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September 30, 2008

What I Sold: Dynamotive Energy Systems (OTC:DYMTF)

This entry continues a series on companies I sold as part of a portfolio cleanup prompted by the mess on Wall Street.  In the first entry I described what I plan to do with the cash, followed by the reasons why I sold Carmanah Technologies and Pacific Ethanol.  UQM Technologies was one I didn't sell.  

I have not  mentioned Dynamotive Energy Systems (DYMTF) before.  I have mixed feelings about the company.  They use fast pyrolysis to make cellulosic biofuels, which I believe will prove to be one of the more economic pathways to cellulosic biofuels.  However, I believe that cellulosic biofuels are not usually the best use of limited biomass.  Rather, I have argued that cellulosic biomass can be more profitably used to displace coal in electricity generation, or to displace corn in feed for livestock.  Nevertheless, there is a strong regulatory and popular push towards cellulosic biofuels, which led to my speculation on Dynamotive last year.

According to the company's Q2 2008 financial statements, they had $1.3M in current assets, $9.5M in current liabilities, and a three month operating cash flow of -$341K.  They've been funding their deficit with short term loans and new share issues, a process which I expect will become much more difficult in the current financial environment, with negative implications for the share price.

DISCLOSURE: No position.

DISCLAIMER: The information and trades provided here are for informational purposes only and are not a solicitation to buy or sell any of these securities. Investing involves substantial risk and you should evaluate your own risk levels before you make any investment. Past results are not an indication of future performance. Please take the time to read the full disclaimer here.  

September 28, 2008

What I Didn't Buy: Railpower Tech (RLPPF.PK)

Over the past few days (and continuing this week), Tom has been writing about about what he sold recently. Lately, I have been thinking about what I could buy with the cash I have sitting around, seeing as many alt energy stocks look like bargains compared to where they were trading at just a few short months ago.

Over the weekend, I looked again into a stock I wrote about in May, Railpower Tech (RLPPF.PK or P.TO). I got a couple of requests for updates on this one so I decided to write about it. Railpower makes hybrid locomotives for short hauls in train yards, and its technology can also be applied to port cranes. The big selling point is that these locomotives can reduce fuel usage by 60% and various harmful emissions by 80%.

The Decision

What prompted me to look at Railpower again is the fact that the stock is down about 25% since I wrote about it in May, although nothing material has happened to the company. This is likely a case of a penny stock getting caught in the storm that is battering the markets. Risk is currently being repriced on a massive scale, and in my view we are at times overshooting to the downside, giving rise to good buying opportunities.

After reading through the Q2 2008 financial statements and recent news releases, I decided not to commit any more money to this company for the time being, although I am not going to sell any of my small position. My main concern is the lack of contracts being signed, with only six units (5 locomotives and 1 crane) being sold in Q2 and Q3 2008. Given the high degree of operating leverage the company is taking on by building its own plant and moving away from contracting out assembly, volume will be of essence.

The Good

I'm keeping my current position intact because Railpower is blessed with something few of its small-cap peers have: ample cash reserves because of a recent C$55 million financing through convertible debentures in two tranches, C$35 million in late 2007 and C$20 million in May 2008.

Railpower estimates its non-working capital cash needs at about C$25.6 million for 2009, mostly related to the construction of its new plant. With C$40.1 million in the bank, and the option to pay for the interest expenses associated with the debentures in shares rather than cash, the company is relatively well positioned to weather the current crisis in capital markets. Though management acknowledges it will need more cash for working capital purposes once production ramps up, this money should be relatively easy to access as contracts are signed.

The Bad

The new factory currently being built will have a capacity of 125 units per year. Dividing that number by four quarters yields 31.25, so selling about 27 new units per quarter would equate to operating at about 85% of capacity, which is pretty decent.

As mentioned above, Railpower is currently nowhere near that number with six units in the last two quarters. The firm has cash in the bank, a great technology, no real competitors and one of North America's most sophisticated institutional investors as its main financial backer, so at this stage in the game investors need to see the order book getting filled. Press releases about how cool the technology is just won't cut it anymore, especially in an environment where investors need to see real operating cash flow to feel reassured.

The Ugly

Now the C$55 million in financing is great news to be sure, but there is a rub. As mentioned above, Railpower has the option of paying all interest expenses on both debentures (coupon rates of 5%) until maturity (2013) in shares rather than cash. In Q2 2008, Railpower elected to pay its interest expenses in shares, resulting in the issuance of 1,980,166 new common shares, or a 2.2% increase over the common shares outstanding prior to that period (89,495,458).

The holder, for its part, has the option of being paid the whole of the principal in common or another class of shares. For the C$35 million debenture, the conversion price is set at C$0.30 per share, which would result in 116,666,667 new shares being issued. For the C$20 million debenture, the conversion price is set at C$0.40 per share, which would result in 50,000,000 new shares being issued. As at June 30, 2008, there were 91,475,624 shares issued and outstanding. The debentures are secured by a claim on anything that's "movable" on the balance sheet (i.e. not land or a plant), which encompasses all of the assets that actually matter right now.

Paying interest expenses via share issues is a double-edged sword for the company's shareholders: on the one hand, bankruptcy risk is nearly eliminated in the near-term; on the other, if the company can't figure out a way to boost sales and generate operating cash flow, shareholders get progressively more diluted. In effect, this turns cheap capital (debt at 5% plus a tax shield) into very expensive capital (equity). While the cost of equity capital is not reflected through an immediate cash outflow, the opportunity cost in terms of not being able to raise money through an equity offering later on because of concerns over shareholder dilution is very real.

In a context where the company is filling the order book, this situation isn't an especially big deal as interest expenses can be paid in cash and existing shareholders can benefit from plenty of upside before the debentures mature and the massive dilution risk they represent materializes. However, in a context where the company isn't selling units and no operating cash is coming through, management has the option of diluting shareholders instead of facing bankruptcy, which it could be argued reduces pressure to perform. The holder of these debentures, the OTPP, is in a position to have its cake and eat it to: if the company fails, it can get a good chunk of its money back, and if Railpower succeeds it'll get a controlling position for what is likely to be a fraction of the company's intrinsic value.

Conclusion

I don't mean to sound like a bear on this stock and I am not. For one thing, I think the management team has exactly the right profile for the job. I like the proximity, both from a key personnel and from a geographic standpoint, to Bombardier, which is a global leader in rail transport. Any signs of the two cooperating on projects would be great news. I also expect that sales will pick up as the plant nears completion and as customers feel reassured that Railpower can deliver.

But as a small minority shareholder, I can't help but feel a little uneasy at potentially being diluted if management fails to sign sales contracts. I therefore want to see signs of commercial success before dipping my toes any further, which would materialize as sales edging closer to an average of 27 units sold per quarter.

DISCLOSURE: The author is long Railpower Tech

DISCLAIMER: I am not a registered investment advisor. The information and trades that I provide here are for informational purposes only and are not a solicitation to buy or sell any of these securities. Investing involves substantial risk and you should evaluate your own risk levels before you make any investment. Past results are not an indication of future performance. Please take the time to read the full disclaimer here.

September 27, 2008

The Week In Cleantech (Sep. 21 to Sep. 27) - Tax Credit Or No Tax Credit?

In Solar,

John Gilluly at The Chip Stock Trader let us know that help was on the way for solar stocks. An interesting take on the solar installation business with a stock pick - Akeena Solar (AKNS).

But Keith Johnson at the WSJ's Environmental Capital suggested everyone should put away the champagne: the much awaited bill extending tax credits for solar and wind, it seems, may not be passed this session. Failure to agree on a bailout plan over the weekend would just about fully re-load the gun for solar shorts to get back to work next week.

In Clean Transportation,

Don Dion at Seeking Alpha let us know of a new ETF tracking the clean transportation trend - the PowerShares Global Progressive Transportation (PTRP)

Research Recap informed us that natural gas was going to play a stronger role in many markets. Notice how the article does not discuss uses related to road transportation. Given growing prevalence in power generation, is it reasonable to believe natural gas can also be a transportation fuel?

In Environmental Markets,

Environmental Leader informed us that the RGGI was holding its first mandatory auction.

In Waste-to-energy,

Nick Hodge at Green Chip Stocks talked about making tons of cash from tons of trash. Waste-to-energy, because of the potential for generating carbon offsets, is an interesting area to keep an eye on.



The Week In Cleantech is a collection of our favorite stories from the past week generated by our Cleantech News service. Register your site with us if you want your articles to appear here.

What I Sold: Pacific Ethanol (NASD:PEIX)

This entry continues a series on companies I sold as part of a portfolio cleanup prompted by the mess on Wall Street.  In the first entry I describe what I plan to do with the cash, and the second was about Carmanah Technologies.   UQM Technologies was one I didn't sell.

In May of last year, I took a look at competitive forces in the corn ethanol industry.  While I was rather negative on the industry at the time, when ethanol stocks fell in the summer and fall of 2007, I called the bottom much too soon, and decided to dabble in the industry.  I thought that Pacific Ethanol's (PEIX) strategy of arbitraging the costs of transporting corn vs. the costs of transporting ethanol and distillers dried grains would lend them some protection from industry overcapacity.  Whatever protection they might have had was not enough.  With current liabilities exceeding current assets, and operating cash flow from the last 6 months exceeding cash on hand, PEIX will probably need to raise new capital to stay afloat, something I doubt they can do on favorable terms in today's climate.

DISCLOSURE: No position.

DISCLAIMER: The information and trades provided here are for informational purposes only and are not a solicitation to buy or sell any of these securities. Investing involves substantial risk and you should evaluate your own risk levels before you make any investment. Past results are not an indication of future performance. Please take the time to read the full disclaimer here.

September 25, 2008

What I Sold: Carmanah Technologies (CMHXF, CMH.TO)

On Monday, I told readers that I was getting out of companies some which I feel are likely to need to raise new money over the next couple years.  I also provided a list of stocks I will be buying when I judge we're near the bottom.  This is the first in a series of short articles about those stocks. 

Carmanah Technologies (CMHXF)

I've mentioned Carmanah Technologies (CMHXF) in passing in articles about LED companies.  I first became interested in Carmanah in 2005. The company's integrated LED-solar lighting solutions caught my attention because they were (and are) economic regardless of the price of electricity; the savings come mainly from reduced installation costs.  The downside of this is that they are unlikely to see the spectacular growth that solar photovoltaics will see as solar approaches grid parity in cost.  They struggled with a strong Canadian dollar (loonie) driven by high oil prices.  Because company expenses are mostly denominated in loonies, company earnings tend to fall with a rising oil price, making this company a poor hedge against oil.

Carmanah has done much to recapitalize the company and refocus the business since they were badly hurt by a rising loonie last year, but their currency exposure was  unhedged as of their June quarterly report, so they are exposed to a rise in the value of the loonie (which I expect if oil prices recover.) 

DISCLOSURE: No position.

DISCLAIMER: The information and trades provided here are for informational purposes only and are not a solicitation to buy or sell any of these securities. Investing involves substantial risk and you should evaluate your own risk levels before you make any investment. Past results are not an indication of future performance. Please take the time to read the full disclaimer here.

September 24, 2008

What's Up with UQM?

As part of a general portfolio cleanup, I recently considered selling my stake in UQM Technologies, Inc. (AMEX:UQM), a manufacturer of electric motors for hybrid and electric vehicles.  I chose to keep the stock because they seem to have sufficient cash on hand to fund several years' operations.  I'm glad I did, because the stock is up 76% since Monday, with no recent news.

But there's a rumor that Chrysler will be using a UQM product in one of its planned electric cars.  If that rumor is true, the stock's rise is probably justified.  I like the company either way, but don't expect all the gains to hold if the rumor turns out to be false.

DISCLOSURE: Tom Konrad owns UQM.

DISCLAIMER: The information and trades provided here are for informational purposes only and are not a solicitation to buy or sell any of these securities. Investing involves substantial risk and you should evaluate your own risk levels before you make any investment. Past results are not an indication of future performance. Please take the time to read the full disclaimer here.

 

September 22, 2008

What I'm Selling (and will be Buying) in the Market Turmoil

The market is in turmoil, and it seems like everyone I talk to wants my take on what's happening this week.  So here's my take:

  • I really don't know if the various bailouts and decisions not to bail out made by Paulson et al will turn out to be good decisions or not.  I do know that the mess we're in is due to hard decisions which have been put off for years at the highest levels, and I do know that the American taxpayer is going to be feeling the pain for a generation, if not generations.  
  • Although I predicted that the credit crunch would lead to a bear market, (and was bearish long before that) the intensity of this last week still caught me by surprise. I had expected big problems to emerge sooner, and when they did not, I began to expect that the fall would be gradual, rather than quick. 
  • I do not believe we are at the bottom, so I'm taking the current recovery as an opportunity to unload some of the stocks I expect to be hurt the worst.
  • Long-term, the extra US-denominated debt will have to be either repaid, or inflated away.  Inflation seems most likely, which may be good news for technologies like wind and solar which produce energy at a fixed cost, and probably better for efficiency technologies which do more with less.

Stocks to Sell

What companies are likely to be worst hurt?  Any company which needs to raise new money in the next couple years.  Although I tend to favor established, profitable companies, I have recommended (and own) a smattering of startups with compelling technology, and I'm currently selling many of these.

Many of these companies are thinly traded, and I am still in the process of selling these positions (mostly at substantial losses).  Not wanting to depress their prices, I will not disclose the specific companies at this point.  I also am holding on to some which have fallen so far that the proceeds of the sale are insignificant, especially if they are in accounts such as IRAs where the tax loss would not be useful.

Ten Stocks to Buy

Last February, when it was still fairly early on in this bear market, I brought you a series on stocks to buy when you think we've hit bottom.  Although I do not yet think we've hit bottom, I know that timing the market is very tricky.  I also know we're considerably closer to bottom than we were in February.  Given these uncertainties, I take the approach of selling cash-covered puts on stocks I'm interested in at prices below where I expect them to fall.  This means that I collect the premium if the stock does not fall that far, or I buy the stock at what I considered a very good price if it does. 

I currently like companies involved in energy efficiency, wind, transmission, and government contractors involved in alternative energy, because I expect all of these to be more resilient during what I expect to be years of hard economic times.  Here are my current top ten, with links to the articles where I wrote about them.  Since most of these companies are both large and extremely liquid, I don't expect that listing them here will affect the stock prices materially.  The ranking is based on a combination of how much I like the company itself, and the current valuation, starting with my current top pick. 

  1. New Flyer Industries (NFYIF), $11.00
  2. Johnson Controls (NYSE:JCI), $33.65
  3. First Trust Global Wind Energy ETF (NYSE:FAN), $22.55
  4. Veolia (NYSE:VE), $45.15
  5. Philips (NYSE:PHG), $30.83
  6. Honeywell (NYSE:HON), $45.32
  7. General Cable (NYSE: BGC), $38.99
  8. Siemens (NYSE:SI), $102.42
  9. General Electric (NYSE:GE), $26.62
  10. AECOM Technology (NYSE:ACM), $27.28

DISCLOSURE: Tom Konrad owns or has written puts on NFYIF, JCI, FAN, VE, PHG, HON, BGC, SI, GE, and ACM.

DISCLAIMER: The information and trades provided here are for informational purposes only and are not a solicitation to buy or sell any of these securities. Investing involves substantial risk and you should evaluate your own risk levels before you make any investment. Past results are not an indication of future performance. Please take the time to read the full disclaimer here.

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September 21, 2008

The Week In Cleantech (Sep. 14 to Sep. 20) - White Roofs A New Energy Efficiency Play?

In Solar,

Eric Savitz at Barron's Tech Trader Daily wondered whether stock loan deals would be repaid. It's always important for shareholders to pay attention to which financing structures companies chose. In this case, if you understood this well, it could have a been good lateral short play on Lehman's problems. However, if you were long ESLR and had not paid this financing too much attention, you were probably not pleasantly surprised.

Good CleanTech let us know about a new report claiming that thin-film will make up a whooping 40% of the solar PV market by 2012.

In Energy Efficiency,

Kristin Underwood at TreeHugger informed us that lighter roofs could save up to $1 billion yearly. I found it interesting that this is mandated in California. Might be a good idea to look for companies in the roofing and paint industries with exposure in this area.

In Wind,

Keith Johnson at the WSJ's Environmental Capital wondered how long the economics were going to work in favor of clean energy. Wind's variability, it seems, is becoming a lesser concern than nat gas and coal prices volatility.

In Clean Transportation,

Katie Fehrenbacher told us that Picken's Clean Energy Fuels (CLNE) was hooking up with a Seattle-area garbage collection company. At a forward PE of nearly 60x, investors are implicitly putting a lot of hope on the future of natural gas-powered road transportation. Is this a sound bet?

In Politics,

Matter R Network informed us that McCain had voted 50 times against clean energy measures over the course of his career. Our friend and Contributor Editor Neil Dikeman argued a couple of weeks ago that McCain-Palin was nothing short of a "cleantech dream ticket". Yet every time the facts are put forward the picture that emerges isn't especially promising for alt energy investors.

In Biofuels,

Michael Kanellos at Greentech Media told us that the biofuels business was going horizontal. This could be an interesting trend to watch.

In Oil,

Matthew McDermott at TreeHugger argued that tar sands could be the oil industry's version of sub-prime meltdown.


The Week In Cleantech is a collection of our favorite stories from the past week generated by our Cleantech News service. Register your site with us if you want your articles to appear here.

September 15, 2008

Wind and Heat Pumps: A Winning Combination

This article has been cross-posted on The Oil Drum.

Last month, I brought you some nice maps showing when and where good wind resources are found in the US.  Now I've found something better: a visual comparison of electrical load with wind farm production[pdf file], published by the Western Area Power Administration in 2006.  The study compared electricity production from five wind farms in Northern Colorado, Southwestern Nebraska, and Central Wyoming in 2004, 2005, and the start of 2006, compared with electricity consumption in the same area over the same time period.

Comparison of Wind Production to Electricity Demand

I've copied four of the most representative graphs below.

The first and third heat graphs below show electricity production at the five wind farms studied in 2004 and 2005, respectively.  The Second and fourth show electricity demand in the surrounding territory.  Red(blue) denotes areas of high(low) production or demand. 

All Farms 2004.jpg wacm load 2004.jpg All Farms 2005.jpg wacm load 2005.jpg

For wind advocates, these are probably rather scary graphs.  The first thing you probably noticed was the big blue patches of wind production during summer peak demand, roughly 10am to 10pm in June, July, and August.   This is why wind is referred to as an "energy resource" not a "capacity resource."  Right when demand is highest (namely hot summer afternoons), the wind is least likely to be blowing.

On Second Thought - How Much Backup Do You Need?

That is just the first impression, and while it is a true impression, it's also an oversimplification.  If you look at the scale, you will notice that the blues on the wind production graphs actually represent wind generating at 10% to 15% of nameplate capacity.  If you factor in the fact that a normal capacity factor for wind is about 25-40%, that means that even on these hot summer afternoons, the farms are generating at one-third to one-half of their "normal" output.  This means that, contrary to popular misconception, wind does not require a "100% back-up with natural gas."   It is true that wind is less reliable than baseload power plants such as coal and nuclear, which typically run about 90% of the time, but in an apples-to-apples comparison, a 100 MW coal or nuclear plant will produce as much energy over the course of a year as a 270 MW wind farm.  During the peak summer months, the coal plant will need some backup power in case of an unscheduled shut down due to lack available coal (this happened in Colorado in 2005 due to problems with dust in rail tracks) or lack of available cooling water during a heatwave, and when a coal or nuclear plant goes down, it goes all the way down, so the 100 MW baseload plant has a small chance of needing 90 MW of backup to produce at its "normal" rate of power production.  On the other hand, the wind farm will be operating at (a conservative) third of its "normal" capacity, producing about 30MW.  To bring that up to it's normal capacity for the year, it will need 60MW of back-up power.  

In other words, because some part of a large distributed group of wind farms is always producing some power, it will never go completely down.  A large baseload power plant, on the other hand, is completely down about 10% of the time (although less during peak summer months, because utilities schedule maintenance in off seasons.)

Pick Farms to Match Your Load

Another point worth noting, is that the wind has different annual patterns in different locations.  The smallest (8.4 MW out of 139MW) of the five farms in the study was "Wind Farm B" in central Wyoming.  If you look at the following two heat maps below for 2004 and 2005, which show the production of just this wind farm, you will note that during the peak summer demand, this farm was producing at over 50% of "normal" capacity for much of the summer peak.

Wyoming Wind 2004.jpg Wyoming Wind 2005.jpg

Since we know what electricity demand looks like, if we plan new wind farms (and adequate transmission), we can choose to build wind farms that produce more power when we most need it.  If all the farms in the example in the last section had more favorable production patterns like Farm B, even less back-up generation would be needed to bring them up to "normal" capacity.

For instance, in the Texas Competitive Renewable Energy Zones study [.pdf 7.64MB] wind in the coastal area (along Texas's southern gulf coast) was found to be a much better match for the ERCOT load shape than wind in other areas, although the average capacity factor was considerably lower than panhandle wind.  See chart below.

 TX CREZ Hourly Capacity July.jpg

Hence, careful selection of wind farms can lead to wind production with higher capacity during peak loads, and correspondingly less need for dispactchable power.  Although Texas is currently focusing on developing wind farms in West Texas and the Panhandle because of their high capacity factors and correspondingly high annual energy output, the power from coastal wind farms is likely to become increasingly valuable as wind reaches higher penetration.

It's Not All About Summer Peak

Statements about wind's need for large dispacthable backup generation because of low capacity factors during peak times contain am implicit assumption that electricity demand is fixed.  This assumption is both false and pernicious, because shifting demand can be done cheaply, and often produces multiple benefits.  While it is true that most large scale electricity storage technologies, such as pumped hydropower, compressed air energy storage, and utility scale batteries are expensive or limited to a few available sites (pumped hydro,) technologies which shift the demand curve are not.

If you look back at the first set of four heat maps, you will note that wind actually does a quite good job serving the winter peak.  In 2004 (a year with a moderate summer) winter peak demand actually exceeded summer peak.  

Capacity during winter peak has some advantages over summer peak.  First of all, natural gas prices are higher during the winter, because natural gas is used extensively for home heating as well as power generation.  In February 2006, Xcel Energy had a series of major power outages in Northern Colorado which they blamed on insufficient natural gas in storage due to an unusually cold temperatures.  Yet as this heat map   All Farms 2006.jpg

shows, wind farms in the region were operating at 40-60% capacity factors (i.e. well above "normal" production) for January and February.  Note that the blue at the end of the year was due to lack of data, not lack of production.  Had there been more wind farms installed, this would have had a large impact on the amount of natural gas needed for electrical generation, and the outages would not have happened.   I don't have data to back it up, but my personal experience leads me to believe that cold winters in the great plains are also particularly windy winters, meaning that winter wind capacity is ideally suited to displace natural gas needed for heating.

How Heat Pumps Fit In

Which brings me to the title of this article: why heat pumps are an excellent fit with wind generation.  In my article on how to invest in the Pickens Plan, I mentioned that ground-source heat pumps (GHP) can displace gas used for heating with a smaller amount of electricity from wind.   Since a GHP is both an efficient air conditioner as well as an efficient heat source, it not only reduces natural gas used for heating, but also reduces electricity used for cooling in hot summer months, which in turn reduces summer peak loads.  

Deployment of GHPs does three things to make energy supplies fit energy demand:

  1. Winter electricity usage is increased just when wind capacities are highest.
  2. Summer electricity consumption is decreased when wind capacities are lowest.
  3. Use of natural gas for heating is reduced during times of peak gas demand.

GHPs, because of their extreme efficiency, also have the benefit of saving users a lot of money.

The Dual Fuel Option

Unfortunately, GHPs have not been widely adopted, due to the difficulties of installing the buried heat exchange loops, especially in urban areas (although some utility programs have been very successful.)  When I bought a house, it was in a New Urbanist development with very small lots which was close to my work.  While this saves me countless gallons of gasoline, it meant that I was unable to use a heat pump.  I opted instead for the most efficient natural gas furnace available from my homebuilder, in combination with the most efficient air-source heat pump.  Unlike GHPs, air-source heat pumps lack a ground loop, meaning that they only work efficiently when temperatures are above about 40F.  In my dual-fuel system, the heat pump heats my house during milder weather (which is frequent in Denver winters), and the natural gas furnace takes over when it is cold.   Since the heat pump is only slightly more expensive than the air conditioner I would have bought anyway, the dual fuel system will pay for itself rapidly, especially when natural gas prices are high.

From the perspective of the electric grid, my electric usage is higher and my natural gas usage is lower during the heating season, when gas demand is high and wind farms are at their most productive.  So while a dual fuel house is much less of a strain on the energy infrastructure than one with a furnace and an air conditioner, it also saves the homeowner money for a much smaller investment.  In addition, while the need for a ground loop makes a GHP nearly impossible to retrofit to an existing home, an air source heat pump is an option for anyone considering replacing or installing an air conditioner, and has the added advantage of having a back-up heat source during a natural gas outage.

Another retrofit option I hope to see available soon is a hybrid ground/air source heat pump [pdf].  These systems combine a short ground loop with an air heat exchanger.  By using the air exchanger during milder weather, only a smaller ground source loop is needed for use during more extreme conditions, reducing the up-front costs compared to a GHP, but without the performance loss of an air source heat pump.  A startup called Co-Energies has developed a way to retrofit existing air conditioners into hybrid heat pumps; see slides 33 and later of this PowerPoint.

Electricity Demand Can Shift

Heat pumps are just one option for changing the shape of the electricity demand curve.  Many such efficiency measures can do so.  Other examples are improved home sealing and insulation, which typically pay for themselves in a couple years or less, and, because air conditioners work less hard in the summer, reduce summer peak loads.  Wind is undoubtedly a tricky sort of electricity to use in the existing grid, but the fallacy that demand is fixed makes the problem seem much harder than it needs to be.

September 14, 2008

Why Power-Save (PWSV.ob) is No Longer on our Stock List

Mea Culpa.

We often get request from readers to add companies to our Alternative Energy Stocks list.  Since the field is very active, we do some quick checks to make sure that the companies at least:

  1. Provide enough information to make an informed investment decision.
  2. There's nothing obvious which indicates serious investors wouldn't be interested.

We by no means feel that everything in the list is a good investment, but we do feel that our list a good place to start your own research. Usually.

Last weekend, we received a request from a shareholder to add Power-Save Energy Corp (PWSV.ob) to our list.  It fell to me to check it out, and while I did check that they provide enough information to make an informed investment decision (they file audited financial statements with the SEC,) the contents of those statements would have made me flinch, at least if I had bothered to read them.

Non-Existent Internal Controls

Fortunately for us, we have many diligent readers, and one of them quickly pointed out that PWSV did not belong on our list.  Here are a few things I should have read the first time around:

From the auditor's opinion (italics mine):

The Company is not required to have, nor were we engaged to perform an audit of the Company's internal control over its financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.

Since the auditors don't have an opinion on internal controls (this is not particularly unusual for an over the counter or pink sheet company), I should have looked to see what I thought of any controls they might have.  I would have found:

  1. Not only is the CEO Michael Forster also the Chairman of the Board, he is the Chief Financial Officer as well.  Given no separation of duties, it is impossible for the company to have any sort of financial controls.
  2. The Board consists of Mr. Forster, a 38 year old relative of Mr. Forster, and a 23 year old whose most relevant experience was managing daily operations at a restaurant.
  3. Under the internal review of controls and procedures, "The Certifying Officers [who, you will note above, are actually one person, Mr. Forster] have evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report and believe that our disclosure controls and procedures are effective based on the required evaluation." At the very least a lack of separation of duties should have been highlighted as a material weakness in this section.

Why Internal Controls Matter

None of this is to say that Power-Save might not be a viable business.  It may or may not be.  I'd have to do more research to find out.  But there is no reason to do more research, because even if the company had discovered a process for turning lead into gold, there is no reason to believe that shareholders would ever see any of the profits.  Mr. Forster does not even need to write out a company check to himself, he can simply grant himself excessive compensation in the form of cash and stock so that all company profits flow directly into his pay packet. 

Off the List

The shareholder who contacted me with the stock is probably going to be unhappy that I not only removed PWSV from our list, but wrote this article suggesting it is a bad investment.  I'm doing this in order to reduce my workload: if you would like to add a stock to our list, please do some preliminary checks of your own before bringing it to our attention.  You'll save yourself money, and save us time, so we can continue bringing you information about stocks that really are worth investing in.

DISCLOSURE: None.

DISCLAIMER: The information and trades provided here and in the comments are for informational purposes only and are not a solicitation to buy or sell any of these securities. Investing involves substantial risk and you should evaluate your own risk levels before you make any investment. Past results are not an indication of future performance.  Please take the time to read the full disclaimer here.

The Week In Cleantech (Sep. 7 to Sep. 13) - Toyota Speaks Of 'Liquid Peak' And Korea Gets Into Solar

In Geothermal,

Richard T. Stuebi at Cleantech Blog told us about geothermal heat pumps, the forgotten one.

Matthew McDermott at TreeHugger informed us that Ormat had bought exploration rights on an Alaskan volcano.

In Solar,

Eric Savitz at Barron's gave us more details of Cypress Semiconductor's spin-off of its SunPower unit. He also provided growing evidence of an impending shake-out in the solar PV sector driven by panel oversupply.

Jeff St. John at Greentech Media told us that LG was plotting a partnership with Conergy. He also discusses plans by large South Korean firms, Hyunda i Corp and Samsung, to get involved in solar. Large, well-capitalized conglomerates getting involved in solar PV could be the biggest threat yet to the weaker pure-plays.

In Clean Transportation,

Energy Tech Stocks reported that Toyota sounded like a Peak Oil advocate in a recent report. But, reported Green Car Congress, Toyota is putting its money where it's mouth is.

In Biomass,

Jaymi Heimbuch at Eco Geek reported that Austin was building the nation's largest wood-waste biomass plant. He also highlighted, however, one of the main risks with such plants: feedstock shortfalls.

In Energy Storage,

Ecoworld discussed the potential cost of large-scale energy storage for grid balancing purposes.



The Week In Cleantech is a collection of our favorite stories from the past week generated by our Cleantech News service. Register your site with us if you want your articles to appear here.

September 11, 2008

What Do CPV and LEDs Have in Common?

I recently attended the Optoelectronic Industry Development Association's (OIDA) "Green" Photonics Forum.  Unlike dirty industries trying to appear green, the Optoelectronics industry does not really have to try to be green.  Two prominent examples familiar to clean energy investors are Concentrating Photovoltaic Solar (CPV) (i.e. using optics to focus light on high efficiency solar cells) and Light Emitting Diodes (LEDs).

The presentations on Tuesday focused on the above technologies, and I was struck by a common problem faced by both: heat dissipation.  According to Sarah Kurtz, a National Renewable Energy Laboratory scientist leading the team working on high-efficiency, multi-junction solar cells used in CPV, one of the key challenges for CPV integrators is bonding the solar cell to the heat sink.  This bond needs to be uniform, without any bubbles, and needs to be able to withstand large, rapid temperature changes, as the amount of light and heat on the chip goes from practically nothing to hundreds of suns.

What can LEDs not do at 150 lumens per watt?

The keynote speaker at the conference was Jay Shuler of Philips (NYSE:PHG) Lumileds.  He's confident that white, high power LEDs which have been demonstrated in the laboratory to produce up to 150 lumens per watt  will make their way to the marketplace in the next couple years.  At this level of light production, commercially available LEDs will surpass even the most efficient light sources available, low pressure sodium lamps (no, not CFLs, which typically produce about 100 lm/w) with much better color rendering.  But there are lighting markets that LEDs will have difficulty penetrating even when they are the most efficient white light source, namely retrofit markets for standard light bulbs (i.e. you will keep your CFLs for some time yet.)   

The problem with fitting into the form factor of a standard bulb in a standard socket is, once again, cooling.  The first commercially available100W replacement  LED bulb actually contains a fan for cooling... a step away from the solid state reliability we would expect from LED bulbs.  Jay suggested that buyers of such bulbs should be very concerned about quality and durability of such bulbs.  

As an aside, I have been using a 60w replacement (using 5w) in an outdoor light, and four 25w candelabra replacements (at 2w each) in a fan since January, without any problem yet.  On the downside, although the candelabra bulbs have a long, shiny base for cooling.  The light quality (soft white, about 3000K color temperature) has been excellent, and seem brighter than I would expect from the bulbs they are meant to replace. 

Can we invest in heat sinks?

Often the most profitable way to invest in an industry is to invest in the suppliers of hard-to find technology for that industry.  For instance, one of the best ways to invest in solar during the silicon shortage from 2004-2007 was suppliers of silicon.  This may be more difficult to profit from than silicon, because heat sinks are not particularly high-tech, but, as Dr. Kurtz pointed out, the connections to the heat sinks are.

This leads me to look for current industry leaders in thermal management, who might have relevant expertise.  A search for "Thermal Management Solutions" led me to several companies such as Rogers Corp (ROG), which is focused on wireless communication and computer markets.  Given this focus, they probably have some expertise to apply to LEDs, but not necessarily any that might apply to the extreme temperatures of CPV.  I also found a few private companies, of which the most promising for this market was Plansee, because of their experience in both optical and military markets, and claims the "ability to braze metal to metal, ceramic to metal and ceramic to ceramic to exacting specifications and tolerances." 

Unfortunately, as a private company, Plansee is not an option for public market investors.  The question remains open for readers: Is there a publicly traded company with experience in thermal management for the extreme temperatures needed for CPV? 

DISCLOSURE: Tom Konrad and/or his clients have long positions in PHG.

DISCLAIMER: The information and trades provided here and in the comments are for informational purposes only and are not a solicitation to buy or sell any of these securities. Investing involves substantial risk and you should evaluate your own risk levels before you make any investment. Past results are not an indication of future performance.  Please take the time to read the full disclaimer here.

September 08, 2008

Evergreen Solar (NASD: ESLR): Ready to Turn Around?

Evergreen Solar has been in a trading range ($8 to $18) for about two years.  Now it's trading again at the bottom of the range, and with the general market downturn, along with the anticipated wave of new polysilicon supply a lot of investors will be wondering: Is Evergreen about to turn around as it has so many times in the past, or is it going down from here?

Over the past couple years, I have been very successful at trading the stock, but not because of some special insight.  When a stock has so many analysts following it (about 30 in the case of Evergreen), I generally assume that I won't be able to add much in terms of insight.

Instead, I made my profits using cash covered puts (options on ESLR are relatively liquid) and covered calls, a strategy which works best when a stock is trading in a range.

What's Different About Evergreen

Evergreen is fairly unusual in the crystalline silicon solar space in that it is vertically integrated, and manufactures its own wafers, modules and panels.  Evergreen's String Ribbon Technology allows them to make more cells using less silicon than traditional manufacturers, but at a conversion efficiency of 14.5% it is only about 2/3 of that available from the silicon PV industry efficiency leader, Sunpower (NASD:SPWR).  However, because of their thinner cells, they use less than 5 grams of silicon per peak watt (Wp) [see annual report, pdf], as compared to approximately 6 grams per watt for Sunpower.  According to Evergreen 5g/Wp is "less than half the industry average."

Evergreen has contracted for supplies of Silicon sufficient for all their planned increases in production through 2012.  Since silicon prices are widely expected to moderate in 2009, and the price moderation has been expected for some time (I first wrote about this in 2006), the expected price reduction will have been built into the contracts. Evergreen will only be affected relative to unhedged competition if price declines are different that that expected when the contracts were written.

Going Forward

The photovoltaic industry is likely to see a shakeout if supply grows faster than demand in late 2008 and 2009 because the industry will be less constrained by available supplies of Solar grade silicon.  If the demand for photovoltaic panels is elastic enough to absorb the resulting increased supply (albeit at a lower price), other steps along the value chain can hope to take a large portion of the profit which silicon suppliers were formerly taking.

As an aside, I personally will take a serious look at a PV system next year if I can't get the prototype Combined Heat and Power solar system I'm negotiating with a local startup for.  Until now, I have advocated investing in dividend paying renewable energy companies such as Ormat (NYSE:ORA) as being as green and having better prospective returns than buying photovoltaics.  However, alternative energy stocks are a poor hedge for commodity inflation, and a solar system is a perfect hedge for electricity prices, so that, along with lower solar system prices tempts me to to do home improvements beyond radical energy efficiency.

Evergreen Solar, with its wafers-to-panels supply chain, seems likely to be able to capture some of the gains given up by the silicon manufacturers, assuming that all of these gains do not go to consumers and installers, or vanish with the possible expiration of the ITC and reduction in German and Spanish subsidies. There are a lot of "ifs," but Evergreen seems relatively well placed for the coming solar storm.  With the stock price back below $8, I expect we're much closer to a bottom than we are to the recent peak.

DISCLOSURE: Tom Konrad owns shares in ESLR and ORA.

DISCLAIMER: The information and trades provided here and in the comments are for informational purposes only and are not a solicitation to buy or sell any of these securities. Investing involves substantial risk and you should evaluate your own risk levels before you make any investment. Past results are not an indication of future performance.  Please take the time to read the full disclaimer here.

September 06, 2008

The Week in Cleantech, September 1-6, 2008: Solar also Rises; Batteries are Something to Crow About

In Solar,

New Energy Finance told us that Spain had raised the cap on new solar capacity, but not enough to appease critics.

Ucilia Wang at Greentech Media brought us analysts' picks for 2009's winning Solar stocks, but they didn't mention Sharp (SHCAY.PK), which GoodCleanTech told us had developed a technique to halve silicon wafer costs.

In Clean Transportation,

Autoblog Green brought us Insight into Honda's new Global Hybrid.  And Autoboog Green also told us GM's Lutz was bragging about the Volt's "flawless" batteries, GoodCleanTech introduced Mazda's plans for a rival.

Treehugger told us that while Oslo was ramping up chargin stations, Th!nk can't build cars fast enough to meet demand.

In Energy Storage,

The Next Big Future told us that Nickel-Zinc batteries pack more punch than NiMH, but are much cheaper than Lithium-ion, and Treehugger told us of New Jersey's big investment in Compressed Air Energy Storage.

In Biofuels,

Biofuel Review described New Zealand's new law to promote sustainable biofuels, but Cleantech.com brought word to another biofuel IPO that couldn't be sustained.

The Week In Cleantech is a collection of our favorite stories from the past week generated by our Cleantech News service. Register your site with us if you want your articles to appear here. If you like (or dislike) this alternative format, leave a comment and let us know. 

 


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