April 24, 2015

Alternative Energy Stock Returns, Past and Future

By Harris Roen

Alternative energy became a serious market player after the turn of the millennium. Since that time, solar, wind, smart grid and other alternative energy stocks have experienced both strong up and down trends. The forces at work driving these markets are complex, counterintuitive, and sometimes mysterious. This article looks at what has been driving the price of alternative energy markets, and as a result, alternative energy company stocks. Looking ahead, we will also consider what should affect the direction of alternative energy stock prices.

Past trends in Alternative Energy Stocks


The Wilder Hill New Global Index (NEX) is a fitting proxy to track overall alternative energy markets. This index contains companies that “focus on generation and use of cleaner energy, conservation and efficiency, and advancing renewable energy generally.” The chart at right shows some of the clear trends the alternative energy sector has had in the recent past.

The first down channel on the chart coincides with a general stock market slump. This drop started during the eight month recession which began in March 2001.

By 2003, alternative energy stocks started to turn around. This marked the beginning of a fantastic five year run, as investors started noticing wind power and photovoltaics were becoming economically viable alternatives to traditional electric generation. Annualized returns in this five year period averaged a remarkable 38%!

The Great Recession then hit in December 2007, just as alternative energy stocks appeared to be ascending into nosebleed territory. As a result, prices came crashing down a painful 71% in about a year. This outstripped the distressing declines the stock market in general had at that time.

After this crash, no clear trend emerged until the end of 2012, when the next up-channel started. At that time, investors felt that alternative energy stock prices better reflected the economic realities of the underlying business, and started buying again. There is likely another reason, though, that it took five years for alternative energy markets to recover. Psychologically, after getting severely burned in the crash of 2008, it took a long time for investors to feel comfortable dipping their toes back in the water.

Following the uptrend that went from 2012 to the beginning of 2014, there was a noteworthy giveback. The NEX fell 21% in about nine and a half months. Much of that giveback has been regained. It remains to be seen if the current trend will continue to be positive, or if we have entered into a sideways market.

Do Fossil Fuel Prices Drive Alternative Energy Markets?

Are fossil fuel prices the main driver of failure or success of green energy companies? Though this seems like a reasonable theory, the answer, in my analysis, is that it depends.

Alternative Energy versus Oil

oil_altenergyMost of the larger alternative energy stocks are multinational corporations that are part of an international economy. As a comparison, crude oil prices are good indicator of global fossil fuel values. Oil is a worldwide commodity that can more easily flow to markets than coal or natural gas. The latter two fossil fuels are subject to local supplies and disruptions, so prices can range widely by region.

The chart at right shows crude oil (Cushing OK spot) as compared to the NEX over two time periods. From 2001 to 2009, oil and alternative energy prices were very strongly linked. For you math wonks, the two had a correlation coefficient of 0.87, which is extremely significant. This makes sense, since a rise in oil prices would mean that other energy alternatives become more attractive. From 2010 to the present, the NEX had a slight negative correlation to oil prices. The two markets did not exactly go in opposite directions, but they had virtually no corresponding movement.

oil_S&P_02A further reason for the 2002-2009 correlation is that the economy was humming along very well at that time. This helped fuel investor optimism that the market would continue to grow for solar, wind, and the like. Similarly, oil became a strong proxy for the stock market at that time, as speculators started investing heavily in oil. They believed that as the global economy expanded, there would be more demand for oil, thus raising the prospects for oil prices. In essence, oil became a proxy for the stock market.

The correlation between oil and the stock market remained strong for a decade, but finally started to diverge at the end of 2013. Since then there has been a strong negative correlation.

oil_S&P_divergOil prices are now being affected more by supply and demand. Much of this has to do with the North American oil and natural gas boom, which is injecting an abundance of supply right where it is being used. This not only tips the supply/demand equation by reducing U.S. oil imports, but also mitigates the fear that oil prices will skyrocket when a crisis crops up in the Middle East. For this reason, I expect any rise in oil prices going forward will positively affect alternative energy stocks.

Alternative Energy versus Natural Gas


Often, the decline in alternative energy electricity generators such as wind and solar has been attributed a drop in natural gas prices. There is a correlation between the two, though it is not as strong as one might think.

The charts at right show natural gas (Henry Hub LA spot) compared to the NEX. There is a clearly a correlation between the two, though it is somewhat weak. It is also interesting to note that at starting around 2015, there was a divergence between natural gas prices and the NEX.

Prospects for Alternative Energy Stocks

Though no one can tell with certainty where alternative energy stocks will head in the future, there are factors that can shed some light on the long-term prospects for this sector. These include increased manufacturing efficiencies, financial innovations and energy policy.


Much of what many alternative energy companies do is similar to tech sector stocks. As product design and production engineering keeps improving, manufacturing efficiency can greatly help a company’s bottom line. Whether its photovoltaics, LED lighting or wind arrays, the cost of production continues to drop for green economy companies. This trend shows no signs of abating, which bodes well for alternative energy investors.

Financial Innovations

The alternative energy sector has profited greatly from new and innovative financial models. Companies like SolarCity (SCTY) and SunPower (SPWR) have benefited from various financial arrangements that allow consumers to install solar with no upfront costs. These include lease arrangements, power buyback agreements, and securitization of tax benefits.

Another innovative financial model to benefit alternative energy is the advent of renewable YieldCo’s. These are companies that bundle solar and wind generating assets into predictable cash flows that are paid out in dividends. This innovation allows green investors can choose from several companies with strong yield attributes.

Investors love dividends, especially in this low interest rate environment. Any added yield an investor can put in their portfolios is of great value. YieldCo’s should continue to attract investors and lead to higher stock prices.

These types of financial innovation reflect a maturing of the alternative energy sector, which I see as a good sign. As long as these products have strong fiscal underpinnings, the prospects for long-term growth remain healthy.

Energy Policy

Because of the public good that results from reduced fossil fuel use, alternative energy has benefitted from government policies supporting the industry. Indeed, targets and incentives remain strong internationally, particularly in Europe and Asia. These regions and others continue to be serious in their commitment to solar, wind, energy storage, efficiency and other alternative energy strategies. Domestically, there are two important policy developments to watch, one a carrot and one a stick.

The first important domestic incentive is the Business Energy Investment Tax Credit (ITC). The ITC rebates up to 30% for solar, fuel cells, wind, combined heat and power (CHP) and geothermal. This incentive is scheduled to sunset at the end of 2016. Whether it gets renewed or not will affect the rate at which renewable projects go forward. This will cause concern for investors.

The second policy development is the Clean Power Plan. These proposed rules from the EPA target pollution reduction from power plants, and will have a vast affect on how energy gets produced and consumed in the country. Essentially each state has an emission target, which will force it to find ways to reduce carbon emissions. There has been some strong pushback from many states, especially those heavily reliant on coal for production electricity. The rule making process will likely take a few years and several court cases to resolve, but if the Clean Power Plan remains mostly intact, it will accelerate renewable energy projects in a big way.


By keeping an eye to the ground on fossil fuel prices, energy policies and other factors, investors can go far to understanding prospects for alternative energy stocks. There will undoubtedly be up and down swings ahead, but there are enough positives underlying the sector that we remain bullish for the long-term.


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.

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April 23, 2015

Power REIT Loses; What Now?

Tom Konrad CFA

On April 22nd, the court ruled against Power REIT (NYSE:PW) in the summary judgement phase of its litigation with Norfolk Southern Corp (NYSE:NSC) and Wheeling and Lake Erie Railroad (WLE).  At issue were if NSC and WLE were in default on a lease of 112 miles of track, and a number of claims surrounding the lease, and if they owed Power REIT's legal fees under the lease.

Had power REIT prevailed on any of a number of counts, it could have been worth as much as $15 dollars a share to Power REIT shareholders. 

As it is, Power REIT still has the option to appeal, and there are a couple of claims against Power REIT which will need to be decided in a status conference scheduled by the court on April 29th, or at trial.  These remaining claims regard whether Power REIT acted improperly when it reorganized itself into a holding company which owns its predecessor entity, the Pittsburgh & West Virginia Railway.  According to David Lesser, Power REIT's CEO, NSC and WLE have said in court that it is impossible to show financial harm because of these claims, and so I expect them to be settled or dropped at the at the status conference, unless Power REIT decides to appeal.

Grounds For Appeal?

I found the ruling shocking in that I did not expect much at all to be decided in summary judgement.  While I thought many of Power REITs claims were weak, I thought others (such as default under the books and records clause of the lease, and the payment of legal fees) were quite strong.  Another investor who has read the judgement told me he was "Truly shocked how one sided this went through, not that it matters but makes me wonder if [the] judge [was] corrupted or biased somehow."

To me, the ruling seemed very biased as well, and I'm sure it seemed so to Lesser, judging from a short conversation with him.  He felt the judge had gone far beyond the bounds of summary judgment, and was even creating new rights under the lease where none had existed before.

I don't know if any of this constitutes grounds for appeal, but I am confident that if PW were to appeal, NSC and WLE would again fight the appeal vigorously, and the company could easily be left to pay even more legal bills than it has to now.  Whatever the grounds, I don't think such an appeal would be a cost-effective way to create value for shareholders.

Valuing the Remains

Due to a very timely note from another investor who had seen the ruling before I did, I was able to sell all of the client holdings of PW in accounts I manage, but I did not have time to sell my own before the stock fell below $8 and began to plummet. Shortly thereafter, trading was halted, and Power REIT made a press regarding the ruling.

When the market opens Thursday, the only remaining questions  are if Power REIT will appeal, and what the stock worth now.  Since I don't think an appeal would be in shareholders' interests, and Lesser is the largest shareholder, an appeal seems unlikely.  Hence, I will focus on the remaining value.  This ruling means that the company will be able to write off (for tax purposes) the $16.6 million value of a "Settlement Account" under the lease because the account is essentially un-collectible.  This write-off allows the next $16.6 million worth of dividends on Power REIT's common and Preferred stock to be taxed as return of capital rather than income. 

The common stock does not currently pay a dividend, while the preferred stock pays a 7.75% annual dividend based on its $25 par value, or $1.875 per preferred share annually.  Power REIT's most recent shareholder update puts Funds From Operations (FFO) available to pay dividends on both classes of stock at $1.260 million annually (slide 18).  $260 thousand of this is needed to pay annual dividends on $3.5 million of preferred stock, with the remaining $1 million available to pay the legal expenses which are the majority of the accounts payable at $1.260 million.  Approximately five quarters of free cash flow will be needed for accounts payable before the dividend on the common stock can be resumed. 

There are currently 1.7 million shares outstanding, which will probably grow as the company continues to pay stock based compensation.  Let us assume conservatively that Power REIT resumes its dividend in late 2016, at which time it has 1.8 million common shares outstanding.  Then FFO per share would be $0.56, easily sufficient to resume its former $0.40 annual dividend, while retaining significant capital to fund future growth.  This dividend would now be categorized as return of capital, so shareholders would not have to pay taxes on it until they sold the stock, when it would be taxed as capital gains (usually at a much more favorable rate than income.)  PW could choose to pay a higher dividend, but given its plans to rapidly expand its renewable energy holdings, I would expect it to retain some capital for growth.  At any reasonable dividend rate, the tax write-off is large enough to ensure all dividends count as return of capital for well over a decade.

A 5-6% dividend yield seems reasonable for a tiny, but growing, REIT like PW, depending on how much investors value the tax advantages of the dividend and the growth prospects.  A 6% yield would put PW $6.67 per share in late 2016, a 5% dividend would put the stock at $8 per share.  Discounting that by 20% to account for the one to two year wait for the dividend to resume, I see the company's shares to be worth between $5.30 and $6.70 per share.


There are a number of possible upsides to this estimate.  On page 19 of the same investor presentation, the company valued its assets based on discount rates currently being paid on the open market for similar assets.  The jewel in the crown is the railroad lease, which has similar cash flow characteristics as a perpetual bond from NSC.  Valued at the 4% discount rate NSC pays on long term debt, the lease is worth $13.21 per share.  At a more conservative 6% which I think PW might be able to get if it sold the lease to the highest bidder, it's still worth $8.80 per share.  Such a sale would do a lot to increase the current stock price by allowing Power REIT to repay its most expensive debt and/or pay legal bills and resume the dividend sooner.

The end of the litigation might also solve the problem of expensive debt by making banks more willing to provide financing with the perceived risks of the lawsuit are gone.  Refinancing existing debt at a lower rate could immediately free up cash flow to reduce accounts payable and resume the dividend sooner, possibly at a higher rate.

Without the distraction of  the lawsuit, Power REIT could continue the process of turning itself into a yieldco by buying land under solar and wind parks with mostly debt financing.  Given the large tax advantages of its REIT structure combined with the return of capital treatment of its distributions for years to come, it might be able to resume and begin to grow its dividend much more quickly than I outlined above.


At $6.33 a share, where PW closed on the day of the summary judgment, the company falls within the range of fair value based on when I would expect it to resume its dividend.  As the market adjusts to the new reality, look for buying opportunities below $5, or chances to sell if it quickly advances above $7 without news (such as a refinancing of debt) which has the potential to increase cash flow.

To me, the preferred stock, PW-PA seems like a much more attractive proposition.  Power REIT has plenty of cash flow to continue paying the preferred dividend, and now that dividend will be categorized as return of capital for the foreseeable future.  Even if the preferred dividend were to be suspended, it would have to be paid in arrears before the common dividend was resumed.

 Disclosure: Long PW, PW.PR.A.

DISCLAIMER: Past performance is not a guarantee or a reliable indicator of future results.  This article contains the current opinions of the author and such opinions are subject to change without notice.  This article has been distributed for informational purposes only. Forecasts, estimates, and certain information contained herein should not be considered as investment advice or a recommendation of any particular security, strategy or investment product.  Information contained herein has been obtained from sources believed to be reliable, but not guaranteed.

April 22, 2015

The Cost Of 'Free Solar'

by Paula Mints

Economic theory holds that when a good is provided it must be paid for and that the value for that good will be set by a dance between the sellers and buyers in a market. It is assumed that when the price is too high buyers will back away and the price will adjust. When the price is too low sellers will fail to make sufficient margin to continue producing the good and the price will adjust. And finally, when the price is just right, equilibrium will be achieved and buyers and sellers will be content. This economic theory has chugged along since way back to, and even before, Adam Smith wrote The Wealth of Nations.

The economic theories found in The Wealth of Nations, specifically the invisible hand theory, have been used and misused for decades to prove countless points. This has essentially resulted in breathtaking economic roller coasters that all assume some version of the-market-knows-best and that rational behavior will arise from what is a market free-for-all.    

In the PV industry, equilibrium price is not the goal.  Instead, prices for cells and modules are never low enough and the need for sellers to make a profit sufficient to support their business is often ignored. The global PV industry has long been haunted by expectations of rapid and consistent price declines as well as the belief that progress in terms of efficiency increases and stringent quality control can co-exist with low to negative margins. 

Misunderstandings concerning the variable nature of inputs (raw materials and consumables) as well as the cost of labor are the basis of most learning curves.  The celebration of low prices for cells, modules and systems are the basis of most company failures. The hourly cost of labor decreases only when you use less of it, while wages should and do rise so that the people producing and eventually buying products are afforded the opportunity to engage in the buying/selling dance.

Historically PV industry pricing has not been cost-based. In fact, there have been long stretches of PV industry history during which manufacturers priced technology at or below the cost of production. The current situation of low ASPs for PV technology is an example of aggressive pricing strategy, also serving as an example of how destructive this strategy can be when practiced in an industry where demand is incentive-driven.

Figure 1 details PV module costs, prices, shipments and the ASP/cost delta from 1974 through 2014.

PV 1974-1984.png 84-94 PV 1994-2004.png PV 2004-2014.png

Figure 1: PV Costs, ASPs and Shipments, 1974-2014.

With the considerable amount of confusing pricing information currently being repeated in the market, it is important to remember that prices for re-sold manufacturer- and demand-side inventory should not be confused with the average price of technology to the first buyer, nor should they be taken to represent progress. 

The secondary market is the buying and selling of PV modules through distributors and retailers. The distributors and retailers may buy at the large quantity rate and resell this product on the secondary market to smaller participants.  Distributors and retailers also resell inventory.  This group takes a margin based on the current market situation.

Figure 2 offers PV cell/module revenues and ASPs from 2002 through 2014.

revs v ASPs  

Figure 2: PV Cell/Module APS and Revenues 2002-2014

The Invasion of Free Solar

Marketing slogans — catch phrases developed to sieze the buying public’s imagination — should not be mistaken for truth, wisdom or anything other than the means to sell a product or service. 

Currently popular among residential solar lease providers, the term “free solar” refers to the ability to have a PV system installed at a homeowner’s domicile without the homeowner paying for the installation.  This means that the installation charge is avoided up front and applied to the back end.  That is, the installation cost is recouped over time by the lease provider via the monthly rental of the installation and the annual escalation of the initial monthly lease payment.  Typically ~3 percent, the escalation charge means that eventually the lifetime cost of leasing the PV system will be greater than the cost of buying the installation at a reasonable (and static) interest rate. 

All buyers of all economic strata seek the best deal and the best deal is free. That "free" is an illusion is not the point.  A free good can come at the cost of quality meaning that a poorly functioning free good will likely cost more in repairs and eventual replacement than a good that is acquired at a price that approaches its true value. A price set at free obscures the cost of developing the good or service and creates the illusion that the research, development, manufacturing and selling of the good was, in the worst case, free itself. 

An offer of free solar commoditizes the residential installation, shores up the assumption that the cost of manufacturing a PV panel is approaching zero and undermines the true value of owning a residential PV system.

The true value of owning a residential PV system, aside from the benefits to the environment, is energy independence on a personal level.  Never mind (for a moment) the ongoing attacks directed at net metering from utilities, an appropriately sized PV system gives the electricity consumer control over how much electricity is bought from the utility at retail rates.  Pardon the pun, but there is a power switch from the utility as electricity landlord to the end user — and this is where it should be. Leasing a residential PV system does not imbue the lessee with the same power; simply put, it means that the electricity lessee potentially serves two masters, the utility and the solar lease company.  

The true value of independence is obscured and the value of the product (PV generated electricity) is undervalued.  This is not what Adam Smith meant by the invisible hand.  In the case of the solar lease, the invisible hand would seem to be implying that the value of the PV installation is zero. 

The marketing phrase "free solar" undermines the true value of personal energy independence, obscures the true costs and benefits of PV system ownership, shores up false expectations of ever cheaper PV modules and installations, and undercuts the need of an innovative industry to continue innovating by eviscerating the revenue stream that pays for research and development, not to mention, strategic planning, marketing and sales.

Paula Mints is founder of SPV Market Research, a classic solar market research practice focused on gathering data through primary research and providing analyses of the global solar industry.  You can find her on Twitter @PaulaMints1 and read her blog here.
This article was originally published on RenewableEnergyWorld.com, and is republished with permission.

April 21, 2015

Chinese Solar Blows Hot and Cold

Doug Young

Bottom line: Solar products maker Tianwei is likely to get a government bailout before it defaults on an upcoming bond payment, while a massive 2 GW solar farm being built by a new private equity fund is likely to get completed.

Two solar news items are drawing attention to both the opportunities and challenges facing this increasingly schizophrenic sector in China. A new mega-project is spotlighting the huge opportunities for new construction in the space, with word that a recently launched private equity fund plans to build a massive solar farm with a whopping 2 gigawatts of capacity. But big challenges are also apparent in another story, which says mid-sized player Baoding Tianwei is on the cusp of defaulting on a bond interest payment as it faces a cash crunch due to falling prices.

These 2 phenomena aren’t completely separate or contradictory, and in some ways even have their roots in a common origin. That origin dates back a decade ago when China embarked on a campaign to build up its solar panel manufacturing sector, in a bid to move up the value chain from its traditional strength in lower-tech products like textiles. But it created a huge oversupply of production capacity as a result of that push, and is now trying to absorb some of the excess output through a campaign to build new solar farms at home.

The massive overbuilding of manufacturing capacity sent the sector into a downturn that has dragged on for much of the last 3 years, and is directly responsible for the crisis now facing Baoding Tianwei, a maker of traditional transformers that more recently moved into the solar business. According to the latest reports, Tianwei has announced that due to huge losses from its solar business, it may not be able to make an interest payment that comes due this Tuesday on corporate debt issued in 2011. (Chinese article)

The company reported a massive loss of 10.14 billion yuan ($1.6 billion) last year, which makes it understandable why it might have other priorities besides making this particular interest payment. Its total debt at the end of last year stood at 21 billion yuan, far higher than its total assets of 13 billion yuan.

Companies like Tianwei flocked to solar manufacturing after Beijing made development of the sector a priority, and are now paying the price in the form of massive debt from big investments they made at that time. Another solar company, Chaori Solar, looked set to become the first solar player that might default on debt last year, but was bailed out at the last minute by state-run entities, almost certainly acting under government orders. (previous post)

Media are speculating that the government may be tiring of bailing out a growing number of debt-burden companies, and that Tianwei could stand at the forefront of a new wave of defaults for China’s corporate debt market. It may be too early yet to forecast such a default wave, and I expect we’ll probably see another bail-out for Tianwei even if it initially misses the interest payment. But eventually the debt load will become too much for Beijing to bail out, and we may see many of these mid-tier companies default.

Meantime, another media report is saying that China Minsheng Investment Corp (CMIC), a recently formed private equity firm backed by the entrepreneurial Minsheng Bank (HKEx: 1988; Shanghai: 600016), is preparing to build a massive 2 gigawatt solar farm with an investment of 15 billion yuan. (Chinese article) To put that in perspective, China was on track to build about 10 gigawatts of capacity last year, and was aiming to have 35 gigawatts by the end of this year — a goal that looks nearly impossible to reach.

If the project is really built, it would be the world’s largest solar farm in a single location, according to the reports. The plant would be built in interior Ningxia province, in a massive area being developed specifically for solar farms. CMIC was officially launched last August with initial capital of 50 billion yuan, and said at the time that solar power was going to be one of its main focuses. (previous post)

I have quite a bit of respect for CMIC, as many of its executives are entrepreneurs with strong track records and good financial sense. What’s more, this project is being built in an area specifically being developed for solar farms, meaning logistical issues like grid connections shouldn’t present major problems. Accordingly, I do expect this project will probably get built, though it’s unlikely to provide enough support to save struggling companies like Tianwei.

Doug Young has lived and worked in China for 16 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.

April 20, 2015

Investing in German Wind Power

By Jeff Siegel

When it comes to understanding the EU, I'm not the brightest star in the sky.

And to be honest, after stumbling down a rabbit hole of proposals, directorates, and laws on the European Commission's website, I was even worse shape than before I started.

The European Commission is the EU's executive body that represents the interests of the EU as a whole. And just yesterday it made a decision that will result in a huge boost for wind energy in Germany.

Germany's 7 Gigawatts are Coming

So as many in the renewable energy game know, following the Fukushima disaster, Germany decided it wanted to put the kibosh on its fleet of nuclear power plants. In its place, the Germans would build out their wind energy capacity to make up most of the difference.

This is actually a pretty lofty goal, and of course it was heavily criticized by nuclear apologists and fossil fuel-powered knuckle-draggers. But you know, Germans tend to be a pretty industrious group of people, so I've never doubted their ability to get this done.

What I didn't realize, however, was that because the investment necessary for this wind energy development was so massive – about 30 billion euros – the European Commission would have to ensure that it didn't violate any state rules.

Yesterday we got word that the Commission has given Germany the go-ahead to proceed.

Here's a clip from the Commissions press release on the matter …

Brussels, 16 April 2015

The European Commission has found that German plans to support the building of 20 offshore wind farms are in line with EU state aid rules. Seventeen wind farms will be located in the North Sea and three in the Baltic Sea. The Commission concluded that the project would further EU energy and environmental objectives without unduly distorting competition in the Single Market.

In October 2014 Germany notified plans to support the construction and operation of several offshore wind farms. Aid would be granted to operators in the form of a premium paid on top of the market price for electricity.

The size of each wind farm ranges from 252 megawatt (MW) to 688 MW and, in total, the projects will make available up to 7 gigawatt (GW) of renewable energy generation capacity. The total investment costs amount to € 29.3 billion. All wind farms are planned to start producing electricity by the end of 2019 at the latest. In total, they are expected to generate 28 terawatt-hours (TWh) of renewable electricity per year amounting to almost 13% of Germany's 2020 scenario for renewable energy given in the National Renewable Energy Action Plan (NREAP).

The Commission assessed the projects under its Guidelines on State aid for environmental protection and energy that entered into force in July 2014 The Commission found that the projects contribute to reaching Germany's 2020 targets for renewable energy without unduly distorting competition in the single market. In particular, the Commission verified that the state aid is limited to what is necessary to realising the investment. The rates of return that investors would achieve thanks to the premium were limited to what is necessary to implement each project and in line with rates previously approved by the Commission for similar projects. The Commission also took into consideration that these projects will enable new electricity providers to enter the German generation market. This will have a positive effect on competition.

Now Siemens (OTCBB: SIEGY) is the king of the castle when it comes to offshore wind turbines in Germany. Sadly, in the U.S., it only trades on the pink sheets now. But hardcore renewable energy investors are rarely scared off by pink sheets. Particularly pink sheets with market caps of $94 billion, like Siemens.

Of course, with such a huge undertaking – about 7 gigawatts of wind power – this will only add further momentum to the wind industry in general. Certainly GE (NYSE: GE), Vestas (OTCBB: VWDRY), and ABB (NYSE: ABB) will enjoy some residual momentum. Rising tides to indeed lift all boats.

Of course, with the Dow down about 325 points right now, I suspect few investors are too giddy over this news. But looking at this development from a long-term perspective, yesterday's announcement from the European Commission was a pretty big deal, and we'll be wise to invest accordingly.

Jeff Siegel is Editor of Energy and Capital, where this article was first published.

April 14, 2015

The (Spend)thrifty Ways of Capstone Turbine

by Debra Fiakas CFA

Last week Capstone Turbine (CPST:  Nasdaq) announced changes around the table in its boardroom, bragging of the costs savings it can achieve.  Capstone is a well established manufacturer of microturbines used in power generation.  The company claims over 8,000 of its turbines are in use around the world.   Despite the clear footprint in the wind power market, Capstone needs to achieve efficiency.  Sales of its turbines totaled $122 million in the twelve months ending December 2014.  Unfortunately, the period ended with a net loss of $20.6 million or $0.06 per share.

The solution, decided the top minds at Capstone, is to ‘reorganize’ and along the way cut executive compensation costs.  Edward Reich, who has been with the company since 2005 and the chief financial officer since 2008, will be leaving the company.  The CFO seat will now be occupied by Jayme Brooks, who has been the chief accounting officer and also serves as Vice President of Finance.  Brooks joined the company at the same time as Reich and has actually served in the past as interim CFO.  She will retain the position of chief accounting officer and assume the role of chief financial officer.

The expected savings in salary, benefits, bonuses and travel costs are estimated to be $2 million per year.  One man leaves a company and operating costs are reduced by 5%!  Reich’s compensation totaled $485,873 in fiscal year 2014.  Investors are left to conclude that the rest of the savings must be coming from reduced benefits, travel and other costs associated with keeping Reich on as CFO.  For every $1.00 the company paid Reich in salary and bonuses, it spent another $3.00 on benefits and travel.

The announcement has focused a bright light on Capstone’s compensation practices. Is Capstone spending more on leadership than is justified by its size?  If Reich’s departure tells shareholders nothing else it reveals that Capstone spends quite lavishly on benefits and travel for its leadership that is not otherwise reported in detail to shareholders.

In the year 2014, total compensation for the top four executives at Capstone was $2.3 million, including salary, stock and option awards and non-equity incentives.  The company reported a total of $2.1 million in stock compensation in the year 2014, for all recipients, but I estimate non-cash option and stock awards were near $978,000 for the four top positions.  If the information we get from the Reich departure is a valid measuring stick, then shareholders can conclude that the company spent another $6 million on benefits and travel for this bunch.

There is more than extravagant spending that captured my attention in this story.  Jayme Brooks, the new CFO is obviously capable of handling the position.  However, she is going to continue in her capacity as chief accounting officer as well, which means she will be doing two jobs for the price of one.  For Brooks’ sake I hope Capstone at least gave her a raise of some kind.  As these things go, shareholders should not be surprised if Brooks is expected to do the job of two for far less than what Reich was being paid.   Reich is leaving now, but shareholders should be wondering what it was that Reich was doing at Capstone to justify spending $2 million for his compensation and various accoutrements.  Apparently, he is easily replaced by a professional who can do his work and her own together.

Anyone who owns shares in Capstone Turbine has to be pleased with the efforts to reduce costs.  The stock closed at the end of last trading last week at $0.62 per share.  That may appear egregiously undervalued for a company that is expected to deliver over $150 million in sales in the current fiscal year.  However, traders might be applying a discount for the company’s spendthrift management.   

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.

April 13, 2015

EPA Agrees To Timeline For Ethanol And Advanced Biofuel Targets Through 2016

Jim Lane

rp_epa.jpgProposed consent decree offers timelines for ethanol, advanced fuels through 2016, biobased diesel through 2017.

In Washington, the EPA released a proposed consent decree in litigation brought against EPA by, the American Petroleum Institute (API) and the American Fuel and Petrochemical Manufacturers (AFPM), that would establish the following schedule for issuing Renewable Fuel Standards for 2014 and 2015:

•By June 1, the agency will propose volume requirements for 2015;

•By November 30, EPA will finalize volume requirements for 2014 and 2015 and resolve a pending waiver petition for 2014.

Outside the scope of the consent decree, EPA also commits to:

•Propose the RFS volume requirements for 2016 by June 1, and finalize them by November 30;

•Propose and finalize the RFS biomass-based diesel volume requirement for 2017 on the same schedule; and

•Re-propose volume requirements for 2014, by June 1, that reflect the volumes of renewable fuel that were actually used in 2014.

EPA intends to issue a Federal Register Notice allowing the public an opportunity to comment on the proposed consent decree.

Reaction from stakeholders

Tom Buis, CEO, Growth Energy

“I am pleased to hear that the EPA has finally put a process in place to establish some certainty for biofuel producers with the recent announcement of the timeline for the proposed 2015 RVO rule by June 1st as well as the final 2014 and 2015 volume obligations by November 30, 2015.

“Our producers have faced ambiguity for too long and today is welcome news that they are establishing a level of certainty with this announcement. However, far more important than timing is that that the EPA establishes a final rule that moves our industry forward, and reflects the bipartisan vision Congress intended for the RFS.

“Additionally, while not part of the consent decree, we are pleased to see that the EPA has committed to finalizing the 2016 RFS RVO numbers this year as well. By taking this action, they are ensuring that the RFS is back on a path to certainty for the biofuels industry, providing the necessary guidance for the industry to continue to thrive and advance alternative fuel options for American consumers.”

Brooke Coleman, executive director, Advanced Ethanol Council

“The scheduling agreement between the oil industry and EPA is actually a good signal for the advanced biofuels industry because it lays out a time frame and a reasonable market expectation for resolving the regulatory uncertainty around the RFS. Now that we have a better idea of when it will happen, we look forward to working with EPA to make sure that the new RFS proposal supports the commercial deployment of advanced biofuels as called for by Congress. We were encouraged by EPA’s decision late last year to pull a problematic 2014 proposal, and we are optimistic that EPA will make the necessary adjustments and put the RFS back on track going forward.”

Brent Erickson, executive vice president, BIO’s Industrial & Environmental Section

“To continue making visible progress in commercializing advanced biofuels, our member companies need stable policy. The changes EPA proposed in 2013 to the Renewable Fuel Standard program and the delay in taking final action on the rule have chilled investment in advanced biofuels, even as the first companies began to successfully prove this technology at commercial scale.

“Today, EPA has set out a timeline to get this program back on track. The agency must take strong action to reverse the damaging proposal to change the methodology of the program in order to comply with the requirements of the RFS.”

The Bottom Line

Good news, indeed, some degree of policy certainty on 2014 volumes, which will be finalized on the basis of produced volumes, and in terms of timelines for 2015, 2016 and even parts of 2017.

As BIO points out, there’s not much in the agreement as proposed that addresses how the methodology problems will be resolved that caused the EPA’s delay in the first place.

And a comment period is shortly underway, and if reaction to the 2013 EPA proposal on 2014 volumes is any indidation, large numbers of comments can be expected and, to the extent that those comments derailed the 2014 proposals, may be expected to be given great weight.

The complete proposed consent degree can be viewed here.

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.

April 10, 2015

Making Residual Value Real: Where is Solar’s Emilio Estevez?

by Colin Murchie

Seeking Solars' Emilio Estevez
It is no secret that costs of capital must decrease to make distributed generation a massively scaling resource. And, as costs of capital steadily decrease, the “residual value” – what happens to the asset once the PPA has run out – becomes more and more important. With that in mind, it no longer seems reasonable to fill the years after the PPA’s expiration – with a row of zeros on the pro forma. There is residual value there that is often ignored.

Customers and investors often assume a negative residual value – that the panels will need to be removed at end of term at some significant net cost. In fact, there’s been a recent trend in public RFPs in particular to require a reserve or bond for same. The effect of these requirements is to raise the cost of solar to the customer – they’re buying pricey insurance against the exceedingly unlikely event that the panels will need to be removed.

Clearly, there is not agreement on the ability to monetize an out of term or defaulted asset. It’s in this kind of situation that our thoughts must inevitably turn to Emilio Estevez.

How Emilio Estevez Relates to Solar

In the 1984 classic Repo Man*, Emilio’s character, Otto, works as – we’ll call him a facilitator to lower costs of capital in the secured asset finance market – and “stumbles into a world of wackiness as a result.” Emilio’s work represents something critically missing from the solar industry as a whole – a robust, standard, and low-friction set of secondary industries that permit off-contract or out-of-contract assets to be monetized.

So how do we capture this real value? There’s a few means of approaching it, of radically different levels of sophistication. To illustrate this point, let’s look at an end-of-term 1MW system today and see what cash they’d generate to the hopeful PPA provider (or creditor) in three different scenarios below, presuming an active Emilio working on behalf of the hopeful investor or developer:.

Scenario One: The Renewal – $130,000 / MW / yr

In the first and most simple scenario, the developer may leave the system in place and encourage the customer to renew or extend their PPA contract at the then-prevailing PPA price. Most PPAs explicitly contemplate this one way or another. In fact, Job #1 of SolarCity’s (SCTY) investor relations team is probably convincing the public that their 50,000+ PPA customers will extend or renew their contracts in an exchange for just a 10% discount of their then-applicable contract rate. Presuming a system in the Maryland area might enjoy a 10 – 20% discount to retail rates – from say $.13/kWh to $.10/kWh - a 1MW system so renewed could add $130,000 in annual revenue.

To be clear, the level of assumption in this number makes it much more debatable than the others; it’s more of an equity valuation assumption than a valid underwriting one. Customers at end of term will have some amount of leverage – roughly, the amount of space between the discounted cash flow in the fully loaded “Repo” model and whatever Emilio charges the developer. (This probably contributes to the significant spread between Solar City’s market price and its analyst valuation targets.)

Scenario Two: The Repo- $40,000 / MW / yr

In our second scenario, at the end of the contract term, a customer stops paying their PPA contract, and Emilio comes by to repossess the system, and then plant the modules on the cheap land next to the junkyard and tow lot, selling the resulting electricity is sold at a wholesale price. Solar panels are not perishable items (as a sort of party trick, John Perlin will happily produce from his briefcase and produce a 40+ year old and entirely functional mini-module). Even though a 20-year old panel will have significantly degraded performance, its value is much higher than zero.

Imagine a boneyard of more – or – less matched panels, placed on string inverters and some sort of highly undesirable land. On an 8,760 hour adjusted basis, a brand new 1MW system airdropped into the PJM market would earn something like $56,250 / year in pure wholesale revenue; an end of life system panel operating at perhaps 80% of initial output should still garner north of $40,000– more than $50,000 if PJM doesn’t make its proposed disastrous modifications to the wholesale market. That’s revenue that could be reliably expected to increase in future (and while the ITC would be long gone, the new owner would be able to restart depreciation on their purchase price).

Of course, someone would still need to erect racking and string inverters, plant hedges around the motley array, handle wholesale market scheduling, feed the Doberman, etc. But these are (mostly) fixed startup costs associated with the single facility; the marginal MW still makes a great deal of sense.

In sum, solar still has the potential to generate significant value, even if the modules are removed from the roof after the expiration of the PPA.

Scenario 3: Scrap Cars Hauled for Free? One-time payment of ~$30 – 50,000 / MW

Even if Emilio decides to just take the modules to the scrapyard after removing them from a customer’s roof at the end of the contract, even the scrap steel in a typical ground mount array (roughly 275,000 lb / MW**) would fetch $30 – $50,000 / MW in today’s market. This is enough to pay for three month’s work by four construction laborers, some 15 x 30 yard dumpsters for the (nonhazardous) panels, and a fair amount of grass seed. Customers anxious about removal or restoration of the system should just preserve the right to an abandoned system; escrowing funds for what should be a positive-cash flow removal just increases end user PPAs to insure against an unrealistic risk.

Why You Should Pay Attention to the Residual Value of Solar

Solar is still in the early days of project finance; while some of its supporting and secondary industries are robust and well established, others do not yet exist. But, it is still possible and desirable to make end of life assumptions that are empirical, conservative, defensible, and which make a real impact on project economics – and another horizon of opportunity for solar support businesses.

As the weighted age of end of term assets increases, the opportunity to build a business in the space becomes more concrete. (Consider – some of SunEdison’s first PPAs have already hit their first customer buyout eligibility dates.)

*We will not for the purposes of this metaphor be discussing the inferior 2010 Jude Law vehicle.

** Approximately 2,500 lb. of steel including piles to support a 5 x 6 module array of ~ 7.5 kW; 133 such subassemblies in 1 MW, at conservatively just <$.12 / lb scrap prices for SAE 3xx stainless steel as of April 2015 would be $40,000; purlins and other components would be seperateable, higher quality stainless components – thanks to MJ Shiao of Greentech Media for some thinking here.


Colin Murchie is Director of Project Finance at Sol Systems, a solar energy finance and investment firm. The company has facilitated financing for 180MW of distributed generation solar projects on behalf of Fortune 100 corporations, insurance companies, utilities, banks, family offices, and individuals. Sol Systems provides secure, sustainable investment opportunities to investor clients, and sophisticated project financing solutions to developers. The company’s tailored financial services range from tax structured investments and project acquisition, to debt financing and SREC portfolio management.

April 09, 2015

Orion Energy Systems: Seeing The Light

by Debra Fiakas CFA

On Monday Orion Energy Systems (OESX:  NYSE) issued a press release to reiterate previous guidance for sales in the quarter ending March 2015.  Given that the quarter has already ended, it is more like a pre-announcement of results than guidance.  At any rate management has indicated the results, when finally reported will bring sales for the fiscal year ending March 2015, to some point in a range of $72 million to $74 million.

The announcement might not be so much motivated by a need to assure shareholders of financial performance, as much as it created another opportunity to drill home points about the company’s evolving business model.  Orion Energy Systems used to be described as a power technology company.  Today management skips all the high brow language about technology and points directly to the only technology it has been able to turn into a product.  So now management is describing Orion as a “producer of energy-efficient LED lighting for residential and commercial applications.”

The press release might have been regarded as a bit redundant given that Orion management has had plenty of opportunities to give its pitch to investors during the company’s recent road show.  In late February 2015, Orion raised $19.1 million by selling 5.5 million shares of its common stock at $3.50 per share.

It is relatively easy to undertake due diligence on Orion and its market opportunity .  Test out a few LED lights on your own.  Most hardware stores have a selection on display.  Statistica offers a few details on the market for LED lights, suggesting LED now accounts for a 53% share.  Manufacturing efficiency is expected to lead to selling price reductions, helping to drive market share to over 60% within the next five years.

Orion Energy Systems is operating in a strong market, but its stock has gone through a period of trading weakness beginning right about the time management began that road show period.  The stock was left looking quite oversold until the offering closed.  Indeed, while management was out pounding the pavement with its efficient-lighting story, the stock registered a particularly bearish formation in a point and figure chart called a ‘double bottom breakdown.’  Yes, that technical indicator is just as scary as it sounds and this one suggested the stock had developed such a negative momentum it could drop to zero.

Now it appears OESX has begun a recovery.  Still it is possible to buy a growing company at a compelling price  -  even more compelling than the price paid by an entire group of investors who heard the company’s ‘lighting’ pitch first hand.

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.

April 08, 2015

OriginOil Renames Product - Will It Help The Business?

by Debra Fiakas CFA

Mid-March 2014, OriginOil, Inc. (OOIL:  OTC/QB) relaunched its waste water treatment process for shale gas producers.  The company’s CLEAN-FRAC and CLEAN-FRAC PRIME products are now called OriginClear Petro.  OriginOil is expanding into the industrial and agricultural waste water treatment markets using the product name OriginClear Waste. 

The company has been toiling away since 2007 perfecting its “Electro Water Separation” process that uses electrical impulses in a series of steps to disinfect and separate organic contaminants in waste water.    In June 2014, OriginOil management declared its development stage completed and start of full commercial operations.  In the months since the company has issued a series of product announcements:  in June 2014, CLEAN-FRAC to clean up water used in oil and gas production in June 2014, In February 2015, Smart Algae Harvester to enhance algae production, and in early March 2015, CLEAN-FRAC PRIME for treatment of hydraulic fracturing flowback water.

The oil and gas industry has been a prime target market for OriginOil technologies since it can take eight to ten gallons of water to produce one barrel of oil.  However, OriginOil sales personnel are calling on shale gas producers in the U.S. at a time when the entire industry is under pressure from exceptionally low world oil prices.  Crude is trading near $49.00 per barrel.  OriginOil claims its OriginClear Petro solution can save the shale oil producer more than $4.00 per barrel in production costs.

OriginOil is not the only company out pitching a fracking water solution to oil patch engineers.  GreenHunter Resources, Inc. (GRH:  NYSE) offers a portfolio of oilfield fluid management solutions, providing clean water supplies and foul water disposal.  An even more formidable competitor is Ecolab, Inc. (ECL:  NYSE), a provider of water treatment, sanitizing and cleaning solutions for industry, energy and petrochemical sectors around the world.  Then there are a swarm of other smaller contestants with a cornucopia of solutions.  Oasys Water, Inc. provides forward osmosis desalination services to shale gas producers to recycle water and reduce waste water for disposal.  Desalination is also in the service menu of Altela, Inc., which has patented a process that relies on evaporation accelerated by a solar concentrator to mimic the natural hydrologic cycle.

There are dozens of other providers just like these with one kind of solution or another.  It is hard to stand out in the crowd.   OriginOil management is hoping a refined sales pitch with a new name will make a difference.  Fortunately, any incremental sales will be meaningful.
OriginOil has reached commercial stage just like its press release claimed almost a year ago.  In the twelve months ending September 2014, OriginOil had reported only $166,200 in sales.  The company used $4.9 million in that period to support operations, leaving only a half million in cash on the balance sheet.

In October 2014, after the company’s last financial report OriginOil signed a $1.4 million order from oil services provider Gulf Energy LLC for a CLEAN-FRAC system, now called OriginClear Petro.  Gulf Energy has a growing customer base of oil and gas producers in the Middle East and North Africa.  The fourth quarter and year-end 2014 report should show a much improved top-line.

OriginOil needs many more customers like Gulf Energy  -  and a bit of magic.  It seems management is relying on a name change to work a bit of magic in the market place.  Investors apparently are not expecting a bunny to jump out of the OriginOil hat.  The company’s stock has been on a steady decline since the company went public in 2007.   The stock is now trading at seven pennies per share, which is a price that barely qualifies as an option on management’s ability to execute on company’s strategic plan.  Even the string of new product announcements and the Gulf Energy order have not been enough to excite investors.

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.

April 07, 2015

Green Mutual Funds and ETFs Show Signs of Life in 2015

By Harris Roen

Alternative Energy Mutual Fund Recovering

Alternative Energy Mutual Fund Returns

Alternative energy mutual funds are continuing to recover from a slump which started in fall 2014. Annual returns range greatly, though, from a high of 15.6% for Brown Advisory Sustainable Growth (BIAWX), to a low of -15.8% for Guinness Atkinson Alternative Energy (GAAEX). The large 12-month drop by GAAEX was precipitated by painful losses in some of its top weighted holdings…

Alternative Energy ETFs Remain Volitile

Alternative Energy ETF Returns

Green ETFs are showing a wide variety of returns, reflecting the volatility of the renewable energy sector. Less than 20% of ETFs have had gains in the past 12 months, with returns ranging from a gain of 28.5% for iPath Global Carbon ETN (GRN), to a loss of -48.1% for First Trust ISE-Revere Natural Gas Index Fund (FCG). ETFs have fared much better over the past three months. A little more than half of the funds ended in the black, averaging a gain of 3.8%…


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.

April 06, 2015

Bank of America's call on Tesla is Foolish

Tesla's "Long Shot" Could be a Game-Changer

By Jeff Siegel

TESLABOA“It's a long shot at best.”

That's what Bank of America analyst John Lovallo recently said regarding Tesla's new stationary battery packs being designed for individual homes.

While we know Lovallo is incredibly bearish on Tesla (NASDAQ: TSLA) – locking in a sell rating and a $65 price target on the stock – he is right. Such an ambitious goal is a long shot. But you know what else is a long shot? The existence of a superior electric car that can travel 200 miles on a single charge. Oh, wait. No, that's not a long shot, anymore. It actually exists. It's called the Tesla Model S, and it's received some of the highest ratings of any vehicle – internal combustion or electric – ever offered.

I'm not saying to run out and buy shares of Tesla, but this negative attitude of crapping all over anything that even remotely smells like a long shot bores me. Why reach for the stars when you can just sit in a comfy chair and cradle your nuts?

Instead of burying our heads in the sands of disbelief, maybe we should consider rooting for the guy that's looking to make the world a better place.

Although I understand Lovallo's analysis, it stinks of the same kind of pessimism we've seen in the past regarding other game-changing technologies that ultimately proved to be grand slams. Here are some of my favorites …

History is full of bad calls

This telephone has too many shortcomings to be seriously considered as a practical form of communication. – Western Union internal memo, 1878.

Radio has no future. - Lord Kelvin, British mathematician and physicist, 1897.

[Television] won't be able to hold on to any market it captures after the first six months. People will soon get tired of staring at a plywood box every night. - Darryl Zanuck, head of 20th Century Fox, 1946.

Rail travel at high speed is not possible because passengers, unable to breathe, would die of asphyxia. - Dr. Dionysus Lardner, Professor of Natural Philosophy and Astronomy at University College, London, 1823.

Airplanes are interesting toys but of no military value. - Marshall Ferdinand Foch, French military strategist, 1911.

There is no reason for any individual to have a computer in their home. Kenneth Olsen, president and founder of Digital Equipment Corporation, 1977.

I don't know what the outcome will be with Tesla's new stationary battery. But what I do know is that if it does prove successful, Tesla will rapidly become one of the most profitable companies on the planet. And I'm rooting for Elon Musk all the way. Anything less would be an act of defeatism, and quite frankly, just uncivilized.

And by the way, any individual who can build a re-usable rocket and a top-notch electric car that can travel in excess of 200 miles per charge can probably figure out how to build a stationary battery pack for somebody's house. Think about it.


Jeff Siegel is Editor of Energy and Capital, where this article was first published.

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