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May 31, 2012

DOC Imposes Tariffs on Chinese Wind Towers

Steve Leone
 375862522_1c7e8664ec[1].jpg
Wind Tower photo: Samdogs via PhotoRee

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

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

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

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

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

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

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

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

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

A Gust of Wind Industry Mergers

Tom Konrad CFA

bigstock-Wind-Turbines-1176249.jpg
Wind Turbines photo via Bigstock

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

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

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

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

Preserving Cash

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

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

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

Prices

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

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

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

Location

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

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

What the Deals Mean for the Wind Industry

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

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

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

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

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

Disclosure: Long WNDEF, MGMXF, PW

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

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

May 30, 2012

Bankruptcy Fears for China's LDK Solar

Marc Kenneth Howe
LDK Logo

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

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

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

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

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

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

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

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

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

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

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

Marc Kenneth Howe is a contributor to Renewable Energy World.

A Green Peak Oil Company Expanding in North America: Stagecoach Group

Tom Konrad CFA

stagecoach group
logoWhat’s the budget-conscious way to travel in the US?

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

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

Hence the Bus.

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

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

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

Megabus.com revenues, Stagecoach 2011 Annual report

Green Profit From Peak Oil

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

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

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

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

Stock Valuation

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

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

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

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

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

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

May 29, 2012

Advanced Biofuels, Ahead of Schedule for Gevo

Jim Lane

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

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

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

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

Ramp-up rate

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

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

The Elephant in the Room, pending IP litigation

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

Next stop – another capital raise for further expansion

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

Upcoming advanced biofuels openings

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

Reaction from the investment community

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

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

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

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

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

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

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

Disclosure: None.

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

Geothermal Heat Pump Stock a Deep Bargain

Tom Konrad CFA

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

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

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

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

A Second Opinion

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

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

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

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

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

Fundamentals

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

Conclusion

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

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

Disclosure: Long LXU,WFI.

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

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

Anti-Hype in Lithium-ion Batteries Foretells Doom for Electric Cars

John Petersen

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

Examples from this month include:
  • An interview with Wards Auto where the business manager of the DOE's Kentucky-Argonne Battery Manufacturing Research and Development Center explained that it takes about ten years to put a battery innovation into production and all of today's EVs are powered by technologies that were developed at least a decade ago.
  • An article from National Defense which predicts that lithium-ion battery research will soon hit a brick wall because batteries can only be as small and lightweight as their materials allow and immutable laws of physics and chemistry limit the number of electrons that can be stored in a given mass of battery material.
  • An article in Nature that discussed ways nanotechnology can improve battery performance by increasing surface area, but took pains to explain that nano-materials must be produced in carefully controlled environments and the high cost of manufacturing nano-materials usually outweighs the benefits derived from using them.
  • An article in Design News that focused on the harsh reality that battery development is hard, slow work because batteries require a wide variety of costly materials to work together as a system; there are limitless ways that things can go wrong; and throwing loads of money at research can't make progress happen overnight.
  • An article in Waste Management World that explains the complex technical and economic challenges that must be overcome before lithium-ion battery recycling can progress beyond a few pilot plants and become a cost-effective industrial reality, as opposed to a hopium-laced talking point.
  • An article in the MIT Technology Review that reads like a premature obituary as it discusses the triumphs and tragedies at A123 Systems (AONE) and their ongoing search for strategic alternatives.
My personal favorite is a strategy memo from the National Alliance for Advanced Technology Batteries that focuses on the problems at A123 Systems and the failures of Ener1 and International Battery. It's classic spin control that ultimately blames the debacle on government policy. Since the irony is so rich, I'll annotate the last three paragraphs by highlighting text that I find particularly entertaining in bold type and adding some observations [in brackets].

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

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

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

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

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

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

Disclosure: None

May 27, 2012

Report: Two Solar Technologies That Will Thrive; Two On the Demise

Steve Leone
bigstock-Summer-With-Solar-4394320.jpg
Solar technology photo via BigStock

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

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

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

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

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

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

The Technology Winners

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

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

The Technology Losers

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

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

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

May 26, 2012

Ormat Technologies: Shame About the Price

Tom Konrad CFA

320px-W%C3%A4rmetauscher_des_GKW_Landau[1].jpg
Ormat Heat exchanger at GKW Landau. Geothermal water evaporates the carrier medium. Preheater and the evaporator. The steam line above connects to the turbine.
Photo by Claus Ableiter via Wikimedia Commons

Last Wednesday, Ormat Technologies (NYSE:ORA) reported a great quarter, beating analyst expectations for both earnings and revenues.

Investors loved it: ORA was up 8% on the day to $20.69, and are up 14% at $21.85 as I write.

I’m a big fan of geothermal power, and would love to own Ormat at the right price.  They have a great business with strong technology and fairly reliable cash flow.

Yet I have not owned Ormat stock since 2006.  The company is simply too expensive, quite likely because it is the only geothermal company large and liquid enough to be owned by institutional investors.

Although Ormat trades near book value ($19.99/share), it’s in a very capital intensive business with thin profit margins.  Profits have recently been depressed by the low natural gas price, against which some of the electricity it sells is priced.  Because of this and some problems at the firm’s North Brawley plants,  Ormat showed a profit of only $0.40 in 2011.

Going forward, analysts expect a $0.58 profit in 2012, and $0.76 in 2013.  That’s nice earnings growth, but it’s not driven by revenues, it’s driven by cost control.  Revenue is expected to grow only 13 percent in 2012, and only 5% in 2013.  Given the geothermal industry’s capital intensity and Ormat’s large size, it would be crazy to expect long term growth of more than 10% going forward.

For a company with moderate growth prospects like Ormat, the current price of $21.85 puts the forward P/E at 38.  That’s two to three times too expensive for my taste.  I also have trouble getting excited the fact that they recently doubled their quarterly dividend to $0.04.   “Double” sounds great, but a 0.7% dividend yield leaves me wanting a few more doubles.

Disclosure: None

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

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

May 25, 2012

Wind and Geothermal Deals; More Efficient Heat Pumps- The Week In Cleantech: 5/25/2012

Jeff Siegel and Tom Konrad

May 21: Are more wind deals a sign that the bottom is in sight?

TK:

  • Western Wind Energy (WNDEF.PK) and Alterra Power (MGMXF.PK) both announced deals to acquire wind development pipelines last week.  Is the recent flurry of deals a sign that the worst may be over for wind developers?  More here.
  • New tests conducted at Wright-Patterson Air Force Base have revealed that US warplanes are capable of flying faster and carry more payload on missions, when flying with synthetic fuels, including biofuels, compared to conventional military jet fuels made from petroleum. The House is considering a bill which would block the use of such fuels unless they are cheaper, as well as better. More here.

May 22: US Geothermal (HTM) secures funding

TK: The deal with Lincoln Park Capital fund provides for the market price issuance of shares for $750,000 upon closing, and up to $10 million subsequently, at the company's discretion, with no discount to the market price.

May 23: Does organic food make you a jerk?

JS: Does organic food make you a jerk?  This is the question that's been popping up in all kinds of anti-organic food blogs over the past week or so. And it all started after a new study suggested organic foods reduce prosocial behavior and harshen moral judgments.

What a load of crap!

Before I even read the study, I suspected it's findings would be about as reliable as Chinese drywall. And I was right. Although one of my favorite writers today, Jess Zimmerman, did the best job at proving how ridiculous this study was to begin with. You can read her piece on this one here.

TK:  Axion Power (AXPW.OB) received a $150K grant from the US DOE to help commercialize PbC batteries.

May 24: Proxy Battle at Renewable REIT

TK: Power REIT (PW) looks cheap because of proxy battle. Its annual meeting is today.

May 25: The Next Generation of Geothermal Heat Pumps

TK: Both Waterfurnace (WFI.TO. WFIFF.PK) and Climatemaster (LXU) are launching new lines much more efficient heat pumps.  Here's how they work.

May 26-8: Have a great 3 day weekend!

DISCLOSURES:
TK: Long WNDEF, MGMXF, HTM, AXPW, PW, WFIFF, LXU
JS: No positions.

Jeff Siegel is Editor of Energy and Capital, where his notes were first published.
Tom Konrad Ph.D. CFA is Editor of AltEnergyStocks.com, and a blogger on Forbes.com.


A Solar Light at the End of the Tunnel...

...but it may take another year to get there

by Clean Energy Intel
bigstock-Light-At-The-End-Of-Tunnel-3470269.jpg
Light at the End of the Tunnel photo via BigStock

Suntech Power’s (STP) first quarter earnings report provided some supportive insight into the process of consolidation currently underway in the solar industry. The financial numbers were of course less than constructive, though much as expected as pricing pressures continue to make life difficult for the sector.

Perhaps of more interest were the company’s insights into the inroads being made in the industry regarding the over supply situation and their own progress on reducing production costs. Both of these factors point to a process which will eventually right the industry, leaving a bright future for those competitive producers who survive the current turmoil. Light at the end of the tunnel. However, the tunnel still seems to be about 6 to 12 months long. Given the market’s general lack of ability to be significantly forward-looking in the current difficult environment that probably means that any hopes for sustained rally are premature for now.

Suntech's Numbers

On the financial numbers themselves, much as expected the company reported a seasonally weak first quarter. Shipments were down 26.9% on the quarter and 22.1% on the year. Revenues came in at $409.5m, down 53% on the year. Gross profit collapsed to a mere $2.4m and the gross margin came in at only 0.6%. However, this largely reflected a preliminary provision for US countervailing and anti-dumping duties of $19.2m, or 4.7% of revenues. Excluding this provision, the gross margin was at the high end of the company’s 3-6% guidance.

The net loss came in at $133m or 74 cents per diluted ADS. This was 26 cents worse than the 50 cents expected by the consensus.

From a big picture perspective, these numbers are not particularly exciting in either direction. The ‘surprise’ against the consensus was the company’s decision to take a provision on the tariff issue. However, the company also made it clear that there will be no need for further US duty-related charges in following quarters – mainly as a result of the fact that they have been able to adjust their global supply chain to ensure that their product going into the US is sourced from outside of China.

Indeed, in the earnings call, Chief Commercial Officer Andrew Beebe offered the following:

“We made a transition to globally sourced cells, not just Taiwan, but globally sourced cells as timely and as quickly as we thought was prudent from a product standpoint. ….. from this point forward, there will be no products going to the US that will have any tariffs applied to them”.

Meanwhile, CFO David King added the company’s view that “…the accounting charge may get reversed at the final decision level”.

Solar Demand

Outside, of the financial numbers themselves, the real interest was on the company’s view of the consolidation process underway both at STP and in the industry as a whole. Given STP’s leading position in the industry their insight is of course both valuable and instructive. Amongst all the detailed analysis, there were basically three clear takeaways from the earnings call. 

Firstly, the company remains optimistic about overall demand, guiding towards a 20% increase in shipments in Q2. Moreover, they continue to see shipments for the year as a whole of some 2.1 to 2.5 GWs, a range straddling their total capacity of some 2.4 GWs. In regional terms, they are still seeing good demand out of Europe and the Americas. And of course going forward countries like Japan, China and Saudi Arabia now have significant programs in place. China is now a 4-5 GW market and that number is likely to rise to 10 GW in coming years. Meanwhile, Saudi Arabia has just announced a plan to put 40 GW in place by 2032 and a meaningful level of orders is likely to be seen in 2013.

Genuine consolidation taking place

Secondly, the company clearly sees consolidation particularly within China as already helping to reduce the excess supply situation in the industry. In the Q&A session CEO Zhengrong Shi offered the following insight:

“In China, certainly there is a lot of idle capacity here. And currently as we know is oversupply situation and every player has to optimize their cost structure and always minimize spend structure. So, I think production and rationalization is very reasonable. I think most companies are doing that here in China”.

Clearly, the major problem for the solar industry has been that Chinese companies in particular were too aggressive in building out capacity in the past, leading to massive over supply. Indeed until the fourth quarter of last year the industry saw very little action to reign in capacity plans. The bottom line is that it seems reasonable to suggest that there now appears to be clear evidence that genuine consolidation is taking place. STP itself intends to hold their global cell capacity at 2.4 GW, with intended capex expenditures due solely to continuing costs related to previous projects. Moreover, insolvencies in Germany and elsewhere of course only add to the necessary process of consolidation in the industry. Together with demand expansion in markets like China and Saudi Arabia this will eventually lead to a more positive supply demand situation for solar as whole.

Cost Reduction

Lastly, STP itself is looking at solid progress on costs over the year. The company indicated that their own total production costs fell by 6% in Q1 over the previous quarter and they expect total module costs to be around 90 to 95 cents per watt in Q2. Moreover, during the earnings call, the company indicated that they have a high degree of confidence that they will be able to get poly to module conversion costs down to 60 cents per watt by year end – ten cents less than previously discussed. Given their expected average poly costs that should see total module costs fall to below 75 cents.

These cost developments are of course what is required to continue to drive the industry towards grid parity and also to help the most competitive players deal with falling average selling prices. Trina solar (TSL) has indicated that they are already at poly to module conversion costs of 58 cents and expect those costs to fall to 50 cents or below by year end – ten cents below STP’s target. That represents a significant degree of competition for STP and is certainly supportive of Trina. At the same time, STP is generally seen to provide higher end product and as a result generates higher ASPs over their product range. It is highly likely that the solar market has room for all of the tier one vertically-integrated Chinese players such as STP and Trina. The pain is likely to fall largely on tier two and three players alongside thin film players such as First Solar (FSLR) who will find it very difficult to compete with the falling cost structures being delivered by the most competitive poly-based players. 

Conclusion

Having taken advantage of the rally in solar at the beginning of the year (see here), I recommended taking profits on February 10th (see here) – which pretty much proved to be the high of the year for solar. From those highs at time of writing STP is now down -53%, whilst Trina is down -43%, Yingli (YGE) is down -51% and the overall Guggenheim Solar ETF (TAN) is down -50%. With solar so heavily beaten up and with a good amount of straws in the wind pointing to a positive process of consolidation, one might be tempted to look for a good trading rally from here if the overall market was in a forward-looking mode. 

However, the overall market and investor sentiment is weak, with the situation in Europe a major uncertainty. This suggests that the market is likely to be defensive and short-term orientated for now. Meanwhile, even STP’s best guess is that industry profitability is 6 to 12 months away. The bottom line is that it continues to seem reasonable to keep your powder dry and wait for a buy opportunity further down the line.

 
Disclosure: I have no positions in the stocks discussed.

About the Author: Clean Energy Intel offers free insight and is produced by a retired hedge fund strategist. You can read more at www.cleanenergyintel.com.

May 24, 2012

Who's a Fat Cat?

Tom Konrad CFA

fat cat photo
A Fat Cat. Photo of "Cauchy" by author.

Friday, in a generally positive article about Lime Energy (NASD:LIME), I noted that the top five executives at the company seemed overpaid in comparison to one of their nearest rivals, Orion Energy Systems (NYSE:OESX).  Since this was not based on in-depth research, and is a pretty serious allegation about a company I’m otherwise enthusiastic about, I decided to do some more digging.

Who is a Fat Cat?

Using data on executive pay from Morningstar, I compared executive pay at Lime not only to Orion Energy, but to the four other energy management companies I covered in my series of executive interviews last year: World Energy Solutions (NASD:XWES), EnerNOC (NASD:ENOC), Comverge (NASD:COMV), and Ameresco (NYSE:AMRC).  The results are shown in the chart below:

Executive Pay 2009-11

The chart shows total compensation of the top five executives of each company, in millions of dollars, over the last five years.  I’ve also included the three-year total return for each stock, and the total of all three year’s pay as a percentage of the current market capitalization (since larger companies can afford larger pay packages.)

I chose to use only the last three years’ of compensation because that was the most available for Ameresco.  I included the stock price returns, since this is an indicator of how effective share option awards have been at reducing executive pay as the share price falls.  Since all these companies have had falling prices over the last three years, we would expect to also see falling pay.  Note that the return of World Energy Solutions is a one year, not a three year return, as the company got its NASDAQ listing only 2010.

Who is the Most Overpaid?

Looking at the chart, it’s clear that my initial impression that Lime executives are overpaid in comparison to Orion executives was incorrect, because it was based on only the most recent year’s compensation.  Compensation of Lime executives falls in the middle of the pack, although the generally rising trend of compensation at Lime is not what we would expect given the poor stock performance, but it could be accounted for because of various timing issues.  While the rising trend would be worth looking into if it were to continue without a stock price revival, it is not alarming when you consider that compensation fell drastically from $3.7 million in 2007 (when the stock shot up) to $1.2 and $1.15 million in 2008 and 2009 when the stock fell back.

The most overpaid executives are at Comverge and EnerNOC, both in absolute millions of dollars, and as a percentage of market capitalization.  Comverge agreed to be acquired by a private equity group H.I.G. Capital LLC in March, so I expect that this particular group of overpaid executives will be out the door soon.  EnerNOC execs should probably go the same way, but with such hefty pay packets, executives there have every incentive to hang on as long as possible, as did executives at Comverge (just ask Brad Tirpak, who led a multi-year campaign to remove them.)

Who’s a Slim Cat?

fat cat photo
A Slim Cat. Photo of "Cauchy" by author.

The best bargain for shareholders is the management team at Ameresco (NYSE:AMRC).   This might be surprising, since George Sakellaris, founder, President and CEO, has complete control of Ameresco’s board because he owns a large block of shares with superior voting rights.  But my impression from talking this slim cat (he’s a runner) is that he keeps building energy service companies in order to create something great, not to suck shareholders dry.

With Sakellaris as the driver, investors should be happy pay his quite reasonable salary and hop on for the ride.  Incidentally, Ameresco’s stock is once again looking attractive after an earnings miss on May 8th.


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

DISCOLSURE: Long AMRC, LIME,OESX

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.

120,000 Chinese Electric Vehicles

Tom Konrad

index_r1_c11[1].jpgI asked Art Porcari for a paragraph about what Kandi Technologies' (KNDI) recent press release meant for the company to be included in this article. He managed to keep it to a page, but it was too much for an article about ten stocks.  I thought I'd share his thoughts here.

  In its Q3, 2011 10Q filing Kandi (KNDI) stated:

“On August 14, 2011, a team is formally formed in Hangzhou by Development Research Center of the State Council, Society of Automotive Engineers of China (SAEC), and Zhejiang University to begin the research of a subject proposed by the Company: the feasibility of building a 100 thousand pure EV renting network in Hangzhou and the related supporting policies required. The objective of this research is in order to resolve the problem of industrialization of pure EV, the traffic jam problem and parking difficulties in current Chinese cities. This research is planned to be finished by the end of 2011, and expected to help stimulate the Company’s development.

The results of this study were reported in Beijing on May 14 to top governmental leaders as noted in a press release by Kandi May 21.

Kandi Advances Plan for Innovative Pure EV Rental System Before Top Government Leaders and Transportation Experts in Beijing

Pure EV Rental Model in Hangzhou Features 100,000 Vehicles in Centrally Managed "Smart" Vertical Parking Facilities to Relieve Traffic Congestion, Scarce Parking and Environmental Pollution

Hangzhou, home base of Kandi’s Executive offices, has established the dominant position as China’s Model City for EV development, this putting Kandi in the prime position to influence EV development throughout all of China.  Due to this status, it is likely the announced development of the “State of the Art” multi-story EV Parking/Charging facilities for rental EV’s will be first established in Hangzhou. However; the decision to formally unveil the program in Beijing, seems wise in that no city in the world would seem to need the mass introduction of small environment friendly EV’s more than Beijing;  a city that recently has made it virtually impossible for one to acquire a new ICE car license due to oversaturation. As can be seen by recently filed Kandi patents ( 1, 2 ), should this new high tech Zip Car (ZIP) like approach to EV rental be embraced by China, the upside to Kandi could be immeasurable.

This100,000 EV rental trial program is in addition to the rumored Kandi’s long awaited and soon to be implement 20,000 EV Hangzhou leasing program for the City of Hangzhou residents. Under this program the City would purchase the 20,000 EVs  then lease them to eligible residents under a turnkey 36 month lease for 800 yuan (US$126) per month including unlimited Quick Battery Exchange. Should this be formally announced with Kandi as the sole or primary beneficiary, Kandi would immediately be vaulted into a lead position in EV’s not just in China, but world-wide. This differentiation can be easily be surmised by this portion of the above PR:

“Mr. Hu further noted Kandi is involved with the Hangzhou government in a cooperative effort with others such as State Grid and Air China Group (the lithium battery business of Air China) in the implementation of an EV "battery swapping model" for the launch of 20,000 EVs in the market. He sees this as an excellent foundation in which sufficient experience will be gained to build a pure EV rental network.”

Disclosure:Both Porcari and I are Long KNDI

May 23, 2012

The 10-minute guide to Dupont and advanced biofuels

Jim Lane
Dupont[1].jpg

The Wilmington Express

Dupont (DD) is accelerating, after acquiring Danisco in a $6B 2011 takeover.

Next stop – expansion in cellulosic biofuels and biobutanol.

They’re bullish on biofuels and getting more so as their technology and vertically integrated strategy comes together.

More than a year ago now, Dupont took a giant additional leap into industrial biotechnology with the acquisition of Danisco and its star subsidiary, Genencor.

Immediately on the bioenergy front, the Dupont Danisco joint venture in cellulosic ethanol, memorably named Dupont Danisco Cellulosic Ethanol, dropped the “Danisco” in its moniker.

But despite its position as one of the world’s leading purveyors of paint, Dupont’s ambitions run a lot deeper than making surface-level changes. One aspect that new division chief Jim Collins is bringing to Dupont’s adventures in cellulosic biofuels is in communicating the company’s optimism, focus and purpose regarding the sector.

You see, the company has traveled far in its journey, from the days when DDCE and others were struggling to put the image of “commercialization is five years away…forever,” behind them.

Emphatically, that’s now done, and the company’s metrics in cellulosic biofuels are starting to look compelling. Not only is commercialization a lot less than five years away – a massive breakout in capacity building looks feasible within that time frame as well.

Let’s take a closer look.

First commercial project.

The company expects to have its 25 million gallon first commercial facility operating within 18 months. It’s writing the check on this one – based up in Nevada, Iowa, adjacent to the first-gen Lincolnway corn ethanol plant.

Following launch.

The company’s corn stover demonstration will shut down and come back up in Tennessee with a demonstration of switchgrass.

System.

Dupont is touting an integrated approach – software and hardware combined, if you will – from seed through to understanding the harvesting of biomass, enzymes and the processing technology.

The rationale.

Jim Collins says, “If you want to build 100 of these, you have got to have the lowest-cost system.”  In Dupont’s case, its a $7 per installed gallon cost, or a $200 million capital investment to build a 28 million gallon plant.

The corn stover projections.

Nice to own Pioneer Hi-Bred in this case – you can imagine the detailed knowledge the company has assembled on what is planted where, in Iowa and elsewhere – the yields that can be expected, and the resulting assets in corn stover.

The model moving forward.

It will be based on licensing, although Dupont suggested that the first two or three plants will probably take the form of JVs as the technology is proved out.

Geographies and feedstocks.

Dupont is emphasizing the availability of stover in Iowa, Illinois and Indiana, driving the decision to deploy based on corn availability first. For Tennessee, North Carolina and Georgia, as a second cluster, an emphasis on switchgrass, which is being developed in partnership with Genera Energy. So, for now, its a two-hun strategy.

International prospects.

Dupont is rethinking Brazil, which it had put in a backseat while focusing on switchgrass and stover. In this case, the company has been watching the Brazilians go through a wrenching consolidation in the sugarcane industry, and a pivot from the burning of waste in the field to a mechanical harvest which will bring the tops and leaves into the plant in order to get them off the field. “It’ll be piling up,” Collins noted of the tops and leaves, “and with bagasse, they are already getting more than they can efficiently burn for power.” Bottom line, Dupont has “renewed interest” in Brazil.
Partners.

“Partnership is in our DNA” former CEO Chad Holliday used to say, and the company has been building on partnerships with Tate & Lyle, Goodyear for bioisoprene, BP for the Butamax biobutanol technology as well as wheat ethanol in the UK, and recently with Fagen as it works through opportunities with biobutanol conversion. Expect that roster to stay strong.

Biobutanol.

Speaking of biobutanol, Dupont noted that it has Highwater Energy in its early adopters group, already, and has added Corn LP. Colins sees isobutanol conversions, from corn ethanol production, as being more attractive to the larger, more modern facilities, ;ess with the smaller, older, more marginal facilities.

Tax and mandate policy.

Dupont is, traditionally, welcoming of cellulosic tax credits, particularly because the production tax credit rewards actual production, and is a “winners only” system. But, Collins noted, those programs “have to stimulate a sector, then quickly go away.” With the Renewable Fuel Standard, the company emphasizes that it is not looking for any handouts, no new help, but stability with the RFS will be invaluable in helping the company to move from first commercial to breakout expansion.

The Bottom line

100 plants? Now, that’s talking real business. The $7 per gallon capex is a compelling figure – to date, the USDA has been looking at $8 per gallon, and a number of companies have been deploying at numbers well north of that. With 21 billion gallons of capacity scheduled to be built, that’s not an inconsequential amount of money.

Expectations? For now, a lot of add-on facilities in the heartland of corn ethanol, the Midwest. How many plants are in the Iowa, Illinois, Indiana, South Dakota and Nebraska base? According to the RFA, 143 plants – say, around 100 of them candidates for cellulosic add-ons in terms of project size and modernity. POET is of the belief that you can add around 25 million gallons of cellulosic capacity per existing 100 million gallon corn ethanol plant.

So, let’s figure that there is 2.5 billion gallons of capacity, right there, in cellulosic biofuels. Add in around 6 billion in potential capacity for biobutanol. That’s an awful lot of work for the folks for Wilmington.
Perhaps one of the reasons why analyst Mike Ritzenthaler, at Piper Jaffray, wrote in a recent note to clients: “Maintain Overweight rating and $62 price target… We are incrementally more confident in our above-guidance FY12 estimate of $4.45, versus consensus of $4.30. Companies exposed to the strong ag cycle seem to be somewhat out of favor in the current market environment – amid fears that fundamentals cannot get any better than in FY12 – but we believe this is unwarranted. With such robust performance delivered in 1Q and expected through the end of 2012, as well as the portfolio of new products scheduled to roll out over the next two years on the seed and crop protection platforms, we see solid potential to outperform expectations over the next several years.”

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.

Tariffs on Chinese Solar Are Bad for Us All

Garvin Jabusch

Trade War
Trade War photo via Bigstock

The United States Department of Commerce Thursday, and of all things at the behest of a German-owned company, SolarWorld AG (SRWRF.PK), imposed extreme tariffs on China-made solar panels and modules of between 31% and 250%, making them much less affordable for U.S. consumers. Commerce took the additional extraordinary step of making the tariffs retroactive for 90 days to prevent U.S businesses and homeowners from getting a decent price on the basis that their local dealer/installer bought panels before the date of their decision. Solar in this country just got a lot more expensive and the 100,000 domestic solar industry jobs (mostly installing and servicing) created over the last five years are now at risk. Also, oil, coal and gas suddenly can remain price competitive with solar in the U.S. for far longer than market forces would otherwise dictate. Longer term, it could make the U.S. may the last dirty, expensive, fossil-fuels based economic backwater economy in the developed world.  Jesse Pichel, Managing Director and Senior Equity Research Analyst covering Clean Technology companies at Jefferies has clearly summarized the situation:

Environmentalists and the unemployed should be equally disappointed with this decision because lower cost solar panels make solar more competitive with dirty fossil fuels. It should be clear by now that there are more U.S. jobs on the installation side of the solar business than on manufacturing. These cases have a chilling effect on business and it will linger for a long time. It’s unfortunate that SolarWorld has taken this scorched Earth approach and that they are distracting from the growth of U.S. jobs and affordable solar energy.

Slowing down solar development is undesirable in general. Remember, solar at scale represents almost limitless power at a zero cost of fuel, meaning it has the power to emancipate us from hundreds of billions spent every year of fossil fuels. I find it sad and funny that we think a few billion in tax cuts will stimulate the economy and lubricate the recovery, but we fail to see that limitless, nearly free energy would have that same effect, but at many times the scale and all while creating hundreds of thousands of new, quality jobs. So it’s not surprising that many American solar companies oppose the decision. As reported in the New York Times:

“Many solar panel installers in the United States have opposed tariffs on Chinese panels, contending that inexpensive imports have helped spur many homeowners and businesses to put solar panels on their rooftops. Opponents of the tariffs say that the United States benefits from cheap Chinese production. They point out that Chinese companies often turn to American companies to buy the factory equipment and polysilicon they need to make solar panels, and installers hire local American workers to set up and service rooftop systems.”

Let us not forget that the U.S. exports raw polysilicon to China, and that business will now be at retaliatory risk as “the Chinese industry would file a trade case at the Chinese commerce ministry against American exports of polysilicon.”  The ‘American made factory equipment’ and ‘local American workers’ also stand to suffer.

In addition, tariffs by definition are inflationary. A customer who now has to pay significantly more for his or her preferred brand of panel is experiencing inflation, but so too is the customer buying the American made panel that now is free to cost far more than it did yesterday due to the absence of tough competition. With panels of all kinds going up in price, so does the cost of electricity they produce, meaning the portion of the grid they supply will get more  expensive, making the blended grid electricity rates go up, in turn driving up the costs of every home and business that use electricity.  Inflation all around, then.   

The problem isn’t, as claimed by Commerce, that China has been dumping unfairly priced solar panels on the U.S., it’s that our domestic solar industry as a whole has not remained competitive in the face of fierce global competition. China’s panels are competitive because "[t]hey've figured out that clean-energy manufacturing will be an area of major growth and are investing vastly more than we are to support it." In the U.S., we’ve invested a fraction as much as China into solar and other clean energy sources, so naturally, we’re behind them on the cost curve. Commerce’s decision will do little to slow the growth and technological progress of solar globally; it will just mean the U.S. won’t be competing in this key piece of powering the future economies.

There are of course American firms, such as New Hampshire based GT Advanced Technologies (GTAT), who have managed to compete very well with Chinese solar without Commerce’s protectionism.  Tom Gutierrez, CEO of GT Advanced Technologies, recently had this to say on the opinion page of the Boston Globe:

I look at the time and energy invested in this investigation and wonder: Why, and what for? This is counterproductive to the primary objective of the US solar industry: Getting solar to grid parity. Tariffs, charges of dumping, possible trade tensions — these only enable high-cost manufacturing to continue, resulting in higher solar costs for US consumers. In the end, such moves negatively impact the growth of high-quality solar jobs in the United States.

Instead of carrying water for foreign-owned businesses, we should reward the traits that ensure success in the global marketplace: Business adaptability and commitment to innovation. To win in this race, it’s really about hard work and figuring out how to survive and thrive against highly-motivated competition. We need to be fostering real innovation — not rewarding inefficient businesses that seek government handouts.  GT and many other US-based companies have proven that we can compete against fierce Asian competitors and win. We just have to run better businesses.

Right. Or as I said in a previous post back in January 2011, “we should try competing instead of complaining.” And Gutierrez makes another interesting point, if these tariffs are disliked by many of the U.S. companies they’re meant to protect, who are they really for? What’s their real purpose?  It’s difficult not to notice, as Susan Wise, spokeswoman for SunRun, told Forbes, that “[i]f finalized, this decision would move us backward in the effort to make solar affordable for Americans,”. “It would make prices higher at the exact moment when solar power is starting to become competitive with fossil fuels in more markets.” [Italics mine.]

Germany’s SolarWorld AG, which brought the case to the Commerce Department, does not have the best record of defending its own industry.  In Germany, they have long lobbied to lower solar feed-in tariffs, meaning, effectively, they’ve been trying to stop receiving free money. What sane business does that?  I’m sure SolarWorld’s shareholders are stymied by the company’s anti-profit attitude.  Both efforts, to reduce subsidies in Germany and to start a solar trade war between China and the U.S., point to a company that does not have its industry’s best interests in mind. It may be worth remembering that a large part of SolarWorld AG used to be Shell Oil’s “crystalline silicon” division.  Shares of SolarWorld AG are up “as much as 18 percent” the morning after the tariff announcement, but U.S. based manufacturer First Solar (FSLR) has been off by as much as 5.8 percent this morning.

In Saudi Arabia, they must be laughing. Commerce’s handout, to let U.S. solar manufacturers run inefficient operations that produce solar modules too expensive for many domestic consumers, ensures we’ll be dependent on Saudi oil and other fossil fuels for a long time to come. Meanwhile, the Saudis are installing $109 billion worth of solar capacity to power their own domestic economy. They want to stop powering their own country with oil so they can sell every drop they can find and pump to us, which should be easy if we have a lot less solar to displace their costly crude.  Too bad we just ceded the advantage in getting Saudi’s solar business to Chinese firms. 

Commerce is expected to issue its final order making Chinese solar tariffs permanent in July or August. Let’s hope by then that they can be persuaded to allow free markets to reign.  

GAA Logo Blog (1)Disclosure: Green Alpha is long GTAT, but has no positions in other companies mentioned

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."

May 22, 2012

Stop-Start Realities and EV Fantasies

John Petersen

Last week Johnson Controls (JCI) released the results of a nationwide survey that found that 97 percent of Americans are ready for micro-hybrids with stop-start idle elimination, the most sensible automotive innovation in years. A micro-hybrid turns the engine off to save fuel and eliminate exhaust emissions when it's stopped in traffic and automatically restarts the engine when necessary. While the overwhelmingly positive consumer response didn't surprise me, JCI's short-term growth forecast for micro-hybrids did.

I've been writing about the rapidly evolving micro-hybrid space since 2008 and during that time the market penetration forecasts have built quietly like a tsunami in the open ocean.
  • In October 2008, Frost & Sullivan predicted that global micro-hybrid sales would ramp to 8 million vehicles a year by 2015 while EVs would remain an inconsequential niche.
  • In April 2010, the EPA and NHTSA predicted that stop-start systems would be standard equipment on 39% of new cars sold in the U.S. by 2016 while EVs would remain an inconsequential niche.
  • In June 2011, JCI predicted that up to 22 million vehicles a year would be sold with stop-start systems by 2015 while EVs would remain an inconsequential niche.
  • In February of this year, Lux Research forecast micro-hybrid sales of 25 million vehicles a year by 2015 and 39 million vehicles a year by 2017 while EVs would remain an inconsequential niche.
  • Last week JCI upped the ante once again with a new forecast that 35 million vehicles a year will be equipped with stop-start systems by 2015.
The most fascinating aspect of the JCI forecast is that it's not based on some fuzzy results oriented analysis of what consumers might want. Instead, it's based on planning discussions with automakers that are firming supply chains for their 2015 models. The contracts won't be signed for a couple years, but the decisions have already been made. Stop-start is following the same path as power steering, catalytic converters, anti-lock brakes and air bags. It will be standard equipment within a couple years and the most unexpected technology development in a decade.

A basic stop-start system will add about $300 to the price of a car and save its owner 5% on his fuel consumption. For 35 million vehicles worldwide, the incremental cost will be about $10 billion and the annual fuel savings will be 700 million gallons. To put those numbers into perspective, my favorite toymaker Tesla Motors (TSLA) hopes to ramp its production to 20,000 EVs a year if it can find that many mathematically challenged buyers. The electric drive systems in those EVs will cost at least $800 million, but they'll only save eight million gallons of gas per year.

When you turn the crank on the fuel efficiency numbers, it costs $14 to save a gallon of gas per year with stop-start while it costs $100 to save the same gallon of gas with electric drive. I'm sure the eco-royalty won't mind a paying a 600% premium for flashy fuel savings as long as smarmy politicians are willing to squander public funds on direct and indirect subsidies and give them special perks like HOV lane access. When you look past the hype, however, it’s clear that real companies that deliver real, sensible and affordable value to the mass market will generate the business earnings.

Two publicly held battery manufacturers, JCI and Exide Technologies (XIDE), will be the first to benefit from the rapid global implementation of stop-start technology. They'll each see their per vehicle revenue double while their per vehicle margin triples. In JCI's case, the incremental revenue and margin from stop-start batteries will just make a good company better. In Exide's case, the incremental revenue and margin should turn a long string of losses and disappointments into a healthy stream of future profits.

At Friday's close, JCI was trading at 48% of sales and a 200% premium to its March 2009 lows. In contrast, Exide was trading at 6% of sales and within pennies of its March 2009 lows. There's no doubt that rapid implementation of stop-start technology will lift both boats. Given the big differences between their relative valuations, the percentage impact on Exide's stock price should be several times greater than the percentage impact on JCI's stock price.

While JCI and Exide will be early leaders in the stop-start battery space, there is a persuasive and growing body of proof that conventional lead-acid batteries, including the "enhanced flooded" and AGM batteries both companies are touting as stop-start solutions, aren't durable or robust enough to succeed in the long term.

The basic problem is that a car equipped with a stop-start system needs a battery that can carry the accessory and starter loads when the engine turns itself off in traffic, and then recharge quickly in preparation for the next engine off event. In city driving conditions, conventional lead-acid batteries can't charge fast enough and a few months rapid cycling leads to an unavoidable decline in battery performance that quickly renders the mechanical components inoperable.

The following graph from Axion Power International (AXPW.OB) highlights the dynamic acceptance issue by comparing the performance a high quality AGM battery with the performance of its serially patented PbC® battery, a third generation device that replaces the lead-based negative electrodes in a conventional AGM battery with carbon electrode assemblies.

5.21.12 DCA.png

In both graphs, the grey line represents dynamic charge acceptance measured in amps. While dynamic charge acceptance of the AGM battery plummets from 50 amps to 5 amps within a couple months, the PbC can accept charging currents of 100 amps for five years before its performance begins to degrade. The black lines represent the time needed for the battery to recover from an engine off event. While both batteries start out with a charge recovery time in the 30 second range, the recovery time for the AGM battery increases to about 4 minutes after six months while the PbC stays in the 30 to 50 second range through eight years of use. Additional advanced energy storage solutions that are targeted at the particular performance requirements of stop-start vehicles include a lithium-ion starter battery from A123 Systems (AONE) and a hybrid system that pairs an AGM battery with a supercapacitor module from Maxwell Technologies (MXWL).

The stock market doesn't understand that several billion dollars of incremental revenue from stop-start batteries is already baked into the cake for 2015. It doesn't understand that two established battery manufacturers are the only companies that have enough manufacturing capacity to respond to the demand. It doesn't understand that a handful of advanced technology developers will be nipping at the big boy's heels with energy storage systems that are better suited to the needs of stop-start systems, or that each one percent of market penetration can represent $100 million of incremental revenue.

The die is already cast. The market for high performance stop-start batteries is going to be a free-for-all where unlimited demand chases limited supply from a small number of established manufacturers and emerging energy storage technology developers. Every company that brings a cost-effective energy storage solution to the stop-start market over the next three years will have more customer demand than it can possibly satisfy. Patient investors who position themselves in front of this rapidly developing tidal wave of demand for high-margin energy storage systems are in for a fun ride.

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

May 21, 2012

New Flyer Sees Bus Market Revival

Tom Konrad CFA

Highlights from New Flyer Industries’ (TSX:NFI, OTC:NFYEF) first quarter conference call

The Numbers

New Flyer announced first quarter results on May 9.  The results were:


Q1 2012 Q1 2011
Earnings up; reverses loss $2.7 million profit $6.4 million loss
Revenue up 6.2% $227.6 million $214.3 million

The improved numbers mostly arise from a more favorable product mix, and the benefits of New Flyer’s restructuring, which removed most of the debt burden.  The North American transit bus market remains very competitive, and this competition led to Chrysler’s Daimler‘s Orion bus division to wind up operations in the quarter.

Management held the analyst conference call on Friday.  Here are the highlights:

Bus Market Revival

Orion exited the market just in time for a revival.  Transit agencies are once again issuing inviting bids for new buses, after a two year drought.  State tax collections are rising, and transit agencies are contending with aging fleets and increasing ridership, driven by increasing oil prices.  Overall demand for new buses is at “an all-time high.”

Management does not believe that Orion’s exit and the larger bid universe will be enough to allow the remaining manufacturers to increase prices this year, as all manufacturers compete to refill backlogs and manufacturing slots, but they do anticipate prices will stabilize.

New Midi Bus

New Flyer has been working for the last year to diversify its product offerings.  The first announcement of this type came last week, when they announced a partnership with British firm Alexander Dennis to jointly develop a new smaller size “midi” bus for the North American market. Alexander Dennis has deep experience in the international midi bus market, having manufactured 16,000 buses in the class. New Flyer will be contributing its expertise with North American standards.  New Flyer will  manufacture the midi buses at its existing plants and sell them to existing and potential new customers.  This new opportunity will come very cheaply for New Flyer, and cost $10 million or less to build prototype buses and retool an assembly line.

Management  continues to look at other diversification opportunities, but can’t say if there will be any more announcements this year.

Conversion of Outstanding Notes

Management reiterated their intent to redeem the outstanding notes left over from the conversion of their old IDS securities in August.  The remaining IDS securities trade in Toronto as NFI-UN and over the counter as NFYIF.  After the conversion, management reiterated their long-stated intention to reduce the dividend to about C$0.04875 monthly or C$0.585 on an annual basis.  At the recent stock price of C$7.14, this amounts to an 8.2% annual dividend yield, beginning with the dividend declared in August and paid in September.

Conclusion

Overall, the future is looking very bright for New Flyer.  Their current backlog should allow them to maintain production at the current level for the rest of the year, and strong demand and new offerings mean they may be able to increase production and prices in 2013.  Combine that with a dividend yield which will be over 8% even after it is reduced, and New Flyer remains a stock to buy and hold for the long term.

Disclosure: Long NFI

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

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

May 20, 2012

PFB Corp Integrates Upstream, Just in Time for Green Housing Market Upturn

Tom Konrad CFA

PFBCorp_logo_img11[1].pngOn May 9, green building firm PFB Corporation (TSX:PFB, OTC:PFBOF) announced that it had signed a letter of intent with NOVA Chemicals for PFB to acquire NOVA’s Performance Styrenics business.  The all share deal will give NOVA an equity stake in PFB as well as two seats on PFB’s board.

PFB’s Plasti-Fab subsidiary currently sells Expanded Polystyrene products (EPS) such as Insulated Concrete Forms and Structural Insulated Panels into the North American green building market, and as a result is a customer for the Performance Styrenics division’s EPS resins.  Over the last few years, volatile materials costs have been a large source of uncertainly in PFB’s earnings, so the acquisition should lead to more predictable earnings at the company.

While the size of the equity stake has not been announced, I expect it will be significant given that two board seats come along with the stake.  This boost in size should be beneficial to PFB’s shareholders given the company’s current small market cap ($38 million) and low liquidity (only $4000 worth of shares trade hands on a typical day.)  The added size and revenues will allow PFB to better afford the costs of a market listing, and may enable a move to a more liquid market such as AMEX, or a wider class of investors to invest in the stock.

Although the low liquidity makes it difficult for investors to buy PFB’s stock quickly, a patient investor can acquire it at a very attractive price.  PFB typically trades between $5.50 and $6.50.  At $6 a share, PFB pays a 4% dividend, and has a trailing twelve month price earnings ratio of 11.  Book value per share was $6.72 at the end of 2011.

PFB is beginning to see its green building markets revive:  First quarter earnings per share were up 6 cents over a year ago, and sales were up 6.5%.  Other green building companies are expecting a market revival in 2012, as I wrote here about geothermal heat pump companies Waterfurnace Renewable Energy (TSX:WFI,OTC:WFIFF) and LSB Industries (NYSE:LXU).

With a great valuation and reviving market, now seems a great time to buy PFB stock.    Just use good-til-cancelled limit orders to avoid driving the price of this thinly traded stock up to more than you’re willing to pay for it.

Disclosure: Long PFB, WFI, LXU

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

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

May 19, 2012

Ameresco (AMRC) Misses by 7 cents: Look to Buy on Any Sell-off

Tom Konrad CFA

Ameresco, Inc. (NYSE:AMRC) reported first quarter (Q1) earnings this morning, missing analysts’ earnings expectations by two-thirds.  While Q1 earnings were only 3 cents compared to the 10 cents expected by analysts, the company slightly beat revenue expectations by $600,000 for overall Q1 revenues of $146.6 million.

While the headline was disappointing, President and CEO George Sakellaris confidently reaffirmed revenue guidence for the rest of the year, saying that he expected 2012 revenues to be heavily back loaded.  Sakellaris predicts the second half to account for 60-62% of 2012 revenues, compared to 38%- 40% for the first half of the 2012.

Longer term, he expects Ameresco to continue its strong growth, with operating margin strengthening towards 20% over the longer term.

Strong revenue growth is coming from contract with the federal government.  While Ameresco received only $2 million worth of awards in the whole of 2011, they have already been awarded $20 worth of contracts in 2012.   Sakellaris commented that Ameresco has found it hard keeping up with federal demand so far this year.

These new contracts (up 50% over Q1 2011) helped grow Ameresco’s backlog by 10% compared to last year.   While such new contracts will not begin producing revenue until 2013 at the earliest, they should give investors confidence that Ameresco’s long term growth potential is still in place.  Ameresco’s revenues should continue to grow 20% year over year, despite the poor earnings  performance this quarter.

Conclusion

This mornings’ earnings miss may cause a sell-off over the next day or two.  Investors should take the opportunity to add to their positions in this sustainable company which has low exposure to expiring renewable energy subsidies.

Note: This article was first published on the author's Forbes.com blog on May 8th, when Ameresco was trading at $11.70.  Click here for an up-to-date quote.

Disclosure: Long AMRC.

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

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

May 18, 2012

EVs are a Struggle for A123, but Aptera is Back and They Thrive in Hawaii-The Week In Cleantech: 5/18/2012

Jeff Siegel and Tom Konrad CFA

May 14: New Flyer (TSX:NFI, OTC:NFYEF) Sees Bus Market Revival

North America's largest supplier of heavy-duty transit buses sees overall demand at an "all-time high." More here.

May 15: Electric Car Battery Company Struggles

JS:

A123 Systems (NASDAQ:AONE) has announced Q1, 2012 results. . .

Revenue fell 40% from $18.1 million in Q1, 2011 to $10.9 million. Net loss came in at $90.8 million, compared to a net loss of $53.6 million last year, and as of March 31, the company has $113.1 million in cash and cash equivalents.

I don't know a single person who was expecting to see anything positive coming from Q1. This stock, despite a lot of early optimism, has been getting crushed since early 2010. Sure, traders have been having a field day with this one. But those who initially thought AONE was a good long-term play left the building last year.

To be honest, it's unfortunate AONE has had such a rough go at it. Certainly I applaud any group of individuals with the stones to launch an energy storage company on US soil.

Besides intense competition from already established companies working in this sector, like Johnson Controls (NYSE:JCI) and EnerSys (NYSE:ENS), developing disruptive technology in this space is a costly, and extremely risky proposition. And of course, any young company looking to help develop next-generation electric vehicles is just asking for an avalanche of criticism from naysayers, partisan slaves and crotchety old bastards who still haven't figured out that supporting electric car development is actually a patriotic endeavor. I definitely expect those dolts to pump out a few op-ed pieces this week highlighting the $249 million grant AONE got from the government.

Regardless, when it comes to making wise investment decisions, none of this matters. You know the deal – never get emotional. And while I would love nothing more than to see AONE succeed, in this market environment, I have to continue watching this one from the sidelines.  Although it will be interesting to see how it does throughout the day.  The stock headed north at the open, climbing around 6 percent in the first 10 minutes of trading.

JS:

A vehicle with a 200 MPGe has just been saved from the scrapheap.

Aptera Motors has been through a lot in trying to get its ultra-sleek Aptera 2e off the ground, including, but not limited to completely running out of money and being denied a $150 million loan from the Energy Department.

Earlier this year, management announced that Aptera was shutting down its operations. However, thanks to a new Chinese-American partnership, Aptera may be back in business.

A few weeks ago it was announced that a Chinese investor purchased all of Aptera's assets, and is now looking to get the 2e on the market as early as next year.

Now known as Aptera USA, which is made up of several American minority investors and Chinese auto and motorcycle giant Jonway Group, the company is plotting a pan-Pacific assembly line for the 2e. The plan is to have the composite body of the 2e built at the Jonway facility in China and then shipped to Santa Rosa, California where Remy electric motors and batteries will be installed.

This type of pan-Pacific assembly isn’t unique. Coda Automotive has a similar method.

Rick Deringer, a real estate developer who helped broker the Aptera deal, says that pricing of the 2e has yet to be determined but that 25,000 could be manufactured next year with zero government assistance.

When Aptera USA bought the assets of Aptera Motors, it also purchased designs for prototypes and a list of 58,000 potential customers, including the 5,000 who had placed deposits on the 2e before Aptera Motors went out of business.

And here’s the kicker: Deringer also explained that one of the prototypes bought from Aptera Motors included plans for a four-door battery-powered car with the capability of getting just under 200 MPGe. In addition, Deringer said plans are in motion for developing a hybrid version of the 2e, an electric truck and solar-powered charging stations.

May 16: Investors Overreact to Explosion at LSB Industries (LXU) chemical plant

TK: Early Tuesday morning, an explosion at LSB Industries‘ (NYSE:LXU) El Dorado, Arkansas chemical facility damaged the facility.

The explosion was in the DSN concentrated nitric acid plant, and damaged both the plant and surrounding equipment.  No employees or anyone in the community was injured, and management believes that there was no environmental release.  The entire El Dorado facility was shut down pending an assessment and repair of the damage, but management was not able to provide any timeline.

The stock  sold off on the news, at one point down over $6, and closing down $2.36 at 30.01.  The stock is back up to $31.10in after hours trading, after a management conference call to discuss the incident.  Management tried to put the damage in perspective during the call.

Key points were:

  • The facility was insured for both damages (with a $1 million deductible) and business interruption after a 30 day waiting period.
  • The El Dorado facility accounted for 29% of operating profits from LSB’s chemical division in Q1, although this was expected to be lower in Q2 as the company’s Pryor plant was offline for much of Q1.  The chemical division accounts for about 2/3 of the company’s sales.
  • The El Dorado facility has lower margins that the company’s other facilities, which are currently benefiting from low natural gas feedstock prices (El Dorado uses anhydrous ammonia as a feedstock.)

Putting this all together, I estimate the uninsured potential cost to LSB from the accident  to be:

  • $1 million in property damage deductible.
  • 30 days of lost operating profits from El Dorado, or about $1.8 million.

With 22.34 million shares outstanding, this amounts to an uninsured potential loss of 12.5 cents a share.  It could, of course, be much lower.  The fact that no one was hurt and there were no environmental releases seem to indicate that the explosion was relatively contained.

The uncertainty around the nature of the explosion seems to have investors selling first and asking questions later.  Should the stock really sell off even $1 on a potential one-time loss of $0.125?

Before other investors gather their wits, this seems a great chance to get into a stock with a trailing P/E of about 9, no net debt, and significant growth expected this year.  For more details on LSB, see my coverage of their first quarter earnings call last week.

May 16: Western Wind (WNDEF.PK) to Acquire Big Project Pipeline.

Western Wind Energy announced a deal to acquire a 4 GW wind development pipeline for 8 million common shares, worth $12.8 million at $1.60/share.  A company spokesman told me that 40% (1600 MW) of the pipeline would be viable without the PTC.  It helps that most of the projects are in Renewable Portfolio Standard state, like CA and HI.

May 17: Electric Car Sales Soar in Hawaii

JS:

Electric car supporters often talk about the perfect storm. . .

A timely mix of high gas prices, sufficient electric vehicle infrastructure, strong policy support and enough inventory to meet demand.

While I continue to believe the US will reach this perfect storm in another 10 to 15 years, it's already begun in Hawaii.

According to the latest numbers, it looks like 1.2% of all vehicles sold in Hawaii last year were electric. This, compared to 0.1% on a national level.

Of course, this isn't particularly surprising. After all, residents of Hawaii are now shelling out about $4.50 a gallon for 87 octane. And for those looking to go electric, there's now one charging station for every 5,500 residents. This is actually a pretty big deal considering just how young the EV market is right now.

Hawaii has also been a leader in policy support. With a $4,500 tax credit, HOV access, and free parking at meters and parking garages, lawmakers in Hawaii have been quite aggressive in their efforts to get more EVs on the road. The Aloha State was even the first state to disallow condominium associations from blocking the installation of home charging stations.

As an added bonus, Hawaiian Electric Co. is now running a program that offers discounts on electricity rates when consumers charge their EVs at night. And most of that power comes from wind.

By necessity, Hawaii is quickly taking the lead in the US when it comes to transitioning to the new energy economy. And it is also by necessity that the rest of the nation will eventually do the same.

Hawaii currently has a 40% by 2030 renewable portfolio standard in place, and hopes to have 40,000 EVs on the road by 2020.

May 18: New Solar Tariff Puts American Jobs at Risk

JS: Well, it happened. . .

Chinese solar modules are now expected to be hit with huge tariffs.

Here's what the Coalition for Affordable Solar Energy (pretty much the most vocal and rational voice on this issue) had to say. . .

Leaders and member companies of the Coalition for Affordable Solar Energy (CASE) today responded to the preliminary Anti-Dumping ruling by the U.S. Department of Commerce (DOC) with the following statements:
 
Jigar Shah, the President of CASE, stated, “Today SolarWorld received one of its biggest subsidies yet – an average 31% tax on its competitors. What’s worse, it will ultimately come right out of the paychecks of American solar workers. Fortunately, these duties are much lower than the 250% tax that SolarWorld originally requested. This decision will increase solar electricity prices in the U.S. precisely at the moment solar power is becoming competitive with fossil fuel generated electricity.”
Read more.

TK: Stagecoach Group (LSE:SGC) expands in CA and TX with purchase of part of Coach America's businesses.  Read more.

Disclosure: TK: Long LXU, NFYEF

    JS: No positions.

Jeff Siegel is Editor of Energy and Capital, where his notes were first published.
Tom Konrad Ph.D. CFA is Editor of AltEnergyStocks.com, and a blogger on Forbes.com, where his notes were first published.


May 17, 2012

The Most Sustainable Solar Companies

Ed Gunther

Trina Solar scores 94 to lead the 2012 SVTC photovoltaic (PV) solar sustainability survey.

Making the SEIA Solar Commitment.

SVTC Solar Scorecard

The Silicon Valley Toxics Coalition (SVTC) released the 2012 SOLAR SCORECARD [.pdf subset] just in time for the SNEC 6th (2012) International Solar Industry and Photovoltaic Exhibition & Conference in Shanghai, China. Trina Solar Limited (NYSE:TSL) achieved the best result followed by SunPower Corporation (NASDAQ:SPWR) at 93, and CASM (Coalition for American Solar Manufacturing) protagonist SolarWorld AG (OTC:SRWRF) with 91.

In SVTC’s own words:

The Scorecard reveals how companies perform on SVTC’s sustainability and social justice benchmarks to ensure that the PV manufacturers protect workers, communities, and the environment.

SVTC has posted both a score summary and the entire survey as completed by each of the fourteen (14) firms that responded. The Solar Scorecard is said to represent 51% of global PV market share although the data source was not cited. SVTC Executive Director Sheila Davis told me the survey was sent to approximately 120 companies worldwide via postal mail and each was contacted subsequently to insure receipt and awareness.

Using the Top 10 module manufacturers of 2011 according to IMS Research as a framework, the Top 3 module manufacturers Suntech (NYSE:STP, with a score of 86), First Solar (NASD:FSLR, with a score of 74), and Yingli (NYSE:YGE, with a score of 88) responded to the SVTC survey, whereas the remaining five (5) Top 10 PV module manufacturers elected to not respond: Canadian Solar (NASD:CSIQ, with a score of 2), Sharp (OTC:SHCAY with a score of 9), Hanwha SolarOne (NASD:HSOL, with a score of 2), JinkoSolar (NYSE:JKS, with a score of 0), and LDK Solar (NYSE:LDK, with a score of 0). SVTC scored these non-responders using information posted on each respective website. Granted, PV companies are still learning about the Solar Scorecard and may not grasp its significance. Please note SolarWorld was not a Top 10 PV module manufacturer in 2011 per IMS Research.

Among the companies not responding with a score of zero (0), JinkoSolar Holding Co., Ltd. (NYSE:JKS) faced a Frankenstein like villagers protest last year because their Zhejiang, China, factory “discharges waste into the river and spews dense smoke out of a dozen chimneys.” Per “China quells village solar pollution protests” by David Stanway for Reuters, riot police broke up the protest after three days using “heavy-handed tactics”. It seems JinkoSolar did not learn much from resolving the incident.

In one of the key Solar Scorecard findings:

92% companies responding to the survey said they would publicly support extended producer responsibility, up from 57% in 2010.

Module take back programs are more than just for recycling twenty plus (20+) year old end of life modules but also about taking care of manufacturing defects and field returns because of breakage. Furthermore, producer responsibility extends beyond modules to the business exits and bankruptcies of PV manufacturers. “Solyndra Not Dealing With Toxic Waste At Milpitas Facility” again sets a worst case example and might force new manufacturing entrants to post a bond or otherwise prefund factory cleanup in the case of a company failure or shutdown. However, such contingencies are too late for the PV industry consolidation phase already underway.

In the United States, the Solar Energy Industries Association (SEIA) has yet to organize a national PV module take back and recycling program despite making the issue a priority in the 2009 press release, “U.S. SOLAR INDUSTRY TAKING THE LEAD IN PROMOTING SUSTAINABLE BUSINESS PRACTICES”. However, “SEIA Releases Solar Industry Commitment to Environmental and Social Responsibility” renewed and expanded the efforts at PV America West this year with a voluntary Solar Commitment program.

The SEIA should go further to encourage or by full member manufacturer consensus require participation in independent sustainability surveys like the Solar Scorecard. Likewise, a similar independent review would reinforce and reward sustainable sourcing and best practices in the downstream development, finance, installation, and Operations and Maintenance portions of the PV value chain.

SVTC has also created The Life Cycle of Photovoltaics (PV) visual website to follow each stage of a solar panel’s product life along with associated risks from the raw material supply chain through end of life for the Crystalline Silicon and Cadmium Telluride material sets with Amorphous Silicon and Copper Indium Gallium Selenide (CIGS) coming soon.

Kudos to SoloPower (61) for responding to the 2012 Solar Scorecard while San Jose crossroad CIGS start-up Nanosolar was once again a no show.

DISCLOSURE: No position in any of the stocks mentioned.

Edgar Gunther is a photovoltaic enthusiast who researches and pens the GUNTHER Portfolio under the Photovoltaic Blogger moniker. The GUNTHER Portfolio is an eclectic collection of niche Blog posts about solar photovoltaic technologies, companies, industry developments, and occasional energy politics sprinkled with insight, analysis, and irreverent commentary.

May 16, 2012

Strong Grid Stocks Getting Stronger

Will 2012 Finally be the Year of the Strong Grid?

Tom Konrad CFA

Utility infrastructure companies are seeing the beginnings of the long-anticipated infrastructure boom, and have the rising revenues and backlog to prove it.

Investing in electric utility infrastructure has long been one of my favored ways to invest in the growing renewable energy sector without having to take a bet on unproven technology.  The North American grid is in badly in need of an upgrade, and increasing penetration of variable and distributed resources such as solar and wind will require further upgrades in order to link these resources to the grid and distribute the effects of these resources variability over a wider area.  Smart grid projects also allow the grid to better cope with solar and wind variability, and tap the energy efficiency potential at customer sites.

Further, the natural gas boom has led to a gas pipeline building boom, which also helps the bottom line of many of these companies.

Over the last couple years since I asked if 2010 might be the “Year of the Strong Grid” this building boom has been delayed, as many companies delay capital projects amid economic uncertainty.  Now, it appears that these projects cannot be delayed much longer, and most companies in the sector are showing strong earnings growth and stronger backlogs.

Earnings Surprises

On May 8, Pike Electric (NYSE:PIKE) missed earnings expectations by 2 cents, due to low storm repair revenue. Core revenue was up, and management increased their revenue guidance for the rest of 2012.

On May 3rd, MasTec, Inc. (NYSE:MTZ) reported first quarter earnings, beating analyst expectations by a cent on revenues up 26% over Q1 2011.  More importantly, MasTec increased revenue guidance for the full year to $3.35 billion, compared to current analyst estimates of 3.27 billion.  They also increased earnings guidance for the second quarter to $0.35 per share, compared to analyst expectations of $0.32 per share.  MasTec anticipates strong growth from both wind and solar work this year.   MasTec was up 4% at 11 AM.

Also on May 3rd, Quanta Services (NYSE:PWR) reported first quarter profits of 22 cents vs. expectations of 16 cents, and reversed a first quarter loss of 8 cents in 2011, and also projected a improved results in 2012, providing guidance of $1.00 to $1.20 earnings per share, and revenues of $5.4 to $5.7 billion, compared to average analyst estimates of $5.29 billion. The stock rose 4%.

On May 1, General Cable (NYSE:BGC) beat revenue estimates by $1.65 billion compared to $1.60 billion, and earnings by 49 cents a share compared to expectations of 33 cents a share.  The stock jumped 11%.

On April 20, Wesco International (NYSE:WCC) beat analyst expectations for both revenue ($1.61 billion to $1.58 billion) and earnings ($1.03 to $0.96), and increased revenue projections.

On March 8, MYR Group (NASD:MYRG) beat Q4 2011 earnings expectations by 2 cents and revenues by $32 million (16%).

Canada’s CVTech Group (TSX: CVT) had a disappointing Q4 2012, but has announced strong contract awards since then, and so also seems likely to report a strong first quarter. Other companies likely to benefit from this trend are large cap companies like Honeywell International (NYSE:HON), ABB Group (NYSE:ABB), and Siemens (NYSE:SI).

2012 looks like it’s finally shaping up to be the Year of the Strong Grid.

Disclosure: Long ABB, CVT, MTZ.

An earlier version of this article first appeared on the author's Forbes.com Green Stocks blog.

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

May 15, 2012

Green Bond Update: Wind Company Bonds

by Corporate Bonder

Market Overview

Data compiled by the Bank for International Settlements indicate that the total size of the global debt securities market (domestic and international) was $98.7 trillion as at September 2011, of which $89.9 trillion were notes and bonds. Governments accounted for $44.6 trillion of outstanding debt securities, financial organizations $41.9 trillion, corporations $11.2 trillion and international organizations $1.0 trillion.

The focus of this report is on corporate borrowers. US corporations are the largest debt issuers, accounting for 46% of corporate debt globally, followed by the Eurozone with 20%, Japan 9%, China 6%, and the UK and Canada with 3% each.  The Merrill Lynch Global Broad Market Corporate Index (MLGBMCI), excluding financials, can be used as a proxy for the global corporate bond market in order to estimate splits by credit ratings, currency and sectors.

bonds by currencybonds by rating

Two thirds of the MLGBMC Index (ex-financials) has been issued in USD and 77% has an investment grade credit rating. Capital intensive industries account the majority of issuance with Utility, Energy, Telecommunications, and Basic Industry sectors accounting for 14%, 15%, 11% and 10% respectively.

Factors affecting issuance during the March 2012 quarter

There were 849 new developed market corporate bonds issued during the quarter, raising over $414 billion. BBB rated corporations were the largest issuer group by credit rating accounting for  29%. Sub-investment grade and European issuers increased their proportion of issuance versus Q4 2011 as market sentiment improved.

The following two charts illustrate how issuance was split by credit rating and currency during the three months to 31 March 2012.

issues by ratingissues by currency

Factors affecting investor demand during the quarter

credit spreadsU.S. long-term mutual funds experienced $105.8 billion net inflows over the quarter. Despite appetite for risk has made a come back, investors in aggregate continued to move out of equities and into bond funds, with $10.0 billion coming out of equity funds and $93.7 billion of net inflows to bond funds over the period.

The ECB’s introduction of the Long Term Refinancing Operation and improving US economic data led to an increase in risk appetite from investors. Credit spreads tightened, particularly for bonds issued by financials and corporations based in so-called periphery nations. Some of the spread tightening has unwound at the end of the quarter and into the start of the second quarter as familiar themes of Spanish sovereign risk and bank balance sheet uncertainty re-emerged.

YTMDevelopments in the low-carbon corporate bond market

The misfortunes of equity investors in publicly listed wind turbine manufacturers are well documented.  The following brief analysis is a glance at the bond market for wind turbine manufacturers and explores how bond investors have fared and how they perceive the risks surrounding the companies.

The author could only find two bonds from dedicated wind turbine manufacturer companies, listed in the table below.  (In addition, Suzlon (SUZLON.BO) has convertible bonds on issue, but has not issued conventional bullet bonds)

Table 1. – Wind turbine manufacturer public bonds – What currency?
Issuer Coupon Maturity Price* Yield (YTM) Credit Spread (OAS)
Nordex (NRDXF.PK)
6.375% 2016 95 7.9% 680
Vestas (VWDRY.PK)
4.625% 2015 88 9.5% 864

* At 12/4/12

nordexEach company had one senior unsecured bond, with the rest of their debt financed through banks in the form of term loans and revolving credit facilities.

vestas chartIn the author’s opinion the bond documentation carries weak covenants, more in line with investment grade bonds, rather than the high yield bonds. Further, the companies do not provide information regarding financial covenants provided to the bank lenders (and not the bond investors), which cedes control to the banks and creates uncertainty for bond investors (and even more so for equity investors).

As demonstrated in table 1, the bonds of Nordex and Vestas have lost capital value since they were issued, however Charts 1 & 2 illustrate that bond investors who bought the bonds at the issue date have broken even (so far) with coupons received making up for the capital loss. The charts also illustrate the size of the capital loss that equity investors have incurred over the same period.

chart 3While wind turbine manufacturer bonds have outperformed their equity counterparts, they have underperformed the broader bond markets. Charts 3 & 4 illustrate how the Nordex and Vestas bonds have risen in yield and credit spread versus the Merrill Lynch Eur High Yield B-BB Bond Index (an index of higher risk European corporate bonds) and the Merrill Lynch EMU Non-Financial BBB Bond Index (an index of lower risk European corporate bonds).

wind bond
spreadsNeither bond has an official public credit rating. However,  4 gives us an indication of how the market perceives the credit worthiness of the bonds. The higher the credit spread, the higher the credit risk is perceived.

When the Vestas bond was originally issued, it was priced with a credit spread close to a low BBB bond, while the Nordex bond was closer to a BB rated bond. The market’s opinion of their credit worthiness has clearly deteriorated since then, with Vestas trading more in line with low single B bonds and Nordex with high single B issuers. The Vestas bond has underperformed Nordex since the latter originally issued its bond in April 2011.

Corporate Bonder is a corporate bond fund manager in the London. This article first appeared on the Climate Bonds Initiative blog.

May 14, 2012

Lime Energy Strategy Validated by Award from Central Hudson

Tom Konrad CFA

Lime Energy (NASD:LIME) has been a star in the very competitive energy services space recently because of its ability to maintain margins in what has been a very competitive environment.  While competing small efficiency companies have been closing up shop in the Northeast, Lime has been growing revenues at 30% a year, while maintaining a gross margin of around 20%.

Recently, Lime sold off due to an earnings miss arising from a big write-off and less than expected revenues in the company’s Commercial and Industrial (C&I) division.  This was the buying opportunity I was waiting for since I first wrote about the Lime last October.

Central Hudson Award

The stock has not yet recovered, but today’s announcement of the award of Central Hudson’s (NYSE:CHG) direct install program may change that.

Lime anticipates that the contract will be worth up to $25 million over a four year period, which should add about 5% to the company’s 2011 revenues for the next four years.  With gross margins of approximately 20%, it should also add $500 thousand to $1 million (2 to 4 cents a share) to earnings, depending on how much extra overhead the program requires.

Lime’s Strategy

But the earnings impact is likely to be much bigger than 2 to 4 cents a share.  To understand the true impact of this announcement, you have to understand the key to how Lime has maintained margins in the current tough environment, and why they took that big write-off to restructure their C&I division.

While large C&I projects are extremely competitive, and have led to shrinking margins for most of the industry, Lime has been able to leverage their utility contracts to do follow-on business with small to mid-size C&I customers.  Most efficiency companies have trouble reaching these smaller customers because of the high acquisition costs for projects that only produce moderate revenue.

In the context of a utility program, the utility pays Lime to contact the businesses and implement a menu of energy efficiency measures.  Lime can then offer the business a number of additional efficiency measures which will be profitable to both the business and to Lime.

The recent restructuring was intended to better align Lime’s C&I business with these utility programs, and to take advantage of the selling opportunity afforded by Lime’s utility programs.

That’s why today’s announcement is big news.  The award of additional utility programs is key to Lime’s strategy.  Today’s announcement tells us that strategy is working.

Disclosure: Long LIME

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

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

May 13, 2012

Maxwell Technologies (MXWL): Buy or Steal?

Tom Konrad CFA

Maxwell LogoConfusion reigned following Maxwell Technologies’ (NASD:MXWL) earnings call Thursday night.  What would be the impact of the company’s reduced sales growth guidance on the stocks value?

The Bulls

We believe the sluggishness in Europe is the primary reason for the tempered near-term outlook. This has led to a slight pause in demand from some of the major-end markets (i.e., wind and hybrid buses in Europe). In our view, the long-term fundamentals are very favorable for Maxwell Technologies given the global focus on emissions reductions. We believe the pullback in share price presents an entry point for investors to own MXWL shares.

Needham lowered their price target from $23 to $18.

The Bears

Skeptics included:

Maxwell missed slightly our and consensus estimates for Q1 and also lowered its full year implied guidance…The company cites the general European slowdown and push outs in China s hybrid bus program for the revision…Maxwell s ultracapacitor results also remain hampered by the prolonged slowdown in China’s wind market.

Our numbers came down on a lower ultracapacitor growth rate. While numbers are being tempered, we feel a 20x multiple is justified as we are still expecting a respectable high-teens growth rate over the next 2 years.

Canaccord slashed their price target from $23 to $14.

  • Pacific Crest also downgraded Maxwell from Outperform to Sector Perform.

What’s MXWL Worth?

Clearly, Maxwell had to fall on the downgraded growth rate guidance, but different analysts are interpreting the guidance to mean different things.  In the conference call, Schramm tried to emphasize that the reduced revenue growth guidance was only for 2012, and that he expected more rapid growth to resume in following years.  As he said in the Q&A,

I think this is a timing issue, that when this recovery in the world finally kicks into play, there should be pent up demand that we’ll address.

If we accept that this is a temporary growth slowdown in 2011, and annual growth will pick back up over the next year or so, we can do a rough valuation based on projected 2013 earnings.

After the recent revisions, analysts are currently projecting earnings of 56 cents per share in 2013, and 25% long term growth.  However, as Cleantech Group managing director Rafael Coven told me, Maxwell is a “serial disappointer,” so we should take those projections with a grain of salt.  To reflect this, I’ll assume a 20% long term growth rate.

If we then look for a Price/Earnings/Growth (PEG) ratio of 1, that translates to fair valuation of $11.2 in spring of 2014, when 2013 earnings are announced.  As I write, Maxwell is trading at $8.78, so that would imply 28% appreciation over the next 21 months, or a 15% annualized return over the next 18 months.

Conclusion

ultracapacito chart
Image by Stan Zurek via Wikimedia Commons

Although most analysts have slashed price targets, the price has also been slashed.  Even after the recent downgrades, the average price target over 10 analysts is 18.50, according to First Call.  My own valuation for early 2013 is much more conservative, yet even that allows for a 12% annualized return.

I may have been overoptimistic to say MXWL below $10 was “a steal”, but it seems like a good time to get in to a company which dominates the ultracapacitor industry.

Company insiders, who know more about their company’s prospects than any of us, have 48,000 new shares that say they think the price won’t stay this low for long, either.

Disclosure: Long MXWL

An earlier version of this article first appeared on the author's Forbes.com Green Stocks blog.

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

More Insiders Buying at Maxwell Technologies

Tom Konrad CFA

As a quick follow-up to my valuation of Maxwell Technologies (NASD:MXWL), it was not just CEO David Schramm who has been buying over the last couple of days.  An astute reader brought my attention to five more insider filings on EDGAR:

Insider Position Date Shares bought Holdings Increase
David Schramm CEO 4/30 5,000 217,564 2.4%
Mark Rossi Director 4/30 20,000 84,664 30.9%
Robert Guyett Director 4/30 11,000 (option exercise) 78,664 16.3%
Yon Jordan Director 5/1 5,000 33,997 17.2%
David Schramm CEO 5/3 2,000 219,564 0.95%
Burkhard Goeschel Director 5/3 5,000 27,997 21.7%
Mark Rossi Director 5/4 5,000 89,664 7.7%

I’d normally ignore Mr. Guyett’s option exercise, as it does not greatly increase his exposure to MXWL’s share price, given that director options are often well in-the-money.  However, 5,000 of Guyett’s options had an exercise price of $7.44, and the other 6,000 had an exercise price of $6.2.  None of these options were due to expire in the next year.

By exercising these options, Guyett not only tied up his $223,200 of his cash for more than a year, he also gave up his right not to use these options.  That right would be useful if MXWL’s share price fell below his exercise price, so he’s saying he is absolutely confident that MXWL will not fall below $7.44 in the next year.  Further, he is choosing to pay tax on the immediate gain from exercise in 2012 rather than put it off until 2013.

That’s the downside.  What is the upside of exercising the options now?  I can think of two:

  1. If Guyett holds the stock for more that a year, and sells it at a profit, he will be taxed at the (lower) long term capital gains rate.  This makes sense if he expects MXWL to be significantly higher a year from now.
  2. (This was my reader’s theory:) He may think this is the cheapest price he will see for the stock before the options expire in June and December of 2013, so there is less immediate  tax involved in exercising them now.

Most likely, his decision was motivated by a combination of the two factors.  That means Guyett is supremely confident MXWL will not fall below $7.44, and he’s pretty sure it will be significantly higher next year.

He’s not alone.  Between the four of them, these insiders just put $628,350 down that says MXWL is headed up.

What do you think?

Disclosure: Long MXWL

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

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

May 12, 2012

The Week In Cleantech: Solar Companies at Firesale Prices, and More to Come - 5/12/2012

Tom Konrad CFA

May 7: Auction of Uni-Solar Fails to Draw a Qualified Bid

As if there weren't enough bad signs for the solar industry these days, Energy Conversion Devices (OTC:ENERQ.PK) is cancelling the auction for United Solar Ovonic LLC (A.k.a. Uni-solar) as a going concern because of the failure to receive a qualified bid in the court-approved bankruptcy proceeding.  The companies have retained an auction services firm to prepare for the sale of Uni-solar's assets.

May 8: Earnings Misses Hide Strong Revenue Trends at Ameresco (AMRC) and Pike Electric (PIKE)

Ameresco (AMRC) and Pike Electric (PIKE) reported earnings before the market open, and both missed analyst expectations, yet showed strong underlying strength in revenue growth.  I went into more detail on Ameresco here.

Pike chart.pngLast week, I predicted that Pike would have a strong quarter because of strong earnings announcements and revenues at Quanta Services (PWR) and MasTec (MTZ). 

While the earnings number was a slight disappointment, coming in at 6 cents compared to a predicted 8 cents, the underlying trend was strong.

While the mild winter led to a large percentage drop in storm repair revenue, down $10 million from $16 million to $6 million,  Pike’s core business showed strong year-over year growth, and even made up for the storm repair shortfall.  Core revenue was up $19 million to $157 million from $138 million the previous year.

Pike initially opened down 11 cents at $8.01 on the earnings headline, but finished the day up 19  cents at $8.31 after the market had had a chance to sort out the difference between recurring core revenues and the highly variable storm repair work.

May 9: Westinghouse Solar Bought by Australia's CBD

This morning, CBD Energy (ASX:CBD) and Westinghouse Solar (NASD:WEST) announced an all-share merger which will give Westinghouse shareholders and preferred shareholders 15% of the combined company on an as-converted basis.  Westinghouse will gain the benefit of CBD’s financial strength, much needed because all solar manufacturers are struggling with declining prices and margins, as well as better access to global markets.

CBD will gain a foothold in the North American market, where it hopes to leverage Westinghouse’s existing relationships to sell not only for solar, but for CBD’s industrial energy efficiency products and energy storage systems. 

Finally, CBD shareholders will gain the improved liquidity of a US stock market listing and Westinghouse's assets at a firesale price.  Based on prices at the close on Tuesday  ($0.40 per share for WEST, A$0.05 per share for CBD), the share swap amounts to a 50% haircut for Westinghouse common  shareholders.

May 10: MEMC's Earnings call shows there is more pain in store for solar stocks

Yesterday, I wrote about the signs we might look for in MEMC Electronic Materials’ (NASD:WFR) first quarter earnings call that would indicate a revival for solar stocks.  Cliff’s notes: There’s more pain ahead.

The signs to look for were:

  • The first signs of improving cash flow and margin expansion.
  • Progress towards MEMC’s stated goal of getting wafer production cost down to $0.20 a watt. One potential bullish sign would be if management signaled an even more aggressive $0.15 per watt goal.
  • Continued growth in SunEdision and and external distribution channels. Any slowdown here would be a very bearish sign.

This is what we got:

Gross margin fell to 10% from 11.6% in the previous quarter, and 18% for all of 2011.
  • The company “made progress” on reducing production costs, but their “cost reduction efforts are not finished.”  No mention was made of adopting more aggressive cost reduction goals.
  • SunEdison’s pipeline of projects under construction fell to 147MW from 255MW in the previous quarter.  Solar project sales declined 60%.

I’d score that about a half point out of three, for the “progress on cost reduction.”  Any way you slice it, it looks bad.  Other bad signs:

  • Weak revenue outlook for the rest of the year.
  • Loss per share was 26 cents, 10 cents below analyst expectations.
  • Revenue declined 15.6% from Q1 2011.
  • Margins continued to slip.

Look for a further decline in most solar stocks.  There will be a bottom, but Q1 2012 was not it.

Also...

LSB Industries (NYSE:LXU) and Waterfurnace Renewable Energy (TSX:WFI, OTC:WFIFF) both introducing much more efficient geothermal heat pumps (EER 40.) More here.

May 11: New Flyer (TSX:NFI, OTC:NFYEF) Sees Strengthening North American Transit Bus Market

  • New Flyer(TSX:NFI, OTC:NFYEF) says that more transit agencies are putting out tenders for transit buses during first quarter conference call, but the market remains very competitive.  They expect selling prices to stabilize, but not increase for the rest of the year.
  • A123 (AONE) Systems expects to spend $6.68 million recalling potentially defective battery packs.
  • Investors don't understand Lime Energy's (NASD:LIME) strategy.  More here.

Next Week: Alterra (TSX:AXY, OTC:MGMXF) and Ram Power (TSX:RPG, OTC:RAMPF) report first quarter earnings.

Disclosure: Long AMRC, MTZ, NFYEF, LIME, WFIFF, LXU, MGMXF, RAMPF

Tom Konrad Ph.D. CFA is Editor of AltEnergyStocks.com, and a blogger on Forbes.com, where his notes were first published.

May 11, 2012

Solar Gets Boring

Tom Konrad CFA

300px-Assurant_Logo[1].png

Assurant, Inc. (NYSE:AIZ) is announcing  insurance for solar development projects today.   Are you bored yet?

Insurance always puts me to sleep, but the solar industry has left a lot more investors crying into their pillows than nodding off into gentle slumber.  That’s what happens when a sector, on average, falls 73% in a year, as the Guggenhiem Solar ETF (NYSE:TAN) has.  And many investors in individual solar stocks are weeping harder, from even larger percentage losses.

But that does not mean that the solar industry does not have a bright future, and one such bright sign is (try not to yawn) insurance for developers.  Solar is becoming a “normal” industry.

To date, developers of mid-size (100kW to 3 MW) solar projects often have difficulty finding financing for them because the projects are too small for financiers to spend much time doing due diligence, and there are a number of risks that they don’t have much experience with, such as the risk that panels from different manufacturers may break or not perform as well as expected, and the manufacturers may not have the financial strength (especially in the current climate of solar industry consolidation.)

Now Assurant has teamed with a number of leading solar industry players to offer Assurant Solar Project Insurance to address these risks at all stages of project development.

Boring?  Sure.  But a little ennui is just what the doctor ordered for the recently much-too-exciting solar industry.


Disclosure: None

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

May 09, 2012

Renewable Diesel Roundup

Jim Lane

Emerald Biofuels announces new 85 million gallon, drop-in renewable diesel project in Louisiana. Why is renewable diesel scaling up so effortlessly?

Partial view of the Dynamic Fuels plant in Geismar, Louisiana

Today, the Digest’s round-up on new capacity, R&D, testing, distribution and new feedstocks for renewable diesel.

In Louisiana, Emerald Biofuels announced that it will build an 85 million gallon renewable-diesel refineries at a Dow Chemical (DOW)site in Plaquemine, Louisiana. The company will use Honeywell’s (HON) UOP/Eni EcoFining process technology for the production of Honeywell Green Diesel Fuel.

Emerald and Dow are finalizing a site lease and a site services agreement for Dow to provide a number of services and utilities to support Emerald’s operation. The site has ship, barge, rail and truck access, and Emerald will be capable of both receiving and shipping by all four modes of transportation. The UOP Ecofining process, developed in conjunction with Italian refiner Eni SpA, uses catalytic hydroprocessing technology to convert natural oils and animal fats to Honeywell Green Diesel Fuel.

The product is chemically indistinguishable from traditional diesel fuel, features a high cetane value, excellent cold-flow performance and reduced emissions over both biodiesel and petroleum-based diesel. Green diesel can be run without blending and offers value as an upgrading stock for petroleum refiners seeking to enhance their existing diesel fuels while also expanding their diesel pool.

Emerald has retained Fieldstone Private Capital Group, Inc. to assist in completing the financing of the Plaquemine refinery and expects to have the financing closed later this year. Final engineering and the construction cycle are to begin immediately upon financial closing.

The Impact

What is it with Louisiana? It seems like at-scale renewable diesel projects have never found a a better home. There’s the Dynamic Fuels project – 75 million gallons in Geismar; the 137 million gallon Diamond Green Diesel project under construction in Norco, as a JV between Valero and Darling, and now this one, clocking in at 85 million gallons.

If and when all three are completed, that’s 297 million gallons of capacity in the one state.


Ah, well its that mother of inland transport, the lower Mississippi, that really is the story here. All three plants find themselves in the heavy shipping corridor between Baton Rouge and New Orleans.

One side note. Emerald Biofuels, Diamond Green Diesel, Sapphire Energy. I think we’re done with the precious stones now, though ruby’s still out there. Cubic Zirconia is available.

Renewable diesel – 3 reasons it really, really matters.

  1. It’s a drop-in biofuel, requiring no infrastructure change – and there are generally no limits on its distribution except those imposed by cost and geography, and the size of the global diesel pool itself, which could absorb capacity from  hundreds of advanced biofuels projects.
  2. It’s renewable, here now, made at home, and at-scale today. No need to wait for the promise of algal biofuels, or other hot technologies still in the process of commercializing at scale. More than 600 million gallons of capacity already exists – Dynamic Fuels plant in Louisiana, and three from Neste Oil in Rotterdam, Singapore and Finland.
  3. In the case of Dynamic Fuels, Diamond Green and Emerald Biofuels, all three projects can utilize animal waste residues – a classic case of turning low-value, noxious feedstocks into high-value molecules.

Around the Horn: Let’s look at the latest from around the world in renewable diesel.

New Capacity

In Texas, Darling International (DAR) announced that Diamond Green Diesel LLC, its previously announced joint venture project with Valero Energy Corporation, has secured financing for the planned construction of its renewable diesel facility in Norco, Louisiana.  Financing will be provided internally by a subsidiary of Valero Energy Corporation.

According to the project’s sponsors, the facility will be capable of producing over 9,300 barrels per day or 137 million gallons per year of renewable diesel on a site adjacent to Valero’s St. Charles refinery near Norco, Louisiana.  The facility will convert grease, primarily animal fats and used cooking oil supplied by Darling, and potentially other feedstocks that become economically and commercially viable, into renewable diesel. Completion of the facility is anticipated just as 2013 gets underway.

KiOR (KIOR) began construction of its first commercial scale facility, located in Columbus, Mississippi, in the first quarter of 2011.  The approximately $190 million facility is expected to create several hundred direct, indirect, and induced jobs during operation, and over 500 jobs on site during peak construction. Production is scheduled to commence in the second half of 2012. KiOR’s process produces refinery intermediates for the production of renewable diesel.

In New Mexico, Joule Unlimited announced last November it is ready to start construction on a biofuels demonstration plant in New Mexico. Joule Unlimited Inc. plans to convert sunlight and carbon dioxide waste into biofuel at the planned facility in Hobbs, which is expected to begin operations in 2012. New Mexico state officials say Joule has the potential to expand its operations to create 500 new jobs in Hobbs by producing up to 75 million gallons of renewable diesel and 125 million gallons of ethanol per year.

Last September in the Netherlands, Neste Oil (NEF.F) inaugurated Europe’s largest renewable diesel facility in Rotterdam with an annual production capacity of 800,000 metric tons that was built at a cost of $913 million. The facility uses the company’s NExBTL technology that allows it to use a wide variety of oils, greases and fats as feedstock.

Key distribution deals

In Finland, Neste Oil (NEF.F) reports that they sold their first batch of NExBTL renewable diesel to the US market.
“We are very pleased to see that legislation on renewable fuels and our ability to meet the import regulations for these types of fuels are progressing in various markets,” said Matti Lehmus, Neste Oil’s Executive Vice President.  The release did not specify who they sold to, or any financial details such as volume or the amount of sales.  The fuel was produced at the company’s Porvoo refinery in Finland from waste fats.

In Virginia, Dynamic Fuels and Mansfield Oil Company have signed an agreement to supply renewable diesel to Norfolk Southern Corporation, one of the nation’s largest transporters of coal and industrial products. Norfolk Southern has primarily been using a 100% pure Dynamic Fuels renewable diesel at its Meridian, Mississippi rail yard since early January.

R&D

In Washington, the DOE is making up to $15 million available to demonstrate biomass-based oil supplements that can be blended with petroleum.  These “bio-oil” precursors for renewable transportation fuels could be integrated into the oil refining processes that make conventional gasoline, diesel and jet fuels without requiring modifications to existing fuel distribution networks or engines.

In February, Royal Dutch Shell announced that it has built a next generation biofuels pilot plant at Shell’s Westhollow Technology Center in Houston, USA, to produce drop-in biofuels rather than ethanol. It uses a thermo-catalytic process technology licensed from its commercial partner Virent, which is similar to the process being used at the Virent pilot plant in Madison, Wisconsin, USA. The Westhollow plant will explore the use of a range of feedstocks, starting with sugars and with the completion of an expansion currently under way, non-food cellulosic alternatives, leading to the production of a range of products, including gasoline, diesel and jet fuel.

Market expectations

Among fuels, 50 percent of executives said they expect cellulosic ethanol to reach 1 billion gallons by 2020, down from 67 percent in the last survey. Other fuels that were expected to break the billion gallon barrier by 2020: renewable diesel (down sharply from 67 to 51 percent), and aviation biofuels at 48 percent.. Algal fuel was flat at 28 percent, compared to 29 percent in the previous poll.Vehicle and ship testing

In California, Volkswagen of America announced partnerships with Solazyme (SZYM) and Amyris (AMRS) to evaluate emissions reductions and demonstrate the performance of TDI Clean Diesel technology when powered by advanced biodiesel and renewable diesel fuel.

Under the respective agreements, Volkswagen will provide both companies with two products each—the new 2012 Passat TDI and 2012 Jetta TDI—in order to closely examine the effects that the fuels produced by Amyris and Solazyme will have on Volkswagen clean diesel technology and the environment.

The 12-month evaluation period will equip Volkswagen engineers with valuable data that will aid in the ongoing enhancement of TDI Clean Diesel technology and help the brand to develop more efficient, cleaner burning diesel powertrains for future products.

In California, Solayzme (SZYM) says the USS Ford, a U.S. Navy Frigate fleet ship, successfully journeyed from its home port in Everett, WA to San Diego, CA using Soladiesel HRD-76, Solazyme’s 100% algal derived renewable marine diesel fuel. The voyage was fueled using 25,000 gallons of a 50/50 blend using Soladiesel and petroleum F-76 in the ship’s LM 2500 diesel turbines, and marks the first demonstration of the alternative fuel blend in an operational fleet ship.

Feedstocks

In California, Ceres (CERE) reports their sorghum hybrids were successfully processed into renewable diesel by Amyris (AMRS), under a U.S. DOE grant. The pilot-scale project evaluated both sugars and biomass from Ceres’ sweet sorghum hybrids grown in Alabama, Florida, Hawaii, Louisiana and Tennessee.

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.

May 08, 2012

SolarCity Files for IPO under Cloak of Secrecy

Debra Fiakas CFA

180px-Calmly[1].jpg
Image by Olga Palma via Wikimedia Commons
On the first word of an initial public offering investors flock to the Securities Exchange Commission website to get financial details on the heretofore private company.  Earlier this week solar energy solutions provider SolarCity Corporation announced its IPO plans, but investors will have to wait a while to get a look behind the SolarCity curtain.  The company is among the first to take advantage of a new “confidential” registration for emerging growth companies.

The process is provided for by The Jumpstart Our Business Startups Act (JOBS Act) signed into law by President Obama in early April 2012.  Any emerging growth company that has never had an IPO date is allowed to submit a registration statement to the SEC for a non-public review.  The filing must be nearly complete so there is no skimping on lawyers to draft the document or auditors to tote up the numbers.

SolarCity will have to file a public document before heading out for the first roadshow.  So eventually we will learn how much revenue SolarCity makes from helping businesses and homeowners install solar panels on their roofs and whether there is any profit in it  -  just not this week.

One thing we might know already is that SolarCity has some cash in the bank.  Earlier this year SolarCity raised $81 million through a private offering.  Venture investors Silver Lake Kraftwerk and Valor Equity Partners led the deal.  That money was slated for a sales and marketing program and possible acquisitions.

I think it will be worthwhile to stay tuned for the SolarCity deal.  BrightSource Energy scrapped its plans for a public offering, but I believe SolarCity will come through.   Its venture partners are well connected in the capital markets. Not to mention that Chairman Elon Musk and CEO Lyndon Rive have the right experience and plenty of financial incentive to see an IPO through to the end.

Just between you and me, BrightSource’s concentrating solar technology seems a great deal more exciting than SolarCity’s rooftop panels and assorted energy savings ideas.  Without the benefit of financial metrics from either of them, I am guessing that SolarCity is much closer to turning a tidy profit.  That means SolarCity shares might be quicker to trade against real earnings.
  
Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein.

Playing Defense: Contamination and the jitter effect in advanced biofuels

Jim Lane

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Is evidence mounting that advanced biofuels companies need to tout their defensive schemes as much as their offense? Markets jitters suggest so.

Kevin Quon wrote recently in Seeking Alpha, “the most essential attribute to the fuels market is the ability to scale the technology to the desired level needed.”

Well put. In biofuels terms, that’s playing offense.

Now, making sure that you are making an environment that’s safe for your target molecules and organisms, and as hostile as possible for everything else? That’s playing defense.

Meanwhile, some evidence is piling up that advanced biofuels companies, especially those involved in fermentation systems, will need to be more articulate now, than in the past, in detailing their defensive schemes.

Heretofore, it’s generally been all about the offense, message-wise, all about path to scale, steel in the ground, about ‘getting there’. Less about staying there.

What can these pesky contaminating microvarmints do? They can eat your highly-engineered magic bug. Or, sugar hogs, they can eat all the food. They can slow down your process. Or, they can have so many children that they crowd out everyone else. Or, they can poison the well with a waste by-product that dilutes your critical titers and yields.

In the end, they can eat your company alive too, by causing companies to fall short of their scale-up production targets. Or, a problem in one company can become the presumed potential risk at another.

Hence, why we can expect a lot more interest – after years of “offense, baby, offense”, to see a lot more interest in who’s running the defense.

Jitters in the markets

Call it the Amyris (AMRS) effect – after the company that has struggled with the issues more than any other, in its pursuit of world-class scale. Why is it important? For one, poor post-IPO performance by the handful of companies that have made it through the IPO gate, is bound to impact the chances of others to come through later.

The decline in advanced biofuels share values, post-IPO, is a well-told story. But let’s look at it in some depth.



Here, you see the story. Collectively (though at different times) the seven companies that got out in this IPO wave started with a cumulative market cap of just under $5 billion, and quickly rose to a cumulative high-point of just over $7 billion. All good news. But then the rose came off the bloom, and a long slide started last summer, that has brought the collective value to well under $3 billion.

Hence a lot of questions amongst US institutional investors about whether advanced biofuels are ready, despite their impressive developmental record, for the public markets.

Let’s look at it in some depth though, by looking at the four fermentation stocks versus the three that are not fermentation based.



There, we see that the fermentation technologies had about 55 percent of that initial, IPO market cap. Today, they have just 42 percent share. So, there’s a sharper discount on the fermentation stocks than the non-fermentation equities.

One last chart.



Here, we see that, initially, amongst the fermentation stocks, that Solazyme (SZYM) at IPO had about 40 percent of the collective value. Today, that figure has risen to around 56 percent – increasingly, the fate of the sub-sector is hanging on the boys from South San Francisco.

Ask the leaders

There’s a meeting this week – part of the MIT Club’s “Energy & Clean Tech Series” that will be held tomorrow in Menlo Park, CA, that may well see a raftful of tough questions on the subject. On the program tomorrow evening – Amyris CEO John Melo, Solazyme CEO Jonathan Wolfson, Cobalt CEO Bob Mayer and LS9 Chairman Noubar Afeyan. Key intersecting point of those technologies – they’re hot, they’re fermentation-based, and all of them are on the march towards scale. It’s a $45 ticket for non-members – could be one of the hottest tickets this spring.

What about Solazyme and scale? In his Seeking Alpha note, Quon goes on to add, “Solazyme has been running at a commercial scale through contract manufacturers since 2007 reaching a level of 75,000-liter fermentation tanks. The company’s Peoria facility has 128,000-liter tanks. The company’s ramped-up production has thus far been linear across the 4 levels it’s achieved. The company is slated to eventually scale up to a range in the ballpark of 750,000-liter tanks.”

Then, the vital contention, “Most of the technology risk usually occurs at much earlier levels than what Solazyme (SZYM) has already achieved,” Quon wrote.

Is that true, for Solazyme or any fermentation technology?

Broadly put, that’s real – there are a hundred bombs that can sink a technology while still in the lab, only a handful that can plague it moving through that last critical 10X step-up from, say, 75,000 liter fermenters to 750,000.

A year ago last February, we reported an announcement on scale-up from Amyris (AMRS). They indicated that they had completed multiple runs of its fermentation process using its engineered yeast to produce renewable farnesene, in 100,000 and 200,000 liter capacity fermentors. These runs were completed through contract manufacturing operations in North America and Europe. The results of these fermentation runs, including yields, were consistent with previous runs at smaller scale.” The company had pointed towards the use of 600,00 liter fermenters in the future at its Usina São Martinho project.

By December of last year, though, problems with the ramp-up in capacity became highly apparent at Amyris, which struggled to reach its intended throughput volumes.

Why clarify?

Worries about the scalability of fermentation-based technologies are beginning to circulate – a direct contamination of the space, based on the jitter effect created over at Amyris.

A friend of the Digest writes: “I was in Brazil last month and got an earful about that from a very high up there on [Amyris]. If their shiny high grade fermenter was not up to snuff they are really in trouble…having worked in nice university labs and clean room pharmaceuticals they did not know what was awaiting them in the down market dirty world of biofuel. You can’t make biofuels with anything you got to keep that clean.”

There are two polar views one can take of that comment: Panicked alarmism, or a lonely voice in the wilderness leading us back to real expectations. Perhaps, and probably, the truth lies between those extremes.

But, regardless of merit, the comment can be taken as a general one that scrutiny is going to increase on technology risks inherent in the last few scale-up steps for fermentation technologies.

Contamination – that’s our educated guesstimate on what is going wrong at Amyris. The fermenters – or elsewhere in the tangle of pipes and liquids that form an integrated biorefinery – may well be able to start-up, and stay running for a while – but unanticipated critters make an appearance, and gain a foothold. Causing, at the least, yields to come down – in some cases, causing the crash of a system.

It’s a risk that is widely understood with outdoor, “open” systems, such as growing micro algae in ponds, at scale, and at costs that make sense for the fuel markets.

Opportunistic, invasive critters have been around for a long, long time. In macro-scale agriculture, they are called things like weeds or pests – and herbicides like Roundup have been deployed for years to control weed levels. At the micro-level, micro-agriculturists haven on the whole, a lot less experience in the Defense against the Dark Arts.

That’s proving worrisome for investors. It could well be the case that all this is a case of early-stage company shareholder jitters. But it does indicate that companies need to communicate, even more effectively than ever, how they are running their defensive schemes.

For example, in advanced biofuels companies – you see a lot of roles related to scale-up. VP, Manufacturing, VP, Business Development, CTO, and so on. But that’s changing quickly. Who specifically is the master of the Defense against the Dark Arts – and what and how are they doing? That might go a long way to calming investor jitters.

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.

May 07, 2012

Amyris drops the biofuels bomb

Management shake-up en route to execution, profit

Jim Lane
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The hammer drops in Emeryville. Company president Portela, CTO Renninger, general counsel Tompkins out; new CFO, reshuffle and promotions within.

After an 90% stock plunge, Amyris responds. We look at the drama of who’s in and who’s out – but also beyond – to execution and profitable production.

In California, Amyris (AMRS)  announced a major management reshuffle as the company contends with its ambitions for growth, difficulties in ramping up production to meet the goals originally set after its IPO, and a share price that has dropped from a high of $30.78 to yesterday’s $2.83.

Who got the sword?

In the reshuffle announced days prior to the company’s Q1 earnings call on Tuesday, three key executives are out: Mario Portela, President of Global Operations and Chief Operating Officer; Tamara Tompkins, Executive Vice President, General Counsel and Corporate Secretary; and Neil Renninger, Chief Technical Officer. Dr. Renninger will remain as a member of Amyris’s Board of Directors. Amyris CFO Jeryl Hillerman was also replaced this week by Steve Mills in a long-contemplated move.

“We are realigning our management team as we pursue our current production ramp up. We are committed to achieving profitable, predictable operations,” said Amyris CEO John Melo.

New management roles

Peter Boynton will lead business development activities;  Gary Loeb will serve as Amyris General Counsel and Corporate Secretary;  Mark Patel is being promoted to Senior Vice President of Commercial Operations, responsible for leading products strategy and sales growth; Ramesh Raman is being promoted to Senior Vice President of Global Manufacturing, responsible for manufacturing and supply chain; and Christine Ring will lead legal technology strategy and intellectual property.

Continuity in R&D, Science, strategic partnerships, and corporate affairs

Joel Cherry will remain as head of R&D; Joel Velasco will continue his role leading external communications and policy as well as strategic partnerships;  Paulo Diniz will continue to lead Amyris Brasil while expanding his responsibilities in strategic partnerships; and Jack Newman will remain as the Chief Science Officer.

The View from the Street

Raymond James equity analyst Pavel Molchanov, wrote an evocative note on the shake-up.

“Having withdrawn production guidance in February and announced a dilutive ”emergency” equity raise in March, Amyris is in rough shape. The stock’s year-to-date decline of over 70% makes it by far the worst performer in our alt energy coverage universe. In this context comes news that Amyris is reshuffling its executive ranks, with the head of operations, chief technical officer and general counsel leaving the company. Concurrently, Steven Mills becomes the new CFO, though the CFO change had been in the works since last year. CEO John Melo appears to retain the board’s support at this point.

“While management changes (and we suspect layoffs too) are probably inevitable given the company’s current condition, ultimately the solution to the recent scale-up difficulties needs to be a technical/operational one, not just cost-cutting. The stock’s recent meltdown suggests that the market may see bankruptcy as a realistic scenario. While in no way minimizing the challenges faced by the company, we think that there is ample cash on hand to sustain operations into 2013 – but the stock could remain in the penalty box until there are clear signs of progress in commercialization.

The cast changes, the show must go on

It’s a sweeping announcement, right before the earnings call, but there’s little to be gained by focusing on the drama of who’s in and who’s out. Worth pointing out that the dancers now out in front were all promoted out of the Amyris chorus line.

The pressure is on CEO John Melo to articulate – to investors, and as soon as possible – what the specific problems are at the fermenters. If there is a basic flaw in the technology platform, firing the general counsel won’t solve anything. If there’s no basic flaw, then as a public company, Amyris will be expected to resume guidance to Wall Street and meet those forecasts, or John Melo will certainly be the next to mount the guillotine.

It is fair to note that the company, judging from share price, is facing an extinction-level threat in investor confidence based on its scale-up difficulties. Faced with similar circumstances, other boards have prepared whole layers of management for atonement via the hara-kiri. By contrast, the Amyris board has taken a “salvation lies within” approach, blessing a change in the technical team leadership consisting of one promotion and one co-founder exiting a management role but retaining a seat on the board. That takes cojones. Let’s hope their faith proves out.

Melo and the team certainly know all this better than the Digest, and are doubtless going to tackle this task, starting next week with investors via the company’s quarterly earnings call. Expect Melo to put the ‘night of the long knives’ quickly behind the company, and focus the message on products, technology and partners, which remain impressive – and on a streamlined, execution-oriented management team.

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.

May 06, 2012

Clean Energy Stocks Gone With the Wind

Tom Konrad CFA

Unenchanted April

After a great January, the last three months have not been kind to clean energy stocks.  While my model portfolios are still in positive territory (+5.4% and +0.9% for the unhedged and hedged portfolios, respectively), and are above my clean energy benchmark (The Powershares Wilderhill Clean Energy ETF, -3.4%), they have again fallen behind my broader market index, the Russell 2000 (+7.3%.) 

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Gone with the Wind trailer, public domain

Gone With the Wind

April saw the chances of an extension of the federal Production Tax Credit (PTC) for wind diminish significantly when Congress failed to attach it to the payroll tax cut extension.  In an election year, the chances of a stand-alone PTC extension getting through Congress look slim, despite the massive numbers of layoffs expected in the wind industry without an extension.  Even if the PTC is extended next year, the diminished wind industry capacity will be felt for years to come.  It's already being felt by wind stocks, and, I believe, other clean energy stocks are reacting in sympathy.
11 for 12 Apr.png

Stock Notes

Clean Energy Developers

  • The greatest pain was felt among my group of clean energy development companies, most likely because developers are the most direct beneficiaries of clean energy subsidies such as the PTC.  Hardest hit was Finavera Wind Energy (TSXV:FVR,PINK:FNVRF), which lost 43%.  On April 30, Finavera fell over a third, although the CEO confirmed that there had been no change in the company's prospects.  Perhaps some large investor feared some bad news would come out in Finavera's annual report on May 1, but I found little of note which had not already been released.  It's worth pointing out that Finavera's prospects should not be hurt and might even be helped by a failed PTC extension, since Finavera has no US projects, and the companies projects in Canada might benefit from cheaper wind equipment which might have been used in the United States had the PTC been extended.
  • Western Wind Energy (TSXV:WND, PINK:WNDEF) also has little exposure to the lack of a PTC extension, since most of this company's value is in wind projects which were commissioned before the PTC expiration, and a solar project the company is developing in Puerto Rico.  Yet Western Wind has also been experiencing a sell-off on no news, although part of this may be due to an unsubstantiated smear campaign on blog comment sections and bulletin boards.  One (also unsubstantiated) rumor has it that a group of Toronto hedge funds are trying to force a quick sale far below the company's current valuation, perhaps to Algonquin Power (TSX: AQN, PINK:AQUNF) which made a low-ball offer last October.
  • Alterra Power (TSX:AXY,PINK:MGMXF) also declined significantly on no news.  Alterra also has little exposure to the US wind market, and operates mostly internationally and has more of a focus on run-of-river hydropower and geothermal.

Other News of Note

  • Bicycle manufacturer Accell Group (ACCEL.AS) announced a successful conclusion to its talks to buy out Raliegh.  
  • Waste Management (WM) (along with several competitors) announced disappointing first quarter results.  At the time I wrote that the subsequent sell off might lead to another attractive buying opportunity, partly because I liked the reasons earnings fell short. WM has since declined from slightly over $36 to slightly under $34, and I have placed a limit order to add to my position at a little below the current price.  If the decline continues, I intend to continue to add to my position.  I like WM in the long term for the company's sustainability initiatives and healthy (4.2%) and well-protected dividend.
  • Last Thursday, Lime Energy (NASD:LIME) announced a contract with Central Hudson (which happens to be my electric utility) to handle the utility's direct install energy efficiency program.  I wrote that this validated Lime's strategy, but the stock has yet to get any love from investors as a consequence.

Conclusion

Investor disappointment with the lack of political support of clean energy seems to be translating into a broader disappointment with clean energy stocks in general.  Values continue to get better in those clean energy stocks which are not dependent on subsidies.  I think cautious buying is in order, but I also think it likely that the political climate for clean energy will continue to worsen this year, so it is probably best to keep the majority of your funds in cash while waiting for more enchanting values to blow our way.

DISCLOSURE: Long WFIFF, LIME, RKWBF, WM, VE, ACCEL, NFYEF, FNVRF, WNDEF, MGMXF, AQUNF, short IWM and SPY.

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.

Top Questions to Ask a Venture Capitalist in the First Pitch

David Gold

Katherine Connors ceremonial pitch 8
Katherine Connors, Miss Iowa USA 2010 throws the ceremonial first pitch.  Source: Cathy T, via Wikimedia Commons
You landed your first pitch at a venture capitalist’s (VC) office. You’ve practiced the pitch and have your laptop fired up to deliver. So, like a sprinter at the sound of the gunshot, you dive in hard and heavy to make sure you get through the deck. After all, you might only have one chance to excite them with your company’s story. Inevitably, with all the questions the VC throws at you, time expires before you even think about asking questions of your audience.

             Don’t let that happen to you.  The more you learn about your prospective investor and where you stand with them, the more productive your meeting will be.  Start off by asking questions. You may be very surprised at how many VCs are willing to spend time answering them. And be sure to watch the clock and leave time at the end to ask key closing questions. Presuming you’ve already asked the questions from my last post, Top Questions to Ask a Venture Capitalist in the First Five Minutes, here are some of the questions you should consider asking as part of the pitch session.

Question to ask before the pitch:

Tell me about yourself and how you got into venture capital?

             If you have done your homework, you should already know something about the attendees in your meeting. Check the firm’s website, LinkedIn page and other sources to learn more about them. If you already have the information, why ask this question? First, asking this question helps to create touch points with your audience. Maybe you went to the same university, had the same major, worked a similar job in the past or know someone who may have worked with them. You may have already identified the touch points from your research, so asking this question gives you the opportunity to talk about those connections. Second, the more you know about what motivates your audience, how they think and what makes them tick, the better you can tailor your story to include things that will resonate with them most.

On what percent of your investments were you the lead investor?

            The journey of raising venture capital has a required starting point: finding a lead investor. Some funds lead many investments, while others are designed to be followers. That doesn’t mean that the meeting is a waste of time if the fund usually follows. Followers can be valuable, but you are looking for different things out of them. An interested follower can be leveraged to help you find or close your lead investor. A lead investor can deliver you a term sheet.

How often do you co-invest with others and how many different funds have you syndicated with in the past?

             In forming your syndicate of potential investors, it is important to understand which investors may prefer to invest alone, and which would want co-investors. The number of funds that a firm has co-invested with is an indicator of how well connected they are in the venture capital world.  A well-connected firm is usually more helpful  in bringing in additional co-investors. This is usually true no matter if  they are a lead investor or a follower.

Questions to ask after the pitch:

If I call the CEOs of your portfolio companies, what will they tell me about your fund?

             Raising investment capital is like marriage without the option of divorce. It is critically important to understand what it would be like to work with your prospective investor.. Good investors respect entrepreneurs that are as concerned about that relationship as they are about the money coming into the bank.

Where do you see the strengths and weaknesses in our management team?

             In a venture investment, little is more important than discussions about the roles of the management team. Would you really want to take investment capital from a firm that has a starkly different view of your management team than you? The earlier you start to understand your alignment on this issue the better.

How high is your interest in our company compared to your other investment opportunities?

             Entrepreneurs often make the classic mistake of presuming that funding will follow once they convince the venture fund that their business, team, market, technology and plan are exciting. But venture capital is a relative sport. No firm can do unlimited investments during any given time frame. So, which companies get selected for investment is relative to the other deals in the fund’s pipeline. It is better to know in a first pitch that the venture’s interest is tepid than to falsely believe there is high interest. The key measuring stick of their interest is understanding how their attraction to your company compares to others.

What are the key things you need to be convinced of to commit to visiting us?

             One of the classic tenants of a good sales process is “always be closing.” Yet, so many entrepreneurs deliver their first pitch and leave the meeting with enormous ambiguity about whether there will be any next steps. You can be certain that no fund is going to get to a term sheet without visiting your company. So, this is a key milestone you need to focus on achieving after the first pitch. Venture capitalists can suck you dry with information requests. Understanding what hurdles you need to get through in order to get them to commit to such a visit provides focus for the next steps you need to take.

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.

May 05, 2012

EV Dreams and Industrial Metal Nightmares

John Petersen

The hardest part of blogging about the energy storage and vehicle electrification sectors is coping with ideologues who are so enthralled with their myopic EV dreams that they can't see the industrial metal nightmares that make those dreams impossible at relevant scale in the real world. They whimper, whine and complain about the obscene prices charged by diabolical oil companies and gush over how safe, quiet, clean and secure life will be when plug-in cars with immense battery packs are common as wildflowers in an alpine meadow and getting cheaper every day.

The fly in their soothing balm for the ills of humanity is that electric vehicles and the batteries to power them require immense amounts of nonferrous industrial metals for electric motors, batteries and other essential components.

To begin with, the prices of industrial metals are more volatile than oil prices and they usually increase faster. The following graph offers a seven-year comparison of market prices for Brent Crude and a basket of industrial metals represented by the Dow Jones UBS Industrial Metals Index (^DJUBSIN).

5.5.12 Crude-Metals.png

Nothing in that graph leads me to believe oil prices and industrial metals prices will decouple in the foreseeable future and make dreams of significantly cheaper EVs possible. Technology can do marvelous things with electronic devices made from bits of silicon and plastic. It has little or no ability to improve the efficiency of electric drive components or reduce the cost of large quantities of industrial metals used to make those components. There's always room to nibble around the edges, but electric motors and batteries have been around for a long time and they're not going to get much better.

Simply stated, the dream of falling EV prices is impossible because the underlying technologies require massive inputs of industrial metals.

To make matters worse, global production of energy resources is two orders of magnitude greater than global production of industrial metals. The following table is derived from published industry data and summarizes annual global production of energy resources on both a gross and a per capita basis.


Production
Per Capita

(Metric tons)
(Kilograms)
Coal 7,229,000,000
1,032.71
Oil 4,866,000,000
695.14
Natural Gas 1,880,000,000
268.57
Uranium 42,700
0.01
   All energy resources 13,975,042,700
1,996.43

The next table is derived from statistics published by the USGS and summarizes global production of iron, steel and all major industrial metals on both a gross and a per capita basis.


Production
Per Capita

(Metric tons)
(Kilograms)
Iron & Steel 1,500,000,000
214.29




Aluminum 44,100,000
6.30
Chromium 24,000,000
3.43
Copper 16,100,000
2.30
Manganese 14,000,000
2.00
Zinc 12,400,000
1.77
Titanium 6,700,000
0.96
Magnesium 5,900,000
0.84
Lead 4,500,000
0.64
Nickel 1,800,000
0.26
Bromine 460,000
0.07
Tin 253,000
0.04
Molybdenum 250,000
0.04
Antimony 169,000
0.02
Rare Earths 130,000
0.02
Cobalt 98,000
0.01
Tungsten 72,000
0.01
Niobium 63,000
0.01
Vanadium 60,000
0.01
Arsenic 52,000
0.01
Lithium 34,000
0.00
Silver 23,800
0.00
Cadmium 21,500
0.00
Bismuth 8,500
0.00
Gold 2,700
0.00
Mercury 1,930
0.00
Graphite 925
0.00
Platinum Group 399
0.00
Beryllium 240
0.00
   All nonferrous metals 131,200,994
18.74

The ratios are simple if you forgive a little rounding. For every 100 pounds of energy resources, our planet can produce ten pounds of iron and steel and one pound of nonferrous industrial metals. If you'd rather tighten the focus to oil and the specific industrial metals highlighted in red that are essential for electric drive components, the ratio works out to eleven ounces of industrial metals for every hundred pounds of oil.

The numbers simply can't work. When demand for a particular metal reaches a tipping point where it exceeds supply, the outcome is always the same; a price spike that lasts until supply and demand are brought back into balance. We’re already going through the first modern example with rare earth metals. Their prices increased by more than 1000% over the last couple years and the market is responding by developing new mines that will hopefully bring supply and demand into balance at a higher metal price over the next few years. Until balance is restored, metals that were relatively cheap and available before the inflection point will be difficult to obtain and prohibitively expensive.

All of the metals produced last year were used to make the necessities and luxuries of life for the planet's seven billion inhabitants. There is no slop or surplus in the industrial metals supply chain and while production of some metals can be increased with massive investments in new mines and production infrastructure, the required level of new investment can only increase price pressures and make metals that are very expensive today even more expensive tomorrow. There is no way to insure that incremental metal production will be dedicated to a particular use and there are plenty of competitive uses.

Just last week a group of technology titans including Google executives Larry Page and Eric Schmidt announced the launch of Planetary Resources, a venture that hopes to mine asteroids for industrial metals. While I can't comment on the business merits of their new venture, the fact that these men are investing their own money in off-planet exploration for industrial metals that the earth can't produce in sufficient quantities speaks volumes.

The bizarre theory of electric drive as packaged by EVangelicals and their eager commercial accomplices at Tesla Motors (TSLA), Nissan Motors (NSANF.PK), General Motors (GM) and others is that humanity can increase its consumption of scarce industrial metals including copper, manganese, nickel, rare earths, cobalt and lithium for the sole purpose of giving EV owners the dubious luxury of replacing energy from oil with energy from coal, uranium and natural gas. The idea that all natural resources are worth conserving never even enters the picture.

EVs cannot change global production of energy resources or the emissions from using those resources. Since the planet only has one atmosphere, the idea that moving emissions from Point A to Point B is somehow "virtuous and green" has all the intellectual integrity of a no peeing zone in a swimming pool.

The world currently produces enough industrial metals to make a few electric vehicles for eco-royalty who don't care whether their choices make economic sense. It cannot produce enough industrial metals to make affordable electric vehicles, or for that matter make enough electric vehicles to put even a tiny dent in global oil consumption.

No matter how the ideologues and their commercial accomplices twist, distort and spin the facts, electric vehicles cannot make a society or the world a safer, quieter, cleaner or more secure place to live. They're selling snake oil promises based on the gullibility of politicians and the general public and the absurd proposition that humanity can waste materials that are a hundred times scarcer than the energy resources ideologues want to replace.

On a micro-scale, electric vehicles and plug-in hybrids are feel-good eco-bling for the emotionally committed and the mathematically challenged. On a macro-scale they use more energy, emit more CO2 and are more expensive than established HEV technology. They're unconscionable waste and pollution masquerading as conservation.

I'm a lawyer, a battery guy and a policy geek. I know that six billion people on our planet want to earn a small piece of the lifestyle one billion of us have and take for granted. I also know that as a result of the information technology revolution, about half of the six billion have access to electronic data and understand for the first time in history that there is more to life than mere subsistence. Even if we assume that they'll only become consumers at 5% to 10% of purchasing power parity, the increased pressure on water, food, energy and every commodity you can imagine will be immense beyond reckoning. The big challenge will be creating enough room at the table so that we can avoid the unthinkable consequences of inaction.

I like hybrid vehicle technology because it minimizes waste of both gasoline and other natural resources. I'd like it even more if it were tied to a compressed natural gas fuel system that would eliminate dependence on imported oil, but that's a different discussion. I'm also a big fan of micro- and mild-hybrid vehicles that use less robust electric motors and simpler batteries to reduce waste for the masses that can't afford to upgrade to an HEV. I'm deeply offended by P.T. Barnum class hucksters that use the false promise of electric vehicles to create bloated market capitalizations and lead investors down a primrose path that's certain to end in massive losses for the gullible.

Disclosure: None.

May 04, 2012

The Week In Cleantech - Orion, Great Lakes, Solazyme, Gevo, Lime, Quanta, and MasTec:May 5, 2012

Jeff Siegel and Tom Konrad

April 30: Orion Energy Systems (OESX) Triples Stock Buyback

TK:
  • Sometimes microcap stocks fall just because no one is paying attention.  The directors of Orion Energy Systems (AMEX:OESX) clearly think their company is one such.

    Orion is an energy management company with a focus on high efficiency lighting systems and alternative energy system integration in commercial buildings.  The company is profitable, with a trailing Price/Earnings ratio of 18, a Price/Sales ratio of 0.5, and sold at less than half of book value ($4.05) when the market closed on Friday at $1.93.

    The energy management industry has seen increasing competition and eroding margins recently, which accounts for Orion’s recent drop in earnings, and in turn partly accounts for the company’s rock bottom share price.

    But company insiders clearly feel the sell-of has gone too far.  In February, two directors  were buying Orion stock in the $2.60 to $2.70 price range.

    Now, with no net debt, and net cash of $11M ($0.48/share), the board has tripled their previously announced share buyback program to $7.5M.  With analysts expecting continued profits in a range of 3 to 5 cents a share in 2012, and 7 to 16 cents in 2013, and long term growth of 35% per year, the company looks very cheap (relative to book value) for a growth stock.

    A cheap green stock with substantial growth potential in an industry which is economic without subsidies?

    Sounds like a good deal to me.

May 1: Great Lakes Dredge & Dock Scraping Bottom

TK: gldd dredgeI follow Great Lakes Dredge and Dock (NASD:GLDD) because it’s involved in many industries which will gain from Peak Oil and Global Warming:

  • Beach nourishment and levy building will gain from more flooding and sea level rise
  • Harbor and dock work will gain as more freight shifts to more fuel-efficient water based transport.
  • Offshore wind power requires extensive marine construction.

Today, the company reported first quarter income of 2 cents, compared to analysts’ expectations of 10 cents.  That should cause the stock (which has been rising strongly since I bought it last year) to sell off sharply over the next few days.

I sold some at the open today, but plan to buy back in to probably a bigger position after the market digests the bad news.  I like this one long term, and the miss was largely-attributable to one-off factors.  In addition, GLDD’s backlog built up significantly this quarter, which is good for the long term outlook.

That said, the stock is not exactly cheap compared to expected earnings of $0.47 cents for 2012, especially since those are likely to be revised down to $0.39 given the $0.08 earnings miss.  Trailing twelve month earnings are $0.26.  At $7.35, that’s a P/E of 19 for 2012, and a trailing P/E of 26, with long term growth expected at about 10%.

UPDATE: GLDD traded up to $7.52 intra-day before heading down around 2pm and closing at $6.91.  I took the opportunity to unload the balance of my holdings at $7.40.

Also: Assurant launches insurance for solar project developers.

May 2: Solazyme (NASDAQ:SZYM) Pops on Deal with Dow

JS:

Solazyme, Inc. (NASDAQ:SZYM) announced this morning that it and the Dow Chemical Company (NYSE:DOW) have entered into an offtake agreement that allows Dow to purchase all of Solazyme's non-vegetable microbe-based oils for use in dielectric fluid applications. The length of this deal runs through 2015.

Solazyme and Dow have also entered into a multi-year extension of a current joint development deal that allows Dow to provide additional development work on Solazyme's tailored algal oils. Solazyme is up about 5% in premarket.

As I've mentioned in the past, I'm not really a fan of biofuels – both as an investment and as a serious contributor to our energy and climate problems. It's definitely one tool in the shed, but it's not going to give us the most bang for our buck. That being said, Solazyme is one of the few biofuel players that I believe will still be around three years from now. It's partnership with Chevron and its ability to generate a few bucks in the food and cosmetics space gives it a little more flexibility than most of its competitors.

Last month, Solazyme hit my initial price target of $16. At which time, most who held out for that target, took their winnings and moved on. Right now, the stock is trading around $11.35. Although today's announcement could offer some support, I'm hesitant about re-visiting this one at these levels.

TK:

May 3: Has the Gevo (GEVO) hour come?

TK:

  • Gevo (GEVO) reports 1Q Earnings, transitions ethanol plants to isobutanol.  More here.
  • Lime Energy (LIME) strategy validated by utility contract win.  More here.

May 4: 2012 looks to be the Year of the Strong Grid

TK: Quanta Services (PWR), MasTec (MTZ) beat expectations this week.  Other Strong Grid stocks may benefit.

Disclosures:

  • TK - Long MXWL, LIME, MTZ, OESX.
  • JS - No positions.

Jeff Siegel is Editor of Energy and Capital, where his notes were first published.
Tom Konrad Ph.D. CFA is Editor of AltEnergyStocks.com, and a blogger on Forbes.com, where his notes were first published.

May 03, 2012

Big Solar Out; Distributed Solar In: Brightsource & Solar City IPOs

Jennifer Runyon

On the heels of Brightsource Energy's announcement last month that it was canceling its plans to go public, SolarCity on Monday announced that it plans to conduct a registered initial public offering (IPO) of its common stock.

The IPO will begin after the Securities and Exchange Commission completes the review process that SolarCity initiated on April 26. No further information about the IPO — such as when and at what price shares will be available — is available at this time.

SolarCity has been in the residential solar PV leasing space since 2006 and expanded into the energy efficiency market soon after that. The company installs, operates, monitors and maintains PV and energy efficiency systems for customers in 15 states with planned expansion into many more states across the U.S. Customers receive a discounted utility bill that reflects the costs savings they have achieved through the energy efficiency improvements or PV systems installed.

Brightsource, which develops large-scale concentrating solar power plants, canceled its IPO on April 12 due to “adverse market conditions.” CSP developers have struggled with costs due to very low PV panel prices. But those very same low PV panel prices have increased demand for solar PV, which is a boon for leasing companies like SolarCity.

Jennifer Runyon is managing editor of RenewableEnergyWorld.com and Renewable Energy World North America magazine.

May 02, 2012

Abengoa Buys in to Dyadic's Technology: Should Investors Buy the Stock?

Dyadic LogoDyadic International's (PINK:DYAI) technology looks like the real deal.  Does that make Dyadic a good investment?

Dyadic International (PINK:DYAI) announced yesterday that Abengoa (MCE:ABG, PINK:ABGOY) has expanded its exclusive license agreement for a payment of $5.5 million.

History

I last wrote about Dyadic back in October 2009, when I called it "A Stock to Avoid," based on the facts that the company
  • was not then publishing financial statements,
  • was unprofitable and had insufficient reserves when it had last published financials,
  • had had a dispute with the SEC over security law violations, and
  • I did not like their business plan, as I've long been skeptical about the cost-effectiveness of cellulosic biofuels.
I caught some flack from company management over that. It's funny, companies never complain when I say something nice, even if I'm wrong.  In this case, the stock is down significantly since I said to stay away, but not more than other cellulosic players, so you could say I was right to say stay away from cellulosic biofuels in general, but not in singling out Dyadic.

The Agreement

I have not really looked at the stock since then, but thought it might be interesting to review, given the announcement.

 abengo
bioenrgiaThe expansion of the Abengoa agreement is a validation for Dyadic's technology. The expanded license agreement allows Abengoa to "use Dyadic’s C1 platform technology to develop, manufacture and sell enzymes for use in second generation biorefining processes to convert biomass into sugars for the production of fuels, chemicals and/or power" worldwide. The previous agreement was limited to certain territories. In addition to the $5.5 million payment for the expansion,
Dyadic is entitled to receive royalties on the commercial production and use by Abengoa, its affiliates and third party sublicensees, as well as royalty fees on the sale of products by Abengoa and its affiliates. Abengoa will have the right to work with third party sublicensees to further develop C1 enzymes.
Codexis (NASD:CDXS) also has a non-exclusive licensed agreement with Dyadic to use the C1 platform in a number of areas, although that is unlikely to lead to significant future revenues, as it was structured as a one-time payment.

According to Jeff Cianci, CEO and CFO of greentech-focused asset manager Green Science Partners, the announcement is big for Dyadic.  "Abengoa really wants to roll out a lot of [cellulosic ethanol] plants.  This should validate the technology for others."

Financial Strength

While the technology validation is great, the $5.5 million will also come in very handy.

Dyadic had revenues of $10.25M, and lost $4.74 million in 2011. With only $3.7M cash on hand at the end of 2011, the new cash should allow Dyadic the ability to operate for another year without raising funds from the market. They had raised $3M in convertible debt in 2011, and compensate management with millions of dollars worth of options at exercise prices well below the current share price. The associated dilution is probably the main reason for the stock price decline over the last few years.

Dyadic will release first quarter results and hold a conference call on May 10th. Given the payment from Abengoa, I would expect Dyadic to report something on the order of $14 million in current assets and a little over $4 million in current liabilities, if recent revenue and expense trends continue.

I don't think that will be enough to get them to profitability, but without the immediate need to raise funds, they may be able to do so without significant dilution, and it may not be necessary if the Abengoa agreement gives other players the confidence to adopt Dyadic's technology.

Governance

The Litigation, Claims and Assessments section of the annual report is quite long, and includes disputes with former auditors which the company lost in arbitration. The auditor's report contains no opinion on the company's internal controls. As a pink sheet company, Dyadic is not required to have such controls, but without them, I'd want to have a lot of confidence in management's honesty before I considered investing.  The company's history of SEC rule violations and disputes with auditors may not be relevant, however: There has been a management change since the last time I covered the company.  One of the legal disputes is with the former CEO. 

Conclusion

In 2009, I thought Dyadic was toxic. Although much is improved, both in the company's reporting, and in validation of the technology.  Cellulosic technology is also making headway, and I'm less pessimistic about it than I was three years ago.  The company's balance sheet is not strong, but the $5.5 million from Abengoa will do a lot to remedy that.

Dyadic's technology in particular receives high praise from industry insiders.  Jim Lane, Editor of Biofuels Digest, calls Dyadic "a company with a compelling technology platform whose time has come."  Dyadic has interest from a reputable and well funded player in the biofuels industry, and may achieve outstanding revenue growth and earnings if commercialization is successful.

However, I don't expect cellulosic biofuels will ever be a high-margin industry.  Just like first generation biofuels before them, I expect cellulosic biofuels to create their own commodity squeeze once they are successfully commercialized.  Dyadic's technology licensing model might still be profitable in such an environment.  Like most companies in the industry, they talk about applying their platform to produce higher value products, such as chemicals and pharmaceuticals. 

Although technology enthusiasts may disagree, I see no reason to rush in.  Picking a winning cellulosic technology always seemed like a chancy proposition to me, especially when there are simpler ways to get exposure to the potential for cellulosic biofuels.  I still prefer to invest in the companies which own the feedstock, particularly Municipal Solid Waste.  Waste Management (WM) is once again beginning to look attractive after a price decline on a disappointing first quarter.

Disclosure: Long WM

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.

May 01, 2012

The Cleantech IPO Window – Closed for business?

Jim Lane

IPOs are struggling, all across cleantech – and the biofuels IPO queue is long and tiring.kiwano
Why Kiwano countries may be in your future. And, what is a Kiwano country, anyway?

So, amidst all the legislative and policy hoopla last week for advanced biofuels, including winning funding for an energy title in the US Senate’s Farm Bill and the release of the US Bioeconomy strategy, Enerkem’s IPO skidded to a halt and was withdrawn.

Sure, it was very early stage – their first commercial wasn’t complete, the company wasn’t producing much in the way of revenue, profits are a long way off. They were producing methanol, not yet ethanol, at demonstration scale.

But the MSW-to-ethanol path was so attractive, and with partners like the DOE, the state of Mississippi, and the Alberta provincial government, and strategic partners and investors like Waste Management, Enerkem was widely considered one of the gems in the IPO queue.

Tough month for clean tech IPOs.

It was a really tough month for clean tech in the IPO market. A solar thermal technology, BrightSource, pulled out on April 11th. Luca Technologies, with its natural gas harnessing microbe, pulled out April 23rd after earlier revising its target downward from $125M to $100M. Only Enphase (ENPH), a solar microinvester technology, went ahead and raised $51 million in an offering it has filed hooping for $100 million.

So, four technologies from different sub-sectors of clean tech – all falling well short of goal, three of the four pulling out and the fourth raising half of its target.

What went wrong for Enerkem?

According to the Digest’s sources, the Enerkem offering had three key targets – the retail sectors, the Canadian institutional investors and the US institutional investors, with the last being the most important. Our information is that the first two sectors came forward generally in line with tempered expectations, but that the US institutions, by and large, shut the door on the clean tech IPOs.

Concerns? Well, the usual concerns about technologies that are essentially pre-revenue and burning cash. Added to that, a poor elongated post-IPO performance by a number of heavily-promoted and subscribed offers that came out earlier. And, what perhaps was the coup de grace, rampant policy uncertainty in the key US market over supports for the emerging clean tech markets such as renewable power and fuels.

Enerkem’s methanol to ethanol step

Enerkem, of course, has the added challenge of showing that its methanol-to-ethanol pathway can work, feasibly and at scale. It’s real chemistry – processes have been known for a long time – but they have a novel pathway that was supposed to open up potential for bringing down the costs to work for making fuels, which are sold for a lot less than chemicals, on the whole.

Back in 2009, a patent app from the Enerkem team showed the path they may be taking. The patent summary reads:

A process for converting methanol to ethanol which comprises reacting methanol and carbon monoxide in the presence of a catalyst to produce a product comprising at least 25 mole % methyl acetate and, in some instances, acetic acid. The acetic acid then is reacted with at least one alcohol to produce at least one acetate selected from methyl acetate, ethyl acetate, and butyl acetate. The at least one acetate (if produced) and the methyl acetate produced as a result of reacting methanol and carbon monoxide then are hydrogenated to produce ethanol. Syngas may be produced from biomass to produce all or a portion of the methanol, hydrogen, and carbon monoxide requirements for the process.

In other words, a path is there, but its somewhat more complicated than “please pass the catalyst, Mom.”

Is the window closed? Shut tight?

Elsewhere in the IPO queue, companies backed by Waste Management (WM) with catalytic processes, like Fulcrum Bioenergy — or Mascoma, backed by Valero and a host of prominent VCs — might well be quaking. There’s not a huge amount of added wind in their sails, compared to Enerkem. Yes, Fulcrum produces ethanol without the methanol step. Yep, Mascoma is a fermentation technology with a lot of demonstration hours to support its economics.

But those lousy post-IPO experiences with the likes of Amyris (AMRS) and Codexis (CDXS) are haunting the market, and US policy uncertainty will now not be resolved until, at least, the Presidential elections in November. The kind of confidence-inducing investment that might push these technologies over the line would be a strategic investment that probably would finish off the first-commercial financing anyway, making it possible for the companies to come back to the market after they were revenue-producing and at-scale proven, if not yet cash positive.

Post-IPO performance for advanced biofuels

Here’s the chart of the big six advanced biofuels IPOs.

IPO preformace

Overall, pretty dismal, but some trends to note. The big disasters are in the class of 2010 – Amyris, which withdrew guidance, and Codexis, which has changed out CFO and CEO in recent months. After repairing their houses, they may well zoom back.

Class of 2011? Well, nothing pretty, but each of Solzyme (SZYM), Gevo (GEVO) and KiOR (KIOR)can address the risks inherent in their technologies through completing first commercial plants over the next 18 months. Gevo and KiOR, we’ll likely have the snarers before year-end, Solazyme probably in 2013.

Class of 2012? Overall, not doing all that badly. We’ll know more after the insider lock-up period expires – can the companies stimulate enough aftermarket demand to accommodate all the insiders who want or need to leave.

Meanwhile, Ceres’ (CERE) performance has been OK enough that companies like seed-oriented SG Biofuels and Mendel Biotechnologies, not to mention Chromatin, must have just a little hope left in them that the IPO windows remains open for them later in the year and when they have advanced their stories and are market-ready.

Next steps for advanced biofuels

For sure, back to the strategics for help. Whether it is more capital from current investors like Valero or Waste Management, or added government funding (unlikely in these budget-constrained times) adding in help from other downstream investors who see the potential for the fuels in their own markets, that’ll be a question for the companies to explore over the next weeks and months.

Best bet – downstream markets with big ethanol targets, lots of waste, no grain to spare, organized capital, policy certainty, and oil companies that obey the policy center rather than spending as fast as they can to topple the government.

The Kiwano - red on the outside, green on the inside.Kiwano inside

Kiwano countries – red on the outside, green on the inside

Where to look in these policy uncertain times? Think kiwano countries. Ah, the African horned melon, the kiwano or horned cucumber. Red and prickly on the outside, but green on the inside.

Our post-IPO market simplified course in Mandarin
Hello
nǐhǎo

Where is a taxi?
chūzūchē zài Nǎlǐ

I like China very much
wǒ hěn xǐhuan Zhōngguó

Do you know an investor?
nǐ zhīdào yígè tóuzīzhě ma

Red on the outside: Looking for state interventionalists, or even agrarian socialism, where you have a capital and policy in lockstep formation. Green on the inside -  clean tech focused and replete with cash.

Not a bad idea to look at countries where commodities and agriculture loom larger in their imaginations than in the industrial democracies in North America and the EU, where hardly an investor out there has stepped on a farm since grade school field trips.

Sovereign wealth-backed funds in those districts? A likely next step for the big bucks, for those ventures whose existing investors are fully tapped and needs large pools of liquidity.

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.


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