February 28, 2015

Ten Clean Energy Stocks For 2015: A Fine February

Tom Konrad CFA

After a rough start to the yearMy Ten Clean Energy Stocks for 2015 posted a strong recovery in February. 

For the month, the model portfolio rose 7.9% in local currency terms and, 8.3% in dollar terms.  For comparison the broad universe of US small cap stocks rose 5.9% (as measured by IWM, the Russell 2000 index ETF), and the most widely held clean energy ETF, PBW, shot up 11.6%.

This year I split the model portfolio into two sub-portfolios of six income stocks (NYSE:HASI, NYSE:BGC, TSX: RNW, TSX: CSE, TSX:NFI, and XAMS:ACCEL) four value and growth stocks (NYSE:FF, NYSE:PW, NASD: AMRC, and NASD:MIXT). 

PBW (+11.6%) is a good benchmark for the value and growth stocks, which underperformed with a small gain of 1.6% in both local currency terms and dollar terms.  The six income stocks, on the other hand, gave a strong performance with a 12.0% gain in local currency terms and a 12.8% gain in dollar terms.  This is particularly surprising because global utility stocks (as measured by JXI) fell 3.5% for the month on worries about rising interest rates.  The fossil free Green Alpha Global Enhanced Equity Income Portfolio (GAGEEIP), which I co-manage, also bucked the global utility trend and turned in a 5.5% gain for the month.

For the year to date, the portfolio is up 3.1% in local currency terms, and down 0.2% in dollar terms.  This contrasts to a 4.2% gain for PBW and 2.5% for IWM.  The four growth and value stocks are down 6.1% in local currency terms and down 6.3% in dollar terms.  The income stocks are up 9.1% in local currency terms and up 3.9% in dollar terms.  GAGEEIP has gained 4.6% in January and February.

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

10 for 15 Jan.png
The low and high targets given below are my estimates of the range within which I expect each stock to finish the year.

Income Stocks

1. Hannon Armstrong Sustainable Infrastructure (NYSE:HASI).
12/31/2014 Price: $14.23.  Annual Dividend: $1.04.  Beta: 0.81.  Low Target: $13.50.  High Target: $17. 
2/28/2015 Price: $16.63. YTD Dividend: $0.  YTD Total Return: 16.9%.

The stock of sustainable infrastructure financier and Real Estate Investment Trust Hannon Armstrong staged a dramatic advance of 21.4% in February.  I believe this advance was catalyzed by an article by Brad Thomas, the author of a leading REIT newsletter.  In the almost two years since its IPO, Hannon Armstrong has been the odd man out among renewable energy yieldcos, because of its REIT structure and focus on energy efficiency financing so different from the higher profile renewable energy project ownership of other yieldcos.  There are also no real comparables among conventional REITs, meaning that HASI has also struggled to catch the attention REIT investors.

Thomas' strongly positive article seems to have changed that, and now REIT investors seem to be pricing HASI closer to what that would be expected from traditional REITs that have a comparable level of risk.  Not that I'm selling at this point; I'm happy to hold a company that pays a 6.3% dividend at the current price, especially since management expects to continue to increase that dividend by 12-15% over the next 12 months.

An ironic note to this whole story is that Brad Thomas himself was surprised by the sea-change his article catalyzed.  Reading between the lines of his comments, he made up his mind that HASI was very attractive, but decided to share his insight with his readers before buying himself.  He has an admirable policy of waiting 10 days between publication and trading a stock.  In this case, the stock was trading at $14.57 when he wrote the article, but it closed at $16.37 10 days after publication.  A more recent note from Thomas leads me to believe he is still waiting for HASI to pull back. 

Thank you Brad, for finally bringing Hannon Armstrong the attention I have been unable to attract with my many articles about the company since its IPO.  For your sake, and for anyone else who has not yet bought the stock at the very attractive prices we had for the last 20 months, I hope the pullback you're waiting for materializes.

2. General Cable Corp. (NYSE:BGC)
12/31/2014 Price: $14.90.  Annual Dividend: $0.72.  Beta: 1.54.  Low Target: $10.  High Target: $30. 
2/28/2015 Price: $15.04. YTD Dividend: $0.  YTD Total Return: 0.9%.

Last month  the stock of international manufacturer of electrical and fiber optic cable, General Cable Corp. declined 23% because of several analyst downgrades and worries about Europe.  A couple more downgrades followed before the company released its fourth quarter earnings and outlook for 2015 on February 4th.  The stock sold off that day, but I felt the discussion of restructuring and outlook were generally positive.  Investors seem to be coming around to my more optimistic point of view, since the company recovered all of its January losses in February with a percentage climb even more spectacular than Hannon Armstrong's.

3. TransAlta Renewables Inc. (TSX:RNW, OTC:TRSWF)
12/31/2014 Price: C$11.48.  Annual Dividend: C$0.77.   Low Target: C$10.  High Target: C$15. 
2/28/2015 Price: C$13.13. YTD Dividend: C$0.12832  YTD Total C$ Return: 15.5%. YTD Total US$ Return: 7.3%.

Investors and analysts also liked the strong earnings announcement from Canadian yieldco TransAlta Renewables, propelling the stock up another 3.6% after strong January gains. Scotiabank, Macquarie, and CIBC all increased their price targets for the stock, with the average price target now C$12.71.

4. Capstone Infrastructure Corp (TSX:CSE. OTC:MCQPF).
12/31/2014 Price: C$3.20. 
Annual Dividend C$0.30.  Low Target: C$3.  High Target: C$5.  
2/28/2015 Price: C$3.21. YTD Dividend: C$0.  YTD Total C$ Return: 0.3%.  YTD Total US$ Return: -6.8%.

Canadian power producer and developer (yieldco) Capstone Infrastructure lost ground gained in January, and is now down almost 7% in US dollar terms, although all of that decline is due to the weakness of the Canadian dollar.  I continue to think that this 9%+ yield company remains one of the best values among clean energy income stocks: it's high yield and low price are entirely due worries about a very disappointing decision by the regulator of its British water utility subsidiary.  Capstone is appealing that ruling, but management has stated that the dividend is not at risk even if the appeal fails.  Insiders has put their money where their mouths are by buying the stock on the open market.

In addition to the high yield (which alone seems sufficient reason to own the stock), there is potential for upside if the Bristol Water appeal is successful. Even if this appeal fails, I expect the high yield to cause the stock to appreciate as investors gain confidence that the dividend will not be cut.

5. New Flyer Industries (TSX:NFI, OTC:NFYEF).
12/31/2014 Price:
C$13.48.  Annual Dividend: C$0.585.  Low Target: C$10.  High Target: C$20. 
2/28/2015 Price: 13.91$. YTD Dividend: C$0.0975  YTD Total C$ Return: 3.2%.  YTD Total US$ Return: -4.1%.

Leading North American bus manufacturer New Flyer continues to announce significant new orders of buses, such as 110 compressed natural gas (CNG) buses and options ordered by Nassau county, NY, and smaller orders from Lane Transit in Eugene Oregon and Hamilton, Ontario for up to 20 hybrids and 18 CNG buses, respectively.  These orders follow on the strong backlog of orders I discussed in the last update.

Although a date has not yet been announced, the company should report 2014 fourth quarter and full year results in March.

6. Accell Group (XAMS:ACCEL, OTC:ACGPF).
12/31/2014 Price: €13.60. 
Annual Dividend: Varies: at least 40% of net profits. €0.55 in 2014.  Low Target: 12.  High Target: €20.
2/28/2015 Price: 16.06. YTD Dividend: 0.  YTD Total Return: 18.1%.  YTD Total US$ Return: 9.2%.

The stock of bicycle manufacturer Accell Group also advanced strongly in February.  This does not seem to be due to company specific news, but rather to growing interest by institutional investors in the bicycle industry.  It seems that fund managers, especially US fund managers, have become disappointed in the performance of golf companies, and are looking to replace these positions with well known bicycle brands.  Fund managers may be beginning to realize that bikes not no longer just for kids, and are increasingly popular among high income adults.

Outdoor retailer REI knows this fitness-conscious demographic well, and has recently begun offering Accell's "premium, high-performance, award-winning" Ghost Bike brand in its stores countrywide and on its website.

While it may seem strange that investment managers' attitude towards golf companies should have any bearing on how they feel about the bicycle companies, this connection is a product of widespread practice of diversifying and portfolios among industries.  While there is probably little economic connection between the economics prospects of Accell and Callway (NYSE:ELY), many fund managers specialize in certain industries.  When such analysts and managers upgrade or buy one stock in their universe, they often will downgrade or sell another stock.  Hence, if a mutual fund manager who specializes in sports equipment sells Callaway, it might not be surprising to see him buy Accell.

Even this annual list shows that effect.  I focus on clean energy companies, so in order to add four new companies to this 2015 list, I had to drop three clean energy companies I still liked from the 2014 list.

Value Stocks

7. Future Fuel Corp. (NYSE:FF)
12/31/2014 Price: $13.02.  Annual Dividend: $0.24.   Beta 0.36.  Low Target: $10.  High Target: $20.
2/28/2015 Price: $12.3 YTD Dividend: $0.06.  YTD Total Return: -5.1%.

Specialty chemicals and biodiesel producer FutureFuel, also recovered (and paid a 6¢ quarterly dividend) in February.  While there has not been significant company news, the EPA has made strong statements about getting "back on track" setting quotas under the Renewable Fuel Standard (RFS.)  The lack of quotas in 2014, and the delay of the 2015 quota are the main reason the stock is currently so cheap.  EPA transportation chief Christopher Grundler recently told a meeting of ethanol producers that the agency would combine three years' worth of standards -- for 2014, 2015 and 2016 -- into a single regulatory action. EPA plans to release a proposal this spring and finalize it by the end of November.  The RFS is at least as important to biodiesel producers like FutureFuel as it is for ethanol producers.

8. Power REIT (NYSE:PW).
12/31/2014 Price: $8.35
Annual Dividend: $0.  Beta: 0.52.  Low Target: $5.  High Target: $20.
2/28/2015 Price: $8.65. YTD Total Return: 3.6%.

Rail and solar investment trust Power REIT reversed some of its January gains.  Investors await a decision (or more likely, non-decision) in the summary judgment stage of its civil case with its lessee Norfolk Southern Corporation (NYSE:NSC) and sub-lessee Wheeling & Lake Erie Railway (WLE).  Unless the court renders a very strong summary judgement, a trial will begin in the next couple months.  I expect few of the outstanding issues to be resolved in summary judgment, so a trial is very likely.

Power RET released a new investor presentation on its website, which includes a management estimate of the net asset value of the company's assets if they were sold on the open market (page 19.)  Management feels that, even without a win in the civil case, its railroad asset is significantly undervalued compared to NSC's bonds, which have similar credit and cash flow characteristics.  However, the company has not revealed any plans to sell any of its assets, and would not consider a sale of the railroad asset before the civil case is resolved, even if a buyer could be found.

9. Ameresco, Inc. (NASD:AMRC).
12/31/2014 Price: $7.00
Annual Dividend: $0.  Beta: 1.36.  Low Target: $6.  High Target: $16.
2/28/2015 Price: $6.26. YTD Total Return: -10.6%.

Energy service contractor Ameresco will release fourth quarter and full year 2014 results before the market opens on March 5th.  Over the last two quarters, the company has spoken of signs that its market for may be recovering from a multi-year slump.  If the trend continues, the stock should reverse its long decline, possibly dramatically.

Growth Stock

10. MiX Telematics Limited (NASD:MIXT).
12/31/2014 Price: $
6.50Annual Dividend: $0.  Beta:  0.78.  Low Target: $5.  High Target: $20.
2/28/2015 Price: $5.65. YTD Dividend: $0.  YTD Total South African Rand Return: -12.3%.  YTD Total US$ Return: -13.1%.

Vehicle and fleet management software-as-a-service provider MiX Telematics released its third quarter fiscal 2015 results and increased its guidance for the full fiscal year ending March 31st.  I found the outlook and results discussion moderately encouraging, but other investors do not seem to see it that way.  The stock slipped 3.6% for the month.

MiX also signed its 500,000th subscriber in February.  To put this in perspective, US-based competitor Fleetmatics (FLTX) announced that it had achieved 500,000 vehicles under subscription in January.  I'm not sure how comparable MiX's "subscribers" are to Fleetmatics's "vehicles under subscription" but, if they are not the same thing, I have trouble seeing how MiX could have less vehicles under subscription than it has subscribers.  Further, Fleetmatics' offering is suitable to the small and medium sized businesses to which it caters, and so its offering is less sophisticated (and hence lower value) than the solution MiX delivers to the large multinational companies which are its core clients.

Given the similar size of the two companies' client bases, one would expect that the two companies would also be valued similarly.  In fact, Fleetmatics' enterprise value is $1.4 billion (approximately $2,800 per vehicle under subscription in January) compared to MiX's enterprise value of only $106 million, or $212 per "subscriber" in February.  Based on this metric, the market seems to be undervaluing MiX compared to FLTX by a factor of approximately 8.


I found the January declines of many of the stocks in this list inexplicable, and wrote that the start of February was an excellent time to buy any of them.  The rapid rises in Hannon Armstong, General Cable, and Accell Group show that I was right in at least these three cases. 

Several excellent values remain.  Capstone Infrastructure and MiX Telematics look particularly attractive at their current prices.  Ameresco also looks quite attractive, but its near term performance will hinge on the March 5th earnings announcement and management's outlook for the rest of the year.

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

DISCLAIMER: Past performance is not a guarantee or a reliable indicator of future results.  This article contains the current opinions of the author and such opinions are subject to change without notice.  This article has been distributed for informational purposes only. Forecasts, estimates, and certain information contained herein should not be considered as investment advice or a recommendation of any particular security, strategy or investment product.  Information contained herein has been obtained from sources believed to be reliable, but not guaranteed.

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Oil and Gas

February 27, 2015

Tesla Vs. Hydrogen

By Jeff Siegel

One of Governor Arnold Schwarzenegger's dreams may soon be coming to fruition.

During his time as governor, while singing the praises of renewable energy progress in the Golden State, the Terminator would often tell tree-hugging Californians about his dream of building a hydrogen highway that would enable hydrogen-powered vehicles to run from Mexico to Canada — via California.

Not only did Prius drivers and vegans applaud the governor's dream, but it even got a decent amount of support from former GM Chairman Bob Lutz and President George W. Bush.

Since that time, California has managed to build only 10 hydrogen fueling stations in Los Angeles and San Francisco. But we got word over the weekend that the California Energy Commission is about to spend $20 million to build about 50 new hydrogen fueling stations.

According to the LA Times...

Starting in October with a new fuel station in the city of Coalinga, near I-5 in the San Joaquin Valley, hydrogen cars will be able to get from Los Angeles to San Francisco. Such vehicles can go about 300 miles on a fill up.

Hydrogen is Silly

Those who believe hydrogen represents the future of personal transportation have been quick to applaud this news.

Certainly it represents a small but meaningful step in instigating some early growth in the hydrogen vehicle market.

But here's the problem...

No one really cares now that Elon Musk has shown the world a much better mousetrap... and in the process, has been quite vocal about why he actually thinks hydrogen is “silly.”

Sure, the guy's got plenty of reasons to criticize potential competitors. But hydrogen isn't really much of a competitor, as Musk pointed out recently:

Hydrogen is an energy storage mechanism. It is not a source of energy. So you have to get that hydrogen from somewhere. if you get that hydrogen from water, so you’re splitting H20, electrolysis is extremely inefficient as an energy process…. if you say took a solar panel and use the energy from that to just charge a battery pack directly, compared to try to split water, take the hydrogen, dump the oxygen, compress the hydrogen to an extremely high pressure (or liquefy it) and then put it in a car and run a fuel-cell, it is about half the efficiency, it’s terrible. Why would you do that? It makes no sense.

If you're going to pick an energy storage mechanism, hydrogen is an incredibly dumb one to pick. You should just use methane, that's much, much easier. Or propane. The best case hydrogen fuel cell doesn't win against the current case batteries, so then obviously it doesn't make sense. That will become apparent in the next few years.

Too Late

Although I agree with Musk, there's no doubt that plenty of automakers are still getting quite aggressive on hydrogen.

Hyundai, Toyota, Honda, and Volkswagen don't really seem to be too interested in what Musk has to say about the issue. Of course, they also weren't too interested back when he first came on the scene with a silly dream of mass-producing a quality electric car.

You know how that dream turned out...


In any event, while there will likely be a few more opportunities to profit in the fuel cell space with companies like Plug Power (NASDAQ: PLUG) and Hydrogenics Corp. (NASDAQ: HYGS), over the long term, I wouldn't put too much faith in hydrogen vehicles getting as much love as electric vehicles.

In terms of price, performance, ease-of-use, and infrastructure demands, by the time the few automakers pursuing hydrogen actually have a decent number of these cars in the showrooms, electric cars will be even further advanced. Prices will have fallen further, driving ranges will have doubled (if not tripled), and high-speed charging infrastructure will be nearly as common as the infrastructure in existence today for internal combustion vehicles.

In other words, it's too late for hydrogen, because no one can put the electric vehicle genie back in its bottle.

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


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

February 26, 2015

Amyris Expects Huge Sales Growth In 2015

Jim Lane amyris logo

The first of the “2010-12 IPO kids” completes its transformation to a lively, product-driven commercial company with revenues in fragrances, emollients, solvents and fuels.

In California, Amyris (AMRS) announced Q4 2014 revenues of $11.6 million and $43.3M for the full year, a 5% increase over 2013, and Q4 net income of $58.0 million and $2.3 million for 2014 as a whole.

The company noted that product sales increased by nearly 50% despite lower than expected fuel sales in the second half of the year, due to drop in crude oil prices and currency headwinds. Collaboration and grant revenues were lower due to timing of government-funded project completion and previously outlined shift from upfront to milestone collaboration payments.

“2014 was a transformative year for Amyris. We delivered on the promise of our technology by manufacturing at industrial scale two breakthrough molecules now used in a range of product sectors — from consumer care to transportation. We realized record-low production costs at our Brotas industrial biorefinery, further reduced operating expenses and, with successful financing efforts, achieved our strongest year-end cash position in three years,”said John Melo, President & CEO.

“In 2015, we expect to build on our track record by expanding our renewable product portfolio and, more importantly, expanding our collaboration partnerships into new markets, such as biopharmaceuticals. Based on our plans and current performance during the first part of the year, we expect to achieve positive cash flow from operations in the first quarter, paving the way to exceed $100 million in total revenues for the full year,” concluded Melo.

In announcing the full-year results, Amyris highlighted:

• Record-low farnesene cash production runs below $2.50 per liter due to robust yeast strain performance and continued operational improvements at our industrial biorefinery.

• Better-than-planned cash production costs for our first fragrance molecule, meeting critical milestones for a leading collaboration partner.


• In marketing, the company introduced several new products, including a new emollient under our Neossance line; a high-performance solvent for industrial cleaning under brand name Myralene; and renewable jet fuel with our partner TOTAL, now included in global aviation specifications.

• Operationally, Amyris upgraded the Brotas plant during current sugarcane inter-harvest season, “allowing us to continue our focus on reducing production costs in 2015.”

New financing

At the same time, Amyris announced that it entered into a Common Stock Purchase Agreement under which Amyris may from time to time sell up to $50 million of its common stock to Nomis Bay Ltd. over a

24-month period. Amyris will control the timing and amount of any sale of common stock to Nomis Bay, and will know the sale price before instructing Nomis Bay to purchase shares. When and if Amyris elects to use the facility, the company will issue shares to Nomis Bay at an undisclosed discount to the volume weighted average price of Amyris’s common stock over a preceding period of trading days.

The company’s cash had dwindled to $43.4M by year end.

“This facility provides us with a flexible source of common stock financing as our business grows, allowing us to strategically manage whether and when to draw on the facility based on market dynamics and other considerations,” said Melo.

Analyst reaction

Cowen & Company’s Jeffrey Osborne writes:

“Amyris posted soft Q4 results, with revenue of $11.6 mn down 25% y/y and non-GAAP EPS of ($0.40) below Street of ($0.29). Soft product sales were a function of timing and a decline in fuel sales due to oil economics. The shift of collaboration revenues to contract milestones provides better perspective going forward. Management guided $100+ mn revenue for ’15, carried by an expected record Q1.”

Raymond James’ Pavel Molchanov comments:

“Recommendation. After a period of retooling while in the “overpromise and underdeliver” penalty box, 2013-2014 were Amyris’ first years with operations truly in commercial mode. There is visible scale-up progress, but the historical reliance on partner-based R&D payments makes quarterly financials choppy. There was a sizable miss on the top line, with product sales falling from 3Q’s $11.5 million to only $4.7 million, partly due to dollar headwinds. Cash on hand ended the quarter at $43 million, down from $69 million as of 3Q.”

“Over the past month, Amyris entered two brand-new market segments – both in the high-value, non-oil-levered category. January marked the launch of industrial cleaning products based on the Myralene renewable solvent platform, with the goal of selling into the auto service market and other industrial end users.


“Even more intriguingly, the microPharm discovery and production platform aims to provide the pharma industry with an integrated process for developing therapeutic compounds. While microPharm may seem like a departure from Amyris’ business focus, it’s worth recalling the company’s past (pre-IPO) work on antimalarial drug precursors.”

What does it cost and what does Amyris make on farnesene?

As Osborne noted: “Management has guided an ASP range of $6 to $8 per liter for 2015…with continued farnesene cost reductions, which is now below $3 per liter in cash production cost.”

What is the product mix expected in 2015?

Fragraces 30-35%
Emollients 20-25%
Solvents/cleaning 10%
Fuels 10%
Collaboration revenues 20-30%

The Digest’s Take

We’ve watched Amyris through its period as the #1 Hottest Company in the sector, through a value-crash after delays in getting to commercial-scale production volumes, it’s “Comeback of the Year” period in 2013-14 as it put production right, and now into its first strong commercial flowering. A sense of excitement has returned to the Amyris story — it’s become more about product surprises and the upside than operational surprises and the downside.

The cash production cost remains high. $2.50 per liter is going to drive some exciting returns in niche markets such as fragrances — and pharma opportunities will abound — but the larger markets in chemicals and fuels will have limited exposure to Amyris products for now.

Bigger and better?

Back in 2010, Amyris released some interesting figures on its performance — of course, these were before full-scale production got underway in Brotas. At the time, the company disclosed that it had reached 16.8% farnesene yields. Maximum theoretical is 30%. We haven’t heard much lately about actual production yields, but usually somewhere around 85% of theoretical is a reasonable limit in day-to-day operations, and that would put Amyris at around 25% yields. Product recovery rate in 2010 was already 95%.


So that leaves the company with a pound of product from four pounds of sugar, which would cost $0.56 (at the current sugar price of $0.14 per pound) – and with 7 pounds of diesel in a gallon — the big markets in fuels are going to be a tough proposition for some time to come. And that’s not taking into account the operation cost of the facility or the amortized capex.

But there are a number of caveats there. Firstly, Brazilian projects do not buy sugar, they make cane sugar and the production price can be somewhat lower, if cane yields are good. More importantly, Amyris may not be making jet fuel from C15 farnesene at all — but rather, might make it from C10 isoprenoids, where the theoretical yields will be much higher.

To that end, it’s worth noting that Amyris still has on the books agreements with Sao Martinho to build two new production plants that would each be double the size of its first commercial faciliity in Brotas — overall, a quadrupling of capacity and better economies of scale.


In 2012, Amyris CEO John Melo addressed most of these hopes in his springtime address at ABLC, projecting at the time that the company would produce finished products in six verticals — fuels, lubrivcants, polymers & plastic additives, home & personal care, flavors & fragrances and cosmetics. We’ve seen most of those product lines come to life, and the pharma route is a seventh route to revenue for the company.

As Pavel Molchanov notes. “The market wants to see more clarity on the pace at which Total will be scaling up its fuels joint venture with Amyris – a prospect we have questions about in the context of the oil and gas industry’s current period of austerity.”


In two weeks, Melo will come back to ABLC with another major address — and we’re looking forward to hearing more about the Total JV, the potential for added capacity, the efforts to drive down production costs that open new marlets, and the state of efforts to unlock the large markets in fuels and chemicals that will take Amyris along the road toward “billion-dollar company” status.

Especially, the world of jet fuels.

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.

February 22, 2015

SolarEdge looks to Raise $125 Million in IPO

By Tim Conneally

From a huge crop of Israeli cleantech companies, solar power optimization and management startup SolarEdge has filed for a $125 million initial public offering on the NASDAQ exchange.

SolarEdge has been talking about IPO since 2011, but opted instead to work with venture capital through three separate funding rounds. By the time it completed its Series D, SolarEdge had raised a total of $37 million from more than ten venture capital groups.

The company's CFO recently told Bloomberg that it was difficult to grow such a large company with only private money. An IPO was a given, it was just a question of when it would happen.

Yesterday, the Securities and Exchange Commission published SolarEdge's S-1 filing that revealed the nuts and bolts of this offering.

What SolarEdge offers

A major problem for solar panels is how easily their output can be lessened. When even a portion of a solar panel loses its direct sunlight, the energy output is compromised. SolarEdge claimed to maximize efficiency of panels to mitigate the effects of things like partial solar shading.

By correcting inefficiencies in DC to AC conversion, SolarEdge claimed to be able to boost energy output by as much as 30 percent.

The value of the company is in its patented power inversion technique. It's an upgrade to the dominant method of harvesting solar power. In short, the system uses a distributed architecture of power optimizers. The SolarEdge system hooks up each photovoltaic (PV) module in the array with its own low-cost optimizer. The whole network of optimizers is monitored and managed by a cloud-based interface.

In the company's SEC filing, it describes itself in the following way:

“Our system enables each PV module to operate at its own maximum power point ("MPP"), rather than a system-wide average, enabling dynamic response to real-world conditions, such as atmospheric conditions, PV module aging, soiling and shading and offering improved energy yield relative to traditional inverter systems...Our architecture allows for complex rooftop system designs and enhanced safety and reliability.”

SolarEdge is a B2B company. It sells this solution to solar providers of various sizes in 45 different countries so far. It works with big installers like SolarCity (NASDAQ: SCTY) Vivint Solar (NASDAQ: VSLR) and SunRun and claims to have shipped more than 4.5 million power optimization units and 201,000 inverters since its founding in 2006. Approximately 95,000 installations are hooked up to its cloud monitoring platform.

In 2013, the company's revenue was $79 million. In 2014, revenue grew to $133.2 million. The comany's revenue for the first six months of fiscal 2015 have been double that of the previous year. After a history of losses and negative cash flow from operating expenses, the company is posting a net gain for the first six months of this fiscal year. The first six months of fiscal 2014 resulted in a $13.1 million net loss. So far this year, it's tracked a $5.9 million gain.

But that's an extremely limited run. The company's ability to generate a profit seems to be the biggest question, and it's marked as the number one risk factor in the SEC prospectus. Sure, they market their ability to optimize solar panels for output, but can they optimize their operating costs so they can turn a consistent profit?

SolarEdge will trade under the symbol (NASDAQ: SEDG), and it will not yield cash dividends at any point in the forseeable future.

Tim Conneally is an analyst at Energy and Capital, where this article was first published.

February 20, 2015

The Light On Blue Sphere's Horizon

by Debra Fiakas CFA

The stakes were high at the beginning of its fiscal year 2015, as Blue Sphere, Inc. (BLSP:  OTC/QB), a developer of waste-to-energy projects, was facing deadlines to fulfill its contractual commitments to the sellers of its two ‘front burner’ waste-to-energy projects in North Carolina and Rhode Island.  In the four intervening months it appears Blue Sphere has won all bets.

Blue Sphere had purchased a biogas project from original owner Orbit Energy and had received an equipment financing commitment from Caterpillar.  Unfortunately, an equity financing source withdrew its interest as a year-end 2014 deadline drew near to make a final payment.  Behind the scenes in the final months of 2014, Blue Sphere was able to forge a new alliance with York Capital Management and its subsidiary York Renewable Energy Partners.  

The alliance was formalized through a new limited liability company, Concord Energy, in which York holds 75% interest and Blue Sphere owns 25%.  The original purchase agreement Blue Sphere had struck with Orbit Energy to buy the Charlotte project was allowed to expire and the new Concord Energy JV bought the project.  York will be responsible for financing the remaining development budget.  The original project budget totaled $27.3 million, of which the anaerobic digesters and related plant equipment represents the largest portion at $17.4 million.  Blue Sphere will be responsible for bring the project to commercial operation sometime before the end of 2015.
Source:  Austep SpA, a Blue Sphere equipment supplier and contractor

The deal is transformative as it appears to put Blue Sphere on track to have an operational biogas plant in the Unites States by the calendar year-end 2015.  Management indicates it has been so confident in the Charlotte project that they had continued to work closely with its engineering firm to break first ground.  A food waste supply agreement and an electricity off-take agreement remain in effect.  Accordingly, if the plant is commissioned on schedule, we expect the project to contribute income beginning in second fiscal quarter 2016.  Preliminarily, an estimated $1.0 million per year could be added to annual pre-tax income from the Concord Energy JV.
Blue Sphere is also working with York Renewable Energy Partners on a similar joint venture for a food waste-to-energy project in Rhode Island.  That deal is expected to close by the end of February 2015, with terms similar to those struck for the North Carolina project.  If completed on schedule, the Rhode Island project could contribute to Blue Sphere income by second half fiscal year 2016.

Management has made progress with the pending acquisition of four biogas facilities in Italy.  Due diligence has been completed and Blue Sphere has lined up financing from an Israeli private equity fund.  Thus closing appears possible within the March 2015 quarter.  After the closing Blue Sphere will own a 70% share of the Italy biogas plants, which are reportedly fully operational and profitable at one megawatt in electricity generation.  The Italy biogas plants could contribute to sales and earnings beginning in the fiscal third quarter ending June 2015.

Blue Sphere appears poised to move from development to operating stage with the pending acquisition of fully operational biogas power generation plants in Italy.  Upon closing the Company may report its first revenue and earnings from power sales as early as the quarter ending June 2015.   The report of sales and earnings should have an impact on valuation as investors gain confidence in management to deliver promised results.   We also expect announcements related to progress on the Company’s two most advanced development projects in North Carolina and Rhode Island to have a catalytic impact on sentiment toward the Company.

At the current price level, the stock is valued much like an option on management’s ability to execute on strategic plans.  However, upcoming milestone announcements are expected to shift valuation to earnings.  In a research report recently published by Crystal Equity Research, BLSP was a speculative security and therefore appropriate only for investors with strong tolerance for risk and price volatility.  More details on these recent developments and the company’s most recent financial report can be found in the report.

If Blue Sphere can reach operating stage and begin report sales and earnings, it could have a salutary effect on the biogas sector.  There are few public companies in the sector in the first place and even fewer that have operations of significance.  Even for those investors for whom BLSP presents more risk than accommodated by their investment temperament, Blue Sphere is worth adding to a watch list of the biogas sector.

Debra Fiakas is the Managing Director of
Crystal Equity Research, an alternative research resource on small capitalization companies in selected industries. 

Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein. Crystal Equity Research has published a research report on BLSP in its Focus Report Series, a sponsored research publication.  Please read the important disclosures related to sponsorship and subscriptions in the final pages of all reports.

February 17, 2015

BYD Hopes To Recharge With Asset Sale

Doug Young

Bottom line: BYD’s latest asset sale, combined with its new auto finance joint venture, are both aimed at boosting its struggling EV business, but it may have to sell off more assets before the market finally starts to gain some momentum.

Struggling electric car maker BYD (HKEx: 1211; Shenzhen: 002594; OTC:BYDDF)  is starting to look a bit desperate, announcing a major asset sale just days after it received approval for a stalled finance joint venture aimed at boosting its sputtering sales. The approval this week for its auto finance joint venture comes as rival Geely (HKEx: 175) also has just announced its own approval for a similar stalled joint venture with France’s BNP Paribas (Paris: BNP). That indicates Beijing may be starting to worry about a broader slowdown in China’s car market after several years of breakneck growth.

China’s big domestic automakers like Geely and BYD have suffered over the last few years, as they rapidly lost share in their home market to big global rivals like General Motors (NYSE: GM) and Volkswagen (Frankfurt: VOWG). BYD has suffered more than most of its domestic peers, since it also placed big bets on an EV program that has yet to gain much traction despite Beijing’s strong desire to develop the clean energy sector.

Earlier this week BYD announced it had finally won approval from the banking regulator to set up a vehicle financing joint venture that it previously announced nearly a year ago. (previous post) That initiative should help both its traditional and especially its new energy car sales, since EVs are typically quite a bit more expensive than traditional cars and also face a wide degree of skepticism from mainstream consumers that BYD is targeting for the market.

Now BYD, which is backed by billionaire investor Warren Buffett, has just announced it is selling off one of its older electronic component businesses, in what looks like a bid to raise cash to shore up its shaky financial position. Under the deal, BYD will sell its BYD Electronic Components unit to Holitech (Shenzhen: 002217) for up to 2.3 billion yuan ($370 million). In exchange, BYD will get cash and up to 12.3 percent of Holitech, a dubious looking chemical company traded on the Shenzhen stock exchange.

BYD is quite direct in saying the sale is part of an asset disposal as it focuses on its newer core businesses in the traditional and new energy auto sectors, including battery technology. The electronic component business it’s selling was actually one of its more profitable units, generating about 200 million yuan in profits last year. Shareholders seemed to welcome the disposal, with BYD’s Hong Kong-listeed shares rising nearly 5 percent on the news.

Meantime, Geely will follow BYD into the auto finance sector, with word that it’s received approval from the banking regulator for its previously announced joint venture with BNP. (company announcement) Geely says the approval means it can now set up the joint venture, which could become operational within the next 6 months. Geely first announced this joint venture more than a year ago (previous post), and it does seem like the regulator’s approval of both the Geely and BYD joint ventures in the same week is probably not just coincidence.

The fact of the matter is that China’s broader car industry has shown signs of a rapid slowdown in recent months, in tandem with the nation’s broader economic slowdown. National car sales this year are forecast to grow only about 7 percent this year after posting a disappointing similar rate in 2014. Sales had been growing at double-digit rates before that, as China overtook the US to become the world’s biggest car market in 2010.

This latest asset sale by BYD, combined with its new auto financing joint venture, could buy the company some valuable time for its struggling EV initiative. Beijing has been working hard to promote the development of necessary infrastructure like charging stations to make EV ownership more attractive for average consumers, and many of the new projects will come on stream this year and next. It’s possible that development could provide some new life to BYD and its sagging stock. But it’s more likely the sector will continue to struggle in China, like it is in the rest of the world, and BYD may have to sell off more assets to stay afloat.

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.

February 16, 2015

The Top Ten PV Manufacturers: What The List Doesn't Mean

by Paula Mints

Every year at this time lists of lessons learned during the previous year give way to lists of top ten PV manufacturers. It’s time to ask what these lists mean, and whether they have a purpose to the ongoing growth and health of the photovoltaic industry.

So Many Numbers, So Little Time

There is more than one way to size the photovoltaic industry and unfortunately, much of the time are the metrics are considered to be synonymous.  The PV industry is sized by capacity, shipments, production, module assembly capacity, installations and grid connections.  Since all of these metric describe something different, a host of misunderstandings can, and often do, arise.  Many times a one-to-one relationship is assumed between installations and shipments.  The difference between c-Si cell and thin film capacity and module assembly capacity is often misunderstood.  The role of inventory is overlooked. 

Many times the goal of sizing the PV industry is to announce continue growth, whether this growth is profitable or not.  All industries suffer a similar fate in this regard; growth is prized, whether or not it is healthy growth.

Figure 1 presents various metrics used to size the PV industry.  The metrics presented in Figure 1 are 2014 supply and demand inventory, module assembly capacity, commercial c-Si cell and thin film capacity, production, shipments from annual production, shipments + inventory and defective modules. In 2014, quality issues primarily with crystalline cells were found in modules that had been installed for, in some cases, over ten years.  In some cases, replacement of these defective modules requires a system redesign. 

Figure 1: 2014 PV Industry Metrics

Module assembly capacity, though not trivial, ramps up more quickly than c-Si or thin film capacity. Traditionally, the PV industry has had more module assembly capacity then c-Si cell and thin film manufacturing capacity.  The size of the PV industry is limited by its semiconductor capacity.  In 2014, the PV industry had ~50-GWp of module assembly capacity and 45.9-GWp of c-Si cell and thin film capacity.  This means that in a perfect world at 100% utilization and without considering inventory, PV industry shipments could only amount to 45.9-GWp. 

Manufacturers announcing quarterly and annual shipment data often (meaning, close to 100 percent of the time) do not differentiate between cell capacity and module assembly capacity.  When these numbers are taken at face value the industry is oversized, often significantly.  This is important for several reasons — one business reason is that manufacturers establishing a strategic direction need to have an accurate understanding of the competitive landscape in which it operates.

Table 1 presents data for the top ten manufacturers (as of publication) for 2014.  A final assessment will not be available until all shipment data are tallied. At that time, inventory from the previous year will be factored into the analysis. 

The manufacturers in Table 1 had 2.7-GWp more module assembly capacity than c-Si cell and thin film manufacturing capacity.  A manufacturer can only ship to the limit of its cell/thin film capacity + inventory in any given year.  It is common practice for manufacturers to buy cells from other sources and assemble these cells in-house, including the resulting product in annual shipment numbers. 

Table 1: 2014 Top Ten Manufacturers Shipment Estimate, Capacity, Module Assembly

One reason the annual top ten manufacturer list has lost meaning is that the buying and selling of cells/modules obscures an accurate count and sizing of the industry.  Another reason the annual top ten manufacturer list has lost meaning is that for many years shipments were not profitable.  Recognition of an unprofitable achievement does not support the worthwhile goal of establishing a healthy, thriving industry. Celebrating data that obscures the facts does not help new and established entrants understand the industry landscape in which they compete.   

Top Ten PV Manufacturers Over Time

Today’s number one manufacturer may be out of business tomorrow or merge with another more nimble entity.  Table 2 presents the top ten c-Si cell and thin film manufacturers from 2001 through the 2014 estimate.  Sharp Solar was the number one manufacturer from 2001 through 2007.  Sharp Solar has reduced capacity significantly overtime.  Q-Cells was the number one manufacturer in 2008.  Q-Cells c-Si business was acquired by Hanwha and its CIGS business was acquired by Hanergy.  Other Q-Cells’ businesses are no longer operating.  Suntech was the number one manufacturer in 2010 and 2011.  Suntech declared bankruptcy. 

Several manufacturers on the annual top ten list, such as Schott, AstroPower and BP Solar exited during trying (unprofitable) times.

Historically, and taken in context with what was happening at the time, the annual top ten list has much to teach and perhaps becomes more relevant over time.  Beginning in 2004, the PV industry began to experience accelerated growth. This growth was driven by the EU Feed in Tariff. In 2005, high prices for polysilicon began to pressure crystalline manufacturers.  During these days, investment in thin film technologies increased, the turnkey equipment concept was announced as the future of the industry and longtime participants without polysilicon contracts in place began to struggle. 

In 2009, aggressive pricing from manufacturers in China began to pressure crystalline manufacturers in other regions and First Solar, a manufacture of CdTe panels was the first and only thin film manufacturer to lead the list.  During 2011, 2012 and 2013, survival was the most important PV metric as low margins became impossible to hide. Many manufacturers ramped up during the early days of the EU FiTs, assuming that growth would continue unabated.  Still, even during unprofitable times, those on the top ten list were recognized. 

Table 2: Top Ten PV Manufacturers 2001 – 2014 Estimate 

The top ten list is primarily useful in hindsight, offering lessons about what pitfalls to avoid and where caution might have forestalled failure. It is used most often as a marketing tool, and, when the data are obscured or are confusing, is of little use in that regard. 

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

This article was originally published on RenewableEnergyWorld.com, and is republished with permission.

February 15, 2015

Chinese Bureaucracy Casts Cloud Over Shiny Solar Finance

Doug Young

Bottom line: Complaints of problems from a major solar plant builder reflect the difficulty of new construction in China, and could wreak havoc on the sales and finances of panel makers and their construction partners.

Solar entrepreneur Shi complains of bureaucracy

Two solar energy news items are showing both the attraction and also the frustration that developers are feeling as they try to build new clean-energy power plants to help China wean itself from its dependence on fossil fuels. On the attraction side of the story, the industry has just won a major new backer in the form of insurance giant Ping An (HKEx: 2318; Shanghai: 601318), which is teaming up with panel maker Trina Solar (NYSE: TSL) in a new plant-building initiative.

But the frustrations that many plant builders are feeling were on prominent display in a separate report that cited another major developer complaining of the difficulties of new construction. Those kinds of complaints aren’t really new, and are being caused by provincial government interference and other local issues in the many remote locations where new plants are being built.

While solar power proponents are quite happy to talk about all the money they’ve raised and their big plans for new plant construction, few like to talk about the many troubles they face when they actually try to build those plants. Everyone is being attracted by Beijing’s ambitious plans to build up solar power in the country, partly to support the nation’s big field of solar panel makers and partly to clean up the nation’s polluted air.

Beijing has repeatedly boosted its target for new solar plant construction, with a current aim of installing 35 gigwatts of capacity by the end of this year. And yet an industry official was cited last fall saying that only 10 gigawatts were likely to be added by the end of 2014, making the 35 gigawatt target look nearly impossible to reach. Despite that, the ambitious target has continued to draw in big investors who believe Beijing and local governments will provide them with financial and other assistance in the drive to realize China’s solar energy dreams.

Now Shanghai-based entrepreneur and multi-millionaire Shi Yuzhu is showing just how difficult the road to solar construction can be in China. Shi announced a major new solar construction fund last year, but his enthusiasm has quickly turned into frustration since then. A new media report cites Shi as complaining on his microblog that of the 3 major plants his fund was planning, 2 have run into difficulties that could delay them indefinitely. (Chinese article)

The article details the situation with one stalled project in Inner Mongolia, but the bottom line shows that local government officials are playing their usual tricks designed to benefit themselves rather than facilitate business. Such games are quite common in China, especially in less developed provinces like the ones where many solar plants are being built. Shi is probably being hurt by his own lack of experience as well, but it’s quite likely that his story is being repeated at many similar projects around the country. That certainly doesn’t bode well for solar panel makers or plant builders.

One such panel maker that was counting on a local construction boom is Trina, which has just announced a new plant-building initiative with PingAn Trust and Jiuzhou Investment Group, an investment arm of the Jiangsu provincial government. (company announcement) The trio plan to build new solar plants with total capacity of up to 1 gigawatt over the next 3 years. The arrangement looks quite risky for Trina, as it appears Trina will borrow money from its partners for plant construction, and give them the option to convert the loans into equity ownership at a future date.

Trina and its peers like Yingli (NYSE: YGE) and Canadian Solar (Nasdaq: CSIQ) have announced a string of similar initiatives, which often see the companies join hands with financial backers for new plant construction. If a big portion of those plans runs into troubles like the ones we’re seeing from Shi Yuzhu, which seems almost inevitable, both panel makers and their plant-building partners could find themselves in a big mess that could wreak havoc on their finances and even threaten their survival.

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.

February 13, 2015

Enphase Acquires O&M Provider Next Phase Solar

Meg Cichon

Enphase (ENPH) has been slowly inching its way into the solar service business on both a residential and commercial scale, and may even tap utility-scale projects in the near future, according to Marty Rogers, Enphase’s vice president of worldwide customer service and support. Last year Enphase announced a partnership with solar crowdfunding platform Mosaic to offer O&M services to residential solar loan customers. More recently, it announced a commercial O&M offering that combines its C250 commercial microinverter technology with services that assist the design, installation and maintenance of solar projects, including cloud-based monitoring and a dedicated service team.  

Next Phase Solar adds both residential and commercial projects to Enphase’s portfolio — about 70 percent of those are commercial installations, and the remaining 30 percent residential with a small amount of utility-scale.

“This is a repeatable business and it will be interesting moving forward since the market is really based on both the increase and age of installations,” said Rogers. “We don't see anyone else grabbing this market sector, so we decided it was a great move for us to go after it.”

With services that encompass project needs from start to finish, Enphase claims that its system will reduce financial uncertainty and capital costs while enhancing system performance and ultimately the return on investment (ROI). It’s sort of like commercial office space, explained Rogers. If an owner maintains office space with the highest levels of efficiency, the asset will stay strong and valuable. However, if the owner leaves the asset alone, it will decrease in value over time. “What we’re saying is: Let’s create asset value over a longer period of time, and include documentation to prove that it has been maintained — this will prolong the life and value of the system.”

Enphase also revealed a new Energy Management System at the 2014 Solar Power International (SPI) conference, which is set to hit the market in the third quarter of 2015. The system combines its microinverters, storage and monitoring technology and aims to satisfy the growing commercial and residential storage-plus-solar market that is set to reach 318 MW by 2018.

“The energy storage business requires service, and it will be important to have the right teams in the right places to maintain systems,” said Rogers. “This will be huge for those trying to dive into residential storage, and I can’t think of one company that has a residential fleet for service — but you have got to have this.”

Meg Cichon is an Associate Editor at RenewableEnergyWorld.com, where she coordinates and edits feature stories, contributed articles, news stories, opinion pieces and blogs. She also researches and writes content for RenewableEnergyWorld.com and REW magazine, and manages REW.com social media.  Formerly, she was an Associate Editor of ideaLaunch in Boston, MA. She holds a BA in English from the University of Massachusetts and a certificate in Professional Communications: Writing from Emerson College.

This article was first published on RenewableEnergyWorld.com, and is republished with permission.

February 11, 2015

Tesla Hopes To Electrify Weak Chinese Sales

Doug Young

Tesla Logo

Bottom line: Tesla’s weak China performance owes mostly to its lackluster marketing to wealthy, status-conscious Chinese car fanatics, but its situation could quickly improve if it finds a new marketing-savvy country head.

After roaring into China last year on a wave of hugely positive publicity, electric car superstar Tesla (Nasdaq: TSLA) has rapidly lost momentum and now appears on the cusp of a major overhaul in a bid to jump-start its prospects. This kind of development isn’t hard to understand, as Tesla’s charismatic CEO Elon Musk set the bar incredibly high when he sold his company’s first electric vehicle (EV) in China last April.

One of Musk’s and Tesla’s obstacles has been Chinese consumer reluctance to buy EVs, despite Beijing’s strong desire to promote the clean technology. But Tesla’s target market was never really the mainstream consumer anyhow, and instead Musk was pursuing wealthy, status-conscious people who like to be first adopters of trendy new technologies. In that regard, Tesla’s marketing efforts have also sputtered despite Musk’s strong launch for his brand in China last year. (previous post)

I wasn’t surprised by the latest reports saying Musk is preparing to fire some of his key international managers, since Tesla’s China chief left the company in December after just 9 months on the job. (previous post) But what did surprise me was just how weak Tesla’s China sales were. According to the latest reports, the company sold just 120 cars in China in January, translating to an annual sales rate of 1,440 this year. (English article) That’s a far cry from previous reports that said the company was targeting 2015 sales ranging anywhere from 4,000 to as many as 8,000 vehicles.

Musk isn’t used to failure, and the latest reports say he’s sent out an email threatening to fire or demote more country managers unless they can demonstrate a “clear path to long-term positive cash flow”. It’s a bit unclear who exactly received the e-mails, though it seems unlikely they would have been directed at anyone in China. That’s because any country managers there would be quite new, and it’s also quite possible Tesla hasn’t even hired anyone yet to replace outgoing country chief Veronica Wu.

Tesla was holding out big hopes for China a year ago, saying its sales there could quickly grow to levels comparable in its main US market. But the market has been much slower to take off than expected, and Musk previously said that China sales were unexpectedly weak in the fourth quarter. He promised to fix the problem and be back on track with his aggressive growth targets by the middle of this year.

People like Musk tend to be very marketing savvy and in control of their companies, and I suspect this latest email threatening firings was leaked to the media with his direct knowledge, or at least the understanding that he wouldn’t object. Some may blame China’s broader sputtering EV initiative on lack of infrastructure and consumer confidence, which has hurt the prospects of companies like BYD (HKEx: 1211; Shenzhen: 002594; OTC:BYDDF) that are targeting more mainstream Chinese car owners.

But as I’ve said above, Tesla’s problems in China owe more to a lack of savvy marketing and perhaps weak customer support. Musk gave his company a huge boost by generating non-stop publicity during his trip to China last spring for its first sales, creating plenty of buzz and positioning Tesla as a top-tier brand. But the executives who ran the show after his departure clearly couldn’t maintain the momentum, and Tesla has largely disappeared from the headlines since then.

All of that said, the big question is: What’s next for Tesla in China? The answer is that the company’s local operations are clearly broken, and Tesla badly needs a marketing-savvy person who understands Chinese thinking to fix the situation. Such people certainly exist, and the key will be for Musk to find one such person who can build a strong marketing team. If he does, which seems likely, I could envision a turnaround for the company around the middle of the year, which would start with a new campaign launched by by Musk himself.

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.

February 09, 2015

Cosan's Crush

by Debra Fiakas CFA

Last week Cosan Limited (CZZ:  NYSE) revealed a decision to delay the spin-off and recapitalization of its natural gas distribution network, COMGAS.  Management cited unfavorable capital market decisions.  Cosan has a mix of businesses, of which we have been most interested in its Raisen Energia sugar cane agriculture and ethanol production.  Raisen is a joint venture with Royal Dutch Shell that was initiated in 2011.  The operation squeezes over four million tons of sugar from cane grown in its fields and two billion liters of ethanol each year. The ethanol is sold through Shell’s network of gas stations in Brazil.  Raisen has also become player in electricity generation from sugar cane bagasse with 900 megawatts of installed capacity.
CZZ shares have been in a steady decline over the past two years, with only a couple of short-lived attempts at price recovery.  There is a good reason for Cosan management to look for strategic solutions.  In combination Cosan businesses command a market value of $1.8 billion.   I imagine that we were not the only Cosan watchers who wondered whether the sum of the parts might worth well more than the whole.
Perhaps part of the problem is the erosion of Cosan’s image as a ‘clean’ energy company.  Cosan shares first began trading on the NYSE in late 2008 and investors warmed immediately to the mix of sugar cane agriculture and ethanol production.  The market capitalization of Cosan at the close of trading that first day was $912 million.  The company had already achieved profitability and staged its U.S. equity market debut on a strong sales growth and profitability in the year 2007.  Sugar and ethanol sales represented 94% of Cosan’s business back then.
Fast forward to present time, Cosan has given up 50% portion of the sugar cane and ethanol operations to shell in the Raisen Energia joint venture and acquired the COMGAS business.  Based on the sales Cosan reported in the first nine months of 2014, Raisen’s sugar and ethanol sales fell to 77% of Cosan’s reported revenue and the natural gas distribution business had stepped up to 16% of the mix.

There are of course other factors that could be irritating investors.  Cosan’s net profits were dramatically higher in the first nine months of 2014 compared to the same period in the prior year.  However, cash operating earnings (EBITDA) grew by only 5.6% year-over-year in large part because Raisen Energia only managed to contribute half of the company’s cash earnings despite being over three quarters of the sales mix.  COMGAS on the other hand delivered a 23.8% operating margin in the first three quarters of 2014.

It seems Cosan’s ‘green’ business has given the company a black mark.  Management move to break up the company is probably more for the sake of getting its highly profitable (and valuable) natural gas operation out on its own than in burnishing its image as a ‘green’ company.

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. CZZ is included in Crystal Equity Research’s Beach Boys Index of companies developing alternative energy using the power of the sun.

February 08, 2015

Sol-Wind: A Unique Yieldco

By Jeff Siegel 

President Obama gave renewable energy investors a very nice gift this week...

As a part of his new budget proposal, the president is seeking a 7.2% increase in funding for “clean energy.” As well, he is asking for a permanent extension for the solar investment tax credit (ITC) and the wind energy production tax credit (PTC).

The solar ITC is set to expire at the end of 2016, and the wind energy PTC has already expired.

I can pretty much guarantee that a permanent extension of these tax credits is not going to happen. However, because so many red states generate an enormous amount of tax revenue and jobs from solar and wind, it is likely that both sectors will be thrown some sort of bone — particularly solar, as the industry now supports nearly 174,000 jobs

That data does not fall on deaf ears, despite the dog-and-pony show some lawmakers will put on during election season.

No, solar is the real deal. The market is booming, and cost reductions continue to make it more and more affordable for homeowners and businesses.

Which is why I hope you've been taking some of my advice over the past couple of months and taken a position in some of the more impressive solar names, like SunEdison (NYSE: SUNE), SunPower (NASDAQ: SPWR), and Canadian Solar (NASDAQ: CSIQ). 

Canadian Solar absolutely crushed it yesterday after announcing its acquisition of Sharp Corporation's Recurrent Energy. Check it out...


Recurrent has a massive utility-scale project pipeline that's scheduled to be built before the planned date of the solar ITC expiration. This is a huge win for Canadian Solar, representing an estimated $2.3 billion in revenue.

Going forward, I remain bullish on these major solar stocks, as well as the alternative energy yieldcos.

Year of the Yieldco

Back in November, I wrote in my yearly alternative energy predictions report that 2015 will be the year of the yieldco.

Yieldcos essentially allow retail investors to buy into multiple alternative energy assets that produce steady cash flow. For those who are not particularly keen on risk but still want exposure to the burgeoning alternative energy space, this is a great way to do it. Some of the bigger names include:

  • Hannon Armstrong Sustainable Infrastructure (NYSE: HASI)
  • Brookfield Renewable Energy (NYSE:BEP)
  • NRG Yield (NYSE: NYLD)
  • TerraForm Power (NASDAQ: TERP)
  • NextEra Energy Partners (NYSE: NEP)
  • Pattern Energy Group (NASDAQ: PEGI)

And next week, we'll be adding a new one to this list: Sol-Wind (NYSE: SLWD).

MLP for You and Me

As we wrote to our Green Chip readers earlier in the year, Sol-Wind will be the eighth yieldco to debut since 2013. However, this one is a bit different in that it seeks to utilize a master limited partnership (MLP) structure, so it'll actually be taxed differently from other yieldcos.

Now, because federal law does not currently permit MLPs for renewable energy companies (although oil and gas companies are permitted), Sol-Wind must utilize an exemption that allows certain publicly traded master limited partnerships to be taxed as partnerships instead of corporations.

It's a tricky arrangement that's often used by private equity and hedge funds to avoid taxation. A blocker corporation is set up to absorb the 35% corporate tax that would otherwise be applied to the partnership's assets. However, the corporation makes nothing, and any income made by the MLP is taxed only at shareholder level.

Back in 2012 and 2013, several bills known as the MLP Parity Act (MLPPA) were submitted to Congress, seeking to amend the tax code for publicly traded partnerships to treat all income from renewable and alternative fuels as “qualifying income.” The Senate bills and House resolutions known as the MLP Parity Act died in committee.

However, if an MLP Parity Act is enacted, the company could then be able to use a normal MLP structure, thereby allowing it to dodge extra corporate-level tax.

Long story short, Sol-Wind found a way to utilize an MLP structure despite the fact that renewable energy is still technically not invited to the MLP party.

$400 Million

Sol-Wind management describes the company as a growth-oriented limited partnership formed to own, acquire, invest in, and manage operating solar and wind power generation assets that generate power for retail, municipal, utility, and commercial customers under long-term power purchase agreements.

Following the completion of the IPO, Sol-Wind will acquire from its general partner equity and debt interests in an initial portfolio that represents 184.6 MW of nameplate capacity solar and wind power generation assets in the United States, Puerto Rico, and Canada.

Currently, the company is planning to issue 8.7 million shares at between $19 and $21 a share. At the high end, this would give it a fully diluted market value of $401 million.

Although it's still yet to be seen how Sol-Wind will compare to other alternative energy yieldcos, it'll be interesting for investors to see how the MLP model performs in this particular case.

Definitely keep a close eye on this one.

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


Jeff Siegel is managing editor of Energy and Capital, where this article was first published.  He is also contributing analyst for the Energy Investor, an independent investment research service focusing primarily on stocks in the oil & gas, modern energy and infrastructure markets.  He has been a featured guest on Fox, CNBC, and Bloomberg Asia, and is the author of the best-selling book, Investing in Renewable Energy: Making Money on Green Chip Stocks .

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