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March 31, 2012

The Week In Cleantech: March 31, 2012

Jeff Siegel

March 26: Tesla Motors (NASDAQ:TSLA) Upgraded to $49

  • A123 Systems (NASDAQ:AONE) announced today that it will have to replace battery modules and packs that may contain defective cells. The replacement is likely to cost about $55 million. The stock is down about 4 percent in pre-market. If the broader market stays positive today, the damage could be contained. I expect to see a number of follow-up articles blasting A123 because, well, the company works in the electric vehicle space and it's received government support. The combination of the two makes it a popular target.
  • On the upside of electric vehicles today, Wunderlich just upgraded Tesla (NASDAQ:TSLA) from hold to buy, with a $49 price target. I'm a huge fan of Tesla, but admittedly a bit surprised at the $49 price target. My personal opinion is that $49 is a bit optimistic. I'm more comfortable with somewhere between $36 and $38 right now. Of course, this would certainly be an instance of where I'd be happy to be wrong.

March 27: GE (NYSE:GE) Lands $200 Million Saudi Deal

  • GE (NYSE:GE) has announced that it landed a $200 million supply contract with Saudi Arabia. The deal has GE supplying steam turbine technology, power generation services and distributed control systems for Saudi Electricity Company. Saudi Arabia is looking to add an average of 4 gigawatts of power each year with the goal of doubling grid capacity by 2020. For those who want exposure to energy, but don't want to go “all-in” on a pure play, GE is a great way to do it. It's a solid long-term investment with a nice dividend.

March 28: Japan Seeks Natural Gas Assets In The U.S.

Early this morning we learned that Japan's second-largest city gas distributor Osaka Gas, is in talks to import natural gas from Dominion Resources, Sempra Energy and Freeport LNG. Apparently, Osaka is looking to invest in LNG-export plants in Texas, Louisiana and Maryland, as well as fields near those facilities.

Following Fukushima, Japan's LNG imports have surged. And some are expecting the U.S. to ultimately supply 20% of all Japan's natural gas imports. As I've mentioned in the past, I'm extremely confident that the U.S. is going to start exporting more and more of its natural gas bounty. Between new demand in Japan and the fact that the stuff is going for $12 per million BTUs in Europe and $18 in a few Asian markets, there's no way we're not going to jump on this opportunity.

The fact is, natural gas is dirt cheap right now. And producers will not ignore the boatloads of cash they can make from exports. In fact, there are currently nine domestic producers in line to get approval to export roughly 10 billion cubit feet of LNG per day. Despite those who think we need to hoard everything, the market will dictate the decision on this. I remain extremely bullish on LNG exports.

March 30: Bombardier (TSX:BBD-B) Lands $208 Million Rail Deal

  • Finavera Wind Energy (TSX-V:FVR/ FNVRF.PK) has received an environmental assessment certificate for its new Tumbler Ridge wind project. This is actually a pretty big deal as this decision allows the company to finally move forward on construction of the project, which has been under development for about five years now. This is a very thinly-traded stock, and I'm not sure how many people realize the significance of this announcement. It'll be interesting to see how the stock moves today. But at $0.34, I imagine there will be some buyers this morning.
  • Bombardier (TSX:BBD-B/BDRBF.PK) (TSX:BBD-A) announced this morning that it has received a $208 million order for 16 TWINDEXX Vario multiple units for operation on the Kiel-Hamburg and Flensburg-Hamburg railway lines. A TWINDEXX what?!!!   Here's a picture of one:

bombard

If the market cooperates today, there could be a little bit of momentum for the stock. If Bombardier was strictly a train play, I'd be all over it. But there's still a bit of stink on the company's Aerospace division, which took a hit last quarter. That being said, I don't think this division is quite as bad off as some would lead you to believe. Certainly the company's business jet market is doing pretty well. I'll be interested to see how next quarter's aerospace division performs. As for its rail division, it remains solid.

signature 

Disclosure: Long IAALF

Jeff Siegel is Editor of Energy and Capital, where these notes were first published.

March 30, 2012

Lux Research Dissects Lithium-ion Battery Mythology

John Petersen

We all know that you can't have a cost-effective electric car without a cost-effective battery. We also know that a small but vocal hodgepodge of ideologues, activists, politicians and dreamers wants everyone to believe that rapid and stunning advances in lithium-ion batteries will finally make the dream a reality after a century of one abject failure after another.

I frequently caution readers that it won't be anywhere near as easy as the proponents claim.

In a new report titled "Searching for Innovations to Cut Li-ion Battery Costs" Lux Research did a yeoman's job dissecting lithium-ion battery mythology and putting the often inconsistent and invariably confusing world of battery cost claims into an understandable and comprehensive framework that:
  • Explains the technical differences between various types of lithium-ion cells;
  • Explains how future technological improvements will impact cell costs;
  • Explains the differences between cell and battery pack costs;
  • Explains the differences between nominal and useable pack capacity; and
  • Reinforces the inconvenient but undeniable truths that:
    • it's lithium-ion batteries or bust for plug-in vehicles;
    • battery costs will ultimately dictate the future of EVs;
    • there isn't much hope for stunning cost reductions through the end of this decade, and
    • over the next eight years incremental solutions like micro-hybrids will be preferred by automakers and consumers alike because they provide reasonable fuel savings at a reasonable price.
Lux has created a formidable piece of work that's directed at industry professionals and institutional investors. While I can't do the report justice in a blog, I can at least touch on a few high points. For readers who'd like to learn more directly from the source, Lux will be presenting a free webinar on Tuesday April 3rd at 11 a.m. EDT.

All lithium-ion batteries are not created equal. A critical but frequently misunderstood battery performance metric is the relationship between power and energy.
  • Hybrid electric vehicles, or HEVs, are power applications that typically use a small (±1.4 kWh) battery pack to absorb braking energy for immediate re-use in the next acceleration cycle.
  • Plug-in hybrid electric vehicles, or PHEVs, occupy the middle ground and use a mid-sized (5.2 to 16 kWh) battery pack to offer both hybrid and  electric drive functions, which means they require both power and energy.
  • Battery electric vehicles, or BEVs, are energy applications that use a massive (24 to 85 kWh) battery pack to propel vehicles for long distances at high speeds.
In general, HEV batteries cost more per kWh than PHEV batteries, which in turn cost more per kWh than BEV batteries. Likewise, smaller battery packs for short-range BEVs from Nissan (NSANY.PK) cost more per kWh than larger battery packs for long-range BEVs from Tesla Motors (TSLA).

Nominal cost per kWh is far lower than effective cost per kWh of useable energy. Most battery packs are designed with safety margins that reduce battery strain from operating a vehicle at a very high or a very low state of charge. Since nominal capacity is always higher than useful capacity, battery pack cost per kWh of useful energy is always higher than than nominal battery pack cost.

Nominal pack cost for PHEVs is currently about $800 per kWh, but the effective pack cost is closer to $1,500 per kWh of useable energy. By 2020, Lux expects nominal pack cost for PHEVs to decline to about $500 per kWh, but it believes effective pack cost will be closer to $800 per kWh of useable energy.

Nominal pack cost for BEVs is currently about $750 per kWh, but effective pack cost is closer to $1,400 per kWh of useable energy. By 2020, Lux expects nominal pack cost for BEVs to decline to about $400 per kWh, but it believes effective pack cost will be closer to $700 per kWh of useable energy.

The following graph from the Lux report shows how they expect nominal and useable costs of automotive cells and EV battery packs based on nickel, manganese, cobalt chemistry to evolve through the end of the decade. It can be particularly instructive for investors who've had a hard time visualizing the disparities between nominal cell and battery pack costs and effective useful energy storage capacity costs.

3.30.12 Lux Graph.png

While the latest Lux forecasts for battery pack costs are significantly higher than most imagine based on press releases and news reports, they tie closely to comparable 2020 cost estimates from an AutomotiveWorld webinar last Thursday on "Reducing the cost of EV batteries." While neither organization focused on the fact that the price a battery manufacturer charges an automaker doesn't include the automaker's integration costs or markup, the fact remains that the effective 2020 cost to the consumer will be on the order of $1,000 per kWh of useful battery capacity.

HEVs are fuel efficiency technologies that squeeze as much mileage as possible from a gallon of gasoline. In contrast, PHEVs and BEVs are fuel substitution technologies that swap a battery pack for a fuel tank so that owners can swap electricity from coal and natural gas for gasoline. Advocates wax poetic on using alternative energy to charge EVs, but the truth is the virtue of green electrons lies in their creation, rather than their use, and most drivers want to use their cars during daylight hours, which is the only time solar panels work. While electric drive can be highly efficient in runabouts like the cute Renault Twizy, it can be preposterously wasteful in rubenesque halo cars like the Fisker Karma.

3.30.12 Twizy.jpg 3.30.12 Karma.jpg

It's a mystery to me how EV advocates can steadfastly cling to their mythology in the face of caution from leaders like Energy Secretary Steven Chu who told participants in the November 2010 United Nations Climate Change Conference:

"And what would it take to be competitive? It will take a battery, first that can last for 15 years of deep discharges; you need about five as a minimum, but really six- or seven-times higher storage capacity and you need to bring the price down by about a factor of three."

The Secretary's goals seem pretty straightforward:
  • A 15 year life;
  • Five to seven times higher storage capacity; and
  • A two-thirds cost reduction.
Achieving those lofty goals is proving to be far more daunting than describing them.

Lux is currently forecasting a fifty percent reduction in battery costs over the next eight years in the most likely scenario, which works out to an aggressive but attainable improvement of five to six percent per year. A123 Systems (AONE) has not made significant visible progress in efforts to reduce manufacturing costs over the last three years. While Altair Nanotechnologies (ALTI) and Valence Technologies (VLNC) are a good deal more opaque than A123 Systems when it comes to providing reliable cost data to the SEC or the markets, they also seem to be having problems reducing their costs.

Investors who expect cost reduction curves like we've seen in electronics will be sorely disappointed. Investors who pay 17.5 times book value for a money losing startup like Tesla when they could pay 6.3 times book value for an established and extraordinarily profitable innovator like Apple will pay dearly to learn an important lesson:

– that markets may act like a voting machine in the short term, but they always act like a weighing machine in the long term.

Disclosure: None.

March 29, 2012

Six Questions to Ask a Venture Capitalist in the First Five Minutes

David Gold

Ask First.png So, you’re at a networking event and you get an opportunity to talk with a Venture Capitalist (VC) for just a few minutes. After breaking the ice with quick introductory formalities, you present your elevator pitch, right? Wrong. How can you possibly capture that VC’s interest if you don’t know what excites them? Would you try to sell meat to a vegetarian or bricks to a carpenter? Not if you knew a little about their needs and interests! 

When you are raising money, you are selling yourself and your company to your prospective investor. A great sales person knows that learning the needs and desires of your prospect is much more important than telling them about what you’re selling.  Yet, all too often, entrepreneurs focus on conveying as much information as they can in the short time they have with a VC rather than asking questions to learn about the VC’s motivations.  What are some of the more important things you should desire to learn in the first five minutes?  Here are some of the top questions to ask a VC in that first short meeting.

Which specific sectors are of top interest to you?

If you’ve done any homework, hopefully you know whether the VC’s fund invests in the broad segment in which your company lies. But, just because the fund invests in cleantech doesn’t mean they invest in solar. And just because they have invested in solar doesn’t mean they are still interested in more solar investments. Even if they are into solar, they are likely more interested in some areas of technology or supply chain than others. You need to understand what current hot areas the VC is focused on—the areas that makes their ears perk up. Your goals for the first five minutes and your sales strategy should change dramatically based on whether you are a fit for their areas of interest.  If you are not a fit for their interests, look to engage them as a referral source as they may know funds that would be interested.  If you are a fit, then it’s time to move on to other questions…

How many new investments do you have remaining in your current fund?

How much energy would you put into selling something to a person if you found out they had no money? Venture funds don’t always have money to invest. Sometimes they are between funds. Even when VCs are in that situation, they still like to cultivate deal flow so they have a pipeline to turn to when they are ready to invest in the next fund. For funds in that situation, building a relationship for future financing can still be valuable. However, it’s important to know how to prioritize your time with them. If they are not currently active, it’s hard to justify placing them at the top of your priority list.

What size of initial investments do you typically make?

If a fund’s “bite size” is too large or too small for your round, you will likely approach them differently. For a large fund that needs to invest more than you had considered, you will have to contemplate what a larger round would look like and be prepared to pitch that to the VC. Or you need to look at that firm as a referral resource and potential prospect for any future larger rounds of investment.  For a small fund that can’t even invest 20 percent of your round, you first need to find out if they would be interested in such a large round. If they are, you need to assess if they are a fund that—despite being such a small investor—can rally other funds to the deal.

What is your geographic focus?

Some large funds are truly international.  But most at least limit themselves to a country or two.  Small to mid size funds may focus even more on a specific geographic region.  And even large funds that have a big geographic footprint will typically end up doing more deals within a several hour drive of their offices than any other single geography.  Understanding how well you fit with the VC’s geographic focus is an important element of knowing whether your location will be a showstopper, inhibitor or accelerator with that particular fund.

What stage of companies do you focus on?

“Early stage” means different things to different venture funds. For some it means two people with a business plan. For others it may mean a company with over $10M in revenue. You can’t change your stripes when it comes to your stage. That doesn’t mean there’s no value in conversing with a VC if you’re at a growth stage that doesn’t fit with his or her venture fund. If your stage is too early for them, keeping in touch and building a relationship over time can grease the wheels on their participation in the next financing round. If your stage is too late for them, here is the question to ask:

Do you know of funds that would be interested in a company that [insert elevator pitch] and is raising a $XM Series Y round?

Even if you discover that you are not a good fit for a VC’s focus areas or stage, that doesn’t mean there is no value in the discussion. VCs often advertise the areas most interesting to them to other investors specifically to encourage referrals from other types of companies. If a VC views you as credible, many find it valuable to make such referrals because they hope it will encourage other VCs to return the favor.

Would a company that [insert elevator pitch] and fits your stage and segment criteria be worth 45 minutes of your time for a deeper overview?

            Only after you have determined that your company is a good fit for a VC does your elevator pitch come in to play. If you start the pitch with an acknowledgement that your company fits their stage and segment focus, you will have a much more attentive listener. Remember that your goal is not to close on a term sheet—it is simply to get an opportunity for a longer meeting. I bet you can guess at this point that a key goal for you in that meeting should be to ask many more questions!

Watch for my next post on some of the best questions to ask in your first pitch session with a VC.

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.

March 28, 2012

Sell Wind ETFs if Support is Violated

Steve Sollheiser 

Both Wind ETFs are showing interesting chart patterns.

PWND Chart

In the PowerShares Global Wind Energy Portfolio (PWND) chart we can see a Falling Wedge patern, that consists of two non-parallel trend lines that engulf price. The upwards trend line has been tested for 5 times, which is an indication of its strength.

The support trend line was tested four times, which confirms its validity and the accuracy of the pattern.

The Falling Wedge, contrary to intuition, is a Bullish pattern which predicts a breakout upwards and an uptrend in 68% of the time. We would expect price to break the resistance trend line and continue upwards, the target of the breakout calculated at $7.7, and would be reached in 70% of  breakouts.

In a longer-term analysis, we can also see a strong support level on the $6.6 price level, as price tested this level 3 times and did not break it. In case of a breakout below this level we would enter a short trade, and will add to this position in case price pulls back to this level from below. The conservative target for this trade would be calculated by the Measure rule and would be $5.4.

 FAN Chart 

The First Trust Global Wind Energy Index (FAN) is also showing very interesting (and quite similar) price-action.

There was a breakout of a ascending trend line and an accurate pullback to this trend line at March 19th, which resulted in a 4.3% bearish move (marked by the Red arrow on the chart). We can see the price is now on a support level at the $7.8 level.

This level was tested for 5 times, which makes it a strong short-term support level. We would expect high probability of a breakout of this level downwards, and a continuation of a bearish move. The target for such trade is at least $7.48. For the sellers, beware of the support level at $7.6 which was tested twice and can still be a barrier for price on its way down.

In conclusion, if FAN price breaks the support level of $7.8 we will sell it, expecting it to go even lower. If PWND stock will break the $6.6 we will also enter a sell trade, with target at $5.4

Steve Sollheiser is a trader and a writer with experience in trading stock chart patterns and Forex. In his site he shares his insight about chart trading and trading psychology.

March 27, 2012

Why the Sell-off at New Flyer?

Tom Konrad CFA

new flyer logoHeavy duty transit bus manufacturer New Flyer Industries (NFI.TO/NFYEF.PK) released its fourth quarter earnings and annual report on March 21, quickly followed by analyst downgrades from CIBC and Canacord Genuity.

Too far, too fast

Over the next few days, the stock fell from over $8 to below $7, although it is still well above the level where followers of my Ten Clean Energy Stocks for 2012 would have purchased ($5.65) even after dividend payments worth $0.22.  After a rise like New Flyer has had over the last three months, some investors took the opportunity to get out now that it looks like any improvement in the heavy duty transit bus market will take longer than they had hoped.

Transit Bus Market

The US market for transit buses continues to be weak.  While North American bus ridership is at its second highest level since 1957 (the highest being during the 2008 gas price peak), The transit bus market remains dismal, mostly due to tight municipal budgets in the US and continued uncertainty surrounding the Transportation bill currently being held up in the US House of Representatives.

While New Flyer has been able to maintain production rates because of their strong backlog, several competitors have idle capacity, and have been bidding very aggressively to keep that capacity active. Rather than bidding aggressively in response, New Flyer is instead reducing its backlog in order to maintain production rates.  Over the coming year, management expects to maintain production without aggressive bidding by continuing to reduce their backlog, even to the point of producing some buses ahead of schedule

While in the long term, the aging US fleet and increased bus ridership should lead to a resurgence in demand for new, the current competitive climate is likely to lead to near term consolidation among the five major players (Gillig Corporation, North American Bus Industries (“NABI”), Orion and Nova Bus are the other four.) New Flyer has the largest market share, at 35% of new deliveries in 2011, up from 34% in 2010, most likely due to the idled capacity at other manufacturers.  One other bright spot is the shift towards clean propulsion buses (mostly hybrid and compressed natural gas), which made up 68% of New Flyer's sales in 2011.  These buses have higher margins than conventional diesel buses.

Transport Bill Held Up

The current weak state of the bus market is compounded by political uncertainty.

The US Transportation bill needs to be renewed by March 31st to avoid a halt of road work and other federal transportation programs, such as subsidies to municipal transit authorities towards bus purchases.  As of March 26th, Congress looked more likely to pass a short-term stop-gap measure, although even that stop-gap is in doubt, with each party maneuvering to blame the other for its failure

While President Obama and Democrats are touting the job creation benefits of investing in transportation infrastructure (which include jobs in public transit and bus manufacturing,) Republicans in the House are objecting that the Senate version of the bill does not "address the issue of rising gas prices."  House leader John Boehner (R) wants to include provisions opening up more federal lands for oil drilling.  Bohener's position is disingenuous (increasing drilling will not significantly affect gas prices, since oil prices are now set mostly on the demand side, not the supply side.)  Instead, if Congress wants to address the pain Americans feel from rising gas prices, the most effective policy measures they can take are increasing support for public transit and other alternative transportation which allow Americans to get around without using as much gas as they do in cars.  Endangering current support by putting the Transportation bill in question is a step in the wrong direction.

If no bill or stop-gap measure is passed, we can expect a further fall in New Flyer's stock price, but Congress reaches a useful agreement this week, we can expect a quick rebound.

Conclusion

I expect at least a stop-gap transportation bill to pass this week, which should help stabilize New Flyer stock.  In the longer term, we should expect to see consolidation in the transit bus industry, as well as an industry rebound, as higher ridership and an aging bus fleet compels transportation authorities to find the funding to order replacement buses.  In terms of consolidation, New Flyer is more likely to be an acquirer than to be acquired.  The recent annual report if full of references to how the recent share restructuring "provides the flexibility needed to pursue strategic opportunities for continued long-term growth and diversification." 

Given that other bus manufacturers are currently in deeper distress than New Flyer, I expect that if they make an acquisition, it will be at an attractive price.

DISCLOSURE: Long NFYEF.
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.

March 26, 2012

Op-Ed: Vote Against Vestas' Proposed Board

Vestas' (VWDRY.PK) Board of Directors intend to grant management share options at a strike price one-third BELOW book value. The Board of Directors is rewarding management for its mismanagement and past profit warnings. This will not help restore investor confidence. Given Vestas' valuation, it is time for shareholders to stand up for their interests: Investors should vote against all nominees for Vestas Board of Directors at the AGM on March 29th.

The strike price of Vestas' share option scheme is only the latest in a series of decisions disregarding shareholder interests. Vestas needs to change! Vestas needs a Board of Directors capable of hiring qualified managers and willing to enforce shareholder interests. Vestas' old Board of Directors has failed to control management, eg in respect of risk taking (capacity expansion, R&D budget), the establishment of suitable organizational structures and the company's succession planning. Given these failures, no standing member of the Board of Directors should serve an additional term. Nor should investors quickly accept those candidates who have been proposed by the failed board as successors for its departing chairman and his deputy.  While these candidates may be excellent managers, they lack what is needed most in critical times like these. Vestas does not need more Scandinavians on the board; it needs a sound sector background in wind energy, not telecommunications.  Vestas needs the will and determination to replace CEO Ditlev Engel as soon as time and circumstances permit.

I invite Vestas shareholders to join me in voting against a renewal of terms of existing members of the Board of Directors, and their chosen successors. Vestas needs a new start with new people and new ideas.

I support restructuring measures as suggested by management and believe that the company has an interesting investment case IF:
  1. The company is more managed for cash than for growth (lower R&D going forward);
  2. Excess capacity is removed
  3. Business risk is dramatically reduced by cooperating with others on the development and sale of off-shore turbines
  4. Efficient organizational and management structures are implemented
  5. Strong anchor investor or cooperation partner is found for Vestas
  6. The company is managed and management is controlled by people deserving the trust of the investment community.
Disclosure: Long position in Vestas (VWDRY.PK).

The author is an independent financial analyst and investor with more than 15 years working experience in the financial services industry.

March 25, 2012

Electric Drive – Still Crazy After Five More Years

John Petersen

The sunshine, lollipops and rainbows electric car press was at it again in mid-March. This time they were gushing over a $3,800 report from Pike Research predicting that automotive lithium-ion battery prices will fall by more than one-third by 2017. According to Pike, the market for Li-ion batteries for transportation will grow from $2.0 billion annually in 2011 to more than $14.6 billion for 28 million kWh of batteries by 2017. For those without a calculator handy, the figures work out to a future industry average price of $520 per kWh in 2017 versus a current industry average price of $780 per kWh.

At the outset it's probably worth observing that the Pike forecast of 28 million kWh of annual battery sales by 2017 is a good deal more aggressive than last summer's forecast from Lux Research that estimated 2017 lithium-ion battery demand at 12 million kWh in their $200 oil price scenario, 3 million kWh in their $140 oil price scenario and under 2 million kWh in their $70 oil price scenario.

3.25.12 Lux Graph.png
Where Lux is forecasting a massive glut of lithium-ion battery manufacturing capacity for at least a decade, Pike apparently believes the capacity glut will only punish manufacturers for five years. Neither scenario strikes me as particularly attractive for investors in battery manufacturers like A123 Systems (AONE) which is struggling to find customers for 645,800 kWh of government financed battery manufacturing capacity and suffered $45 million in unabsorbed manufacturing costs last year.

Regardless of whether you prefer the Pike or the Lux forecast, electric drive will remain hopelessly uneconomic because small batteries are beautiful when it comes to transportation economics but large batteries are aggressively ugly.

To prove the point again, I'm going to assume that Pike's numbers are correct. I'm also going to assume an annual average fuel consumption of 330 gallons per year in a 37.8 mpg CAFE compliant 2017 model year passenger car and:
  • A $10 gasoline price;
  • A $1,000 per kWh pack level price for high power HEV batteries;
  • A $500 per kWh pack level price for automotive grade EV batteries;
  • A $300 per kWh pack level price for the lower quality batteries used by Tesla Motors (TSLA); and
  • Fuel savings of 27% for a Prius, 75% for a Volt and 100% for an EV.

I don't believe for a minute that these assumptions are reasonable, but they do align well with the happy talk forecasts one encounters regularly in the mainstream media, political speeches and industry puff releases.

My first table summarizes the battery specifications for six electric vehicles, the cost of the battery pack and the annual fuel savings based on incremental fuel efficiency. The vehicles include the Prius HEV from Toyota Motors (TM), the Volt PHEV from General Motors (GM), the Leaf EV from Nissan Motors (NSANY.PK) and three levels of the Tesla Model S.

Vehicle Capacity Per kWh Pack Cost Fuel Savings
Prius 1.3 kWh
$1,000.00 $1,300 $897
Volt 16 kWh
$500.00 $8,000 $2,475
Leaf 24 kWh
$500.00 $12,000 $3,300
Model S-160 40 kWh
$300.00 $12,000 $3,300
Model S-240 60 kWh
$300.00 $18,000 $3,300
Model S-300 85 kWh
$300.00 $25,500 $3,300

My second table summarizes the incremental battery investment, or IBI, and incremental fuel savings, or IFS, for each step up the electrification ladder from a conventional vehicle to a Prius, from a Prius to a Volt, from a Volt to a Leaf and from a Leaf to three levels of Tesla Model S. It then calculates incremental fuel savings as a percentage return on the incremental battery investment, or ROIBI.

Vehicle IBI IFS ROIBI
Prius $1,300 $897 69%
Volt $6,700 $1,578 24%
Leaf $4,000 $825 21%
Model S-160 0%
Model S-240 $6,000 0%
Model S-300 $7,500 0%

The first thing that caught my attention was that a Tesla Model S, regardless of battery pack size, won't save the average user any more fuel than a Nissan Leaf. So the incremental battery investment of $6,000 to $13,500 has nothing to do with saving fuel and simply represents the incremental cost of range anxiety. There are a lot of folks who know they can't live with the range limitations of a Leaf, so they'll have to pay through the nose if they want electric drive and a car that suits their needs with the same set of tires.

The second thing that caught my attention was that even with $10 gasoline and sunshine, lollipops and roses battery cost figures, the ROIBI falls a cliff as soon you move beyond the Prius. I guess that's why Bill Reinert, Toyota’s US manager for advanced technology is frequently quoted for gems like these:

That’s the first law of Disney — wishing will make it so. I see it all the time from those Palo Alto types. They think the whole world is like a computer company, and they’re always trying to recreate the dot-com economy.

I used to be a big 100-miles-per-gallon guy. But I realized that we’re above the level of diminishing returns at 50 miles per gallon. So why not make a whole bunch of 50-miles-per-gallon cars and put people who are driving 20-miles-per-gallon cars into them?

"The expectations have always been too high for electric cars. The realities have always been clouded by the dreams. I like to say it’s the first law of thermodynamics versus the first law of Disney."

No matter how you analyze the facts, the economic realities of electric drive do not and cannot match the hype. Vehicle electrification that goes beyond the minimalist approach of a Toyota Prius is inherently expensive and wasteful. The only consumers that will ever buy the absurdity are the philosophically committed or the mathematically challenged. Tying a pink bow around the EV pig's neck does not change the fact that it's a pig and investors who hurry to invest their money in response to the hype will almost certainly lose that money when reality sinks in.

Start-ups and brash entrepreneurs like Elon Musk are always exciting. Experienced investors understand the grim reality underlying Paul Graham's Startup Curve.
3.25.12 Startup Curve.png
It won't be long before a new generation of Tesla investors learns the same lessons that prior generations of investors learned in the thrilling panacea energy solutions of yesteryear including Ballard Power (BLDP), Pacific Ethanol (PEIX), Vestas Wind Power (VWDRY.PK), First Solar (FSLR) and, of course, A123 Systems.

Disclosure: None

March 24, 2012

Lead-Carbon Batteries: Cheap Classic Chemistry With 21st Century Performance

John Petersen

Overview

Mark Twain quipped, "It ain't what you don't know that gets you into trouble. It's what you know for sure that just ain't so." Truer words were never spoken, particularly when it comes to the batteries that most of us use and curse on a daily basis. If you have a car, you have a lead-acid starter battery that needs to be replaced every couple years. Cellphones and laptops offer similar trials and tribulations unless you upgrade your electronics regularly. When our cars don't start or our electronics don't work, we invariably blame the batteries first. While most of us haven't noticed any major change in starter battery performance over the last couple decades, the utility of electronics has skyrocketed and many believe the gains come from improved battery performance. They're dead wrong.

Today's car batteries aren't terribly different from the ones we bought in the '80s and '90s and they don't perform any better or worse. We just demand more from them as we add increasingly sophisticated entertainment, passenger comfort, information and fuel economy systems to passenger cars. The same is true for the batteries we use in portable electronics. NiMH batteries performed better than NiCd batteries that were plagued by memory effects. Lithium-ion performed even better than NiMH. Within each chemistry class however, today's batteries aren't terribly different from from the ones we bought years ago. The only truly major improvements have been longer cycle-lives – the number of times a battery can be charged and discharged before it needs to be replaced. When you cut through the fog of errant assumptions and get down to facts, the reason electronic devices work better is that clever manufacturers have found ways to slash energy use by 80 to 90 percent while increasing functionality. It has absolutely nothing to do with improving the performance of a particular chemistry.

A popular French phrase aptly describes technical progress in the battery industry – "plus ça change, plus c'est la même chose," or the more it changes, the more it’s the same thing. The following table summarizes the development history and typical specific energy of today's leading battery chemistries.

Battery chemistry
Invented Commercialized
Wh/kg
Lead-acid
1859 1880s
35
NiCd
1899
1950s
45
NaS
1960
1980s
80
NiMh
1967
1990s
90
Lithium-ion
1979
1990s
150

Two key takeaways are (1) the long periods between the invention and the commercialization of new battery chemistries, and (2) the slow incremental nature of progress in the battery industry. Despite a never-ending stream of optimistic press releases, no major new battery chemistry has entered the market since the launch of lithium iron phosphate in 1996.

For those who've gotten used to Moore's Law, cumulative gains of 1% a year over 153 years are not impressive. I read the same stories as everyone else and know all about the researchers who boldly promise to double or triple energy density by the end of the decade. I also understand the difference between hope and accomplishment. My inner geek will wildly cheer new developments if, as and when they prove their technical and economic merit in a free market. But my inner investor will never forget that hope is not an investment strategy and results are the only things that count.

Brief history lesson

Like all mature technologies, batteries have progressed through several evolutionary cycles over the last century as users' needs changed. Until the '60s, the two dominant classes of batteries were rechargeable lead-acid batteries and disposable dry cells. Lead-acid batteries did the heavy work like starting cars, powering equipment and providing emergency backup power while dry cells powered flashlights, toys and consumer goods, including the first wave of portable electronics.

In the early '70s a variety of low-maintenance flooded lead-acid batteries and high-performance AGM batteries were introduced. They rapidly became industry standards. They worked so well that R&D in the lead-acid battery sector plummeted because there was no need for better lead-acid batteries and the perceived value of additional refinements didn't justify the added cost. About the same time, Japanese manufacturers launched a wave of portable electronic devices that desperately needed better batteries. So R&D spending on lightweight rechargeable chemistries soared. That trend continued through the turn of the millennium because lead-acid batteries were good enough for the work they performed while batteries for portable electronics were grossly inadequate.

Since the turn of the millennium, a new market dynamic has emerged that's driving unprecedented levels of R&D in the fields of electrochemical and physical energy storage. The primary requirements of this new dynamic are cost-effective systems that store massive amounts of energy, need little or no maintenance and deliver peak performance for a decade or longer. It's a tall order when you understand that most of the batteries we used in the past were designed for devices that needed tiny amounts of stored energy and had short replacement and upgrade cycles.

For lithium-ion battery developers, the principal technical challenges included:
  • Making cells that were designed for short useful lives more durable;
  • Making cells that were designed for indoor use temperature tolerant;
  • Making larger cells with stable mechanical, thermal, electrical and electrochemical behavior;
  • Making watt-hour sized cells suitable for use in kilowatt- and megawatt-hour arrays;
  • Developing battery management systems for kilowatt- and megawatt-hour arrays;
  • Increasing specific energy to a point where electric drive can be economically feasible;
  • Improving safety, vibration and impact resistance, and overall abuse tolerance;
  • Building new manufacturing infrastructure and materials supply chains;
  • Slashing costs by 75% or more in an industry where raw materials represent 65% of cell costs; and
  • Developing cost-effective recycling technologies and infrastructure for massive battery packs.
Over the last decade, lithium-ion battery developers have made significant progress on a number of fronts, although cost reductions, specific energy gains and cost-effective recycling remain as elusive as unicorns. Some bright researcher may one day crack the code and solve all the technical challenges of lithium-ion batteries, but I'm not holding my breath.

For lead-acid battery developers, the principal technical challenges were far less daunting and included:
  • Making batteries that were designed for short useful lives more durable;
  • Making kilowatt-hour sized batteries suitable for use in megawatt-hour arrays;
  • Developing battery management systems for megawatt-hour arrays; and
  • Reducing charging times to permit more frequent and deeper cycling.
In a nutshell, the lead-acid sector had a simpler and shorter path. The industry had been making heavy-duty industrial batteries for decades. More importantly, researchers had a wider variety of technology and materials options because of the 30-year hiatus in lead-acid R&D. It was almost like the researchers returned from a 30-year vacation to find a different toolbox. As they started using advanced materials and manufacturing processes to improve the performance, cycle life and charging times of lead-acid batteries, the results were astonishing.

Application requirements

The thorniest conceptual problem in energy storage is the variable value of a kilowatt-hour of stored electricity. The two primary determinants of value are time and place. Each of these characteristics, in turn, has a value hierarchy that ranges from very high to merely desirable.

In the simple case of a stationary application where the only variable is time, it's easy to create a value hierarchy. The three principal types of high value applications are:
  • Off-grid batteries that make renewable power available when the sun isn't shining or the wind isn't blowing;
  • Grid-connected batteries that insure system-wide grid integrity by smoothing minute-to-minute variation in user demand and power from variable resources; and
  • Commercial and industrial batteries that provide uninterruptible power for mission critical operations.
While system reliability is the primary requirement for every high value application, total cost of ownership is a crucial secondary consideration and users are reluctant to pay a premium price for attributes they don't need. As you move down the food chain from critical reliability systems to desirable time-shifting applications, the economics get more complex and the users get more particular as they weigh the costs and benefits of energy storage against available alternatives. The complexities of the calculations are enormous, but the basic rules are clear.
  • Storage systems that cycle dozens of times per day are more valuable than systems that cycle once or twice;
  • Performance features that increase system cost without increasing end-user value are non-starters; and
  • The law of economic gravity is inviolate – the cheapest system that can do the work will win.
There are only a few cases where size and weight are mission critical for stationary systems. Examples include installations in existing buildings that have limited floor space or weight tolerances. As soon as you start evaluating shipping containers on a concrete pad, size and weight are irrelevant and the only features that matter are price and performance.

Portable power is usually more valuable than stationary power because it offers flexibility in both time and place. The most valuable batteries I own are in my cellphone and laptop where a few dozen watt-hours are priceless. Next in line is my starter battery. Once we move away from priceless applications, every energy storage decision involves trade-offs. The following simple examples highlight the economic issues that plague electric drive by assuming free electricity, a $5 gas price and an average fuel consumption of 400 gallons per year.
  • In a Prius-class HEV that cuts fuel use by 25%, a 1.3 kWh battery will save $500 a year or $385 per kWh;
  • In a Volt-class PHEV that cuts fuel use by 75%, a 16 kWh battery will save $1,500 a year or $94 per kWh;
  • In a short range Leaf-class EV that cuts fuel use by 100% but requires a second car for longer trips, a 24 kWh battery will save $2,000 a year or $83 per kWh;
  • In a short-range Tesla Model S that cuts fuel use by 100% but doesn't necessarily require a second car, a 45 kWh battery will save $2,000 a year or $44 per kWh; and
  • In a long-range Tesla Model S that cuts fuel use by 100% and won't require a second car, an 85 kWh battery will save $2,000 a year or $24 per kWh.
The examples deliberately ignore the question of battery cost because that fact is irrelevant to the fundamental truth that the economic value per kWh plummets as battery pack size increases. When it comes to portable power, small is beautiful but big is grossly inefficient.

Bill Reinert, Toyota's Advanced Technology group manager, recently described the problem as follows, "I used to be a big 100-miles-per-gallon guy. But I realized that we’re above the level of diminishing returns at 50 miles per gallon. So why not make a whole bunch of 50-miles-per-gallon cars and put people who are driving 20-miles-per-gallon cars into them?" It's a classic conflict where the technically possible is diametrically opposed to the economically sensible.

Lead-carbon batteries

The last decade has been an exciting time in the lead-acid battery industry as manufacturers respond to changing market dynamics. The first major technology transition was increased reliance on maintenance-free AGM batteries that are more robust and abuse tolerant than first-generation flooded batteries. The second major technology transition is the integration of varying amounts of carbon to reduce charging times and increase cycle-life. In a presentation at last September's Asian Battery Conference, the Advanced Lead Acid Battery Consortium offered an exhaustive technical analysis on the use of carbon in lead-acid batteries and the approaches the principal manufacturers are taking.

The simplest, cheapest and most direct approach is adding fine carbon powders to the sponge lead pastes used in the negative electrodes of first- and second-generation lead-acid batteries. Extensive testing over the last decade has shown that changing the paste formulation to include up to 6% carbon by weight (±30% by volume) offers excellent cycleability and power while significantly reducing charging times. Johnson Controls (JCI), Exide Technologies (XIDE) and several other companies are already using carbon paste additives in enhanced versions of their flooded and AGM batteries with notable success. Others will follow. While carbon enhanced batteries have slightly lower specific energy than their predecessors, their 100 to 200 percent increase in cycle-life reduces the cost of energy storage by 30 to 50 percent.

A more complex approach is the Ultrabattery from CSIRO, Furukawa Battery and East Penn Manufacturing. It divides each negative electrode into two parts, a lead half and a carbon half. The end result is superior cyclability and power with even shorter charging times. The Ultrabattery is being tested in a variety of stationary and micro-hybrid applications and shows significant promise, including the potential to reduce the cost of energy storage by 50 to 70 percent.

The third and most sophisticated approach is the PbC battery from Axion Power International (AXPW.OB) that replaces the lead-based negative electrodes used in conventional batteries with a carbon electrode assembly. The resulting device is an "asymmetric lead-carbon capacitor" that offers the energy storage of a battery and the power and cycleability of a capacitor in a single hybrid device. The PbC has the lowest specific energy of all the emerging lead-carbon technologies, but it offers the cycleability and charge acceptance of the best lithium-ion batteries at a fraction of the cost. The PbC has been extensively tested for stationary, railroad, micro-hybrid and military applications and shows great promise, including the potential to slash the cost of energy storage by 80 percent or more.

The road forward

Lead-acid battery chemistry is one of the oldest, safest, most widely used and most environmentally benign technologies known to man. While lead-acid batteries can cause grave health problems if they're not manufactured, used and recycled in compliance with applicable regulations, the lead-acid battery industry has a stellar track record in the US and Europe where over 98% of used batteries are recycled to make new ones. According to USGS reports, over 95% of the lead used by US battery manufacturers in 2011 came from recycled batteries. No other closed-loop recycling ecosystem even comes close. When it comes to other types of batteries, similar closed-loop recycling ecosystems don't even exist.

The lead-acid battery sector has a massive global footprint with robust supply chains, distribution systems and recycling infrastructure. The new lead-carbon technologies have been developed to integrate seamlessly into the existing infrastructure and leverage the manufacturing base instead of displacing it. The commercial lead-carbon batteries that are rolling off the assembly lines today already offer 200 to 1,000 percent better performance than the batteries you think you know.

Lead-carbon batteries are heavy and bulky. They'll never be small or light enough for portable electronics or electric cars that need to travel long distances at highway speeds. As soon as you move away from these niche applications where size and weight are mission critical and money is no object, the advantages of lead-carbon batteries become overwhelming. Shakespeare said, "Nothing is so commonplace as to wish to be remarkable ." When it comes to energy storage, however, most of our needs are fairly mundane and there's no sense paying for extreme performance when adequate performance can do the necessary work for a fraction of the cost.

The first commercial products based on R&D conducted since the turn of the millennium are being launched today. The new products use cheap classic chemistry, but offer 21st century performance that many thought was the exclusive province of lithium-ion batteries. Over the next few years, these innovations will re-energize the lead acid battery sector with products that are vastly superior to their predecessors and competitors for applications where size and weight are not mission critical constraints.

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

The Week In Cleantech: March 24, 2012

Jeff Siegel

March 20: Another Solar Stock Disappoints

  • IBC Advanced Alloys Corp. (TSX-V:IB) (PINK SHEETS:IAALF), a beryllium alloy producer that's doing some ground-breaking work in the world of nuclear fuels, announced this morning that its advanced castings are being supplied for the European Space Agency's Automated Transfer Vehicle, which is expected to dock with the International Space Station in a little over a week.

For the sake of clarification, IBC serves a variety of industries, including automotive, telecommunications and a number of industrial applications. But I actually started following this one after discovering the work its doing in the world of nuclear fuels. It's not the company's main focus, but it's one I believe makes this a good long-term play on the development of “safer” nuclear technologies. (Full Disclosure: I currently own shares of IBC)

Don't know if today's news will really move the stock, but I do believe it'll put more eyes on it.

  • For the third consecutive quarter, JA Solar (NASDAQ:JASO) posted a loss.

Not that I need to repeat the refrains of this sad song, but the disappointing loss comes as a result of falling prices and a slowdown in sales. JASO also forecast lower shipments for Q1. The stock is down about 9 percent in pre-market.

As I've mentioned in the past, it is unlikely that we'll see much in the way of good news for the solar sector anytime soon. That doesn't mean we don't see some fantastic opportunities in solar. The sector will continue to shake the laggards loose, sales will pick up, this annoying glut will eventually come to an end, and those who don't lose sight of the long-term picture here will do quite well. But this is the ultimate exercise in patience. My two cents: Be a fence-sitter for now, but be ready to scoop up some nice discounts later in the year.

March 21: Solar Tariff Does Not Change Fundamentals

  • Chinese solar stocks got a fat boost yesterday after it was announced that the U.S. would impose lower-than-expected import fees on solar panels produced in China. Even after a disappointing quarter and a 9 percent fall in share price in pre-market, JA Solar (NASDAQ:JASO) ended the day up 4.4%. The boost might stick around for a few days, but the tariff decision has not changed the fundamentals. We still maintain that the solar sector will remain unstable well into the second quarter.

For a more personal take on this whole thing (where you can blast me for being misguided or applaud me for pointing out the starry-eyed elephant in the room), you can read my thoughts on the issue here.

  • In other solar news, Daqo New Energy (NYSE:DQ) announced Q4 and FY, 2011 this morning. To be honest, I'm tired of repeating the same bearish reports on this sector. But if you need a reminder as to why we're sitting on the fence with solar right now, you can check out Daqo's earnings here.

Daqo is down more than 10 percent in pre-market.

March 22: First Solar (NASDAQ:FSLR) Sells 50 Megawatts


  • Enbridge, Inc. (NYSE:ENB) announced this morning that it will acquire a 50 MW solar project developed by First Solar (NASDAQ:FSLR). With this acquisition, Enbridge now has a piece of the US solar market. First Solar will recognize revenue from this project – the Silver State North project – after final testing and commissioning. This should be around Q2, 2012.

Of course, Enbridge's decision to grab some U.S. solar doesn't mean the company's shifting gears. Sure, you can definitely make some decent bread from some of these bigger solar projects in the U.S. But the lion's share of this company's profits won't be coming from solar. In fact, CEO Pat Daniel recently confirmed that ENB's future is pretty much natural gas. And mark my words, that's a solid future to have.

Although natural gas isn't quite as “clean” as some would have you believe, there's a ton of dough to be made here. My favorite play on natural gas right now is Linn Energy (NASDAQ:LINE). The company recently acquired BP's natural gas assets in Kansas and about another $175 million worth of natural gas assets in East Texas. It ponies up a fat 7% dividend, and yes, you better believe I own shares.

March 23: Another DuPont (NYSE:DD) Solar Deal

  • China Sunergy (NASDAQ:CSUN) has announced that it and DuPont (NYSE:DD) have signed a Letter of Intent for strategic collaboration relating to solar pv technologies, materials, power transformers and insulation over a three-year period.

    Although few are aware of this, DuPont is actually one of the biggest players in the solar space. The company's materials are in about 70 percent of the world's installed panels. Last year it did about $1.4 billion in solar sales, and the company expects to break the $2 billion mark by 2014.

    Today's news comes just one month after DuPont announced a $100 million deal with Yingli (NYSE:YGE) to supply its polyvinyl fluoride film and photovoltaic “paste” which will be used in the production of modules.

    China Sunergy is up about 7% in pre-market.

signature 

Disclosure: Long IAALF

Jeff Siegel is Editor of Energy and Capital, where these notes were first published.

March 22, 2012

LNG Exports Would Help the Environment

Tom Konrad CFA

Jetty
to LNG Terminal
Photo: Robin Lucas, via Wikimedia Commo


With friends like these, who needs enemies?

The Sierra Club is fighting new Liquified Natural Gas (LNG) export terminals, because they believe LNG exports would reward and encourage producers of shale gas.

Fighting shale gas has blinded them to the bigger picture.

If LNG exports were to reward shale gas producers, they would have to be significant enough to raise the price of domestic natural gas. Such large exports would also lower the world price of LNG.

Effects on Domestic Markets

Higher domestic natural gas prices would help shale gas producers, but they would also help other producers of domestic energy which compete with natural gas. Domestic consumers of natural gas would also have stronger incentives to use gas more efficiently, or switch to other options. Solar, wind, geothermal and energy efficiency industries (of which the Sierra Club is a vociferous supporter) are all hurt by low natural gas prices because it lowers the price they are able to get for the power they sell.

The Case of the Bi-Fuel Truck

The case for electric and hybrid vehicles is hurt as well when low gas prices make the economics of natural gas vehicles look better. GM and Chevrolet both recently announced bi-fuel pickups able to run on natural gas. The selling point for such vehicles is the lower running cost when using cheap natural gas, despite the initial up-front cost. The companies are oddly silent on the additional cost of such vehicles, but the trade-off between higher up-front costs and lower operating costs sounds eerily similar to that for hybrids and EVs.

The Hybrid Chevrolet Silverado costs an additional $2500 up-front, but will also save fuel costs with an EPA fuel economy of 20 mpg for city driving, and 23 highway, compared to 14 mpg city/ 19 highway for the base model, and also comes with four 20 amp A/C outlets allowing it to function as a work-site generator. If we assume 10,000 miles each of city and highway driving annually, the hybrid Silverado will save an annual savings of 306 gallons or $1224, at $4 gas, which will pay for the additional cost in 2 years. Perhaps the bi-fuel pickups will have quicker paybacks (although I doubt it, given the manufacturers' unwillingness to quote prices), but any payback for a bi-fuel truck will depend on natural gas prices staying low.

In other words, the Sierra Club is promoting natural gas vehicles over hybrids, and natural gas power generation over renewables and efficiency by fighting LNG exports.

Effects on World Markets

LNG exports would also lower world LNG prices, hurting LNG exporters in other countries, something the Sierra Club should support, since making LNG has such a high carbon footprint.

Meanwhile, the world's largest LNG importer has long been Japan, and Japan's LNG imports have skyrocketed to make up for electricity from shut-down nuclear reactors. Cheaper LNG imports could help Japan afford the aggressive move to renewable energy and efficiency the country is embarking on.

Conclusion

Hydrofracking for shale gas can be harmful to the environment, especially when it is poorly regulated as it is in much of the United States, and cash-strapped drillers take shortcuts with safety and environmental protection. But if drillers are not going to take shortcuts, they need to be able to afford proper precautions, and funds need to be made available for proper oversight of their operations. All of this cannot happen at today's low extremely low gas prices.

If the Sierra Club wants to stop dangerous fracking, they should not be fighting export terminals, they should be working to force the industry to fund proper oversight. Perhaps a levy on natural gas produced by fracking to fund safety and environmental inspections could be passed as part of a deal to allow LNG export terminals.

Such a deal would be a win for the environment, for renewable energy developers, for energy efficiency, and for the Japanese, who are bravely trying to find their way to a nuclear-free future.

This article was first published on Forbes.com.
DISCLOSURE: None.

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.

March 20, 2012

Ceres, Inc.: Taming, Mapping, and Enhancing Genomes for Bioenergy

Jim Lane

Cereslgo[1].jpgNewly-public Ceres (CERE) makes major breakthrough on miscanthus; is the gigantic energy grass ready for prime-time? Why is miscanthus driving so much attention, yet deserving more?

In California, followers of NASDAQ prices noted yesterday that shares in the newly-public Ceres (CERE) rocketed up 15 percent to close at $17.52. What happened? It was revealed yesterday, in the peer-reviewed, online journal PLoS One that Ceres and the Institute of Biological, Environmental and Rural Sciences (IBERS) at Aberystwyth University in Wales have completed the first high-resolution, comprehensive genetic map of miscanthus. The full article is here.

In other crops, this type of comprehensive genetic mapping has significantly shortened product development timelines. Hence, the lift in the stock.

Proving that money is not, as it turns out, the root of all evil. Apparently, it can drive the attention of NASDAQ investors away from the dramatics of The Kardashians or NCAA basketball and towards the frontiers of science, in ways that ruler-slapping, ninth-grade biology teachers can only dream of.

The breakthrough in miscanthus

As published in the journal article, Ceres researchers mapped all 19 chromosomes of miscanthus, a towering cane-like grass that can be used as a feedstock for advanced biofuels, bio-based products and power generation. The multi-year project involved generation and analysis of more than 400 million DNA sequences creating a blueprint of the genetic alphabet of the plant.

Among the massive volumes of data, researchers found 20,000 genetic differences, called markers, that allow geneticists to differentiate individual plants based on small variations in their DNA.

More than 3,500 of these markers were used to create the genetic map, and are valuable for crop improvement purposes. In contrast, previously announced mapping projects discovered only about 600 markers and did not fully characterize the structure of all the miscanthus chromosomes, a necessary step in establishing a high-tech plant breeding program. Previously, most miscanthus research had been focused on field trials, and little was known about its genetics.

A little more about miscanthus giganteus

220px-Miscanthus_giganteus[1].jpg
Miscanthus giganteus.  Photo: Pat Schmitz, via Wikipedia Commons
  Ceres is not the only company pursuing miscanthus. Mendel has developed high-performing elite varieties of Miscanthus that are competitive in yield with the public varieties but which can be propagated and scaled much more efficiently.  That is, propagated from seed instead of cuttings.

Mendel has just embarked on a 4-year trial of miscanthus, in partnership with BP, with a goal of making that a key feedstock for BP’s cellulosic ethanol expansion in the US and elsewhere.

Targets for improvement? Yield, stress tolerance (including water, salt or nutrient or pathogen), control of plant shape and form, flowering time, bulk-up rate for rapid planting and propagation.  More on Mendel’s pioneering work, here.

Of wolves and fishmatoes

The progress is miscanthus reminds us that, in bioenergy, we are rapidly progressing beyond the hunter-gatherer era, in which investors, scientists, touts and policymakers hurtled between one wild wolf of a next-gen feedstock and another – once there was wild jatropha, then wild algae, then wild switchgrass, then wild king grass – “aha, this is the wonder feedstock!…no this one is!…no, this one is.”

Many of them were promoted as domesticated puppies when they were, it turns out, wild wolves that we did not understand at all well as agriculturalists.

Most of them have come under domestication programs, which starts with hybridization, using Mendelan cross-breeding principles. It works, but it can be slow – it has taken eighty years to boost US corn yields from 30 to 160 bushels per acre through hybridization, and the introduction of transgenic traits such as pesticide or herbicide resistance.
Ceres Switchgrass.png
Ceres CEO Richard Hamilton (right) and Dr. Richard Flavell, chief scientific officer, evaluate improved switchgrass.  Image source: Ceres

Beyond hybridization, there are three basic methods of improvement. There is the exploration of the opportunities within the existing genome – for every organism has genes that are currently not expressed (to use an easily understood example, the genes that produce eye color), and switching existing genes on and off to discover the optimal combinations, that’s the basic level of genetic improvement.

Then, there is the field of activity generally known as directed evolution. Here, scientists mutate genes at random, those mutations are screened for valuable properties, and genetic winners in each round of evolution are then themselves put through further rounds of variation. Now, Nature herself produces variation by this method, so consider it a sped-up, industrialized version of a natural process.

The last and most controversial activity is actively moving genetic material from one organism to another in ways that are unlike the processes of Nature. For example, there was an effort to make tomatoes more resistant to cold by inserting genes from a cold-resistant fish – making a fishmato (which in every other way basically looks and tastes like a tomato, but underneath the hood, so to speak, its a fishmato. And, parenthetically, offering some sort of ethical challenge to vegans.

The Bottom Line

No matter the genetic approach a scientific team is taking, time is the enemy. Time stretches out the ROI until the rate falls below the risk threshold that justifies investment. Or simply kills patience, or exposes R&D to the possibility of being overwhelmed by competing discoveries. The cardinal principle of the Western film is that the cavalry must arrive in time to save the settlers.

The best-known general accelerator of genetic improvement? Genetic mapping. Once you see the genome in all its diversity, and mark the areas of interest – crop improvement can come at accelerated rates. Hence the excitement over the news from Ceres and IBERS.

Miscanthus, as we know, is a crop whose fans seem to grow even faster than the skyscraper-like grass itself. Extravagant test yields in the 25 ton per acre range have been reported by, for example, Repreve Renewables, using a varietal known as Freedom originally developed at Mississippi State.

With yields in those ranges, 2500-3300 gallon per acre yields are possible with terrestrial crops, yields that today can only be accomplished with that aquatic micro-wolf, micro-algae.

Are those numbers real? For the test plots, no reason to doubt the data. But grown at scale, exposed to pests and sub-optimal conditions in large-scale monocultures? Hmmm.

But the opportunities in, say, miscanthus, improve mightily when a genetic map is at hand.

Disclosure: None.

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

March 19, 2012

The Week In Cleantech: March 13-19, 2012

Jeff Siegel

March 13: Do Tesla (NASDAQ:TSLA) Shorts Get Burned?

  • LED-maker Energy Focus, Inc. (OTCBB:EFOI) announced this morning that it entered into a 5-year cooperation agreement with Communal International, Inc. Under the terms of the deal, Communal will introduce Energy Focus to new potential customers in Asia and assist in reducing manufacturing cost. This is a stock we played a few years ago for massive gains after the company landed a number of deals with the U.S. Military. Not sure how today's news will impact the stock, but it could be good for a quick pop. We'll find out shortly.
  • Last month, I reported in our Modern Energy Roundup that there was a lot of short action on Tesla Motors (NASDAQ:TSLA), but I wasn't willing to take the short bet, writing: “Tesla has a way of burning those who bet against it too much.” Well, yesterday the stock hit a 52-week high of $36.29. Will it keep heading north? Probably. Morgan Stanley actually has a $44 price target on this one. But I wouldn't be in a rush to pick some up now. I'd let it cool off a bit and look to pick some up on dips.

March 14: First Solar (NASDAQ:FSLR) Lands Major Deal With FirstEnergy Corp. (NYSE:FE)

  • ABB (NYSE:ABB) announced today that it signed a deal with ECOtality (NASDAQ:ECTY) to utilize ECOtality's exclusive network for ABB's electric vehicle charging systems. This isn't really much of a surprise as ABB ponied up $14 million for a piece of ECTY last year.

ECTY has been on a downtrend since last summer and continues to attract bears like honey, salmon and oblivious campers who want to befriend grizzlies. Although the company does seem to regularly land installation deals, the fact that much of its earlier momentum was facilitated by the government makes it a target. All in all, it's not a bad company. But it is battling the growing pains that come with any new disruptive market. Just something to keep in mind even if today's news gives the stock a boost.

  • First Solar (NASDAQ:FSLR) announced this morning that it landed a deal to build a 20 MW solar project in Hagerstown, MD. The electricity generated will be sold to a unit of FirstEnergy Corporation (NYSE:FE). The stock was up about a two percent in premarket, but don't count on this deal to pop the stock too much. First Solar still has a bit of stink on it right now. That being said, it's nice to see today's announcement. The new project is expected to provide 125 jobs. It's also a reminder to the solar haters that First Solar isn't going gently into that good night.

March 15: ABB (NYSE:ABB) Lands $100 Million Contract

  • ABB (NYSE:ABB) has announced that it landed a $100 million substation deal from Rio Tinto. Rio Tinto is actually undergoing a multi-stage Electrical Infrastructure Replacement project right now. It's expected to be competed in 2013.

I'm actually a big fan of ABB. The company is involved in nearly every major transmission and grid project across the globe. It also offers exposure to the growing demand for offshore wind in Germany and China – which, despite the naysayers, is proving to be a massive growth opportunity. And of course, the 3.4% dividend is a nice bonus. The stock should cross $21 today. By the end of the year, I expect to see ABB trading at no less than $26.

  • According to unconfirmed rumors, Alstom (PINK SHEETS:AOMFF) may be looking to acquire a couple of wind turbine manufacturers, including Gamesa (PINK SHEETS:GCTAF) and Vestas (PINK SHEETS:VWDRY). And the Financial Times Deutschland reported today that India-based Suzlon Energy was looking to sell its wind business, which has been valued at $1.5 billion. Apparently, the company recently opened its books to Alstom.

Of course, these are still just rumors. But if Alstom ends up facilitating a major consolidation of wind turbine manufacturers, it could certainly strengthen the non-Chinese wind turbine manufacturing sector. Which of course, is an absolute necessity if these companies have any shot at competing against the low-cost Chinese producers.

The fact is, China is getting very aggressive in this space. In fact, just recently China's Sinovel Wind Group landed a wind turbine deal in Sweden. This was the first time a European country has purchased and installed Chinese-made wind turbines.

The Chinese are also aggressively moving into the U.S. space, too. Earlier this week it was announced that China's Ming Yang Wind Power Group had just opened its first North American R&D center in North Carolina. And last month, we learned that Xinjiang Goldwind (the second largest Chinese wind turbine producer) had landed 14 North American wind power contracts. The most recent in Shawmut, Montana.

March 16: Solar Stocks Impress on Guidance

  • Real Goods Solar (NASDAQ:RSOL) announced earnings yesterday. For Q4, 2011, net revenue nearly doubled to $40.3 million. It should be noted that most of the revenue growth can be connected to the company's acquisition of Alteris Renewables. And ReneSola (NYSE:SOL) announced Q4 and FY, 2011 this morning. Guidance was exceeded for FY revenues and shipments. The stock was up about 7 percent in premarket. Certainly happy to see some positive guidance, but the sector still remains a bit shaky. If you proceed, do so with extreme caution.

March 19: Uncertainty Weighs On Solar Stocks

  • LDK Solar (NYSE:LDK) announced this morning that it lowered the top end of its Q4 revenue guidance, noting that gross margins would be negatively affected by falling market prices for wafers and modules. Q4 revenues are expected to come in at around $440 million to $450 million. Previous forecast was $440 million to $520 million. Analysts are expecting about $432 million. LDK is down about 3.6% in premarket.  If pressure continues throughout the day, it may also weigh heavily on other key solar players today.
  • India's renewable energy ministry announced that it's seeking to extend a tax break for wind farms. India is currently the third largest market for wind turbines. If approved, Vestas (PINK SHEETS:VWDRY) and GE (NYSE:GE) will likely benefit as both have some decent skin in India's wind game. And of course, India-based Suzlon will benefit as well.

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Jeff Siegel is Editor of Energy and Capital, where these notes were first published.

March 17, 2012

Solar: More Downside Risk Before Buying Opportunity Emerges

by Clean Energy Intel

In the past month since we recommended taking profits on our Tier One Chinese Solar trade, the sector has been hit heavily – largely driven by margin erosion and a generally less than encouraging earnings season. The key question from here is whether or not we are once again at prices which offer a buying opportunity. The answer is probably not quite yet.


Source: Barchart

The chart above shows the percentage change in three Chinese tier one solar stocks plus the solar ETF TAN in the period since our last buy recommendation on Nov 28th of last year (see the original article here). In what continued to be a very volatile period for solar our basket rallied heavily and by the time of our recommendation to take profits on Feb 10th Suntech Power (STP) was up +82.5%, Trina (TSL) +67.4% and Yingli (YGE) +54.9% (see our original take profit recommendation here).

That happened to be the high of the year for those three stocks and they have fallen significantly since. Indeed, at the time of writing, STP has fallen -27% from its February highs, whilst TSL is down -32% and YGE has declined by -37%.

So is it now time to buy once again? The very volatile price action in the market reflects a genuine and very intense debate with regard to the extent to which 2011′s very damaging supply imbalance has been eroded. Moreover, this level of volatility is likely to be with us for a while as the industry continues to undergo an intense period of creative destruction as it consolidates and transitions to a more stable environment.

So where are we in this transition process? To feel comfortable that we have a solid buy opportunity once again we need to see progress on five main factors:
  •     The clear emergence of visible new demand, particularly in China and the US, to replace the demand the industry is losing in Europe.
  •     A halt in capacity expansion plans amongst tier one solar players and clear evidence of significant capacity shedding amongst tier two and three players.
  •     A resultant stabilization of average selling prices (ASPs) across the supply chain.
  •     Further progress amongst module makers in blending in lower polysilicon costs. Clearly, the preponderance of long-term contracts in the industry has meant that actual poly costs to module manufacturers have lagged behind the significant fall in spot polysilicon prices.
  •     Similarly, further progress in lowering non-silicon costs in order to secure gross margin stabilization.
Somewhat obviously, significant progress on all of these factors will gradually bring more balance into the industry and will probably be enough to see both gross margins stabilize in the low teens and profitability return for those tier one low cost players who survive the current transition. With Grid Parity ahead in many countries by 2015 you then have a solid environment for the winners in this intense process of industry consolidation.
 
So how much progress has been made on each of these issues? First of all, in terms of demand, the numbers now stack up fairly well. Full year 2011 demand was probably around 26 GWs globally. This year demand in Germany is likely to fall significantly from a 7 GW handle to around 3.5 GW. However, demand in the US should pick up from 2 GW last year to 3 GW this year. Meanwhile, demand out of China looks likely to expand rapidly to around the 5 GW mark. Japan and India should also be growth areas. Overall, despite the sharp drop in demand out of Germany, there is good reason to see a small net increase in demand in global terms. So far, so good.
 
In terms of global capacity, one of the reasons that last November we recommended getting long Chinese tier one solar was that we were beginning to see major players finally cutting back on plans to increase capacity – for example see here. This was encouraging. More recently, Suntech Power has confirmed the company’s intention to hold its global capacity at 2011 levels – 2.4 GW for modules and 1.6 GW for wafers. Much has also been made of the decision by Korea’s main players to withdraw from their plans to push aggressively into the module market.
 
However, somewhat disappointingly, other major module suppliers in China have recently re-affirmed plans to expand capacity despite the over supply in the industry as a whole. For example, during Yingli’s recent earnings call, the company confirmed that it will add 750 MW of module capacity to reach 2.45 GW this year. Similarly, Trina has stated the company’s intention to add 500 MW of capacity to reach 2.4 GW.
 
This of course means that reaching something close to supply-demand balance in the industry will require much more outright destruction of capacity amongst tier two and three players. Supply in this area is much more difficult to get a handle on. However, what market intelligence we do have suggests that adjustment is certainly underway. For example, Suntech Power CEO Zhengrong Shi made the following point in the Q&A section of his company’s latest earnings call:
 
‘Well, what we have been told and through some survey in China for Tier-2 and Tier-3 manufacturers, more than 50% have reduced their production volume; and if we look at the bidding process in the recent China market, you will also see the number of participants actually has been reduced at this time’.
 
Meanwhile, in the Q&A section of Trina’s recent conference call, company Chief Commercial Officer Mark Kingsley stated their understanding that ‘in China in general, there have been more than 50 companies that stopped making solar and we expect that to continue’.
 
Nevertheless, this will clearly be a slow process of attrition, with the government in China showing no inclination towards forcing the pace of consolidation amongst solar players. The result in the short-term is likely to be that many of the struggling tier two and three players will continue to dump modules on the market at uneconomic prices in order to raise cash, thereby putting further downward pressure on average selling prices (ASPs) and industry margins.
 
This brings us to our third factor – after falling heavily in 2011, ASPs are likely to fall further this year. Final module selling prices for the major Chinese players probably averaged just over $1.10 in Q4 of last year. Trina, for example, sees their ASP falling further into the high 80 cents area for 2012 as a whole. And a continuation of the over supply situation in the industry could push that number down into the low 80s by the end of the year. Margin stabilization is therefore going to require considerable progress on getting costs down.
 
Turning to polysilicon costs first, most producers should benefit over the year as contracts continue to be renegotiated and the blended poly costs actually faced by module producers fall closer to spot levels. Trina has suggested, for example, that their current blended poly cost is around ‘a $45 per kilo range’ – or a contribution of about 30 cents per watt to module costs. Alternatively, an industry average of 5.5 grams of polysilicon per watt would imply a cost of 25 cents per watt.
 
As blended poly costs fall further over the course of the year, converging on spot levels by year end, optimistically poly costs per watt could conceivably fall to 15-20 cents – a not insignificant improvement.
 
Meanwhile, non-silicon costs continue to fall as module manufacturers continue to squeeze out production efficiencies. STP has indicated, for example, that their non-silicon production costs fell by 7% in Q4 to some 74 cents per watt. Both Yingli and Trina reached non-silicon costs of 64 cents per watt. Trina and Yingli expect to get that number down to 60 cents and 56-58 cents respectively by the end of this year. STP conservatively estimates 65 cents per watt by year end. However, this also reflects a higher efficiency mix of module output.
 
What is clear from these numbers is that the Chinese tier one players have a roadmap which could conceivably keep costs sustainably below ASPs, thereby stabilizing margins. For example, total costs in the low 70s per watt and ASPs in the low 80s would provide gross margins in the low teens.
 
Canadian Solar (CSIQ), is already talking about total costs including polysilicon moving towards the 55 to 60 cent range per watt. However, that would require a further fall in poly costs to around $20 per kilo – an event which may well pull prices down across the supply chain, leaving gross margins for module producers little better than in the low teens anyway.
 
Nevertheless, the above certainly represents a roadmap which could well offer a post-consolidation positive story for the low cost producers who will be the winners from the current difficult process. On this basis we have little doubt that there will be a time and a price at which to buy the Chinese tier one players once again.
 
However, in the meantime the current quarter looks likely to see a continued supply-demand imbalance and further downward pressure on both prices and margins. STP has for example provided guidance looking for both a seasonally weak Q1 in terms of shipments and further margin contraction into the 3 to 6% range. That implies further considerable losses.
 
In conclusion, the price action probably looks like it will have to make further progress on the downside before all of this is priced in. In the meantime, it continues to look like a time to keep your powder dry and invest another day.
 

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.

March 15, 2012

Geneva Motor Show Highlights – The Revenge of the Internal Combustion Engine

John Petersen

March is Motor Show time in Geneva and it was fascinating to witness the shift in emphasis away from plug-in vehicles as European automakers highlighted their accomplishments in fuel efficiency technologies like HEVs, micro-hybrids and dual fuel drivetrains that can switch back and forth between gasoline and compressed natural gas. While there were modest displays for Tesla (TSLA), Fisker and other emerging brick-makers, and space was set aside for the obligatory plug-ins that most real manufacturers are toying with, the substantial majority of front-line vehicles at display entrances and halo cars on turntables were HEVs and micro-hybrids. As far as I could tell, this year's theme was The Revenge of the Internal Combustion Engine.

One of the most intriguing concept cars at the show was the "LC Super-Hybrid" from Controlled Power Technologies, which is really a super micro-hybrid. Instead of fooling with the expense and complexity of electric drive, CPT added longer gear ratios, a 2 kw belt driven starter generator, an electric supercharger and beefier electronics to a VW Passat with a 1.4 liter turbocharged gas engine. The changes cost less than $2,000, but the end result was a 50.5 mpg Passat with driving performance that rivals the 1.8 liter version while offering 23.4% better fuel economy. An associated presentation from the Advanced Lead Acid Battery Consortium summarized the value proposition in this table.

3.15.12 Table.png

The logic is compelling because it cooperates with the law of economic gravity. Micro-hybrids and the LC Super-hybrid offer attractive fuel savings at a very modest cost. While it's technically possible to do more with increasingly expensive and complex mild hybrids, HEVs and plug-ins, the incremental cost for a percentage point of incremental benefit starts getting absurd as soon as you add electric power to the wheels. After several years of unrelenting hype from ideologues, advocates, reporters and politicians who can't see the forest for the ferns the message is finally sinking in – The green in a consumer's wallet will always outweigh the green in his cocktail conversation.

On Monday of this week Automotive News published a brief but highly informative interview with Alex Molinaroli, the president of Johnson Controls Power Solutions (JCI), the world's most successful battery manufacturer and the only global manufacturer with major commitments to both lead-acid and lithium-ion batteries. While EVangelicals may be distressed by Mr. Molinaroli's frank assessment that electric cars won't generate big sales for at least a decade, I view it as just one more confirmation of my long-held belief that cheap will beat the pants off cool in the transportation market.

To understand the relative importance of JCI's diverse battery manufacturing activities, you need to dig into the segment information in its Annual Report on Form 10-K. At September 30th, the power solutions segment accounted for 22.4% of JCI's assets, 14.4% of its sales and a whopping 35.4% of its income before interest and taxes. In the last three years, JCI invested $937 million in its power solutions segment, plus an additional $300 million that was provided by a 2009 ARRA Battery Manufacturing Grant to the JCI-SAFT joint venture. Planned spending of several hundred million over the next three years will increase JCI's AGM battery manufacturing capacity from a couple million units in 2009 to:
  • 11.8 million units a year in Europe;
  •  6.8 million units a year in North America; and
  •  2.8 million units a year in China.
The reason is simple, AGM batteries generate twice the per unit revenue and three times the per unit margin of JCI's conventional flooded batteries. As its new AGM capacity comes online, JCI can expect its power solutions revenue to jump by $1.3 billion annually while adding about $500 million a year to operating income. AGM battery manufacturing is a key developing business segment for JCI and it's all being driven by automaker demand for better batteries that will be used primarily in micro-hybrids. A similar albeit less aggressive AGM battery manufacturing expansion is currently underway at Exide Technologies (XIDE) which is expanding its capacity to roughly 8.5 million units a year.

Of the two major battery manufacturers that are rapidly ramping AGM manufacturing capacity, I believe Exide presents the more exciting opportunity because its historic earnings were brutalized by restructuring costs and its stock has been beaten down to a point where it trades at 54% of book value and 8% of sales. If Exide's AGM manufacturing activities generate marginal profits that anywhere close to those expected from JCI, a $150 million boost to operating earnings could send the stock soaring.

Over the last year there's been an increasing amount of market noise as battery and supercapacitor developers hawk new systems for the micro-hybrid market ranging from enhanced lead-acid batteries to supercapacitors and even lithium-ion batteries, which proves once again that the whole world looks like a nail to a hammer manufacturer. Last month, SAE International published an important article on the micro-hybrid space titled "AGM battery takes primary role for idle stop-start in microhybrids" that explained the challenges of micro-hybrid applications with striking simplicity and clarity. I think it's a must read for any investor who wants to understand the space and the opportunities.

While I believe the SAE International article is too important to summarize, I do want to draw reader's attention to one key sentence.

"The fuel-economy improvements vary according to car maker, but a BMW study estimates up to 4% overall for current systems, with the potential for 10% if a higher charge-acceptance-rate battery (over 100 A) were available."

The sentence is important for two reasons.

First, BMW has spent almost three years and an immense amount of money testing the PbC battery from Axion Power International (AXPW.OB), an asymmetric lead-carbon capacitor that offers the charge acceptance of a capacitor and the power and energy of an AGM battery in an integrated hybrid device. A joint presentation from the two companies at the 2010 European Lead Battery Conference in Istanbul showed that alpha prototypes of the PbC offered sustained dynamic charge acceptance of 100 Amps through the equivalent of five years of simulated use under a testing protocol that was jointly developed by BMW and Ford.

Second, at this year's Geneva Motor Show BMW's front and center display space highlighted the new Series I; 116d EfficientDynamics Edition that launches this month and boasts CO2 emissions of 99 grams per kilometer, or fuel economy of roughly 62 mpg. Its turntable star was the BMW 6 Series Gran Coupé which will launch in June. Both cars are advanced micro-hybrids that share a novel BMW driver awareness system called ECO PRO Mode that helps drivers reduce fuel consumption by up to 20%. According to BMW's website:

"As soon as you select the ECO PRO Mode using Driving Experience Control including ECO PRO, everything is geared towards maximum efficiency. Pedal recognition, gear recognition and the best point at which to change gear are optimised and the heating and air conditioning strategy is adapted intelligently. The control display indicates which BMW EfficientDynamics functions are currently operating in order to actively reduce the amount of energy being used, such as Brake Energy Regeneration or optimised temperature control. The driver also receives situation-specific ECO PRO info on fuel efficient driving, such as the optimal gear to drive in. The Bonus Range Display in the on-board computer shows how much further it is possible to drive thanks to the ECO PRO Mode."

When I start connecting the dots an intriguing picture begins to emerge. The ALABC presentation for the LC Super Hybrid shows that automakers are spending €35 to €100 for each 1% of fuel economy in their mico-hybrids. The SAE is reporting that the best the automakers can do with AGM batteries is a 4% improvement in fuel economy, but that a battery with higher dynamic charge acceptance like the PbC could boost efficiency into the 10% range. When I factor in BMW's decision to showcase two advanced micro-hybrids with ECO PRO Mode, I have to think that BMW's found a solution to the dynamic charge acceptance issues they explained at the ELBC. These cars are promising fuel economy gains of up to 20% while providing real-time system performance information to the drivers. There's no indication that they've selected the PbC, but I have a hard time believing that a first tier automaker would introduce a new system that called drivers' attention to the dynamic charge acceptance degradation that all plagues all AGM batteries over time.

Now that the problems and challenges of electric drive are becoming increasingly obvious to the mainstream media and to politicians who need to think about elections later this year, I expect an increasingly difficult time for the developers of electric vehicles and their components. As Mr. Molinaroli said "A mass market for EVs is still a long way off. That's why we don't spend a lot of time talking about all this."

Investors with low risk tolerance who want meaningful portfolio exposure to an automotive mega-trend that's evolved quietly in the background while hucksters hype $100,000 toys for the 1% should take a serious look at JCI, a diversified dividend paying industry leader that's likely to be a dominant force in the micro-hybrid market for years to come. Those with a higher risk tolerance may want to take a good long look at Exide and consider what the market price might be with $150 million of incremental gross profit from AGM battery sales. The lottery ticket in the bunch is Axion, which currently trades at an R&D market capitalization in the $32 million range. Since Axion just tucked $8.5 million away in the bank from an offering at $0.35 per share, the price isn't likely to fall over the next six to nine months. If one or more of its first tier testing relationships matures into a customer relationship, the possibilities are endless.

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

March 13, 2012

More Pain Ahead for Solar Stocks

Tom Konrad CFA

CETrends 2012.png Clean Edge's Clean Energy Trends 2012 contains some disturbing predictions for solar stock investors.

Clean Energy Trends 2012, the annual report from Clean Edge by Ron Pernick, Clint Wilder, and Trevor Winnie, was released today. On the surface, it seems like good news for the solar sector.  Although headlines in 2011 featured much bad press for Solar PV, the industry has not been "withering on the vine."

Here are some key points in the report:
  •   Combined global revenue for PV increased from $71.2 billion in 2010 to $91.6 billion in 2011, a 29% increase.
  • Installations in 2011 leaped 69% to 26 GW from 15.6 GW in 2010.  The higher growth in installations compared to revenue are a consequence of rapid price declines in crystalline modules.
  • Clean Edge predicts continued rapid growth in installations, with global revenues of $131 Billion in 2021.
  • At a total installed system price of $1.28 per watt (compared to $3.47 per watt in 2011), they expect more than 102 GW of PV installations in 2021.

Reading Between the Lines

Sounds like good news to you?  Then you're probably a consumer of solar electricity, not a company involved in the solar sector.

From 2007 to 2011, solar industry revenues grew at a compound annual rate of 46% (from $20 Billion in 2007 to $92 Billion in 2011.  Solar installations grew even faster, at a compound annual rate of 75% (from 2.8 GW to 26.4 GW.)  Despite the more than nine-fold growth in volumes, and the nearly five-fold growth in revenues between 2007 and 2011, the solar stocks were pummeled. 

The two industry ETFs, TAN and KWT are a good proxy for solar stocks over the period.  Both were launched in 2008, and they've fallen 89% (TAN) and 71% (KWT) since then.

Why the horrible stock performance?  You can't make up for lousy margins with volume.  The following chart shows how industry Revenues, GW installed, and prices have changed each year since 2007, along with Clean Edge's annualized expected change over the next decade.  Also shown are the performance of the solar ETFs from July of one year to July of the next.  For 2007-8, I used two prominent solar stocks, First Solar (FSLR) and Sunpower (SPWR) as proxies for the industry instead.

CE Trends 2012.png
As you can see, the solar installations have grown robustly (by at least 50%) every year since 2007, but the only year this translated into good stock performance was 2007-8.  The most notable difference between that year and the last three was that solar prices fell only 3%, while installations grew 50%.  According to Ron Pernick, one of the authors of the report, the small decline in solar prices "was due to the fact that the global silicon shortage was still having a significant impact on pricing."

The industry had been rapidly growing volumes at nearly stable prices.  This sent profits at many solar companies skyrocketing.  The reason First Solar did so much better than Sunpower was that First Solar's panels do not use silicon, so the company was able to keep much of the rising revenues for itself, while Sunpower's reliance on expensive silicon meant that most of the rapidly rising revenues from the panels it sold had to be passed on to its silicon suppliers, like MEMC Electronic Materials (WFR). 

Incidentally, one of the very first articles I wrote about investing in clean energy was about the solar silicon industry in July 2006.  At the time I wrote, "I expect all polysilicon manufacturers to be very profitable through 2007, with prices beginning to subside (and perhaps crash) in 2008-9."  WFR went public a couple months later in September 2006, rose 140% to hit its all time high in December of 2008, and lost 85% from that high by the end of 2009.  Today WFR is down 96% from its high.

As a less self-congratulatory aside, the great solar stock performance in 2007 led to a reliable contrarian indicator for the solar sector in 2008: the launch of two sector funds, the solar ETFs mentioned above.

After the financial crisis, demand weakened, and solar companies had to drop prices in order to keep demand growing rapidly.  Demand did grow a blistering compound annual rate of 84% over the next three years, but at the price of rapidly eroding margins at solar companies, causing stock prices to also fall even more rapidly (at a 35% annual rate.)

The Future

Going forward, Clean Edge expects solar prices to continue to decline fairly rapidly over the next decade, at an average annualized pace of 9.5%.  Meanwhile, they expect solar installation growth will be only a fraction of the current pace at 14%, and that solar industry revenue growth will slow to crawl at only 3.6% per year.  In fact, they predict that the revenue growth over the entire next decade will be less than the annual growth rate over the last ten years (at 42% and 43%.) 

I personally think the Clean Energy Trends growth estimates are low... 42% growth over the next two to four years (as opposed to a decade) makes more sense to me.  But that does not change my rather pessimistic conclusion: The stalled revenue growth and continued erosion of solar prices will almost certainly continue to undermine the profitability of the solar sector for years to come. 

Solar stocks may look cheap now, but as every dedicated bargain-hunter knows, it's a lot easier to find something cheap than to find a great value.  Solar stocks may be attractive for traders, but long term investors will continue to do well by staying away.

DISCLOSURE: None.

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.

March 12, 2012

Buffet Bet Comes Out for Solar

by Sean Kidney

Warren Buffet is a famous proponent of value investing and he surely received a sign of the value in solar investments over fossil fuels last week. The MidAmerican Energy $850m Topaz solar project bond we mentioned a couple of weeks ago was so successful that a second tranche is expected to cover the remaining debt of the project. The offer was oversubscribed by $400m which would have mopped up the total $1.2bn of debt in the project; Buffet's Berkshire Hathaway (BRK-A) controls MidAmerican.

In contrast, Buffet’s investment in $2bn of bonds from gas company Energy Future Holdings is taking a hit due to low gas prices in US. The market value of the investment is already at $878m with further write downs expected.

It’s interesting to note that the expansion of drilling in the US rewrites the script on the increased policy risk of renewable investments over fossil fuels. It seems investors are beginning to recognise the steady fixed returns on renewables over the volatility of fossil fuel prices. Topaz is the latest in several large solar bonds offered including Desert Sunlight ($595m) and NextEra Genesis ($562m) both at AAA tranches due to loan guarantees. Topaz and the secondary tranches of the other two projects were both rated at BBB-/A-.

Sean Kidney is Chair of the Climate Bonds Initiative, an "investor-focused" not-for-profit promoting long-term debt models to fund a rapid, global transition to a low-carbon economy. 

March 11, 2012

Offshore Wind Power: Penny Foolish, Dollar Wise

Tom Konrad CFA

Offshore Wind Farm
Image via Wikipedia

Sticker Shock

As I discussed in my article on investing in offshore wind power, Nstar (NYSE:NST) recently agreed to buy 27.5% of Cape Wind's 420MW planned output. Since National Grid (NYSE:NGG) has had a power purchase agreement (PPA) to buy 50% of the farm's output since 2010, Cape Wind now has enough capacity contracted to raise money for construction.

The Nstar PPA has yet to be negotiated, but prices the PPA with National Grid specifies prices starting at start at 18.7 cents per kWh, and increasing 3.5% annually. That's quite expensive, when you consider that the 2010 average wholesale price of power on the New England ISO was 4.5 cents per kWh.

Looking at those numbers, you would expect that when Cape Wind comes online, National Grid and Nstar customers will be seeing rate increases. But it's not that simple.

Auction Dynamics

Electricity prices on the New England ISO are set in hourly auctions, with each generator bidding the price at which they would be willing to generate power. All generators receive a payment equal to the benchmark price, which is the marginal cost of production for the most expensive generator needed to meet demand.

Since the most expensive dispatched generator sets prices for all generators, lowering the marginal cost of generation by adding Cape Wind to the mix (since wind's marginal cost of generation is zero) will have the effect of lowering the price for all power on the New England market, an effect known as price suppression.

How much lower? A 2010 Study by Charles River Associates [pdf] found that Cape Wind would lower prices on the New England wholesale market by 0.122 cents on average. Since Cape Wind itself would be producing about 1% of all power on the New England market, the extra 14 cents per kWh on that power would be offset by a savings of .122 cents per kWh on all other power. By my calculations, the combination of price suppression and the increased direct price of power from Cape Wind, the net effect on the average price of power in New England of Cape Wind would be an increase of only 0.02 (one fiftieth) of a cent, assuming the Charles River Associates study is accurate. That's almost certainly less than the likely error in any such calculation, meaning that the extra cost for Cape Wind would be effectively zero. Put another way, even if customers pay a 12.2 cent per kWh premium for power from Cape Wind, the net effect on utility bills would be zero because of price suppression.

The December 2010 New England Wind Integration Study [pdf] (NEWIS), reached a similar result, finding that if 20% of the New England ISO's energy were supplied by offshore wind, it would reduce the average annual Locational Marginal Price for power by $9 per MWh, or 0.9 cents per kWh. This effect alone would justify a 4.5 cent per kWh price premium for offshore wind up to a 20% penetration. although 4.5 per kWh cents is a much lower premium than the 12.2 cents per kWh that the 1% penetration of Cape Wind would justify, these two results are similar because the first offshore wind farms built would have larger effects on the power market for each GW added.

Timing of Offshore Wind

One of the reasons offshore would do so much to reduce wholesale electricity prices is that offshore wind tends to be available when demand on the New England Grid peaks. While we're used to onshore wind being poorly correlated with load. In the Great Plains, where most US wind has been built, the wind blows strongest at night and in the winter, and is often nearly still on the hottest summer days when demand peaks. In contrast offshore wind sites in New England have much higher summer capacity factors, according to NEWIS.

NEWIS also looks at the capacity value of wind under various scenarios. Capacity value is the percentage of wind's nameplate capacity that is available when system load peaks. In other words, capacity value is the percentage of capacity that is actually available when it is most needed. In the Great Plains, capacity values are usually in the 15% to 20% range, but NEWIS found that capacity values for wind New England to be in the low 20% range for scenarios dominated by onshore wind, while the best scenarios analyzed had capacity values in the low 30% range, when about half that wind was offshore.
Capacity Value
Scenarios

Image Source: Bill Henson NEWIS overview

Dollar Wise

While it might seem foolish to pay over 18 cents per kWh for new offshore wind generation today, wind power is not nearly as expensive as it seems. Because of price suppression, the extra cost to New England customers of Cape Wind is likely to only be a fraction of a cent per kWh on their electricity bills. As the offshore wind industry in the Northeast develops, the cost of developing offshore wind farms is also likely do decrease, since current prices are predicated on relying on expertise and equipment imported from Europe and the offshore oil industry in Gulf of Mexico.

According to several speakers at Offshore Wind Power USA in Boston last week, the surest way to develop a local offshore wind industry and gain the benefits of lower offshore wind prices, economic development, and lower pollution and carbon emissions, is to give industry certainty that there will be consistent building of offshore farms for several years to come.

Will it be worth it? If we continue to rely on cheap fossil powered electricity generation in the Northeast, we're likely to end up like the guy who buys the cheapest furniture he can find, only to have it break within a few months, leaving himself still needing furniture and having a pile of trash to get rid of. Not only will we eventually have to buy renewable power like offshore wind, we'll have more pollution caused by mining, drilling, and burning fossil fuels which we'll have to clean up. Anyone worried about how wind turbines might look cluttering up our coastal waters might pause to consider what is in our water now: the mercury we worry about in seafood all comes from burning coal. Just because something is out of sight does not mean it's not causing problems.

The British have a phrase for buying something cheap only to spend more money in the end: “Penny wise, Pound foolish.” Perhaps that's why the British are so far ahead of us in developing offshore wind.

This article was first published on Forbes.com.

DISCLOSURE: None.

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.



March 08, 2012

Sages and Seers: Warren Buffett, Bill Clinton, Oxford University Prof. Nick Bostrom, and the Next Economy

Garvin Jabusch

The last couple of weeks have seen some remarkable next economy pronouncements from three of the world's smartest people, each representing a different realm of human endeavor: business, politics and academics. Warren Buffett, Bill Clinton, and Oxford University professor Nick Bostrom are among the world's highest achievers, and each has remarkable visibility in to the real, actual state of the world. As such, I couldn't help but notice their recent confluence of messaging.

In his most recent annual shareholder letter, release February 25th, 2012, Warren Buffett touted Berkshire Hathaway's significant, recent investments in renewable energies:

MidAmerican will have 3,316 megawatts of wind generation in operation by the end of 2012, far more than any other regulated electric utility in the country. The total amount that we have invested or committed to wind is a staggering $6 billion. We can make this sort of investment because MidAmerican retains all of its earnings, unlike other utilities that generally pay out most of what they earn. In addition, late last year we took on two solar projects – one 100%-owned in California and the other 49%-owned in Arizona – that will cost about $3 billion to construct. Many more wind and solar projects will almost certainly follow.

Nine billion dollars is a lot, even for a guy like Buffett. He clearly believes in the moneymaking power of the most efficient renewables, so much in fact, that Berkshire Hathaway's energy arm, MidAmerican, is America's leading wind utility. Smart competitors will need to race to catch up, but with "many more" projects in the pipeline, that may be difficult. Berkshire Hathaway is not currently a Green Alpha Advisors holding, but as their next economy plans continue to develop, that may change. We might say the same of GE, which is also going big into renewables, particularly solar, about which a spokesman has commented, "We've been successful, in fact more successful than we thought."

Warren-buffett-wind-power-turbine-photo (1)
Buffett and one of MidAmerican’s turbines (public domain image)

Our next sage, America's 42nd president Bill Clinton, gave a keynote address to the 2012 ARPA-E Energy Innovation Summit, March 1st, 2012, which was exclusively about how we may benefit from actualizing the next economy:

We're the only major country in the world that has one political party where apparently it’s an ideological imperative to deny the reality of climate change…evidence that we now have that is abundant that investments in changing the way we produce and consume energy can launch an enormous economic boon for our country and for the world…We've had this incredible venture capital network in America that has continued to commit to this and that believe in this. Once people know the facts, nobody's against this, but there are still too few...Americans who understand what a huge impact this could have on their future, who understand that there are already more people working in clean energy than in traditional energy. There are still too few people who intensely believe that the consequences of climate change can be calamitous, and that there are wildly profitable ways to avoid climate change. This is a great time to be alive. We just have to make sure that more people understand it and that more people participate in it. [Italics added.]

Clinton's comments resonate with us, as they're (in a far more eloquent and positive way) communicating a message I've been trying to get across recently as well:

There are enormous risks emerging now…but crisis and risk also provide opportunity, notably to those who provide solutions. Next economy investing then can be defined as a way to provide capital to those solutions, and is also the clearest path to competitive investment returns as the world becomes ever riskier and more politically and environmentally complicated. It amazes me that how we decide to manage our economies over just the next few years will make the difference between a new dawn of innovation, freedom and security for mankind, or a dangerous, dirty world fighting for what's left.

And Clinton is right, it is a "great time to be alive." But, like every generation, we need to rise to confront our primary challenges. As Clinton inferred, a big part of that is messaging and creating popular awareness of the challenges and opportunities. 

The other part is defining and understanding our challenges so we can bring the best solutions, the theme sounded by my third sage.

Nick Bostrom, professor of philosophy and director of the Future of Humanity Institute at Oxford, in the course of discussing existential, extinction level threats to civilization, made some interesting remarks in an interview this week about understanding risk, even though he did not discuss climate change and resource scarcity:

I think there are vastly better ways of being than we humans can currently reach and experience. We have fundamental biological limitations, which limit the kinds of values that we can instantiate in our life -- our lifespans are limited, our cognitive abilities are limited, our emotional constitution is such that even under very good conditions we might not be completely happy. And even at the more mundane level, the world today contains a lot of avoidable misery and suffering and poverty and disease, and I think the world could be a lot better, both in the transhuman way, but also in this more economic way. The failure to ever realize those much better modes of being would count as an existential risk if it were permanent…But to me the most important thing to do is more analysis, specifically analysis to identify the biggest existential risks and the types of interventions that would be most likely to mitigate those risks.

Taken in reverse order then, our seers are saying, "identify and understand the risks, broadly communicate that there are big risks but also commensurate opportunities, then actualize the opportunities by investing in the very best ways to mitigate those risks and profit from them."

So, the capitalist, the policy expert and the academic futurist are all ringing very clear notes about the next economy.  The capitalist sees plainly that renewable energy works profitably, right now, with existing technology. The policymaker agrees, and sees a "wildly" profitable future in expanding the green economy, but worries that too few people understand that for America and maybe civilization to make rapid enough progress.  The professor, perhaps more than the others, sounds like us at Green Alpha in asserting that we must study and understand the most significant risks facing civilization, and that we must then invest big in the technologies and other approaches that address and mitigate those risks. 

On each of these three fronts, business, political and theoretical, it's clear that our best and brightest are echoing our own economic thesis: that the next economy must and likely will grow faster than the legacy, fossil-fuels based economy, because that's the best way to stimulate economic growth and simultaneously avoid some of our primary risks: win-win. Over time, we're confident that the necessity of these realities will lead our investments to provide above-average returns and to provide a conduit of capital into an economy that minimizes existential risks.  Failure to build the next economy is not an option.

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

March 05, 2012

The Best Offshore Wind Stocks

Tom Konrad CFA

In my recent article on investing in offshore wind, I suggested that the market for offshore wind turbines was too competitive for turbine manufacturers to be a good investment at this time, but that companies which supply the power conversion and connection to the grid might be better.  I listed the following companies:

  • Prysmian (PRYMF.PK) and General Cable (BGC), which supply power cables.
  • ABB Group (ABB), and Alstom (AOMFF.PK) which supply many aspects of the power conversion and interconnection hardware needed to tie wind farms together and to the grid.
  • Siemens (SI), which also supplies power conversion and interconnection equipment as well as being the leading supplier of offshore wind turbines.

In order to choose the best of these, I've put together the following chart comparing some of my favorite valuation ratios:

Offshore Wind Stocks.png

Interpreting the Chart

The chart shows earnings, free cash flow (FCF), and dividends as yields (i.e. divided by stock price) so that they can easily be compared to each other and between companies, while the Debt/Equity is a ratio (100%=1) so that I can display it on the same graph. 

For dividend, earnings, and FCF yields, higher is better since these are different measures of the company's ability to generate a return on the stockholder's investment.  In a quality company, free cash flow should also be similar to earnings, and, if not, further investigation is warranted into the quality of the company's earnings.  Both earnings and FCF yields should be significantly higher than dividend yield, since both are needed to maintain the dividend payment over the long term.

Finally, a low debt to equity ratio (leverage) is good, because, all else being equal, a company with low leverage will have less volatile earnings and more financial flexibility.

The Companies

I was not able to obtain 2012 and 2013 earnings estimates for the German Prysmian Group, but this does not concern me overmuch, since I'm not interested in a company with such a high debt burden and negative free cash flow.  Siemens' tiny FCF, and Alstom's negative FCF also allow me to remove them from consideration quickly.

That leaves ABB and General Cable.  At first glance, General Cable is the more attractive of the two because of its predicted rapid earnings growth.  However, as a conservative investor, I find ABB's 3.4% dividend attractive, although the fact that it is barely covered by FCF is a little worrying. 

Conclusion

A Diamond in the Rough
An ABB transformer. Photo by author.

Overall, I choose ABB Group (ABB) as my top offshore wind stock.  ABB's very low debt (Debt/Equity = 0.24) means the company is well positioned for today's troubled economy.

I also like ABB's focus on building its cleantech businesses: ABB was named Cleantech company of the year in 2011.  So in addition to having exposure to offshore wind, ABB pays a decent dividend, has good exposure to cleantech, and is likely to remain profitable through any economic bumps in the road. 

Finally, ABB is well placed to catch any favorable breezes that arise as the offshore wind industry takes sail.

DISCLOSURE: No positions

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

March 02, 2012

11 Clean Energy Stocks for 2012: Quick Update

Tom Konrad CFA

Experimenting with more frequent updates

In the past, I genrally only wrote about my annual list of ten clean energy stocks on a quarterly basis, but when I wrote last month to apolgize for inadvertently slipping in an extra stock, and in the process wrote a few notes on a couple of the stocks with news, a couple readers wrote to say they liked the more frequent updates.  So let it be written, so let it be done. 

Leave a comment if you think it's something I should continue doing, or if you think my limited writing time is more valuably spent talking about stocks you have not already heard about.

Portfolio performance

February was kind to my stock picks, which had a total return since the start of the year of 19.5%, up from 15.1% at the start of February.  The hedged portfolio showed a gain of 16.1%, up from 12%.  Meanwhile my benchmarks both lost ground, the Clean Energy ETF PBW falling back to 10.9% from 20.8% at the start of February, and the Russell 2000 ETF IWM falling from a gain of 12.3% to a gain of only 8.8% for the year.

For details on the composition of the portfolio and hedged portfolio, see the original article: 10 [sic] Clean Energy Stocks for 2012.  Stock-by-stock performance and dividends are shown in the chart below.  Note that the performance of foreign-traded stocks mrked with * is calculated based on the prices in their home markets converted to dollars at the prevailing rate at the time.

11for12Feb.png

Stock Notes

Euro Stocks Rebound as Crisis Fades

The three European stocks (Rockwool  [ROCK-B.CO] up 28%, Veolia [VE] up 31%, and Accell [ACCEL.AS] up 22%) have done well this year, as investors worst fears of the outcome from the Greek debt crisis begin to fade.  Veolia climbed 15% over the last two days based on its announcement that the company is in talks to sell its mass transit unit.

Alterra Rises on HS Orka

The top performer has been Alterra Power [MGMXF.PK/AXY.TO.]  I think the 57% gain so far this year is partly based on the fact that the company had been so beaten down last year, and the announcement that the group of Icelandic pension funds that owned 25% of its HS Orka geothermal plant had increased their stake to 33.4%.  This is good for Alterra in two ways: the cash can be used for investments in other renewable energy projects, and the greater local ownership of the Icelandic power plant helps to blunt the criticisms of Icelandic nationalists who who have been highly critical of foreign ownership of this power plant, which meets 9% of Iceland's electricity needs and 10% of its heating needs.

Depressed Stocks Cheer Up

The other star performer has been transit bus manufacturer New Flyer (NFYEF.PK/NFI.TO).  I believe the stock's rise has been mostly a rebound from excessively depressed levels at the start of the year.  Even at the current $7.89 a share, I think this high-yielding stock remains an excellent value.  The story at Waterfurnace (WFIFF.PK/WFI.TO) is similar, with the stock rebounding from severely undervalued levels at the start of the year on little news of note.

Drifting in the Western Wind

The worst performer has been Western Wind Energy (WNDEF.PK/WND.V.)  This stock has been drifting slowly downward on a lack of news after rejecting potential buyout at the end of last year.  Since the company has completed its Windstar and Kingman wind farms, the value of the company has risen appreciably since I wrote about it in late 2011, so the price decline represents an opportunity to pick up a deeply undervalued renewable energy power producer.  I have a limit order in to buy a little more at slightly below the current price, despite my fairly large existing position in the stock.

Conclusion

It's been a good year so far for my picks, much like the start of my last banner year, 2009.  As I wrote when I introduced this list,

I'm optimistic about 2012.  Unless we see a total economic meltdown..., I expect strong appreciation of this portfolio of undervalued clean energy stocks in 2012.

DISCLOSURE: Long WFIFF, LIME, AMRC, RKWBF, WM, VE, ACCEL, NFYEF, FNVRF, WNDEF, MGMXF, and puts on IWM and SPY.

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.


« February 2012 | Main | April 2012 »

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