Garvin Jabusch

This morning, in the realm of those who follow such things, the world became aware of two newsworthy numbers, 69,000 and 400.  The former number is how many jobs were added to the U.S. economy in May according to the Bureau of Labor Statistics (BLS); the latter is how many parts per million (ppm) in our atmosphere are represented by carbon. 

You can guess our opinion: 400 parts per million is a far more significant milestone than the apparent ‘bad news’ of America adding 69,000 more jobs.

The jobs number is, at best, banal ephemera. It’s a trivially short snapshot of just one indicator of the immediate state of the U.S. economy, and it’ll be subject to revision a month from now.  Yet it’s almost all the financial press, and a lot of media in general, can talk about today.  Coverage like this from the LA Times is representative: “U.S. employers created 69,000 jobs in May, the fewest in a year, and the unemployment rate ticked up. The dismal jobs figures could fan fears that the economy is sputtering.”  Google news search the term “69,000 jobs” and you’ll see about 900 articles, most containing words like “bleak.” For what it’s worth, we think adding 69,000 domestic jobs in May, while below consensus forecasts, is a hell of a lot better than the alternative of losing jobs. Which, lest we forget, until October of 2009 there were 22 consecutive months of job losses. In relative, longer-view terms, today’s report isn’t especially awful. And again, for all the histrionics it’s causing in newsrooms, the BLS jobs report has the relevance lifespan of a mosquito. 

Monthly jobs gained or lost, Jan 2008-March 2010. Source: BLS 

Meanwhile, in news that does in fact represent progress towards a cataclysm but that has been getting far less coverage, atmospheric carbon "readings are coming in at 400 and higher all over the Arctic. They've been recorded in Alaska, Greenland, Norway, Iceland and even Mongolia." 400 ppm is at or beyond what scientists consider ‘safe’ in terms of human society. In reporting of a 2009 paper in the journal Science, researchers concluded “the only time in the last 20 million years that we find evidence for carbon dioxide levels similar to the [then] modern level of 387 parts per million was 15 to 20 million years ago, when the planet was dramatically different." How different? “Global temperatures were 5 to 10 degrees Fahrenheit higher than they are today, the sea level was approximately 75 to 120 feet higher than today, there was no permanent sea ice cap in the Arctic and very little ice on Antarctica and Greenland." Having just reached 400 ppm, our world doesn’t resemble that yet, but these are the society and economy wrecking outcomes of the path we have placed ourselves upon.  With these effects being the outcome of a sustained period at 400 ppm, it’s no wonder many activists are calling for a global stabilized level of 350 ppm.  As we go on beyond 400 ppm (a fate inevitable for now, as we continue to release 90 million tons per day of carbon into the air worldwide), things get far worse. According to NASA’s leading climate scientist, James Hanson, “that level of heat-trapping gases would assure that the disintegration of the ice sheets would accelerate out of control. Sea levels would rise and destroy coastal cities. Global temperatures would become intolerable. Twenty to 50 percent of the planet’s species would be driven to extinction. Civilization would be at risk.

Fixating on the monthly BLS jobs report while ignoring climate is like staring at your car’s tachometer while ignoring the road.  You’ll know exactly how fast your engine is revving at any given moment, but you’ll be oblivious to the collapsed bridge that’s rushing up in front of you.  

Jobs, of course, underpin the economy. So if creating jobs is our primary concern, we should seek to add them where they’re growing best and take a look at coverage of a new UN study that concludes that making the economic transition from fossil fuels to a lower carbon economy will create tens of millions of jobs worldwide.  Creating tens of millions of jobs while averting the worst of catastrophic warming. These are data we can subscribe to. Tentative monthly jobs estimate? Not as much.   Hitting 400 ppm shows us – incontrovertibly – where global economies have to invest at massive scale, soon, and for a long time if not indefinitely. 69,000 new jobs shows us where we were, for a second, last May.  

Garvin Jabusch is cofounder and chief investment officer of Green Alpha ® Advisors, and is co-manager of the Green Alpha ® Next Economy Index, or GANEX and the Sierra Club Green Alpha Portfolio. He also authors the blog "Green

Posted by Guest Contributor at 01:53 PM | Two Numbers: One Matters, the Other Gets All the Attention | Comments (0)

Tom Konrad CFA

Power REIT (AMEX:PW) aims to be the first renewable energy infrastructure Real Estate Investment Trust (REIT).

The Renewable Energy REIT

Renewable energy advocates have been calling for a change in the tax laws to allow renewable energy within the REIT structure.  A REIT is allowed to pass profits directly through to investors.  These profits are not subject to double-taxation like most corporate profits.  Owning shares of a renewable REIT would be much like owning a slice of a wind or solar farm.  This would open up the renewable energy investment opportunity to everyone, not just corporations and homeowners with with a roof suitable for solar.

The catch is that REITs are limited to certain types of real estate based assets, and without a new ruling from the IRS, wind and solar farms are out.  Which is why renewable advocates have been calling for just such a ruling.

Power REIT CEO David Lesser has beaten them to the punch.

Lesser was an investment banker at Merrill Lynch, where he helped create a large number of REITs to provide more equity to over-indebted real estate property.  That experience allowed him to see what the renewable advocates did not: there is a place in the existing REIT structure for renewable energy.   It’s possible to strip out the real estate assets from a wind or solar farm, and put them into the REIT.  Renewable energy developers are already familiar with complex ownership structures (thanks to our tax laws), so stripping out real estate assets should not be a big leap.

Power REIT

In order to implement his vision, Lesser and his team began buying the shares of what was then known as the Pittsburgh & West Virginia Railroad, an infrastructure REIT holding 112 miles of main line railroad real estate that is triple-net leased to Norfolk Southern Railroad (NYSE:NSC) for 99 years.  The renamed PW still holds the railroad asset, and has no debt.

Based on the income from the railroad lease, PW pays a $0.40 annual dividend, for a 5.5% yield at the current stock price of $7.24.  Lesser believes he can invest in renewable energy assets at yields in the 8.5% to 9% range.  These will be financed with debt at around 6.5% and potentially additional equity.  Any such transaction would bring an immediate increase in income per share.

Acquisitions have an added advantage of increased scale.  Power REIT needs to grow in order to better manage the expenses of being public.  Income from the existing railroad asset is insufficient to support these expenses.

One other potential upside lies in the railroad asset itself.  PW has initiated litigation with Norfolk Southern, which management believes has failed to pay all its contractual obligations under the lease.  The risks involved in this suit are limited to litigation costs, while the potential gains could be quite large for the microcap REIT.

Proxy Battle

The one hitch in Lesser’s plan was that he did not expect the actions of a disgruntled Pittsburgh & West Virginia shareholder, Paul Dorsey.  Dorsey owns 1,000 shares (0.06%) of PW stock, but feels that he is entitled to a board seat because he had been coming to board meetings for the last decade.  When Lesser (who is the largest shareholder, at 3%   almost 10%) turned him down because he lacked relevant experience, Dorsey decided to take matters into his own hands.

Dorsey has run proxy battles in both 2011 and this year, seeking to replace the entire PW board with a slate led by himself and his brother.  While he has no chance of winning due to lack of a business plan, experience, and backing by large shareholders, he has managed to scare smaller shareholders with a series of ad hominem attacks on Mr. Lesser in SEC filings.  The company maintains that these filings lack basis in fact.  I perused one of them myself, and feel that, even if all the allegations were true, Lesser would be better qualified than Dorsey to run the company.  (The allegations are mostly about poor performance of REITs under Lesser’s watch, but they at least claim that Lesser has extensive experience with running REITs.  The period of poor performance is cherry-picked to coincide  with a period of poor performance of REITs as an asset class and ignores dividend payments, which are significant.)

Buying Opportunity

Nevertheless, leading up to PW’s annual meeting tomorrow, small shareholders (who do not have the time or expertise to analyze the issues involved) are getting spooked, and the stock has fallen from the mid $9 range to the $6 range today in the last few days.

Because I believe the current selling is irrational and motivated by fear, I’ve been buying agressively all the way down, and PW is approaching the size of my largest individual holding.  I believe Lesser and other insiders would also be buying, if they could.  They were actively buying last year when the stock was in the $12.50 range.  Unfortunately for them, but perhaps fortunately for those of us with money to invest, they are most likely barred from buying by SEC rules.  So long as they believe they are near a material announcement, such as a deal to acquire assets, they cannot trade the stock.

Hence, there are few buyers who are both aware of the opportunity presented by Power REIT, and able to grab the shares dumped by skittish small shareholders.

If and when a deal materializes, I expect the stock to head up rapidly.  As I said above, insiders seem to believe such a deal is close.  Why else have they not been buying the stock at such a large discount to the $12.50 they were buying it at last year?

Disclosure: Long PW.

This article was first published on the author's Forbes.com blog, Green Stocks.

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.

Posted by Tom Konrad at 09:00 AM | Permalink | Comments (0)

John Petersen

Congratulations! You've been appointed Energy Czar for the island of Self Sufficiency; a wonderful place that can satisfy the bulk of its energy needs from domestic resources, but needs to import gasoline for a 10,000-unit automobile fleet that gets replaced at a rate of 1,000 cars a year. The island's battery factory can manufacture 45,000 watt-hours of lithium-ion batteries each year and depending on how they set the machines; the factory can make high-power batteries for HEVs or high-energy batteries for EVs.

Your mandate as Energy Czar is to minimize Self Sufficiency's fuel imports and CO2 emissions.

You have two competing proposals on your desk. The first is from Self Sufficient Motors, which wants to build a fleet of thirty HEVs using high-power batteries from the factory. The second is from Tesla Motors (TSLA), which wants to build one Model S using high-energy batteries from the factory. There is only enough capacity for one of the alternatives.

It you accept the proposal from Self Sufficient Motors, each of the HEVs will save 160 gallons of gasoline a year. So the combined fleet will reduce imports by 4,800 gallons a year and reduce CO2 emissions by 55 metric tons a year.

If you accept the proposal from Tesla Motors, the Model S will save one owner 400 gallons of gasoline a year and reduce CO2 emissions by 5 metric tons, but it will increase CO2 emissions from power generation by 2 metric tons, resulting in a net emissions reduction of 3 metric tons a year.

At first you're confused by the numbers because everyone knows that grid-powered electric vehicles are way cleaner than normal cars. Then your research assistant finds the following graph from the Union of Concerned Scientists that explains it all by showing that less costly HEVs fall nicely into the middle of the emissions range for grid-powered electric vehicles.



As a sensible, responsible and ethical public servant which alternative do you choose to support?

The fascinating thing about this simple example of an island nation is that the numbers closely approximate conditions in the US and they translate perfectly to a country, a continent or a planet. No matter how you slice and dice the fuel savings and CO2 emissions, there is absolutely no public policy justification for supporting grid-powered electric vehicles.

The bottom line is that grid-powered electric vehicles are unconscionable waste masquerading as conservation. There are enough batteries and battery materials to make electric vehicles for the few, the rich and the mathematically challenged, but there will never be enough batteries or materials to permit the implementation of grid-powered electric vehicles at a large enough scale to impact global, national or even local oil consumption. It's not an effective solution.

A grid-powered electric vehicle might make one driver feel warm and fuzzy about himself, but from a public policy and resource conservation perspective it's the most wasteful plan in history.

There is no room for rational intellectual debate.

At March 31st, Tesla had $123 million of working capital and $154 million of equity. It lost $89 million during the first quarter and burned $50 million of cash in operations. Its remaining DOE loan facility can only be used to buy equipment. Those funds cannot be used to buy parts, materials or labor to build cars, or to pay the overhead associated with running a company. At Friday's close, the market value of Tesla's outstanding shares was $2.96 billion, or 19.2 times book value.

I've heard the breathless claims that Tesla is the next Apple (AAPL) and Mr. Musk is a younger and far smarter version of Steve Jobs. That may be the case, but it can't change the reality that Apple trades at 5.2 times book value after a decade of extraordinary growth and profitability that consistently outperforms market expectations while Tesla is a rank startup with a long history of losses.

Many individual investors don't understand the Hype Cycle, the most dangerous dynamic in the stock market, until after they've been victimized at least once. Some investors never learn and they keep doing the same thing expecting different results. This graph from the Gartner Group conveys enough information to help sensible investors avoid Wall Street's version of a buffalo jump were the herd is sent stampeding over a cliff and the hunters feast on broken carcasses.



A simpler tongue-in-cheek version from Paul Graham is too accurate to be funny. It shows his view of the stages all startup companies must survive on their path to becoming viable business enterprises. While the Gartner graph does a great job explaining the dynamics, I think the Startup Curve is closer to the truth.



The root cause of the phenomenon is the simple fact that equity markets behave like people. During childhood and adolescence when all things are possible, equity markets act like voting machines – so Disney economics, wish upon a star thinking and irrational exuberance prevail. In most cases, investment decisions are based on the greater fool theory which holds that paying an outlandish price is acceptable because there will always be a greater fool to pay an even greater price. At some point, however, equity markets mature; children learn there is no Santa Claus and that wishing won't make it so. Then the weighing machine kicks in with a vengeance, stock prices collapse and neophytes who bought in reliance on the greater fool theory learn the identity of the last and greatest fool.

I can't predict when Tesla will reach that tipping point of market maturity, but I'm certain that it will.

If you doubt what I'm saying about the Hype Cycle and the Startup Curve, visit Yahoo! Finance and pull up the long-term price charts for Ballard Power (BLDP), Plug Power (PLUG), Pacific Ethanol (PEIX), First Solar (FSLR) and A123 Systems (AONE). The same pattern repeats itself time and time again because politically motivated energy policies and a technology du jour mentality that pervades every political organism repeat themselves time and time again, particularly when the last set of panacea technologies begins to generate backlash over fiscal black holes.

New readers love to assume that I hold some deep-seated animus for technology or that I'm simply an oil industry stooge. Nothing could be further from the truth. The fact is I'm an unrepentant early adopter when it comes to new technology. Notwithstanding my personal proclivities, I've been practicing securities law for over thirty years and have a profound understanding of the challenges all early-stage companies must face. I've also worked as an executive in the battery industry and understand the inherent wastefulness of battery-powered electric drive. Based on my knowledge and experience I see a perfect storm brewing for Tesla. Investors love to tell themselves that "it's different this time," but they invariably learn that it's never different.

Disclosure: I have no direct or indirect interest in Tesla and nothing to gain or lose from its future stock price movements.

Posted by John Petersen at 02:06 AM | Permalink | Comments (5)

Tom Konrad CFA

May 29: Chinese City of Hangzou Planning Electric Leasing Program to Include EVs

• This article in Zhejiang Online does not mention Kandi Technologies (KNDI) by name, but it does say the city of Hangzhou is planning on adding electric cars to its electric vehicle rental system, and the price will be the same as electric bike rentals.  To keep the price and space usage down, Kandi Technologies mini-EVs and Smart Vertical Parking System (described here) seem ideal.
• What Goldman's $40 billion investment pledge means, and what it doesn't mean.
• Neste Oil's (NEF.F) claims against Syntroleum Corporation (SYNM) for alleged patent infringement of one patent were rejected by the US Patent office.  The office has yet to rule on infringement of a second patent.
  

May 30: Polysilicon Prices Rise, but Not for Long

According to Bloomberg, polysilicon prices rose for the first time since February last week.  But this tiny bit of good news will not be much help to polysilicon manufacturers like MEMC Electronic Materials (NASD:WFR.)  The article went on to quote an analystsaying that the modest gain does not “alter the fundamental dynamics of excess capacity coming in.”  Last week, S&P downgraded MEMC’s debt to junk, although Deutshe Banks says balance sheet at MEMC concerns are overblown and reiterates a Buy recommendation.

May 31: US slaps duties on Chinese Wind Towers

• US slaps duties on Chinese Wind Towers but US Wind tower stocks Broadwind (BWEN) and Trinity (TRN) are unmoved.
• Maxwell Technologies (MXWL) sellers too spooked of China.
  

June 1: Exide Technologies (XIDE) closes recycling plant, looks cheap.

• The closure of Exide's Frisco, TX recycling plant puts even more cash on the balance sheet of this bargain basement battery stock.
• UPDATE: New Flyer (NFYEF, NFI.TO) unveils all-electric transit bus prototype.
  

DISCLOSURE: Long KNDI, MXWL, NFYEF

Posted by Tom Konrad at 06:01 PM | Permalink | Comments (0)

Steve Leone

Wind Tower photo: Samdogs via PhotoRee

The United States Department of Commerce has once again ruled in favor of American companies who say Chinese manufacturers are receiving unfair government subsidies.

American wind tower manufacturers filed a trade complaint in December against Chinese companies, and on Wednesday the DOC made its preliminary determination on countervailing duties. According to Wiley Rein, the lead counsel for the group that filed the petition, commerce found that mandatory respondents, Titan Wind Energy and CS Wind China, received countervailing subsidies from the Chinese government at rates of 26 percent and 13.74 percent, respectively. The agency also ruled that the duty against imports of all other Chinese utility-scale wind towers is 19.87 percent.

The DOC is scheduled to make a separate preliminary determination on its anti-dumping investigation against wind towers from China and Vietnam on July 26. According to trade experts who weighed in after a similar set of investigations in the solar industry, anti-dumping tariffs are often set higher than countervailing duties. The petitions filed assert dumping margins of 64.37 percent for China and 59.11 percent for Vietnam. The case covers wind towers that are at least 50 meters tall and designed to support large-scale turbines with capacities greater than 100 kilowatts.

"This is an important step in remedying the harm caused by unfairly traded wind tower exports,” said Alan H. Price of Wiley Rein. “We look forward to further relief when antidumping duties are announced in about two months."

The Wind Tower Trade Coalition (WTTC) includes Trinity Towers (TRN), DMI, Broadwind (BWEN) and Katana Summit, said Dan Pickard of Wiley Rein shortly after the group filed the complaints.

The law firm is also representing the Coalition for American Solar Manufacturing (CASM), which filed a trade complaint against Chinese solar manufacturers in October. The DOC has ruled in favor of CASM on both the countervailing duties and the anti-dumping tariffs. The anti-dumping rates were set at 31 percent in what has become a fierce and hotly debated issue in both the American and the global solar industries. That ruling has drawn sharp rebukes from a large segment of the American solar industry, as well as the Chinese government, which is quickly ramping up its own investigations. The issue, though, has played well politically, with key Democrats backing the tough measures.

While China has risen to dominance in the global solar industry, its manufacturing presence is much smaller in wind. However, members of the WTTC say that they are being forced out of the industry because of the price of towers beings shipped to the United States.

The American wind market continues to put up strong installation numbers, but the industry is fighting to extend the Production Tax Credit, a key financial component that backers say is critical to the market’s continued growth. However, no deal has been reached, and many manufacturers have stated that they may turn away from the U.S. market without an extension.

Steve Leone is an Associate Editor at RenewableEnergyWorld.com.  He has been a journalist for more than 15 years and has worked for news organizations in Rhode Island, Maine, New Hampshire, Virginia and California.

Posted by Guest Contributor at 11:28 AM | DOC Imposes Tariffs on Chinese Wind Towers | Comments (0)

Tom Konrad CFA

Wind Turbines photo via Bigstock

A rising tide may float all boats, but a stiff wind separates the wheat from the chaff.

Over the last week, it’s become clearer which wind developers are the wheat, and which are the chaff.  Stronger developers with deeper experience are buying projects from their weaker kin.  At least two such deals were announced last week.

On May 15th, Western Wind Energy  (TSXV:WND, OTC:WNDEF) signed a deal to acquire the entire 4,000 MW wind energy development pipeline of private Champlin/GEI Wind Holdings, with near term projects in Hawaii and Utah.

On May 18th, Alterra Power (TSX:AXY, OTC:MGMXF) continued its quest to become a major global renewable energy developer and producer,  and announced a deal to buy four sites in British Colombia from private sellers led by English Bay Ltd.  Alterra estimates the early-stage sites have the potential for generating capacity over 1,000 MW.

Preserving Cash

A large part of the reason wind development projects are changing hands is access to cash.  Financing for wind projects has become much harder to come by.  If you can’t get financing to develop your project, it makes more sense to sell it to someone who can.

Western Wind should soon receive a $90 million cash grant from the US government for a previous wind projects completed in 2011.  Alterra received $38.5 million from a group of Icelandic pension funds in return for an increased stake in its HS Orka geothermal facility.

Despite the cash inflows, both buyers are paying the sellers in shares and, in Alterra’s case, royalties on any future production.

Prices

The sticker price for the Western Wind deal was $20 million dollars,  but the deal will be paid for in shares of Western Wind, which will be valued at $2.50.  According to a Western Wind spokesman, Champlin/GEI had invested “almost $20 million” in the pipeline so far.   Since WNDEF closed at $1.61 the day before the deal, Champlin/GEI are effectively accepting a third less than what they paid to develop the pipeline.

Alterra is paying 1.34 million shares, worth C$549,000, in addition to the promise of future royalty payments.

The discount and the fact that no cash is changing hands points to hard times for sellers of wind prospects in the current environment.  No developer invests $20 million cash in the hope of receiving $13 million in shares for it a few years down the road. The flip side of this is that it’s a good time to be a buyer.  Even without cash and at a discount, buyers can pick and choose wind farms they want to develop.

Location

Western Wind has often repeated its plans to focus on wind farms in markets where Renewable Portfolio Standards (RPS) or high local electricity prices make wind farms profitable without (currently expired) federal subsidies.  Western Wind management estimates that approximately 40% of the 4,000 MW Champlin/GEI portfolio (1,600 MW) would be economic even in the absence of the federal Production Tax Credit (PTC.)  The crown jewel of the portfolio is a 75MW wind farm in Hawaii.  Hawaii not only has an aggressive RPS, but wind power there displaces electricity generated from (very expensive) oil.

Alterra also chose its projects carefully.  Of the eight wind farms under development by English Bay, Alterrra chose three near proposed Liquefied Natural Gas (LNG) export terminals.  British Colombia is experiencing rapid growth in industrial power demand from both mining and natural gas sectors, and British Colombia is the only region in North America to pass a Carbon Tax.

What the Deals Mean for the Wind Industry

There is a saying among stock traders that “Price follows volume.”  A fall-off in trading volume is often a sign of a stock peaking, and a pick-up in trading volume can a bottom.  The same patterns appear in other markets as well.  These two deals (and the many other which have been done over the last few months) look like signs of better (or at least no worse) times ahead for wind developers with projects to sell.

The increased number of deals is also a sign that buyers are finding prices attractive.  It’s drawing new entrants.

Just this month, a new type of entrant to the renewable energy business came to my attention: a Real Estate Investment Trust (REIT).  Power REIT (AMEX:PW), is planning to expand on its existing rail infrastructure asset by purchasing renewable energy infrastructure.  As far as I know, PW will be the first company to bring the tax-advantaged REIT structure to renewable energy.  Owning shares of a REIT with renewable energy assets will be much more like owning a piece of a wind or solar farm than owning shares of a traditional power producer: REIT profits are not taxed at the company level, and pass directly through to the shareholder.   This structure should be particularly attractive to  investors like charities and individuals investing through retirement accounts, since REIT payments are taxed as income, not at the reduced rate used for qualified dividends.

Power REIT is looking at many prospects, and has not ruled out solar investment, but the picture of a wind farm on its home page is probably not an accident.

What other outside investors will be breezing in to pick up wind farm bargains?

Disclosure: Long WNDEF, MGMXF, PW

This article was first published on the author's Forbes.com blog, Green Stocks.

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.

Posted by Tom Konrad at 08:10 AM | A Gust of Wind Industry Mergers | Comments (0)

Marc Kenneth Howe

Chinese photovoltaics leader LDK Solar (LDK) is headed for bankruptcy according to industry observers within China, due to its immense debt burden and a global downturn in the solar energy market.

China’s Nanfang Zhoumo reported on May 26 that bankruptcy rumors have plagued LDK in recent months, causing investors to seek to divest themselves of shares in the company and regional clients to suspend orders for the company’s products.

One of LDK’s leading investors, Guokai Jinrong, is believed to have sought buyers for its stake in the company since the start of 2012, with management heavily regretting its decision to invest in LDK in 2011, just prior to the solar energy market entering a slump after riding an unprecedented wave of growth.

LDK’s 2011 Q4 financial report, which at the end of April was delayed for several days, indicates that the company is mired in debt of U.S. $6 billion, and that annual interest payments alone amount to between $200 million and $300 million. Total Q4 losses were $589 million, marking the company’s third successive losing quarter.

This is a dramatic turnaround for LDK, which until recently was a leader in the Chinese solar energy sector, and whose 37 year-old chairman Peng Xiaofeng was once feted as an industry wunderkind. 

Peng was one of the youngest and wealthiest figures in China’s flourishing solar power sector, and LDK was for a brief period the world’s largest producer of photovoltaic multi-crystalline silicon. LDK was also the first company from Jiangxi province to be listed on a U.S. stock exchange, and the province’s second largest source of tax revenue.

The company’s ambitious high-debt growth model made LDK highly vulnerable to market vicissitudes, however, and the recent industry downturn may have done irreparable damage to the company’s prospects.

Despite the company’s woes, Peng has put on a confident front for both the media and investors, taking the stage earlier this month at a banquet for business partners and customers held in a five-star hotel in Shanghai’s financial district. In an interview with Nanfang Zhoumo, Peng dismissed the concerns of analysts by saying that “they have never seen a great company,” and compared LDK’s troubles to those encountered by Apple’s Steve Jobs a decade ago.

Peng has now pinned LDK’s hopes on the release of a new product — the M2 high-efficiency multi-crystalline silicon wafer, and has informed key lenders that customers are willing to pay a premium of over 10 percent for the new product. Although other industry figures, such as Hu Huifeng, senior deputy general manager of Taiwan’s Neo Solar Power, have come out in support of this claim, analysts believe that the company cannot overcome its current predicament with the release of a single new product, and that given the poor state of the market LDK will be unable to service even the interest payments on its debt.

The flamboyant Peng is certainly no stranger to controversy or crisis. His decision to invest in a 15,000 ton silicon factory was criticized heavily by LDK insiders as well as external observers. Departing senior personnel have complained about management problems within LDK, with many decrying Peng’s headstrong style, lack of prudence, and cavalier attitude toward the opinions of others. The company also faced financial difficulties at the end of 2009, when LDK’s Q3 asset-liability ratio hit 85.15 percent, and its total bank loans reached $1.403 billion. Those problems pale in comparison to the company’s current $6 billion debt burden, however.

Rumors reported by Nanfang Zhoumo also allege that LDK Solar has already filed for bankruptcy protection with the Jiangxi province government, but that the application was refused due to the size of the company and its importance for the provincial economy.

Marc Kenneth Howe is a contributor to Renewable Energy World.

Posted by Guest Contributor at 12:04 PM | Bankruptcy Fears for China's LDK Solar | Comments (0)

Tom Konrad CFA

What’s the budget-conscious way to travel in the US?

• If you buy in advance, flying is still reasonably priced, but increased security and wait times mean that it’s quicker to drive for shorter trips.
• With current high gas prices, driving is increasingly expensive.
• Except on a few routes, Amtrak is slow, has very limited service, and costs a bundle.

In our new peak oil world of $4 gas and, more and more people are opting for bus travel.  The young like it: My girlfriend’s daughter travels by bus almost exclusively, even though she owns a car.  None of the problems above are likely to get any better. Airline and gas prices will go up with oil prices.  TSA procedures are ever more invasive.  Amtrak needs fundamental reform and rail lines that are separate from freight to deliver better service.

Hence the Bus.

Cost and travel time, booked a month ahead, NYC to Albany
Booking	Travel time	Cost
Amtrak	2:45	$40
Airlines	1:12 plus 2hr for security	$99
Drive	2:50 (Google maps)	$25 for gas
Megabus	2:45	$8

Which is why Stagecoach Group‘s (LSE:SGC) Megabus division has been driving rapid profit growth in North America.  For passengers, the price is right (see table), and the buses have amenities like free Wi-Fi.

Now Stagecoach Group is buying part of struggling Coach America‘s business in order to accelerate Megabus’s expansion in Texas and California with ready-built depot infrastructure.

Megabus.com revenues, Stagecoach 2011 Annual report

Green Profit From Peak Oil

Investors should take note.  Megabus can achieve these low fares because they use much less fuel per passenger than flying or driving.  Those fuel cost savings will only grow as oil prices rise.

As a green, I’m not willing to invest in oil companies in order to profit from the rising oil prices.

Many people say the solution is Electric Vehicles (EVs).  But expensive batteries leave Nissan’s (OTC:NSANY) Leaf and Tesla’s (NASD:TSLA) Model S in an expensive niche despite extensive government subsidies.

Alternative transportation companies such as Stagecoach (LSE:SGC), bus manufacturer New Flyer Industries (TSX:NFI), and bicycle maker Accell Group (AMS:ACCEL) are already mass market.  They seem at least as likely to drive (and pedal) off with the profits from Peak Oil than makers of electric vehicles.

Stock Valuation

Alternative transport stock valuations are good, too.   At a price of 236 pence, Stagecoach paid a 3.1% dividend last year, and has raised its dividend for the last four.  The P/E ratio (based on 2011 earnings) is 9.9.  That’s a pretty good valuation for a growing company which will gain from rising oil prices, and is likely to do well from budget tightening in an economic downturn.

In contrast, luxury car company Tesla will probably be hurt if the economy falters, has no prospect of paying a dividend, and lost almost $300 million ($2.87 per share) last year.

EVs may be sexy, but this value investor is taking the bus.

Disclosure: Long NFI, ACCEL. I may buy SGC in the next 72 hours.

This article first appeared on the author's Forbes.com Green Stocks blog.

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.

Posted by Tom Konrad at 09:27 AM | A Green Peak Oil Company Expanding in North America: Stagecoach Group | Comments (0)

Jim Lane

Next-gen, commercial scale biofuels debut in Minnesota – is the deck cleared for the isobutanol pioneer to soar?
Not quite yet, with litigation and production ramp-up pending, but there’s light at the end of the tunnel.

In Colorado, Gevo (GEVO) announced it has begun startup of the world’s first commercial biobased isobutanol production plant located in Luverne, Minn.

“At 1 p.m. MDT yesterday we made history by initiating production of biobased isobutanol at commercial scale,” said Dr. Patrick Gruber, CEO of Gevo. “One year ago, we broke ground with a startup goal of less than 12 months and we’ve succeeded. It’s an extremely proud moment for Gevo and a tribute to the drive and ambition of our scientists, chemical engineers and production team.”

Gevo retrofitted the Luverne plant to incorporate its proprietary yeast and Gevo Integrated Fermentation Technology (GIFT) system to produce biobased isobutanol. Through initial operation of the Luverne plant, Gevo expects to advance its learning of large-scale production of renewable isobutanol at the site maintaining a goal of producing isobutanol at a run rate of approximately 1 million gallons per month by year-end 2012. Per its previous guidance, Gevo expects to reach full-capacity run rates by year end 2013.

Ramp-up rate

“This ramp up in production is actually fast for a new technology,” said Gruber. “It would be much longer and present more execution risk if this were a greenfield plant. I like this retrofit approach.”

“This is only the beginning for Gevo as we work toward our first shipment to Sasol (SSL) and increasing production over the coming months,” added Gruber. “As with all plant startups we will face challenges. However, we have an outstanding team, many of whom have been through similar startups before, to address and meet these challenges. We look forward to growing into a very large business.”

The Elephant in the Room, pending IP litigation

Cowen & Co’s Rob Stone writes, “The court has not yet ruled on the potential injunction that could shut GEVO down. The hearing was held in early March and a ruling could come at any time. It would be effective until the trial, which is scheduled to start in April 2013. The injunction could be imposed, denied, or imposed partially. For example GEVO could be stopped from its work on fuels, but allowed to make and sell solvents. In our opinion, the legal battle represents a more significant risk than initial startup and ramp pace.

Next stop – another capital raise for further expansion

Pavel Molchanov, writing about the company’s share price drop (40% off since the beginning of May), commented, “We think this reflects the market’s expectation of near-term equity issuance – and, to be clear, management has said publicly that another capital raise is planned over the next few quarters. We understand that dilution risk causes investor concerns, but we would point out that the stock is currently trading at just 47% of our DCF/share estimate of $11.55, an estimate that already incorporates equity issuance in each of 2012, 2013, and 2014.”

Upcoming advanced biofuels openings

Amyris (AMRS) – Paraiso plant, Sao Paulo, Brazil, start-up in mid-2012
KiOR (KIOR) – Columbus plant, Mississippi – mechanically compete, production commencing by year-end 2012.
Solazyme (SZYM)-Bunge (BG) – Moema plant, Sao Paulo plant, start-up scheduled in the second half of 2013.

Reaction from the investment community

Mike Ritzenthaler, Piper Jaffray: Maintain Overweight rating and $17 price target.

“While every novel process startup contains some uncertainties, we believe Gevo has an outstanding team in place with the optimal expertise needed to understand and mitigate risks – and meet or exceed important production milestones between now and the end of the year. In our view, the startup of Luverne also underscores management’s conviction that the ruling on the preliminary injunction will positive for Gevo, and we are unconcerned that the ruling (that we expected mid-May) has not yet been issued.”

Robert W. Stone, Cowen & Company: Maintain Neutral.

“The Luverne plant has started making isobutanol a little ahead of schedule. However, the pace of ramp to full production remains to be demonstrated. Meanwhile, the Butamax IP battle remains a significant risk. Construction began on May 31, 2011 and was expected to last twelve months. Guidance from the May 1 earnings call suggested a late June startup, leaving time for contingencies during final cutover. It appears that the cutover went smoothly, as it took three weeks or less. Guidance also suggested initial shipments to Sasol would be in July; it now appears possible that shipments could begin in Q2.”

Pavel Molchanov, Raymond James: Maintain Outperform, DCF estimate of $11.55

“Here is a specific, concrete example of actual Gen2 scale-up. Gevo’s first commercial production facility.  Gevo is now working towards its goal of shipping its first product to Sasol (SSL), one of its anchor customers, and management previously indicated shipments should begin by July. Our current assumptions are for sales of 0.9 million gallons in 3Q12, 1.8 million gallons in 4Q12, and up from there.

“We don’t rule out the possibility of delays in scaling up output, and of course, key performance metrics – yield, etc. – still have to be demonstrated. Management has also consistently pointed out that there is plenty of execution risk. That said, we look at Luverne as an encouraging datapoint. In fact, of all the recent IPOs in the space, Gevo becomes the first Gen2 producer to bring a fully commercial plant online.

Disclosure: None.

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.

Posted by Guest Contributor at 03:02 PM | Advanced Biofuels, Ahead of Schedule for Gevo | Comments (0)

Tom Konrad CFA

Uncertainty surrounding the damage caused by a sulfur fire at LSB Industries‘ (NYSE:LXU) chemical facility Tuesday has brought the stock down $5 from Monday’s close, although the company was already well-valued and had just beaten analyst’s expectations for its first quarter results.

This is extremely short-sighted of investors, who are no doubt spooked by the lack of information about the extent of the damage.  However, we have enough information to make a reasonable estimate as to the damage to LSB’s profits.  As I outlined Tuesday night, we know:

• The facility is insured for both damages and work stoppage.
• The potential uninsured cost will amount to at most 13 cents a share, or less than $3 million.
• Only minor injuries were reported.  Some workers were treated for high blood pressure and shock.
• There was no environmental release, so an EPA investigation is unlikely.

Even with the inevitable distraction of management time from other business, I find it hard to see how more than a $1 per share sell-off is justified.  Yet the stock is down $5.

A Second Opinion

I follow LSB because of its geothermal heat pump business, which only accounts for about 1/3 of revenues.  This business has been looking up, with breakthrough products recently introduced, and signs of a pick-up in demand.  For the chemicals business, I rely on other analysts.  They seem to agree with me.

BCMI Research analyst and biochemist Chris Damas CFA, gives an in-depth look at the fire with added perspective on the chemicals involved.  He concludes:

I think the stock is a buy here, with the insurance proceeds covering the reconstruction of the nitric acid plant. There appears to have been no environmental release, with a long EPA action as a result.

The lost sales business during the busy growing season will no doubt cause a significant operating loss for the chemical segment next quarter. But LSB has business interruption insurance that kicks in after 30 days.

This morning, Northland Securities reiterated it’s ‘Outperform’ rating, and lowered their price target from $41 to $38.

Fundamentals

Analysts were predicting $3.02 in earnings for 2012 before the explosion.  If we reduce that to $2.89/share, we still have a forward P/E of 9.6.  LSB has no net debt, and is poised for growth, both from a reviving HVAC business, and from growth in the chemicals business with an upgraded plant which was brought online in the first quarter.  Analysts estimate 39% growth for the coming year, although some of that growth may be deferred (but not eliminated) because of the damage at the El Dorado facility.

Conclusion

Writing about this incident has side-tracked my plans to write about the leap in efficiency coming from both LSB and geothermal heat pump rival Waterfurnace Renewable Energy (TSX:WFI, OTC:WFIFF), but it is providing a great buying opportunity.  With uninsured losses (including work stoppage) capped below $3 million, it seems crazy that LSB has lost over $110 million in market cap over this incident.

Now is clearly the time to buy LSB, and, incidentally, Waterfurnace, which is also well valued and seeing a market turn-around.

Disclosure: Long LXU,WFI.

This article first appeared on the author's Forbes.com Green Stocks blog.

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.

Posted by Tom Konrad at 08:34 AM | Geothermal Heat Pump Stock a Deep Bargain | Comments (0)

John Petersen

Despite billions of dollars in private investments and public subsidies, lithium-ion battery technology has progressed at a snail's pace for years and battery developers have recently started to emphasize the importance of baby steps. For the first time in memory, anti-hype is becoming a dominant theme in stories about lithium-ion batteries.

Examples from this month include:

• An interview with Wards Auto where the business manager of the DOE's Kentucky-Argonne Battery Manufacturing Research and Development Center explained that it takes about ten years to put a battery innovation into production and all of today's EVs are powered by technologies that were developed at least a decade ago.
• An article from National Defense which predicts that lithium-ion battery research will soon hit a brick wall because batteries can only be as small and lightweight as their materials allow and immutable laws of physics and chemistry limit the number of electrons that can be stored in a given mass of battery material.
• An article in Nature that discussed ways nanotechnology can improve battery performance by increasing surface area, but took pains to explain that nano-materials must be produced in carefully controlled environments and the high cost of manufacturing nano-materials usually outweighs the benefits derived from using them.
• An article in Design News that focused on the harsh reality that battery development is hard, slow work because batteries require a wide variety of costly materials to work together as a system; there are limitless ways that things can go wrong; and throwing loads of money at research can't make progress happen overnight.
• An article in Waste Management World that explains the complex technical and economic challenges that must be overcome before lithium-ion battery recycling can progress beyond a few pilot plants and become a cost-effective industrial reality, as opposed to a hopium-laced talking point.
• An article in the MIT Technology Review that reads like a premature obituary as it discusses the triumphs and tragedies at A123 Systems (AONE) and their ongoing search for strategic alternatives.
  

My personal favorite is a strategy memo from the National Alliance for Advanced Technology Batteries that focuses on the problems at A123 Systems and the failures of Ener1 and International Battery. It's classic spin control that ultimately blames the debacle on government policy. Since the irony is so rich, I'll annotate the last three paragraphs by highlighting text that I find particularly entertaining in bold type and adding some observations [in brackets].

"If criticism intensifies, which is likely, it will be important to communicate an important point: Government funding of new energy technologies is meant to support those technologies, not the companies that develop them [or the investors who bought the hype that's part and parcel of government support]. The failures of Ener1 and International Battery, and the troubles of A123 Systems, are business failures, not technology failures. Companies come and go. Corporate assets get bought, sold and reorganized [while investors lose their shirts]. None of that should matter to taxpayers. What should matter is whether the technologies that A123 and Ener1 owned at the time they received their grants has been advanced and pushed closer to commercialization [while politicians promised cost-effective products]. Indications in both cases are that they have been [but unsubsidized demand hasn't materialized].

If the FOA-26 program can be criticized for anything it is that the program focused on funding immediate deployment of advanced automotive battery technology rather than its longer term development. Many pointed that out at the time [and we were lambasted as neo-luddites]. The [entirely predictable] problems at A123 Systems and the failures of Ener1 and International Battery are powerful testimony to the fact that the market for that technology in 2009 was critically immature [just like the underlying technology]. A better use of the funds would clearly have been investing them in the development of new, next-generation battery technologies that could facilitate the development of a market for advanced automotive batteries in the future rather than cater to one that did not fully exist.

In fairness to the Department of Energy, the emphasis on immediate deployment and “getting shovels in the ground” was a political directive motivated by a critical economic crisis, not a considered policy decision. As a consequence, DOE funding of advanced battery technology over the past three years has not been as efficient as it might have been. But that is not to say that it has been a failure. Steady progress on increasing energy density, decreasing battery cost and improving battery system management continues to be made [at a snail's pace]. The market we hoped for in 2009 is not here yet and some of the original players in the market may not make it to the finish. But that market is substantially closer than it was three years ago, and by that fact the success or failure of the FOA-26 program is more properly judged."

The core message of this new anti-hype campaign is clear. The promised improvements in lithium-ion battery technology have not materialized and they're not likely to evolve from existing technology and architecture. We may see a doubling of energy density over the next decade, but the six- to seven-fold gains that Energy Secretary Chu has called for are not possible with current technology. The dream of quantum leaps in performance accompanied by precipitous cost reductions is not in the cards, or for that matter on the horizon. Breathless promises of cost-effective electric cars that will clear the air and deliver us from the tyranny of oil dictators are snake oil cures that will enrich the hucksters for a time, but end in tar, feathers and a ride out of town on a rail.

Battery mythology developed for the sole purpose of supporting electric car mythology. Battery developers tried mightily and failed. Now battery developers are seeking shelter from the backlash that inevitably comes back to haunt companies and industries that promise more than they can deliver. The next dominoes are companies like Tesla Motors (TSLA) that can't possibly build cost-effective electric vehicles without better and cheaper batteries. Tesla may survive for a time by making toys for the ideologically committed and mathematically challenged rich, but the congenital birth defect that's doomed every generation of electric cars to the scrap heap remains.

The electric car industry can't survive without a thriving and profitable battery industry that can make products that meet or exceed expectations. The battery industry is on record saying they can't meet the ambitious goals they embraced in the recent past. Things might change in my lifetime, but the change is not going to happen in the next decade. Meanwhile the real auto industry is digging into its toolbox and rapidly implementing technologies that weren't cost-effective in another economic era but are today.

Disclosure: None

Posted by John Petersen at 05:29 AM | Anti-Hype in Lithium-ion Batteries Foretells Doom for Electric Cars | Comments (2)

Steve Leone

Solar technology photo via BigStock

For every revolutionary advance in solar, there are countless evolutionary dead-ends — technologies that were well worth exploring, but ones that ultimately failed to live up to the mantra of "cut costs or die."

These are the Solyndras of the world. Their science may have raised the bar, but ultimately they were judged by the market, which measures the bar on cost alone. From that perspective, it’s more like a limbo line — “How low can you go?”

For an industry struggling to get to price stability because of factors unrelated to technology, it can be a difficult exercise to envision which advancements will get to move on and which will be referred to only in the past tense.

In a new report titled “Searching for Game Changers in Photovoltaics Materials Innovations,” Lux Research details the emerging technologies that will thrive and those that will eventually sputter out. Along the way, the report gives us a couple new acronyms to squirrel away as we consider the ROI on our R&D.

The basis for much of the research is the volume of development funding we’re seeing right now, and the forecast that the industry will return to double digit margins by 2014. Conceivably, once those margins return, many of the innovations in the background today will be ready to step into the market. The formula to get there is based on solid economics — the technologies that succeed will offer both a low cost per watt and the ability to scale using existing PV infrastructure.

The report also offers a fair warning to those who assume that the U.S. will continue its role as innovators while China takes on the function of manufacturing. Many of the technologies that currently dominate PV were developed in American laboratories and academic institutions. But China is making significant investments within its own universities and government research institutes. The end result, says Lux, is that the innovation gap will soon close.

The Technology Winners

Epitaxial-Si: The report calls this technology the last nail in the amorphous silicon (a-Si) coffin. Uni-Solar has gone bankrupt and Oerlikon has sold its a-Si thin film business. The problem with a-Si has been the lower efficiencies achieved when compared with other thin film technologies like CdTe and CIGS. Epitaxial Si (epi-Si), which is thin monocrystalline silicon, has the potential for higher efficiencies, and it could replace a-Si infrastructure.

CZTS: Copper zinc tin sulfide cell technology has been receiving interest over the past few years because of its ability to replace CIGS with with cheaper materials. Indium and gallium, both used in CIGS, are rare earth minerals, which mean they’re expensive and subject to shortages. Some big names are looking into this technology, such as IBM and Dupont. Another exploring CZTS is Solar Frontier, which has made big inroads recently with its CIS operation. Lux expects CZTS, which still faces issues of thermal instability, to reach commercial scale and competitive thin-film prices within the next five years.

The Technology Losers

Kerfless Wafering: There’s been lots of buzz lately about ion implantation and how the tools needed for this technology can save lots of money compared to the current wafering technology. But the tools themselves are big-ticket items. According to Twin Creeks, each 350-square-foot tool would put out the quivalent of 6 MW of cells per year. That output is certain to go up with new generations, but according to Lux, the capex with ion implantation is still too high. Additionally, throughput for wafering is lower than the traditional wire-saw techniques and the exfoliated wafers that come from these tools require an additional step. SiGen and Twin Creeks have yet to report cell efficiencies. Solexel, which recently received $25 million to build a pilot plant, says it has reached 12.6 percent effient monocrystalline cells. That, says Lux, is too low for c-Si cells at any stage of development.

Quantom Dots: Quantom dots and nanowire cell technologies have drawn investment from academic researchers because both require less material than current thin-film technologies. But both quantum dots and nanowire structures result in larger surface areas, which are hard to passivate. And the cell efficiencies recorded thus far are well below what you’d need for commercialization. Without an unexpected breakthrough, neither technology will be commercialized any time soon, says Lux.

Steve Leone is an Associate Editor at RenewableEnergyWorld.com.  He has been a journalist for more than 15 years and has worked for news organizations in Rhode Island, Maine, New Hampshire, Virginia and California.

Posted by Guest Contributor at 04:36 PM | Report: Two Solar Technologies That Will Thrive; Two On the Demise | Comments (0)