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December 31, 2011

Ten Clean Energy Stocks for 2011: Year In Review

Tom Konrad CFA

My clean energy portfolio outperformed again in 2011, but it was a Pyrrhic victory.

Without a doubt, 2011 was a horrible year for Clean Energy stocks, nearly as bad as 2008.  The difference was that, in 2008, the entire stock market was crushed, while this year, the broad market ended with only modest declines compared to clean energy stocks.

Based on 2010 and 2011 closing prices, the broad market (as measured by the performance of the Russell 2000 index), was down 10%, while clean energy stocks were down 52%, as measured by the most widely held clean energy ETF, the Powershares Wilderhill Clean Energy ETF (PBW), which I use as a benchmark for the sector.   For the fourth year running since I began publishing an annual list of picks, my portfolio again beat my clean energy benchmark, but only because of the miserable performance of PBW.  The portfolio as a whole lost 48% after taking into account the effect of dividends.  (My portfolio exceeded its benchmark by 12% in 2008, 45% in 2009, and 10% in 2010.)  You can find the original article introducing 2011's clean energy picks here.

What Happened?

I attribute my superior performance in previous years to better sub-sector selection.  I generally avoid solar stocks because I have long felt that the solar sector was too popular among people who should know better and too competitive for companies to retain consistent long term margins.  Declining solar manufacturing margins arrived with a vengeance in 2011, causing an implosion of solar stock prices, including a couple high-profile bankruptcies.

Energy Efficiency stocks are usually central to my portfolios, since energy efficiency has better economics that other energy technologies (including fossil fuels), although this year I chose to include two demand-response stocks EnerNOC (ENOC) and Comverge (COMV) among the energy efficiency picks and got badly burned, as demand-response seems to be becoming commoditized as well.

Despite the fact that I managed to squeak out a win over PBW, I consider 2011 my worst year to date.  Not only did I make the inauspicious choice to bet on demand response, but I also picked two geothermal developers, in the expectation that 2011 would be a good year for geothermal stocks.  In fact, not only did geothermal stocks fall even further out of favor in 2011, but both of my picks suffered from nasty surprises early in the year, with Ram Power (RAMPF.PK) reporting large cost overruns in the company's flagship San Jacinto-Tizate project in Nicaragua, followed by the resignation of the company's CEO Hezy Ram.  Ram later told me that he left over "Irreconcilable differences with the board and controlling shareholders, about the future course of the company and how to get there."

The news at Nevada Geothermal Power (NGPLF.OB) was even worse.  In May, the company announced a power production shortfall and forecast a gradual temperature (and output) decline at their flagship Faulkner 1 geothermal plant at Blue Mountain.  According to Nevada Geothermal CEO Brian Fairbank in a personal conversation, the problem was that fractured rock at Blue Mountain allows water from reinjection wells to travel much more quickly than anticipated to the production wells, which has the effect of cooling the produced water over time.

Bad news for specific stocks did not stop with these.  In April, American Superconductor, now renamed AMSC (AMSC) admitted that their major customer had refused shipments and had not paid for some previous shipments.  As details emerged, the news only got worse.  Sinovel had been helping to set up a Chinese supplier whose products competed with AMSC's, with some of the new rival's technology stolen from AMSC by a former employee.  AMSC is now pursuing Sinovel in Chinese courts, but Chinese courts are not known for their diligence in the protection of international intellectual property.

For stock-by-stock performance, see the chart and table below:

10 for 2011 Q4.png


Q1 change Q1 div Q2 change Q2 div Q3 change Q3 div Q4 change Q4 div Total Return
WFIFF 7% 0.9% -12% 0.9% -29% 0.9% -9% 1.0% -39%
COMV -36%
-22%
-2%
-12%
-72%
ENOC -19%
-15%
-19%
10%
-44%
CVTPF 10%
-17%
-26%
-8%
-41%
TLVT/NFYEF 9%
41%
-47% 5.5% -7% 3.9% 6%
PCH 20% 1.6% -10% 1.6% -30% 1.6% -1% 1.0% -16%
NGLPF -11%
-66%
-9%
-4%
-89%
RAMPF -35%
-43%
-4%
4%
-78%
AMSC -18%
-51%
-15%
-1%
-84%
VE 4%
-1% 5.8% -55%
-12%
-58%










Portfolio -6% 0.2% -20% 0.8% -19% 0.8% -5% 0.6% -48%
PBW 1%
-14%
-35%
-4%
-52%
Russell 2K 4%
1%
-27%
12%
-10%

Outlook for 2012

With fully 30% of the companies in my list suffering from unanticipated bad news, I'm a bit shocked that the portfolio still managed to beat its benchmark.  But with my portfolio down by almost half, this is a victory of the "Win the battle, lose the war" variety, and not one I care to repeat.  Fortunately, I don't think I'll have to. 

With so many clean energy stocks having fallen so far, I have been finding stocks which I consider good values for much of the last 6 months.  While 2011 felt a lot like 2008, I think 2012 has the potential to be a lot more like 2009 than any other year since I started this series.  In 2009, my picks were up 57%, while PBW was up 27%. 

Expect to see my new list for 2012 in the next few days.

DISCLOSURE: Long VE, RAMPF, NFYEF, WFIFF, CVTPF, and calls on AMSC.

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.

December 30, 2011

Energy in the Great Depression

Energy in the Great Depression

Eamon Keane

With the focus on the size of the ECB's balance sheet and eurozone bond auctions, it can be difficult to see the big picture of where this is going. Concerns about oil and climate change have taken a backseat to the foreboding sense of doom. To see the implications for energy it requires a look at the direction of the financial system.

In recent times every 40 years or so there has been an upheaval in the monetary system, as Philip Coggan explains in his excellent new book Paper Promises. The gold standard broke up during WWI, an attempt was made to reinstall it in the inter-war period, and then in 1944 the Bretton Woods system was introduced. America, as principal creditor, designed the system (although Keynes had some input). Bretton Woods broke down in 1971 due to America's trade imbalance when Germany, France and Switzerland demanded to convert their money into gold. For the past 40 years money (debt) creation has exploded, with the initial result epic inflation, followed by a stupid stock market bubble and a ridiculous housing boom, with debt increasing all the time as shown below:

bretton woods bubble

Sources: Housing prices, CAPE, Interest rates: Robert Shiller; US Credit Market Debt - Fed flow of funds L1.

The music stops when American long term interest rates return to some semblance of normality due to a buyer's strike by external creditors. China, as principal creditor this time round, will get to call the shots for the new monetary system. This is likely to include capital controls, fixed exchange rates, and limits on current account imbalances. This will do away with much of Wall St. and the City. Not before time, you might say, with the bankers still unrepentant. The staff at Irish banks, which have cost Ireland 50% of GNP (American equivalent $7.5 trillion), have still not taken a pay cut. Contingent banking liabilities which the state has assumed are a further 129% GNP. The following two graphs show just how out of control the finance industry has gotten:

stern finance pay
Source: Thomas Philippon (2008)
finance american gdp
Source: Thomas Philippon (2011); Historical Statistics of the United States p24; BEA (.xls)

In case you're wondering who we've bailed out, it's these:

http://www.youtube.com/watch?feature=player_embedded&v=La84mwsCH-A

Based on deleveraging of global debt coupled with malinvestment in ghost estates/cities from Ireland to America to China and very poor GDP weighted demographics (Germany, China, Japan, Korea, Italy etc.) a period of painful deflation may be in store. Global debt is now over three times GDP:

global debt gdp
Source: Business Insider

With this backdrop, the outlook for the energy industry has to be bleak. UBS estimates the current wind turbine industry is only operating at a 60-65% factory utilization rate.  The solar industry is significantly oversupplied also:

solar supply 2012

G-Pap had designs for €35 bn of renewable energy investment in Greece, but the IMF looks set to put paid to that. Levelised cost of energy calcluations are very sensitive to the discount rate - when interest rates normalise, projects will become significantly more expensive. Getting to the title of the piece, with a great depression II no longer out of the question, the effect on energy demand is likely to be profound. The data from the first great depression are shown below:

energy consumption in the great depression
Source: Historical Statistics of the United States p165; BP Statistical Review of World Energy 2011 (.xls)

The difference this time is that during the great depression 95% of America's oil was domestically produced, while in 2010 60% was imported (11.8 mb/d). This time round global oil industry costs are structurally much higher. A 40% drop in the oil price like in the 1930s, to $60/bbl, is possible but not sustainable given the oil production cost curve. 75% of currently produced oil was discovered before 1980, leaving the potential for declines from mature fields. Overall US energy demand dropped by 34% between 1929 and 1932. The beneficiaries in such a scenario are those energy solutions which have a low upfront and low running costs like bicycles, ebikes and small, efficient cars.

December 28, 2011

2012 Energy Stock Predictions

By Jeff Siegel

Domestic Oil to Reign in 2012


Last December, I made three predictions for 2011:

  1. The mounting solar glut problem would be rectified by the end of the year;
  2. Domestic oil and gas production would increase significantly, regardless of environmental concerns related to fracking and tar sands production; and
  3. With the introduction of the Chevy Volt and the Nissan LEAF, domestic sales of electric cars would reach no less than 10,000 units.

Well, two out of three ain't bad!

A Sad Season for Solar

Toward the end of 2010, we saw the writing on the wall...

Inventories of solar modules and cells were piling up just as the world's strongest solar market, Germany, was chipping away at its very generous subsidy mechanisms.

The country's feed-in tariff did exactly what it was designed to do: accelerate investment into solar. It did that — and more.

The fact is Germany is responsible for launching the solar industry from niche player to multi-billion-dollar revenue generator.

And unlike some countries (this one in particular) where energy subsidies never seem get phased out, thereby putting a major burden on taxpayers and disallowing a free market to flourish, Germany stuck to its guns this year, told the lobbyists to stand in a corner, and began the process of phasing out those feed-in tariffs.

Of course at the start of the year, many analysts (including this one) believed that even with the phasing out of subsidies in Germany, the sector would continue to chug along.

You see, in an effort to move excess inventory out the door, solar manufacturers began to lower selling prices. The expected result was that this would allow for a pickup in demand.

That never happened.

Despite prices falling by as much as 50%, the hard truth is that it ain't easy selling cheaper solar panels to consumers when the entire global economy is going down the crapper.

This year, nearly every major solar stock has fallen by more than 60 percent. It was an absolutely horrible year for solar stocks.

Fortunately, most energy investors don't put all their eggs in one basket. And while I personally ate it on some solar stocks, my call on domestic oil and gas production more than makes up for it...

4.3 Billion Barrels

If you're a regular reader of these pages, you know I'm not a huge fan of the heavily-subsidized oil and gas industry.

The billion-dollar welfare check we hand the industry every year is a slap in the face to every real free market thinker.

No matter how the bureaucrats in Washington try to spin it, there is no justification for forcing hard-working taxpayers to foot the bill for a profitable and mature industry to do business.

That being said, I can't afford to buy a senator. I'm one guy without a K Street connection, and I don't expect many on the Hill to trade their campaign contributions for my vote. So while I would love nothing more than to see a real, honest free market in energy, I know it's not going to happen anytime soon...

And as a seeker of profits, I'll take my gains where I can get them.

Which is why we'll continue to play this angle in 2012.

Now we've been discussing domestic oil and gas production all year. We've covered the Bakken story dozens of times. And we'll continue to cover it. After all, we're talking about more than 4.3 billion barrels up for grabs.

That ain't chump change, my friend. And if you think for a second that every ounce of the oil won't be produced, you're out of your mind.

And don't forget, there's another 2 billion barrels sitting at the Three Forks location. Of the wealthiest investors I know, not a single one of them is ignoring this opportunity — and you shouldn't, either.

Not the Failure They Hoped For...

Dortmund iMiEV charging
By Rudko [CC0], via Wikimedia Commons
Throughout the course of 2011, I felt like I had become a representative for the electric car market, defending it from an avalanche of unfair attacks.

It still amazes me that at a time when we're trying to displace as much foreign oil as we can, there are so many knuckle-draggers cheering for the failure of a vehicle that doesn't need a drop of gasoline or diesel to operate.

I'm not going to sit here today and defend the electric car from all the bogus arguments we hear time and time again from the media whores and partisan slaves. (Feel free to check out this article I wrote back in 2010, where I responded to some of the more common criticisms.)

But consider my prediction from last year: With the introduction of the Chevy Volt and the Nissan LEAF, domestic sales of just these two electric cars will reach no less than 10,000 units.

Not including December sales (which we won't see until January), 8,738 LEAFs and 6,142 Volts have been sold in the United States.

That's nearly 15,000 electric vehicles — roughly 5,000 above my initial estimate. And this is just domestic sales. Globally, more than 20,000 Nissan LEAFs have been sold.

Just to put this in perspective, consider this: When Toyota first launched the Prius Hybrid in 1997, the Japanese automaker sold 3,000 units.

In 2011, the first year Nissan starting selling the all-electric LEAF, more than 20,000 will have been sold. Not too shabby — especially considering the LEAF carries with it the burden of range anxiety, something Prius owners have never had to deal with.

(I didn't include the Volt in this comparison because there is no range anxiety with that vehicle. Once the initial charge is depleted after 30 to 40 miles, the engine kicks in, and you can go another 300 miles or so.)

Yes, the electric vehicle market's best days are still ahead. And that brings me to the first of my...

Predictions for 2012

It is clear that Nissan has taken the early lead in electric vehicle development, much in the same way Toyota took (and maintains) the lead in conventional hybrid vehicles.

In fact, the company announced a couple of months ago it has set a goal of selling 1.5 million electric vehicles by 2016. That's only four years away.

As for next year, the major automakers will continue to produce and roll out their new electric offerings.

In addition to the Chevy Volt and Nissan LEAF, we'll start to see Mitsubishi's electric car — the “i” — hit the highways in 2012. Ford's all-electric Focus is also expected to make its debut. That particular vehicle looks like it could be a real crowd-pleaser.

Of course, it will still carry with it a price premium. And that will likely limit early sales to early adopters...

But most analysts know that this early round of electric cars is really only intended to serve as the building blocks for future electric offerings.

Because like it or not, electric vehicles are going to be part of every major automakers' lineup going forward.

I'm not saying electric cars will overtake the conventional internal combustion engine anytime soon. But from a growth perspective, the opportunities for investors are undeniable.

A recent Pike Research study showed there will be more than one million plug-in electric cars on the roads in just three years. And by 2017, just about five years from now, that number will grow to 5.2 million.

By the end of this year, total plug-in sales will be around 21,000.

Considering the overall vehicle market is expected to grow 3.7 percent between 2011 and 2017, this is a massive growth story.

But as I said, the conventional internal combustion engine will still own most of the auto market for decades to come. And that means our reliance on oil is not going anywhere. As a result, expect to see a continued run on domestic oil and gas production.

Where Natural Gas is King

Moving onto utility-scale power generation, natural gas will continue to pick up where coal leaves off.

The fact is conventional coal has reached the end of its usefulness — at least here in the United States. It simply cannot compete with low-cost natural gas, and as older plants retire, don't count on utilities building many new ones that'll comply with new regulations. It simply doesn't make economic sense.

No, the preference for utilities will be natural gas. Although many will continue to develop their wind holdings, too...

Just last week, Duke Energy Corp (NYSE: DUK) and American Transmission bought a $3.5 billion power line project that will move wind power from Wyoming to California and the Southwest.

Most of the wind action next year will happen in the Midwest, Texas (now the leader in installed wind capacity), and Hawaii, which is desperate to transition away from having nearly 90 percent of its power generation come from diesel generators.

So to recap...

2012 will bring us:

  • More domestic oil and gas production

  • More installed wind capacity

  • More electric car production and sales

Also worth noting:

  • We'll start to see significant depletion of the world's solar glut by Q2 or Q3. Solar stocks will remain risky, but many are trading so low that if you can stomach the risk, it might be worth picking up a few of the more solid players in the early part of the year.

  • Despite some obstacles, the Keystone XL pipeline is going to happen. Don't let these recent bumps in the road convince you otherwise. There's a market for Canada's dirtiest of oils, and it will be supplied.

  • The move to pony up more nuclear power in the U.S. will continue, although I'm not convinced it'll get very far in 2012. Regardless of your take on nuclear, it is prohibitively expensive without massive government support. And there ain't much of that right now. That being said, I remain bullish on new nuclear fuel technologies that enable lower cost production and safer power generation.

Overall, I'm cautiously bullish on 2012.

I don't buy for a second that we're going to have some miraculous recovery next year...

But I also don't believe we're going to be pushing wheelbarrows full of dollars and trading gold coins for bread, at least not yet.

Either way, don't let it weigh on you. Because regardless of how things turn out in 2012 — there's always a bull market somewhere!

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

 signature

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

December 27, 2011

Tesla Confirms Pricing and Launch Date of Model S

Clean Energy Intel

model-s-signature-red_960x640_b[1].jpg
Tesla Model S: Image used with permission from Tesla.

Tesla (TSLA) officially announced the pricing, options and timing for next year´s US launch of the Model S this week. There have been some worrying rumors that the company would forced to raise its prices due to cost factors. Consequently, the good news for Tesla stock is both that the pricing has been held steady and that the summer launch date remains in place. Confirmation of both of these factors is certainly welcome news.

Firstly, the official pricing for the US market remains as previously indicated:
  • The starting price for a Model S with a basic 40 kWh battery (160 miles) comes in at $49,900 after the $7,500 Federal Tax Credit.
  • The price for a Model S with a 60 kWh battery (230 miles) comes in at $59,900 after the Federal Tax Credit.
  • The price for a Model S with a 85 kWh battery (300 miles) comes in at $69,900 after the Federal Tax Credit.
  • The price for a Model S Performance with a 85 kWh battery (300 miles) comes in at $79,900 after the Federal Tax Credit. The Performance model can do 0-60 mph in 4.4 seconds - faster than the Porsche 911 Carrera.

Secondly, Tesla has officially confirmed that the company is on schedule to deliver the first Model S vehicles in the summer of next year. The schedule remains:

  • Summer 2012 - Production of the Model S with 85 kWh battery and the Model S Performance
  • Autumn 2012 -  Production of the Model S with 60 kWh battery
  • Winter 2012 -  Production of the Model S with 40 kWh battery

You can see the detail of all of the pricing and options on Tesla´s new web page outlining the everything you need to know about the Model S.

Both the pricing and the timing for the Model S are of course key factors with regard to which the market has been looking for confirmation. The fact that the company is on track to meet both commitments is clearly bullish for the stock. Consequently, we remain bullish on Tesla and expect to see a retest of the $34.94 November high.

You can read our last article recommending Tesla and discussing the company´s recent deal with Mercedes here. Finally, you can read an in depth discussion of Tesla and the future of the electric car here.

Disclosure: I am long Tesla (TSLA)

About the Author: Clean Energy Intel is a free investment advisory service (available at www.cleanenergyintel.com), producedby a retired hedge fund strategist who also manages his own money inside a clean energy investment fund.

December 26, 2011

Coskata’s $100 million IPO: The 10-Minute Version

Jim Lane
coskata_small_logo[1].jpg

The first gas fermentation technology to come to the public markets: Coskata files its $100 million IPO.

Here’s our 10-minute version of the filing, with a translation of the risks into English.


In Illinois, Coskata has filed an S-1 registration statement for a proposed $100 million initial public offering. The number of shares to be offered in the proposed offering and the price range for the offering have not yet been determined. The lead book-running managers for the offering are Citigroup, Barclays and Piper Jaffray.

The company is currently ranked #17 in the world in the 50 Hottest Companies in Bioenergy. The rankings recognize innovation and achievement in fuels and are based on votes from a panel of invited international selectors, and votes from Digest subscribers.

Coskata, which in the past year lost $28.7 million while recording $250K in revenues becomes the 14th company to file for an IPO in the industrial biotech boom, which began with a successful listing on the NASDAQ by Codexis (CDXS) in 2010. IPOs by Amyris (AMRS), Gevo (GEVO), Solazyme (SZYM), and KiOR (KIOR) have followed. In recent months, PetroAlgae (PALG.PK), Bioamber, Myriant, Ceres, Genomatica, Mascoma and Elevance Renewable Sciences and Fulcrum Bioenergy have also filed S-1 registrations for proposed IPOs.

Here’s the S-1 registration, in a conveniently downsized 10-minute Digest version – with some commentary along the way as to what is driving value in the Coskata model, opportunities for the intrepid investor, and some risks which we have translated from the ancient and original SEC into modern English.

Company Overview

From the S-1: “We are a technology leader in renewable fuels and bio-based chemicals. Our low-cost, proprietary process converts a wide variety of abundant feedstocks, such as woody biomass, agricultural residues, municipal wastes, natural gas and other carbon-containing materials, into fuels and chemicals. We have combined…synthesis gas production and cleaning…with our molecular biology and process engineering capabilities to create a synthesis gas fermentation platform.

“We operated a production facility at demonstration-scale for more than two years where we achieved what we believe to be the highest yield of cellulosic ethanol per bone dry ton of feedstock demonstrated at this scale. In 2012 we expect to begin constructing our first commercial-scale cellulosic ethanol production facility.

“At our demonstration-scale facility in Madison, Pennsylvania, which we refer to as Lighthouse, we operated our technology platform to produce ethanol for over 15,000 hours. At this facility we converted a wide variety of feedstocks, including wood chips, wood waste, sorted municipal solid waste, and natural gas, into ethanol.”

The Technology

Historically, there were two widely-recognized conversion methods for the production of cellulosic ethanol: biochemical and thermochemical. The platform utilizes a hybrid process which combines key elements of the biochemical and thermochemical methods.

The process is not dependent on sugar-based feedstocks or the use of enzymes and catalysts. Our integrated platform encompasses all aspects of the production process, from feedstock handling to product separation.
The high yields and low cost are driven primarily by four factors in our production process:

• the conversion of feedstock into synthesis gas, or syngas, which makes more of the carbon in the feedstocks available for conversion;

• the use of proprietary micro-organisms that ferment syngas with a high degree of target end-product selectivity, minimizing production of less-valuable by-products;

• the elimination of chemical catalysts and enzymes; and

• the use of an integrated platform design that allows for a continuous production process.

CoskataProcessDiagram[1].jpg

The Market

Fuel-grade ethanol is an established fuel blendstock, representing a 23 billion gallon global market in 2010, and has drop-in compatibility with existing infrastructure. Ethanol is the most common biofuel, with the United States consuming 13 billion gallons in 2010. At a December 9, 2011 market price of $2.71 per gallon, this represents a $35 billion market.

RFS2, a U.S. government incentive program, currently mandates that 21 billion gallons of advanced biofuels be produced by 2022, with at least 16 billion gallons derived from cellulosic biofuels.

Our technology platform can also produce cost competitive chemical intermediates that can be converted into propylene and ethylene, which represented $100 billion and $140 billion global markets.

The Risks, Translated from SEC-speak

Among the lowlights of reading S-1 registrations are the endless pages of risk disclosures couched in an alloy of SECspeak and legalese.

We offer these excerpts from the original S-1, and a translation into English, prepared by our Digest lexicologists.

In SECSpeak: “In place of the plasma gasifier that we used at our Lighthouse facility, we expect to integrate an indirect biomass gasifier with our syngas cleaning technology, which have never been tested together for fuels production. While biomass gasifiers are a proven technology, they have only been used commercially on a limited basis and have experienced operational reliability issues.”

In English: Uh, we didn’t actually use our proposed gasification machine, a/k/a/ Old Unreliable, because in the demonstration that we did, we decided to demonstrate something else.

In SECSpeak: “We have entered into an MOU with a lender for $87.9 million of debt financing to fund a portion of the cost of constructing Phase I of our planned Flagship facility. We have also received a conditional commitment from the USDA relating to a 90% guarantee of such debt financing…The process for finalizing the definitive documentation with the lender and the USDA may take longer than expected or may not happen at all.”

In English: Your investment dollars may become, er, marooned (i.e “into the Valley of Death rode the six hundred”), if we don’t close this loan.

In SECSpeak: “There has been a substantial increase in ethanol production in recent years, but increases in the demand for ethanol may be limited because of market resistance to ethanol. At current consumption levels, the industry is approaching saturation of the 10% blend level market.”

In English: And now, the Talking Heads with their classic hit, “Road to Nowhere.”

In SECSpeak: “A disruption in our supply chain for components of our proprietary nutrient package could materially disrupt or impair our ability to produce renewable fuels and chemicals.”

In English: If Rumplestilskin the Magic Coskata Microorganism doesn’t get his vitamins, he won’t spin our straw into gold.

In SECSpeak: “Our planned Flagship facility will be located in Boligee, Alabama, which is an area exposed to and affected by hurricanes. Our other future commercial production facilities may also be located in areas susceptible to natural disasters, such as hurricanes, wildfires, earthquakes and floods.”

In English: “Brownie, you are doing a heck of a job down there with Hurricane Katrina.”

In SECSpeak: “Our management team has worked together for only a limited period of time and has a limited track record of executing our business plan as a team. We have recently filled a number of positions in our senior management and finance and accounting staff. Additionally, certain key personnel have only recently assumed the duties and responsibilities they are now performing.

In English: “Brownie, if that’s your name, you are doing a heck of a job, whatever it is that you do, down there with that, what do you call it, that Flaghouse project in Alaskabama. I think. (Pause) Oh, shoot, I dialed the wrong number. How do you get an outside line here?”

In SECSpeak: “Our commercial success depends on our ability to operate without infringing the patents and proprietary rights of other parties and without breaching any agreements to which we become a party. We are aware of other parties applying various technologies, including Ineos Bio and LanzaTech NZ Ltd.”

In English: Yep, we’re aware of INEOS Bio. They are, like, suing the heck out of us.

In SECSpeak: “Although we currently intend to use the net proceeds from this offering in the manner described in “Use of Proceeds,” we will have broad discretion in the application of the net proceeds.”

In English: If we spend all this money on, say, golf memberships, the only ethanol we’ll see will be at the 19th Hole.

The Strategy

From the S-1:

“Build our first commercial-scale facility.

Expand through a flexible, capital-efficient business model.

Be a full service solution provider.

Commercialize production of bio-based chemicals.

Identify attractive global market opportunities.

Maintain technology leadership through ongoing investment in R&D.”

The Commercialization Plan

From the S-1: “Our first commercial facility will be built in Boligee, Alabama. The initial production capacity of this facility, which we refer to as Flagship, will be [Phase I] 16 million gallons of ethanol per year, and [Phase II] to achieve total production capacity of 78 million gallons of ethanol per year…at an unsubsidized cash operating cost of less than $1.50 per gallon, net of co-product sales, assuming a feedstock cost of $64 per bone dry ton of softwood.

“Phase I of Flagship will be financed by a portion of the proceeds of this offering, cash on hand and $87.9 million of debt financing supported by a 90% loan guarantee through the USDA’s 9003 Biorefinery Assistance Program.

“We expect Phase I and Phase II to be completed in 2013 and 2015, respectively.

“We expect to use a wide variety of other feedstocks, in addition to woody biomass, for subsequent facilities, including municipal solid waste, agricultural residues, energy crops and fossil fuel sources…We also believe that corn ethanol producers can expand their capacity by co-locating our technology at their existing ethanol production facilities, since it would allow them to convert agricultural residue into cellulosic ethanol.

“Our proprietary technology platform can produce valuable bio-based chemicals in addition to renewable fuels like cellulosic ethanol. We are currently collaborating with Total Petrochemicals to develop a unique micro-organism-based technology that produces propanol…coupling our propanol technology with proprietary technology to dehydrate alcohol into alkenes, including propanol into propylene.

“In addition to building and operating facilities, we plan to enter into joint ventures for the co-ownership of facilities and to license our technology platform to third parties.”

Coskata as it sees itself:  6 Competitive Strengths

Proprietary technology platform. As of November 30, 2011, we had six patents issued and 28 patent applications pending on key elements of our technology platform, including syngas cleanup, micro-organisms and continuous anaerobic fermentation. At Lighthouse, our demonstration-scale facility, [we have] over 15,000 hours of run time

Low cost production with high yields. Based on demonstration runs at Lighthouse, we expect to achieve yields of 100 gallons of ethanol per bone dry ton of softwood at Flagship, with unsubsidized cash operating costs of less than $1.50 per gallon.

Significant feedstock flexibility. Our process can utilize a wide variety of carbon-containing feedstocks, including wood chips, wood waste, municipal solid waste, agricultural residue such as corn stover and bagasse, energy crops and fossil fuel sources such as natural gas, coal and petroleum coke.

Multiple end products targeting large existing markets. Our first commercial product will be fuel-grade cellulosic ethanol. Our technology platform can also produce cost competitive chemical intermediates that can be converted into propylene and ethylene. In addition, we have demonstrated in a laboratory setting the production of butanol, butanediol, hexanol, organic acids and certain fatty acids.

Fully-integrated process solution that enables rapid commercialization. Our technology platform is a complete, fully-integrated process solution that can be delivered to our future wholly-owned facilities, as well as to our joint venture projects and licensees.

Experienced management team. We have assembled strong management, scientific and engineering teams with deep knowledge in research and development, new product development, capital project execution, feedstock procurement, plant operations and business plan execution.

Financing to date

Coskata has incurred substantial net losses since its inception, including net losses of $28.7 million for the year ended December 31, 2010 and $23.3 million for the nine months ended September 30, 2011. They expect these losses to continue for the foreseeable future. As of September 30, 2011, they had an accumulated deficit of $88.2 million.

The bottom line

The really good news here is that a sygas-to-biofuels technology is now available to investors. Of all the processing technologies, it’s been among the most promising for quite some time, but all the companies have been privately held. With syngas, you get more carbon to work with, and you can work more easily with ultra-low cost feedstocks like MSW.

Even better, in maintaining their $1.50 per gallon or better projection on operating costs, Coskata is signaling that it has cracked the technology problem, from a process point of view. That’s huge.

Now, for the tough love, in five parts:

1. The USDA loan has not closed.
2. There’s no really, really significant strategic partner with skin in the game, here, whose presence says “our engineers have looked at the technology, and we believe” to the investor.
3. There’s a potentially damaging, unresolved lawsuit with INEOS Bio, how damaging, we don’t know.
4. Who knows exactly what will happen when the project switches from plasma gasification to a biomass gasifier.
5. The CAPEX looks like around $12 per gallon for the Phase I, and we’re not sure how fast that will come down in Phase II, as down it must come.

So, there are reasons why, to the retail investor, confidence may be low. If #1 and #3 are resolved and #4 and #5 are explained between the time of the filing and the road show, that will make for an easier time for CEO Bill Roe and team. As with Mascoma’s IPO, it would definitely strengthen the offering and confidence, if a major strategic came on board in a stunningly material way, as Total did with Amyris. It happened with Valero and Mascoma, and that added zing and magic to a good package.

It’s a good package that could well be a great package by the time the offer prices. Stay closely tuned to Coskata’s news stream.

The complete S-1 registration statement.

All 180-or-so pages in all their glory. The complete S-1 registration statement is here.

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

December 24, 2011

Solar: One Chart That Highlights The Adjustment In The Industry

by Clean Energy Intel
2011+12+20+PV+Shipments+Survey[1].jpg
Source: NPD SolarBuzz, SolarBuzz Quarterly.

New survey-based data from SolarBuzz points very clearly to a very much needed ongoing adjustment to manufacturers planned module shipments. The chart above illustrates the issue very succinctly. In SolarBuzz´s survey conducted in Q2 of the current year, manufacturers were still planning on shipping just over 8 GW of modules in Q3 of this year and almost 9 GW in Q4. The somewhat obvious result was oversupply, a continued inventory build and falling module prices.

However, in the latest SolarBuzz survey, conducted at the end of Q3, those numbers have fallen to just over 6GW for Q3 and a tad over 5 GW for the final quarter of the year. This level of adjustment is precisely what is required to finally bring the industry back towards balance during the course of 2012.

Recently, we have pointed to growing evidence that such a process is clearly at work:

  • On the demand side, the rest of the world has been making up for slack demand out of Europe. In particular, the latest data points to blistering demand in the US - more detail here
  • Likewise, China and Asia are showing extremely strong demand growth - see our article on the issue here
  • And most importantly, on the supply side, the major Chinese players have drawn a halt to their excessively aggressive capacity expansion plans - more detail here. The data above of course simply highlights this new realism on the production and capacity side of the equation.

Taken together, these factors should allow the supply-demand imbalance currently facing the industry to be eroded as 2012 progresses. And of course, this new realism should eventually bring a better business environment. As Craig Stevens, President of NPD SolarBuzz states:

“While market share growth was the predominant corporate strategy at the beginning of the year, companies must now improve their financial viability, or they risk not being able to participate in the strong growth expected by grid parity now being established in key markets,”

Indeed, on the basis of the manufacturers survey from SolarBuzz, global module inventories are now expected to stand at 7.3 GW at the end of this year, not insignificant but certainly less than the survey´s previous indication of 8.6 GW.

For 2012, global demand is expected to grow by some 6% - with 43% growth in the rest of the world making up for a continued contraction out of Europe. That moderate growth should allow manufacturers to further reduce inventory levels as they tightly control capacity and production levels.
 
Calling a bottom in a dustressed market is never easy. Moreover, pressures on inventories, prices and margins are likely to continue into Q1 of next year. However, at current valuations this has to be largely priced in. The question is one of how forward-looking the market is prepared to be. Much of that may in fact be determnined by global conditions in the overall stock market.
Barring a global bear market is stocks, it seems reasonable to suggest that six to nine months from now, we will look back and see that somewhere around here will have been a turning point for the top tier solar companies at least.
 
A key point is that during such a period of adjustment the higher cost, second tier players will tend to be pushed out and come under considerable pressure. There could well be further bankruptcies in the sector. However, such a process of creative destruction will of course also help the sector to re-balance.
 
This point is also illustrated clearly once again by the latest margin data from SolarBuzz:
'Gross margins for vertically-integrated Chinese tier 1 cell and module manufacturers decreased two percentage points Q/Q in Q3’11, while Western and Japanese manufacturers dealt with negative margins for the second quarter in a row. Margins for Chinese tier 2 and other Asian producers tracked by NPD Solarbuzz are also negative now'.

In response to these pressures resulting from over-supply in the industry we had previously been recommending staying away from solar stocks until very recently. However, recently we decided to test the water with a basket of tier one Chinese players, for anyone willing to hold through what is likely to continue to be a volatile period.


Consequently, since late November we have been recommending specifically being long a basket of Suntech Power (STP), Yingli Green Energy (YGE) and Trina Solar (TSL). More recently, we added First Solar (FSLR) to that list. We continue to believe that this basket makes sense from a long-term buy and hold perspective.

Disclosure:
I have no positions in the stocks discussed.

About the Author: Clean Energy Intel is a free investment advisory service (available at www.cleanenergyintel.com), produced by a retired hedge fund strategist who also manages his own money inside a clean energy investment fund.

December 23, 2011

The "Jesus" Molecule: Paraxylene

Jim Lane

The Coca-Cola Company invests in Gevo, Virent and Avantium partnerships, in the race to develop renewable plastic bottling entirely from renewables.

There’s been an awful lot of press this week about progress in the search for the God particle. That’s the subatomic Higgs Boson — a key, but as yet undetected, anchor in the standard model of the universe.

Then there’s the Jesus molecule. As in, “Kind lord Jesus in Heaven, grant me an affordable way to make one of those.”

It’s renewable PX, also known as your friend, paraxylene — a key, but as yet undiscovered at affordable cost, anchor in the production of plastic bottles entirely from renewables. (“PX” also accidentally looks not entirely unlike the Chi-Rho, one of the earliest symbols for Jesus Christ.)

That’s the story for Main Street. Here’s the story for Wall Street. It’s the key molecule to unlocking a global market for renewables of 54 million metric tons, and an annual trade of $100 billion.

The search for renewable PX took a new twist yesterday in New York, when the Coca-Cola Company turned on the klieg lights to announce multi-million dollar investment and partnership agreements with Gevo (GEVO), Virent and Avantium. The goal? To accelerate development of the first commercial solutions for its next-generation PlantBottle packaging, using renewable PX.

Since introduced in 2009, the Company has already distributed more than 10 billion first-generation PlantBottle packages in 20 countries worldwide with up to 30 percent renewable content. With this announcement, Coke aims for 100 percent plant-based packaging, at scale, by mid-decade.

The goal with each of these three agreements is to ensure that the companies a) produce the materials that Coke needs, b) produce them in big quantities, and c) as soon as possible, please.

Coke and its 3 renewable PET shops

From left: Virent CEO Lee Edwards, Gevo CEO Pat Gruber, Coke VP Ron Frazier, and Avantium CEO Tom van Aken

What is Coke plastic bottling? It is a material called PET (For you Digest purists: polyethylene terephthalate. Say that three times real fast.) For now, key in on that polyethylene, then that ethylene. It’s a form of polyester that is see-through, and is an excellent barrier material. Not much gets through these little molecules.

Accordingly, it’s become the third most widely-produced polymer in the world, after polyethylene and polypropylene. PET makes up about 20 percent of the world’s polymer production, and about 30 percent of that PET goes into making plastic bottles.

In short, Coke and Pepsi have a big stake in a big game.

Over the past few years, both companies have been working flat-out to produce a plastic bottle made entirely from renewables. Two years ago, Coke came out with its first-gen PlantBottle technology.

Ok, here’s where the story will get a little technical, so grab a snack and a pencil.

To make a partially-renewable PET, Coke is using about 30 percent MEG (that is, mono-ethylene glycol), which it is making from biomass already. The other 70 percent comes from PTA (purified terephthalic acid.

In other words, MEG+PTA = plastic bottle.

To date, they still have been using traditional fossil materials for the PTA. That’s where Coke’s announcement makes waves.

OK, how do you make PTA from renewables?

Well, to make PTA, you have to make something called paraxylene, it’s the principal precursor. In the industry, it’s known as PX. And bottle production chews up about 98 percent of global paraxylene production each year. (Read this, and then forget it: Basically, it’s a benzene ring, with a pair of methyl molecules attached to it.)

What you need to know is that PX is a hydrocarbon.

Why not just use, say, polyethylene?

Good news, Coke does, in Odwalla juice products. Works for juice in the fridge. Does not work for products outside of the fridge, especially carbonated ones.

What about some other molecules?

Well, there’s PEF. That’s a new bio-plastic that Avantium makes, using its YXY chemical catalytic technology. Hence, Coke’s interest in Avantium.

First milestones in that agreement include the start-up of an Avantium PEF pilot plant, officially opened on December 8th in Geleen, the Netherlands. It is expected that other large co-development partners will join from early 2012.

Back to the PX, then. The tip-offs.

OK, turns out that, according to all of the 30 or so companies they looked at, Virent and Gevo had the best available technology (available for co-development, that is) that can make paraxylene.

That’s something that several astute Digest readers picked up at the time of Gevo’s last analyst presentation:

“Production ramp on pace. The retrofit of Gevo’s first commercial plant in Luverne remains on track for a 1H12 start-up.  The 500,000 liter/year plant at the South Hampton facility should come online by year-end, initially producing jet fuel, and later, gasoline and paraxylene (for PET applications) to support certification processes.  Gevo expects to receive ASTM certification for its jet fuel in 2013.  Management affirmed the target of 350 million gallons in 2015, unchanged from the IPO.”

In fact, back in March it has already announced a first paraxylene production deal.

Back in July, Virent tipped its hand as well:

“Virent says that producing PET from waste such as corn stover and pine residuals is more difficult than from sugars but that it can be done. The company makes paraxylene, a PET feedstock, from sugars.  Expectations are that its commercial scale facility will be online in late 2014.”

As far back as June, Digest readers had an early tip from Avantium:

“Avantium is building a pilot plant to demonstrate its YXY technology which enables the cost effective production of Furanics building blocks for green materials and fuels. This will facilitate the development and commercialization of Avantium’s next-generation polyester: PEF…Avantium has demonstrated that PEF has numerous superior properties when compared with PET, including lower permeability of oxygen, carbon-dioxide and water and an enhanced ability to withstand heat.”

The business case

Here’s the good news, from our report last June on paraxylene and its opportunities:

“In the case of a Gevo-retrofitted plant, the biorefiner can produce biobutanol plus co-products, or paraxylene and the same co-products – to give one example. Turns out, in renewable fuels as well as elsewhere, it takes two (products) to tango. Pricing moves around in these volatile markets, but as a rule of thumb, paraxylene prices at around a 25 percent premium to ethanol (after taking into account the lower yields of isobutanol, per ton of feedstock). PET sells for roughly a 125 percent premium.”

Botttom line, you can make good money in this market. Things, as it turns out, do go better with Coke.

What’s a Pepsi to do?

Well, over at Pepsi they haven’t tipped their hand, except that last March they declared that they had a solution in hand of their own to produce renewable PET. This week, they said they were planning a pilot run of up to 200,000 bottles using their new process, but no one is sure when this will reach commercial scale, or even if the Pepsi process will be commercially feasible.

In Coke’s case, it is looking like 2014-15.

Reaction from Gevo

“We are extremely gratified to have won the confidence of The Coca-Cola Company and are excited to support Coca-Cola’s sustainable packaging goals with this agreement to develop and commercialize technology to produce paraxylene from bio-based isobutanol,” said Patrick Gruber, CEO of Gevo. “New technologies need champions. The Coca-Cola Company is in a unique position to drive and influence change in the global packaging supply chain with this development. You cannot ask for a better champion than one of the most respected and admired consumer brands.”

Reaction from Avantium

“Our YXY solution for the packaging industry creates a new biobased plastic with exceptional functional properties at a competitive price. We believe it is economically viable and has a significantly reduced environmental footprint,” said Tom van Aken, CEO of Avantium. “We have produced PEF bottles with promising barrier and thermal properties and look forward to our work with Coca-Cola to further develop and commercialize PEF bottles. Our production process fits with existing supply and manufacturing chains and we are targeting commercial production in the next few years.”

Dutch research and technology company Avantium has developed a patented technology YXY to produce 100% biobased PEF bottles. Currently PET is the most widely used oil-based polyester. Based on the performance of the new PEF material, Avantium believes PEF will become the next-generation biobased polyester.

Reaction from Virent

“The company is targeting early 2015 for the opening of its first full-scale commercial plant. Virent’s long term agreements with The Coca-Cola Company are pioneering milestones in the commercialization of our technology to produce plant-based materials” said Virent CEO Lee Edwards. “Our patented technology features catalytic chemistry to convert plant-based sugars into a full range of products identical to those made from petroleum, including bio-based paraxylene – a key component needed to deliver 100% plant-based PET packaging.”

Reaction from Biofuels Digest

I’d like to buy the world a home
and make it very green
grow apple trees and honeybees
to make my bottles clean

I’d like to teach the world to synth
in perfect laboratories
I’d like to buy PX for Coke
from these three companies.

View Coca’ Cola’s actual “I’d like to teach the world to sing” commercial, in a 1970s holiday incarnation, here.

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

December 22, 2011

Buffett Buys Into Another Solar Project - Expect More To Follow

by Clean Energy Intel

Warren Buffett-controlled MidAmerican Energy Holdings on Friday acquired an interest in a second solar project. In the latest deal, the company has acquired 49% of NRG Energy´s $1.8bn Agua Caliente project.This follows the company´s acquisition of 100% of First Solar´s $2bn Topaz Solar Farm less than two weeks ago.

As was the case with the first Topaz deal, we know little of the arithmetic faced by MidAmerican holdings in this latest agreement. However, what we do know is the following -

  • Agua Caliente is a $1.8bn project owned by NRG Energy (NRG) in Yuma County, Arizona.
  • The project is supported by a $967m DoE Loan Guarantee.
  • First Solar (FSLR) is responsible for the construction of the project, which is scheduled to be finished in 2014.
  • The project also has a 25 year power purchase agreement (PPA) in place with Pacific Gas and Electric for all of the power generated
  • As was the case with the Topaz deal, Mr Buffett is effectively buying into the future income stream which will accrue from the PPA with PG&E.
  • The project should displace 5.5 million metric tons of CO2 over the 25 years of the power purchase agreement.

Clearly, Buffett´s group is not buying into exposure to solar manufacturing. However, these two deals do show a belief that such utility scale solar projects represent good value, low risk investments. And there lies the bullish factor for the industry. There is currently a 24 GW project pipeline in the US utility-scale sector and it needs to be financed. This latest deal is not quite as bullish as the Topaz deal, since there is a DoE Loan Guarantee associated with the Agua Caliente project. That was not the case with the Topaz project. However, we are nevertheless seeing commitment to this part of the industry and this is positive from the perspective that it increases the level of confidence the market can have on the private sector´s ability to respond to the very large utility scale project pipeline which is currently in place.

This is particularly the case given that MidAmerican appears to be suggesting that further deals should be expected. From this perspective, the following quote from the press statement announcing the deal is particularly interesting. Greg Abel, Chairman, President and CEO of MidAmerican Energy Holdings Company is quoting as saying:

'We are aggressively pursuing opportunities to expand our presence in the renewable energy sector, and the Agua Caliente project is another important step toward that goal.... We look forward to partnering with NRG Energy on this exciting project'.

MidAmerican is already the number one owner of wind-powered projects among rate regulated utilities and the company has said that 28% of its total generation capacity will come from renewable and non-carbon sources at the end of 2011.

It sounds like we should expect more deals from MidAmerican in the solar sector.

Disclosure:
I have no positions in the stocks discussed.

About the Author: Clean Energy Intel is a free investment advisory service (available at www.cleanenergyintel.com), produced by a retired hedge fund strategist who also manages his own money inside a clean energy investment fund.

December 21, 2011

Hack This Voice Mail: The Facts About Advanced Biofuels Capacity

Jim Lane

Following a stinging WSJ editorial board critique on cellulosic biofuels, we leave a fact-filled voice mail for News Corp to hack.

Meanwhile, Mascoma lands $80M and heads for scale.


The Wall Street Journal editorial page writers recently published a stinging indictment of cellulosic biofuels.

Bottom line: the Journal is offering the shortfall in the cellulosic biofuels pool (around 2% of the overall US Renewable Fuel Standard this year), as evidence that government mandates and subsidies do not work, and that the US government has shoveled a lot of money into advanced biofuels for nothing.

Was it brain-failure?

Well, they must be stupid at Valero, announcing this week that the company would invest some $150 million in the new Mascoma cellulosic biofuels plant in Michigan. And at Waste Management (WM), too, announcing last week that they would provide the bulk of financing for Enerkem’s initial commercial-scale cellulosic ethanol facility, and $70 million in financing (a few weeks back) for Fulcrum Bioenergy’s first commercial cellulose biofuels facility in Nevada. Hoo-hah, what morons!

Why are companies like BP, Shell, Valero, Dupont, Dow, Waste Management, Tyson, and Darling all investing in what is, we are now informed, a phantom? Have they all gone simultaneously bonkers?

And yet … perhaps companies like Waste Management and Valero are not investing because of the $1.01 per gallon cellulosic biofuels tax credit, which expires next year before these projects are even completed. Or because of corporate brain-failure. They think that – perish the thought – that they are going to make money from the technology.

It came just the same

As the Grinch might say,“It came without swaps, or options, or fees, it came without points that will knock out your knees. It came without puts, or Ponzi-sourced cash, those foolish folk making fuel out of trash. But despite all our efforts to sell ‘em on oil, they went for renewables after all of our toil. Their investments came, they came just the same.

It makes you almost wish that the voice-mail hackers at News Corp had targeted, say, Waste Management, instead of celebrities from the entertainment industry, over the past decade. They might have learned something useful from their innovative approach to privacy invasion.

Hack this voice mail

As a gift to our brothers-in-journalism at News Corp, we left a message on the Biofuels Digest voice mail this morning, explaining how much qualifying advanced biofuels capacity is now available to fill the 2 billion gallons that will be mandated in 2012 by the US Government.

That would be, er, around 13 billion available gallons. With some 4 billion gallons in added advanced biofuels capacity announced around the globe for opening by 2016. Four years after the cellulosic biofuels tax credit expires.

There you go again, another example of abject failure in public-private partnerships. You put up a mandate and what do you get? 13 billion lousy gallons to fill a 2 billion gallon mandate. Could there be any more compelling evidence available that mandates do not work? Sheeesh.

For more information on the topic, News Corp can hack our voice mail instead of, say, Madonna’s. 786-393-8530: hack away.

Who’s investing faster than the US Government?

When it comes to RFS-qualifying advanced biofuels capacity, there are a couple of companies investing faster than the US government, as it turns out.

Lord, what fools. Who could those be? Mere pawns for quick destruction by real companies, real companies like oil companies.

Um, that would be Shell and BP.

Oops.

The pool, by the numbers

As we have repeated so many times it just gets nauseating, cellulosic biofuels are a component within the advanced biofuels pool.

Here’s how a pool works. If cellulosic biofuels come up short, the other qualifying fuels can easily slip in to fill the gap. Sort of like, when one oil well dries up, you can make up the shortfall by drilling another. And when Saudi Arabia dries up, oil-wise, the Journal can urge us to drill the heck out of the Arctic National Wildlife Reserve. Or the ocean. Or Neptune. And so on. That’s how pools work.

Just so you know.

Pointing out that one component of the overall pool is behind, well that’s like taking one stock out of the Dow Jones Industrials and saying that, because one component stock is underwater, the world of equities is going to hell.

In retrospect, the Congress was simply wrong to prescribe one portion of the pool so narrowly. They were just asking for trouble back in 2007. It has become a poster child for the failure of advanced biofuels, despite the fact that the world is awash in capacity to fill the RFS mandate.

For example, the Diamond Green Diesel project from Valero and Darling (DAR), scheduled for completion next year with 137 million gallons in capacity. Or more than 500 million gallons in renewable diesel capacity that Neste Oil has brought online in the past there years. Or the 75 million gallon Dynamic Fuels project that Syntroleum and Tyson opened last year. Just to name a few.

Are market-makers important?

Now, for sure, the RFS mandated market is a helpful thing, because it provides assurance of market access. Anyone who ever tried to launch a web browser to compete with Internet Explorer knows that it can take government action to get a rival technology distributor (in this case, fossil oil, as opposed to Microsoft) to make a disruptive, competitive product available to their customers.

And DOE loan guarantees and project grants are a useful thing. Government support in the early days was instrumental in other technologies, too. For instance, that 7th wonder of private enterprise, the oil pipeline. The internet. The GPS system that helps you navigate around town. Just to name a few.

Mascoma heads for scale

Therefore, its not exactly bad news when, this week, Mascoma announced that it has signed a cooperative agreement with the DOE to assist in the design, construction and operation of its first commercial  commercial-scale hardwood cellulosic ethanol facility.

The combination of the $80 million from DOE and the remained from Valero effectively completes the financing for the first project. Groundbreaking is scheduled for the first half of next year, opening of the facility for year-end 2013. It will have an initial name plate capacity of 20 million gallons, expandable to as much as 80 million gallons. Kinross Cellulosic Ethanol LLC, a joint venture formed by Mascoma and Valero, will develop and operate the Kinross facility.

Reaction from Mascoma

“This DOE award is a significant milestone for Mascoma, and the biofuels industry, as it completes the financing for the development and construction of a first-of-its-kind 20 million gallon per year cellulosic ethanol facility in Kinross,” stated Bill Brady, President and CEO of Mascoma.

“Mascoma is honored to receive this award and we are fortunate to have such a strong partnership with the DOE for the Kinross project. We look forward to the continued support from and collaboration with the DOE,” added Michael Ladisch, Ph.D., Chief Technology Officer of Mascoma, Principal Investigator for the DOE award, and Distinguished Professor at Purdue University.

Reaction from DOE

“Biofuels hold great potential, not only for reducing our dependence on foreign oil, but also for creating new jobs and economic opportunities for America’s rural communities,” said Valerie Reed, Ph.D., Acting Biomass Program Manager, Office of Energy Efficiency & Renewable Energy, of the DOE. “The cooperative agreement between Mascoma and the DOE will enable the construction of a new commercial-scale advanced biofuels facility, and the only one using CBP technology. It is indeed a significant step towards meeting America’s energy challenges with cost-effective and sustainable bioprocesses.”

Money pits?

This week, Motley Fool writer Travis Houim described biofuels as a “green energy money pit,” citing Solazyme, Amyris, and Rentech in particular, as publicly traded companies he recommended avoiding. Houim wrote:

“The first problem is scale. Right now none of the companies mentioned above makes fuel in any sort of scale, having only proven their technologies in labs or pilot plants. But moving to a large scale means sourcing more fuel and building larger plants. When it became time for corn ethanol to make that jump, the increased demand for corn resulted in higher prices and any advantage ethanol had evaporated.

Now, let’s observe for the record that Amyris (AMRS) has three commercial-scale facilities under construction, Solazyme (SZYM) is doing commercial-scale work at tolling facilities and it building its first commercial, and Rentech (RTK) just completed construction of a demonstration-scale plant. It’s more than a little disingenuous to focus in on the existing capacity when so much steel is going into the ground.

Can the feedstock remain affordable?

But let’s hone in on that last point. It’s a fair question. Is there enough feedstock that advanced biofuels can scale up to meaningful numbers without causing a run-up in feedstock prices?

Oak Ridge National Laboratory thinks so. In the revised “Billion Ton Study, (a/k/a Son of Billion Ton), they projected that, in their baseline assumption, there will be 193 million tons of woody biomass – the type that Mascoma uses – available at under $60 per bone dry ton, by 2030, to support scale-up at Mascoma and its brethren. That’s enough to support more than 80 projects of Mascoma’s scale. That’s just in the United States, not disturbing anyone else’s supply, or with costs rocketing up to unaffordable levels.

Is the Billion Ton Study correct? Time will tell. But certainly, the potential is there and deserves a little more than derision. See our “Son of Billion Ton – the 10-Minute Version”, for full details.

Warning signs to watch

Now, there’s one metric worth watching. The CAPEX for the Mascoma project. At $230 million for its 20 million gallon first phase, that’s $11 per gallon. Now, that’s for 20 million gallons. We’ll have to wait for Mascoma, probably, to get through its IPO before we have a lot of commentary on what it will cost, per gallon, to build out larger-scale facilities.

Moreover, once sufficient industry demand was established for solar panels, the price for manufacturing dropped, and fast. It was that very phenomenon that ultimately doomed Solyndra.

But that number had better come down. In the long-run, it is only one component, along with the operating costs, that determine the viability of cellulosic biofuels. But it narrows the field of potential investors when the project equity portion is north of $50 million, much less north of $200 million.

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.

December 20, 2011

A Cleantech VC Who is Unconvinced of Man-Made Climate Change

David Gold

Go ahead -- call me a hypocrite.  I claim to be a cleantech venture capitalist yet I tell you here and now that I am not convinced of anthropogenic (human-caused) climate change (aka global warming).  And I will audaciously tell you that my convictions on climate change in no way run contrary to my strong belief in the need for a cleantech revolution

Many supporters of clean technologies make it seem as though anthropogenic climate change is an absolute fact.  To some of them anthropogenic climate change is almost like a religion where any debate or doubt is not tolerated.  Some of them may call me a heretic just for writing this post.

At the same time, those on the other end of the spectrum are equally religious in their fervor and certainty that anthropogenic global warming is a fraud.  They are certain that human emissions of carbon dioxide and other “greenhouse” gases could never impact our climate.  And they may twist this post to use it as yet another data point against claims of global warming and added rationale to do nothing except increase fossil fuel exploration.

In both groups, it is my perception that most have read little about the topic other than the popular press.  And I find both groups equally sad in their myopic viewpoints.  If both of these camps would open their eyes, I suspect there would be much greater agreement on the need for action on clean technologies rather than the divisiveness that their polarizing views create.

There are solid scientific theories and extensive data, anchored by the UN Intergovernmental Panel on Climate Change Report, that indicate the possibility that over time man-made emissions of greenhouse gases could impact the global climate and may have already begun to do so.  To dismiss them out of hand because there is some reasonable doubt is irrational.

Similarly, to speak about anthropogenic climate change as a certainty or to claim that there is no disagreement among scientist is simply incorrect.  There are large numbers of  reputable climate scientists who remain unconvinced.  The reality is that all predictions of global warming are based on very complex climate models. We can forecast the weather a few days out with reasonable accuracy but if you try predicting next year’s summer temperature -- let alone long-term global climate conditions -- things fall apart quickly.  Long-term climate models are anything but accurate.

We know with certainty that past natural occurrences have caused significant changes to the atmosphere, resulting in climate changes.  So, there is little question about whether changes in the atmosphere can cause climate changes.  Rather, the question is whether man-made emissions are significant enough to cause a change on their own and to overcome the large natural forces on our climate that include sun spots, variations in the earth’s orbit, and volcanoes all of which have not been taken into account in forecasts of global warming.

Often there is a focus in the media on recent variations in climate as a source of evidence for anthropogenic climate change.  Variations in climate over short periods of time are highly suspect as evidence. While most scientists seem to agree that there have been increased temperatures and other climate changes over the past century or so, what cannot be said with certainty is that the increased CO2 levels caused this as opposed natural climate change events that have and continue to happen regularly to our planet.  Even the UN Intergovernmental Panel on Climate Change report, which is the backbone of support for anthropogenic climate change, found that its confidence in human contribution to such measured weather events (e.g., temperature, severe storms, sea level, etc.) could be as low as 50% for most of the events and 66% for the others (pages 23 and 52 of the Technical Summary).  

Climate change is measured over extremely long periods of time – not a few years or tens of years.  Some of the best long-term data on historic CO2 concentrations and temperatures is derived from glacial ice core data that spans back 400,000 years.  This data shows that the concentration levels of CO2 in the atmosphere today are strikingly more than 20% higher than any level measured in the past 400,000 years (See Figure 1).  The recent rapid increase corresponds well with the industrial age and temperature variations are in high correlation with CO2 concentrations. This is hard data to ignore or simply write-off.

Figure 1 – Data from Vostok Ice Core (400,000 years)


Figure 2 –Estimated CO2 and Temperature Changes over 500+ Million Years

But interestingly over longer periods, the level of CO2 today is far below the estimated levels during many times in history (Figure 2) raising the possibility that the current spike may have other natural contributors.  And the correlation between temperature and CO2 that seems so apparent in the 400,000-year ice core data becomes much less clear when looking over many millions of years.

While most scientists seem to believe that, in isolation, increased CO2 concentrations create an increased “greenhouse” effect whereby the CO2 acts like a blanket, preventing more of the heat radiated by the earth from going back into space, at what concentration level and over what time period remains a point of uncertainty and debate. In addition, how other factors that may occur with warming such as increased moisture and clouds as well as changes in absorption of CO2 into the ocean at varying temperatures will affect the warming dynamic and other climate change is much more uncertain.

The bottom line is that we won’t truly know if man has caused climate change until after it has already occurred for a very long period of time.

And that’s the rub.  The theoretical costs to the human race of global warming are high: rising ocean levels, decreased polar ice, increased severe weather and significant changes in precipitation patterns.  If they occurred to a significant degree, all could have sizeable economic and health implications.  But there is no certainty that we will ever pay such a price. More compelling is what we know with near-certainty:

  • Fossil fuels are a finite resource and they do pollute.   Reduction of pollution is always a good thing.  And with booming energy demand in China and India, fossil fuels are a resource that will become scarcer and more expensive.  You can argue about the pace, but few argue that it will happen.    Even oil rich countries such as Saudi Arabia have begun to accept this fact.
  • Increased sources of cost-effective energy and more energy-efficient consumption have and will continue to lead to increased standards of living.
  • Nations with greater diversity of energy sources have greater economic and national security.
  • The U.S. Defense Department believes that climate change will impact our national security.
  • If anthropogenic global warming is real, by the time we start paying the price for the damage we have done it will be too late to turn things back quickly.

To claim with certainty that man is causing climate change or to claim there is no risk of anthropogenic climate change are equally incorrect and equally polarizing.

While it is not certain, there is evidence that suggests that human emissions of greenhouse gases may be changing our climate in ways that could have dramatic impacts.  We can do nothing and roll the dice that everything can be OK.  Or we can take steps to diversify our energy sources away from fossil fuels and increase our energy efficiency, thereby not only reducing the risk of anthropogenic climate change but also increasing the robustness of our economy and our national defense.

Although there should be debate about the specifics of how to best advance the availability and utilization of cleaner technologies, support for cleantech innovation should be the ultimate bipartisan issue without the divisiveness created by talking about anthropogenic climate change as if it is a fact or as if it is fiction. 

David Gold is an entrepreneur and engineer with national public policy experience who heads up cleantech investments for Access Venture Partners (www.accessvp.com).  This article was first published on his blog, www.greengoldblog.com.

December 18, 2011

Fear, Loathing and Extraordinary Opportunity in Energy Storage

John Petersen

2011 has definitely been one for the record books; a dreadfully wonderful year for the energy storage sector that reminds me of the opening paragraph from A Tale of Two Cities:

"It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness, it was the epoch of belief, it was the epoch of incredulity, it was the season of Light, it was the season of Darkness, it was the spring of hope, it was the winter of despair, we had everything before us, we had nothing before us, we were all going direct to heaven, we were all going direct the other way - in short, the period was so far like the present period, that some of its noisiest authorities insisted on its being received, for good or for evil, in the superlative degree of comparison only."

On December 31, 2010, my core list of 18 pure-play energy storage device manufacturers had a combined market value of $5.9 billion. At last Friday's close, the 12 survivors had a combined value of $2.4 billion. The following table summarizes the price performance of my current tracking list of 16 energy storage device and EV manufacturers for the year-to-date and quarter-to-date.

12.18.11 Tracking.png

While the broader markets haven't exactly been a box of chocolates, there's blood in the streets in the energy storage sector; the polar opposite of what any reasonable investor would expect from a sector that's certain to be an investment mega-trend for several decades. With the exception of Johnson Controls (JCI), Enersys (ENS) and Maxwell Technologies (MXWL), the entire universe of pure-play energy storage device manufacturers are at or within spitting distance of their thirty-three month lows. Fear and loathing are running rampant as timid investors run for cover and elephant hunters prepare for a feast. There are significant risks in most of the companies I track, but in several cases the opportunities are up to an order of magnitude greater than the risk.

I've pared and restructured my Cool Emerging Companies group to cull two companies that cratered this fall, reflect the growing awareness that vehicle electrification will be a slow and painful process, acknowledge a looming supply glut in the lithium-ion battery space and reclassify Altair Nanotechnologies (ALTI) as a Chinese Battery Company since voting control was sold to Canon Investments Ltd. earlier this year. While I think 2012 will be a tough year for many lithium-ion battery manufacturers, A123 Systems (AONE) is solidly financed and seems to be gaining ground in the commercial EV space while its last standing competitor Valence Technologies (VLNC) seems to be losing ground. A123 is also making significant headway in large-scale energy storage systems for minute-to-minute output smoothing of wind and solar power. In light of a growing awareness that coupling renewable energy generation with energy storage can increase investment returns by up to 50 percent, I continue to believe that A123 Systems is undervalued while Valence is overvalued. My long-term Weighted Moving Average Prices vs Volume charts for AONE and VLNC follow. The red line in each chart represents the 200-day moving average trading volume while the straight blue line is a calculated trend line based on the 50-day weighted moving average stock price. Readers who want to download a two chart per page version of the stock price charts used in this article can do so by clicking here.

12.18.11 AONE.png    12.18.11 VLNC.png

In the Cool Sustainable Companies group Maxwell Technologies has been trending steadily upward since the dark days following the 2008 crash and its business shows no signs of reversal. Ultralife (ULBI), on the other hand seems to be slowly losing ground and hasn't done much to fire the market's imagination. My long-term Weighted Moving Average Prices vs Volume charts for MXWL and ULBI follow.

12.18.11 MXWL.png    12.18.11 ULBI.png

In the Cheap Emerging Companies group I expect good things from ZBB Energy (ZBB) and Axion Power International (AXPW.OB) in 2012. Both of these companies carry market capitalizations in the $25 million range but are on the cusp of transitioning from research and development to full-scale product commercialization. While both companies have fairly weak financial statements, they've both learned how to conserve cash and control spending while pressing forward with pre-launch product testing and market development activities with high quality business partners. More than 32 years in the trenches have taught me that small companies, like babies in sub-Saharan Africa, rarely die of starvation but frequently perish from dysentery, I'm not concerned that either company will follow their more free-spending brethren down the road to pink sheet perdition. What Axion and ZBB need most is a clear path to target; an identifiable trajectory. As testing and demonstration programs begin to generate meaningful orders, the market's healthy skepticism over their late-stage R&D projects should quickly fade and their stock prices should ramp rapidly. My long-term Weighted Moving Average Prices vs Volume charts for AXPW and ZBB follow.

12.18.11 AXPW.png    12.18.11 ZBB.png

In the Cheap Sustainable Companies group JCI and Enersys are performing well but both companies are significantly below their long-term trend lines. The two stocks in the group that strike me as table pounding bargains are Active Power (ACPW) and Exide Technologies (XIDE). Both are down almost 75% year-to-date but their underlying businesses are performing well. I find Exide particularly attractive because I'm highly confident that its recent price swoon is attributable to forced sales by a hedge fund that owned over 20% of Exide's outstanding stock in late 2009. My long-term Weighted Moving Average Prices vs Volume charts for JCI, ENS, ACPW and XIDE follow.

12.18.11 JCI.png    12.18.11 ENS.png

12.18.11 ACPW.png    12.18.11 XIDE.png

It wouldn't feel like Christmas if I didn't take a minute to caution readers that Tesla Motors (TSLA) is sporting a nosebleed market capitalization of 9.9 times book value and 14.5 times trailing twelve month sales. Over the last couple weeks Tesla's chart has peaked and taken an ominous turn to the downside. My long-term Weighted Moving Average Prices vs Volume chart for TSLA follows.

12.18.11 TSLA.png

Despite the fear and loathing that's been obvious for much of the year, the energy storage sector is an opportunity rich environment as 2011 draws to a close. My favorites for a strong 2012 include AONE, MXWL, AXPW, ZBB, JCI, ENS, ACPW and XIDE. They all merit serious attention from investors who want exposure to the energy storage sector.

Disclosure: Author is a former director of Axion Power International (AXPW.OB) and holds a substantial long position in its common stock.

December 16, 2011

Advanced Biofuels: I Love You, You’re Perfect, Now Scale

Jim Lane

Codexis (CDXS) and Mascoma show that low-cost sugar is the key, as advanced biofuels moves from R&D into industrial era.

There used to be a restaurant in lower Manhattan called Exterminator Chili. Decorated in Elvis garb, it served world-class chili for the enlightened chow hound, in three grades of heat: residential (hot), commercial (blistering), and industrial (melt steel in your mouth).

The proprietors would have understood little about advanced biofuels and nothing about the importance therein of low-cost sugars. But they did understand that the bigger the scale, the hotter you were. And that the highest summit was the reaching of industrial scale.
Why hath industrial scale proved so elusive in advanced biofuels?
“The government rushed into investments, with no diligence,” says Codexis chief Alan Shaw. “They are just not industrialists, in my opinion.”

Two major announcements this week drive the point home in advanced biofuels.

In California, Codexis introduced its CodeXyme Cellulase enzyme product line for bio-based chemicals, converting biomass to low-cost sugars. The platform, which includes a pretreatment process as well as enzymes for conversion and post-pretreatment, was developed with Chemtex, and utilizes the cellulase platform developed for Shell, and already is in use at Iogen.

In New Hampshire, Mascoma and Valero announced a joint venture to develop and operate a 20 million gallon per year commercial-scale cellulosic ethanol facility in Kinross, Michigan. The cost to construct, commission and start-up this facility is expected to be approximately $232 million. These costs are fully funded, with Valero providing the majority of the financing, and the remainder from awards by the U.S. Department of Energy (DOE) and the State of Michigan. Construction of the Kinross facility is anticipated to start in the next three to six months and is expected to be completed by year-end 2013.
The common problem: high-cost sugars
Codexis CEO Shaw has made the point before: when it comes to making drop-in fuels or many renewable chemicals, “first generation sugars are a failed model, particularly for diesel. The problem in the sector has been the lack of a cellulosic technology.”

The difficulty, he has explained, is the problem of making $275 per tonne sugar work in a $750 per tonne diesel market, when you lose 60 percent of the mass in the conversion, when the oxygen is blown off from biomass to make a hydrocarbon.

Reaction from industry? “I agree,” commented UOP general manager Jim Rekoske, whose company does a lot of the upgrading work from, say, renewable oil to diesel and jet fuel.
The common solution: low-cost sugars
Though it has proven incredibly time-consuming to develop the operating systems for liberating cellulosic sugars from biomass at affordable rates, companies such as Mascoma and Codexis say they have cracked it. Codexis, using its collection of technologies that improves the activity and performace of enzymes. Mascoma, with its consolidated bioprocessing approach, which eliminates the separate hydrolysis step altogether, performing the hydrolysis and fermentatinon in one consolidated step.

Novozymes and Genencor are also in the race, with small start-ups such as HCL CleanTech and Comet Biorefining also focused on the same niche. Then, there are companies like Proterro, which synthesize (or is that sun-thesize?) low-cost sugars directly from water, CO2 and sunlight using a modified organism, bypassing biomass altogether.
Codexis and the pursuit of renewable chemicals
Now, in the case of Codexis, the company is focused, with CodeXyme, on the production of higher value chemicals, such as CodeXol Detergent Alcohols. The company expects to have commercial samples for customers in the chemicals industry broadly available in the second half of 2012. In the meantime, and in the fuels arena, the company is focusing on its deliverables for Shell and its fuels JV with Cosan, Raizen.
Mascoma, Valero and the pursuit of renewable fuels
By contrast, the Mascoma-Valero deal is all about fuels, specifically low-cost cellulosic ethanol.  Under the agreement Valero will provide project management to build and will operate the Kinross facility, will hold a majority interest in the joint venture, and will have the option to expand the Kinross facility’s capacity to up to 80 million gallons per year. Meanwhile, Mascoma will receive royalties for a certain time period based on ethanol yield milestones. In addition, Mascoma and Valero have developed a framework agreement for partnering on additional cellulosic ethanol facilities beyond Kinross.
The Brazil option
“At Cosan Day in New York [their day for analyst presentations],” commented Shaw, “Cosan said that two of their top four priorities in the next 2-3 years relate to deploying second-generation technologies.”

It’s not hard to see why, Shaw contends. “Raizen is Brazil’s largest sugar producer. The liberate sucrose from the cane, and sell it as sugar or ferment it into ethanol. They have mountains of bagasse, which generates very low value for them. In our process, we liberate glucose from biomass. It can’t be used for the sugar market, but it can be used to make ethanol. So, ethanol producers can divert more of the sucrose to the lucrative sugar market, and use glucose to make ethanol. It’s making gold from dirt. We’ve modeled it at $50 per ton, and in Brazil it can be aggregated for as little as $10 per ton.”

So, customers? “Chemical companies, sugar producers, and engineers,” says Shaw. “But, above all, the sugar companies.
Back in North America
In North America, many of the primary feedstock producers are sitting on their hands, owing to the problem of aggregation. Corn producers are balking at the aggregation of corn stover without government support. Forest owners are similarly strapped for cash.

Waste stream feedstock companies have been highly active to date, among other reasons because the feedstock is already aggregated. Hence Valero’s co-investment with Darling in renewable diesel from animal rendering waste (Diamond Green Diesel), or its co-investments with Waste Management in Terrabon and Enerkem.

But, now, the barriers may be falling. Valero has bitten the bullet with Mascoma – combining with Mascoma’s private investors, and the federal government (in the form of DOE grants), to bring the technology to industrial scale in the US.

Over in Florida, BP has also moved forward in developing its own vertically integrated approach, where it will directly develop and contract with farmers for dedicated energy crops such as miscanthus.
The business model
Well, Mascoma is tight lipped, owing to their impending IPO. But Codexis says, “We make very good margins on the enzymes. But we think of this as a complete operating system for low-cost sugars. And I want us to be focused on getting this OS adopted as the OS of choice.”
The floodgates
“The flood gates will open,” says Shaw. “There is no shortage of cash or capital. What is desperately thin on the ground is confidence. When proved, other capital will follow. Meanwhile, look at Guido Ghisolfi over at M&G, who said ‘I have put $300 million of my own family’s money into this.’ That’s the kind of vision you are starting to see.”

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.

December 15, 2011

Report Suggests Solar at Grid Parity Tipping Point

by Clean Energy Intel

A new academic study published last week suggests that solar energy has already reached grid parity in some areas in North America and is therefore poised to move into the mainstream.

The study, 'A Review of Solar Photovoltaic Levelized Cost of Electricity', was co-authored by Joshua Pearce of Michigan Technological University and Kadra Branker and Michael Pathak of Queen´s University in Kingston, Ontario. It was published in Renewable and Sustainable Energy Reviews. You can read an abstract of the study here.

The study focuses on the assumptions behind many of the past studies of the levelized cost of energy (LCOE) facing the solar industry and argues that falling costs combined with more accurate assumptions behind the LCOE calculations can provide numbers that are in line with what consumers in many areas pay for electricity - which is one definition of Grid Parity.

According to a report in R&D magazine, Mr Pearce made the following statement -

"Many analysts project a higher cost for solar photovoltaic energy because they don't consider recent technological advancements and price reductions.... Older models for determining solar photovoltaic energy costs are too conservative."

The question of LCOEs and Grid Parity is surrounded by many fairly intensely debated questions. However, there can be little doubt that the LCOE for solar has been falling. The costs that go into calculating the LCOE include:

  • The cost of solar photovoltaic panels themselves
  • Balance of System costs
  • Installation and maintenance costs
  • Finance costs
  • The system´s life expectancy and efficiency over its lifetime
  • Solarization and the amount of electricity produced

The study raises issues with the assumptions of previous studies in most of these areas. However, Pearce particularly points to two important factors which have ensured that the LCOE metrics for solar systems have been improving. Firstly, he argues that previous studies don’t consider 'the 70% reduction in the cost of solar panels since 2009'. Moreover, R&D magazine reports Pearce as suggesting that 'research now shows the productivity of top-of-the-line solar panels only drops between 0.1 and 0.2% annually, which is much less than the one per cent used in many cost analyses'.

Pearce´s results are likely to be hotly debated. However, he has correctly emphasized the direction in which solar is rapidly moving. In conclusion, he states that he 'believes solar photovoltaic systems are near the "tipping point" where they can produce energy for about the same price as other traditional sources of energy'.

Finally, from our perspective, all of this is certainly encouraging given that we are once again bullish on the solar sector. We would simply repeat our conclusions from last week following the purchase of the Topaz Solar Farm by Warren Buffett:

'...this latest bullish news follows a series of bullish factors that have led us to recommend long solar positions again after having been flat for many months:

  • The latest data points to blistering demand in the US - more detail here
  • Likewise, China and Asia are showing extremely strong demand growth - see our previous article on this here
  • The major Chinese players have drawn a halt to their excessively aggressive capacity expansion plans - more detail here

Taken together, these factors should allow the supply-demand imbalance currently facing the industry to be eroded as 2012 progresses'.

Since late November we have been recommending specifically being long a basket of Suntech Power (STP), Yingli Green Energy (YGE) and Trina Solar (TSL). Last week, we also recommended adding First Solar to that basket. We continue to recommend remaining long all four stocks for what should be a solid rally into 2012.

Disclosure: I have no positions in the stocks discussed.

About the Author: Clean Energy Intel is a free investment advisory service (available at www.cleanenergyintel.com), produced by a retired hedge fund strategist who also manages his own money inside a clean energy investment fund.

December 14, 2011

The Chevy Volt: Trying to be All Things to All People

Garvin Jabusch

We're within a year of the launch of GM's flagship electric vehicle (EV), the Chevy Volt, and we're already seeing detractors call it a failure (e.g. "Revenge of the Internal Combustion Engine") and begin using it as evidence that the entire EV premise won't work. This outcome was predictable, not because EVs are conceptually flawed, but because the Volt is a terrible value proposition, whether measured against better EVs or against high-mileage internal-combustion engine cars. The Chevy Volt isn't failing because it's electric, but because it's a bad value.

The Volt is not a pure EV. Basically, it's a Chevy Cruze outfitted with a relatively small battery pack and electric motor attached to an independent drive train. The battery pack is low-powered enough that it depletes after just 35 miles, and what you’re driving after that is just a heavier, gas-powered Cruze (the two cars are built on the same platform). So at best the Volt is a hybrid, and not even a very efficient one, because unlike Toyota's (and others) single hybrid drive, the Volt runs separate drive trains for its electric and gas motors. In effect, it's trying to be a gas powered Cruze, and also an all-electric Leaf as well as a hybrid Prius. A car can be an EV, a hybrid, or a gas-burner, but not all three. I understand the desire to try to bridge the gap in an effort to appeal to more consumers, but the result is an inappropriate juxtaposition that appeals to few.

Chevy has said one reason for the lack of enthusiasm around EVs is potential customers may have range anxiety, and in the case of the Volt, who can blame them?  Even combining the ranges of the Volt's fully-charged battery pack and a full tank of gas will only get you about 300 miles, which not too different from the electric-only range of some pure-EVs, and 200 miles less than the 500 mile range of the plug-in Prius.  If your daily driving averages at or below 35 miles, though, and you charge every evening, you could drive the Volt in pure-EV mode indefinitely and never fill the tank. But then you'd never be using the conventional drive train, which you paid a lot for. And for me, this is the heart of the Volt's limitations. It has two independent drive trains and three transmissions (to make the transmissions work together), making the final car complex, heavy and expensive. The better models of cars using any of the single drive train systems (internal combustion, electric or hybrid) can outperform the Volt for the price. This includes Chevy's gas-only Cruze, which rings in at about $19,000 and gets 42 MPG. For comparison, the Volt is about $45,000 (or $38,000 after federal tax credit; economy info below), the Leaf is $35,000 (or $28,000 after the credit) and burns no gas, and the Prius is about $28,000 (no tax credit available) and gets better than 50 MPG.

The Volt compares so unfavorably with the Leaf and Prius also because once you've driven that first 35 miles on electric power, drained the battery and switched to the gas engine, the Volt only gets 33 mpg. "And why, you should be asking," quipped Motor Trend, "does the Volt in gas mode deliver 13 [I count 17, but okay - GJ] fewer mpg than the Prius?" It's simple, the Volt is two cars in one, sporting almost entirely separate gas and electric drive trains, making it heavy, unwieldy, expensive and uneconomical.  All this over engineering also makes the vehicle very internally complicated, which presents opportunities for problems; for example, the Volt’s unique liquid cooling system appears to be the culprit in recent fires. No big surprise that sales are trailing expectations.

Prius-leaf-volt
Prius, Leaf and Volt (image source: hybridcars.com)

Volts aren't as popular on the used market either.  After 36 months, a Volt will lose 58% of its value, while a Prius will depreciate 46%, according to Kelly Bluebook's projections. The secondary market as usual is figuring out how to price value, and maybe a three year depreciated Volt at $17,000 is comparable to the equivalent used Prius at $15,000, but I think I still would choose the Toyota.

GM had big ambitions for the Volt, planning to make 10,000 units during 2011, then quickly ramp production to 45,000 Volts in 2012. To date, though, they've sold only 5,000. There are good reasons for this poor sales performance, but none that indicate EVs as a class are bad cars.

Nevertheless, don't be surprised to see GM begin to announce things like "we tried with the Volt to make a big push into electric cars, but Americans just aren't ready," or "consumers have made it clear they prefer gas engines." And when this happens, don’t believe it. Because the fact is that it's not EVs Americans don’t like, it’s inferior products.

The conclusion for potential consumers seems to be, if you want a hybrid, get a Prius, it's far less expensive, far simpler and arguably more functional than the Volt.  If you want a pure EV, the Leaf is a fine choice, but there are several other interesting models from smaller, niche, pure-play EV makers that range in price and luxury from about $900 (Kandi Technologies [KNDI]) to $60,000 and beyond (Tesla Motors [TSLA]).

Electric vehicles are the future. Since we're just at the earliest stages of adoption, though, it's possible for one bad model to have a disproportionate negative impact on perceptions. But don’t believe the negative hype. As I mentioned recently, EVs will "'slowly but steadily gather momentum for a few years' until a tipping point is reached 'where they're obviously the superior value, and in many ways the superior performance option across the board.'"

Disclosure: Green Alpha Advisors is long KNDI and TSLA

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

December 12, 2011

Buffett-First Solar Deal Extremely Bullish For Solar Sector

by Clean Energy Intel


Nellis Solar Power Plant in the US. Source: Wikimedia Commons

The Solar Industry this week received significant support in the purchase by Warren Buffett-controlled MidAmerican Energy Holdings of First Solar's (FSLR) $2bn Topaz Solar Farm in San Luis Obispo County, California. This is a significant show of confidence in the industry from Mr Buffett.

Of course, we do not know exactly what Warren Buffett´s utility holding company has paid for the solar project. However, the deal is unquestionably significant in size and scope. What we do know is the following -

  • The Topaz Solar Farm is a $2bn, 550 MW project
  • It is expected to supply the energy needs of 160,000 California homes
  • As such, it is one of the two largest solar projects in the world
  • It is slated to be finished in 2015
  • First Solar will remain in place to construct, operate and maintain the solar farm for MidAmerican
  • Once the project is operational, the electricity generated will be purchased by Pacific Gas and Electric (PG&E) under a 25-year power purchase agreement (PPA)
  • Mr Buffett is therefore effectively purchasing the future income stream which will accrue from the PPA with PG&E.

This infusion of capital is obviously good news for both First Solar and the industry as a whole. Coincidentally, it comes a matter of only two days following our recommendation to buy First Solar. However, the deal has a significance that goes beyond the usual sunshine effect that any M&A activity in a sector usually has.

As is well known, one of the bullish factors facing the solar industry has been the 24 GW pipeline in the US utility-scale sector. However, in the post-Solyndra environment there have been concerns that it may be difficult to finance such a large slate of projects - and this has been particularly true following the end of the DoE´s Loan Guarantee Program and given the coming expiry of the 1603 Treasury Grant Program at year end.

Indeed, the Topaz project was specifically one of those to be affected in the post-Solyndra environment, with First Solar announcing on the 21st of October that their application for a $1.9bn DoE loan guarantee for the project would not complete the application process in time to beat the deadline before the closure of the program. As we argued was also the case with SolarCity´s deal with Bank of America, this latest Buffett-First Solar deal shows that the private sector has the capacity to finance such large-scale projects.

Moreover, this latest bullish news follows a series of bullish factors that have led us to recommend long solar positions again after having been flat for many months:

  • The latest data points to blistering demand in the US - more detail here
  • Likewise, China and Asia are showing extremely strong demand growth - see our article on this from last week here
  • The major Chinese players have drawn a halt to their excessively aggressive capacity expansion plans - more detail here

Taken together, these factors should allow the supply-demand imbalance currently facing the industry to be eroded as 2012 progresses. Since late November we have been recommending specifically being long a basket of Suntech Power (STP), Yingli Green Energy (YGE) and Trina Solar (TSL). Those stocks are now up 14.6%, 14.2% and 10.4% respectively. Three days ago, we also recommended adding First Solar (FSLR) to that basket. We continue to recommend remaining long all four stocks for what should be a solid rally into 2012.

Disclosure: I have no positions in the stocks discussed.

About the Author: Clean Energy Intel is a free investment advisory service (available at www.cleanenergyintel.com), produced by a retired hedge fund strategist who also manages his own money inside a clean energy investment fund.

December 11, 2011

PetroAlgae’s IPO: The 10-Minute Version

Jim Lane

Can PetroAlgae find a market for its feed among the aficionados of alfalfa and fishmeal, with fuels on the side?

In its recent IPO revision, it says “sure can”.

04[1].jpg
In Florida, PetroAlgae (PALG.PK) has filed a massive revision to its S-1 registration for a proposed initial public offering.

The company is currently ranked #55th in the world among the Hottest Companies in Bioenergy. The rankings recognize innovation and achievement in fuels and are based on votes from a panel of invited international selectors, and votes from Digest subscribers.

PetroAlgae, which in the year to date has lost $19.05M while recording no revenues, is one of 13 companies that have filed for an IPO in the industrial biotech boom, which began with a successful listing on the NASDAQ by Codexis (CDXS) in 2010. IPOs by Amyris (AMRS), Gevo (GEVO), Solazyme (SZYM), and KiOR (KIOR) have followed. In recent months, Bioamber, Myriant, Ceres, Genomatica, Mascoma and Elevance Renewable Sciences and Fulcrum Bioenergy have also filed S-1 registrations for proposed IPOs.

Here’s the S-1 registration, in a conveniently downsized 10-minute Digest version – with some commentary along the way as to what is driving value in the PetroAlgae model, opportunities for the intrepid investor, and some risks which we have translated from the ancient and original SEC into modern English.

Company Overview

From the S-1: “We provide renewable technology and solutions to address the global demand for new economical sources of feed, food and fuel.

Our objective is to be the leading global provider of technology and processes for the commercial production of micro-crop biomass. We have developed proprietary technology, which we believe will allow our customer licensees to grow aquatic micro-crops at accelerated rates for conversion into products for both agriculture and energy markets. Our strategy is to license and provide management support for micro-crop production facilities in equatorial regions around the world…We intend to generate revenue from licensing fees and royalties primarily from customer licensees.”

The Model

From the company’s most recent 8-K: “On October 25, 2011, PA LLC entered into an amended and restated license agreement with AIQ…The Agreement provides for three separate phases: the Preliminary Phase, Phase I and Phase II.

“In the Preliminary Phase, AIQ will construct and operate a pilot-scale bioreactor of 0.75 hectares to test and demonstrate the growth and harvesting aspects of the Company’s technology. If the parties agree that the Preliminary Phase has been operated successfully, the Company and AIQ will proceed to Phase I, during which the first commercial-scale unit increment of 150 hectares…The Company has agreed to construct the 150 hectare commercial growth unit on a turnkey basis. In Phase II, AIQ will continue to expand the project in 150 hectare unit increments, including growth, harvesting and processing modules, until the facility forms a unit of up to 5,000 hectares. …The Company will receive a royalty on net sales of the products generated from every unit and unit increment during the 20-year term of the license.”

The Costs

From the S-1: “The estimated capital expenditure for a 150 hectare facility as an entry point is $12 million (excluding the cost of land and improvements)—a model that we believe involves manageable costs, risks and build-out times…Due to economies of scale, we believe that a 600 hectare unit would deliver an attractive internal rate of return on our customer licensees’ investment. Ultimately, we expect that our customer licensees will expand their facilities in 150 hectare increments at similar costs in order to complete facilities of up to 5,000 hectares. Depending on economies of scale, we expect that the capital expenditure for a 5,000 hectare facility will be approximately $375 million (excluding the cost of land and improvements).”

The Technology

From the S-1: “Our proprietary technology uses indigenous micro-crops that are not genetically modified and demonstrate an optimal growth profile for a particular geography and environment. These micro-crops will then be grown, harvested and processed in a manner that we believe will optimize the production of our micro-crop biomass, which our customer licensees can use to produce three products.

Our technology platform primarily consists of four components: micro-crop selection and testing, growth and harvesting techniques, processing technology, and control systems….we have developed a scalable and flexible model based on micro-crop growth units of 150 hectare increments.”

The ProductsAlgae Harvest

From the S-1:

Lemna Protein Concentrate, or LPC: LPC is a free-flowing powder containing a minimum 65% crude protein. We expect that our customer licensees will manufacture LPC for use in both animal and, potentially, human markets. Based on internal and third-party testing, we believe that LPC is similar in quality to fish meal. We believe that LPC can also be used as an alternative to kelp meal in fertilizer applications. Based on research conducted by the University of Idaho, we believe that LPC is strongly positioned as a fish meal alternative due to its nutritive qualities.

Lemna Meal, or LM: LM is a carbohydrate-rich free-flowing powder containing a minimum 15% crude protein. We expect that our customer licensees will manufacture LM for use in animal feed markets. We also believe that LM could be used in fertilizer and animal bedding applications. Trials conducted by the University of Minnesota demonstrated that LM is a high quality alternative for alfalfa meal in diets for dairy cattle. Third-party testing is continuing with other animals that are customarily fed alfalfa, such as swine and horses.

Biocrude: With a small change in process parameters (but not equipment), our processing system can produce Biocrude rather than LM. Biocrude is a renewable energy feedstock that, through the use of a variety of third-party conversion systems currently under development, could potentially be converted into renewable fuels.

Fortification of Basic Human Food Products: We believe that LPC can eventually serve the global market for fortification of basic food ingredients for malnourished populations, particularly in developing and emerging countries. In the long term, we believe we can develop a higher protein content product from lemna using alternative separation techniques.
The Market

From the S-1:

Fish Meal: Fish meal, most of which is produced by the commercial fishing of wild schools of small fish, is a critical ingredient in the diets of nursery animals and aquaculture stocks. Global fish meal demand for aquafeed is expected to reach approximately 7 million metric tonnes in 2012 and to rise every year thereafter to approximately 16 million metric tonnes in 2020, a rate which is expected to significantly outpace supply.

Alfalfa meal: Alfalfa meal is a premium forage ingredient, used to meet nutrition and growth requirements in numerous animal diets. For dairy and swine alone, the global demand for alfalfa meal will be approximately 254 million metric tonnes in 2012, rising every year thereafter to approximately 262 million metric tonnes in 2020.

The Strategy

From the S-1:

1. Rapid deployment and support of modular and highly scalable license units.
2. Leveraging our capital-light licensing model.
3. Expansion of our customer base on a global scale.
4. Further development of our technology and pursuit of additional applications for our products.
5. Assisting our customer licensees in the identification of off-take partners.
6. Creation of brand loyalty.

The Risks, Translated from SEC-speak

Among the lowlights of reading S-1 registrations are the endless pages of risk disclosures couched in an alloy of SECspeak and legalese. We offer these excerpts from the original S-1, and a translation into English, prepared by our Digest lexicologists.

In SECSpeak: We are a development stage company. As a result, we have no significant history of revenues, operating or net income, cash flows or the other financial performance metrics that will affect the future market price of our common stock.

In English: Drats! Since 2006, that kiddie lemonade stand down the road has consistently outsold us.

In SECSpeak: We expect that some of the contracts with our initial early-adopter customer licensees will provide for the build-out of a turnkey license unit of 150 hectares after the successful completion of the testing phase of our technology…Because our customer licensees’ payments will be capped, we will bear the responsibility for construction costs in excess of those anticipated, which could cause us to suffer significant losses on these license units.

In English: We get to write the check if any of these projects turn into a money pit. Using, er, your money.

In SECSpeak: Our initial contracts are or will be subject to significant conditionality, including that the pilot-scale facilities built by our customer licensees achieve certain minimum levels of projected investment return, and the failure to meet these conditions may lead to the termination of these contracts.

In English: Our little lemna may not go forth and multiply at exactly the rate at which we need them to.

In SECSpeak: Although we have successfully built a fully operational demonstration facility (approximately one hectare) and have extracted small field-scale quantities of LPC, LM and Biocrude for technical validation, we have not demonstrated that our technology is viable on a commercial scale, which we define to mean an operation consisting of at least 150 hectares.

In English: Your backyard may be larger than our current global acreage.

In SECSpeak: Market acceptance of our LPC and LM will be a function, among others, of digestibility and palatability (the assessment of which will require additional laboratory and field study). Should these studies not proceed favorably, the market for our LPC and LM may not materialize or could be materially diminished.

In English:

Scenes from PetroAlgae Heaven, or, Why Mikey the Little Bull better like it.

Scene: A breakfast table in a tropical pastureland. Three calves encounter a box of LemnaMeal.

Calf #1: What’s this stuff?
Calf #2: Something called lemna. It’s supposed to be good for you.
Calf #1: Did you try it?
Calf #2: I’m not gonna try it. You try it.
Calf #1: I’m not going to try it.
Calf #2: Let’s get Mikey to try it. He hates everything.
Calf #1: Yeah, he hates everything.
(Mikey the Little Bull munches, ruminates, smiles in a bull-ish sort of way, then begins consuming lemna meal vigorously)
Cow #2: He likes it! Mikey likes it!
Voiceover: If you love LemnaMeal just like Mikey the Little Bull, have we got an alfalfa alternative and a hot IPO stock for you.

In SECSpeak: Patents are a key element of our intellectual property strategy. We have currently filed patent applications for six families of technologies, both in the United States and in foreign jurisdictions…Our patent applications are in the early stages and we have not received substantive feedback from relevant patent offices regarding the viability of our patent applications.

In English: Our technological advantage may, in the future, be freely downloadable from the internet.

In SECSpeak: Most of our planned production capacity will be in equatorial regions around the world, which will limit the number of prospective customer licensees willing to license our technology, and our business will be adversely affected if we do not operate effectively in those regions…operations of our customer licensees generally should be within approximately 15 degrees of latitude from the equator for optimal performance.

In English: Our showcase customer prospect, AIQ, operating in a country located between the 17th and 56th parallels, may not have received the information about 15th parallel viability in exactly the same manner as you have.

In SECspeak: The initial public offering price will be substantially higher than the pro forma net tangible book value of each outstanding share of our common stock immediately after this offering. If you purchase our common stock in this offering, you will suffer immediate and substantial dilution. If previously granted warrants or options are exercised, you will experience additional dilution.

In English: Victory has a zillion shareholders who will pop up out of the woodwork with options and warrants, defeat has a bunch of senior debt that will subordinate and crush you.

PetroAlgae as it sees itself: 7 Competitive Strengths

From the S-1:

1. Strong economic returns to our customer licensees without the need for government subsidies.

2. Highly scalable and flexible technology, with initial license units providing the basis for larger-scale operations in the future.

3. Fully integrated, comprehensive solution that transforms simple, naturally occurring inputs, such as sunlight, water and indigenous micro-crops, into valuable outputs.

4. Product compatibility with the existing agriculture infrastructure.

5. First mover advantage in providing renewable micro-crop technology to produce products that serve the global animal feed market.

6. Experienced management team with a track record of innovative growth, value creation and commercial scaling of businesses.

Financials to date

From the S-1:

“To date, we have not been profitable and have incurred significant losses and cash flow deficits. For the fiscal years ended December 31, 2010, 2009, and 2008, we reported net losses before non-controlling interest of $44.5 million, $36.8 million, $20.2 million, respectively, and negative cash flow from operating activities of $22.8 million, $27.6 million, and $11.8 million, respectively. For the nine months ended September 30, 2011, we reported net losses of $19.1 million and negative cash flow from operating activities of $13.4 million. As of September 30, 2011, we had an aggregate accumulated deficit of $117.1 million. We anticipate that we will continue to report losses and negative cash flow for the next several years.”

The Bottom Line

With nine renewable fuel and chemical IPOs in the queue, its a crowded field in biofuels, and PetroAlgae has re-focused its filing around its opportunities in the global feed business. It’s becoming a common tale as companies strive to differentiate themselves from others in the pipeline.

The name. One thing that has not changed is the name. “PetroAlgae” doesn’t fit the company well any more – a new name reflective of their capabilities in feed and fuel would do nicely.

Customer engagement model. In its revised filing, there are some other significant changes, some of which are highly positive. One, of course, is the appearance of a well-structured customer agreement with AIQ. Whether PetroAlgae technology works at scale, in Chile, is another question for the intrepid investor. But the progression from a 0.75 hectare pilot, to a 150-hectare model farm, and adding additional units towards a 5,000 hectare system, is a logical progression.

Entry price. Moreover, the entry level price, for that 150 hectare model farm at around $12 million in capital investment excluding land, is one heck of a lot smaller a nut for the early adopter. Interestingly, the company is projecting that (under unspecified conditions) customers can make good returns on a 600-hectare system.

Economies of scale. The astute analyst may note that the capital costs do not come down much in the full-scale system ($80K per hectare for 150 ha, vs $75K per hectare for the full-scale system), but the operating costs will come down sharply and offered accelerated returns.

Eh, biocrude? A close reading of the S-1 will reveal no discussion of Foster Wheeler or any other company developing small- or large-scale technologies that turn bio-crude into renewable fuel. There continues to be ongoing development in this area – presumably, PetroAlgae determined that it would not use valuable S-1 space to promote third-party technology, but we see that as a significant limitation for the investor looking at this IPO. Given that, at around 50 tons per hectare per year, just one full-scale PetroAlgae farm would suffice for the alfalfa and fish meal demands of entire countries – more discussion of the path towards performance in the renewable fuels market is going to need to be spelled out in more detail, in our view.

Overall? PetroAlgae has shifted to a feed and feedstock play, as have many of the companies developing algal-based technologies or using micro-crops. So, not entirely surprising that the S-1 has migrated in this direction, and highly welcome as well. In the final analysis, the alfalfa market is key here. If Mikey the Little Bull really likes it, this one might go far.

The complete S-1 registration statement.

Prefer 160-or-so pages in all their glory? The complete revised S-1 registration statement is here.

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

December 09, 2011

Cheap Photovoltaics Are Eating Solar Thermal's Lunch

Tom Konrad CFA

The falling price of photovoltaic (PV) solar is undermining the case for Concentrated Solar Thermal Power (CSP). 

According to a recent report from Pike Research, of the 6886 MW of CSP projects awarded in the United States since 2004, 36% have been replaced with PV.  That's more than the number which are actually under construction (1,532 MW, or 21% of announced projects), and all of those required the backing of the US DOE loan guarantee program.

Pike CSP Construction.png

With this recent track record, and no prospect for new approvals under the program since September 30th, it seems likely that less than half of 3400 MW of projects in the pipeline will actually be built as CSP projects.  In the worst-case scenario for CSP, DOE loan guarantees will prove to have been essential, and the entire CSP pipeline vanish or be replaced by PV.

It Wasn't Supposed to be This Way

Many renewable energy advocates (myself included) have long seen CSP as core to the decarbonization of the electric grid.  That's because CSP has something relatively unique among renewable power technologies: with the addition of relatively inexpensive thermal storage, it can be dispatchable.  Dispatchable power, usually provided by natural gas turbines on the current electric grid, is what allows utilities to match supply and demand.  The addition of variable sources of supply such as PV and wind only makes dispatchable resources more important.

CSP held the promise of squaring the circle: scalable, potentially inexpensive, dispatchable zero-carbon power.  Even PV advocates such as Ken Zweibel, now head of the GW Solar Institute, but then the President of thin film PV start-up PrimeStar Solar co-authored a "Solar Grand Plan" for Scientific American which relied on CSP as a key component in his vision of a solar powered North America.

What Happened

The difference between the grand visions and today's reality are legion.  First, as the Pike study points out,
The biggest threat to resumed growth in CSP is the dropping prices of PV modules. PV module prices continue to drop beyond 50% of their peak in mid-2008. In addition, the established track record of PV is more attractive to financial backers.
but the authors hold out hope that
CSP may overcome competition from PV by reducing costs as the result of bigger scale and two technology propositions that increase operating revenue and profits: hybridization with fossil fuel plants through a process called Integrated Solar Combined Cycle (ISCC) and utility-sized energy storage capabilities.
I'm less sanguine.  I now see four other difficulties for CSP going forward:
  1. Dispatchable carbon-free power may be essential to a carbon-free electric grid, but today we are at much lower penetrations. 
  2. Dispatchable natural gas generation is widely available and cheap to operate with today's low gas prices and the absence of any price on carbon. 
  3. Dispatchable generation is most useful for balancing load if there is a robust transmission link between the generation and the load in question.  Since CSP requires direct sunlight and considerable land areas, it is confined to remote parts of the arid Southwest, typically far from population.  Given the difficulty and long time lines required to build new transmission in the US, CSP's potential dispatchability remains limited. 
  4. Smart grid technologies such as Demand Response (DR) are advancing rapidly, and are, in many cases, able to match demand to supply at much lower cost than CSP.  Lithium-Ion and Lead-Acid battery technologies are also angling for a slice of the grid stabilization pie, especially in conjunction with better load forecasting techniques.  While DR and batteries have difficulty matching CSP for cheap mass energy storage, they have a competitive advantage when it comes to supplying power for short term grid stabilization

Conclusion

As long as there is cheap natural gas available for long term storage, and smart grid techniques filling in the short term gaps, CSP's high-energy thermal storage is a solution looking for a problem. This is especially true given that the "problem" (mismatch between supply and demand) occurs at the source of demand (population centers), not in the uninhabited desert where CSP plants are invariably located.

The Pike report forecasts that CSP construction will rebound by the end of the decade.  I'm not so sure.  Technologies improve and get cheaper as they are deployed.  With CSP deployment stalling, and smart grid and PV deployment accelerating, why should be assume that CSP will ever catch up?

If CSP development does stall, it will be a tragedy, because smart grid technologies will be less able to compensate for the variability of PV and wind as they reach high grid penetration.  At that point, mass energy storage such as that available with CSP will become essential, and if we have not been developing CSP technology along the way, mass energy storage may be much harder to implement than we would hope.

NOTE: This article was first published on Forbes.com. I also added some thoughts on what it might mean for electricity generation in general on my blog at Clean Energy Wonk.

December 08, 2011

Hype Busters From Lux Research Explain Grid Based Energy Storage

John Petersen

In 1883 Thomas Edison said, "The storage battery is one of those peculiar things which appeals to the imagination, and no more perfect thing could be desired by stock swindlers than that very selfsame thing. ... Just as soon as a man gets working on the secondary battery it brings out his latent capacity for lying."

The problem isn't so much the batteries, which haven't improved all that much over the last century. Instead, the problem lies in the fertile imaginations of scientists, engineers, politicians, ideologues, analysts and investors who focus on new energy storage applications, overestimate the potential, underestimate the challenges and make a quantum leap from the reasonable to the absurd. There is no issue in the energy storage sector that's more wildly over-estimated than the short- to medium-term potential for using manufactured energy storage devices in the electric grid.

This week, the Smart Grid Intelligence Team at Lux Research, aka the hype busters, presented a 46 minute webinar on the current state of the grid-based energy storage market and its likely development over the next few years. After listening to the live webinar I asked Lux if they're be willing to share their work with my readers and they graciously agreed. Readers who want to listen to the entire webinar can do so by clicking on this link to "Grid Storage: Connecting dots in a fragmented market." For readers who don't have the time for the webinar, I'll try to summarize some of the highlights.

While respected institutions like Sandia National Laboratories have estimated that grid based energy storage represents a $200 billion opportunity, the global installed base of manufactured energy storage devices cost about $1.1 billion, roughly half of that capacity was built in 2011, and a similar amount of new capacity will be added next year. The following table offers a more granular analysis that allocates the installed base and planned additions, expressed in millions of dollars, among the five storage technologies Lux evaluated.

12.8.11 Storage Base.png

By 2015, Lux forecasts an annual market for grid-based storage in the $1.5 billion range. Other firms like Pike research expect faster growth rates. While the prospect of rapid and sustained growth is enough to awaken the animal spirits in all of us, Lux took pains to emphasize several key points:
  • There is no silver bullet solution for the grid and several technology classes will be important;
  • There is no unified mass market for grid-based energy storage technologies;
  • The market for grid-based energy storage is highly fragmented and extremely price sensitive;
  • The two largest market segments for grid-based storage are behind the meter installations for commercial and industrial facilities and in front of the meter facilities for renewable power generators;
  • Most buyers of grid-based energy storage will require several years of reliability data before making a major capital commitment to any energy storage technology; and
  • End-users of energy storage systems will try to aggregate as many value streams as possible to maximize the total economic benefit of their energy storage investments.
For energy storage investors, the most important question is always "Cui Bono?," who will benefit. While there are a lot more questions than answers at this point and Lux did not focus on the principal players in the emerging grid-based storage sector during the webinar, there is a fairly short list of public companies that are actively involved in developing large scale energy storage systems for the grid connected market including:
  • Japan's NGK Insulators (NGKIF.PK), which has built and installed the overwhelming bulk of the high-temperature sodium-sulfur battery systems in the world and is currently trading at about 40% discount from recent highs because it has suspended battery sales pending investigation of a recent fire.
  • General Electric (GE), which has built a new manufacturing facility for a high-temperature molten salt device known as the Zebra battery and is preparing to launch a series of products for large commercial and industrial users.
  • A123 Systems (AONE), which has a strong working relationship with AES Corporation (AES) and is making rapid progress in the renewable power generation market with its high-power lithium-ion battery systems that are used for output smoothing and renewable to grid integration.
  • Altair Nanotechnologies (ALTI), which has demonstrated a high-power lithium-ion battery system for frequency regulation and negotiated a significant sale in El Salvador that's bogged down in regulatory approval issues.
  • Enersys (ENS), which manufactures advanced lead-acid batteries for commercial and industrial power quality, load leveling and uninterruptable power supply systems.
  • Axion Power International (AXPW.OB), which has joined with Viridity Energy to demonstrate a behind the meter energy storage system for commercial and industrial facilities that integrates utility revenue and demand response savings with conventional power quality, load leveling and uninterruptable power benefits to users.
  • Active Power (ACPW), which is a world-leader in flywheel based power quality and reliability systems for data centers and other critical infrastructure facilities that require absolute reliability.
  • ZBB Energy (ZBB), which recently completed a three-year validation test of its flow-battery system in cooperation with Australia's Commonwealth Industrial and Scientific Research Organization, is awaiting UL approval for its power control systems and is rapidly expanding its sales and marketing team.
My clearest takeaway from the Lux webinar is that regulated utilities will probably be among the last to invest heavily in grid-based storage because of their risk aversion and their need to justify capital spending to regulatory agencies that are charged with protecting the ratepayers.

On the power producer's end of the grid there are significant opportunities for storage systems to smooth and stabilize power output from wind and solar while optimizing revenue streams to the owners of the facilities. At the power user's end of the grid, the most readily quantifiable values will be derived by commercial and industrial customers who can aggregate the internal benefits of power quality and reliability with external monetary benefits from demand response programs and providing ancillary services to the utility side of the meter. Over time, the most successful technologies will build a long enough track record of reliability to take a direct run at utilities and transmission system operators, but it's not reasonable to expect the utility and transmission markets to develop rapidly over the next five years.

It's far too early in the game for me to try handicapping likely winners and losers, but most of the companies in the list are currently trading at lottery-ticket prices that will not be available once their competitive positions in this rapidly expanding niche are better understood.

Disclosure. Author is a former director of Axion Power International (AXPW.OB) and holds a substantial long position in its common stock.

December 07, 2011

US Solar: Blistering Demand v Expiry of 1603 Treasury Program

by Clean Energy Intel

Despite the Solyndra affair and its aftermath in the political arena, the solar industry in the US continues to see a blistering rate of growth. At the same time, the end of year expiration of the 1603 Treasury Grant Program could have a negative affect on the financing environment for all renewables - including solar.

Sources of Growth In The North American Solar Sector
Solarbuzz%20North%20America%20Market%20Segmentation%20Q311%20vs%20Q411%20111128[1].png
Source: NPD Solarbuzz North America PV Markets Quarterly report

The latest survey-based data from Solarbuzz points to a blistering performance from the solar sector in both the US and North America as a whole. As the table above shows, new installations reached 0.6 GW in Q3. Moreover, the solarbuzz survey now suggests that Q4 should see a further pick-up in installations to 0.8 GW. That would represent a growth rate of 33% on the quarter and 101% on the year and would put total installations for 2011 as a whole at 2.2 GW.

For the US market alone total installations in 2011 are expected to come in at 1.9 GW. However, the issue for the outlook for the US solar sector continues to be uncertainties regarding the policy environment. Various forms of incentives have helped provide a financing funnel for solar projects in the US - from tax credits, the 1603 Treasury grant program and loan guarantees. However, the political reaction to the Solyndra affair has put these incentives under threat. The DoE Loan Guarantee Program has already come to and end and the 1603 Treasury Grant program expires at the end of this year.

As we discussed a few days ago, SolarCity´s SolarStrong deal with BoA has shown that the private sector can still provide financing for fairly large-scale projects even in the absence of loan guarantees. This is welcome news. However, the focus is now on the potential loss of the 1603 Treasury Grant program.

The U.S. Partnership for Renewable Energy Finance (US PREF), has suggested that the loss of the 1603 Treasury Grant Program could cause a fall in financing for new energy projects of 52% in 2012. That number is based on their July 2011 survey of major tax equity investors. As a result, 750 companies across 50 States have signed a letter to congress calling for a one-year extension to the program.

This is a crucial issue for the medium-term health of both the US solar sector and the renewables industry as a whole. However, the good news for the global supply demand situation facing the solar industry is that the coming expiration of the 1603 Treasury Grant Program appears to have accelerated the pace of demand as prospective participants have acted to move forward in order to meet qualifying requirements. Moreover, this will continue throughout 2012 as participants have to make further commitments in order to meet progress requirements.

Irrespective of the changing policy and financing environment, the US is therefore still likely to be making a positive contribution to reducing the current supply-demand imbalance in the sector over the immediate few quarters. This is particularly important at a time when developments out of China and Asia are likely to begin to allow the supply-demand imbalance in the broader global solar sector to finally begin a process of adjustment towards balance. We discussed these factors in two recent articles:
  • A number of the top tier Chinese solar players have announced a halt to their previously extensive plans for capacity expansion - for a fuller discussion see here.
  • The latest data shows something close to an explosion in demand for solar out of China and the rest of the Asia Pacific. Together with the adjustment to capacity plans mentioned above, this should help erode the current over supply and excess inventory position in the industry over the course of 2012. More detail here.
The bottom line here is that solar is heavily undervalued, having been decimated for much of this year. However, finally fundamental adjustment in the supply-demand imbalance in the industry should start to allow solar stocks to recover. For anyone willing to hold solar on a strong medium-term view, we have recently recommended being long some of the main vertically integrated, low cost module manufacturers - with a basket of Suntech Power (STP), Yingli Green Energy (YGE) and Trina Solar (TSL) likely to work over time. Given the assessment of the outlook in the US provided above, we would add First Solar (FSLR) to that basket.

Of course, the immediate outlook is likely to be driven by broader macro considerations and the outlook for the overall stock market. However, as we argued last week, the outlook for stocks now seems positive on a reasonable reading of last Fridays Non-Farm Payroll number and what is likely to be better news out of the political situation in Europe. You can read a fuller discussion of those issues here. From where we stand today, it certainly seems that if we are right on the overall market, solar stocks have some potential to recover well.

Disclosure: I have no positions in the stocks discussed.

About the Author: Clean Energy Intel is a free investment advisory service (available at www.cleanenergyintel.com), produced by a retired hedge fund strategist who also manages his own money inside a clean energy investment fund.

December 06, 2011

SolarCity Shows Private Sector Can Respond To Funding Gap Left By DOE

by Clean Energy Intel

Solar City has today announced that it has obtained private sector financing for its SolarStrong Project to put solar on the rooftops of 120,000 military homes across the US over a five year period. Bank of America (BAC) has now agreed to provide the finance, though the project has been slightly downsized from it original target of 160,000 homes.

This is very good news for the solar sector. SolarCity had of course been let down by the DOE, which in the immediate aftermath of the Solyndra affair had said that it could not complete SolarCity´s $275m application for a Loan Guarantee in time for the September 30th deadline for the program - more detail here. It is certainly favorable to see the private sector step in and fill the gap left where the DOE was unable to follow through with loan Guarantees in the immediate post-Solyndra environment.

Hopefully, this is a clear sign that the private sector will be willing to finance fairly large-scale solar and other renewable energy projects without the protection of DOE Loan Guarantees. This is a critical issue facing the solar industry in the US, which faces a 24 GW utility scale pipeline - a very positive source of continuing demand but one which needs to be financed on a large scale.

This latest development is a clear plus for the solar industry. This adds to two recent developments which suggest that the supply-demand imbalance in the global solar sector may finally be adjusting:

  • A number of the top tier Chinese solar players have announced a halt to their previously extensive plans for capacity expansion - for a deeper discussion see here.
  • The latest data shows something close to an explosion in demand for solar out of China and the rest of the Asia Pacific. Together with the adjustment to capacity plans mentioned above, this should help erode the current over supply and excess inventory position in the industry over the course of 2012. More detail here.
For this first time in quite a while, these factors are beginning to provide a reasonably solid bull case for the solar sector. Since our recommendation to get long a basket of Suntech Power (STP), Yingli Green Energy (YGE) and Trina Solar (TSL), all three have rallied nicely. We would stick with that strategy. Solar stocks are likely to continue to be volatile. However, the sector in general is cheap and we now have the basis for the fundamentals in the industry to start to adjust in the right direction.

Disclosure: I have no positions in the stocks discussed.

About the Author: Clean Energy Intel is a free investment advisory service (available at www.cleanenergyintel.com), produced by a retired hedge fund strategist who also manages his own money inside a clean energy investment fund.

December 05, 2011

Renewable Reserve Accounting: building the biofuels balance sheet

Jim Lane

Should biofuels have its own reserve accounting system and accompanying balance sheet booster, just as the oil & gas industry has?

Ceres CEO Richard Hamilton says “yes”, and explains why, and how.

At the Advanced Biofuels Markets conference earlier this month in San Francisco. Richard Hamilton, CEO of Ceres, advanced the remarkable proposition that biofuels companies – on the “level playing field” theory advanced by opponents of government mandates and subsidies, should   have the right to book their reserves of crude renewable oil production, in a parallel to the reserve accounting system which forms the bulk of the oil & gas industry balance sheet.

About proved reserves and balance sheets

Most investors understand proved reserves. Under specific (and generally conservative) SEC rules, proved reserves (that is, which have a 90% or higher probability of being feasibly extracted) can be added to the balance sheet.

These reserves currently total 44 billion barrels for the top six oil exploration companies (ExxonMobil, BP, Shell, Total, ConocoPhillips and Chevron), and when we speak about the massive oil company balance sheets, this is very much in the mind of the investors when they value each company, especially in terms of their predicted future ability to produce revenues.

The complete Hamilton presentation

Hamilton’s presentation can be viewed here, and it contains a call to action on the final slide which is well worth considering. (But, please note, the call to action email should be sent to bsimmons@capitoldecisions.com – make sure you have that spelling correct).

Why have what Hamilton calls “renewable reserve accounting”? For one, it creates a system for valuing biofuels companies that parallels the way we value oil companies, which helps make them inherently more fungible, more comparable, more apples to apples.

Transitioning from an agriculture model to an energy model

Especially if we are to decouple biofuels from the agricultural model, which in all regions is heavily subsidized and in which government plays a heavy-handed role – and instead move biofuels over into the less regulated, more market-based system that underlies energy trading.

Hamilton notes in his remarkable presentation that a system for renewable reserves could, in fact be developed. He based his illustration on the tonnage of biomass per acre, the conversion yields in gallons per ton, and a contract term for which the underlying land would be dedicated to energy production.

Think of it, then, as an above-ground oil or gas field.

Hamilton points out that, over time, despite technological innovations, the cost of finding and developing new oil reserves is increasing, and this is a metric by which energy (bio or fossil-based) should be measured in a standard way. Hamilton notes that the three-year average Finding & Discovery (F&D) investment by the six largest independent oil companies is $20 per barrel, rising to $34 per barrel in 2010, and that the six IOC’s spent an aggregate of $100 billion on exploration & production last year.

What does $100 billion buy you?

What does $100 billion buy you? he asks. On the fossil side, about 3 billion barrels in reserves. On the bio side, if the goal is to produce a crude oil equivalent (rather than a finished fuel or chemical), the costs aren’t much higher for, say, the first stage of pyrolysis (before upgrading to finished fuel). In terms of reserves, you would end up with, say, somewhere between 2.5 and 3 billion barrels of oil equivalent.

Now, what would you rather have, goes the thinking – 3 billion barrels of crude (ready for refining) – and lord knows where the next 3 billion will come from or at what cost. Or 3 billion barrels of renewable crude (ready for refining), and you know exactly where the replacement is going to come from. And you have a pretty good idea that , because of technological innovation, costs of finding, developing and producing biomass reserves is likely to decrease.

That’s one of the nuggets in Hamilton’s system – the argument that biofuels companies ought to be able to acquire and manage reserves and be valued as companies for that potential – and not strictly for their production today.

Why is reserve accounting valuable?

For example, if oil demand dips, oil company reserves don’t – they still have the benefit, from an investment point of view – of being valued on their reserves as well as on day-to-day demand in the market.

Now, agriculture is not generally valued this way. In ag, reserve accounting does not generally exist, and companies are to a great extent valued based on market demand, margin and actual stockpiles (for example, processed grain held in silos). You don’t get bennies from the market just because there is a 90% or higher potential that you can get more production out of a given field, at a later date.

But, to protect agriculture from the mad price swings that accompany commodity grain markets, there is a lot of government protection built into the agricultural system – floor payments, mandated government purchases, price controls, subsidized food, and so on. No one wants a return to the market conditions of, say, the Great Depression, or the global commodity collapse of the 1890s.

But Hamilton argues, if biofuels are asked to transition out of system by which global agriculture is valued and protected, as opponents of mandates and subsidies would demand, why shouldn’t biofuels have access to a parallel system by which global energy is valued and protected?

A fair go

It’s a fair question. Shouldn’t biofuels get a fair go?

Now, Hamilton’s outlook is, essentially, a conversation-starter rather than a complete system. Whether a biomass field should be valued over, say, a 15-year or 100-year period, should be debated. Tonnage per acre, whether than is 2 or 15, should be agreed and understood.

Crucially, a cost would need to be established that parallels the technology cost associated with production & exploration. For the purpose of establishing a reserve, for example, should all the costs of growing, extracting and refining fuel molecules be included? Likely, not – after all, the total cost of refining fuels is not applied to oil & gas reserves. But what cost should be applied to “prove the reserve”? The cost of leasing land, or above that the cost of growing the biomass, or above that some limited refining cost to turn it into, at least, a barrel of crude oil equivalent?

Here at the Digest, the latter case strikes us as the most comparable – something like the lowest cost of growing, and then converting carbs into a biocrude.

Moving from conversation-starter to system

For sure, the devil is in the details. But the focus for today, is on a startling idea that deserves a wider conversation.

As Hamilton himself says, the world of carb-derived fuels features no to low carbon, low discovery risk, declining E&P costs per barrel, and fields that don’t peak and decline.

Why shouldn’t such a system have a parallel to the hydrocarb-derived fuel – one that fits the current accounting system and business model?

If biofuels, in short, are expected to live without agriculture’s USDA shelter, shouldn’t it have the SEC’s oil & gas shelter?

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.

December 04, 2011

Navigating the Clean and Bloody Streets of Europe

Tom Konrad CFA

Blood In the Streets

200px-Walter_Rothschild[1].jpg
Walter Rothschild, 2nd Baron Rothschild
Image via Wikipedia

Baron Rothschild was an 18th century British nobleman who supposedly originated the phrase "Buy when there's blood in the streets, even if the blood is your own."  Although accounts differ, Rothschild was a successful banker, and supposedly made a fortune buying in the panic that followed the Battle of Waterloo against Napoleon.

True or not, the tale of Rothschild buying when everyone else was panicking is an excellent illustration of contrarian investing: the notion that the best bargains are to be had when nobody else wants them.  As a contrarian investor myself, the Eurozone turmoil and accompanying declines in European stock markets have piqued my interest.

Clean and Bloody Europe

Europe, with its high energy prices and early acceptance of the science of climate change has for many years been growing industries with the technology and skills to confront peak oil and climate change.  These stocks have been falling along with most other European stocks as a break-up of the Euro zone has begun to look increasingly likely.  If the Euro zone were to fall apart, it would likely be disastrous for all European economies.  Many companies in debtor nations leaving the Euro would be unable to repay  their Euro-denominated debt and have to declare bankruptcy, while companies in stronger economies such as Germany would find it increasingly difficult to compete because of a rapidly appreciating currency.

The coordinated action of six central banks led by the US Federal Reserve on November 30th gave European leaders some breathing room to work out a way to deal with the spiraling cost of financing peripheral economies' debt.  But they must come up with something much more decisive than previous deals if a crisis is to be averted.  If a deal can be reached, now could easily turn out to be one of the best buying opportunities for European stocks at extremely attractive valuations for years.  A deal would also likely lead to a short term rally in the US as well.   If not, it may simply be a good way to lose a lot of money. 

My Strategy

Over the last few months, I have bought a handful of European stocks at what appear to be very attractive dividend yields, but I am also maintaining puts against major stock indexes which should cover my losses if the crisis worsens.  I'd be a lot more cautious about buying European stocks at this point without a hedge.  The stocks I've bought recently are:

  1. Environmental services firm Veolia (VE), which I wrote about in Trash Stocks Trashed.  At $12.69, VE yields over 12% on trailing dividends, although I expect the dividend in 2012 to be significantly lower than the $1.47 paid this year.
  2. Denmark-based global insulation manufacturer Rockwool (ROCK-B.CO/RKWBF.PK).  At the recent price of $88.22, Rockwool has a 2% yield, and Rockwool's global operations should shelter the company somewhat from the fallout in Europe, especially since the global insulation market seems to be rebounding.
  3. German inverter manufacturer SMA Solar (S92.DE / SMTGF.PK), which at the recent price of $56.70 yields 3%.  I most recently wrote about SMA in A Value BOS Play on Solar, although I inadvertently doubled the dividend yield in that article.
  4. Dutch bicycle and e-bike manufacturer Accell (ACCEL.AS / ACGPF.PK) is yielding about 7% at $17.47. I recommended buying Accell last week.

I normally follow North American stocks, and this eclectic group are simply European stocks which have caught my interest over the last few years and currently seem fairly cheap.  Since the Euro crisis is making stocks fall across the board, I polled my panel of green money mangers to see what they thought of the current opportunities across the Atlantic, and to see if they had any specific picks of their own.

Robert Wilder

Dr. Robert Wilder is the CEO of Wildershares, and co-founded and manages the WilderHill Clean Energy Index (ECO) which underlies the largest clean energy ETF, PBW.  He also co-manages two other Wilderhill indexes, WHPRO and NEX.  As an indexer, he was not willing to pick stocks, but he did have some thoughts to share on the situation in Europe:

On Solar:

Overcapacity from China taking poly[silicon] costs near $25/kg and c-Si solar modules under $1 on top of low prices, has been very painful for all European listed (and American) competitors. 
That fact depressed many solar stocks on European markets in 2011, and some consolidation is expected in 2012. A few higher-cost firms have already failed.
Whether that means it's time to buy, is a different matter. Many believe more solar firms with fail ahead and shares have still further to fall.
On the broader market:
Macro-level debt risk too in Europe is adding to woes there. Financing has become more difficult, and Eurozone subsidies are uncertain.
So there is 'blood on the streets' in Q4.
[T]here's no certainty, but one thing for sure is renewable energy is trading far below where it was just 6 months ago, as November 2011 concludes.
[Some] feel clean tech and solar in particular has still farther to fall in 2012. Others contend that to some extent, bad news is already priced into stocks on European markets, and optimism about fixing the Euro crisis along with return to the risk-assets like clean energy could possibly turn things around in a hurry. Especially since this sector has been quite beaten down the past 3-4 years.

Jim Hansen

Jim Hansen is an investment consultant at Ravenna Capital Management in Seattle.  He publishes the weekly Peak Oil focused newsletter The Master Resource Report.  Hansen does not reccommend any European alternative energy stocks, and he does not have any on his "list of near buys."  He prefers "to go at the alternative energy producers from the infrastructure side... [so] we don’t have to pick the best on the cutting edge technology side or determine who is going to be able to produce PV or Wind Turbines at low enough cost to stay ahead of the price decline curve."  Hansen's clients hold a few infrastructure companies such as ABB (ABB) with exposure to alternative energy.

On the overall situation in Europe, he thinks "There will come a day [to buy] but not yet. Reminds me a something read recently on LED lights: 'Overall, I think it's currently safer to be an LED consumer than an LED stock investor.' In this case we may need to see some bodies in the street."

Garvin Jabusch

Garvin Jabusch CIO of Green Alpha Advisors, and manages the Sierra Club Green Alpha Portfolio.  On the overall situation he says:

The short term situation in Europe is pretty brutal. It looks increasingly likely that the single currency may not survive much longer, and the short term volatility if and as they go through the process of reverting to respective national currencies will be pretty scary.

That said, there are good macro reasons why this could present good buying opportunities in cleantech and renewable energy. First, as national central banks regain control of their monetary policies, the stronger nations will be more insulated (not to say immune by any means) from Euro-contagion. So, for example, Germany may be a little better off with D-Marks than with Euros, but Greece will have to swim more on its own. Imagine if U.S. states had their own currencies and monetary policies. Do we like the opportunities offered by the economy and industrial base of an Ohio or Pennsylvania, or do we want to buy bonds from Arkansas or Mississippi?  Nothing against those states, but there is regional variability being masked by the Euro.

The second factor is that cleantech and renewable investing is the one bright spot in global growth today. Bloomberg captured the trend perfectly with this quote: “The progress of renewables has been nothing short of remarkable,” United Nations Environment Program Executive Secretary Achim Steiner said in an interview:“You have record investment in the midst of an economic and financial crisis.”

We believe that combining the rapid growth in renewables with an eye for the Euro nations with competitive economic advantage, and then looking for companies that within this context become very undervalued in the continuing if not accelerating euro volatility, will likely be a source of good returns over the long term. 

If this sounds like a lot of contingencies, it is. But given the complexity and changeability of the situation, I'm happy to feel like there's any path, even one strewn with caveats, through the 'bloody streets.'
For particular stocks he likes Aixtron (AIXG):
It's an upstream, manufacturer agnostic play in both energy (solar) and efficiency (LEDs), it has cut forecasts recently but is still comfortably profitable going forward and has good growth prospects as renewable continue to thrive. It also rests on the relatively strong German industrial base.  If the Euro crisis causes a large dip in AIXG, we'd have to look very seriously at increasing our position there.
After he saw this draft (and my mention of Veolia (VE) above) he added, "I almost mentioned VE in my comments instead of AIXG.  I mean, double digit dividend yield on a water play? Fantastic."

Conclusion

It's difficult to overstate the seriousness of the Euro crisis, and the universal caution of my panel of experts bears that out.  On the other hand, that near universal caution could be a contrarian indicator.  If Europe's political leaders do work out a deal with substance when they meet on December 8th. 

Is a European fiscal union on its way?  If so, investors who are buying European stocks now will be able to not only congratualte themselves for their bravery, but also have some tidy profits to walk home with.  If not, there will be even more blood on the streets when the time to buy comes.

Some of it will be my own.  And I'll be buying.

DISCLOSURE: Long VE, RKWBF, SMTGF, ACGPF.  Long puts on SPY, IWM.

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.

December 03, 2011

Asia-Pacific Demand To Help Sector Re-Balance

by Clean Energy Intel

Asia Pacific Market Demand By Region


AP PV
demand by region
Source:  NPD SolarBuzz: Asia Pacific Major PV Markets Quarterly

New data published today by SolarBuzz in their Asia Pacific Major PV Markets Quartely points to a surge in new installations in both China and the Asia Pacific region as a whole. Indeed, the region seems likely to add a total of 2 GW of new installations in Q4 of this year. This is good news for the solar industry and could help bring supply and demand in the industry back into balance, particularly in light of the recent adjustments to capacity plans seen from Chinese suppliers.

Key take-aways from the report:

  • The Asia Pacific Region is expected to generate 2 GW of new installations in Q4 - markedly increasing the region´s share of total global demand both for the quarter and the year as a whole.
  • That level of new installations represents a 39% growth rate on the quarter and 130% on the year.
  • In 2012 the region is now expected to grow by 45% - supported by new installation targets and support programs from a number of Asia Pacific governments.
  • China generated over 50% of the region´s demand in Q3 and looks likely to generate 45% in Q4. 
  • That ongoing performance has of course been supported by the recent decision from China´s National Energy Administration to revise up its official solar installation target from 10 GW to 15 GW by 2015 on a cumulative basis.
  • For 2011 as a whole China looks likely to have surpassed both the US and the Japanese markets in terms of new installations.
  • Japanese demand, however, also remains robust. As we suggested would be the case in a previous article published on Seeking Alpha, following the Fukushima incident, government policy has also driven a significant increase in Japanese demand. Japan´s lack of domestic fossil fuels (see previous article) has been a key factor here driving policy.
This is obviously good news for the solar industry, which has been suffering heavily this year due to three factors which have combined to produce something of a perfect storm. Firstly, a sharp fall in European demand due to reductions to the feed-in-tariffs (FITs) in a number of countries. Secondly, the political reaction in the US to the failure of Solyndra and the uncertainty now surrounding federal support for the financing of the substantial 24 GW pipeline in the utility scale sector. And lastly, the massive build out of new capacity driven by the main Chinese manufacturers - a build out that until recently refused to adjust in the face of shrinking forward demand. This caused a large-scale supply-demand imbalance and let to a very significant inventory build with resultant declining average selling prices (ASPs).
A number of factors, however, now appear to be falling into place to allow a re-balancing in the industry:
  • The affect of the reductions in the various European FITs is largely priced in. In terms of the most recent adjustment, which has been in the UK's FIT program, there is reason to believe that demand will nevertheless hold up quite well. For a more detailed discussion and an interview with one of the UK's leading players see our recent article here.
  • The US pipeline remains large. However, financing remains a question mark and we face the issue of the expiry of the Section 1603 Treasury Grant Program at year end at a time when the politics surrounding the issue make the question of rolling over the program almost impossible. For a more detailed discussion see here and here
  • However, as discussed above, there is increasing evidence that Asia and particularly China will take up a good part of any slack going forward.
  • Finally, the main Chinese players have announced plans to halt new capacity build out at least until the end of 2012. For a more detailed discussion see our recent article on the issue here.

These factors should allow supply and demand to re-balance itself over the course of 2012, creating a much healthier situation in the industry. The question for now is how forward-looking the market is prepared to be at a time when earnings in the solar sector still look negative, reflective of the current state of over-supply.
For anyone willing to take a long-term view, the bet would seem to be that the main beneficiaries from buoyant Chinese demand for solar will be the very much undervalued Chinese solar players. Given the pressure on margins, it would probably be best to stick to the main vertically integrated, low cost module manufacturers - a basket of Suntech Power (STP), Yingli Green Energy (YGE) and Trina Solar (TSL) would probably work over time.
In the short-term, the outlook is somewhat obviously more about the global stock markets and the European debt crisis. However, on a long-term view these stocks are undervalued and should come back as the demand-supply situation in the industry rights itself.

Disclosure: I have no positions in the stocks discussed.

About the Author: Clean Energy Intel is a free investment advisory service (available at www.cleanenergyintel.com), produced by a retired hedge fund strategist who also manages his own money inside a clean energy investment fund.

December 02, 2011

Culling My Energy Storage Tracking Group

John Petersen

In my second quarter update I deleted China Ritar Power (CRTP.PK) from my energy storage tracking list because of its decision to terminate its SEC registration during a period when China-based companies with US listings were bogged down in a dense fog of suspicion. Since then the carnage in the energy storage sector has been far worse than I expected and it's time to permanently remove the companies highlighted in pink from my energy storage and vehicle electrification tracking list for the reasons described below.

12.2.11 Cull List.png

Current Culls

In March of this year when its stock was trading in the low $3 range, I predicted that Ener1 (HEVV.PK) would be forced to come to grips with an improvident investment in Th!nk Motors and a pair of mushy balance sheet accounts including $11.7 million of intangible assets and $51.7 million of goodwill. Since then the collapse of Ener1's stock price has been catastrophic as it wrote off the Th!nk investment and said that it would impair the bulk of its goodwill and intangible assets. When I adjust Ener1's last reported balance sheet amounts for known write-offs and likely intervening operating losses, it's clear to me that stockholders equity has been completely wiped out and while Ener1's creditors may recover some portion of their investment, the holders of 197 million outstanding common shares own an empty bag.

Earlier this year I was hopeful that Beacon Power (BCONQ.PK) would gain enough momentum from the commissioning of their Stephentown frequency regulation facility and a favorable FERC ruling to keep the company afloat long enough to prove the technical and economic merit of their high-speed flywheel technology. Unfortunately, management concluded that bankruptcy reorganization was the only option and filed on October 31st. Beacon subsequently agreed to sell the Stephentown facility for the benefit of its principal creditor, the US Department of Energy. The impairments included in their Form 10-Q for the period ended September 30, 2011 were savage and like Ener1, Beacon's stockholders equity has been completely wiped out, leaving the holders of 32.2 million outstanding common shares with an empty bag.

C&D Technologies (CHHP.PK) has been a problem stock since the fall of 2010 when it unexpectedly took a $46 million impairment charge that resulted in a forced restructuring of the company's debt. While it appeared that the reorganized C&D would continue to operate as a public company, it announced in October that its principal stockholder would buy all remaining shares for cash at a price of $9.75 per share during the fourth quarter. Accordingly, the company is no longer of interest to me.

In March of this year several articles on Seeking Alpha challenged the accuracy of SEC reports filed by Advanced Battery Technologies (ABAT.PK) and while much of the criticisms seemed to be based on innuendo and conjecture, there were some questions that concerned me enough to back away from my prior support of the company. I wasn't troubled much by ABAT's aloof response to the accusations but I became concerned when a wholly-owned subsidiary needed a $6.3 million line of credit while the parent reportedly had cash balances in $75 million range. The subsequent abrupt departure of their CFO set off alarm bells. On Monday the company's chairman told shareholders that ABAT was unwilling to comply with the Nasdaq Stock Market's request for formal confirmations prepared by its banks in the presence of its auditors because the procedure was degrading. I understand the importance of "face" in Asian culture, but I can't condone, understand or abide by an abject refusal to provide bank confirmations to a stock exchange when the price of refusal is delisting. It may all be a grand xenophobic conspiracy as ABAT's chairman claims, but I'm not willing to assume that risk.

The final cull is the result of a surprise announcement this week that New Energy Systems (NEWN) had agreed to sell its two battery manufacturing subsidiaries to employees. It will apparently retain a consumer battery design and marketing operation as well as a solar panel business, but it will no longer manufacture batteries or components. Accordingly, the company is no longer of interest to me.

Overvalued Stock Watch List

I remain very concerned with the viability of Valence Technology (VLNC) which has been surviving from hand to mouth on open market sales of securities and loans from a principal stockholder for years. In its last Form 10-Q Valence reported a negative stockholders equity of $56.8 million, which means its current market capitalization of $146.1 million represents a whopping $203 million premium to book value. As a native English speaker who lives in a French speaking country, I know all about relying on the kindness of strangers. It may work as a lifestyle, but I've never seen it work as an investment philosophy. Unless and until Valence eliminates the Sword of Damocles threat of $66.7 million in related party debt, I think the stock is too risky to own.

While Tesla Motors (TSLA) is not facing an imminent threat, its working capital adequacy is troubling if you're willing to consider possibility idea that it might encounter an unanticipated delay or two with the launch of its Model S or maybe even fall short of ambitious sales targets for 2013. At yesterday's close Tesla's market capitalization was a stunning $3.4 billion, an amount that's 11.6 times its September 30th book value of $294 million. When world class companies like Bernstein Research and Ricardo agree that electric vehicles will not be a credible market force until 2025 but almost all analysts and talking heads are gushing over Tesla's prospects, it's a sure sign that a stock has reached the Peak of Inflated Expectations which is inevitably followed by an eye watering descent into the Trough of Disillusionment. I will be first to congratulate Tesla if they pull off an Exodus-class miracle and meet current expectations, but I've seen far too many cases where the herd went careening over Wall Street's buffalo jump to believe a happy ending is likely. After all, how many other vehicles can proudly bear the following truth in advertising sticker?

12.2.11 Bumper Sticker.png
Disclosure: None.

December 01, 2011

Delusions: The Secret to Lost Opportunities

By Jeff Siegel

This past Thursday, as we sat down to yet another Thanksgiving feast, the obligatory What are you thankful for? question surfaced.

To be honest, I've never been a fan of playing this game.

After all, if you're thankful for something, why do you have to wait until November 24th to talk about it?

Nonetheless, I played along that afternoon and decided I was thankful for all the great thinkers over the years that enabled progress and allowed us to enjoy the many comforts and conveniences we take for granted today.

As well, I'm thankful that many of these great thinkers succeeded in the face of intense criticism and scrutiny.

After all, change is sometimes hard for the masses to accept — even if those changes are in our best interests and can instigate economic growth.

Look at rail travel, for instance. Think about the impact the advent of rail has had on this country...

The transcontinental railroad united the nation and allowed for the increase of commerce between states.

Think about all the freight we ship on our rail system: the coal, the grain, the chemicals, the scrap iron, and the thousands of other things that keep this nation fed, clothed, and operational.

Every dollar invested in freight railroads yields $3 in economic output. For every $1 billion of rail investment, more than 17,000 jobs are created. Freight railroads generate almost $265 billion a year in economic activity.

Railroads are four times more fuel efficient than trucks, and last year, U.S. railroads moved a ton of freight an average of 484 miles per gallon of fuel.

The importance of freight rail to our nation's economic health is undeniable.

So it's a pretty good thing rail travel didn't die on the vine when it was first being created, especially since there were quite a few folks who disparaged it in its earliest stages of development.

In fact, it was Dr. Dionysus Lardner, the famous professor of natural philosophy and astronomy at University College in London, who once said: “Rail travel at high speed is not possible because passengers, unable to breath, would die of asphyxia.”

That, my friends, is just one example of the ridiculous and irrational things “new” technologies often have to contend with in their early days of development.

Hell, back in 1903, the president of the Michigan Savings Bank told Henry Ford's lawyer, Horace Rackham, that the horse was “here to stay” and the automobile was only a novelty, a fad.

Fortunately, Rackham didn't listen. He invested $5,000 in Ford stock, which he later sold for $12.5 million.

A Clean Energy Illusion

As a long-time modern energy advocate and investor, I've heard every excuse in the book as to why things like solar, wind, and electric cars will never pan out.

Even some colleagues whom I find to be quite smart and successful have sunk to a level of irrationality by referring to solar and wind as “scams,” pushing the illusion that cleaner energy alternatives are inefficient and costly.

Of course, I hold no grudges. We all have an axe to grind. I'm just not a big fan of trashing something you don't fully understand in an effort to push something you do.

In other words, while I fully enjoy being a part of (and profiting from) the earliest developments in clean power generation and electrified transportation, you'll never find me cheering pipeline delays or second-guessing the role oil plays in the global economy.

Because as any right-minded objective capitalist will tell you, that pipeline's a done deal.

As well, the further production of domestic oil is lock.

But just as we will produce unconventional liquids in Canada and the United States, we will also continue to integrate more cleaner energy.

Irrelevant Perceptions Won't Help You Profit

While some like to subtly mock wind power by referring to wind turbines as “windmills,” it is very likely that by 2030, 20 percent of our power generation will come from wind.

The 20 percent by 2030 has actually been an industry goal since former president George Bush signed off on a DOE report detailing how the U.S. could achieve that kind of wind penetration, and do so without any major technology breakthroughs.

The cost: about 0.06 cents per kilowatt-hour of total generation by 2030, or roughly $0.50 per month, per household.

But again, that's based on no technology breakthroughs, of which there have been many over the past few years — including a few that have enabled increased efficiencies and lower production costs.

Even Bloomberg's New Energy Finance recently released a report indicating the best wind farms in the world already produce power as economically as coal, gas and nuclear generation, and the average wind farm will be fully competitive by 2016.

Here's what lead analyst Justin Wu had to say:

The public perception of wind power tends to be that it is environmentally-friendly, but expensive and intermittent. That is out-of-date – in the best locations, where generation is already cost-competitive with fossil fuel electricity, and that will be the case for the majority of new onshore turbines installed worldwide by 2016.
Wu also went on to say:
The press is reacting to the recent price drops in solar equipment as though they are the result of temporary oversupply or of a trade war. This masks what is really going on: a long-term, consistent drop in clean energy technology costs, resulting from decades of hard work by tens of thousands of researchers, engineers, technicians and people in operations and procurement. And it is not going to stop: In the next few years the mainstream world is going to wake up to wind cheaper than gas, and rooftop solar power cheaper than daytime electricity. Add in the same sort of deep long-term price drops for power storage, demand management, LED lighting and so on — and we are clearly talking about a whole new game.

A Bigger Piece of the Pie

Look, I get it. Some folks like to mock environmentalists.

They think all that “let's make sure our air and water is clean” rhetoric is just a recipe for economic disaster and socialist agendas... or they just need a villain to help them sell their wares.

Whatever it is, rest assured the integration of clean, modern energy technologies is not being facilitated by Greenpeace or a secret society of tree huggers worshiping at the altar of Al Gore...

It's being facilitated by nothing more than the quest for wealth and security.

The future of energy will not be one completely dictated by fossil fuels. Rather, it will be one that utilizes a variety of resources.

In 20 years, we will still be very much reliant on fossil fuels.

But don't kid yourself.

Because while natural gas will likely be our main source of power generation for decades to come, wind, solar, and geothermal will also be getting a bigger piece of that pie.

And while we'll suck every last ounce of oil from anywhere we can economically produce it, we are actively developing alternative modes of transportation right now that will either require less oil or no oil at all.

From natural gas trucks and buses to more efficient internal combustion engines to electric cars, this is happening right now.

And this is our opportunity to make a choice...

Either embrace it and profit from it, or miscalculate the enormity of the change that is about to take place — much in the way the former Michigan Savings Bank president did when he insisted the automobile was nothing more than a novelty.

When it comes to energy in the 21st century, the only novelty or fad is the outdated and delusional mentality that the world is not transitioning its energy economy to one that will rely less and less on finite resources.

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

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

P.S. For the sake of clarification, windmills are machines designed to mill grain or pump water. The word windmill is also used to describe a cardio exercise that requires you to swing your arms around in a circular motion. Wind turbines, on the other hand, convert wind energy to mechanical energy that is used to produce power. Just something an energy investor might want to know in case you encounter the incorrect usage of the word “windmill” in any past or future analysis you may read.


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