July 20, 2016

American Refining Group Joins Amyris And Cosan In Renewable Base Oil JV

Jim Lane
BD-TS-Novvi-060215-4
IIn California, American Refining Group has committed to a 33.3% equity investment into Novvi , a joint venture of Amyris (AMRS) and Cosan (CZZ). Both Amyris and Cosan will continue to hold share ownership stakes in Novvi, together with ARG.

It’s not a tiny market by any means.

The global markets for base oils and lubricants, are expected to reach $42 billion and $70 billion in size, respectively, by 2020, according to Amyris.

For ARG: Why Novvi, why now?

Think novel performance. It goes in two directions. First, there’s low-carbon performance — customers want sustainable solutions. Then, there’s product performance — customers are looking for increased durability in high-performance base stocks and lubricants. The new partners said that “a novel, performance-based, technology platform that couples segment-specific, top-tier performance with sustainable, bio-based feedstocks delivers against the needs of the industry today and in the future.”

For Amyris: why ARG, why now?

“This agreement is the first of several we expect this year where we are divesting from non-core marketing activity,” said Amyris CEO John Melo, “while remaining key technology developers and producers of high performance chemistry.”

Getting off a high-carbon product lifestyle

Those who follow consumer brand trends or discussions thereof, of who have run the Paris Climate Agreement numbers on a hand calculator, can tell you that carbon transition may be slow, it may be incremental, but it is coming and there is no turning back. The questions in low-carbon transition, today, are of speed, method, and which sectors go first.

Two options, generally. One is a mandate-led transition, like light bulbs, power and road fuels. The other is a brand-led transition, as happens with plastics, jet fuels and clothing. Amyris’ No Compromise branding encourage transitions not yet subject to mandates for high-margin, smaller-volume markets like flavors, fragrances nd lubricants.

Why No Compromise, instead of Less Carbon? Take, for example, a transition many are familiar with from the health space, reducing sugars out of a diet. Doesn’t change the need for finished foods for which sugar is a key ingredient. We might try the low-caloric sugars, such as Splenda or Equal. Generally, performance is incredibly important to us, and we’d like to get the same performance at the same price. But sweet must be sweet. Which is to say, the first step is performance.

It would be very intriguing to see branding that communicates hard targets on carbon transition — as well as they communicate performance targets through messaging like “No Compormise”. In the fuels sector, we’ve seen the emergence of the below50 brand, that communicates a hard target of 50 percent carbon reduction.

These are branding strategies that will drive faster transition and better results for the companies in the nearer term. If consumers opt for “higher carbon reduction numbers” like they opt for higher-performance sunscreen (see our chart below, on how higher SPF sunscreens are growing much faster than the low-SPFs) — why, that intensifies the speed of the carbon transition.

What does ARG do?

American Refining Group converts hydrocarbon feedstocks into high-quality waxes, lubricant base oils, gasoline and fuels, and specialty products.ARG’s Bradford, Pennsylvania refinery, founded in 1881, is the oldest continuously operating refinery in North America.  Base oils are blended with additives to make the engine oils and lubricants sold on the market today.

More on ARG here.

Reaction from the partners

“Our launch of Novvi’s synthetic base oils has been embraced by manufacturers in a range of top-tier lubricant segments, across both automotive and industrial applications,” stated Jeff Brown, Novvi LLC’s CEO. “Our partnership with American Refining Group will help accelerate our growth by providing the necessary resources to ensure manufacturing, supply, and delivery capabilities to scale our business for volume and to meet customer expectations.”

“ARG’s Bradford refinery was built on innovation and market leadership in 1881, and this is an opportunity for ARG to lead the market once again — this time with a renewable product,” stated ARG CEO Tim Brown.  “The potential benefits cut across our base oil, finished lubricants, solvents, and drilling fluids businesses.”

Comments from industry observers

“Renewable oils offer customization of specs and performance that differentiate them from conventionally produced oils,” said Pavel Molchanov, senior vice president and equity research analyst at Raymond James. “A renewable oil that competes on performance and price is well positioned for the multibillion dollar lubricant and base oils market.”

“If a company could make the same quality PAO with a different feedstock, they could dramatically change the market. Customers would run to them,” said Joe Rousmaniere, director of business development at Chemlube International.

The Novvi backstory

Last summer we reported that Novvi unveiled two new 100 percent renewable base oil products, a 100 percent renewable polyalphaolefin (PAO) Group IV and a 100 percent renewable version of its NovaSpec Group III+ base oil. Both will be manufactured at the company’s production facility in Houston. Specifically, according to Transparency Market Research, Group IV & V Lubricants (PAO, PAG and Esters) Market – Global Industry Analysis, Size, Share, Trends and Forecast, 2012 – 2018,” the Group IV & V lubricants demand was 624.6 kilo tons in 2011 and is expected to reach 752.9 kilo tons in 2018, growing at a CAGR of 2.76% from 2013 to 2018.

Novvi’s 100 percent renewable PAO is a clean, direct replacement for conventional Group IV PAO base oils derived from petroleum and natural gas.

Who’s the customer?

“We work with customer-facing strategic partners in both, the base oil business and the finished lubricant side,” Novvi CEO Jeff Brown told The DIgest. “We’re doing the manufacturing now but we have a variety of partnership structures with customers, and we will scale production through strategic industry partnerships.”

More about Novvi

The Digest’s 8-Slide Guide to Novvi is here.

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

July 17, 2016

Microgrids: The Electric BTM Line


by Joeseph McCabe, P.E.

Which vendors at Intersolar 2016 in San Francisco supply the best behind the meter self generation microgrid solutions?  I’ve asked similar questions about utility owned inverters, storage, and microgrids at previous Intersolars. This year I looked into the microgrid highest value propositions for photovoltaics (PV).

What is a microgrid, and why they are coming of age now?

A microgrid is a distinct electric system consisting of distributed energy resources which can include demand management, storage and generation.  Loads are capable of operating in parallel with, or independently from, the main power grid. For this evaluation a microgrid is defined as an isolated circuit that can have a utility feed for battery charging only which provides a high value for a commercial or industrial electricity consuming facility. In this case a facility can receive energy, demand and power factor values from a self generating microgrid and use the utility to charge batteries in times when self generation may not be available. Self generation can come from many generating technologies including fossil fuels, biomass digesters, anaerobic digesters (like at breweries), wind and solar PV. Low cost solar and storage are driving new opportunities for these microgrids.

Microgrids are not new for the solar industry, which has been doing off grid and island systems since before grid interactive inverters were available in the 1990’s. If structured properly microgrids can provide clean, low cost, uninterruptible, reliable and resilient electricity.

Example behind the meter microgrid

Consider a server farm that needs to expand its capabilities with a new room of servers. The facility could pay the local utility to increase its electrical service capacity, and then pay a lifetime of additional $/kWh energy and $/kW demand fees. Or the facility could install a solar electric system with batteries and if it has natural gas, the facility can generate combined heat and power (CHP). The heat is used to air condition the servers with absorption chillers. Multi-port microgrid solutions are now being offered by multiple vendors for these purposes.

As a facilities decision maker, pick
a CHP that can supply your air conditioning requirements with absorption chillers. Add a PV system that supplies the electricity for your process for most of the year. My favorite flavor PV system would be integrated with a parking structure. Also pick an electrical storage system that can safely provide the power needed for times when the sun isn't shining and for when your CHP unit will not be in an economical operating zone. The microgrid will supply clean power and adjust for various loads turning on and off. They can even turn loads on and off for you in a scheduled energy/demand management function. Day and hour ahead weather forecasting can be integrated. A battery charging circuit tied into the local utility can put more DC electricity into the microgrid at the most economical times. In fact a microgrid can be all DC energy reducing conversion to AC losses. And of course any original utility circuitry feeds can remain as a backup to a new microgrid circuit.

Economic value

Energy economic evaluation is straightforward in today's PV market, coming in at an onsite cost of $0.06 to 0.10 per kWh for larger experienced installer systems (my own utility has a $0.056/kWh PPA system). This would be compared to the utility bill $/kWh which vary widely but are typically above $0.06/kWh for commercial and industrial accounts. April 2016 EIA average estimates are $0.101/kWh for commercial and $0.064/kWh for industrial across the USA. Demand charges ($/kW) can be reliably eliminated from utility bills with a microgrid. CHP systems typically achieve total system efficiencies of 60 to 80 percent. Expensive power factor charges ($/kVAR) can be reduced from utility bills by addressing the facility equipment that is is causing power factor problems, and isolating that/those circuits with a microgrid solution. Whole facility can address these expenses with power factor correcting capable inverters, often a standard function on newer inverters. 

beer


Power factor is a correction billed by the utilities for power delivered by alternating current. It varies when certain equipment causes the apparent power to differ from the true power, this difference is a measure of kVAR.
Power factor can be analogized with a mug of beer. The actual beer fluid represents the power in kW, and the foam represents the wasteful kVAR, the kVA being the actual amount of work the utility needs to provide in the form of the total volume. Reducing power factor is like reducing the foam in the mug of beer. I have seen power factor representing 50% of a hospital’s electric bill.

Regulation can also change economic value. The federal Investment Tax Credit (ITC) of 30% applies to the cost of storage, if and only if the storage is charged by the PV system. If you are interested, contact me for an industry white paper regarding these values. 

Utility regulations

The regulatory environment for microgrids is just beginning to be developed. It is a perfect time to explore microgrid opportunity with low cost PV and new battery solutions which were being discussed and demonstrated at the Intersolar event. Any microgrid solutions will most likely be grandfathered in before any new regulations. The California Energy Commission and the California Public Utilities Commission (CEC & CPUC) recently held a conference call to begin a microgrid workshop process. Regulators should keep behind the meter regulations to a minimum because they provide an excellent source of electricity for facilities. In other words, regulators should keep their hands off our collective BTMs unless invited.

The brand new
Rule 21 in California outlines functionality required for all new grid connected distributed generation. It is a tariff that describes the interconnection, operating and metering requirements for generation facilities to be connected to a utility’s distribution system. These same equipment standards enable a new class of products that are isolated, or strategically connected to the grid. I am choosing to look at non-exporting microgrid because it is easier from a regulatory environment. At some point I predict the utilities will be asking facilities for access to these isolated microgrids for addressing the utilities’ demand response programs. At which point it should be easier for the utility to pay for and certify the dispatching functionality.

Which companies will benefit?


Various support equipment and services are offered by vendors which are forming strategic relationships with system solution providers. Original equipment manufacturers are teaming with system suppliers along with boutique software companies to supply such systems to the electric utility industry and end commercial and industrial electric users.  A few vendors at Intersolar that seem well-placed to address the example scenario are Ensync, Greensmith, software company Geli, a multi-port microgrid company called Ideal Power (NASD: IPWR), and system integrators who take other vendor wares and integrate solutions like Gexpro (a part of Rexel (OTC:RXEEY)).

Photos below are from the 2016 Intersolar exhibits and should be self explanatory:

FJIMG_20160712_071901.jpg

IMG_20160713_112624 (1).jpg

FJIMG_20160712_071839.jpg

FJIMG_20160712_071952.jpg

New company relationship agreements were announced at this year's Intersolar event by Ideal Power and sonnen (European residential battery storage company new in the USA), as well as between Gexpro and Geli. Greensmith announced new products for pre-engineered packaged solutions under 1 MW with up to 4 hours of battery backup. Larger systems like a large 20 MW installations are still custom builds for Greensmith. Ensync is combining fast lithium-ion batteries with slower flow batteries to address both immediate intermittency and longer term demand reduction functions.


Facilities managers who want to save money on electric bills or are trying to meet environmental goals can begin an exploration into microgrids by choosing an existing or future electric service circuit for a microgrid.  To do this they need to determine the hourly, monthly and yearly load profiles on the circuit. Then start stacking the latest distributed generation options to determine if there is a viable behind the meter microgrid opportunity.

Conclusion


For the first time, this year Intersolar showed us behind the meter microgrids. In
this article we have defined an economical microgrid which can be used as an example to build your own microgrid solution and have presented a few of the companies supplying solutions in this space. Low cost solar and storage solutions have enabled this new class of on-site solution. Regulations are currently minimal for facilities to install self generation equipment. These behind the meter microgrids will become increasingly important for tomorrow's electricity industry because they have become cost effective for commercial and industrial electricity users.


No Disclosures

Joseph McCabe is an international renewable energy industry expert with 20 years in the business. He is a Solar Energy Society Fellow, a Professional Engineer, and is a recognized expert in developing new business models for the industry including Community Solar Gardens and Utility Owned Inverters. McCabe is a mechanical engineer, has a Masters Degree in Nuclear and Energy Engineering and a Masters Degree of Business Administration.

Joe is a Contributing Editor to Alt Energy Stocks and can be reached at energy [no space] ideas at gmail dotcom.  Please contact Joe for permission to reprint.

July 07, 2016

Broadwind: Major Order, But Still Looking For The Right Size

by Debra Fiakas CFA

Last month wind tower manufacturer Broadwind Energy (BWEN:  Nasdaq) announced a major new tower order from a major U.S. wind turbine manufacturer. The customer was not named, but the likely suspects are not hard to round up.  General Electric (GE:  NYSE) is the largest U.S.-based wind turbine producer with about 9.1% of the total world market according to BTM Navigant, an industry research firm.  While substantially smaller in size, Northern Power Systems, PacWind and Xzeres are also important competitors in the wind energy industry.   Clearly General Electric as a customer has the greatest financial strength and therefore more credibility  -  two traits that have been in short supply at Broadwind of late.

The company’s current chief executive officer, Stephanie Kushner was recently promoted to the post from the position of chief financial officer, a position held since 2009.  No new CFO has been named.  Broadwind also recently announced the resignation of the controller and intentions to “consolidate corporate financial functions.”  The C-suite at Broadwind is not well populated these days, leading some shareholders to question leadership and direction.  The big new order helps calm critics.

Valued at a total of $137 million, the recent wind tower order calls for deliveries over a three-year period ending in 2019.  That means roughly $45 million in additional revenue per year  -  a major win for the company.  In the twelve months ending March 2016, Broadwind reported a total of $196.7 million in total sales.  Thus the new order represents a 23% increase in incremental annual sales.

Broadwind reported a net loss of $10.1 million in the twelve months ending March 2016.  However, EBITDA (earnings before interest, depreciation and amortization) was near breakeven at $111,000 and operations generated $13.1 million in cash flow.  Barring poorly negotiated margins on the new contract, Broadwind should be able to at least post positive EBITDA if not a net profit as the company works through the new contract.  There is only a single analyst with a published estimate for Broadwind.  Surprisingly, that analyst reacted to the new contract announcement with even deeper quarter losses than before in 2016, as well as a deeper loss in the year 2017.

The forecast reduction was not encouraging for shareholders, but most appear to have shrugged off the opinion of a single analyst.  The stock had already been on an up-trend since February 2016, riding the wave of renewed interest in U.S. equities.  The stock gapped higher on the new contract announcement in early June 2016, but has since given up the entire gain.   

As encouraging as new business appears, the fact that Broadwind has not found an operating configuration that produces profits is of far greater concern.  The company recently decided to divest of its services division, retaining the towers and weldments businesses.  Eliminating the unprofitable services division will be beneficial, but it will not fix the problems in the remaining business that is also unprofitable.  Five years ago the company initiated a restructuring plan to right-size its manufacturing base and reduce fixed costs.  Two production facilities were idled and 10% of the workforce was laid off.  The efforts have led to positive cash flows in continuing operations, but net profitability remains elusive.  Indeed, the gross profit margin shrank to 9.2% in the year 2015.  

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.

July 06, 2016

Tesla and SolarCity: When Acquisition Strategies Run Amok

by Paula Mints

When two companies with negative financials and high debt marry a good response to the nuptials is … Huh?

When Toto pulls back the curtain in the Wizard of Oz to reveal that the Wizard is just a normal man with no special powers the Wizard says: Pay no attention to the man behind the curtain.

In the case of the proposed stock acquisition of SolarCity by Tesla pulling the curtain would reveal two debt ridden companies with cash flow problems.

Just the Facts Please

The facts are: two companies with high debt and consistent net losses have joined their net losses and debt to enjoy the synergies offered by Tesla’s (TSLA) electric car and Powerwall Lithium Ion battery technologies with SolarCity’s (SCTY) residential/commercial lease business model and its Silevo crystalline cell technology.

Other facts include that SolarCity has experienced setbacks with its module assembly/cell manufacturing ramp up and optimistic announcements aside are likely far away from com-mercializing its technology.

Once SolarCity’s PV cell/module technology is commercial it will be competing in a market with significant downward price pressure. Also, given that China’s PV cell/module manufacturers are ramping capacity in countries that are not subject to import tariffs competition on price will get a lot more painful in the near future.

Also to be considered is that with demand for solar leases slowing SolarCity has announced that it will compete in the highly competitive utility scale space, a segment of the PV market that is highly capital intensive on a much bigger scale.

Finally (or, really not finally) the company’s reliance on debt renders it highly vulnerable.

Now to Tesla: facts include consistent net losses, high debt and a residential/commercial battery product that is not widely deployed and is quite expensive.

Both companies have liability/asset ratios over .50, which means that a higher proportion of each company’s assets are financed by debt.
So … just where is the synergy in combining two companies into a massive, debt-laden, clean technology powerhouse?
The proposed acquisition DOES make sense for SolarCity, which can be viewed as the weaker party. For Tesla, it only makes sense when thought of as a lifeline for SolarCity.

Table 1 (click for larger version) offers total revenues, net losses and the Liability/Asset ratio for SolarCity and Tesla from 2010 through 2015.
Table 1
Tesla is not the only company to recently make interesting acquisition decisions. SunEdison, currently in bankruptcy, went on a buying spree with the goal of creating a massive clean technology powerhouse and now finds itself selling assets and seeking a busi-ness-savior-marriage of its own.

Paula Mints is founder of SPV Market Research, a classic solar market research practice focused on gathering data through primary research and providing analyses of the global solar industry.  You can find her on Twitter @PaulaMints1 and read her blog here.

This article was originally published in the June  30 issue of  SolarFlare, a bimonthly executive report on the solar industry, and is republished with permission.

July 05, 2016

Amyris: Biochemical Bargain?

Industrial bio-chemical developer Amyris, Inc. (AMRS:  Nasdaq) has been in the headlines recently  -  some pointing to solid fundamental progress, others ‘not so much.’  Amyris recently announced a new relationship with Givaudan (GIVN: VX), a supplier of active ingredients for cosmetics.  The two have agreed to collaborate in research and development on proprietary fragrances.  Earlier this month Amyris announced the launch by Takasago International Corporation (TYO:  4914) of a new fragrance created with Amyris’ technology. Cosmetics and fragrances present large market opportunities and the strength of demand for personal care products supports strong profit margins.  The relationships are likely to lead to incremental sales for Amyris.
Yet it was just a week ago that Amyris announced the company was crosswise with Nasdaq.  Apparently, the bid price for AMRS shares has been below $1.00 for 30 consecutive trading sessions, violating a minimum listing requirement for the Nasdaq Global Select Market where AMRS trades.  There is no reason to panic just yet.  The company has six months to come into compliance.  Still the notice from Nasdaq puts a spotlight on the struggle that developing companies face  -  trying to get established in highly competitive markets for their products and technology while clinging to whatever access to capital they might establish.

Amyris has been able to build up revenue to $34.1 million in the most recently reported twelve months ending March 2016.  Of course, the company is still operating with a deep loss as research and development efforts still eclipse revenue.  The net loss during that period was $184.9 million or $1.26 per share.  More importantly the company used $105.6 million in cash resources during that period to support operations.
Since cash on the balance sheet was only $9.3 million at the end of March 2016, there is some real concern for Amryis’ future.  Granted the company executed a small private placement in May 2016, bringing in about $15 million in new capital net of fees.  That has provided some breathing room for the company.  Then, if Amyris is closer to selling its Biofene-branded farnesene chemical, the future might not see as bleak as suggested by the balance sheet.  Farnesene is a renewable hydrocarbon chemical that is the building block for a range of products such as cosmetics, detergents and lubricants.  It shows promise for high-volume applications and large market opportunities.  In May 2016, the company announced a new relationship with CJ CheilJedang Corporation (097950:  KS), a Korean contract manufacturer, to provide high volume production of farnesene for Amyris.  Unfortunately, it will take until at least the third quarter for the two to hammer out a definitive agreement, which suggests that revenue is not likely until well into 2017.

Priced at about $0.40 per share, AMRS appears fairly priced as an option on management’s ability to bring together the right elements of technology, commercial products and paying customers.  Until more commercial relationships are in place or the existing relationships begin producing revenue, there is probably no justification for a higher price.

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.

July 01, 2016

Ten Clean Energy Stocks For 2016: Quick June Update

Tom Konrad, Ph.D., CFA

 June was another good month (and capped a strong first half of the year) for my Ten Clean Energy Stocks for 2016 model portfolio.

This update's going to be a short one, but here are the basic stats:


June Total Return
June Benchmark Return
YTD Total Return
YTD Benchmark Return
10 Clean Energy Stocks
3.3%
0.6%
6.8%
-2.8%
7 Clean Energy Income Stocks
7.1%
1.9%
12.3%
5.7%
3 Clean Energy Growth Stocks
-5.7%
-2.3%
-5.8%
-19.2%
GGEIP
3.0%
0.6%
12.1%
5.7%

See the previous update for a description of the benchmarks.

The strong performance of the portfolio was driven mostly by the flight to quality and lower interest rate expectations caused by the Brexit vote and weaker than expected growth indicators in the US.  Lower growth expectations and the more uncertain global economy mean that the Federal Reserve will be raising US interest rates later than previously expected, or even begin to reduce rates again if another recession is on the horizon. 

Lower bond interest rates make my high yield clean energy stock much more attractive, hence the great performance for the income stocks, while the growth stocks, which are sensitive to a slowing economy fared relatively badly.

performance chart

The chart above (larger version here) gives detailed performance for the individual stocks.  Selected news driving individual stocks is discussed below.

Income Stocks

Pattern Energy Group (NASD:PEGI)

12/31/15 Price: $20.91.  Dec 31st Annual Dividend: $1.488 (7.1%).  Beta: 1.22.  Low Target: $18.  High Target: $35. 
6/30/16 Price:  $22.97.  YTD Dividend: $0.671. 
Expected 2016 Dividend:$1.56 (6.8%) YTD Total Return: 16.0%

Wind Yieldco Pattern Energy paid its first $0.39 quarterly dividend.  On June 30, it agreed to buy another 324 MW wind farm from its sponsor, an accretive deal which can be financed using available cash and borrowing.  That said, the recent stock price strength makes me believe that at least part of this deal will be financed by selling some stock as well.

Enviva Partners, LP (NYSE:EVA)

12/31/15 Price: $18.15.  Dec 31st Annual Dividend: $1.76 (9.7%).  Low Target: $13.  High Target: $26. 
6/30/16 Price:  $22.76.  YTD Dividend: $0.97  Expected 2016 Dividend: $2.10 (9.2%) YTD Total Return: 31.2%

Wood pellet focused Master Limited Partnership (MLP) and Yieldco Enviva Partners sold off sharply but then recovered on the Brexit vote.  Traders were probably worried because most of Enviva's pellet sales are to European and British utilities.  The stock then recovered when they realized that that most of these sales are under long term contracts and wood pellet demand is growing rapidly.  Both of these facts should significantly insulate Enviva from any European turmoil.

Green Plains Partners, LP (NYSE:GPP)

12/31/15 Price: $16.25. 
Dec 31st Annual Dividend: $1.60 (9.8%).  Low Target: $12.  High Target: $22. 
6/30/16 Price:  $15.55.  YTD Dividend: $0.8075.  Expected 2016 Dividend: $1.62 (10.4%) YTD Total Return: 5.0%

Ethanol production Yieldco Green Plains Partners entered a joint venture to build an import/export terminal on the Gulf coast.

NRG Yield, A shares (NYSE:NYLD/A)

12/31/15 Price: $13.91.  Dec 31st Annual Dividend: $0.86 (6.2%). Beta: 1.02.  Low Target: $11.  High Target: $25. 
6/30/16 Price:  $15.22.  YTD Dividend: $0.455.  Expected 2016 Dividend: $0.94 (6.2%) YTD Total Return: 13.2%

Yieldco NRG Yield (NYLD and NYLD/A) did not report significant news.

Terraform Global (NASD: GLBL)

12/31/15 Price: $5.59.  Dec 31st Annual Dividend: $1.10 (19.7%). Beta: 1.22.  Low Target: $4.  High Target: $15. 
6/30/16 Price:  $3.26.  YTD Dividend: $0.275.  Expected 2016 Dividend: $0.60 (18.4%). YTD Total Return: -34.9%

Yieldco Terraform Global got a boost when it was reported that Brookfield Asset Management (NYSE: BAM) had taken a 12% stake in its sister Yieldco, Terraform Power (NASD:TERP) and had been in talks with bankrupt parent SunEdison (SUNEQ) about possibly buying its controlling class B shares.

This vote of confidence boosted Global because it implies that Brookfield sees value in their assets, despite all the uncertainty around the Terraforms.  If BAM were to buy TERP, many of the assets would likely be sold to Brookfield Renewable Partners (NYSE:BEP.)

Hannon Armstrong Sustainable Infrastructure (NYSE:HASI).

12/31/15 Price: $18.92.  Dec 31st Annual Dividend: $1.20 (6.3%).  Beta: 1.22.  Low Target: $17.  High Target: $27. 
6/30/16 Price:  $21.60.  YTD Dividend: $0.30.  Expected 2016 Dividend: $1.25  (5.8%). YTD Total Return: 15.9%

Clean energy financier and REIT Hannon Armstrong returned to the equity markets with a well-received secondary equity offering of 4.6 million shares priced at $21 a share.  Investors were clearly eager for this offering: The initial press release mentioned only 3.85 million shares on June 15th, with an additional underwriters purchase option of 577 thousand shares, for potentially only 4.427 million shares.  Later that same day, the number of shares was revised up to 4.6 million, including the underwriter's option.  When the sale closed a week later, the underwriters had already exercised their 30 day option.

TransAlta Renewables Inc. (TSX:RNW, OTC:TRSWF)
12/31/15 Price: C$10.37.  Dec 31st Annual Dividend: C$0.84 (8.1%).   Low Target: C$10.  High Target: C$15. 
6/30/16 Price:  C$13.36.  YTD Dividend: C$0.545  Expected 2016 Dividend: C$0.88 (6.6%) YTD Total Return (US$): 43.0%

Canadian listed Yieldco TransAlta Renewables hit a new 52-week high, and the stock was also helped by the strengthening Canadian dollar.

Growth Stocks

Renewable Energy Group (NASD:REGI)

12/31/15 Price: $9.29.  Annual Dividend: $0. Beta: 1.01.  Low Target: $7.  High Target: $25. 
6/30/16 Price:  $8.83.    YTD Total Return: -5.0%

Advanced biofuel producer Renewable Energy Group fell a little amid the global uncertainty, but the lower price only served to make me more enthusiastic about this leading firm is the strongest biofuel markets.

MiX Telematics Limited (NASD:MIXT; JSE:MIX).
12/31/15 Price: $4.22 / R2.80. Dec 31st Annual Dividend: R0.08 (2.9%).  Beta:  -0.13.  Low Target: $4.  High Target: $15.
6/30/16 Price:  $4.68 / R2.68.  YTD Dividend: R0.04/$0.076  Expected 2016 Dividend: R0.08 (3.0%)  YTD Total Return: 12.7%

Software as a service fleet management provider MiX Telematics received a well deserved upgrade to Overweight from First Analysis, but the global uncertainty dragged the stock down anyway. 

Ameresco, Inc. (NASD:AMRC).
Current Price: $6.25
Annual Dividend: $0.  Beta: 1.1.  Low Target: $5.  High Target: $15. 
6/30/16 Price:  $4.37.  YTD Total Return: -25.2%

Energy service contractor Ameresco did not disclose significant news, but the stock was also dragged down by market trends.  Given that the company operates mostly in North America on contracts with government entities and other large domestic institutions, the decline has little if anything to do with the company's prospects.

Final Thoughts

The first half of 2016 has been a great start to a strong year, despite the generally unsettled nature of the stock market.  While broad clean energy ETFs like PBW have fallen sharply, I hope the performance of my opportunistic income investing approach shows that investing in clean energy does not have to be risky.

Disclosure: Long HASI, AMRC, MIXT,,  RNW/TRSWF, PEGI, EVA, GPP, NYLD/A, REGI, GLBL, BEP, TERP

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.

June 30, 2016

How Economics Finally Brought Community Solar to IREA

by Joseph McCabe, PE

My uber-conservative utility, Intermountain Rural Electric Association (IREA) has been against solar since before I moved into the service territory in 2007.  IREA's long-serving general manager, Stanley Lewandowski Jr., would include climate change denial leaflets in the envelope along with the monthly electric bills.

Now he is gone, and attitudes seem to be changing towards solar. With a new general manager, a couple of forward thinking board of directors and a handful of active IREA owners/members the solar landscape has changed and now includes a large solar project.

Currently IREA has 550 MW of installed electrical generating capacity, about 270 miles of transmission lines and many more of distribution.  Residential users account for about 65% of electricity demand. Like most rural electrical utilities, there are few customers per mile. At the end of 2014 there were 354 solar electric systems, end of 2015 had 1,087 and currently there are 1,250 totaling 7.1 MW out of 152,300 total customers. IREA’s perspective has been that net metering is a subsidy paid for by other ratepayers. Unfortunately, in a mis-guided attempt to recoup this perceived subsidy, since the beginning of the year IREA has placed a load factor adjustment (LFA) on all new customers including new PV.  I expect that many people will soon be clamoring as to their unfair bottom line monthly bills compared to their neighbors.

LFA is a penalty charged for periodic high demand. The LFA discourages both customer sited PV and electric vehicle (EV) charging.  It also presents further confusion to the typical energy consumer, a tower of babble. The new, much higher LFA rate is triggered if the average demand over the billing period divided by the peak demand over the same period exceeds 10% for residential service.  If triggered a peak demand charge is added to the bill. The typical load factor for an average residential IREA customer is about 20%. But EV charging and PV generators will almost certainly send customers into lower than 10% LFA; EVs because of higher peak demand and PV because of lower average demand. One more intelligent solution would be to incentivize EV charging at night, when IREA’s electricity supply from Xcel Energy’s (XEL) Comanche III coal plant output and wind power produce the cheapest electricity.

For the 8 years I have been an IREA member/owner I have been going to the microphone at the annual membership meetings and been a pebble in the shoe of my representative to try and implement community solar gardens (CSG, also known as community solar or shared solar). In parallel, I was helping the state of Colorado pass the first ever CSG legislation (House Bill 10-1342, Levy), and before that I invented and implemented the first large scale utility owned CSG located in Sacramento starting in 2005. It almost feels like the efforts of a few people are helping to change the attitudes of our utility towards cost effective solar.

The economics of CSG are supported by the Public Utility Regulatory Policies Act (PURPA) which encourages the development of renewable energy projects by requiring utilities to purchase energy and capacity from qualifying facilities if at or below avoided costs. In 2015 juwi, headquartered in Boulder Colorado, was able to propose a solar project at IREA’s avoided costs. IREA announced the groundbreaking has begun by juwi on the 13 MW CSG named Victory Solar. This is close to Denver in Adams County. It is unique in that it is 15.9 megawatt DC but 13 MW AC, a 1.3% DC overrating which should save on the overall project economics.  This project has a long-term power purchase agreement with an IREA purchase option in a few years.  IREA upgraded an underutilized substation for the interconnection at a cost of  $1.4M. The asset utilization for this project, the out of pocket expense for IREA, is fantastically low compared to ownership of other generation. Solar is now cost effective at this scale. Currently IREA is planning a portion or all of this project to be a CSG. I am excited to be able to charge my EV with solar electric power from my utility by the end of the year.

IREA obtained special approval from Xcel Energy to generate 15 MW of solar electricity in violation of their All-Requirements contract. Smaller utilities often have such All-Requirements contracts with larger utilities or with transmission organizations like Tristate. Recently, FERC has ruled against Tristate for imposing similar all-requirements on Delta Montrose Electric Association (DMEA). This is a major national tipping point for smaller utilities like IREA and DMEA to enable more distributed generation from renewable energy.
 
The next steps for the active IREA members are to correct the LFA to encourage EV and customer sited PV and to get an additional 2 MW CSG on disturbed or contaminated land in IREA territory. Electric Muni’s, Co-operatives and Associations are perfectly suited to reap the benefits of distributed generation, create local jobs, and revitalize land for local projects. A great example of such a project is located south of Boulder adjacent to the superfund Marshal Landfill site. EPA helped envision and spearhead this Community Energy Collective (First Solar FSLR has a 27% interest in CEC) project.

This large CSG by IREA is a watershed event, where like many conservative local utilities, IREA has been waiting for solar to be cost effective for their needs. That day has come, and will be showing up at many more utilities who are more focused on their customers than on stockholders. CSG’s are also well suited for rural utilities who have fewer customers per mile, justifying distributed energy from solar as opposed to central station generation from fossil fuels.

Disclosure: Joseph McCabe is a Xcel Energy stockholder.

Joseph McCabe is an international solar industry expert with over 20 years in the business. He is a Solar Energy Society Fellow, a Professional Engineer, and is a recognized expert in developing new business models for the industry including Community Solar Gardens and Utility Owned Inverters. McCabe has a Masters Degree in Nuclear and Energy Engineering and a Masters Degree of Business Administration.

Joe is a Contributing Editor to Alt Energy Stocks and can be reached at energy [no space] ideas at gmail dotcom.  Please contact Joe for permission to reprint.

Related article: Comparing Community Solar Subscriptions And Yieldcos

June 29, 2016

Amryris: Zombie With Attitude

Jim Lane

Zombies with attitude. New partnerships for making magic molecules and exploitin’ the heck out of ’em.

Zombies w attitude

These days, nothing in Hollywood beats a great zombie movie, more than 50 have been released in recent years. Zombies rise from the dead, and change everything around them. It’s not always pretty, or predictable, but they’re a disruptive force.

Well, Amyris (AMRS) is proving to be a zombie story these days — starting with being labeled a “zombie company” by The Motley Fool. TMF writes:

Amyris was a pioneering industrial biotech that went from darling of the field to a company now trading well below $1 per share thanks to a lack of market focus, a suffocating debt load, and management hubris. It’s likely on its way to bankruptcy or a much worse fate: becoming a zombie company that’s impossible to resurrect yet refuses to die. It also serves as a textbook case of the first-mover disadvantage.

Like a clip out of Thriller or Abraham Lincoln vs Zombies, the zombies appear to be awakening. In the past 24 hours, two signature announces put Amyris well outside of what would normally be considered the industrial biotech Zombieland.

The Givaudan deal

First, Amyris announced a collaboration with Givaudan (SIX:GIVN), a leading global flavors and fragrances company. The two companies have been engaged in the research and development of proprietary fragrance ingredients for several years, and the significantly expanded partnership reinforces the diversity and value of Amyris’s R&D platform and manufacturing capabilities to customers demanding high performance, cultured ingredients.

During the multiyear collaboration, Amyris will use its strain engineering platform to design cosmetic active targets, and scale them up for global commercialization at Amyris’s manufacturing facility in Brotas, Brazil. The companies anticipate the launch of the target products in the coming years will demonstrate significant performance, cost and sustainability advantages over existing ingredients.

More about Givaudan

The “global leader in flavors and fragrances”, its cosmetic portfolio comes under the Fragrances Division and earlier this spring was re-branded as Active Beauty. That’s where the Amyris-Givaudan partnership is focused.

The company explained it this way recently:

“Following the acquisition of French bio-sourced active cosmetic ingredients company Soliance in 2014 and science-based cosmetic ingredients firm Induchem in 2015, Givaudan now offers customers and consumers around the world a range of innovative products and technology under one single identity, Active Beauty. Establishing one unified identity is a key step towards our 2020 ambition to make Givaudan a significant player in the fast-growing active cosmetics business. Our customers remain at the heart of what we do and the new identity will enhance the proximity of our business relationship with customers and consumers alike.”

Key to all this? Well, it’s cosmetics, so there’s marketing to be done. But Maurizio Volpi, President of Givaudan’s Fragrance Division pointed to a “a strong R&D…platform to drive future development and innovation in the active cosmetics space.”

That’s where Amyris check in. Already Givaudan has a string of antioxidants, moisturizers, cooling agents, wrinkle reducers and skin firmers.


The Gingko Partnership

Ginkgo Bioworks, the organism company, announced a new partnership with Amyris, the industrial bioscience company. The partnership will enable the companies to develop products more efficiently, achieve scale, and accelerate time to market.

As part of the deal, Ginkgo Bioworks will expand Amyris’ strain engineering capability via access to its world-class foundry; Amyris will be responsible for bringing products to scale. Together, the two companies have a portfolio of more than 70 products under contract for delivery to the world’s leading brands across industrial, health and personal care markets.

Amyris has the leading track record in the industry of scaling engineered organisms and delivering breakthrough products to its customers. The company’s fermentation facility in Brazil is highly advantageous for the production of cultured ingredients such as flavors, fragrances, nutritional ingredients and sweeteners. Together, the two companies expect to deliver more than 20 new products over the next three years.

Ginkgo is currently building Bioworks2, a next-generation automated foundry where Ginkgo’s organism engineers can develop new designs at massive scale. The 25,000 square-foot automated facility is used to build and test prototypes of engineered microbes. It is the company’s second, representing a technology leap from Bioworks1, which opened in early 2015.

The bottom line

Zombie company? As The Zombies themselves put it in their anthemic 1964 hit, “Please don’t bother trying to find her, She’s not there.” Amyris struggled, but look at the deal flow. And the company continues to guide that it will reach revenues of $90 million -$105 million in 2016. And, a planned sale of “ non-core assets expected to generate approximately $40 million-$60 million in net proceeds.” We’ll have to see what those non-core assets exactly are.

$100M in revenues — that would be a milestone indeed. As The Zombies put it in 1968, “Now we’re there and we’ve only just begun /This will be our year / took a long time to come.”

Reaction from the stakeholders

And, there are some ‘pleased and delighteds’ to share from the principals.

“We are very pleased with our ongoing partnership with Amyris. As our company continues to look for innovative and sustainable solutions to availability and cost challenges, we are expanding the relationship to apply Amyris’s technology to a whole new field,” said Maurizio Volpi, President of Givaudan’s Fragrance Division.

“Ginkgo and Amyris working together sets the gold standard for the industrial biotechnology industry,” said Jason Kelly, CEO of Ginkgo Bioworks. “Each company was seeing more customer demand for partnerships than we could handle individually. By sharing our assets and experience we can offer more customers access to the industry-leading technology platform.”

“We are excited to be working with Givaudan to solve supply challenges and deliver sustainable innovation in cosmetic actives. We are very pleased with the Givaudan commitment to innovation and its leadership in delivering breakthrough advancements in Active Cosmetics,” said John Melo, Amyris President & Chief Executive Officer. ” He added with respect to Ginkgo, ““Our combined companies have the leading product and customer portfolio and we realized a need to find a faster and more predictable approach to deliver products to these customers and markets,” said John Melo, CEO of Amyris. “Amyris has successfully commercialized five products from highly engineered molecules, disrupting markets from skin care, fragrances, to industrial lubricants, tires and jet fuel. The flood of new products in the coming years will prove that industrial biotechnology’s time has arrived.”

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 27, 2016

Trex: While The Sun Shines

by Debra Fiakas CFA

It appears to be the ‘summer of the small-cap’ as performance in the sector outpaces other sectors on the first day of summer 2016.  In keeping with the adage “make hay while the sun shines”, we shifted into a higher gear to find promising small companies that might participate in the small-cap renaissance.  Trex Company (TREX:  Nasdaq) bubbled to the top of a couple different screens based on growth and return.  There is much to like in a company delivering strong growth.  A bargain price is just icing on the cake.  With a ratio of 0.77 in price/earnings to growth, Trex is well frosted.TREX+Decking[1].jpg

The company designs and manufactures outdoor decking, storage, fencing, stairs and railings, using wood waste and resin composites.  Outdoor lighting is a recent addition to the product line.  Its products are designed to be as aesthetically appealing and longer lasting than natural wood.  The company delivered $54 million in net income or $1.73 per share from $451.7 million in total sales in the most recently reported twelve months.  An impressive $59.2 million of sales were converted to operating cash flow.

The gaggle of analysts who follow Trex closely seem to think there is more of the same ahead.  The consensus estimate for the full year 2016 is $2.16 in earnings per share on $471.8 million in total sales.  Indeed, the group has been busy raising estimates in the last three months, with most of the incremental change weighted to the back end of the year.  If achieve the 2016 hurdle represents 24% year-over-year growth in earnings.  The 2017 consensus estimate of $2.46 in earnings per share suggests a slowing to about 13% annual growth.  Yet in an economy struggling to eke out low single digit expansion a double digit growth rate stands out.

With all this good news it is surprising to find the stock trading at 24.5 times trailing earnings and 17.2 times the consensus estimate.  Investors may be tempting their valuation of the stock because of the highly leveraged balance sheet.  Trex is weighted down with $141.5 million in debt, representing a debt-to-equity ratio of 161.6%.  The current ratio is 1.00, which may seem inadequate even if it has satisfied creditors.

It is also noteworthy that a long position in TREX presents some risk.  The beta measure of 2.40 suggests a volatility that might worry conservative investors.  There is no dividend that might otherwise provide a stipend during a period of price weakness.  Despite the blemishes TREX is a ‘sweet peach’ for the summer of small-caps.

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.

June 23, 2016

Tesla Considering Shanghai For New China Plant

Doug Young 

Bottom line: Tesla will announce a joint venture production facility in Shanghai within the next 1-2 months, and could see its China sales pick up sharply after its more affordable Model 3 reaches the market next year.

Just a week after Disney (NYSE: DIS) launched its newest theme park in Shanghai, media are saying that new energy car superstar Tesla (Nasdaq: TSLA) is also eyeing China’s commercial capital as the location for a new production base costing up to $9 billion. We should note from the start that the potential partner mentioned in the reports, the Shanghai government-owned Jinqiao Group, has denied the signing of a memorandum of understanding (MOU) for such a deal. But in this case I trust the source of the story, Bloomberg, more than the Chinese officials who have a track record of denying reports that later turn out to be true.

This particular investment plan has been in the headlines for much of this year, though Tesla has been quick to always say that it will only make such an investment if it can find the right partner and market conditions justify such a move. A major breakthrough appeared to be near last month, when a senior Tesla executive met with a high government official in charge of the new energy car sector and the pair later released photos of their meeting. (previous post)

All that said, let’s review the latest developments that include both details of the potential plan and also Jinqiao Group’s denial. According to the Bloomberg report, Tesla has signed an MOU to build a manufacturing plant in Shanghai’s Pudong New District, making the city the front-runner to host the long-discussed production base. (English article; Chinese article)

Under the plan, Tesla would provide half of the investment for the plant, or up to 30 billion yuan ($4.5 billion) of the total cost of around $9 billion. Jinqiao Group would provide the other half. Other places that are still vying for the plant include the interior city of Hefei in Anhui province, and the city of Suzhou about an hour’s drive from Shanghai.

The Bloomberg report cites a representative of one of Jinqiao’s listed units saying that the parent company hasn’t signed any MOU or other documents about a Tesla joint venture factory. (English article; Chinese article) The fact that Bloomberg decided to run its article despite the denial leads me to believe that a deal is really happening in Shanghai, though perhaps there’s no actual signed MOU just yet.

Aggressive Suitor

The fact of the matter is that Shanghai is quite aggressive when it comes to courting cutting-edge famous brands like Tesla. The city just opened its state-of-the-art Disneyland last week, and the latest reports are pointing out that the reported new Tesla factory would be worth nearly twice as much as the $5.5 billion price tag for the Disney resort.

Shanghai has also been working aggressively to build up a charging infrastructure for electric vehicles (EVs), in a bid to jump-start Beijing’s stalled program to promote the industry. That program includes not only building charging stations throughout the city, but also working aggressively to get residential property management companies to permit apartment dwellers to install such stations in their parking spaces at home.

Tesla zoomed into China 2 years ago on a flood of positive publicity, fueled by Beijing’s emphasis on the technology and also the celebrity power of company founder Elon Musk. But it stumbled badly after that due to lack of infrastructure, poor marketing and also problems with China’s broader incentive program to promote the sector.

This latest move to localize production, combined with Tesla’s recent introduction of a more affordable model priced at $35,000, seem to indicate the company may be regaining some of the momentum it lost after its fast start 2 years ago. Accordingly, I expect we could see a formal announcement of the new joint venture in the next month or two, and the company’s China sales could pick up sharply when the new more affordable Model 3 becomes available here next year.

Doug Young has lived and worked in China for 20 years, much of that as a journalist, writing about publicly listed Chinese companies. He currently lives in Shanghai where, in addition to his role as editor of Young’s China Business Blog, he teaches financial journalism at Fudan University, one of China’s top journalism programs.. 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 22, 2016

Capstone Turbine: Not a Pretty Picture

by Debra Fiakas CFA

Last week microturbine manufacturer Capstone Turbine (CPST:  Nasdaq) reported financial results for the final quarter of its fiscal year ending March 2016.  Sales were $18.9 million in the quarter, bringing total sales for the year to $85.2 million.  FY2016 sales shrank 26.2% from the prior fiscal year for the second year in a row.  Some shareholders may be taking solace in the FY2016 net loss of $25.2 million or $1.39 per share in that it is an improvement over the even deeper loss in the year before.  That does not necessarily mean that operating performance has improved for Capstone.  The year-over-year comparison is muddied by a special charge in FY2015 for bad debt expense totaling $10.1 million.  Then in the more recently reported FY2016, $1.5 million in bad debt recovery worked in the company’s favor.

No one should be surprised at recent deep losses.  Capstone Turbine has been reporting operating and net losses since  -  well, since the beginning.  The continued deep losses beg the question:  will Capstone Turbine every turn a profit?

The company staged an initial public offering sixteen years ago this month in June 2000, disclosing losses as far back as 1998.  In that long-ago year, Capstone achieved the first commercial sale of its versatile Model C30 turbine.  This was followed close on in 2000 by the introduction of the Model C60 using natural gas as fuel.  Shareholders must have had high hopes for that second model, and sales initially popped to $36 million in FY2001 only to drop back to $19.5 million in 2002, well below sales achieved even by the first Model C30 turbine product.  In both years, cost of goods far exceeded sales.

This last metric provides a clue to what might be Capstone’s bottom line struggle.  Even as the product line expanded and unit production increased, cost of goods exceeded sales up through 2011.  In FY2012, the Company finally reported a positive gross margin of $5.4 million on $109.4 million in total sales.  Unfortunately, it was still far too small to cover $37.1 million in operation costs, leaving an astounding operating margin of negative 28.9%.

Fast forward to the most recently reported fiscal year, the gross profit margin has improved to 15%, allowing the company to pull out $12.8 million of sales to cover operating expenses.  Except that gross profits are not sufficient cover operating expenses.  Spending on research, development, selling general and administrative activities totaled $37.3 million.

Of course, this is a look at reported net losses, which presents only part of the picture of operating results.  Cash flow from operations brings the rest of the image into focus.  It is not any prettier.

Capstone Turbine has never reported positive operating cash flow, relying year after year on cash resources to support operations.  In FY2016, the Company used $22.5 million in cash resources for operations.  There was $11.7 million in cash on the balance at the end of March 2016.  At the recent spending rate the cash balance could last another six months.

Thus capital resources are an issue for Capstone Turbine.  Management has avoided debt, and at the end of March 2016, there were $435,000 in notes payable and lease obligations on the balance sheet.  The bias against debt has forced the company to go back to the equity capital markets every year for additional equity capital.  In May 2014, the company staged a negotiated offering of 900,000 shares of common stock at $34.00 per share to a single investor, bringing in $29.8 million in new capital.   Capstone has raised a total of $853.3 million in equity capital since inception, nearly all of which has been burned up by operations with losses totaling $827 million.

In August 2015, a little more than a year after the follow-on offering, the Company entered into an at-the-market equity offering program to sell shares of its common stock.  By the end of March 2016, the Company had sold 6.9 million shares under this $30 million facility and took in another $12.7 million in new equity capital after expenses and fees.  I estimate the balance of the equity facility could provide support for Capstone’s operations for another eight months

Capstone shares are trading near $1.40 per share, which given the long history of weak results seems a bit dear.  Microturbines offer the promise of energy efficiency and for some investors the whiff of environmental benefit may be enough to put up with dismal operating performance.  I do like all things green, including money.  Unfortunately, Capstone does not appear to be able to deliver any of that kind of green to shareholders.

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.

June 20, 2016

Green Plains Primes The Pump

by Debra Fiakas CFA

Ethanol producer Green Plains Renewable Energy, Inc. (GPRE:  Nasdaq) announced today plans to build a fuel terminal point in Beaumont, Texas.  The terminal will be located at a facility owned by Green Plains’ partner in the venture, Jefferson Gulf Coast Energy Partners.    It will be helpful to have a friend in the project that is expected to cost $55 million to complete just ethanol storage and throughput capacity.  Planned storage capacity is equivalent to 500,000 barrels, with the potential to expand to 1.0 million barrels.  Capacity to handle biofuels or other hydrocarbon fuels will be added later.  The terminal should give Green Plains better access to world fuel markets through railroad, barge and ocean tankers connections at the terminal.

This is the second terminal project for Green Plains.  In November 2015, the company announced plans to build an ethanol terminal in Maumelle, Arkansas for access to the Union Pacific rail line.  The terminal will have the capacity to unload trains as long as 110 cars in one day and will be able to store as much as 4.2 million gallons of ethanol.  The price tag is projected to be $12 million, which will be split equally between Green Plains and a partner, Delek US Holdings.  A downstream refining and distribution company, Delek is experienced in fuel logistics and has connections to convenience stores.

The two projects should smooth the way for Green Plains to economically reach customers both in the U.S. and around the world.  Lower cost distribution can also give Green Plains a competitive edge in striking deals.  Now the company needs to ‘fill the pipe,’ so to speak.  The altered strategic plans of some competing ethanol producers may be giving Green Plains an opportunity to do just that.

Abengoa SA (ABG:  Madrid or ABGB:  Nasdaq) has debt issues back home and is putting its U.S. operation into bankruptcy.  Green Plains has offered $200 million in cash for Abengoa’s ethanol plants in Illinois and Indiana.  The deal will give Green Plains another 180 million gallons in production capacity and elevate it from fourth to third largest ethanol producer in the U.S., passing up Valero Energy (VLO:  NYSE).

Even top-dog Archer Daniels Midland (ADM:  NYSE), with its 1.7 billion gallon ethanol production capacity, is rethinking its ethanol priorities.  In February 2016, ADM announced its two dry mill ethanol plants that grind and crush corn feedstock were under scrutiny.  At that time ethanol prices had slumped to the $1.34 to $1.40 range and renewable fuels policy seemed unclear.  Since then the profit potential in ethanol has improved as prices have come back to the $1.65 to $1.70 price range.  ADM may ‘think’ its strategy right back to the starting point.  In the meantime, Green Plains management can still speculate about grabbing up even more capacity.

Acquiring production capacity during a market downturn, is a tactic well known by number two ethanol supplier Poet, LLC (private).  Based in Sioux Falls, SD, Poet has a long history of buying up bankrupt and otherwise beleaguered ethanol producers and then installing its own proprietary technologies to improve efficiency.  Poet itself might have an interest in ADM’s dry mill plants if either or both of them get put up on the auction block.  Poet has patented its proprietary dry mill process and is the largest ethanol producer in the country in terms of dry mill plant capacity.

Green Plains ambitions may be tempered by the condition of its balance sheet.  The company has not shied away from debt to finance its expansion in the ethanol sector.  At the end of March 2016, long-term debt and notes totaled $765.9 million, representing an 82.4% debt-to-equity ratio.  A look at assets helps put leverage into clear focus.  Book value of property, plant and equipment assets net of accumulated depreciation was $920.5 million in March 2016, representing a multiple of 1.2 times debt obligations.  A current ratio of 2.10 should also provide some comfort to shareholders and creditors.

The company had $383.4 million in cash on the balance sheet at the end of the last quarter, suggesting nice little treasure trove.  Unfortunately, during the period of weakened ethanol prices in late 2015 and early 2016, Green Plains was using cash to support operations  -  $259 million in the twelve months ending March 2016.  In my view, a company generating nearly $3.0 billion in annual sales needs as much as $450 million to $600 million in cash just for working capital purposes.  This is especially important when at the trough of the business cycle and profits have been reduced.  Against this ruler the treasure trove is more like a bare bones reserve.

Green Plains will need to come up with $33.5 million to support commitments to the two terminal joint ventures.  Then there is the $200 million bid for the Abengoa assets.  The company has some alternatives.  Green Plains Partners, LP (GPP:  NYSE), the holder of the company’s downstream assets, could use some of the $49 million in remaining credit on a revolving line of credit facility opened in 2015.  The parent company has a revolving line of credit as well.  However,  to be meaningful in the current investment scenario, the company would need to petition the agent to exercise the $75.0 million accordion feature that was built into the facility.   Of course, new common stock could be issued through either the parent (GPRE) or the downstream limited partnership (GPP).   GPRE current commands a multiple of 13.5 times projected earnings, while GPP is trading at 8.3 times expected earnings in 2017.

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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