot of enthusism has gone out of the GTL space because the crack spread has narrowed considerably.

When will demand recover for GTL technologies?

Ultimately, we’ll see more enthusiasm when demand for liquid energy recovers — it’s been sluimping in China, and even a resurgence in gasoline demand in the US — it’s up several points since oil prices crashed — hasn’t shored up oil prices in the face of a surge in US production around fracking technology, and a “no backing down on market share” strategy from OPEC.

Will biomass or natgas be the big winner?

It’s really not a case of fossil feedstock vs biofeedstock, it’s all about advantaged feedstock. Smart investors will take a portfolio approach. As LanzaTech CEO Jennifer Holmgren says, “never fall in love with a feedstock”. 10 years ago, it was all about corn sugars and soybean oil. Then, cellulosic energy crops, then cellulosic residues. Then, the rage was for cheap Brazilian sugar. Then, along came algae, then it was advantaged natgas will save the world. Most recently it is “oil prices will be low, possibly for 10 years”.

Virtually every feedstock excepting coal and palm oil have received significant amounts of global love at some point in the last decade?

Two lessons there. One, think portfolio, don’t pick stocks and don’t pick feedstocks. Two, the drive towards sustainability will occasionally be interrupted by temptingly low short-term prices, but environmentally-sustainable feedstocks that are cost-advantaged will be double-advantaged, and that’s formidable. The days of single-attribute feedstocks — e.g. low on price or low on carbon, but not on both, are increasingly numbered and will end as soon as the project development crowd gets its messaging right and insists on sustainable certification and a public-imposed low-carbon benefit for technologies that deliver cleaner air, because that is a benefit to the public not to the investor.

But, then there’s policy-advantaged feedstock as well — meaning sustainability — and there we are at an impasse of sorts in the EU and US. Regulators haven’t seen enough of a robust supply-chain in residues, or enough processing technology roll-out, to robustly enforce biofuels mandates set in the 2000s — we’ve seen overt roll-back in the EU, a wishy-washy attitude in the US, and only in California is the drive still on for lower-carbon fuels., The Velocys projects will help with the latter, of course.

One of the key advantages of Velocys technology is that has the small-scale necessary to tap the value in stranded natgas or stranded biomass (e.g. waste residues such as gasified MSW or stranded wood) — that helps with finding economically advantaged feedstock.

Jim Lane is editor and publisher  of Biofuels Digest where this article was originally published. Biofuels Digest is the most widely read  Biofuels daily read by 14,000+ organizations. Subscribe here.

October 04, 2015

10 Clean Energy Stocks for 2015- September Performance

by Tom Konrad Ph.D., CFA

Sorry I did not have time to write the usual monthly update article this weekend, but I hope to get to it in the next couple weeks.

Until then, here is how the stocks were doing through the end of September (click for larger version):

10 for 15 Sept.png

The recent market downturn continues to make my relatively conservative picks (especially the income stocks) generally outperform. For the year, the model portfolio is down only 6% in dollar terms compared to its clean energy benchmark, which is down 30%, and almost matching its broad market benchmark, which is down 4%.

The income sub-portfolio shines brightest, with a 7% gain for the year to date, despite a 35% decline in its benchmark. The Growth/Value subprotfolio continues to drag, down 26% for the year to date, but now its benchmark has fallen nearly as much, down 23%.


On the buying/selling side, I've been trimming some winners (New Flyer [TSX:NFI/NFYEF] and Accell Group [Amsterdam:ACCEL / ACGPF]) in order to buy a number of yeildcos which are now very attractively priced after the yieldco bubble burst and is now over correcting.

October 01, 2015

Covanta: Comfort In An Ample Dividend

by Debra Fiakas CFA

In late August 2015, volatility turned its frightening countenance on the U.S. equity market.  The volatility measure for the S&P 500 Index (VIX) spiked to a peak of 53.29 during trading on August 24th.  While things have calmed down since, volatility remains well above the 20.00 level where many investors consider it too precarious to take new equity positions.  At time like these it makes sense to seek the warm comfort of an ample dividend.  Those regular cash rewards can make it worthwhile waiting for stock prices to calm down.

Within the renewable energy sector Covanta Holdings, Inc. (CVA:  NYSE) is a strong candidate for dividends.  At the current price level, CVA is yielding 5.2%, making it one of the best dividend payers in our indices of renewable energy, efficiency and conservation companies.  Will Covanta be able to sustain its generous payments?

Covanta’s revenue comes from the sale of electricity and steam generated by 46 waste-to-energy facilities strung out across the country.  There are another 11 power generation sites that use biomass or hydroelectric technologies.  The company also sells metals recovered from the municipal waste it uses as feedstock.  In the twelve months ending June 2015, Covanta reported $1.6 billion in total sales, from which it squeezed $229 million in operation cash flow.

Indeed, Covanta consistently extracts cash out of its operations even in years when it reports a net loss on its income statement.  In the last three years average cash flow from operations was $333 million.  With average capital expenditures near $175 million, Covanta has had about $158 million in operating cash available in recent years to pay its dividend.

Even if times turn bad for the waste-to-energy business, Covanta has a fairly secure financial situation.  At the end of June 2015, the company had $167 million in cash on its balance sheet, which is probably enough to support working capital needs.  The company also has $410 million in long-term investments that could be cashed in if the need arises.  Covanta does have long-term debt totaling $2.4 billion.  However, the debt is balanced by $2.6 billion in property, plant and equipment assets.

Covanta has cultivated a good following among analysts interested in the renewable energy industry.  The consensus estimates suggest Covanta is in a relatively stable situation.  The company has been experiencing some top-line and margin pressures and it appears sales and earnings in the year 2015 will be lower than last year.  Covanta did miss the earnings consensus in both the March and June 2015 quarters and analysts lowered expectations for the rest of 2015 and the year 2016 after the June quarter disappointment.  However, there is still some optimism for recovery next year and the current consensus for both sales and earnings suggests mid-single digit growth in 2016.

After Covanta reported disappointing results for the quarter ending June 2015, traders have been bidding the stock down.  Just last week CVA registered a 52-week low price of $18.05.  The stock now appears oversold.  That might be a call for some bargain hunters to take new long positions.  However, like so many stocks in the U.S. equity market CVA appears to have lost its upward momentum.  For investors interested only in growth that is not a compelling scenario.  The dividend could make the wait for recovery a lot more pleasant.

Debra Fiakas is the Managing Director of
Crystal Equity Research, an alternative research resource on small capitalization companies in selected industries. 

Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein. 

September 30, 2015

Regular, Premium, Super, and Renewable SuperDuper

Jim Lane

Move over Super, here comes SuperDuper. All the high octane and performance, and the renewability too, at a price you can afford.

Biofuels are adding options for drop-in, low-carbon, super-perfornance gasoline via isooctane and isooctene, as Gevo (GEVO) announces sales of isooctene to BCD Chemie, a subsidiary of Brenntag.

In Colorado, Gevo said that it has begun selling renewable isooctene to BCD Chemie, a subsidiary of Brenntag. Initial orders in 2015 are expected to result in revenues to Gevo of over $1 million.

And you might wonder why that matters.

The performance appeal?

One, high octane, unlike gasoline but like ethanol. Two, unlimited blending via a pure hydrocarbon and no tolerance hassle, unlike ethanol but like gasoline.

The economic appeal?

Three, the value is isooctene in Europe can range up to $7.00-$10.00 per gallon for petroleum-based isooctene and isooctane, according to Gevo.

In the US, it could be worth something like $4.35 per gallon, today.

Here’s our math on that. Adding 13% renewable isooctene or isooctane to 85-octane refinery blendstock, you get an 87-octane E0 fuel which commands a 20-cent per gallon premium over 87-octane unleaded E10, and there’s roughly 13 cents in RIN value in there also, plus you start from nickel-cheaper 85-octane blendstock in making an E0 product, instead of making 87-octane. Adding $0.38 in margin with a 13% blend gives you a $4.35 per gallon value in the additive.

Plus, use of these renewable hydrocarbons enables companies to meet regulatory requirements for renewable content in fuels while satisfying the performance requirements of their customers.

The background on renewable isooctane and isooctene


We’ve been tracking the birth of this market for some time. Earlier this year, Ronan Rocle and David Gogerty of Global Bioenergies observed in June:

Isooctane is currently derived from the dimerization of isobutene followed by hydrogenation. Another method to produce isooctane would be alkylation of isobutene by isobutane. But additional [production] steps results in isooctane and alkylate products that are, on average, 25% and 15% more costly than gasoline, respectively, with the big driver in isooctane price being the requirement for isobutene as part of the production process.

This is where bio can have a large added value—bio-engineered microbes are great at producing specific products such as isobutene.

Gevo and Global Bioenergies in the lead

The isooctene in the BCD deal will be produced at Gevo’s biorefinery in Silsbee, Texas, derived from isobutanol produced at Gevo’s plant in Luverne, Minn. Gevo’s biorefinery is operated in conjunction with South Hampton Resources.

Meanwhile, direct production of isobutene by fermentation has been reported by Global Bioenergies at its pilot plant in France. Isobutene evaporates from the fermentation broth, leading to no toxicity for the microbe, and is then directly recovered as a pure product. Due to the relative simplicity of this process, renewable isobutene can be produced cost competitively compared to fossil-based pure isobutene, based on five year averages.

One could then envision the production of isobutene and the dimerization of isobutene into isooctane (via isooctene) for a 100% bio-based, renewable molecule. This could come to fruition scientifically, but the renewable industry has heard one key message loud and clear—customers only want renewable/sustainable products that are at or below fossil prices. Thus, a renewable company would find it difficult in today’s market dynamic to compete on price with gasoline when it would have to make two very pure bio-isobutene molecules and saturate the isooctene product with hydrogen to produce the isooctane.

Two routes to value

Gevo is highlighting the high price route – targeting a $7-$10 fuel molecule in the EU. But, there’s premium value in the US, too.

Conversely, Global Bioenergies has highlighted a low-cost approach. Specifically, combining a high-purity bio-isobutene monomer with the very cheap refinery product, butane, to produce an isooctane molecule that competes on cost with conventional isooctane, and 50% renewable content and RIN-qualified. thus qualifying for a pro-rated RIN price that will add additional benefits to its economic feasibility.

One more thing: The vapor pressure performance add-on

As Rocle and Gogerty noted in the Digest, customers get a second benefit beyond the high-octane molecule, they get a vapor pressure much lower than ethanol, gasoline, and even alkylate. This vapor pressure value is critical, because by adding isooctane with a vapor pressure of 1.8 psi, one can blend gasoline with cheaper butanes that have a decent octane value (92) but a difficult vapor pressure (54 psi).

For consumers at the pump

Rocle and Gogerty predict:

“We can already see some indication of what this means for consumers at the pump. They will have the opportunity to purchase a sustainable, domestically produced fuel with identical hydrocarbon qualities as gasoline and higher performance. Higher technical properties also mean that lower quantities of premium components are needed to match the same quality.”

The deal background and prospects moving forward

BCD Chemie is targeting applications in Europe with Gevo’s isooctene. This commences a relationship with BCD Chemie that may include the marketing of other hydrocarbon products, including isooctane and jet fuel, and builds on Gevo’s existing partnership with Brenntag in Canada, which is currently selling Gevo’s isobutanol as a solvent in Canada.

Reaction at BCD and Gevo

“BCD Chemie has begun purchasing continuously increasing quantities of renewable hydrocarbons from Gevo for distribution to selected customers. These customers are very excited to utilize renewable components in their products as they are green replacements for fossil hydrocarbons, which benefit the environment without any performance loss. We are looking forward to developing this market together with Gevo in Europe, as this fits our business plan of expanding sales of high performance chemicals and substances throughout Europe,” said Denis Hamann, Project Manager for BCD Chemie.

“Gevo appears to be one of the only sources of renewable isooctene and isooctane globally. As a result, the market has been very excited by these product offerings, with demand outpacing our ability to produce at our biorefinery in Silsbee. Renewable hydrocarbons are exact replacements to petroleum-derived hydrocarbons, so there is no compromise on performance. We are very pleased to be working with BCD Chemie. The European market is an ideal place to be marketing many of our specialty fuels and chemicals products,” said Gevo CEO Pat Gruber.

The Bottom Line

Here’s the renewable riddle?

Q: Why make a $2 fuel when you can make a $5 chemical?

A: When you can make a $7 fuel additive.

Which is to say, Gevo is one of those companies targeting niche fuel additive markets. Recognizing that the fuel supply is so vast that even commanding a 30% market share of a 3% fuel additive would be, globally, something like 5 billion gallons. A volume of business that would keep companies like Gevo and Global Bioenergies building capacity as fast as they could for years to come.

Jim Lane is editor and publisher  of Biofuels Digest where this article was originally published. Biofuels Digest is the most widely read  Biofuels daily read by 14,000+ organizations. Subscribe here.

September 28, 2015

BioNitrogen: Valuable Technology, Management Questions

by Debra Fiakas CFA

My last post outlined how  Bion Environmental Technologies, Inc. (BNET: OTC/QB) is transforming livestock waste into organic fertilizer.  Bion is not the only aspiring fertilizer producer.  BioNitrogen Holdings Corp. (BION:  OTC/PK) was recently patent protection for a process to produce urea from stranded natural gas.  Instead of burning off the unwanted gases, oil and gas operators can turn it into an economically viable by-product.

There is more than just cash flow at stake for oil and gas producers.  Burning off stranded gas increases harmful emission that can lead to penalties in the future.  Gas flares in the Eagle Ford oil and natural gas patch releases over 25,000 tons of air pollution each year.  The U.S. Environmental Protection Agency (EPA) has proposed regulations to eliminate flaring and venting during the well completion phase.  Importantly, the new rules would apply to natural gas well and not oil wells, which are more prevalent in Eagle Ford.  Nonetheless, there is movement in the U.S. gas patch toward eliminating pollution from burning off stranded gases.

Gas producers have some options to reduce the emission of methane and volatile organic compounds from their wells.  There is available leak detection equipment and a menu of fixes to keep equipment in good working order.  Bionitrogen is hoping its patented process will pique gas producer interest because it could deliver a high return on investment.

Whether investors can get a similar return on BION is another question.  The stock is priced in pennies, making it more like a lottery ticket than a stock.  Investors in BION will be frustrated in following the company’s progress by the fact that the company is not up to date in financial filings with the SEC.

BioNitrogen has had its problems, including the indictment of its chief financial officer for grand theft.  While the criminal charges were later dropped, the news left BioNitrogen reeling from the scandal.  An internal investigation into the officer’s misconduct is ongoing, but preliminarily legal counsel indeed found misconduct.  The officer subsequently resigned.  The company has since added new directors to the board and a new auditor has been appointed.

As appealing as BioNitrogen’s urea process might be in a world beset by climate change due to harmful emissions, BION has its risks.  It seems logical that there is value in the technology, in as much as the availability of stranded natural gas as feedstock is without question.  Furthermore, there are strong economic incentives for gas well owners to consider the BioNitrogen option.  Unfortunately, this is a management team that has to prove its ability to execute and re-establish its reputation.

Debra Fiakas is the Managing Director of
Crystal Equity Research, an alternative research resource on small capitalization companies in selected industries. 

Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein. 

September 26, 2015

Sharp Drops for Alternative Energy Mutual Funds and ETFs

By Harris Roen

Alternative Energy Mutual Funds Down for the Quarter, Mixed for the Year

Alternative Energy Mutual Fund Returns

Alternative energy mutual funds have turned sharply lower over the past three months. Of the 14 MFs that the Roen Financial Report tracks, all but one are down for the quarter. Five are posting double-digit declines. On average, the drop in MFs are similar to that of the S&P 500 and Down Jones Industrial Average, which fell 7.44% and 9.6% respectively. The only MF showing a gain…

ETFs are Widely Lower

Alternative Energy ETF Returns

Green ETFs are showing poor returns on both a three month and one year basis. ETFs on average are off -16.5% for the quarter, and -20.7% for the year. All ETFs are down over both time periods with the exception of one fund, iPath Global Carbon ETN (GRN). Even on a three year basis, ETFs are up only 3.7% on average, far lower than their MF counterparts…


Individuals involved with the Roen Financial Report and Swiftwood Press LLC do not own or control shares of any companies mentioned in this article. It is also possible that individuals may own or control shares of one or more of the underlying securities contained in the Mutual Funds or Exchange Traded Funds mentioned in this article. Any advice and/or recommendations made in this article are of a general nature and are not to be considered specific investment advice. Individuals should seek advice from their investment professional before making any important financial decisions. See Terms of Use for more information.

About the author

Harris Roen is Editor of the “ROEN FINANCIAL REPORT” by Swiftwood Press LLC, 82 Church Street, Suite 303, Burlington, VT 05401. © Copyright 2010 Swiftwood Press LLC. All rights reserved; reprinting by permission only. For reprints please contact us at cservice@swiftwood.com. POSTMASTER: Send address changes to Roen Financial Report, 82 Church Street, Suite 303, Burlington, VT 05401. Application to Mail at Periodicals Postage Prices is Pending at Burlington VT and additional Mailing offices.
Remember to always consult with your investment professional before making important financial decisions.

September 25, 2015

The Economics of Biofuels: Crack, Crush and Fuse

Jim Lane
In oil & gas and biofuels, we hear about crack spread and crush spread. But fuse spread is a critical factor in advanced, low-carbon fuels.

Here’s the what and why and who.

The most fundamental economic in the oil & gas business has historically been the crack spread, which is the price difference between the value of crude oil and the underlying products after refined, or “cracked”. For example, Brent crude oil costs $49 a barrel right now, or $1.17 per gallon, while front month RBOB gasoline prices at $1.42 per gallon, and the New York October contract for ULS diesel is at $1.54.

Over in the world of biofuels, a similar measure is the crush spread — the differential between the underlying feedstock and the market price of the fuel. Right now the front month price for soybean oil is 25.51 cents per pound, or around $1.94 per gallon, and the September RME biodiesel contract in Rotterdam is $882 per ton, or $3.05 per gallon. Over on the ethanol side, corn is trading at $3.83 per bushel, which translates into $1.32 per gallon, while the October ethanol contract in Chicago is trading at $1.59.

About crush and crack spreads, in general

In the case of petroleum, the crack spread we’ve quoted doesn’t take into account the value of the chemical fraction, which pushes up the overall value of the barrel quite a bit. And, the soybean oil example doesn’t take into account the value of the glycerine by-product from biodiesel production. And the ethanol example doesn’t take into account the value of corn oil, CO2 or distillers grains. Or, the value of renewable fuel credits such as RINs. So, these are rough calculations relating the fuel fraction.

But they demonstrate right away some of the pressures on biofuels right now, at a time of low petroleum prices. On the ethanol side, there’s not much margin to work with for the biofuels producer. On the biodiesel side, the traditional US feedstock produces an expensive fuel.

Accordingly, ethanol producers have worked hard on diversifying the product set, notably adding corn oil in recent years, while biodiesel producers have sought out alternative feedstocks, especially tallows and other waste fats, oils and greases. Choice white grease in the Central US, for example, is trading at 21 cents per pound, or 20% less than soybean oil.

Over on the cellulosic ethanol front, the crush spread isn’t much better for agricultural residue. The most pessimistic assessment of feedstock cost right now is around $115 per ton for cellulosic biomass, or around $1.44 per gallon (at a yield of 80 gallons per ton). Should feedstock prices drop to around $80 per ton, delivered to the refinery gate — well, that’s much better, at around $1.00 per gallon.

The good news — if you have a technology that can work with municipal solid waste. MSW comes in at zero cost, right now. We don’t know how long that scenario will hold.

So, where’s the sustainable, affordable, reliable, available supply of feedstock for the industry moving forward?

There are two schools of thought.

School One. “oil prices are going up again soon enough” school, which generally subscribes to the belief that by the time cellulosic and other technologies can scale broadly around the world, oil prices will return to a $70-$80 per barrel price range, or around $1.67-$1.90 per gallon of crude, and that wholesale gasoline prices will rise to around $2.15 per gallon. Add in a 50-cent RIN for an advanced fuel, and a producer has something like $2.65 per gallon to work with, excluding the value of any co-products.

School Two. Oil prices could be low for some time, and investors don’t like rosy future scenarios based on high oil prices, anyway. So, it’s not a case of “waiting for business as usual”, but pursuing lower-cost feedstocks.

Which brings us to the fuse spread.

What’s that? The fuse spread is the difference between the underlying feedstocks fused together to make an organic molecule and ultimately produce a biofuel. Plants use carbon dioxide and water.

Water’s cheap, averaging 1.5 cents per gallon in the US.

So, it comes down to the cost of CO2, which is why the current haggling over the status of waste CO2 is of titanic importance to the planet.

If governments decree that, to mitigate climate change, waste CO2 must be geologically sequestered by regulated parties, CO2 must be obtained from the merchant market at something like $160 per ton, as we reported here.

If regulators allow carbon capture and use, costs could fall to a penny per pound of CO2.

So, here’s the underlying raw feedstock cost, per gallon of fuel, at theoretical yield:

Merchant CO2 Waste CO2
Hydrocarbon $1.55 $0.41
Ethanol $0.68 $0.10

Generally, carbon monoxide and hydrogen combinations, such as LanzaTech uses, is expected to be available for free for some time. So they have the same “it’s free!” math as MSW.

The battle over carbon capture and use and the US Renewable Fuel Standard

A glance at the chart above and the math tells us why companies like Joule and Algenol, that have microorganisms that can produce fuels from CO2 and water, are working hard on carbon capture and use, as well as supporting efforts to expand ethanol acceptance.

The hydrocarbon route using merchant CO2 is a non-starter — the feedstock is priced at more than the target fuel in today’s market, and even if oil prices improve as expected, these are complex technologies that need to build refineries, and there isn’t much help in the fuse spread. However, the match gets much better with waste CO2, where there’s some room for capex, opex and for a yield of say 85% of theoretical.

Over in the world of ethanol, it’s likely not to be workable with merchant CO2 unless then price drops into the $50 per ton range. But the math looks pretty good with waste CO2 and ethanol — one of the reasons that these technologies suggest that they can be, long-term competitive even with low-cost petroleum.

The role for the regulator: dig up the carbon, then re-bury, or just leave petroleum in the ground in the first place

The decision facing regulators, then, is very simple. Do they want low-cost, low-carbon fuels that bypass competition with food and arable land — or not? The policy path to affordable, at-scale fuels is relatively straightforward. A rising ethanol distribution combined with a policy on carbon capture and use — and the fuse spread tells us there will be robust investor interest in deploying low-carbon fuels.

Or not.

Given that there are hard limits on the geography and availability of free feedstocks such as MSW and carbon monoxide — and given that there are practical limits on the availability of traditional biofuels feedstocks such as corn, soybeans and rapeseed, and supply chains to be worked out to tap cellulosic biomass — the choice of the regulator is quite clear.

Either bury the CO2 and dig up petroleum to fuel the transportation economy, or use the CO2 that’s available and leave the petroleum in the ground. Either path sequesters the same amount of carbon. The latter path is quite a bit less costly and complex in the long-term.

 Jim Lane is editor and publisher  of Biofuels Digest where this article was originally published. Biofuels Digest is the most widely read  Biofuels daily read by 14,000+ organizations. Subscribe here.

September 24, 2015

King of the Cow Pats

by Debra Fiakas CFA

Last week Bion Environmental Technologies, Inc. (BNET: OTC/QB) announced that the company has applied for patent protection of a process to recover nitrogen from livestock waste.  The process yields a crystalline, water-soluble fertilizer product that is about 12% to 15% nitrogen.  Since the nitrogen is extracted from the livestock waste without the use of chemicals and leaves behind potentially toxic salts, metals and minerals, the company is also applying for certification as an organic material.

The company believes there will be a strong demand in the agriculture sector for its products.  First, feedlot owners have to worry about federal mandates to stem contaminated run-off that can pollute streams and rivers.  Nitrogen and other nutrients in run-off can lead to reduced oxygen levels in water and otherwise harm aquatic life.  There is a strong incentive to find alternatives for livestock waste and Bion expects to find an eager reception among livestock finishers. 

Second, there is a ready market for organic fertilizer to satisfy the increasingly discerning consumer interested in eating more wholesome foods.  Its fertilizer product is easy to handle, package and distribute  -  qualities that are supporting of a high-margin fertilizer product.

The nitrogen fertilizer product could be a breakthrough for Bion, which has reported only a few thousand dollars in revenue since inception.  With so little money coming in the door, Bion is not profitable and is burning cash.  In the twelve months ending March 2015, the company used $715,960 in cash to support development work and other operations.  It does not sound like a large sum until an investor notes that at the end of March Bion only had about $500,000 in cash in the bank.

It might be a bit dicey accumulating a meaningful position in Bion Environmental.  Trading volumes are quite modest and the stock does not trade every day.  Trading near $1.00 per share, BNET trades less like a stock priced on future cash flows and more like an option on management’s ability to commercialize its technology.

Debra Fiakas is a cattle rancher's daughter and the Managing Director of
Crystal Equity Research, an alternative research resource on small capitalization companies in selected industries. 

Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein. 

September 23, 2015

Solar Weaklings Shudder on Tianwei Collapse

Doug Young 

Bottom line: The bankruptcy of Tianwei signals Beijing will allow a new round of failures for weaker solar panel makers, with Yingli and ReneSola the most likely to come under pressure.

News that solar panel material maker Baoding Tianwei is on the brink of collapse has sent shudders through the entire sector, as everyone guesses who might be next to fall in a looming new clean-up of China’s bloated industry. Tianwei has been in trouble for a while now, after the company became the first state-run firm to ever default on a domestic bond interest payment back in April.

That development certainly didn’t bode well for Tianwei, but it remained unclear if the local government or Beijing would ultimately step in to bail out the company and save its investors. Now we finally have the answer to that question, following media reports that Tianwei and 3 of its business units are formally filing for bankruptcy. (English article; Chinese article)

The bigger picture to this story is that Beijing now appears willing to let weaker and less efficient solar panel makers and their suppliers fail, in an effort to create a more solid foundation for the remaining stronger players. The government already allowed an earlier round of failures that included former giants Suntech and LDK, but no major closures have come since then. But that looks set to change now.

According to the latest reports, Tianwei announced its insolvency and inability to pay its debts on the website Chinamoney.com.cn, a website of the China Foreign Exchange Trade System. The company cited the slowdown in the broader global economy, as well as overcapacity in the solar panel sector for its decision.

Tianwei was traditionally a maker of electrical transformers, but more recently got into the business of making polysilicon, the main material used to makes solar panels. Such a move may sound puzzling to many westerners, but is actually quite common for big Chinese state-run companies that often rush into new business areas that Beijing sets as priority areas for development.

In this case, Tianwei and many other state-run firms piled into the solar sector, only to incur big losses when their mass action created a huge oversupply on the global market. Tianwei reported a loss of 10.14 billion yuan ($1.6 billion) last year, with total debt at 21 billion yuan, far higher than its total assets of 13 billion yuan.

Solar Sell-Off

Tianwei’s bankruptcy announcement sent shivers through stocks of US-listed solar panel makers, as investors worried over what the bankruptcy might mean for the rest of the sector. In this case it’s quite easy to tell which companies are the biggest sources of concern by looking at the magnitude of their share declines.

Leading that group was the wobbliest company, Yingli (NYSE: YGE), whose shares plunged 24 percent on the news. Yingli is one of the few major solar players that failed to return to profitability as the sector downturn eased, and previously warned that it could be in danger of going out of business. Adding to the worries, the company’s headquarters are also in the northern Chinese city of Baoding where Tianwei is based, indicating the local government may not step in to provide any relief.

The other big loser in the Friday sell-off was the loss-making ReneSola (NYSE: SOL), whose shares tumbled 14 percent to close below the symbolically significant $1 threshold. Most other solar companies also got caught up in the sell-off but to a smaller extent, with stronger names Canadian Solar (Nasdaq: CSIQ) and Trina (NYSE: TSL) both down by around 7 percent.

Shareholders are correct to be worried about weaker names like Yingli and Renesola, as these companies clearly could face growing difficulties if their financial situation continues to deteriorate. But I question the sell-off for the strong names like Canadian Solar, since these companies could be well positioned to buy up assets at bargain prices from failed companies like Tianwei and others that could soon follow into bankruptcy.

Doug Young has lived and worked in China for 15 years, much of that as a journalist for Reuters writing about Chinese companies. He currently lives in Shanghai where he teaches financial journalism at Fudan University. He writes daily on his blog, Young´s China Business Blog, commenting on the latest developments at Chinese companies listed in the US, China and Hong Kong. He is also author of a new book about the media in China, The Party Line: How The Media Dictates Public Opinion in Modern China.

September 21, 2015

EPA Says VW Running Massive Clean Air Scam

Jim Lane 

VWlogoVW is facing up to $18.07 billion in fines; recalls, mandatory vehicle emission fixes on the horizon; investigations underway at EPA and in California as “defeat devices” uncovered that evade clean air regulations.

In Washington, EPA issued a notice of violation of the Clean Air Act to Volkswagen AG, Audi AG, and Volkswagen Group of America, Inc. alleging that four-cylinder Volkswagen and Audi diesel cars from model years 2009-2015 carry a “defeat device” which circumvents EPA emissions standards for certain air pollutants.

Specifically, the EPA alleges that a sophisticated software algorithm on certain Volkswagen vehicles detects when the car is undergoing official emissions testing, and turns full emissions controls on only during the test.

The effectiveness of these vehicles’ pollution emissions control devices is greatly reduced during all normal driving situations, according to the EPA. “This results in cars that meet emissions standards in the laboratory or testing station, but during normal operation, emit nitrogen oxides, or NOx, at up to 40 times the standard. The software produced by Volkswagen is a “defeat device,” as defined by the Clean Air Act,” the EPA wrote in its Notice of Violation.

VW facing up to $18.07 billion in fines

VW is facing up to $18.07 billion in fines for an estimated 482,000 violations of the Clean Air Act, and the EPA may seek injunctive relief. This could take the form of a mandatory recall. Meanwhile, individuals associated with the violations may be subject to a further $1.8 billion in civil penalties.

For purposes of comparison, BP paid $18.7 billion in fines to settle claims stemming from the Deepwater Horizon disaster.

Is there room for some benefit of doubt for VW?

Alas, not much room for hope. According to EPA, VW admitted to installing the software earlier this year, which EPA has characterized as a “defeat device”.

In a statement released Sunday, Volkswagen CEO Prof. Dr. Martin Winterkorn said:

The U.S. Environmental Protection Agency and the California Air Resources Board (EPA and CARB) revealed their findings that while testing diesel cars of the Volkswagen Group they have detected manipulations that violate American environmental standards.

The Board of Management at Volkswagen AG takes these findings very seriously. I personally am deeply sorry that we have broken the trust of our customers and the public. We will cooperate fully with the responsible agencies, with transparency and urgency, to clearly, openly, and completely establish all of the facts of this case. Volkswagen has ordered an external investigation of this matter.

We do not and will not tolerate violations of any kind of our internal rules or of the law.

The trust of our customers and the public is and continues to be our most important asset. We at Volkswagen will do everything that must be done in order to re-establish the trust that so many people have placed in us, and we will do everything necessary in order to reverse the damage this has caused. This matter has first priority for me, personally, and for our entire Board of Management.

VW’s meteoric diesel sales boom

Volkswagen is touting its line of diesel passenger vehicles as “a whole family of front runners,” ironic in that the company has been accused by EPA of running a front.

One thing there is no doubt about in the background to this story, “Volkswagen has sold more diesel cars in the U.S. than every other brand combined,” and the company attributes its TDI Clean Diesel success to “long range without sacrifice”, describing its efforts as a “Promise kept”.

Investigations pending

California is separately issuing an In-Use Compliance letter to Volkswagen, and EPA and the California Air Resources Board have both initiated investigations based on Volkswagen’s alleged actions.

“Using a defeat device in cars to evade clean air standards is illegal and a threat to public health,” said Cynthia Giles, Assistant Administrator for the Office of Enforcement and Compliance Assurance. “Working closely with the California Air Resources Board, EPA is committed to making sure that all automakers play by the same rules. EPA will continue to investigate these very serious matters.”

“Working with US EPA we are taking this important step to protect public health thanks to the dogged investigations by our laboratory scientists and staff,” said Air Resources Board Executive Officer Richard Corey. “Our goal now is to ensure that the affected cars are brought into compliance, to dig more deeply into the extent and implications of Volkswagen’s efforts to cheat on clean air rules, and to take appropriate further action.”

Vehicles covered

The allegations cover roughly 482,000 diesel passenger cars sold in the United States since 2008. Affected diesel models include:

• Jetta (Model Years 2009 – 2015)
• Beetle (Model Years 2009 – 2015)
• Audi A3 (Model Years 2009 – 2015)
• Golf (Model Years 2009 – 2015)
• Passat (Model Years 2014-2015)

What is NOx again?

NOx pollution contributes to nitrogen dioxide, ground-level ozone, and fine particulate matter. Exposure to these pollutants has been linked with a range of serious health effects, including increased asthma attacks and other respiratory illnesses that can be serious enough to send people to the hospital. Exposure to ozone and particulate matter have also been associated with premature death due to respiratory-related or cardiovascular-related effects. Children, the elderly, and people with pre-existing respiratory disease are particularly at risk for health effects of these pollutants.

Clean Air Act background

The Clean Air Act requires vehicle manufacturers to certify to EPA that their products will meet applicable federal emission standards to control air pollution, and every vehicle sold in the U.S. must be covered by an EPA-issued certificate of conformity. Motor vehicles equipped with defeat devices, which reduce the effectiveness of the emission control system during normal driving conditions, cannot be certified. By making and selling vehicles with defeat devices that allowed for higher levels of air emissions than were certified to EPA, Volkswagen violated two important provisions of the Clean Air Act.

The investigative background

EPA and CARB uncovered the defeat device software after independent analysis by researchers at West Virginia University, working with the International Council on Clean Transportation, a non-governmental organization, raised questions about emissions levels, and the agencies began further investigations into the issue. In September, after EPA and CARB demanded an explanation for the identified emission problems, Volkswagen admitted that the cars contained defeat devices, according to EPA’s Notice of Violation.

So, you were hoping to get good performance and cleaner air from your VW or Audi – what now?

“It is incumbent upon Volkswagen to initiate the process that will fix the cars’ emissions systems,” says EPA.

But, for now, owners of cars of these models and years do not need to take any action. “Car owners should know,”‘ the EPA said in a statement, “that although these vehicles have emissions exceeding standards, these violations do not present a safety hazard and the cars remain legal to drive and resell.”

For now, switch to renewable diesel. Nexte’s (NEF.F) NEXTBTL renewable diesel, sold extensively in the EU and the US, reduces NOx emissions by 9% compared to conventional diesel fuel. More on that here.

VW and renewable diesel

In June, Amyris (AMRS) announced the successful completion of a diesel demonstration program with Volkswagen of America that was designed to test the commercial readiness of Amyris renewable diesel and its ability to enhance VW’s innovative and advanced diesel technology. The collaboration included evaluating emissions reductions and demonstrating performance of Volkswagen’s existing TDI Clean Diesel technology using advanced renewable diesel fuel.

Utilizing vehicles provided by VW in real-world driving conditions, the two-year-long program to assess the results reinforced the company’s data that greenhouse gas (GHG) emissions were reduced by more than 60 percent on a well-to-wheel basis when using Amyris’s No Compromise renewable diesel. In addition, the program demonstrated fuel economy that was similar to or improved over petroleum-based fuels, together while maintaining outstanding engine performance under a variety of conditions.

Audi, renewable diesel and advanced fuels

In April, Audi’s pilot plant in Dresden has started production of the synthetic fuel Audi e diesel. After a commissioning phase of just four months, the research facility in Dresden started producing its first batches of high‑quality diesel fuel a few days ago. To demonstrate its suitability for everyday use, Federal Minister of Education and Research Prof. Dr. Johanna Wanka put the first five liters into her official car, an Audi A8 3.0 TDI clean diesel Quattro on Tuesday.

Joule and Audi formed a partnership in 2011 to accelerate the development and commercialization of CO2-neutral fuels. These efforts include fuel testing and validation, lifecycle analysis and support for Joule’s production facility in Hobbs, New Mexico, where demonstration-scale production of ethanol is underway. Audi is also supporting Joule’s hydrocarbon product, which was previously tested and shown to meet ASTM specifications in diesel blends of up to 50%. This product will follow ethanol to market.

In May, Global Bioenergies and Audi announced that the first batch of renewable gasoline has been produced, converted into isooctane from isobutene, by the Fraunhofer Institute at the Leuna refinery near Leipzig where Global Bioenergies is now building its demo plant.

Not the first defeat device rodeo for the EPA

The Notice is the first major violation involving mass-produced defeat devices in US vehicles since a 1998 consent decree between the EPA and Caterpillar, Cummins, Detroit Diesel, Mack, Renault Vehicles Industriels, and Volvo Truck Corp. Following that NOV, the companies agreed to pay heft fines and were subjected to NTE standards for heavy truck engines.

Why risk evading regulations with defeat devices?

As Fundamentals of Motor Vehicle Technology observes, “devices used to ‘clean up’ vehicle pollutants are costly and their use often results in a lower power output and higher fuel consumption.”

What’s the connection between power, performance, fuel economy and NOx emissions?

In a nutshell, diesel engines that use high compressions and a lean air-to-fuel ratio get great mileage, but they produce high temperatures inside the engine, and at 2500 degrees the nitrogen that is coming into the car with air (Earth’s atmosphere is 78% nitrogen) begins to react with oxygen to produce NOx.

Wasn’t BlueTec technology from Daimler-Benz supposed to address NOx emissions?

Yes, and VW/Audi licensed the technology. It does indeed reduce NOx, when switched on, using a variety of techniques but notably featuring a Selective Catalytic Reduction converter that produces nitrogen and water from nitrous oxides.

When was BlueTec deployed in the Jetta?

The 2008 Model year. Leading us to suspect that in fact it is BlueTec that is at the heart of the issue here.

Why is power a problem especially for diesel vehicles?

Gasoline engines, traditionally, have more pep, or horsepower, which is what you use when you want to travel at high-speed on the highway. Diesel engines are better known for torque, which is what you need when you’re climbing a hill and carrying a heavy load. Consequently, diesel cars have had a “low power” rap for many years, fairly or unfairly, and manufacturers have been eager to maximize and tout the power and performance of diesel cars.

Why is power specifically an opportunity area for mischief when it comes to diesel and emissions control?

At the heart of SCR technology is a diesel exhaust fluid injection, and that specifically can reduce power output and increase engine temperature. Consequently, technology has been developed over the years to delay DEF injection, for example, when climbing hills.

It may well be the case — we don’t yet precisely know — that DEF injection has been postponed via this snarky algorithm that the EPA mentioned, until the vehicle next visits the shop for an EPA emissions test.

More on the story

More information on EPA’s Notice of Violation.
More information on CARB’s In-Use Compliance Letter.

 Jim Lane is editor and publisher of Biofuels Digest where this article was originally published. Biofuels Digest is the most widely read  Biofuels daily read by 14,000+ organizations. Subscribe here.

September 20, 2015

Tetra Tech: Energy Engineer

by Debra Fiakas CFA

In the coming years power generators will be under pressure to meet new standards for lower carbon emissions embedded in the EPA’s Clean Power Plan.  Each state has to meet a set of standards set by the EPA based that state’s particular circumstances in electrical generation.  The carbon pollution limits begin in 2022 and ramp to full effect by 2030.

Power generators could meet standards by reducing harmful emissions from existing fossil fuel-fire plants.  Unfortunately, that may prove too costly at some of the older plants.  It is logical that power generators will look increasingly to renewable energy sources, creating a welcome boost in demand for firms that serve that sector with design, engineering and other consulting services.

Tetra Tech, Inc. (TTEK:  Nasdaq) is a leading provider of engineering, construction and technical services to the energy and infrastructure markets.  They also provide a diverse menu of product management and consulting services for resource management, water conservation and environmental improvement.  The company has completed projects around the world and appears to have a solid reputation in both developed and emerging markets.

Tetra Tech has a successful track record in all types of power generation, including conventional fuel-powered plants.  In my view, its stature is higher in the wind energy market.  Indeed, at least one engineering publication ranked Tetra Tech as number two in the world in wind energy project engineering.  The company claims to have worked with twenty of the top twenty-five wind power developers and a majority of the wind equipment manufacturers.

One of the reasons the company may have gained such a large presence in wind is its environmental expertise.  Tetra Tech personnel working on wind projects know their birds and bats, giving them the extra knowhow to help their clients resolve environmental objections. 

Tetra Tech showed other valuable qualities in its work as the prime contractor for the Fire Island Wind Project near Anchorage, Alaska.  The 17.6 megawatt project eliminates the need for burning about 500 million cubic feet of natural gas.  The location is an uninhabited island where the turbines are the least disruptive.  However, the location also posed significant logistical and safety challenges during the construction phase.  The company completed construction of the eleven 1.6 megawatt wind towers, turbines and connecting facilities ahead of schedule and with no incidents or injuries.

Interestingly, Tetra Tech itself sees other opportunities as better growth markets.  The company is targeting the coal ash problem created by fossil fuel-powered plants.  Likewise, management has identified the conventional oil and gas industry as low risk because the oil majors typically have strong spending budgets for environmental management.  Indeed, Tetra Tech really shines when it comes to cleaning up the ‘nasty by-products’ of the energy industry as we know it today.

Tetra Tech reported $1.75 billion in revenue in the twelve months ending June 2015, providing $93.4 million in net income or $1.49 per share.    The company is a consistent generator of cash, delivering $147.2 million in operating cash flow in that same twelve month period.  As a solidly profitable company, it is surprising that its stock is trading at 13.6 times the consensus estimate for the fiscal year ending September 2016.  A forward dividend yield of 1.3% and a $200 million stock buyback program make the stock even more interesting.

Debra Fiakas is the Managing Director of
Crystal Equity Research, an alternative research resource on small capitalization companies in selected industries. 

Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein.  Crystal Equity Research has issued a Buy rating on TTEK.

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