July 06, 2015

Brew-ha-ha: Is Amyris' Brazillian JV Over?

Jim Lane amyris logo

In a Brazilian securities filing, with respect to the Joint Venture between São Martinho and Amyris (AMRS), Sao Martinho reports “the non-achievement of certain contractual targets by Amyris, impacting the viability of the project. Thus, Sao Martinho decides not to approve the continuation of the Joint Venture Plant construction with the US company Amyris Inc. and its Brazilian subsidiary Amyris Brazil Ltda.”

The company did not elaborate as to which contractural targets were not achieved by Amyris. In the filing, Sao Martinho added:

“Amyris may provide new information regarding the project feasibility in order to discuss a new deal potential. However, the Joint Venture and other contracts between the parties will be automatically terminated on August 31, 2015, if such date is not entered into a new agreement at the discretion of São Martinho.”

“Sao Martinho clarifies that the company did not make investments in the joint venture, which were scheduled to take place only after the start of plant operation.”

Amyris fired off a “clarification” shortly afterwards “regarding its inactive manufacturing joint venture with Usina Sao Martinho”, stating:

“[The] existing Brotas facility is exceeding targets and provides adequate capacity to meet its near and mid-term business needs. Amyris has been in discussions with Sao Martinho and is considering how the joint venture could best benefit Amyris’s future production capacity and achieve investment returns comparable to or better than Amyris’s best-in-class fermentation plant in Brotas. Based on these discussions, Amyris and Sao Martinho have agreed to explore, over the next 60 days, the best options for the joint venture.”

“We are excited about the continued strong performance and our ability to exceed our production and cost targets at Brotas,” said Amyris CEO John Melo. “Current production capacity at our Brotas facility meets our near- and mid-term growth plans and we have better economic options than our agreement with Sao Martinho initially contemplated. We are engaged in working towards a mutually beneficial agreement with Sao Martinho over the next 60 days. We continue to enjoy a strong presence and relationships in Brazil, including our more than 150 employees, our collaboration with Cosan, and our growing sales in personal care and industrial products for the Brazilian market.”

Amyris noted that the flexibility at the Brotas plant and space available potentially allows the company to double the capacity of this plant when required. In addition, the company is evaluating with Sao Martinho the best investment options available to determine which scenario would provide the best returns and balanced economics for both parties.

The Sao Martinho project

The joint venture dates some ways back, predating Amyris’ April 2010 IPO filing. in which the company stated:

“We plan to commence commercialization of our products starting in 2011 using contract manufacturers, and to have our first capital light production facility, our joint venture with Usina São Martinho, operational in the second quarter of 2012. As we commence commercial production of our initial molecule, farnesene, we expect to target specialty chemical markets.”

The company’s stock was upgraded to a $31 target by Raymond James in April 2011, citing amongst other factors the “company’s first large-scale production plant in Brazil – the joint venture with Grupo São Martinho – which should drive positive companywide EBITDA upon start-up in 2Q12.”

By Q1 2012, Amyris had reciognized “the operational challenges of translating yields in the lab to commercial-scale production,” and said that “following completion of the 50 million liter facility at Paraiso, it would focus on completing its 100M liter San Martinho project.” In late 2012, Cowen & Company was modeling “$146MM additional debt to fund losses and Sao Martinho capex in 2013-15.”

Meanwhile, Sao Martinho has downshifted its own emphasis this year on fuels. Last week, the company reported that “it will turn its attention to sugar production. It’s crushing ratio will be 52% for sugar and 48% for ethanol of 19.5 million metric tons of sugarcane, compared to 49% for sugar and 51% for ethanol during 2014/15.”

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.

July 05, 2015

Blue Sphere's First Revenue

by Debra Fiakas CFA

Blue Sphere (BLSP:  OTC) is continuing to make progress in its strategic plans to build and operate biogas power plants.  The company is initially targeting the largely untapped supply of organic wastes from food processing and table to meet growing demand for renewable, no– or low-carbon emission energy sources.  A year ago, the company’s portfolio consisted of a string of projects all in the planning stage.  Management has pushed two food waste-to-energy projects in the U.S.to the construction stage and closed on the first four acquisitions of fully operational agriculture-waste biogas power plants in Italy.  This progress has brought Blue Sphere to the cusp of revenue generation. 

We estimate the company could record first revenue from its Italy acquisitions in the third fiscal quarter beginning July 2015.  All four biogas plants are in operation and sell electricity to the country’s electric grid.  Each has a rated capacity of one megawatt power production through anaerobic digestion of agriculture waste to biogas that powers an electric generator.  The $1.3 million purchase price for each of the facilities will be paid in two installments.  Financing arrangements have been made through an Israel-based investment fund.  We expect final closing requirements to be completed by near the end of June 2015.   Another three deals are in the pipeline in Italy.

After several challenging months of negotiation Blue Sphere management has arranged financing and commenced construction on a 5.2 megawatt biogas power plant in North Carolina and a similar 3.2 megawatt facility in Rhode Island.  The Company has entered into joint ventures with investment fund York Capital, which is funding construction and working capital.  Blue Sphere will lay claim to 25% and 22.5% of the North Carolina and Rhode Island joint ventures, respectively.  Construction has begun on both projects with completion time within approximately twelve months.  We expect both plants to be operational in 2016.

The company is pushing forward with two additional ‘greenstart’ biogas plants.  Management is working to secure a power purchase agreement for a 5.2 megawatt plant planned near Middleboro, MA, where local governments are keen on keeping food waste out of landfills.  Another waste-to-energy biogas plant is planned near Ramat Chovav, Israel.  The project would for the first time give Blue Sphere an operating presence in its home country.
Shares of Blue Sphere traded off in recent weeks, most likely in response to the dilutive impact of note conversions to common stock.  Another element frustrating investors may be the joint venture arrangement for the North Carolina and Rhode Island biogas power plant projects that leaves the assets unconsolidated.  Shareholders will have to wait until those projects are fully operational to see earnings contributions to Blue Sphere’s financial reports.

On the brighter side, BLSP is trading under dramatically higher volumes than six months ago, suggesting that the market is clearing out share supply underpinning bearish sentiment in the stock.  Management clearly thinks the stock is undervalued after instituting a share repurchase plan and engaging a strategic investment advisor.
A report published by Crystal Equity Research published on June 18th,  indicated that BLSP is viewed as a speculative security and appropriate only for those investors with the highest tolerance for risk and volatility.

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 published research on BLSP with generally favorable commentary.  Please read the important disclosures related to sponsorship and subscriptions in the final pages of all reports.

July 04, 2015

Alternative Energy Mutual Funds and ETFs Go In All Driections

By Harris Roen

Alternative Energy Mutual Funds, Solid Long-Term Gains

Alternative Energy Mutual Fund Returns

Returns for alternative energy mutual funds are virtually flat on average for the past three months, down slightly at a loss of 0.3%. The best short-term performer is Pax World Global Environmental Markets (PGRNX), up 2.1%… Over the longer term, returns for alternative energy mutual funds remain very strong. MFs are up 14.7% on average, with all companies showing double-digit gains on an annualized basis…

Returns for ETFs are ranging widely

Alternative Energy ETF Returns

Returns for ETFs are ranging widely, both in the short and long terms. The top performing alternative energy ETF over the past three years is Guggenheim Solar (TAN), up an impressive 34% on an annualized basis. In the short term, though, TAN comes out as the worst performing green ETF, down over -12% in the past three months… The wide variation in returns for these and other ETFs reflect both the volatile and promising nature of alternative energy investing…


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.

Ceres Focuses On Food & Feed After Bioenergy Disappoints

Jim Lane

Ceres logoIn California, Ceres (CERE) announced the a realignment of its business to focus on food and forage opportunities and biotechnology traits for sugarcane and other crops. As part of the realignment, the company will restructure its Brazilian seed operations and is exploring discussions with additional local partners and collaborators to support the continued development and commercialization of its technology in Brazil.

Earlier, the Company announced that due to the economic challenges faced by the Brazilian ethanol industry as well as changes in the global energy market, it had expanded the number of market opportunities available for its technology and products and began prioritizing its working capital in additional areas beyond Brazil.

The news may come as a surprise to the broader community, since in March 2015 the company signed a multi-year collaboration agreement Raizen, a joint venture of Royal Dutch Shell and Cosan, to develop and produce sweet sorghum on an industrial scale.

Also, in July 2014, Ceres was selected for a competitive grant and a multi-year credit facility to fund a product development project for sorghum and sugarcane for up to approximately 85 million reais, or 27.1 million U.S. dollars, under the Brazilian government’s PAISS Agricola program.

Going forward

The Company indicated that its Brazilian operations after implementation of this aspect of the restructuring plan would be focused primarily on sorghum breeding and sugarcane. In particular, the company plans to expand its sugarcane trait development activities for the Brazilian sugarcane market, which Ceres expects to fund, in part, under a grant available from the Brazilian government.

The restructuring of the Company’s Brazilian seed operations, which is expected to be substantially completed by October 31, 2015, includes, among other actions, a workforce reduction that will impact 14 positions in Brazil primarily related to administration, operations and manufacturing as well as 2 support positions in the United States. Ceres estimates that it will incur total charges of approximately $0.6 million over the next five months with respect to these workforce reductions in Brazil and the U.S., including $0.1 million in continuation of salary and benefits of certain employees until their work is completed and their positions are eliminated, and $0.5 million of one-time severance and other costs, all of which will be cash expenditures.

“These changes represent an important step in the transformation of our business as we refocus on our strengths in agricultural technology and direct our attention to markets being fueled by global prosperity growth,” said Ceres President and CEO Richard Hamilton.

He noted that bioenergy markets have continued to face serious near-term challenges due to low oil prices, the struggling Brazilian economy, delays in second generation refining technology and unfavorable government policies, among other headwinds. “If these challenges can be surmounted then I believe the market for bioenergy feedstocks can reemerge as a global opportunity for agricultural technology companies like Ceres.”

The long timeline to Brazilian ethanol success

In April, the company wrote in its quarterly report: “With industrial processing of sorghum feedstock generally well established in Brazil, we believe that field performance – primarily yields of sugars that can be fermented to ethanol – will largely determine the scale and pace at which our current and future sweet sorghum products will be adopted. Based on industry feedback, we believe that minimum average yields in the range of 2,500 to 3,000 liters of ethanol per hectare will be necessary to achieve broad adoption.

“While we achieved yields in this range in the 2013-2014 growing season in Brazil with multiple products in multiple regions, the 2014-2015 growing season in Brazil will be necessary to validate results. Additional growing seasons beyond the 2014-2015 season may be required to fully demonstrate this yield performance across numerous geographies and for our products to gain broad adoption.

The company added in April that, “Since 2010, we have completed various field evaluations of our sorghum products in Brazil with approximately 50 ethanol mills, mill suppliers and agri-industrial facilities. During this time, our sorghum seeds were planted and harvested using existing equipment and fermented into ethanol or combusted for electricity generation without retrofitting or altering the existing mills or industrial facilities.

On to brighter horizons

Ceres advises that “Our strategy is to focus on genes that have shown large, step increases in performance, and whose benefits are largely maintained across multiple species. Trait performance is evaluated in target crops, such as corn, rice and sugarcane, through multi-year field tests in various locations. In addition, we are deploying a new multi-gene trait development system internally and believe there may be opportunities to out-license the system, known as iCODE, to other crop biotechnology companies. To date, our field evaluations have largely confirmed earlier results obtained in greenhouse and laboratory settings…At this current pace, commercial sugarcane cultivars with our traits could be ready for commercial scale-up as early as 2018.

Blade Forage Sorghum Seed and Traits

In 2015, the company expanded its sorghum offerings to include hybrids for use as livestock feed and forage. In addition to direct sales efforts, Ceres entered into a distribution agreement with Helena Chemical Company, a leading distributor of crop inputs and services. Under the agreement, Helena will provide sales and customer support for our forage sorghum in the southeastern U.S.

The current hybrids, which are traditionally bred and do not yet contain biotech traits, have performed well in numerous commercial and multi-hybrid field trials. In a 2014, in a U.S. field evaluation, one of our leading biotech traits provided a greater than 20% biomass yield advantage in a commercial-type sorghum. In 2014, we received confirmation from the U.S. Department of Agriculture (USDA) that our high biomass trait was not considered a regulated article under 7CFR 340 of the USDA’s mandate to regulate genetically engineered traits.

The Bottom Line

NexSteppe has been reporting strong momentum in Brazil and there simply may have not been room enough for two companies in Brazil, given the slowdown in the ethanol industry.

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.

July 03, 2015

Total Doubles Down On Amyris' Jet Fuel

Jim Lane amyris logo

In California, Amyris (AMRS) announced that it has agreed on key business terms with Total for restructuring its fuels joint venture to open the way for proceeding with commercialization of its jet fuel technology over the coming years. Following the restructuring, Total would own 75% of the joint venture with Amyris.


In conjunction with this transaction, Amyris has also agreed on terms with Total and Temasek, another major stockholder of Amyris, under which, and as part of a plan to strengthen the balance sheet, these stockholders would exchange an aggregate of $138 million of convertible debt for Amyris common stock at a price of $2.30 per share, with an additional $37 million of outstanding convertible debt being restructured to eliminate Amyris’s repayment obligation at maturity and provide for mandatory conversion to Amyris common stock.

Customers, ASTM on board

In September 2014, KLM tipped that it intended to fly on Amyris-Total renewable jet fuel, as soon as it receives favorable advice from their independent Sustainability Advisory Board. Amyris noted that is producing commercial product “for our launch partners (which include GOL), and that a 10% blend of Amyris-Total jet fuel can reduce about 3% of the particulate matter from aircraft engine exhaust.”

Last November, news filtered out of California that ASTM has revised the D7566, the Standard Specification for Aviation Turbine Fuel Containing Synthesized Hydrocarbons to include the use of renewable farnesane as a blending component in jet fuels for commercial aviation.

With that news, Amyris and Total said that they will now prepare to market a drop-in jet fuel that contains up to 10% blends of renewable farnesane.

Reaction from The Street

Cowen & Company’s Jeffrey Osborne wrote:

This conversion has a tangible effect on the ownership stake that both Total and Temasek has in the company. According to Thomson the companies own a combined ~24 million shares, which is around 30% of current shares outstanding. With the creation of 60 million additional shares, the combined ownership of Total and Temasek would be 84 million, or 60% of AMRS’ post-converted outstanding shares. We see this as confirmation that both companies see strong long-term potential for Amyris.

The reduction of convertible debt also improves Amyris’ balance sheet. Total debt, including a current portion of $18 million, was $242.5 million as of March 31, 2015. Upon the conversion of $175 million in debt the company will have reduced its total debt by 72% to $67.5 million. This should give Amyris greater flexibility as the commercialization of its various products continues to gain traction.

We see both of these updates as signaling a strong fundamental change in the company’s financial standing, as well as a solid validation of the viability of its jet fuel bioproduct. The terms of the restructuring are subject to standard closing procedures, including any approvals from the board or other internal requirements, as well as regulatory approvals.

Raymond James’ Pavel Molchanov wrote:

In aggregate, [it’s] $175 million of debt relief, equating to 72% of the company’s total debt burden as of 1Q15. If only Greece was able to get a deal like that! Naturally, there is no free lunch, and Amyris is giving up some future project economics. Specifically, Total will own 75% of the fuels joint venture with Amyris, up from the previously envisioned 50/50 split. But since this JV does not entail any meaningful revenue now, or even for the foreseeable future, Amyris gets the full deleveraging benefit upfront, with reduced JV economics only out in the distant future.

* In conjunction with this, Total has confirmed that it will proceed with commercialization of jet fuel under the JV. There is no real detail yet as far as the timetable, capital investment plans, or what the target economics might look like – all of those remain important question marks that will need to be addressed by management in due course. But it’s still a surprising move on the part of Total – surprisingly bullish, that is – considering the context of the oil and gas industry’s current period of austerity…Nonetheless, as a practical matter, we wouldn’t expect any production scale-up until around 2020, so it’s far too early for us to change estimates.

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.

July 02, 2015

Ten Clean Energy Stocks For 2015: Riding The Storm

Tom Konrad CFA

The first half of 2015 saw a mild advance in the broad market, but concerns about rising interest rates and the ongoing Greek debt drama sent income stocks, clean energy, and most non-US currencies down decisively.  My Ten Clean Energy Stocks for 2015 model portfolio has heavy exposure to not only clean energy, but income stocks (6 out of 10) and foreign stocks (4 out of 10.)  Despite this the stormy market for all three, the portfolio delivered admirably.

The model portfolio ended the second quarter up 9.7%, compared to its broad market benchmark, which was up only 4.4%.  Its clean energy benchmark is a 40/60 blend of its growth oriented benchmark and its income-oriented benchmark, matching the 4/6 ratio of growth and income stocks in the portfolio.  These two benchmarks are discussed below.  The blended benchmark fell 5.1%. 

For the month of June, the portfolio gained 3.1%, compared to only 0.8% for the broad market IWM and a 6.2% decline of the blended benchmark.

Value/Growth and Income Sub-Portfolio Performance

The four stock value and growth sub-portfolio reversed most of its previous losses in June,  up 7.4% for the month to end the first half down only 0.4% for the year.  Its benchmark, the Powershares Wilderhill Clean Energy ETF (NASD: PBW), fell 3.8% for the month but remains in the black with a 2.3% gain for the first half.

The six stock income sub-portfolio inched up another 0.3% on top of its already impressive gains, ending up 16.4% year to date, despite rising interest rates.  The income benchmark fared much worse.  This benchmark was The Global Utilities Index Fund, JXI for the first 5 months, replaced by the more clean-energy oriented Global X YieldCo Index ETF (NASD:YLCO) when that began trading at the end of May.  It dropping 5.3% for the month for a loss of 7.7% year to date, despite the fact that YLCO fared better than JXI in June.

The chart below (click for larger version) gives details of individual stock performance, followed by a discussion of the month's news for each stock.

10 for 15 Performance

The low and high targets given below are my estimates of the range within which I expected each stock to finish 2015 when I compiled the list at the end of 2014.

Income Stocks

1. Hannon Armstrong Sustainable Infrastructure (NYSE:HASI).
12/31/2014 Price: $14.23.  Annual Dividend: $1.04.  Beta: 0.81.  Low Target: $13.50.  High Target: $17. 
6/30/2015 Price: $20.05. YTD Dividend: $0.52  YTD Total Return: 44.6%.

Sustainable infrastructure financier and Real Estate Investment Trust Hannon Armstrong started the month strong, and I hope some of my readers took the opportunity and followed my lead by taking some gains as it briefly rose above $21.  At that point, Bank of America broke it's long climb by lowering its rating to Neutral based on valuation.  This is in-line with my own assessment: I like Hannon Armstrong for the long term, but, because of its much higher price than when it began the year, no longer feel that it deserves to be such a large part of my managed portfolios.

2. General Cable Corp. (NYSE:BGC)
12/31/2014 Price: $14.90.  Annual Dividend: $0.72.  Beta: 1.54.  Low Target: $10.  High Target: $30. 
6/30/2015 Price: $19.73. YTD Dividend: $0.18  YTD Total Return: 33.6%.

International manufacturer of electrical and fiber optic cable General Cable Corp. rose strongly on the news that it had sold the rest of its Asia Pacific operations for $205 million.  This was a significant step in its ongoing reorganization, which has the goals of simplifying its geographic portfolio, reducing debt, and improving profitability.

3. TransAlta Renewables Inc. (TSX:RNW, OTC:TRSWF)
12/31/2014 Price: C$11.48.  Annual Dividend: C$0.84.   Low Target: C$10.  High Target: C$15. 
6/30/2015 Price: C$12.36. YTD Dividend: C$0.39  YTD Total C$ Return: 11.1%. YTD Total US$ Return: 3.3%.

Unlike most of the other income picks, Yieldco TransAlta Renewables fell 2% in June, deepening the undervaluation which made me predict it would rise in the last update.  The decline was likely in sympathy with the larger, interest rate related, decline of Yieldcos and utilities in general (down 5.3% and 7.7%, as discussed above.)

4. Capstone Infrastructure Corp (TSX:CSE. OTC:MCQPF).
12/31/2014 Price: C$3.20. 
Annual Dividend C$0.30.  Low Target: C$3.  High Target: C$5.  
6/30/2015 Price: C$2.99. YTD Dividend: C$0.15  YTD Total C$ Return: -1.9%.  YTD Total US$ Return: -8.8%.

Canadian power producer and developer (Yieldco) Capstone Infrastructure also declined 2.3% despite my prediction for this stock.  As with TransAlta Renewables, I believe the decline was industry related, not specific to Capstone.  In fact, the company announce progress with its wind projects in Ontario, where it received a final Renewable Energy Approval from the Ontario Ministry of the Environment and Climate Change for the 10-megawatt Snowy Ridge Wind Park.

New Flyer Industries (TSX:NFI, OTC:NFYEF)

12/31/2014 Price: C$13.48.  Annual Dividend: C$0.62.  Low Target: C$10.  High Target: C$20. 
6/30/2015 Price: C$15.48.  YTD Dividend: C$0.30  YTD Total C$ Return: 17.1%.  YTD Total US$ Return: 8.8%.

Leading North American bus manufacturer New Flyer got a very favorable write-up at Seeking Alpha, including speculation that its Brazillian partner, Marco Polo, might acquire the 80% of the company it does not already own in a buy-out.  I'm a little skeptical about such buy-out speculation- I think both companies seem to be benefiting well from the alliance as it is, but I agree that New Flyer remains an inexpensive company with a dominant position in the North American bus industry, which continues to rebound from a long slump. 

6. Accell Group (XAMS:ACCEL, OTC:ACGPF).
12/31/2014 Price: €13.60. 
Annual Dividend: €0.61.  Low Target: 12.  High Target: €20.
6/30/2015 Price: €16.65. YTD Dividend: 0.61  YTD Total Return: 26.9%.  YTD Total US$ Return: 16.8%.

Despite Greek wobbles, bicycle manufacturer Accell Group, which makes most of its sales in Europe, maintained its balance with the stock up 2% for the month and 17% for the first half.  The company is a leader in e-bikes, and introduced its own "mid-motor" (i.e. near the pedals so that the motor can take advantage of the bike's gears) with hardware supplied by Yamaha.  Mid-motors are a premium option, offering better balance, efficiency, and handling than the more common hub motors, but are more complex and come with a higher price tag.

Value Stocks

7. Future Fuel Corp. (NYSE:FF)
12/31/2014 Price: $13.02.  Annual Dividend: $0.24.   Beta 0.36.  Low Target: $10.  High Target: $20.
6/30/2015 Price: $12.87 YTD Dividend: $0.12.  YTD Total Return: -0.2%.

Alone among my three predictions for stocks to perform well in June, biodiesel producer FutureFuel did not disappoint.  The company gained 8% for the month on the EPA's proposed biomass-based diesel volumes for 2014-2017, which were announced on the last trading day of May.  I predicted that the targets, which were good news for biodiesel producers, would continue to propel the stock upward in early May.  That turned out to be the case, and the stock stayed above $13 for most of the month before giving back some of its gains in the recent market turmoil. 

8. Power REIT (NYSE:PW).
12/31/2014 Price: $8.35
Annual Dividend: $0.  Beta: 0.52.  Low Target: $5.  High Target: $20.
6/30/2015 Price: $5.80. YTD Total Return: -30.5%.

Solar and rail Real Estate Investment Trust Power REIT's stock fell briefly below $5, a price at which I think it represents a good buy despite the negative summary judgement in March. 

The two remaining issues in the lessee's civil case against it will go to trial in August.

The lessees, Norfolk Southern (NSC) and Wheelling and Lake Erie (WLE) claim that Power REIT and its CEO, David Lesser, acted fraudulently when Power REIT was created and the Pittsburgh and West Virginia (P&WV) (which owns the leased property) became its subsidiary through a reverse merger.  They are claiming damages in the amount of approximately $140 thousand based on interest on funds withheld by third parties, which NSC and WLE claim is due to Lesser's actions.  It seems to me that if interest is owed, it would be by the third parties.  But, given my track record predicting the court's rulings, readers should form their own opinions.

9. Ameresco, Inc. (NASD:AMRC).
12/31/2014 Price: $7.00
Annual Dividend: $0.  Beta: 1.36.  Low Target: $6.  High Target: $16.
6/30/2015 Price: $7.65. YTD Total Return: 9.3%.

Energy service contractor Ameresco released the usual press releases about new contracts.  Given the timing of the rally, my best guess is that the company attracted the interest of one or more institutional investors by presenting at ROTH London Cleantech Day.

Growth Stock

10. MiX Telematics Limited (NASD:MIXT).
12/31/2014 Price: $
6.50Annual Dividend: $0.  Beta:  0.78.  Low Target: $5.  High Target: $20.
6/30/2015 Price: $7.77. YTD Dividend: $0.  YTD Total South African Rand Return: 26.3%.  YTD Total US$ Return: 19.8%.

Vehicle and fleet management software-as-a-service provider MiX Telematics published its annual report, which seems to have boosted the stock slightly.  The annual report does not contain information which was not included in its annual results, published at the end of May, but could have drawn the attention of investors to its long term progress.  As I discussed last month, the annual results were very encouraging, and MiX continued to trade at a fraction of the valuation of its developed-market peers.

The Annual General Meeting was also set for September 11th.


Last month, I predicted TransAlta Renewables, Capstone Infrastructure, and FutureFuel would advance in June.  The sharp decline in utility and Yieldco stocks prevented the advance and led to a small decline in the first two, but FutureFuel advanced strongly, pulling the average gain to 1.1% for the three stocks.  Over the past four months, I've managed to pick 7 out of 9 monthly winners, my average pick has advanced each month. 

While I'm satisfied with both my overall track record and my monthly picks, I don't encourage readers to trade based on my monthly hunches: Transaction costs would probably cost more than my market timing would help.  That said, for readers new to the list, these monthly picks have so far proven to be among the best stocks to buy if you have new money to invest.

Since the monthly picks have so far seemed useful, I'll continue my predictions.  Although it did not work out last month, I'll be sticking with Capstone and TransAlta Renewables.  Despite rising interest rates, both are trading at excellent valuations.  Also, I feel the rapid decline of income stocks over the last couple months is due for a pause or even a small rebound.

Disclosure: Long HASI, CSE/MCQPF, ACCEL/ACGPF, NFI/NFYEF, AMRC, MIXT, PW, PW-PA, FF, BGC, RNW/TRSWF, REGI.  I am the co-manager of the GAGEIP strategy.

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.

July 01, 2015

Chinese Solar Turmoil Brings Crowdfunding and Internet Interlopers

Doug Young 

Bottom line: Yingli’s use of crowd-funding to finance a small project and the bargain sale price of a small polysilicon maker reflect continuing struggles at second-tier solar companies and the need for more consolidation.Yingli logo

Two solar energy stories are showing how overcapacity continues to haunt the sector 2 years after it began to emerge from a major downturn. The first involves a desperate-looking fund-raising plan from the struggling Yingli (NYSE: YGE), which is trying to use crowd funding to pay for a new solar plant. The other news involves another slightly bizarre investment in the space, with Internet titan Tencent (HKEx: 700) and real estate giant Evergrande (HKEx: 3333) paying a bargain price for Mascotte (HKEx: 136), a money-losing Taiwanese maker of polysilicon, the main ingredient used to make solar panels.

Both of these deals look strange for different reasons that reflect the lingering state of turmoil in a solar panel sector plagued by excess capacity. Many of the weakest players have closed or been purchased over the last 2 years, with names like Suntech and LDK disappearing as independent companies. But a relatively large field of second-tier players like Yingli still remain in business and probably need to either close or get acquired before the industry can truly return to health.

Let’s start with Yingli, which proudly proclaims in its latest announcement that it is bringing solar financing to the masses by giving average people the chance to invest in a small new solar power plant. (company announcement) The plant is based in Yingli’s home province of Hebei, hinting that it used its local connections to get the project build. The plant has a modest capacity of 4 megawatts, and was funded with the sale of 20 million yuan ($3.2 million) in bonds.

Two Chinese companies provided the project’s original financing, but now it appears they want to sell their stake to average consumers via an online platform that resembles the popular crowd-funding model. The fact that these big investors are looking to sell their stake to unsophisticated consumers shows their own lack of confidence in the project, and the overall move really looks like desperation.

Yingli is the weakest of China’s major solar panel makers to survive the downturn so far, and this kind of move shows just how shaky its finances are. The company shocked investors in May when it said it was in danger of going out of business, even though it later said its statement was misinterpreted. (previous post) This kind of move to raise money through crowd-funding certainly won’t help to restore confidence in the company, and it’s still possible we could see Yingli ultimately fail this year or next.

Next there’s the other deal that has seen Tencent and Evergrande take a majority 75 percent stake of Mascotte for HK$750 million ($100 million). (company announcement; English article) The purchase price represents a whopping 97 percent discount to Mascotte’s last stock price before the announcement, which actually came last week.

A quick look at Mascotte’s latest financial statement, which was released after announcement of the Tencent and Evergrande investment, shows why the company so desperately needed the new money. Mascotte lost HK$129 million last year, which was actually an improvement over the $547 million it lost the previous year. Still, so many losses over consecutive years meant the company was probably out of funds and unable to find anyone to lend it new money to continue its operations.

The involvement of Tencent in this transaction looks a bit strange, as the company has never invested in this kind of new energy deal before. But that said, big tech names like Apple (Nasdaq: AAPL) and fast-rising online video firm LeTV (Shenzhen: 300104) seem to be suddenly piling into the space, perhaps as a form of public relations to show their commitment to environmental protection. Such investments have so far been quite small, and in this case Tencent won’t feel too much pain if Mascotte fails, which looks like a strong possibility over the next year or two.

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.

June 30, 2015

Leather Without The Cow

Flokser launches Artificial Leather based on DuPont Tate & Lyle, BioAmber ingredients

Jim Lane

In Canada, BioAmber (BIOA) announced that the Flokser Group has successfully developed an innovative artificial leather fabric using bio-based materials supplied by DuPont (DD) Tate & Lyle Bio Products and BioAmber.

Flokser has launched this new synthetic leather fabric under its SERTEX brand. The novel fabric comprises a polyester polyol made from BioAmber’s Bio-SA bio-based succinic acid and DuPont Tate & Lyle Bio Products’ Susterra bio-based 1,3-propanediol.

Flokser’s artificial leather fabric has 70% renewable content and delivers improved performance. It provides better scratch resistance and has softer touch than current synthetic leather fabrics made with petroleum derived chemicals. The global addressable market opportunity for these bio-based polyester polyols in artificial leather is estimated to be 330 million pounds per year (150,000 metric tons); a 165 million pound market for bio-succinic acid and a 165 million pound market for bio-1,3-propanediol.

The background on biobased artificial leather

Historically, artificial leather has been popular with cows, but not always with consumers or environmentalists. Brands abound, including Biothane, Birkibu, Birko-Flor, Clarino, Kydex, Lorica, Naugahyde, Rexine, Vegetan, and Fabrikoid. Most include petroleum-based ingredients such as polyamide, acrylic, and polyvinyl chlordie.

Back in May 2014, BioAmber CEO Jean-François Huc tipped the new work then underway on artificial leather, stating: Huc comments: “Over the past year we worked with a number of innovative companies that validated our Bio-SA in several new applications. For example, in artificial leather they demonstrated that the polyester polyol made with Bio-SA offers better aesthetics including softer touch than the polyols made with adipic acid. This market reportedly consumes 150,000 tonnes of adipic acid annually.

Back in December 2013, Green Dot announced developed a compostable synthetic leather made with the company’s Terratek Flex bioplastic. The new synthetic leather combines the look and feel of high quality leather with a lighter environmental footprint compared to traditional leather tanning or synthetic leather manufacturing. The material can be returned to nature if placed in a composting environment when its useful life is over. Initial trials have been completed with manufacturing partners in the U.S.. The new synthetic leather can be made in a wide range of colors, textures and thicknesses with a variety of naturally biodegradable backings.

In June 2012, Suzanne Lee has developed a “vegetable leather” fabric made using bacteria, green tea, sugar and yeast. The material can be cut, dried, molded and sewn. The product has a life expectancy of five years, at which point it will rot and harden, but not to worry, as it can be composted with a standard home garden composting system.

Reaction from the stakeholders

“We have been working over the years on sustainability and have made remarkable steps, including producing first in Turkey phthalate free artificial leather polyurethane systems. We strive to work with global best in class companies to shape the future. Working with BioAmber and DuPont Tate & Lyle has helped us to generate fresh ideas and develop new products that offer a unique combination of performance and sustainability for our industry,” said Ekin Tükek, Flokser Group board member.

“This new eco-friendly artificial leather fabric from Flokser demonstrates the performance that bio-based materials can offer in technically challenging applications. The artificial leather made with our Bio-SA™ and DuPont Tate & Lyle’s Susterra® outperforms standard products, bringing better abrasion resistance and softer touch,” said Babette Pettersen, BioAmber’s Chief Commercial Officer.

“We are pleased with this new product launch in a major industrial segment of the polyurethane market, and we believe that working with Flokser, an industry leader, will drive market adoption. This new artificial leather fabric is a unique product, combining renewable content with the highest standards of performance and quality”, said Steve Hurff, VP Marketing and Sales, DuPont Tate & Lyle Bio Products.

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.

June 29, 2015

Ocean Power Technologies Bobs Into The Big Apple

by Debra Fiakas CFA

Mid-June 2015, Ocean Power Technologies (OPTT:  Nasdaq) announced final permits had been secured to deploy one of its power buoys off the coast southeast of New York City.  The company has lost no time in laying down mooring lines for the buoy.  The next step is to watch the skies for the best weather conditions to deploy the buoy.  Over the next year, Ocean Power will collect data the power buoy’s performance.
Ocean Power Technologies is a developer of ocean wave energy technology.  The company has been working on its ‘power buoy’ for over fifteen years for off-grid as well as integrated network electricity generation.  The company’s website provides a concise description of how the power buoy works, using a mechanical system to drive electrical generators using wave motion.  Two different designs provide size and capacity alternatives.

In the twelve months ending January 2015, Ocean Power generated $4.0 million in total revenue with its power buoy technology.  That revenue level is not adequate to support development and other operating costs.  The net loss was $13.1 million.

For any company not yet generating profits, the first question has to be about the adequacy of cash resources to support operations until sales begin to ramp.  Operations used $13.2 million in cash during the twelve-month period ending January 2015.  With another $19.2 million in cash in the bank, it would appear Ocean Power has some time to keep working on its power buoys.  That said, we note that activity has been suspended under the company’s contract with Mitsui Engineering & Shipbuilding for the purposes of gathering and evaluating data needed in the next step of the project.  Work is expected to resume yet in 2015, but with a reduction in revenue in the quarter ending April 2015, it is not likely the company can report growth in sales over the prior fiscal year.
Investment in developmental stage companies like Ocean Power is fraught with risk.  What if the technology does not work?  What if management cannot develop a good strategy to commercialize its technology?  On and on it goes with problems and pitfalls.  With that practical view in mind, I note that Ocean Power has been making progress with each passing quarter, with management blocking and tackling each obstacle as it comes along.

OPTT looks over sold according to one of my favorite technical indicators, the Commodity Channel Index.  Granted this micro-cap stocks trades with so little volume technical indicators can be less than robust.  Earlier this year, the company has notified by Nasdaq that continued listing is in jeopardy if the price is not brought up above $1.00.  Unfortunately, the current price of OPTT is still just over two bits.  Nonetheless, at the current price level the stock is more an option on management’s ability to move the ball forward.  For investors with a tolerance for risk, a two-bit option on Ocean Power’s technology and management team could be an interesting play on renewable energy from the ocean.

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. OPTT is included in the Ocean Group of Crystal Equity Research’s Electric Earth Index.

June 26, 2015

Commodity Energy Vs. Technology Energy: This Changes Everything

by Garvin Jabusch

We now live in a global economy with two fundamentally different types of energy: commodity-based in the form of fossil fuels and uranium, and technology-based, represented primarily by solar and wind. That observation is interesting as far as it goes, but what does it mean? The term renewable (as it pertains to energy) gets used so often that it is easy to forget what it really entails. For starters, tech-based renewables become less expensive over time, as demand for them drives scale, innovation, and improves cost structures in implementation (think about the last couple of computers you’ve purchased). This is precisely the opposite of how we have traditionally thought about energy and, how it’s priced. With commodity-based energy like coal and oil, energy costs go up over time as demand increases (population and economic growth necessitates this) and the cheaper-to-acquire sources are used up. The contrast between the old and new means of acquiring energy is nothing less than revolutionary, as it means that economic growth need no longer choke itself off as a consequence of its own success. Since the fuels for technology-based energy (sunshine and wind) are free, it means we're entering into a fundamentally new economic era wherein traditional measurement of energy costs will no longer apply.

We currently measure energy in units of power from the supply side: gallons, barrels, BTUs, kilowatt hours, and so on. However, if power generation is no longer slave to a commodity resource with its accompanying supply and pricing dynamics, perhaps it’s time to change how we measure it.

Given the amount of power the world economy uses in a day, compared to the available wind and solar power naturally provided in a day, the potential power that can be harnessed is basically infinite for human purposes. To illustrate this, imagine the time in history when everyone thought there was infinite coal and oil in the ground, but we just didn’t have very many wells or mines to get it out. This was, as far as anyone then could see, the situation at the dawn of the 20th century, when oil rushes and coal booms around the globe redrew borders, sparked decades-long wars, and reshaped human existence on the planet. The future of human productivity was at stake, and people rushed to capitalize on that, similar to how investments are beginning to flow today towards the great transition of our own time - the switch to electrification through renewables.

Of course, there are some crucial differences between the renewable energy future we see today and the beginning of the fossil fuel era that shaped the last century. For one thing, oil and coal turned out to be nowhere near infinite: in fact, the more we use, the more we need, and the harder (read: more expensive) it becomes to get. A similar argument is sometimes made (poorly) about sun and wind: the best spots for wind and solar will be utilized first to maximize investment, and over time more marginal areas will have to be utilized. For instance, Hawaii and California, both very sunny places, are moving quickly on utility-scale solar. Similarly, flat and windy Texas is a world leader in installed generating capacity for wind turbines. However, unlike oil, the amount of sun that falls on less sunny places, like Vermont, is still consistent and never diminishes. The same is true for more and less windy places. To cap all of that off, the amount of wind and sun that occur even in the darkest and least windy places is still in excess, given sufficient deployment of renewables, of current power needs. 

So, what happens now as the equivalent of unlimited barrels and gallons, falling from the sky for free, are increasingly captured and put to productive economic use? Will we remain fixated on measurement only from the supply side? Could we even if we wanted to? Can one put a meter on sunlight? Perhaps a more relevant measure now would be to assess the ability of that energy to do productive work, or in economic terms, to turn material into products and to provide services. Much as supply measurements are used today, this more descriptive production measure would be applied the same to, say, the energy needed by a company like Patagonia to turn plastic bottles into high quality fleece clothing, and the power to operate your television.

Essentially the question becomes: how much of the energy we pour into the economy is productive and how much is wasted? According to economists, notably John A. “Skip” Laitner, about 15% of it becomes economically useful while the remaining 85% dissipates unrequited (here is Laitner’s 2013 paper; free registration required).

Green Alpha’s Next EconomyTM thesis is that our collective and per capita economic activities must ultimately have only a de minimus impact on the economy’s underlying ecosystems, all while we maintain and improve standards of living. In that light, any accounting of global economic activity that suggests we are only getting 15% of the productive energy we generate is, to put it mildly, kind of a big deal. It means that the ability of our economy to grow and to run in a way that won’t overtop earth’s carrying capacity is badly hampered relative to what could be. “You can imagine what a huge array of costs that imposes on the economy and that set of costs just clamps down and makes it harder to provide economic activity and to provide jobs that we need,” as Laitner put it on a recent podcast.

If energy is increasingly coming from a cost-negligible source, and the lifetime of the technology we use to capture it is long enough to easily amortize its capital expenditure, it is time to start focusing on what we do with it, and how. There will, before long, be such an abundance of renewable energy available that we need to start asking how it can best be deployed to maximize economic gains. Measuring where energy goes, and what is done with it when it gets there, will become more important than where it comes from. Laitner has reached a similar conclusion: he believes that our abysmally low rate of converting energy to productive work is a systemic weakness. As he has blogged, “if we miss the big gains in energy and exergy efficiency, focusing instead on investments in costlier and more hazardous new energy resources, we run the risk of a continued weakening of the economy.” (Italics added.)

Energy efficiency and resource productivity are opposite sides of a coin. We need efficiency to do more with less: less material inputs, less person-hours, less water, etc. Doing more with less is key to providing jobs and transitioning to an indefinitely sustainable economy. As the world electrifies, economies will increasingly revolve around renewables to power the factories, shipping, computers and consumers who require those goods and services. What matters now is measuring energy’s ability to functionally provide for society, as opposed to the price per of input on the supply side. Put another way, the 85% of energy we generate and pay for that is wasted is an enormous basket of costs that slows the potential growth of the global economy in all of its manifestations (e.g. job growth).

Growth in global economic productivity is well understood to be slowing. The Organization for Economic Cooperation and Development (OECD) has recently given the global economy a "barely passing grade of B-." The World Bank and others have agreed that global productivity growth this year may decline to 1-1.2%. McKinsey & Company agrees, and reports that the problem is more long-term and systemic: “unless we can dramatically improve productivity, the next half century will look very different. The rapid expansion of the past five decades will be seen as an aberration of history, and the world economy will slide back toward its relatively sluggish long-term growth rate.” 

The primary reason for slow productivity gains is the inefficient use of resources, largely energy, but also water, phosphorus, land and human labor, among many others. Structurally, in terms of our institutional understanding of how to address this, the problem is that we don’t track the right kind of data to measure the effective use of energy in the economy. The conversion of energy to productivity is the numerator in the ratio of human endeavor to global economic growth. We collect energy’s supply side information, but we don’t track how much of that ends up being productive. This is odd, because that’s really the core of understanding economic activity. Moreover, the data we do have doesn’t inform us how individual inputs can help optimize the economic activity that would, in turn, drive sustainability as well as productivity. Knowing how many BTUs we’ve sold doesn’t get us very far; again, it’s not the supply so much as the effective use of energy that runs the world.

What’s required to make best use of the emerging abundance of renewable energy is a transparent flow of rich information to measure, evaluate and direct energy in a way that optimizes use and increases productivity. To get the world thinking outside of a supply-side orientation is a big change, and will require lots of new tools and education. Perhaps the emphasis on the supply-side aspect of energy has been a consequence of the historical commodity nature of the fuels themselves. Since they have been dangerous, dirty, difficult to extract and move around the globe, those responsible have expected commensurate (perhaps outsized) recompense. Increasingly however, energy harvested from renewable sources is freeing the world from those economic handcuffs; you no longer need a multi-billion dollar coal plant to power your house or drive your car. More systematic observation, automation and intelligence in our entire array of systems and devices, with real time measurement driven by machine-to-machine and Internet-of-things technologies, all optimized by algorithms, can now accelerate this revolution.

But present supply side thinking can’t inform any of this because measuring inputs isn’t the same as measuring outcomes. Fundamentally, increasing growth, jobs and standards of living are all about reducing costs of energy, material, services and capital. As with most aspects of holistic Next Economics we have to solve for multiple objectives. So, the transition away from supply-side measurement to outcomes optimization will require a paradigm shift. Understanding what we need as a society and how to line up resources in a way to achieve those outcomes is the critical issue. And incremental improvements to legacy metrics will not cut it.

At Green Alpha Advisors we strive to rethink what we’re doing in our own business of portfolio and asset management in a way that reflects the requirement of the global economic system to evolve to align our energy, material resources and capital with our economic best interests and desires for prosperity. The old, inherited paradigms that only allow us to think in terms of incremental improvements do not help us understand the functional and structural problems associated with unutilized energy, material and capital. As Greentech Media journalist Katherine Tweed recapped from a paper from Laitner, “If we want to understand how to wring more efficiency out of our energy usage, we need to redefine energy use in the first place.”

An economy-wide 15% productive energy use rate is only good news if you’re on the supply side selling all those barrels; the wasted 85% is easy money in that case. But what happens as renewables become the globe’s dominant source of energy and there are far fewer barrels to sell? Laitner’s work seems to be agnostic regarding where energy comes from, emphasizing instead the need to redefine our old ideas about how to measure its impacts and outcomes. For Green Alpha, the fact that the world is increasingly making energy from cheap tech instead of from expensive commodities means it is finally in a position to begin recapturing the lost 85% and realizing a far more sustainable, regenerative and prosperous global economy.

We can now design an economy where a far greater fraction of our energy is put to productive use improving standards of living, accelerating progress and reducing impact on climate and resources. But before we can do that we have to reimagine how we think about energy in the first place. No one can sell a photon, so perhaps it’s time to stop running the world of energy from the supply side, using supply side metrics and talking to each other with outdated language.

Garvin Jabusch is cofounder and chief investment officer of Green Alpha®Advisors, LLC. He is co-manager of the Shelton Green Alpha Fund (NEXTX), of the Green Alpha Next Economy Index, of the Sierra Club Green Alpha Portfolio, and of the Green Alpha Global Equity Income Portfolio. He also authors the Sierra Club's economics blog, "Green Alpha's Next Economy."

This material is for informational purposes only and is not an offer to sell or the solicitation of any offer to buy any security. Performance data quoted represent past performance, which does not guarantee future results. All returns are total returns net of fees.

To obtain a prospectus for the Shelton Green Alpha Fund (NEXTX), visit www.sheltoncap.com or call (800) 955-9988. A prospectus should be read carefully before investing.  Shelton Funds are distributed by RFS Partners, a member of FINRA and affiliate of Shelton Capital Management. 

Green Alpha is a registered trademark of Green Alpha Advisors, LLC.  SIERRA CLUB is a registered trademark of the Sierra Club. 

June 25, 2015

2020 Solar Investment Outlook

If you Hate Money, Don't Invest in Solar!

It took the solar industry forty years to reach a cumulative global capacity of 100 gigawatts …

By 2020, more than 100 gigawatts will be installed in a single year!

According to a new report from the good folks over at Greentech Media, the solar industry will install a mind-blowing 135 gigawatts of solar PV projects all across the globe in less than five years. This will push the cumulative market to nearly 700 gigawatts - or about the size of all the electrical generating capacity in Europe today.

And consider the following estimates:

  • 55 gigawatts in 2015. This represents 36% y/y growth.
  • Emerging markets will account for 17% of growth of the next 5 years. Historically, they’ve accounted for only about one percent.
  • By 2020, 45% of total solar PV demand will come from just three countries - China, Japan and the U.S.
Admittedly, I still see China as a potential wild card based on the fact that if China’s economy implodes - which is not only possible, but probable - there will be significant solar market contraction as China is not only a major producer, but consumer, too.

This is why, as I’ve explained before, I’m trying to limit our exposure to China solar stocks.

On the flip side, however, U.S. solar manufacturers and developers can only continue to get stronger. If you want exposure to the solar space, Sunpower (NASDAQ: SPWR), First Solar (NASDAQ: FSLR), or SunEdison (NYSE: SUNE) should definitely be a part of your portfolio.

All three, by the way, should also get a very nice bump if a select group of lawmakers in California get their way.

No Subsidies Needed

The California Senate recently passed a new bill that, if signed into law, would require the Golden State to get 50 percent of its electricity from renewables by 2030.

It wasn’t long ago when California upped its renewable energy mandate from 20 percent by 2020 to 33% by 2020. Now here we are today looking at the possibility of a 50% renewable energy portfolio.

On the surface, it seems quite aggressive. And in all fairness, right now, it is. But in another few years, costs will fall so low, solar will actually be the most cost competitive source of electricity in California. And that’s without subsidies.

Of course, it seems like every day the need for additional subsidies dwindles, anyway.

Solar superstar and founder of SunEdison, Jigar Shah, has been quite vocal on this issue, insisting that if we phase out the solar tax credits and other solar subsidies in mature markets, the result will be more robust growth.

Check it out …

As the Founder of the largest solar services provider, SunEdison, I had a hand in putting in place subsidies so that we could reduce costs through scale in local markets. This strategy has resulted in an average system cost reduction of over 50% since 2008.

But today, solar subsidies in maturing markets like the United States are actually holding us back, not propelling us forward. In fact, Germany has hit an all time high for solar capacity with 30-gigawatts peak (GWp) of solar power installed. Germany has done this by installing solar at far cheaper prices than we are in the United States. That is because solar subsidies are manipulated by investors like me to maximize our returns. The truth is that installers in the United States can, and do, install solar at roughly the same cost as German installers – save for some increased soft costs. If we want to reach higher growth, we need to phase out the solar tax credits and other solar subsidies in mature markets and watch the price of solar fall.

And just the other day, First Solar CEO, Jim Hughes, actually called the expiration of the solar investment tax credit “irrelevant,” saying …

Within 18 months, we will overcome the cost delta resulting from the drop [of the ITC] from 30 percent to 10 percent. It actually opens up new markets, in our opinion, because you'll see an increased interest in utility generation once the distortion of the ITC is behind us.

Hughes also made an important point that I’ve been making for years …

The growth in corporates interested in direct acquisition of photovoltaic power is not driven by climate change concerns -- it's driven by economics. When you look at data centers, when you look at electricity-intensive industries, they are all interested in locking in a significant cost as a fixed cost rather than a commodity-priced variable cost -- and that's driving a whole lot of procurement on a global basis.


So here we are, looking at a global market that’s growing incredibly rapidly, and even in the absence of direct subsidies, will continue to break records.

When it comes to energy investing, there is simply no greater growth opportunity than solar.


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

June 24, 2015

With Oil Price Drop, Ceres Looks To Food

by Debra Fiakas CFA

Last week Brazilian agriculture technology developer Ceres (CERE:  Nasdaq) made formal plans to shift its focus to seed traits and the food and feed markets and away from energy.  Ceres is not abandoning biofuels as such, but with oil prices at historic low levels, it is not economic enough to justify working capital not to mention new investments.   The company is restructuring operations and reducing personnel in both its U.S. and Brazilian operations.  Ceres management estimates the changes will save between $6 million and $8 million next year.

The question investors need to ask now is whether the shift in priorities can change the value of Ceres.

The company has a strong balance sheet with no debt and $4.8 million in cash and $9.9 million in marketable securities.  The cash and financial assets will come in handy over the months as Ceres tries to reinvent its business model.  Ceres has yet to post a profit on its various agricultural technologies.  Consequently, the company has required considerable investment in working capital.  Over the last year alone Ceres has used $23.9 million in cash to support operations.  Assuming the anticipated savings develops as planned, it is possible that Ceres might need another $16 million to $18 million to keep the wheels turning.  Still it looks like the company could be $2 million to $4 million short.

Thus the first hiccup in creating value is the potential need to raise capital.  That means either increased leverage or issuing additional equity securities.  For a company that is not generating profits or cash, debt can be troublesome.  For most investors, the dilution from new stock is anathema to creating value.

To be fair, Ceres has been making progress with its crop traits.  In March 2014, the company announced plans to accelerate development of its sugarcane traits after initial field trials found better than expected growth and biomass even under drought conditions.  The next stage of field research is expected to be completed by June 2016.  If the company is able to keep pace with the planned schedule, the sugarcane traits should be ready for commercial market introduction in 2018.

The company has made some progress that could bring in revenue in the near-term.  Ceres has licensed its homegrown bioinformatics software platform to HZPC Holland BV, a seed potato developer.  The license will allow HZPC to access DNA databases.  One software license is not material.  However, in my view, the fact that Ceres commercialized a technology that it has originally developed only for in-house purposes, is a plus for Ceres.  It is just the kind of creative management that is needed during adverse market conditions like those presented by weak price conditions in the energy market.

It does not look like there are any significant revenue and earnings generators in the wings.  The single revenue estimate that is published by Thomson Reuters for Ceres suggests revenue could ramp dramatically in the fiscal year ending August 2016.  That that analyst thinks there will be profits, he or she is keeping it a secret as they have not published an earnings estimate.    Of course, this estimate could be predicated on the old biofuel-centric business model.  Yet, I see little change in the potential for revenue and earnings in a ‘food and feed’ business model.

So if investors must wait for earnings to create value, the stock represents an option human or capital assets.  While I might like management’s style, Ceres stock price seems a bit steep for an option on management.  Its crop products, sorghum, sugarcane and switchgrass seem better suited to the energy market than to feed hungry mouths.  Thus the stock seems a bit overpriced as an option on the intellectual property if its application is to be limited to ‘food and feed.’

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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