May 24, 2015

Warren Buffett: Closet Tree-Hugging Billionaire

By Jeff Siegel

Is Warren Buffett sending mixed messages on green energy?

That's what the folks over at Bloomberg Business have suggested. But nothing could be further from the truth. After all, Buffett's making a fortune in the alternative energy space.

Yet here's what was reported in Bloomberg this week:

Warren Buffett highlights how his Berkshire Hathaway Inc. utilities make massive investments in renewable energy. Meanwhile, in Nevada, the company is fighting a plan that would encourage more residents to use green power.

Berkshire’s NV Energy, the state’s dominant utility, opposes the proposal to increase a cap on the amount of energy that can be generated with solar panels by residents who sell power back to the grid in a practice known as net metering.

While the billionaire’s famed holding company has reaped tax credits from investing in wind farms and solar arrays, net metering is often seen by utilities as a threat. Buffett wants his managers to protect competitive advantages, said Jeff Matthews, an investor and author of books about Berkshire.

“It always comes down to money,” he said.

Well, Duh!

Of course it always comes down to money!

You think you'd see billion-dollar growth in the solar space if it were only being facilitated by overzealous tree-huggers and wealthy eccentrics?

Not a chance!

The rapid growth in renewables — particularly in solar and wind — is the result of entrepreneurship, capitalism, and the basic fundamentals of supply and demand.

It blows my mind that folks are calling out Warren Buffett for lobbying against a proposal to increase the net metering cap. Buffett isn't in the alternative energy game because he likes to hug trees. He's in the alternative energy game because he's an incredibly smart investor.

Anyone who honestly believes there's no money to be made in the renewable energy space should go find a typewriter company to invest in. I've been screaming this from the rooftops for a decade now, and many of those who have listened — and invested accordingly — have made small fortunes.

Sipping Mai Tais in Kauai

Look, Buffett doesn't really have much skin in the residential solar space. Most of his renewable energy scratch comes from utility-scale development. So having to shell out more to individual homeowners who send solar-generated electrons to the grid isn't going to help Berkshire's NV Energy.

Of course, this actually illustrates a pretty interesting point.

When you step back and look at the big picture of renewable energy, it's really only the super wealthy that can even afford investing in these giant utility-scale renewable energy projects. And these deals are not for the risk-averse.

You can, however, invest in the public companies that build or invest in these projects. I'm talking about companies like First Solar (NASDAQ: FSLR) and SunPower (NASDAQ: SPWR), not to mention the financiers and developers.

Some of my favorites here include:

  • Brookfield Renewable Energy Partners (NYSE: BEP)
  • Pattern Energy Group (NASDAQ: PEGI)
  • Hannon Armstrong (NYSE: HASI)

The latter, by the way, is a company I told you about back in 2013, when it was trading around $11 a share. Today, it trades around $20, plus it boasts a nice little 5% dividend.

hasi chart

While I'll be the first to admit that I am, without a doubt, an unapologetic environmentalist, I sure as hell don't invest in renewable energy companies unless they're going to make me money. And HASI is among many that have helped me turn my passion for sustainability into an opportunity to create significant wealth.

No, my swagger doesn't even come close to that of Warren Buffett's. And truth be told, if I boasted just 0.5% of his net worth, I'd be sitting in my hammock in Kauai right now, sipping a Mai Tai and reading the newspaper.

But one thing's for certain...

Without the renewable energy space, many of my readers would have much thinner wallets right now. So yes, even if you couldn't care less about the toxicity of our air or the rapid erosion of our once-healthy soil, make no mistake — investing in renewable energy has more to do with profits than it has to do with tree-hugging.

And if you don't believe me, ask yourself why Warren Buffett owns more than $15 billion worth of wind and solar assets. That's billion — with a “B.”

It ain't rocket science, folks!

To a new way of life and a new generation of wealth...

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

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May 23, 2015

Yingli is Tanking, but the Solar Industry Remains Vibrant

By Jeff Siegel

Solar stocks are getting a thrashing today after Yingli Green Energy (NYSE: YGE) came clean about a possible bankruptcy.

The stock tanked at the open and is still trading below $1.00 – down from yesterday's closing price of $1.70.

ygetank

Of course, the writing was on the wall with this one.

Yingli's been struggling for a long time. And while I'm extremely bullish on solar, I've kept a safe distance from Yingli, as well as a lot of other China solar stocks.

That being said, even the solid, revenue-generating companies not operating out of China are in the red today, including SunPower (NASDAQ: SPWR), First Solar (NASDAQ: FSLR), SunEdison (NYSE: SUNE) and SolarCity (NASDAQ: SCTY).

Interestingly, I thought those particular stocks would get hit a bit harder today, potentially opening up an opportunity to pick up some cheap shares. That didn't happen, so those like me, who are long on these four stocks, are feeling pretty confident right now.

Still, I suspect we'll see plenty of anti-solar pieces over the next few days. This is pretty much an obligatory response anytime we see disruption in the solar space. And that's fine. At this point, none of that matters.

The growth trajectory for solar has not budged with this recent news out of the Yingli camp. The only thing that's changed is the space has rid itself of one more laggard. And that's a good thing!

Interestingly, while solar is down today, a number of our renewable energy yieldcos are up.

As of this writing, TransAlta Renewables (TSX: RNW) is up about 3 percent, Pattern Energy Group (NASDAQ: PEGI) is up just over 1 percent, and Hannon Armstrong (NASDAQ: HASI), which is technically a REIT, is up just over one percent, as well.

Man, I love renewable energy yieldcos!

Don't sleep on renewable energy ...

There's just too much money to be made here.


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

May 22, 2015

Darling Ingredients: At the Margin

by Debra Fiakas CFA

This week Darling Ingredients (DAR:  NYSE) reported earnings of $100,000 on net sales of $874.7 million in the first quarter ending March 2015.  Darling is a recycler of sorts, collecting by-products of the food production industry and recycling the left-overs and waste into proteins, fats and leathers.  Nothing goes to waste.  Every last chicken feather, hide, gallon of used cooking grease and cake crumb gets up-cycled to a usable material for feed, food, fuel or clothing.  Its customers include pet food producers, personal care manufacturers and textile users, among others.

Darling used to sell its non-edible oils to the biofuel industry until it entered into a joint venture called Diamond Green Diesel with oil and gas giant Valero Energy, Inc. (VLO:  NYSE).  The joint venture provides a good hedge for Darling against declines in the prices for its oil, which can weaken against other oils from corn, soy or palm crops.   Diamond Green produced 37 million gallons of renewable diesel in the quarter.

The commodities business is a tough one and Darling had been under some pressure in recently months from weakened selling prices.  Sales in the three months ending March 2015, slipped compared to the year-ago quarter on lower selling prices for fat products.  The strong dollar also trimmed reported sales.   Management seems to have righted the ship with a cost cutting program and restructuring in some divisions.  The company also has some protection if raw materials prices increase  through sales contract include provisions for selling price adjustments.    During the earnings conference call management characterized margins in the feed segment as ‘normalizing’ and in the food segment ‘stable’ following restructuring efforts.

The breakeven earnings results were better than analyst expectations for the quarter and offered encouraging evidence that management had regained control of margins.   On a non-GAAP basis Darling generated $0.09 in earnings per share after excluding acquisition and integration costs and amortization.  This compares to the consensus estimate of non-GAAP earnings of $0.06 per share.  The appearance of an upside surprise was enough to bring investors and traders back to DAR, which gapped higher in the first day of trading following the earnings release.

Crystal Equity Research has a Buy rating on DAR.  The stock appears overbought in the short term, but management’s efforts to regain profit margins have borne fruit and the stock looks interesting for investors with a long-term horizon.


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 a Buy rating on DAR and Darling Ingredients is included in the Biofuel Group of the Beach Boys Index of alternative energy developers and producers.

May 21, 2015

Yingli’s New Deadline, Hanergy’s Plunging Value

Doug Young 

Bottom line: Yingli’s shares could rebound a bit as concerns ease about an imminent bankruptcy, while Hanergy’s shares are likely to continue sliding when trading resumes to correct from a massively speculative recent run-up.

This week has been a volatile time for solar company stocks, which have taken a beating after Yingli (NYSE: YGE) warned about its ability to stay in business due to its heavy debt load. Now Yingli has put out a new statement saying its earlier warning was misinterpreted, helping to reverse a huge sell-off of its shares as it laid out the next big deadline in the struggle to repay its debt.

At the same time, Hong Kong-listed solar equipment maker Hanergy (HKEx: 566) has also been in global headlines, after its shares lost nearly half their value in just a matter of minutes in Wednesday trade. Media are focusing on the huge price swing, which no one seems able to explain. But this really looks like a story of stock manipulation by speculators rather than one of any significant change in the company’s prospects, which once again underscores the dangers of dealing in this kind of thinly-traded stock.

Let’s start with Yingli, whose shares lost nearly half of their value in the first 2 trading days of this week after it said its heavy debt load could affect its ability to stay in business. (previous post) That sell-off pushed the shares to an all-time low, as investors worried about a bankruptcy that could have rendered the stock worthless.

Now Yingli has issued a new statement saying investors misinterpreted its earlier words, sparking a rally that saw the stock jump 25 percent in the latest trading session. But even with the rebound, the shares are still down more than 30 percent from where they began the week, showing that investors are still quite concerned about the company’s ability to service its debt.

In the new statement, Yingli said its earlier statement was taken out of context and it’s “optimistic and confident” about its ability to continuing serving the global solar market. (company statement) Of course it would have been much better if it could have said it was confident about its ability to service its debt, which totals more than $2 billion.

But it did note that its next big debt repayment of 1 billion yuan ($162 million) will come due on October 13, and that it believes it will be able to repay that amount on schedule. The amount isn’t really all that large, and Yingli previously sold off some of its land to pay off another debt obligation earlier this month. Still, using land and other asset sales to pay off debt isn’t a great long-term business strategy, and the money-losing Yingli will need to plot a path back to profitability soon if it really wants to survive.

Meantime, we’ll look very quickly at Hanergy, which makes equipment to produce thin film used to make solar energy. This company defied logic and saw its shares soar 6-fold since last September before the sell-off. That means that even after the sell-off that saw the shares plunge 47 percent in just 27 minutes of trade, the stock is still triple its price from last September. (English article)

Hanergy now has a market value of $20 billion, which is far larger than any other solar company, most of whose shares remain depressed due to stiff competition. And yet despite that huge market value, the plunge in price was based on a trading volume of just 175 million shares, which probably had a total value of around $120-$140 million.

That small figure reflects the fact that Hanergy’s share float is very small, and thus the company’s stock price is easily manipulated. The company may have good enough prospects, but it’s recent stock run-up was far out of proportion to its growth potential. Accordingly, this latest plunge looks like a much-needed correction, and the shares could continue to fall re-approach their earlier levels once trading resumes after a temporary halt.

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.

May 20, 2015

Yingli In Danger Of Default

by Doug Young

Bottom line: Yingli is in increasing danger of defaulting on its heavy debt load, which could result in a rapid and disorderly bankruptcy if its hometown government fails to provide support.

After sending out a steady series of distress signals over the last few weeks, solar panel maker Yingli Green Energy (NYSE: YGE) has sent out its strongest trouble sign yet as it struggles under a huge debt load. The most recent signal comes in a new filing with the US securities regulator, in which Yingli says its big debt could threaten its ability to survive, potentially making it the latest casualty in a clean-up of China’s bloated solar panel sector. Such an outcome would see Yingli follow in the footsteps of former high-flyers Suntech and LDK, and would raise the question of whether others may soon follow down a similar path.

First Suntech and LDK, and now Yingli have all struggled to service billions of dollars in bonds and bank loans they used to build plants for solar panel manufacturing at the height of an industry boom 7 years ago. Suntech’s inability to pay off a maturing bond was the trigger that finally forced it into bankruptcy 2 years ago, though it was already in deep financial trouble by then. Now the same thing could soon happen to Yingli, whose prospects are being clouded by recent weakness in the global solar panel market.

In its new filing with the US securities regulator, Yingli says it has nearly 15 billion yuan in debt ($2.4 billion), more than two-thirds of which is short term borrowings. (company announcement; English article) It said it is having difficulty servicing that debt, which could affect its competitiveness, its ability to get new financing and ultimately its ability to stay in business.

The announcement sparked a sell-off for Yingli shares, which tumbled 12.3 percent to $1.49 in the latest regular trading session in New York. The shares were down another 25 percent at $1.11 in after-hours trade, putting them in position to reach an all-time low if the declines hold in the next regular trading session. Shares of many other solar panel makers also dropped by smaller amounts, with Canadian Solar (Nasdaq: CSIQ) and ReneSola (NYSE: SOL) both down by more than 4 percent.

Yingli has yet to announce its first-quarter results, but reported net losses of nearly $90 and $210 million for last year’s fourth quarter and the full-year 2014, respectively. Its new announcement was its loudest signal yet that it may be the next to fail, following a recent string of similar signs.

YIngli was recently forced to sell some of its idle land in its hometown of Baoding to meet a debt payment due earlier this month, barely managing to avoid a default. (previous post) Another solar manufacturer named Tianwei, which also happens to be based in Yingli’s hometown of Baoding, last month made headlines when it became the first company to default on a domestic Chinese bond. (previous post)

It’s unclear if these 2 companies are related beyond the fact that both are based in the industrial northern city of Baoding. But what does seem clear is that the city of Baoding isn’t in any rush to bail out these local companies, which certainly isn’t a good sign for either. In the earlier Suntech bankruptcy, the company’s hometown of Wuxi was much more proactive in the bankruptcy process, even though Suntech’s management team was ultimately forced out.

In this latest case it’s probably still too early to say if Yingli will ultimately be forced into a similar bankruptcy, though the likelihood certainly looks high. The earlier bankruptcies 2 years ago were relatively orderly, thanks to strong support from local governments.

But now many of those governments are coming under economic distress as they struggle with their own big debt amid a slowing Chinese economy. Accordingly, first Tianwei and now Yingli probably can’t expect too much assistance from the local Baoding government, meaning a rapid fall and disorderly bankruptcy could come if and when the company fails to service its next upcoming debt obligation.

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.

May 19, 2015

Solar Stocks Bask In Hawaiian "Aloha"

By Jeff Siegel

hawaiisolarI’ve been all over the world, and without a doubt, there is no place more beautiful than Hawaii, particularly the island of Kauai.

The weather, the ocean, the rain forests, the food - it just doesn’t get any better.

Although if state lawmakers get their way, there could soon be a cherry on top for renewable energy supporters.

As recently reported in Greentech Media …

Lawmakers in Hawaii passed legislation last week (in a 74-2 vote) requiring the state to generate 100 percent of its electricity from renewable energy resources by 2045. If HB 623 is signed into law by Governor David Ige, Hawaii will become the first U.S. state to attempt complete decarbonization of the power sector.

Today, Hawaii’s energy mix is more than 80 percent fossil fuel, with oil providing the majority of electricity generation on the islands.

Now I’ll be the first to admit, I find free market solutions superior to mandates and legislation. In a real free market, the government wouldn’t even be necessary in this situation. The better mousetraps - in this case, solar, wind and energy efficiency, would quickly replace the islands’ heavy dependence on oil.

Of course, to assume there’s a free market in energy is not a safe assumption to make.

I won’t get into all of that here, but if you’re a regular reader of these pages, you know full well that the oil and gas industry has long enjoyed extremely generous subsidies - both direct and indirect. And it is for this reason that renewables in Hawaii have faced such a long, uphill battle.

But with renewables enjoying a rapid decrease in production costs, even the unleveled playing field that exists in the world of energy won’t be enough to stop this clean energy juggernaut.

A Great Opportunity

The fact is, Hawaii has access to some of the greatest renewable energy resources in the world - solar, wind, tidal, and geothermal. The fact that 80 percent of the state’s energy mix is more than 80 percent fossil fuel-based is despicable. It highlights a long-standing exercise in complacency that has been facilitated by lawmakers, corporate interests and the relationship between the two.

In any event, if this bill becomes law, we will see a great opportunity for a number of publicly-traded solar companies, including, but not limited to …

  • SolarCity (NASDAQ: SCTY)
  • SunPower Corp. (NASDAQ: SPWR)
  • First Solar (NASDAQ: FSLR)
  • SunEdison (NYSE: SUNE)
  • SolarEdge (NASDAQ: SEDG)

I suspect Tesla’s (NASDAQ: TSLA) new battery storage systems could also find a nice home here.

Invest accordingly.

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

May 14, 2015

Bears Are Sniffing At Clean Energy Fuels: Should You?

By Jeff Siegel

Clean Energy Fuels (NASDAQ: CLNE) has been having a pretty good year.

The stock reached a 2015 high of $10.48 on May 4. Up from $5.03 at the start of the year.

clneclne

But the natural gas fueling company co-founded by legendary oilman T. Boone Pickens took it on the chin today after missing analysts’ estimates for earnings and revenue in Q1.

When CLNE first came on the scene, I was a fan. I even recommended the company shortly after it went public. And we did pretty well, eventually clocking out with a gain in excess of 60 percent in less than a year.

Since then, I’ve commented here and there on the stock, but never bothered to get back in. Although I could’ve made a nice chunk of change this year on it, I remain skeptical about the big promises that often come from the “natural gas for fuel” camp.

I have no doubt that natural gas will continue to be a fuel of choice for a number of fleet operators - particularly those relying on buses and large trucks. However, there are still those who claim that natural gas can serve as the perfect bridge fuel for passenger vehicles - transitioning us from gas and diesel to natural gas, then ultimately to electric cars or fuel cells. The latter also being an unlikely occurrence.

In any event, this is an argument I’ve been hearing for years. The only problem is, such a bridge is unnecessary. We’re well on our way to transitioning away from the outdated internal combustion engine.

Yes, we’re still decades away from meaningful numbers, but certainly no natural gas bridge is required. And quite frankly, the only folks that keep harping on this illusion are those with a lot of skin in the natural gas game.

Don’t get me wrong. I’m not trying to knock their hustle. We’re all out here trying to make a buck. But I would remind investors that while Clean Energy Fuels will continue to be quite successful landing deals with fleets, any claims from the peddlers of this camp that natural-gas powered passenger vehicles are coming should be met with an enormous amount of skepticism.

Of course, I’m also a huge supporter of the electric vehicle movement, and have often been critical of natural gas-powered vehicles. But the bottom line is that on performance, design, range and infrastructure availability, natural gas just can’t compete with electric vehicles. And they certainly can’t compete with gasoline-powered cars.

Not looking good …

Getting back to Clean Energy Fuels, I know a lot of analysts still have pretty high price targets on this thing. But I’m skeptical. Here are a few things that bother me about CLNE:

It’s carrying nearly $600 million in debt, yet only has about $215 million in cash
Analysts at Piper Jaffray have suggest that the company will not have enough cash to pay off its convertible debt in 2016. I don’t know how accurate this analysis is, but it does have a $145 million convertible note coming due in August
With lower oil prices, interest in liquid natural gas is waning. Some companies, including Cummins Westport have put their LNG engine manufacturing operations on hold.

I just don’t think Clean Energy Fuels is ever going to be able to live up to the grand expectations its been pitching over the years. That’s not to say the company’s going to go belly up. But I wouldn’t be surprised to see management looking to do a capital raise sometime soon, possibly resulting in dilution of the stock.

All in all, I don’t like the prospects for CLNE. It might be good for a quick trade here and there, but long-term this one just isn’t for me. 

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

May 13, 2015

US Crawls Closer to Energy Policy

by Debra Fiakas CFA

Last week President Obama signed into law the Energy Efficiency Improvement Act of 2015.  The law is intended to reduce energy requirements in commercial buildings, manufacturing facilities and residential structures.  The law improves building codes, provides assistance to manufactures to achieve energy efficiency and paves the way for conservation activities by federal agencies.  It is the closest thing the United States has to an energy policy…..so far.


It took years to get this small piece of energy policy through Congress.  Indeed, at one point in its convoluted travels through the House of Representatives and Senate, several of the bill's Republican sponsors actually filibustered against it.  First, there was some sort of crazed attempt to protect the Keystone XL pipeline.  Then, additional delays resulted from attempts to add amendments that would enable exports of natural gas and others that would have reduced the U.S. Environmental Protection Agency authority to regulate future power plants.

The legislation was widely supported by the utility industry.  Both the Natural Resources Defense Council and the U.S. Chamber of Commerce were early advocates.  Such support bodes well for the success of the legislation.

Part of the reason the bill was well received is the voluntary and market-driven character.  Title I of the law providers for voluntary approach to reducing energy use in commercial buildings.  Title III of the act requires federally-leased building without Energy Star labels to benchmark and disclose energy usage data.

Senators Portman and Shaheen, who had sponsored the Energy Efficiency bill have also put forth the Energy Savings and Industrial Competitiveness Act.  It was sent to a congressional committee in early March 2015.  It would establish a national strategy for energy efficiency with a model building code.  It would also promote energy-efficient supply chains for companies with the federal government agencies leading the way and support energy efficiency in schools.  The legislation is projected to create 192,000 jobs and save $16 billion annually in energy use as well as reduce carbon dioxide emissions by 95 million tons within the next fifteen years.

For investors the legislation may not seem important.  However, an unexpected consequence of this law might be in creating a standards-based approach to energy efficiency.  With all business aiming at the same target, it creates some production and marketing efficiencies.  I expect more innovators to be encouraged to invest in products and processes that might otherwise have been thought uneconomic.  Interestingly, the legislation does not rely on penalties or punishments.  It simply promotes market forces and competition.  I also expect this to lubricate interest in bringing efficiency products to the market. 

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.

May 12, 2015

The Value of Net Metered Electricity in New York

by Tom Konrad, Ph.D.

Net metering is unfair and is dangerous for the long term health of utilities, at least according to Raymond Wuslich, when he spoke at the 2015 Renewable Energy Conference in Poughkeepsie, NY.  Wustlich is an attorney and partner at Winston & Strawn, LLP., and advises clients across the electricity and natural gas industries on Federal Energy Regulatory Commission (FERC) matters.

To make his point, Wuslich used a simplified New York residential electric bill.  In this simplified bill, the customer was charged 12¢ per kWh for electricity.  Roughly 6¢ each go to the energy supplier and the transmission and distribution utility, which owns the wires, for the delivery of electricity.  (New York has a competitive power market, where power suppliers are separate from the utility companies.  Consumers are able to switch between suppliers at will.)  Of the 6¢ which pays for energy, he states that 4¢ is for capacity charges (keeping the power on) and 2¢ is the cost of energy delivered.

Using this simplified example, Wuslich argues that net metered customers are only providing 2¢ of value for each kWh they generate, but are receiving 12¢ of value.  If it were true, this would clearly make net metered solar unsustainable as it grows as a percentage of the electricity mix.  We can start to see why with a quick look at my most recent electricity bill, below.  The red explanatory text is mine.

Electric bill screenshot.png
We can ignore the fact that I actually paid an average of 23¢ per kWh for the net 886 kWh I used over two months; Wuslich's point related to percentages of the bill going to delivery, capacity, and energy, not the absolute numbers.  Much more important is that $48, or almost a quarter of the total bill, is not paid on a per kWh basis at all.  This money helps pay for delivery, and cannot be offset with net metering.  All else being equal, increases in net metering will cause electric delivery payments to fall, but not as much as Wustlich's example implies.

The other major oversimplification is that the price of both energy and capacity change with the time of day, the season, and weather conditions.  The cost of electric capacity and the cost of delivery are both highest when load peaks, and are much lower the rest of the time.  Capacity costs are lowest at night when most people are sleeping and electricity demand is low.  On average, solar photovoltaics (PV), are producing power when capacity prices are high. 

Electric capacity prices are highest when electric load peaks.  In New York, this peak is usually "Thursday or Friday afternoon at the 3rd or 4th day of an extended heatwave," according to Richard Barlette, who also spoke at the conference.   Barlette is the Senior Manager of External Affairs at The New York Independent System Operator (NYISO), the non-profit governing body which manages New York's transmission grid.

A look at NYISO's  2015 Load and Capacity Data Report or "Gold Book" shows that residential solar PV pulls its weight when it comes to meeting peak demand.  In fact, NYISO projects that behind-the-meter PV will more than carry its weight in 2025.   As the chart below shows, in 2015, retail PV will contribute slightly less to meeting statewide peak than it contributes to meeting annual energy demand, but that ratio is reversed in the most expensive capacity markets: New York City and Long Island. There it contributes more to peak demand than to annual energy use.

NYISO PV projections.png

NYISO's projections for 2025 show retail PV providing greater capacity benefits, not fewer, with capacity benefits felt statewide.

In short, the capacity value of net metered solar in New York is roughly proportional to the energy it provides for New York's electric grid, and it even delivers a bit more value in the most capacity constrained parts of the state. 

Although net metering policy was not intentionally designed to match the value of solar to its cost, the policy is currently doing a decent job of compensating homeowners fairly for the value their solar provides to the grid.  Contrary to the worries of industry representatives like Mr. Wustlich, in ten years, net metered customers will be delivering more value to the grid than they will be paid for, not the other way around.

Maureen Helmer led the New York State Public Service Commission (PSC) when the state created its competitive market for electricity in the 1990s.  At the time, she said utilities were very concerned about "stranded costs," and not getting paid enough for the generation assets they were being forced to sell.  But this worry turned out to be unfounded, since the assets all sold for good prices.

Now New York is again working to modernize its electricity market with the "REV" (Reforming the Energy Vision,)  and utilities are worried about net metering.  These worries also seem likely to be unfounded.

May 11, 2015

Alaska Airlines and Gevo to Demonstrate Alchohol-to-Jet Fuel

gevo logo

In Colorado, Gevo (GEVO) and Alaska Airlines announced a strategic alliance to purchase Gevo’s renewable jet fuel and fly the first-ever commercial flight on alcohol-to-jet fuel (ATJ).

The demonstration flight is expected to occur after Gevo receives ASTM International certification for its fuel, sometime in mid to late 2015. Gevo has been working through the rigorous ASTM process for six years, which includes extensive engine testing and data analysis by all of the major original equipment manufacturers to establish the specification for this drop in fuel. Once approved, this fuel can be seamlessly integrated into the existing distribution infrastructure and onto commercial aircraft.

“Developing a domestic, competitively priced, sustainable supply of biofuels is fundamental to the future of American aviation,” said Joe Sprague, senior vice president of external relations at Alaska Airlines. “The cost of fossil-based jet fuel is one of the largest expenses for airlines. This investment in Gevo’s ATJ will help reduce our exposure to high fuel prices, minimize our carbon footprint and demonstrate growing demand for fuel alternatives.”

“A sustainable biofuels industry would help insulate airlines from fuel price spikes, enabling them to offer economical air travel while remaining profitable, while helping meet their environmental goals, and spur economic growth within and outside of aviation,” said Gevo CEO Pat Gruber. “We greatly appreciate Alaska Airlines as a commercial partner as we move towards commercialization.”

Why alcohol-to-jet, anyways?

When most of us think of highly customized aviation alcohols, we probably think of the little bottles of Johnnie Walker. But a handful of companies such as Gevo, Butamax and LanzaTech could shake up the emerging aviation biofuels markets by developing renewable aviation fuels from ethanol and/or biobutanol.

“An alcohol molecule, looking at it one way, is really just a hydrocarbon carrying this extra OH [a hydroxyl group] on its back,” LanzaTech CEO Jennifer Holmgren told The Digest, explaining that chemically reforming alcohol into jet fuel is not a bizarre form of medieval alchemy.

In the process, you generally need two ethanol molecules to make a jet fuel molecule, so unless you are interested in trying to sell $3 jet fuel into a $2 market, you had better start with something that produces much better than $1.50 ethanol.

Isobutanol, such as made by Gevo and Butamax, is an alcohol with special applications in jet fuel because it is a four-carbon molecule to begin with. Back in 2009, Gevo opined that the first “Sasol Synthetic Jet was C12‐ centered isoparaffin mixture with similar properties” to Gevo’s jet fuel blend stock. Gevo said at the time that its jet fuel met all ASTM specifications except a slight miss on fuel density, and blended with 25% Jet A it met all specs. Gevo also indicated that it could make a jet fuel blend stock at an operating cost equivalent to $65 oil.

Gevo and aviation fuels

Gevo’s ATJ is produced at its demo biorefinery in Silsbee, TX, using isobutanol produced at its Luverne, MN, fermentation facility. Gevo is currently operating its Luverne plant in Side-by-Side operational mode, whereby isobutanol is being produced in one of the facility’s four fermenters, while the other three fermenters are dedicated to ethanol production. The isobutanol that Gevo is producing is meeting product specifications for direct drop-in applications, as well as for use as a feedstock for the Silsbee biorefinery to produce hydrocarbons such as ATJ.

In March, NASA purchased volumes Gevo’s renewable alcohol-to-jet fuel (ATJ) for aviation use at the NASA Glenn Research Center in Cleveland, Ohio. Gevo’s ATJ is manufactured at its demonstration biorefinery located in Silsbee, Texas, using renewable isobutanol produced at its Luverne, Minnesota, isobutanol plant. The biorefinery, where Gevo also produces bioparaxylene and bioisooctane, is operated in conjunction with South Hampton Resources.

In December 2014, the US Navy’s Naval Air Systems Command announced its first successful alcohol-to-jet supersonic flight, fueled by Gevo’s renewable isobutanol. This was the first aviation test program to comprehensively test and evaluate the performance of a 50/50 ATJ blend in supersonic (above Mach 1) afterburner operations – a critical test to successfully clear the F/A-18 for ATJ operations through its entire flight envelope. This military specification would allow for commercial supply of ATJ fuel to the Navy and Marines Corps.

In April 2014, Gevo announced an agreement with Lufthansa to evaluate Gevo’s renewable jet fuel with the goal of approving Gevo’s alcohol-to-jet fuel for commercial aviation use. Lufthansa’s testing is being supported through work with the European Commission.

Alaska Airlines and sustainable aviation fuel

The key takeaway for Alaska is that the airline has set a goal of using sustainable aviation biofuel at one or more of its airports by 2020.

Alaska Airlines was the first U.S. airline to fly multiple commercial passenger flights using a biofuel from used cooking oil. The carrier flew 75 flights between Seattle and Washington, D.C. and Seattle and Portland in November 2011.

The fuel was supplied by SkyNRG, an aviation biofuels broker, and made by Dynamic Fuels, a producer of next-generation renewable, synthetic fuels made from used cooking oil, now a division of Renewable Energy Group nown as REG Geismar.

At the time, Alaska Air Group estimated the 20 percent certified biofuel blend it is using for the 75 flights will reduce greenhouse gas emissions by an estimated 10 percent, or 134 metric tons, the equivalent of taking 26 cars off the road for a year. If the company powered all of its flights with a 20 percent biofuel blend for one year, the annual emissions savings would represent the equivalent of taking nearly 64,000 cars off the road or providing electricity to 28,000 homes.

In 2010, Alaska Airlines, Boeing, Portland International Airport, Seattle-Tacoma International Airport, Spokane International Airport and Washington State University announced a strategic initiative to promote aviation biofuel development in the Pacific Northwest, the first regional US assessment of its kind, dubbed the “Sustainable Aviation Fuels Northwest” project. The consortium examined biomass options “within a four-state area,” examining “all phases of developing a sustainable biofuel industry,” including ” an analysis of potential biomass sources that are indigenous to the Pacific Northwest.”

Since 2010, Alaska Air Group has been a partner in a strategic initiative called Sustainable Aviation Fuels Northwest (SAFN), a 10-month regional stakeholder effort to explore the feasibility, challenges and opportunities for creating an aviation biofuels industry in the U.S. Pacific Northwest. The study determined the region has the diverse stocks for biofuels, delivery infrastructure and political will needed to create a viable biofuels industry. There currently is no supply of aviation biofuels in the Pacific Northwest.

The Bottom Line

The Alaska / Gevo partnership is a solid step towards commercializing the fuels, which Gevo has the capability to produce at demonstration levels. It would need an equity infusion to take the Silsbee technology to the next level.

In that context, consider the March 2015 memorandum of understanding between Praj Industries and Gevo, in which Praj would undertake to license up to 250 million gallons of isobutanol capacity for sugar-based ethanol plants over the next ten years. Gevo will market the isobutanol produced by Praj’s sub-licensees — which could well include airline customers via a Silsbee-like commercial scale conversion facility.


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.


May 10, 2015

Tesla Just Killed Your Power Company

By Jeff Siegel

Last Thursday at around 11:00 p.m., the world changed.

I don't mean to sound so dramatic, but there's no other way to put it.

You see, that night, Tesla Motors (NASDAQ: TSLA)) CEO and super-genius Elon Musk unveiled something so monumentally game-changing, it's almost hard to put into words without sounding like a lunatic. But I'm going to try anyway...

Out of the Starting Gate

When I first started covering the renewable energy space in 2005, it was like pulling teeth to get investors to pay attention. After all, the renewable energy industry had a long history of great ideas but poor execution.

However, in the early 2000s, the once-niche industry that had long been suitable only to overzealous tree-huggers and wealthy eccentrics had finally inched out of the starting gate. And I wasted no time in capitalizing on the clean energy boom I knew was coming.

Over the years, we did quite well. In fact, after the effects of the recession subsided, the renewable energy industry has enjoyed some pretty impressive and consistent growth. And today, things like solar, wind, and electric cars have really become ubiquitous.

That being said, there's always been a hurdle for renewable energy technologies...

No matter how rapidly the technology develops and the costs of integration fall, when the sun doesn't shine and the wind doesn't blow, solar and wind are of little use.

Of course, there have also been plenty of arguments to support the idea of an energy economy heavily weighted in renewables, where only a small percentage of fossil fuel generation would be necessary. By utilizing intelligent energy systems, smart grids, and all kinds of wonderful technologies, this is doable.

But there's an easier way.

Energy Independence

Energy independence is a dream for many but a reality for just a few.

The truth is, energy independence has long been little more than theory because of the high costs of achieving such a thing — at least in the face of a heavily subsidized, centralized energy system that seems to reward complacency while penalizing innovation.

But thanks to Elon Musk, that's about to change.

Last week, Musk introduced Tesla's  latest game-changer: the Powerwall.

Tesla's Powerwall is a home battery that can be charged using electricity generated from solar panels on your roof. At night, after the sun goes down, you can use this battery to power your home. Or, if some of your electricity still comes from the grid, you can simply use it as a backup system against power outages.

Basically, what we're talking about here is the fact that most of us now have the opportunity to turn our homes into small power plants and fueling stations. That's right, fueling stations, too — because if you own an electric car, you'll now be able to fuel your car with domestically generated electrons in your own home.

This is not a lofty goal — this is reality.

powerwall

Of course, with Musk allowing this technology to be open-sourced, Tesla won't be the only game in town. And the way Musk sees it, this is a good thing, as it'll spark competition and enable a faster transition of our energy economy.

A New Energy Economy

One company that's actually looking to offer its own similar battery system is Sungevity.

Sungevity is one of the biggest solar financing and installation companies in the U.S. Not quite as big as SolarCity (NASDAQ: SCTY), but still a major player.

Last month, we learned that Sungevity had teamed up with German battery manufacturer Sonnenbatterie to supply storage systems to homeowners, too. However, the initial pricing we see on this is around $10,000, and these systems will mostly be marketed in Europe.

Of course, moving beyond Tesla (and SolarCity, which is run by Elon Musk's cousin and of which Musk is chairman), this will provide yet one more boost for the solar industry in general.

One of the reasons some folks have held back on going solar is because of the concern over solar being an intermittent power source. But with a competitively priced, reliable battery backup, this is no longer a concern. Every major solar manufacturer on the planet will benefit from this development.

Now, the rollout of these new batteries won't happen for another three or four months. And that rollout will be relatively slow until 2017, when more batteries will be pumped out of Tesla's new Gigafactory — which, by the way, will enjoy production levels in 2020 that will exceed all of 2013's global production.

gigawhatClick Image to Enlarge

As I've been preaching for years, we are at the dawn of a massive transition of our energy economy.

Going forward, it will be supported by new energy technologies that will be much more efficient and reliable than what we rely on today. As well, these technologies will allow us to enjoy all the conveniences and comforts we enjoy today — but do so without fouling up the planet. Not a bad deal!

To a new way of life and a new generation of wealth...

 signature

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

May 08, 2015

Are Solar Stocks Cheap For A Reason?

by Debra Fiakas CFA

The last post “Meeting Solar Challenge in the Courtroom” discussed how European solar manufacturers are complaining about China’s exports.  A complaint made by industry association EU ProSun charges China manufacturers of solar cells and panels of circumventing Europe’s anti-dumping measures by channeling their products through Malaysia and other intermediaries in order to disguise the China origin.  A report by released last month by IHS (formerly SolarBuzz) makes clear there is much at stake in the solar industry.  IHS forecasts global solar photovoltaic capacity could reach 498 gigawatts by 2019.  That call is a whopping 177% higher than capacity reported in 2014.  IHS is also projecting a dramatic increase in demand to 75 gigawatts per year by 2019.   That level is 66% higher than demand registered in 2014. 

That sort of growth is usually a call to investors to BUY! BUY! BUY!  What is the best approach to the next stage in the solar power industry?  Bet on a single horse? The long shot or the favorite to win?  Take a position in the industry with an ETF or an indexed solar energy fund?

The China solar module producers that are listed in the U.S. and trade in U.S. dollars are available at bargain valuations.  China’s Trina Solar (TSL:  NYSE) is trading at 21.1 times trailing earnings, but an interesting multiple of 10.2 times the consensus estimate for Trina in 2015.  Another China company, JA Solar Holding (JASO:  Nasdaq), is an even better bargain with a stock that is priced at 7.4 times forward earnings.  The problem is JA Solar does not appear to be growing earnings so it probably deserves a lower valuation.  Renasola (SOL:  NYSE) might be the surprise among the China solar stocks.  The company is expected to return to profitability in 2015 and the stock is trading at 17.6 times projected earnings.  That is not such a compelling valuation metric, but it is interesting given the Rena Solar is on the mend.

Canadian Solar, Inc. (CSIQ:  Nasdaq) should not be overlooked.  This solar module producer is headquartered in Toronto, but has production facilities all over the world, including China.  It’s trailing and forward earnings multiples are 9.1 and 8.4, respectively.  I just cannot quite figure out the connection between solar power and the sheep on Canadian Solar’s corporate web site!

The U.S. is famously bereft of manufacturing talent and capacity, but there are two domestic solar module manufacturers.  First Solar, Inc. (FSLR:  Nasdaq) and Sun Power Corporation (SPWR:  Nasdaq) are both trading at multiples far higher than the rest of the pack.  This is probably due to higher operating profit margins than the profitable China solar module producers.  Only Canadian Solar has a higher operating profit margin.

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.

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