August 04, 2015

New Green Bonds From Terraform And Goldwind

by the Climate Bonds Team

Second green bond from TerraForm to finance wind power acquisition, $300m 10yr, 6.125% s/a coupon, BB-/B1

TerraForm Power Operating [TERP], the yieldco spin off from SunEdison [SUNE], has issued a second green bond shortly after tapping its inaugural green bond for a further $150m (making their first green bond a whopping $950m!). The new $300m green bond has 10-year tenor and semi-annual coupon of 6.125%, and was issued in the US private placement market. It is sub-investment grade with a rating of BB- from S&P and B1 from Moody’s. Underwriters for the deal were Bank of America Merrill Lynch, Barclays Capital, Citi, Goldman Sachs, Macquarie, and Morgan Stanley.

Proceeds from the bond will be used mainly to finance the acquisition of 460MW wind power plants from Invenergy, with the remaining proceeds used for other eligible green projects. As with its first green bond, Terraform chose not to get a second review on the green credentials of this bond, presumably because it is a renewable energy business with no brown assets on the books.

Great to see another issuer coming back to the green bond market for more!

TerraForm Global Operating [GLBL] another yieldco subsidiary of the SunEdison group which just completed its IPO also announced a $810m green bond. Proceeds will be used for wind, solar and hydro projects.

First labelled green bond from a Chinese company, Goldwind, is launched in the Hong Kong market,$300m, 3yr, 2.5% s/a coupon, A1 (credit enhanced)

As we already mentioned in a special blog last week, Xinjang Goldwind Science and Technology [2208.HK] is the first Chinese corporate to issue a labelled green bond (though technically speaking, the bond was issued by its wholly owned Hong Kong-based subsidiary). The $300m green bond issued in the international dollar market was a massive success with an orderbook of $1.4 billion! The bond has a 3-year tenor and semi-annual coupon of 2.5%, and credit enhancement by the Bank of China (Macau) brought it up to an A1 credit rating. The lead underwriters for the deal are Bank of China, Deutsche Bank and Societe Generale.

We’re happy to see that Goldwind got DNV GL to do a second review of the green bond, giving investors confidence in the first green bond issuance from a new country. (Although, the domestic Chinese green bond market will be governed by official guidelines for what is green rather than the second opinion model).

Now, it’s worth highlighting that the Goldwind green bond does not follow the use of proceeds model most commonly seen in the green bond market where the proceeds of the bond sale are earmarked to finance specific eligible projects. Instead, Goldwind’s green bond is a general-purpose bond that allows proceeds to be used for any expenditure by the company. The reason investors can accept this different structure is that the green bond is issued by a pure-play company (meaning over 95% of revenues are from climate-aligned assets). This gives investors comfort that proceeds will be used for green - in Goldwind’s case, wind power plants and wind turbine manufacturing assets. It is the same model used in Danish corporate wind manufacturer Vestas’ [VWDRY] green bond earlier this year.

We’re all for pure-play issuers labeling their bonds as green to improve discoverability for investors. But we were a bit surprised that there are no plans for additional reporting on the actual use of proceeds of Goldwind’s green bond, as in theory the company could use proceeds to finance any project – green or not so green. Of course, since Goldwind’s a pure-play wind developer, it’s almost certain that the company will use the proceeds on fully climate-aligned wind projects. But it would be good to see reporting on this to provide certainty for investors.

There are many firsts to come for Chinese green bonds this year – in particular we are waiting for the first green bonds in the overseas RMB and domestic Chinese bond markets that has a seal of approval from the central bank and financial bond regulator, PBoC. We’re expecting these to be coming to market later in 2015.

——— The Climate Bonds Team includes Sean Kidney, Tess Olsen-Rong, Beate Sonerud, and Justine Leigh-Bell. 
 The Climate Bonds Initiative is an "investor-focused" not-for-profit promoting long-term debt models to fund a rapid, global transition to a low-carbon economy. 

August 03, 2015

GE and EnerDel: Obvious Bedfellows

by Debra Fiakas CFA

In April 2015, General Electric (GE:  NYSE) won a contract to supply Con Edison Development with an 8-megawatt-hour battery storage system at a solar project in California.  The system will incorporate GE’s Mark IVe control system and Brilliance MW inverters.  However, instead of GE’s Durathon sodium-ion batteries, GE will be outsourcing or acquiring lithium-ion batteries for the project.

Where will GE source the lithium-ion batteries for the Con Edison Development project?  So far, spokespersons have been non-committal on the name.  GE has had a number of bedfellows in the energy industry over the years  -  some strange and some obvious.  For lithium-ion batteries the obvious partner would be privately-held EnerDel, Inc.

EnerDel+Battery[1].jpg EnerDel is supplying lithium-ion batteries technology for an energy storage facility under joint development in Portland, Oregon for electric utility Portland General Electric.  The rated power of the facility is 5 megawatts and the storage resource is 1.25 megawatt-hours.  GE has partnered with Eaton Corporation to develop the project and we expect this project has given GE good exposure to EnerDel’s capabilities.

EnerDel owns a portfolio of lithium-ion battery technologies used in a mix of cells, modules and packs.  The technology originally came from Delphi, which had a stake in EnerDel until it was sold in 2008 to EnerDel’s current parent Ener1.  The company can also configured these components into systems for distributed energy solutions for remote and utility-scale situations.

As a private company, EnerDel is silent on detailed financial performance.  However, in late 2014 the company’s senior officer ws quoted as saying the company may deliver $45 million and $55 million in sales in 2015 and 2016, respectively.  Profitability is not expected until 2017.

Recent press releases provide some insight into top-line momentum and at least partially back up management’s projections.  In April 2015, the company announced a contact it characterized as it’s largest to date.    EnerDel will supply its Vigor+ battery packs to Washington Metro Area Transit Authority for help running the WMATA’s diesel-hybrid bus fleet.  The order follows an agreement forged with Allison Transmission (ALSN:  NSYE) to allow EnerDel to market the Vigor+ pack as approved replacement batteries for vehicles outfitted with Allison transmissions.  WMATA’s fleet of hybrid buses is reliant on Allison units that originally came equipped with Panasonic batteries.

The order from WMATA is not the first transit systems business for EnerDel.  In 2014, the company won new business from King County Metro in Seattle and the County of Honolulu.  Both orders were for the Vigor+ lithium-ion battery packs to serve as replacement batteries in Allison units.

EnerDel also has a portable power solution that it markets to the military.  It can also be used for back-up power at healthcare facilities or as a main power source at remote or temporary locations.

Do not expect much more than a purchase order from GE for EnerDel battery technology.  On the surface it does not have the profile of an acquisition target.  EnerDel is a subsidiary of Ener1, a privately-held company that emerged from bankruptcy in 2012 after a failed attempt at developing the ‘Think’ electric vehicle.  The white knight in the bankruptcy was a Russian industrialist who, along with other equity investors, recapitalized EnerDel with $86 million in new funding.

EnerDel’s storied past is not the only obstacle.  The company’s current focus on selling replacement batteries is not likely to impress GE, where senior executives think of markets and sales in terms of billions.  The portable energy storage market may have some appeal, but even that does appear to be a priority for GE.

EnerDel is not GE’s sole partner in the energy storage arena and certainly not the only source for lithium-ion battery technology.  Next week we look at two more storage battery sources.

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 31, 2015

Underpriced JA Solar Becomes More Undervalued

by Shawn Kravetz

In the second quarter, solar stocks were impacted by broad energy sector declines on global macroeconomic concerns (most notably Greece and China). This negative sentiment has continued unabated into July exacerbating the disconnect between fundamentals and perceptions.

JA Solar (NYSE: JASO) epitomizes this dislocation.

We at Esplanade Capital Electron Partners (ECEP) owned JA Solar prior to June 5, believing the company to be worth ~30%+ more than the share price.

On June 5, JA Solar received a takeover offer from its Chairman/CEO and parent company at a 20% premium.

After a short-lived, modest rally, the shares have fallen to levels below where they were trading prior to the takeover offer.

We have added to this position, and while we continue to assess the deal and market risks, we remain confident that JASO will yield a 33% return in roughly six months when we expect the deal to close.

JA Solar represents but one example of our robust portfolio whose potential upside continues to grow as the dislocation between fundamentals and market perception expands.

Shawn Kravetz is President and Chief Investment Officer of Esplanade Capital LLC,
an investment management company he founded in 1999.  The firm manages private investment partnerships including Esplanade Capital Electron Partners LP, launched in 2009, which intends to be the world’s premier private investment fund dedicated to public securities in solar energy and those sectors impacted by its emergence..

July 30, 2015

GE's Energy Storage Restart

by Debra Fiakas CFA

A few years ago General Electric (GE:  NYSE) built out a manufacturing facility in Schenectady, New York for its sodium-ion batteries.  CEO Jeff Immelt declared the company a contender in the energy storage industry.  He projected that the company could ring up $500 million in annual sales by 2016, and build to $1 billion a year by 2020 by providing energy storage to utility-scale alternative energy projects.  Reality has been a bit different than Immelt's vision.  GE ended up shuttering the plant in the Fall 2014, and all but fifty employees were finally laid-off or reassigned in early 2015. 

GE’s foray into the energy storage market appeared to be over before it began.  Energy industry watchers began an autopsy on GE’s sodium-nickel-chloride battery chemistry that had been used in large train batteries.  Others focused on the poor economics of distributed solar and wind power compared to the persistently low prices for centralized natural gas powered power plants.

Then to my surprise, what did I see on GE’s web site in early July 2015  -  recruiting notices for forty-eight new jobs in Schenectady, New York!  Is this GE’s restart in the energy storage industry?

Indeed, GE is looking for a mix of new employees to work at its battery production facility in positions such as ‘senior electrical engineer’ and ‘energy storage engineer.’  There are some administrative job openings as well.
It appears GE never left the energy storage market.  Instead, it seems leadership took a ‘practical’ pill.  In April 2015, the company won a contract to supply Con Edison Development with an 8-megawatt-hour battery storage system at a solar project in California.  The system will incorporate GE’s Mark IVe control system, GE’s Brilliance MW inverters and GE’s performance guarantees (possibly the most important feature).  What the system will not include is GE’s Durathon sodium-ion batteries.  GE will be outsourcing or acquiring lithium-ion batteries for the projects.

On a roll with its new approach to the energy storage market, GE won an order in May 2015, to supply a 7 megawatt-hour battery storage system for the Independent Energy System Operator in Ontario, Canada.  Convergent Energy + Power is the system integrator.  The batteries will be lithium-ion technology.

GE’s spokespersons have been careful to support the company’s Durathon battery, maintaining it will still have a place in GE’s energy storage business.  Durathon batteries are installed at an operational wind farm in Mills Country, Texas. Southern California Edison is also incorporating Durathon batteries in a field demonstration of a permanent load shifting application.  Princeton Power Systems is the integrator of the project, which is located near Santa Anna, California.

Where will GE source the lithium-ion batteries for the California and Ontario projects?  So far, spokespersons have been non-committal on the name.  GE has had many bedfellows in the energy industry over the years  - some strange and a few obvious. 

In the next few posts, we will look at both the strange and the obvious in lithium-ion battery storage.

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 28, 2015

SunEdison Spinning Yieldcos

by Debra Fiakas CFA

Two weeks ago TerraForm Global, Inc. filed yet another amendment to its S-1 registration statement as the SunEdison, Inc. (SUNE:  NYSE) spinout grinds forward with its initial public offering.  TerraForm is a collection of SunEdison’s renewable energy properties, primarily its solar, wind and hydro-electric power generation facilities around the world.  The current portfolio sums up to over 1,400 megawatts in total generating capacity, of which over 900 are spoken for through power purchase commitments that cover the next 19 years.    On a pro forma basis, the assets produced $298.9 million in total revenue, providing $44.1 million in net income.   

This will be SunEdison’s second spinout of renewable assets.  TerraForm Power, Inc. (TERP:  NYSE) was spun out of SunEdison a year ago, gaining 48% from its IPO price of 25%.  Even at its present elevated price, the stock offers a dividend yield of 3.3%.  The success of SunEdison’s first ‘yieldco’ is likely to influence the pricing and trading of the international properties now up for grabs if the SEC can be appeased.

SunEdison has been the premier acquirer of renewable energy projects.  Its reputation precedes it, opening doors and priming negotiations.  A central point of the case for Terraform Global is the existence of over 600 gigawatts of power generating capacity that the company apparently considers fair game for adding to the portfolio.  Seven acquisitions are already in the pipeline, representing 921.7 megawatts of generating capacity. 

SunEdison is projecting 32% compound annual growth over the next five years for Terraform Global and expects to have $231 million in cash available to distribute as a dividend in 2016.  Projecting cash generation in the next year is relatively easy given all those power purchase agreements that lock in sales levels and pricing.  However, in predicting high double digit growth for the next five years, SunEdison could be out on the proverbial limb.

Indeed, with big numbers like 32% growth etched into the prospectus, do not be surprised if Terraform Global debuts at a health multiple of earnings  -  a multiple that might be sustainable if growth fails to materialize.  Thus it might be wise to wait for the stock to mature a few weeks before jumping into long positions.  I note that the ‘big sister’ Terraform Power closed near $32.00 on its first day of trading, but within three months had skidded below its offering price.  This presented an interesting window of opportunity to access shares at compelling prices.  It will be worthwhile watching this new IPO for similar developments.  

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 21, 2015

NRG Wants To Charge Your Car

by Debra Fiakas CFA

New Jersey-based NRG Energy, Inc. (NRG:  NYSE)  NRG serves about 2.8 million customers in the northeastern U.S. with electricity generated from a mix of conventional and renewable power sources  - 95 fossil fuel and nuclear power plants, 14 utility-scale solar power plants, and 35 wind farms.  It has been good business for NRG, raking in $16.2 billion in total sales in the twelve months ending March 2015.  NRG converted $1.4 billion of those sales to operating cash.  That helps support a dividend payout policy that will put $0.58 per share in holders’ pockets next year.

NRG wants to be more than the ordinary electric utility, powering lights and appliances.  The company is trying to serve electric vehicle owners with its EVgo in-home charging units.  NRG has also set up a network of stations for away-from-home charging called EVgo Freedom Stations.  The company claims 'hundreds" of stations and that it "continues to expand nationally."  Some are located along major highways, but most are in parking lots adjacent to major retailers.

To establish its footprint in the electric vehicle charging market, NRG is offering free charges at its Freedom Stations to owners of Nissan LEAF electric cars.  The company also provides a selection of charging plans to win loyalty from electric car owners.  Its pitch for in-home charging units is pinned to a promise of no up-front costs and payment plan choices to fit the car owner’s budget.

For conservative investors who cannot stomach the risks inherent in the small, early-stage car charging companies described in the last post, NRG presents an interesting alternative.  Of course, a stake in NRG is really a play on electricity generation and distribution and not a pure play on electric car charging.  However, as garages become increasingly homes to electric vehicles, the growth opportunity presented to electric utilities cannot be overlooked.  With the EVgo brand, NRG seems to have a head start in capturing the electric car charging opportunity.

NRG will not be a cheap play at least in terms of price-to-earnings multiples.  The stock is currently trading at 65.4 times the consensus estimate for 2016.  However, there appears to be quite a bit of noise in EPS.  Thus multiples of assets or cash earnings might be more helpful.  It is also worthwhile noting that NRG has been in a slump in recent weeks and the stock looks enticingly oversold near its 52-week low.

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 19, 2015

Plugging Into Car Charging Stocks

by Debra Fiakas CFA

Earlier this week, the quieter half of Tesla Motors (TSLA:  Nasdaq) founding team and the company’s chief technology officer, JB Straubel gave a speech at a solar energy conference in San Francisco.  He is largely responsible for Tesla’s innovative battery technology, so it should be no surprise that he thinks that eventually all vehicles will be powered by batteries.  As profound a this view might seem, let’s remember that if hammers could see, the world would look like a nail.
Nonetheless, I thought it worthwhile to take Straubel at this word.  This is a man who is building a factor big enough to produce a half million batteries per year to charge Tesla all-electric car.  Yet, batteries only provide a solution to store energy for on-demand use in  the vehicle.  Once that energy has been depleted, the battery and the car are stranded alongside the road.

Is there an investment opportunity in electric car charging?

According to the Electric Driver Transportation Association (EDTA), at the beginning of 2015, there were approximately 286,000 electric cars on the road.  It does not seem like many cars.  To bring the total into perspective, it is important to know that 118,773 electric cars were sold in 2014 alone, and that was 35% more than the year before.  Thus the private electric car base in the U.S. remains small, but it is growing at a fairly rapid pace.

Tesla’s cars represent about 20% of the electric cars on the road in the U.S., based on a comparison of Tesla’s public filings and the EDTA car census.  Tesla provides its customers with a free charging at its SuperCharger stations and brags about the freedom Model S drivers have to roam the entire continental U.S. for free.  It is not so simple for the rest of the drivers sitting behind the steering wheels of a Nissan Leaf (at least 150,000 on the road) or a Chevrolet Volt (75,000) or Toyota Prius PHEV (61,000), among others.  There are home charging units available and likely most electric car owners plot out a charging strategy for home, work and local shopping situations.  The trip to the beach or visit to grandma might still be problematic. 

There are several companies already trying to speed electric car drivers to their destination.  I take a look at three of them here.

Privately-held ChargePoint operates the largest network of electric vehicle charging stations, with sites in the U.S., Europe and Australia.  The company claims over 22,300 charging locations in operation.  Building this network has been a culmination of a long list of partnerships with parking facility owners, employers and municipalities as well as alliances with electric car manufacturers.  This large network has required capital.  ChargePoint last came to the capital market in May 2014, when it raised $22.6 million in new funding.  The deal brought the company’s total capital raised to $110 million, which appears to have come from a mix venture capital firms like Kleiner Perkins Caufield and Rho Ventures as well as from strategic investors such as BMW.

Car Charging Group (CCGI:  OTC) has gobbled up a couple of other companies with car charging technologies and networks  -  Blink and Ecototality.  The acquisitions have given Car Charging the beginnings of a nationwide network.  While the company makes much of its cooperative agreements with major retailers and employers such as IKEA, Walgreens, Walmart and the Mayo Clinic, it has not disclosed an updated number of charging stations available to the public.  A recent partnership with Honeywell International (HON:  NYSE) is making Blink EV charging available at Honeywell offices in Phoenix, Arizona.

Another public company Envision Solar International, Inc. (EVSI:  OTC/PK) is gaining visibility.  While not aiming for the same nationwide web of charging stations across the country, the company offers a unique and valuable technology to owners of electric vehicles.  Their EV ARC charging unit is solar powered, using a battery pack to enable charging services available around the clock.  Envision has been taking orders since the beginning of 2011, focusing much of its marketing effort on the sunbelt states of Arizona and California.  Nearly 80% of all electric cars in the U.S. are located in California where strict emission standards and rebates, drive electric vehicle economics.  The company recently won a contract with the state of California to supply its proprietary portable electric vehicle charging units for use by state government agencies and employees.  The portable units make possible EV charging in remote locations that are not grid connected.

Traders reading about these three companies might be grumbling a bit at the lack of investment opportunity.  ChargePoint is a private company and off-limits to most investors.  The stocks of Car Charging Group and Envision Solar both are publicly registered and available for minority investors.  Unfortunately, both stocks trade for pennies per share.  Nonetheless, I believe these companies are worth watching carefully as electric vehicles become a larger component of personal transportation.

First, I expect considerable consolidation in the EV charging industry.  There are numerous companies in the U.S., including SemaConnect amd PlugShare.  In Europe there is Full Charger International, Park & Charge and Elektromotive Group as well as Ecotricity in the U.K.  Mergers and acquisitions are likely to be an economical means to capture technology and market share.  Although Car Charging lost out with its bid on the assets of bankrupt Better Place, it had already proven its capacity to strike a bargain with the Ecototality and Blink deals.

Second, ChargePoint has been well received in the venture and private capital market.  At some time its investors will seek to reap returns, making a public offering more likely than not.  It is worthwhile following ChargePoint in case this is the path it is traveling.

Third, the pricing of Car Charging and Envision as penny stocks, are less intimidating if the stocks are regarded as options.  These two companies are not direct competitors at this point and offer interesting footholds in the market for car charging stations.  For a few pennies traders will have security linked to car charging technology and capacity that could fizzle…or flourish.  Management will be working toward the latter outcome, making the stock an option on management execution.

The next post focuses on a large, public company that has taken significant interest in electric car charging.

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 16, 2015

Hanery Shares To Remain Suspended During Manipulation Probe

Doug Young 

Bottom line: Hanergy shares will remain forcibly suspended until the Hong Kong securities regulator completes its investigation into price manipulation, and could ultimately return to China where oversight is far less strict.

I had to smile when I read the latest reports that said the Hong Kong securities regulator has taken the unusual step of ordering a continued suspension of shares of solar power equipment maker Hanergy (HKEx: 566), as it continues a probe into stock price manipulation. My smile wasn’t due to the continued suspension, but rather to the reason that media reports gave for the investigation, namely the spectacular rise in the company’s price over a one-year period, followed by its even faster plunge. (previous post)

That story was actually quite well documented back in May, when Hanergy’s shares lost nearly half of their value in a single hour after rising 6-fold over the previous year, wiping out $19 billion in market value. China stock watchers will know that the reason for my smile is that this kind of meteoric rise and fall is quite ordinary just across the border in China, and seldom attracts similar scrutiny from the China Securities Regulatory Commission.

But of course when it comes to financial markets, China and Hong Kong are in 2 completely separate leagues. Whereas Hong Kong’s stock markets are relatively mature and get regular praise for their good oversight, China’s markets are more like a casino where shares can double or even triple in just a few weeks without any change in a company’s prospects. Such speculative buying is largely behind the huge rises in the Shanghai and Shenzhen stock exchanges over the last year, and now the equally big falls.

All that said, kudos should go to the Hong Kong Securities and Futures Commission for ordering a continued halt in Hanergy shares. (company announcement; Chinese article) Hanergy stock was suspended on May 20 at the company’s request, after it lost nearly half their value in the first hour of trading that day. This new order means that trading can’t resume until the regulator gives the green light, even if Hanergy itself wants its shares to start trading again.

The securities regulator opened an investigation into Hanergy for potential stock manipulation, and company watchers are guessing the suspension will remain until that investigation is concluded. In this case the regulator should get just a bit of criticism, since it probably should have opened its investigation earlier, perhaps when Hanergy shares had risen by 3-fold or 4-fold, instead of waiting for the price collapse.

Turbo-charged Speculation

But returning to my original point, this kind of turbo-charged speculative buying and behind-the-scenes share price manipulation is rampant in China, and has been a major factor behind the stock market’s recent volatility. Online video company LeTV (Shenzhen: 300104) is one of the few China-traded companies I follow, and is a good example of this speculative and manipulative buying.

The company’s shares were relatively stable heading into last summer, when they suddenly embarked on a rally that saw them rise more than 5-fold to an all-time high this May. Since then, however, they’ve lost about a third of their value in the broader market sell-off. An even higher-profile case is Baofeng (Shenzhen: 300431), another online video company, whose shares soared by a staggering factor of 43 after their IPO in March, before tumbling 27 percent from their high in June amid the recent sell-off. (previous post)

Hanergy must certainly be looking enviously at companies like Baofeng, which are allowed to continue trading despite the blatant share manipulation that is happening to boost their stocks so much. Of course I’m being slightly sarcastic, since such volatility really isn’t good for any stock over the longer term and probably would cause nightmares for company executives in any mature market. But Chinese entrepreneurs who simply like to see their stocks rise might not care as much about such volatility, which perhaps is one of several factors leading many US-listed Chinese companies to mount privatization drives with an aim of re-listing back at home.

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.

July 15, 2015

Moving Microgrids Beyond R&D

by Joe McCabe

Where is the money in microgrids? My goal at this years Intersolar event was to try and answer this question; to figure out the value proposition of microgrids as they relate to distributed generation, storage, renewable energy and photovoltaics. 

A microgrid is an electrical supply and use system that can operate autonomously. Although all microgrids are small relative to the electric grid as a whole, the huge size of the grid leaves a broad range of what can count as “micro.”  Microgrids can be as small as a single building, but range on up through schools and military bases and an entire community, such as San Diego Gas and  Electric's Borrego Springs CA microgrid which includes Spirae equipment.  Even my plug-in-prius with an an AC inverter can be considered a microgrid.

Islands have microgrids already, with Hawaii leading the experience curve on what an electrical grid looks like with increasing levels of intermittent renewable energy power sources. On the US mainland, research and development projects have funded microgrids using words like resilience and reliability as justification for the work. But it is hard to find the monetization of these concepts which is needed to justify any return on an investment for microgrid functionality.

At this past week's Intersolar NA 2015 held in San Francisco, microgrid companies were exhibited more frequently than in past years (see my previous articles from Intersolar NA events on racking, storage and what not). Jerry Brown's most recent inaugural address included the word "microgrid".  Microgrids provide an added value for uninterruptible power. Unreliable grids are typically found in developing nations, so the US with today's relatively reliable grid doesn't typically have a realistic value proposition. The term resilience is being used more often as it relates to the grid with increasing levels of intermittent renewable energy. The cyber security of the grid is and will continue to be increasingly scrutinized. Hurricane Sandy prompted New Jersey to develop the Energy Resilience Bank with funding for systems sized to provide energy to critical loads during a seven-day grid outage.

Use-cases driving the discussions around microgrids are used by the California Smart Inverter Working Group to develop rules around the advanced functionality of inverters with and without electrical storage. A growing group of electrical utility and solar industry professional meet weekly to discuss the new California Rule 21 language, the communications/security/rules/scheduling of valuable advanced functionality.  All inverters sold into California will be required to have this advanced functionality starting at the end of 2016.

Greensmith is a company that exhibited again at this years Intersolar discussing their ability to work with all manufacturers of storage and inverter equipment.

Other companies whose products and services that relate to microgrids at Intersolar included Princeton Power Systems (developers of the Alcatraz Island microgrid),

Dynapower developers of the Green Mountain Rutland City, VT microgrid which includes a PV system on a brownfield landfill privately owned by Frankston Holdings.

Ideal Power has an interesting 125 kW inverter that will take PV, charge and discharge storage and integrate with a generator to provide AC power on a microgrid.

Solar Energy International held a workshop which included microgrid content. In future years you will probably see a focus on microgrids at Intersolar as you saw with the evolution of storage that this year dominated one floor of the Moscone Center's West hall exhibit space.

Duke, American Electric Power, Berkshire Hathaway Energy, Edison International, Eversource Energy, Exelon, Great Plains Energy and Southern Co. have grouped together on microgrid issues under the umbrella of Grid Assurance.

One of the biggest announcements for this space was the July 1st submission of Southern California Edison's Energy's Distributed Energy Plan to the California Public Utilities Commission. Edison indicated they will be opening up their ~20,000 distribution lines to third party vendors of electrical services because Edison's business is being a wires company. In my view, this opens up the opportunity to genuinely value microgrids at each of the connection points for residential, commercial and industrial customers on the distribution lines. I wasn't able to answer the question of the value for microgrids within large scale grids in $'s/resilience or $'s/reliability. Perhaps in the not too distant future each utility customer will be charged accurately for the safety, security, resilience, and reliability of its electricity with the help of Edison's new awareness around their Distributed Energy Plan.


Microgrids will become increasingly important to the storage, solar and wind power industries because they will add security, resilience and reliability values.  Off grid and island systems continue to be successfully implemented.

Rule 21 equipment being required at the end of 2016 and PJM's frequency markets are enablers for the monetization of microgrids values, possibly by as early as 2017. When you see these values monetized as is currently done with energy ($/kWh), power ($/kW), frequency regulation (PJM) and power factor correction ($/kVAR) are monetized, then microgrids will become widespread.

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.


Thanks to Ravi Manghani of GTM Research, Steven Strong of Solar Design Associates and Solar Energy International  for help with content on this article.

July 14, 2015

PowerSecure on a Solar Roll

by Debra Fiakas CFA

Last week PowerSecure International (POWR:  Nasdaq) announced the award of orders valued at $100 million for new solar projects.  About 15% of the work will be completed in the final quarter of this year and the rest of the revenue will be recorded in 2016.  The announcement sent investors into a tizzy.  PowerSecure reported $283.4 million in total sales for the twelve months ending March 2015, primarily for solar power infrastructure and smart grid technology destined for electric utilities and microgrids. 

Securing orders equivalent to 35% of its current revenue run rate is quite impressive, in my view, signaling that PowerSecure is capturing market share with U.S. electric utilities.  As the solar power industry matures, transforming from early stage to established, becoming the ‘go-to’ source for successful solar project deployment is important.  PowerSecure offers smart grid and demand response technologies that help set it’s solar power generation systems apart from the rest of the pack.

This was not the first time that PowerSecure had made an announcement of material orders.  A year ago the company won a major contract award valued at $120 million for an electric utility.  Since then new contracts have trickled in, but total have only come to about $30 million.  If investors have been concerned that the large order in 2014, was to make PowerSecure a ‘one shot wonder,’ their worries are over.  The most recent order helps cast PowerSecure as an established player in the solar project development market.

To add to the drama, the company’s announcement was made during the final trading day last week.  Trading the stock was halted pending receipt of the news.  On hearing the good news, investors immediately bid the stock higher and trading volume ramped to three times the recent average.

Analysts with published estimates for PowerSecure may have already anticipated the revenue.  The consensus estimate for the year 2015, indicates analysts have a bullish view on the year with a total sales estimate of $386.7 million.  This represents 36% growth over the recent revenue run rate up in the twelve months ending March 2015.  Likewise, the consensus sales estimate for the year 2016, represents 17% growth over the estimate for 2015.  Consequently, investors might not see the usual string of upward estimate revisions that often send investors off to place buy orders for stocks.

Nonetheless, the news is certainly bullish for PowerSecure.  The company posted a net loss in 2014.  The new order appears to be large enough to put the company back ‘into the black.’  That should be bullish for the stock 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 13, 2015

Recent Green Bonds: Toyota Hybrids, SunRun, Efficient Homes and Data Centers

by the Climate Bonds Team

Last month Toyota closed their second green bond for a whopping $1.25bn. Standard auto loans backed the issuance with proceeds to be used for electric and hybrid car loans; that means it’s more like a corporate green bond, where proceeds from a bond backed by existing (non-green) assets are directed green loans still to be made.

Sunrun issued $111m of solar ABS, and a small unlabelled energy efficiency ABS was also issued by Renew Financial and Citi for $12.58m. Sunrun and Citi/Renew Financial are examples of ABS where the assets backing the issuance are green. This type of green ABS introduces new low-carbon assets to the securitisation market, such as solar leases and energy efficiency loans.

Toyota issues second green ABS US$1.25bn, 1-5yrs, AA+/Aa3

The finance arm of Toyota issued their 2nd green ABS with an impressive US$1.25bn deal, after being the first to issue a labelled green ABS in 2014. There are 7 tranches with a range of tenors (1-5yrs) and coupons (0.3%-1.74%). Citi, Credit Agricole and Bank of America Merrill Lynch were the lead underwriters.

In line with Toyota’s last green ABS issuance, proceeds from the bond will go to fund a pool of leases and loans for low-carbon Toyota vehicles. To give you an idea of the size of the pool – Toyota’s first green ABS bond financed the purchase of 39,900 vehicles! Toyota sets clear criteria for eight different models of cars that can be funded:

  • Gas-electric hybrid or alternative fuel powertrain
  • Minimum EPA estimated MPG (or MPG equivalent for alternative fuel vehicles) of 35 city / 35 highway
  • California Low-Emission Vehicle II (LEV II) certification of super ultra-low emission vehicles (SULEVs) or higher, which would include partial zero emissions vehicles (PZEVs) and zero emissions vehicles (ZEVs)

Citi and Renew Financial issues US$12.58m ABS backed by energy efficiency loans (6yrs, 3.51%, A), as part of WHEEL, a Pennsylvania Treasury initiative

Citi and Renew Financial issued US$12.58m of climate-aligned asset-backed securities. Although not labelled as green, we include this deal in our universe of unlabelled climate-aligned bonds.

The deal is the first ABS issuance arising from the US-based Warehouse for Energy Efficiency Loans (WHEEL). WHEEL is a public-private partnership established in 2014 with the State of Pennsylvania Treasury. The set-up is that approved local contractors offer low-cost loans to customers to finance energy efficiency projects, which are then bought into a financial warehouse by the company Renew Financial. To do this, Renew Financial uses a credit facility capitalised by a mix of public money, from the Pennsylvania Treasury, and private money, from the commercial bank Citi. This process continues until the aggregated amount of loans in the warehouse meet the size requirements of the capital markets, and the loans are bundles together and sold to institutional investors as securities backed by energy efficiency loans.

Brilliant to see private sector actors collaborating with state and local governments to get the deal off the ground. This is exactly the kind of collaborative setups we need to have to rapidly grow a green securitisation market, in the US and globally. Bravo all involved!

Sunrun issues $111m ABS backed by solar leases in two tranches (100m, 30 yr, 4.4%, A; 11m, 30 yr, 5.38%, BBB)

Sunrun Inc., a US provider of residential solar, issued $111m of "Solar Asset-backed Notes" in two tranches. $100m with a coupon of 4.4% rated A by KBRA, and $11m with a coupon of 5.38% rated BBB. Tenor for both tranches is 30 years. Credit Suisse was the lead underwriter for the deal.

The notes are backed solely by the cash flow generated by a portfolio of residential solar energy systems and related customer agreements. This transaction represents Sunrun's inaugural issuance into the asset backed securitisation market. SolarCity pioneered issuance of ABS in the solar space in 2013 and 2014.

We’re looking forward to seeing more exciting green ABS issuances this year – this flurry of deals demonstrates the potential for green ABS to grow investment in a wide variety of small-scale low-carbon assets.

Digital Realty Trust issues US$500m green bond (3.95%, 7yr) for low-carbon buildings

Real Estate Investment Trust (REIT) Digital Realty Trust Inc. has issued its first green bond for US$500m to finance green buildings for data centres. The bond has 3.95% coupon and 7 year tenor. Bank of America Merrill Lynch, Citigroup, J.P. Morgan, RBC Capital Markets, and US Bankcorp are the deal underwriters.

The proceeds of the green bond will go to fund eligible green building projects. Instead of a second review from an independent party, Digital Realty has referenced existing green building standards, setting specific performance criteria that building projects must hit to be eligible. For example, buildings must have received, or be expected to obtain, LEED certification Silver, Gold or Platinum; BREEAM certification level Very Good, Excellent or Outstanding; BCA Green Mark rating Gold, GoldPlus or Platinum; Green Globes 3 or 4; CEEDA Silver or Gold or CASBEE B+, A or S.

Projects funded can be new or on-going building developments, renovations in existing buildings and tenant improvements. Any upgrade projects must improve energy or water efficiency by a minimum of 15% and be checked by an external party. Excellent that they have nominated a hurdle rate – something we should expect all green property bond issuers to do.

Digital Realty will report annually on their website covering the allocation of proceeds to eligible projects and status of green building certifications of the projects. An independent accountant will verify the company’s statement.

Next time we hope to see even more ambition with hurdle rates, and we'll be keen to see more detail about the (excellent) commitment to onsite renewables used. Also, some building standards cited are not as good as they could be — for example Singapore’s Green Mark Gold only represents the legislated minimum for a new development, with most new developments achieving well above the lowest nominated. We’re working on that to make it easier for issuers! But the great improvements around green property commitments in US market demonstrated by this bond outweigh such concerns for us.

Digital Realty have done a great job with their debut bond.

Latvenergo’s EUR75m green bond issued last week (1.9%, 7 yr, Baa2) will use proceeds for bioenergy, environmental preservation and sustainable environment

The first Latvian green bond from power utility Latvenergo was upsized from EUR 50m to EUR75m (US$84.8m), with a fixed annual coupon of 1.9%, 7-year tenor and rated Baa2 by Moody’s. The sole underwriter was SEB.

CICERO’s second opinion rated Latvenergo’s bond as “dark green”. Proceeds will be used for energy efficiency projects in the electric power grid and other projects (renewable energy, environment preservation, biodiversity and R&D for sustainable environment).

The renewable energy projects focus on bioenergy power plants. Experts tell us that using sustainable feedstock is crucial in bioenergy (see the Climate Bonds Standard for more details). Latvenergo is using only local Latvian wood, which is good to hear, although it would be good if investors were given certainty on whether the feedstock for Latvenergo’s bioenergy plants will be certified – from what we can tell only 50% of Latvia’s forests are certified under the Forest Stewardship Council.

Projects in the environmental preservation and sustainable environment category seek to minimise the environmental impacts of existing operations, such as hydropower and the electric grid infrastructure. Safety and flood management improvements for hydropower, protecting fish migration around dams and monitoring electric power poles for white storks nests (a protected species) are all eligible projects.

R&D also falls into the sustainable environment bucket. Proceeds from green bonds are generally used for green assets rather than R&D into future projects; we are interested to see how the green outcomes will be reported next year. It’s worth noting that only up to 10% can go toward this project type.

Overall: great to see Latvia’s first green bond in the market!

European rail finance powerhouse Eurofima issue unlabelled climate-aligned kanga bond for A$35m ($27m)

We’ve covered “unlabelled” solar and wind bonds in the past; we will now start including other unlabelled bonds that are climate-related. This week’s example is the large rail finance entity Eurofima (a supranational: a financing agency backed by mutliple governments) issuing an A$35m 10-year bond with 3.9% coupon. It has a AA+ and Aa1 rating from S&P and Moodys respectively.

Rail infrastructure is a key part of low-carbon transport, since rail is far superior on emissions performance compared to road-based travel. According to our 2015 State of the Market report there are $ of low-carbon transport bonds outstanding, mainly in the unlabelled climate-aligned bond universe. So plenty of opportunities around for investors.

——— The Climate Bonds Team includes Sean Kidney, Tess Olsen-Rong, Beate Sonerud, and Justine Leigh-Bell. 
 The Climate Bonds Initiative is an "investor-focused" not-for-profit promoting long-term debt models to fund a rapid, global transition to a low-carbon economy. 

July 12, 2015

CAFD: Don't Let The Joke Be On You

Tom Konrad CFA

Sunpower and First Solar are indulging in nerd jokes. 

Their YieldCo, called 8point3 Energy Partners had its initial public offering on June 19th. The name is an astronomy nerd joke and a reference to the time it takes the sun's rays to reach the Earth, 8.3 minutes. Last week, we found out that its ticker symbol is CAFD, a "financial nerd joke" because it stands for "cash available for distribution." 

CAFD is an important YieldCo metric, but it's not a perfect one. If you're not a financial nerd but are interested in investing in YieldCos, here's what you need to know to make sure the joke isn't on you.

What is CAFD?

Cash available for distribution (CAFD) is a YieldCo's estimate of how much of the cash from its assets is available after it has paid the cash expenses necessary to keep the company running. Such expenses mostly consist of interest and principal payments on debt and maintenance of facilities. Cash spent on new investments is also deducted, but this deduction is typically net of equity or debt financing.

CAFD is a "non-GAAP" measure, meaning it is defined by generally accepted accounting principles (GAAP), and so is not always comparable between YieldCos, as their definitions may vary slightly from the one above. Some YieldCos also use other names, such as "adjusted earnings per share" by NextEra Energy Partners (NEP) or "core earnings" used by Hannon Armstrong (HASI).

YieldCos are designed to return as much cash as they can to investors without compromising the company's sustainability. Since there is no GAAP measure of how much cash a company can return to investors, they had to invent one. This is also a common practice among other income-oriented classes of securities such as REITs ("adjusted funds from operations").

Strengths and weaknesses

Like any metric, CAFD has strengths and weaknesses. Its greatest strength is observability. Unlike GAAP measures like earnings, there is no need to estimate the likely life of an asset for purposes of depreciation, and no need to accrue expected future costs. Such estimates are intended to help earnings and other GAAP measures to reflect the true economic results of a company, but the very complexity of the rules often obscures as much as it reveals.

CAFD's greatest weakness is that it is short-term in nature. While most YieldCo businesses are fairly stable, nothing is forever. Most YieldCo assets are long-lived, but even solar panels degrade slowly over time, and most wind turbines are designed to last around 20 years. Further, many YieldCo assets had been operating for some time before they were acquired.

Perhaps more important are the power-purchase agreements (PPAs) under which YieldCos sell the power they generate. These agreements typically have another 15 to 20 years to run, but many YieldCos seem to assume that they will be renewed on similar or even more advantageous terms when they expire.

Rules of thumb

Investors who want to choose between YieldCos should pay attention to CAFD per share and YieldCo CAFD per share growth targets, because dividends closely follow CAFD per share. But CAFD should not be the sole focus. They also need to understand how CAFD's short-term nature will bias the comparisons between YieldCos.

Beyond higher current and future CAFD, investors should prefer

  • YieldCos with longer-term PPAs
  • Longer-lived assets (hydropower lasts longer than solar, which lasts longer than wind)
  • Better-credit-quality power purchasers
  • PPAs that sell power for close to the market price (because these are more likely to be renewed on favorable terms)
  • Technologies which are not getting cheaper rapidly, or unique assets
  • Dispatchable generation technologies
  • Technologies that require fewer inputs (fossil fuels, water, biomass) that might cost more in the future
  • Technologies that produce less pollution and are subject to potential regulation

PPA pricing risk

The problem for YieldCos that own assets which are getting rapidly cheaper lies in the prospects of PPA renewal. For example, solar photovoltaic system prices are universally expected to continue to decline (see chart below).

Today, a new utility-scale solar facility costs about $2,000 to $2,500 per kilowatt. It will produce about 1.2 megawatt-hours to 2 megawatt-hours per year per kilowatt, depending mostly on the local climate. Suppose we have a new solar facility that produces 1.5 megawatt-hours per year per kilowatt and which cost $2,250 per kilowatt to build. If various incentives cover half the cost, the facility would require a PPA at $67 per megawatt-hour to achieve a 9 percent CAFD yield.

Now consider what will happen in 15 years when the PPA expires. The facility will have degraded somewhat, reducing its output by 5 percent, maybe a little more. A new solar facility next door will be much cheaper, but will likely also qualify for far fewer incentives. If we assume that the new facility will cost $1,000 per kilowatt after (much-reduced) incentives, it would need a PPA at $59 per megawatt-hour to achieve the same to 9 percent CAFD yield. $1,000 per kW is a very conservative estimate for installed commercial solar costs in 2030 given that First Solar's (FSLR) CEO expects that his company can hit that target by 2017.

If the customer can sign a PPA with a new solar farm at $59 per megawatt-hour, why would they sign a PPA with the old farm for more? After the 5 percent degradation and slightly higher maintenance costs for the older solar facility, a $59 per megawatt-hour PPA will only result in a 7.5 percent CAFD yield from a renewed PPA.

Hence, PPA prices for electricity from technologies like solar with rapidly declining costs are likely to fall as well. Since this effect may be partially offset by falling subsidies, YieldCos which own subsidized facilities may have an advantage if those subsidies are removed for future, competing facilities.

The weather-dependent nature of solar and wind is likely to exacerbate this problem. It used to be that solar production was well aligned with peak load on sunny summer afternoons. Now, locations with high solar penetration are beginning to experience a “duck curve,” with power prices dropping when solar production is at its peak.

In 15 years, when solar and wind PPAs will need to be renewed, it seems unlikely that utilities will be queuing up to purchase power that arrives when they need it least. Parts of the grid with high wind penetration already see zero or negative electricity prices at times of high wind and low electric demand, although grid expansion can alleviate this problem.

Such weather-related effects favor dispatchable technologies like natural-gas generation, but this advantage is offset by regulatory risk, because gas is a fossil fuel. 

Technologies like hydroelectric and geothermal are likely to have the most durable pricing power. Not only do hydroelectric power plants usually last for 50 years, they typically have longer-term PPAs. They also have very little competition from new hydroelectric or geothermal plants nearby, because the best sites are already taken. Both hydro and geothermal have some potential for dispatchability, also reducing their long-term pricing risks, although resource risks from geothermal reservoir depletion and changing weather patterns should not be ignored for either.

Incentive distribution rights and dividend

Normally, a YieldCo's dividend is directly linked to its CAFD because it will distribute all its cash available for distribution. Incentive distribution rights (IDRs) change this, because they allow for a larger share of CAFD to flow back to the YieldCo sponsor. YieldCos with IDRs include NextEra Energy Partners, TerraForm Power, Brookfield Renewable Energy Partners, and now 8point3. 

CAFD is a great metric in that it gives investors a quick guide to what sort of dividend to expect in the short term. Given its short-term nature, this may be all that short-term investors and traders need. Income investors typically have a longer-term outlook. For them, it makes sense to look at the many factors detailed above which will affect a YieldCo's dividend over the long term. 

All clean energy technologies have risk, and we do not know which will be most important over the long term. Hence, it makes sense to diversify some of this risk away by including YieldCos which own less common clean energy technologies, such as geothermal, hydropower and energy efficiency.

There is not yet any publicly traded YieldCo which owns any geothermal assets, but both U.S. Geothermal and Alterra Power own geothermal assets, and could benefit if YieldCos seek to buy such assets to diversify their portfolios. Unfortunately for income investors, neither pays a dividend.

Both Brookfield Renewable Energy and Canadian power producer Innergex Renewable Energy own mostly hydroelectric facilities and pay healthy dividends. Alterra Power also owns hydroelectric facilities.

The unique sustainable infrastructure financier Hannon Armstrong has the most diverse portfolio, and is currently the only YieldCo with significant energy-efficiency investments.


Tom Konrad is a financial analyst, freelance writer, and portfolio manager specializing in renewable energy and energy efficiency. He's also an editor at

Disclosure: Long Hannon Armstrong, Brookfield Renewable Energy Partners, Alterra Power, Innergex Renewable Energy, First Solar.

Note: The author of this article will be an instructor at EUCI's "The Rise of The YieldCo" workshop on July 30-31. This article was first published on GreenTech Media and is reprinted with permission.

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. 

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