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June 30, 2012

Energy Storage: Q-2 2012 Review and Analysis

John Petersen

While I jumped the gun last week and published my third quarter outlook for the energy storage and vehicle electrification sectors early, it's worthwhile to take a look back and see how my tracking list of companies performed over the last quarter and examine the past to see what the tea leaves in the bottom of the cup portend for the coming quarter. So without further delay I'll present my price performance table for the second quarter that ended on Friday.

6.30.12 Price Table.png

Q-2 was a dreadful quarter for Maxwell Technologies (MXWL) and ZBB Energy (ZBB) as their prices fell by 64% and 41% respectively. While the declines were precipitous, they were also one-off events and I believe both companies are trading at very attractive prices for investors who want to position their portfolios for the mean reversion upswing that usually follows fast on the heels of a painful downturn. My long-term tracking charts for both companies show distinct bottoms forming and I believe they're both likely to trend up for the rest of the year.

It was also an ugly quarter for UQM Technologies (UQM), Valence Technology (VLNC) and Tesla Motors (TSLA). While I believe UQM is attractively priced, I'm convinced that Valence and Tesla are only seeing the beginning of storms that are likely to get more severe through the summer and fall months.

The following table tracks several key financial metrics for the companies I follow. Today I'll try to explain why I track this data and show how I use peer group comparisons to identify stocks that are either overvalued or undervalued. If you want to understand the balance of this article, you should pay close attention to the table instead of simply blowing past the data and focusing on the words.

6.30.12 Metrics Table.png

The first metric I consider when analyzing any company is working capital adequacy. I see development stage companies that don't have at least twelve months of working capital as problem children because as sure as the sun will rise tomorrow, they'll be going back to the market for more money within a few months. The two companies with the worst working capital positions are A123 Systems (AONE) and Tesla. Both had less than six months of working capital at March 31st, even after adjusting A123's numbers for a recent $50 million toxic debt offering, and both will look truly dismal when their June financial statements are released in early August. Wunderlich Securities recently cut its price target on A123 to $0.50 and I think they're being generous. Absent a major turnaround, I expect A123 to follow the path blazed by Solyndra, Beacon Power and Ener1. While Tesla has a couple more financing rounds left in its bag of tricks, I don't expect the terms to be particularly generous to existing stockholders because the execution risks are so massive and so immediate.

The second financial statement metric I key on when trying to distinguish overvalued from undervalued is the difference between a company's market capitalization and its book value. That number is a good proxy for the value the market puts on a company's technology, customer base and other intangibles that don't show up on the balance sheet. When the market premium is a low or negative number, it indicates either opportunity or risk. When market premium is an objectively high number, it's a sign of extreme price risk – much like a robotic voice screaming "Danger Will Robinson, Danger!"

Turning to the table, A123 is trading at a modest discount to book value that doesn't fully reflect the risks it will face over the next six months as it tries to recover from a simple calibration error that gave rise to roughly $70 million in warranty costs and inventory write-offs. A123's cash needs will be huge and the best they could do in their last financing round is a death spiral note that's payable bi-monthly and convertible at 85% of market. Possible future product offerings in the micro-hybrid and aviation markets aren't even interesting because neither is soon enough or large enough to materially improve A123's operating results over the short-term.

Next on the list is Valance technology, which has had a deficit in its stockholders' equity for years. A bad capital structure has finally caught up with Valence and it will probably lose its Nasdaq listing sometime in July. Valence's LiFePO4 battery technology is proprietary, but it's not all that different from A123's proprietary LiFePO4 battery technology. With both companies needing major equity infusions, I see more risk in Valence than I do in A123 because the market values its technology, customer base and other intangible assets at a $167 million premium to A123. Frankly I just don't see a good reason for the discrepancy.

The only company in the table with an obviously low market premium is Exide Technologies (XIDE) which trades at a 35% discount to book value because the market has grown weary of exaggerated losses flowing from a multi-year business restructuring that's finally coming to an end. Once the bleeding stops, I expect Exide to perform very well.

On the extreme bleeding edge of the market premium spectrum we have Tesla which trades at a silly level of 21.4 times book value while every other company I follow trades at three times book or less. That valuation excess is solely attributable to the Hype Cycle, which seems to be running its course. Over the last two years Tesla has been driven higher and higher as the delivery date for its first Model S cars drew nigh. The long anticipated event finally happened a week ago Friday and the Model S drew spectacular reviews from the automotive press. Despite the good news, the price fell by 7% last week.

The reason is simple. The market expected the deliveries to go off without a hitch and it expected rave reviews. So there was no "good" left in that news. Now, however, the business dynamic has changed. Instead of sounding like a politician and focusing on how good it's going to be, Tesla will have to begin dealing with day-to-day business realities like actual reservation conversion rates, actual production problems and actual manufacturing cost overrruns. While I suppose Tesla could be different from every new manufacturer in the history of business, I see very little in the way of unexpected good news that could lift its stock price while Tesla's business of making electric cars is entering a target rich environment for sequential disappointments that could crush its stock price. This is not a favorable risk reward dynamic for investors who care about their portfolio value.

The thing I like best about the market premium metric is that it lets an investor assemble a hierarchy of opportunity to compare the different companies in a sector. The following table is a simple example that excludes several outliers and shows market premium as an absolute number, and as a relative number compared to book value, my "BS to Book ratio."

6.30.12 Premium Table.png

I'm not a fan of electric cars because the entire sector has been mercilessly over-hyped while the real economic costs and illusory environmental and national security benefits are just now coming to light. If I did want to make an EV investment that had a good chance of significant appreciation instead of an outsized risk of loss, I'd pick UQM and Kandi Technologies (KNDI) over Tesla. Kandi is profitably selling low cost transportation for the masses in China, a country that's striving to raise living standards for all of its people. Kandi has a healthy working capital balance and a low BS to Book ratio. UQM is still reporting modest losses, but its balance sheet is strong and its BS to Book ratio is one of the lowest in my tracking group. The risk-reward dynamic for both companies is quite favorable because the potential for additional price deterioration is modest while the potential for future price appreciation is substantial. In other words, they're both polar opposites of Tesla.

The same kind of analysis holds in the middle range where Axion Power (AXPW.OB), ZBB, Active Power (ACPW) and Maxwell carry market premiums that range from $14.3 million to $72 million and have BS to Book ratios of 2.0 or less. A blog like this one is not a good place to  slice and dice the respective technical strengths of four companies that are focused on different products that have different applications that don't really compete with each other. But all four of them are one or two solid announcements away from market premiums in the $200 to $400 million range which A123 and Maxwell both carried at some point in the last twelve months.

When you're betting on trees to grow, you don't pick the tallest one in the forest because it's the one most likely to get struck by lightning. You don't pick the diseased trees because of their high mortality risks. Instead you pick healthy young trees that have modest mortality risks but are poised to enter a period of sustained growth. For my money all four of these mid-range companies have that kind of significant growth potential for this year, and through 2015 and beyond.

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

June 29, 2012

Fixing Leaks, Diluted Pacific Ethanol, and "Another Solyndra": The Week In Cleantech: 6-29-2012

Tom Konrad

June 25: Pure Technologies Expands in the US

Pure Technologies Ltd. (TSX:PUR, OTC:PPEHF) today announced plans for a major expansion of its Engineering Services business through the establishment of up to five new regional offices in the United States.  Last year, Pure was struggling when the Arab Spring stopped work at their biggest customer, a Libyan water authority, but the company did an admirable job cutting costs and developing business in other parts of the world.  Work (and payments) from Libya resumed this spring, and the company's business in North America is growing at a breakneck pace (40% per annum) as well, as this expansion demonstrates. 

Pure has a number of technologies for water pipe inspection and leak detection which can deployed while the pipes are in service.  As water and energy become increasingly interlinked, often the best way to save energy is to save water.  Pure Technologies delivers an extremely cost-effective way of doing that.  Press release.

June 26: Markey amd Napolitano introduce bill to repower dams

 Natural Resources Democratic Ranking Member Edward J. Markey (D-Mass.) and Subcommittee on Water and Power Ranking Member Grace F. Napolitano (D-Calif.) introduced legislation to improve the performance of federally-owned and operated hydroelectric dams across America. The “Hydro 2.0 Act” would authorize the Bureau of Reclamation to utilize revenues from new power production at existing sites to upgrade the efficiency of dozens of dams and improve their environmental performance before looking to build new dams.

New hydro generation technology allows old turbines at existing dams to produce more electricity from the same power flow, but federal ownership and a lack of a budget for new investment has so far prevented many profitable upgrades from being made. This bill would unlock the future earnings from new hydropower investments as a source of funds to make the upgrades.  The net result: federal revenues would increase (even after paying for the debt required to finance the investments), jobs would be created retrofitting the dams, and more clean power would be generated at a net profit to the taxpayer. 

The bill explicitly does not authorize the construction of new dams.  Bill summary.

June 27: GTM Research Predicts 21 GW of PV Production Capacity to be Retired by 2015

  • GTM's new report, PV Technology, Production and Cost Outlook: 2012-2016 looks at the continuing oversupply of the PV market, and expects oversupply to continue, until supply and demand come into balance as cost-cutting, capacity closures, and an expanding market bring them back into balance by 2015.  I took a look at the implications for solar stocks.
  • Reports about Kandi Technologies (KNDI) being the only approved provider for the Chinese city of Hangzhou's 20,000 EV rental program are flooding the Chinese press.  But some shareholders are disappointed because some reports say it may take up to two years to complete the roll-out.  They seem to be forgetting that Hangzhou is a pilot program, and Kandi's selection makes it much more likely that the company will likely play a starring role in China's much grander EV plans.  If China's plans for 500,000 EVs by 2015 and 2m by 2020 are slow off the mark, it's because of the high cost of EVs from firms like BYD (BYDDY).  Kandi's $7,500 mini-EVs could change that.

June 28: Pacific Ethanol Diluted

  • Pacific Ethanol (PEIX) prices public offering of 28 million units at $0.43 per unit, with each unit consisting of 1 share and warrants to purchase an additional 1 1/2 shares at $.53 and $.63.  The highly dilutive offering caused the stock to drop 40% to $0.31 in interday trading.
  • A bill to reduce the high "value added tax" (VAT) rate on electric vehicles has passed Iceland's Parliament.  This bill removes the Value Added Tax (VAT, currently set at 25.5 percent for vehicles), on the first $45,000 of the price of EVs. Electric vehicles like the Nissan Leaf and other smaller cars will be VAT free.  More at Autoblog Green.

June 29: Does A.S. Stand for Abound Solar or Another Solyndra?

  • Abound Solar announced that it would suspend operations and seek bankruptcy protection.  The company had borrowed about $70 million against a $400 million US DOE loan guarantee.  Taxpayers will likely lose between $40 million and $60 million, depending on the price received for Abound's assets, making this loss about on tenth of that lost with Solyndra, not that the anti-green PR machine will mention that. More here.
  • Alterra Power (TSX:AXY,OTC:MGMXF) received an unsolicited offer for its 2/3 stake in the HS Orka geothermal plant in Iceland.  The company does not need the money, but will consider the proposal.  More details here.

    TK: Long PUR, KNDI, AXY

Tom Konrad Ph.D. CFA is Editor of AltEnergyStocks.com, and a blogger on Forbes.com.

KiOR IPO: One Year Later

by Debra Fiakas CFA

logo[2].png One year ago biofuel developer KiOR, Inc. (KIOR:  Nasdaq) raised $150 million in through its initial public offering.  The anniversary seems like an appropriate time to revisit the company’s progress  -  and valuation of KiOR shares.

KiOR’s claims its demonstration plant proves its proprietary catalysts dramatically accelerate the conversion of biomass into hydrocarbons.  KiOR’s bio-crude can then be put through conventional “cracking” processes to transform the bio-crude to gasoline and other petroleum products.  The company claims yields of 67 gallons of fuel per bone dry ton of biomass such as wood chips.

Management indicates they expect to incur losses through the end of next year.  This is a tough situation to be in with only $152.2 million in the bank and a cash burn rate of about $4.0 million per month.  KiOR also needs another $40 million to complete construction of a commercial-scale plant in Mississippi and $16 million to launch operations there.  They are apparently still optimistic the company can realize initial revenue in the second half of 2012, which means the cash burn rate should begin to decline.  Nonetheless, positive cash flows are not expected until the end of next year.

A bit of math reveals that KiOR management must watch their budget if they expect to deliver on promises without raising additional capital.  One of the company’s major investors, Khosla Ventures already lent KiOR $76.5 million and I do not expect that fountain to bubble up additional cash.

The tightening cash situation might be one of the reasons KIOR is trading nearer its 52-week low than the high in the same period.  Even that price might be too high given mounting losses  -  $147.2 million since inception  -  and dwindling capital strength.  However, when crude begins to flow in Mississippi, the depressed share price might seem more compelling.  A positive fundamental development could trigger a buy-in by bears who have bet against KiOR’s success.  Investors have already shorted over a quarter of the float.

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

Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein.

June 28, 2012

Death Valley Days: The Biofuels Financing Saga

Jim Lane
Commemorative plaque at Burned Wagons Point, Death Valley. Photo by Philippe Pierre

As bio-based companies race across the Valley of Death, in the dash for scale, who’s getting financing now, and how?

The path to financing success in bio-based project development used to be a little less complicated.

Raise seed money from friends and family.  Series A and B with your friendly local VC, to prove the concept and build a pilot. Bring in a strategic for the Series C and D and the demo plant, then over to NASDAQ for plant one at commercial scale.

These days, financing comes with plot twists and a cast of characters that Charles Dickens would have been proud of, as “Great Expectations” have given way to a plaintive “more please, Sir?” right out of Oliver Twist, or a “bioenergy is a humbug!” right out of A Christmas Carol.

Yet we’ve seen a number of creative financing efforts getting traction. From the story of Myriant’s unrated bonds, to Gevo leaping into the secondary share offering market. Over in California, Pacific Ethanol is working on a new issue of shares, notes and warrants; yesterday, the DOE announced its Phase II SBIR grants; meanwhile, the USDA is beginning to unveil its strategy of integrated public-private supports.Let’s take a look.

gevo logo

The Gevo financing gambit

In Colorado, Gevo (GEVO) announced this week that it intends raise up to $100 million through a secondary offering of common stock and convertible senior notes, due 2022.

Gevo said that it will use the net proceeds from the offerings to repay a portion of its outstanding long- term debt obligations, to fund the cash consideration payable to complete the retrofit of its Luverne, Minn. plant, and to partially fund the Redfield Energy retrofit. To the extent that the net proceeds are not used for these purposes, the Company intends to use them to fund working capital and for other general corporate purposes.

The move was expected – as the company had signaled earlier this year that it would seek to raise up to $100 million to cover the completion costs at its Redfield project site.

In connection with the offerings, UBS Securities and Piper Jaffray & Co. are acting as joint book- running managers. Robert W. Baird is serving as co-manager for the common stock offering.

Over at Pacific Ethanol

Meanwhile, Pacific Ethanol (PEIX) announced that it intends to offer units consisting of shares of common stock and warrants in an underwritten public offering. The company also expects to grant the underwriter a 30-day option to purchase additional shares of common stock to cover over-allotments, if any. Lazard Capital Markets is acting as the sole book-running manager for the offering.

The company did not cite a specific financing goal, but did describe a hypothetical sale of 24 million shares in the prospectus, and also disclosed that it had signed an agreement to increase its interest in its New PE Holdco subsidiary for $20.0 million, payable at least $10.0 million in cash and the balance in principal amount of Senior Unsecured Notes, or Notes.

The $10 million in cash required for the deal is broadly consistent with the sale of some 24 million shares, given the company’s current share price of $0.53.

Over at the DOE

Aerodyne Research and Lygos were among the winners in the DOD’s Phase II Small Business research awards.

Aerodyne, based in Massachusetts, was a winner for its Biomass to Hydrocarbons by Catalytic Fast Pyrolysis project. “This work will develop technologies that target direct conversion of inedible, waste components of biomass into chemicals that can be used as additives or replacements to gasoline or to synthesize plastics,” the company said in describing the project.

Lygos, based in California, was a winner for its Microbial production of dicarboxylic acids project. “This project will develop renewable routes to produce commodity and specialty chemicals currently made from petroleum. Lygos’ processes can be applied domestically to convert waste agricultural material into chemicals that are predominantly manufactured abroad today,” the company said in a project outline.

Over at General Electric (GE)

In Ohio, in a project cooperation with USDA Rural Development, the Ohio Aerospace Institute, air carriers and producer groups, GE Aviation confirmed that it expects to purchase up to 5 million gallons of renewable-jet fuel beginning in 2015in support of production engine testing at GE Aviation’s sprawling Cincinnati-area facilities.

In a statement on the collaboration, Agriculture Secretary Tom Vilsack today highlighted the efforts to develop a Midwest-regional strategy for renewable-jet fuel. “We have an incredible opportunity to create thousands of new jobs and drive economic development in rural communities across America by developing innovative ways to use agricultural products to help reduce our reliance on foreign oil,” said Vilsack.

USDA recently awarded a Value Added Producer Grant to the Ohio Soybean Council to help initiate a pilot project through Ohio State University’s Bioproducts Innovation Center to refine bio-jet fuel from soybean oil produced by farmer-owners of Ohio’s Mercer Landmark cooperative in western Ohio.

In addition, USDA’s Farm Service Agency also has a groundbreaking energy crop production initiative underway in northeastern Ohio and northwestern Pennsylvania through the agency’s Biomass Crop Assistance Program (BCAP). About 115 contracts are signed to grow nearly 3,700 acres of the energy crop Miscanthus, a perennial grass that grows on previously underutilized lands in the area.

The Bottom Line

Death Valley days don’t have to end with bleached skulls by the side of the road. Sure, when crossing, hardiness and innovation count for a lot – it was ever thus.

But, slowly, surely, projects are starting to get across, to the sunny uplands on the other side.

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.

LDK Posts Steep Loss Amid Mounting Industry Pressure

Steve Leone
Margin squeeze photo via Bigstock
China's LDK Solar(LDK), a producer of polysilicon, wafers, cells and modules, has reported a steep quarterly loss that underscores the dramatic industry-wide shift that has occurred in the past year.

In a weaker-than-expected fiscal first quarter statement posted Tuesday, LDK reported a net loss of $185.2 million, or a loss of $1.46 per diluted American depository share (ADS). During the same period a year ago, the company posted a net income of $135.4 million, or a $0.95 gain per diluted ADS. Net sales for the first quarter were $200.1 million, far below the $766.3 million generated during the same period last year.

In the first quarter of 2012, LDK shipped more than 164 megawatts (MW) of wafers and nearly 154 MW of cells and modules. The company also produced more than 1,900 metric tons (MT) of polysilicon and more than 51 MW of cells during the period.

The company also lowered its outlook for both the current quarter and fiscal 2012. According to its statement, LDK estimates its second quarter to shape up like this: Revenue between $220 million and $270 million; wafer shipments between 140 and 180 MW; polysilicon production between 520 and 570 MT and cell production between 80 and 100 MW. The company projects its fiscal 2012 revenue to be between $1.5 billion and $2 billion, a sharp drop from its April projection of between $2 billion and $2.7 billion.

“Industry-wide overcapacity continued and drove price declines across the entire solar supply chain, which significantly reduced our revenue and negatively impacted our margins,” said LDK Solar Chairman and CEO Xiaofeng Peng in a press release. “While we expect to see continued challenging conditions in the solar industry in the near-term, we anticipate that some markets such as China will begin to see improved demand as the year progresses. We firmly believe that lower PV system costs will drive adoption of solar power and long-term market growth.”

LDK’s recent struggles are not unique in an industry that has seen continued installation growth fueled by oversupply and a plummeting drop in prices.

According to a industry-wide report released by IHS Research on Tuesday, average gross profits for PV module makers fell to nine cents per watt during the first quarter of 2012. A year ago, that industry average stood at a healthy 39 cents while in early 2009, that margin hovered around $1.75 per watt. And the nine cent margin may not represent the bottom. The researcher group predicts that slimming margin will fall to just seven cents per watt by the end of the year, putting even greater strain on suppliers.

The reason for this increasingly unsustainable margin pressure is the disconnect between the cost to produce PV module and the price at which they’re selling. According to IHS, gross profits industry-wide in the first quarter of 2012 fell below $500 million for the first time since 2008 — a 75 percent drop since the same period last year. As recently as the fourth quarter of 2010, industry profits were around $3 billion. And while average crystalline PV module prices fell 67 cents per watt last year, average costs per watt didn’t keep up, falling instead by 42 cents.

“Profit margins have been the victim as suppliers have been forced to engage in a fierce price war and have reduced prices faster than they have been able to reduce their costs,” wrote IMS Senior Market Analyst Sam Wilkinson. “High inventory levels, weak demand and reduced government support for PV have all contributed to a rapid downward spiral for PV module prices.” 

But Wilkinson said margins should stabilize around 9 percent by the second half of the year, mostly behind declines in polysilicon prices, which because of long-term contracts have not fallen at the same rate as module prices.

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.

June 27, 2012

Green Shoots for Green Building: Seven Stocks to Play the Trend

Tom Konrad CFA

Rockwool insulation (Photo: Achim Hering)

Signs of Green Building Growth

Rockwool International (COP:ROCK-B,OTC:RKWBF) recently announced the establishment of the insulation manufacturer’s first US factory, in Mississippi, about 30 miles outside Memphis, Tennessee.  The firm has been seeing double-digit annual sales growth in North America, driven by interest from do-it-yourself chains and insulating commercial buildings, and expects this growth to continue.

The company’s rock wool insulation, sustainably made from stone and recycled materials, can provide improved fire protection when compared to traditional insulation products.

Rockwool is far from the only green building company to predict growth in 2012, despite the generally depressed housing market.  Geothermal (a.k.a. Ground-Source) Heat Pump (GHP) manufacturers Waterfurnace (TSX:WFI,OTC:WFIFF) and LSB Industries (NYSE:LXU) both said they see signs of revival in demand for their green building products during their first quarter conference calls.  Insulated Concrete Form (ICF) and Structural Insulated Panel (SIP) manufacturer PFB Corporation (TSX:PFB, OTC:PFBOF) did not provide an updated outlook in the first quarter, but has seen continuous sales growth over the last several years, despite the downturn, and is expanding manufacturing in the US and has seen favorable pricing trends beginning to emerge.

With signs of growth just beginning to emerge, now seems a good time to get into green building stocks, before the trend is widely recognized.  Here are seven to consider, starting with the most-well known large capitalization companies, and moving on to the hidden gems.

1. Honeywell (NYSE:HON)

Building climate control leader Honeywell has expected earnings for 2012  of $4.51, for a forward price/earnings (P/E) ratio of 12.4.  Honeywell pays a quarterly $0.3725 dividend for an annual yield of 2.7%.  Honeywell is not a focused play on green building, having large aerospace, materials, and transportation segments.  About a third of the company’s sales come from its building automation and control segment.

2. Johnson Controls (NYSE:JCI)

Building efficiency and autoparts leader Johnson Controls has expected 2012 earnings of $2.72, for a forward P/E ratio of 10.4 at the current price of $28.23.  The company pays a $0.18 quarterly dividend, for an annual yield of 2.6%.  A little over a third of the company’s revenues come from its building efficiency segment.

3. Owens Corning (NYSE:OC)

Insulation maker Owens Corning has expected 2012 earnings of $2.08, for a forward P/E ratio of 13 at $27.13.  Although expected earnings are down slightly from 2011, strong growth is expected to resume in 2013. The company does not pay a dividend.  Although somewhat expensive compared to Honeywell and Johnson Controls, Owens Corning’s focus on the housing market means that revenues have been hurt more by the housing downturn and will benefit more from a recovery.

4. Rockwool International (COP:ROCK-B,OTC:RKWBF)

International insulation manufacturer Rockwool pays a 2% ($1.70) annual dividend, and is expected to earn $5.95 a share in 2012, for forward P/E ratio of 14.  Earnings are expected to be up 7% in 2012 over 2011, on slightly falling revenues because of uncertainty in Europe.  Rockwool is the most difficult company in the list for a North American investor to buy, since it generally must be purchased through a broker’s international trading desk.  As such, this company is only appropriate for a long term investor making a fairly substantial investment.  Like Owens Corning, Rockwool is a large cap, nearly pure-play green building company, and the difficulty of buying it is offset somewhat by the advantages of a regular dividend.

5. LSB Industries (NYSE:LXU)

Chemical and GHP manufacturer LSB is currently trading at a depressed price because of investor worries about damage from an explosion at one of its chemical facilities last month.  This investor reaction seems out of proportion to the relatively small size of the potential uninsured losses from the incident.  At $26.38 LSB has a forward price earnings ratio of 9 but does not pay a dividend.  About a third of LSB’s revenues come from its climate control business.

6. WaterFurnace Renewable Energy (TSX:WFI, OTC:WFIFF)

Waterfurnace is a leading North American manufacturer of GHPs, and managed the housing downturn well by refocusing its business away from the weak residential market and towards the more resilient commercial market.  The company pays a regular $0.24 quarterly dividend for a 5.93% annual yield at the current stock price of $16.03.  Trailing twelve month earnings are $1.20 per share, for a trailing P/E of 13.4.  Forward earnings estimates are not available for this little-followed company.  Among the pure-play green building companies in this list, Waterfurnace is currently one of the two most attractively priced, and unlike PFB (below) is easy to buy for a US-based investor.

7. PFB Corporation (TSX:PFB, OTC:PFBOF)

PFB makes green building products from expanded polystyrene, such as the SIPs and ICFs mentioned above.  The company pays a regular quarterly dividend of 6 cents a share for a 3.8% annual yield at $6.31 and has shown consistent earnings and revenue growth.  PFB’s trailing twelve month earnings were $0.54 a share, for a trailing P/E of 11.7.  Unfortunately, the stock is extremely illiquid, and so is only appropriate for very long term investors or smaller investors trading using limit orders.

Taxes on Foreign Dividends

Dividends from Rockwool, Waterfurnace, and PFB are subject to foreign withholding taxes, and so these stocks should be held in taxable brokerage accounts, where this tax can often be recovered through the federal foreign tax credit.

Disclosure: Long WFIFF, LXU, RKWBF, PFBOF

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.

June 26, 2012

Will A123's Batteries Make the Great Leap from Design Bench to Store Shelf?

by Debra Fiakas CFA

Bagdad BatteryIn my last post Paper Power I outlined the attempt to develop a battery using carbon nanotubes and paper.   The materials seemed a bit unbelievable and it sent me into the history books to look at the battery.  In the mid-1700s Ben Franklin may have been the one who first coined the term battery to describe the capacitors had strung together for his experiments.  We all know about the scientist, turned politician.  What is less well known is that the ancients may have also attempted a battery-like instrument now called the “Baghdad Battery.”

The so-called battery was found in a village near Baghdad, Iraq and is dated roughly between 250 BC to 224 AD.  It is a simple terracotta pot in a cylindrical shape.  Inside is a copper tube made from a rolled up copper sheet wrapped around a single iron rod something like a nail.  Now we know copper and iron form an electrochemical pairing.  If an electrolyte is introduced, potentially an electrical voltage can be produced.  There is speculation that the Baghdad Battery contained wine or lemon juice that served as an acidic electrolyte.  The design has been tested and found to produce modest electrical charge.

Archeologists have suggested that the instrument may have been used for electroplating gold onto silver objects something like a galvanic cell.  Lending credence to this idea is the existence of very fine silver objects in ancient Iraq that were plated with very thin layers of gold.  Others argue strongly against the electroplating theory since it appears Iraq ancient silver smiths may have been using conventional fire-gilding with mercury instead.  Acupuncture and electro-stimulation for religious experience was two alternatives.

It is less clear whether the Baghdad instrument successfully served its intended purpose.  Perhaps those inventors were as frustrated as the developers as A123 Systems, Inc. (AONE:  Nasdaq), claims an important breakthrough in lithium ion battery technology using nanophosphate chemistries to render batteries safe even at high temperatures.  Thermal runaway has plagued A123 Systems and other developers chasing electric car and communications markets, both of which require large battery installations that must work under high temperatures.

The news could not come any too soon for shareholders of AONE.  The stock has languished and is trading closer to its 52-week low than the high to the period.  A123 has consistently grown sales, which reached $159 million in the year 2011.  However, costs have been experiencing their own “thermal runaway” and the company’s losses have grown even faster.

Most investors following the company focus their attention on A123’s technology, but I think it is time to consider the reality of the balance sheet and whether the company still has the juice to support its scientific pursuits.

A123 has also been working its way through a cash hoard.  At the end of March 2012, there was $116.2 million left.  This might be considered a hefty sum by others but will not last the year if A123 does not trim its cash burn.  In the year 2011, the company used approximately $21 million in cash per month to support operations.  In the first quarter the burn rate had been reduced to about $15.5 million per month.  Even at that much lower rate, current cash in the bank will only support operations for another six months.

We do not know much about the Baghdad Battery, but one thing is clear, people have been focused on power for a long time.  The jars may not have delivered anything close to what its inventors intended.  With a dwindling bank account, A123 Systems may be less sanguine about the success in bringing their nanophosphate chemistry off the design bench and putting it into stores.

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

Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein.

June 25, 2012

One, Two, Three Uses for A123's New Batteries

Tom Konrad CFA

 A123 Systems battery cell products (Source: A123)

A123 Systems′ (NASD:AONE) announcement of a new battery technology able to operate at both extremely high and low temperatures has the  headline writers dreaming of cheaper electric cars.

Electric cars may be dreamy, but they are just one application of the technology.  There are at least two more, with significant near term potential.

1. Is it really about electric vehicles (EVs)?

Sure, it would be nice to be able to trim $600 of the price tag of a Tesla (NASD:TSLA) Model S or a Nissan Leaf (NASD:NSANY), but how much difference would that make on a $58,000 or $36,000 car?  It’s nothing compared to the federal $7,500 tax credit, and (surprise!) as EVs get cheaper, governments will become a lot less generous supporting them.  Or such subsidies will be cut before the cars get cheaper, a real possibility in these budget-cutting times. We’ve seen it happen time and time again with solar and wind subsidies.  Why should EVs be different?

In short, A123′s new technology (which applies tweaks to the electrodes and electrolyte of lithium-iron phosphate batteries), may give it an advantage over other battery makers in the electric car market, but investors should be much more excited about the other markets it opens up.

Two of those markets are replacements for lead-acid starter batteries, and remote back-up power.

2. Start-Stop

The engine compartment of a typical car is much too hot for conventional lithium ion batteries, which is part of the reason (the other is price) we’re still using lead acid batteries to start our cars.  But the drive for better fuel efficiency is driving automakers to look at inexpensive stop-start technology, which turns off a car’s engine when it would otherwise be idling at a stoplight or at a drive-through window.  Conventional lead acid batteries are simply not durable enough for the quick, repeated charging cycles stop-start requires.  Automakers are looking at a number of more advanced options, including lithium-ion batteries, battery-ultracapacitor hybrids from Maxwell Technologies (NASD:MXWL) and collaborators, and lead carbon batteries from Axion Power (OTC:AXPW).

Lithium-ion batteries are the most expensive of these options, but they also have the advantage of lighter weight and a quicker charging rate.  Ultracapacitor-battery hybrids are only now seeing their first commercial applications, and while lead carbon batteries have shown great performance in testing, they are not yet being used commercially.   A lithium ion battery able to withstand the heat of the engine compartment might appeal to auto manufacturers looking to add stop-start technology to existing models with minimal redesign using a more familiar technology.

Early stop-start vehicles using advanced lead acid batteries work well in the beginning, but get worse mileage as the batteries degrade in a matter of months.  A drop-in replacement based on high temperature lithium ion batteries would be a quick fix for any of these vehicles already on the road.

3. Back Up Power

Most exciting to me is the possibility of using these new batteries as backup power in cell towers or areas without reliable power supply from the grid.  The problem with using lead acid batteries in these applications is that lead acid batteries charge slowly, meaning that diesel generators must run for a long time to charge them.  In places like India with unreliable grid power, lithium ion batteries might allow the diesel generator to be dispensed with altogether, while in remote power situations, it could be run for shorter periods of time.

Removing the diesel generator from a back-up power system would likely require far fewer lithium ion batteries than removing the gas engine from a car, and so the equivalent barrels of oil saved would be much higher for every kWh of lithium ion batteries.  The economics would likely be much more compelling than the economics of electric vehicles as well.


It’s worth getting charged up about the potential of these new batteries from A123.  If the technology works as well as the company says it does, they will enable significant savings of both money and fuel.  But most of those savings won’t be found on  the affordable electric vehicle superhighway.

The chances of real fuel savings aren’t as remote as the chances of a cheap electric car. Stop that thought, and start thinking about anti-idling technology and cell phone towers.  The back up power opportunity may be in remote markets, but its chances aren’t remote at all.

Disclosure: Long MXWL, AXPW

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.

Paper Batteries

by Debra Fiakas CFA

Vendum battery
diagramA comment left recently on one of my earlier articles mentioned Vendum Batteries, Inc. (VNDB:  OTC/BB), a developmental stage company working on battery power solutions.  When looking into Vendum I expected the usual flowery promises investors hear from every other battery developer  -  some new metal alloy for the electrodes, an alternative electrolyte, or maybe a creative form factor.    However, Vendum is not just any battery “wanna-be.”

Ok, Vendum does have an alternative electrode, but it is not just a tweak of the usual metal mixes.  It also has an alternative form factor, but even that is a drastic break from convention.

The Vendum battery electrodes are made from carbon nanotubes  -  hollow cylindrical structures with walls formed by a one-atom-thick sheet of carbon.  The nanotube electrodes are wrapped in a sheet of cellulosic fiber very much like paper.    One of the most intriguing elements of the battery is its disposable nature  -  none of the heavy metals or toxic solvents found in conventional batteries.

Vendum claims its prototype sheet of battery-paper can generate about 2.4 volts with a power density of about 0.6 milliamps per square centimeter.  Stacking sheets of the battery one on top of the other could increase voltages.

The flexible structure of the Vendum battery design makes it ideal for small or irregularly-shaped electronics applications.  Those singing greeting cards are near the top of Vendum’s initial list of target markets, but the company has even more ambitious applications in mind.  For example, scaled up the batteries could be used to power side-impact airbags.

VNDM is the true penny stock  - share price less than a dime,  wide bid-ask spread, limited trading volume.  It is a highly speculative security and thus only appropriate for investor with a steely-eyed tolerance for risk.    Vendum has proven very little so far and while in compliance with SEC filing requirements even the most skilled investors will be challenged to complete adequate due diligence on Vendum.

All that said, we are adding Vendum to the Storage Group in The Mothers of Invention Index.  It is worthwhile watching whether the Vendum group can get this technology offer the bench to the market. 

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

Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein. VNDM is included in Crystal Equity Research’s The Mothers of Invention Index.

June 24, 2012

Maxwell Technologies: Selling by Growth Funds Looks Done

Tom Konrad CFA

Maxwell LogoSince Maxwell Technologies(NASD:MXWL) lowered guidance in their first quarter conference call at the end of April, the stock has fallen by 58%, and is currently trading at $6.65 compared to $15.80 before the earnings call.

This fall has been considerably more dramatic than the lowering of analysts’ price targets.  These now stand at an average of $16.40, down about 20% from two months ago.

Insiders have been actively buying the stock since it hit $10, and continue to do so.  Such active buying reflects conviction that the stock is trading well below fair value.

With both analysts and insiders signalling that the stock is a bargain at current levels, who is selling?  Two recent SEC filings tell us.  On May 10th and 11th, two major fund managers, Lord, Abbett & Co. LLC, and  FMR, LLC (Fidelity) reported updated holdings of Maxwell stock.  They were previously the two largest institutional shareholders, jointly owning over 12% of Maxwell stock (see table.)

Top Institutional Holders, March 31
Holder Shares % Out Value* Reported
LORD ABBETT & CO 1,974,722 6.78% $36196654 03/31/12
FMR LLC 1,561,900 5.36% $28629627 03/31/12
VANGUARD GROUP, INC. (THE) 1374755 4.72 $25199259 03/31/12
RIVERBRIDGE PARTNERS LLC 1279913 4.39 $23460805 03/31/12
WELLS FARGO & COMPANY 916824 3.15 $16805383 03/31/12

Now, Lord, Abbett & Co. owns only 1.92% of Maxwell’s shares, and Fidelity owns only 0.24%.  Their current combined holdings amount to only 620 thousand shares, down from 3,536 thousand, meaning they have sold almost three million shares, or 11% of the 27 million traded since the stock started to fall.

That level of institutional selling goes a long way to explain the stock’s decline beyond what seems to be warranted by the change in the news.

The good news is, there seems to be little more such institutional stock to sell.  Fidelity has sold completely, and Lord, Abbett & Co have only half a million shares left.  The new largest institutional holder is the Vanguard group, and Vanguard’s index funds are not actively managed, and so would not be selling because of an earnings announcement.

Other institutions may be selling as well, but at least the two largest are nearly done.  The previous top mutual fund holders are shown below:

Top Mutual Fund Holders
Holder Shares % Out Value* Reported
SECURITY EQUITY FD-MID CAP VALUE SERIES 1,635,039 5.61 29,970,264 Mar 30, 2012
LORD ABBETT DEVELOPING GROWTH FUND 1,168,632 4.01 23,910,210 Jan 30, 2012
Fidelity Growth Strategies Fund 1,086,040 3.73 19,907,113 Mar 30, 2012
Security Equity Fd-Mid Cap Value Institutional Series 629,931 2.16 11,546,635 Mar 30, 2012
Wells Fargo Advantage Emerging Growth Fd 490,800 1.69 8,996,364 Mar 30, 2012
VANGUARD SMALL-CAP INDEX FUND 405,353 1.39 6,582,932 Dec 30, 2011
ROYCE OPPORTUNITY FUND 366,461 1.26 6,717,230 Mar 30, 2012
ISHARES RUSSELL 2000 INDEX FD 339,343 1.17 6,220,157 Mar 30, 2012
VANGUARD TOTAL STOCK MARKET INDEX FUND 336,119 1.15 5,458,572 Dec 30, 2011
SBL FUND ‘V’ SERIES (MID CAP VALUE) 308,863 1.06 5,661,458 Mar 30, 2012

The most likely sellers are growth funds, shown in red.  Index funds (blue) will be holding, while value funds (green) will likely buy or hold at current prices.  Since the two largest potential sellers seem to have reported selling nearly all their holdings, the only major potential seller left to report is the Wells Fargo fund, which held less than half a million shares, many of which would also have already been sold if the fund’s manager had decided to sell in response to the lowered guidance.

Note that Lord Abbett sold more stock than the 4% previously owned by the Lord Abbett Developing Growth fund (LAGWX), so the manager’s remaining shares could easily be held by non-growth mutual funds,  hence may not be sold at all.


It appears that institutional selling pressure is mostly over, allowing new buyers attracted by the much better valuation to begin to move the stock up.

The real gains, of course, will depend on Maxwell itself.  If management does not deliver on their new, lowered guidance, then the large growth fund sellers will have been right to sell.

Those funds’ recent track records should give current Maxwell shareholders some confidence.  In 2011, Fidelity Growth Strategies was down 8.95%, while the Lord Abbett Developing Growth fund (LAGWX) was down 1.66%.  Meanwhile, the passive iShares S&P MidCap 400 Growth Index Fund (NYSE:IJK) was up by a large 30.44%.  So far this year, the two mutual funds have beaten IJK by 5% and 4%, respectively, but this is nothing compared to the 39% and 32% underperformance in 2011.

Those are the kind of track records I prefer to trade against.

Disclosure: Long MXWL

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.

June 23, 2012

Energy Storage: Q3 2012 Winners and Losers

John Petersen

I usually write a quarterly recap to summarize what happened in the energy storage and vehicle electrification sectors, but Q2 was a tough enough period that I don't see much sense in dwelling on the bloodletting. So instead of focusing on the past, I'll offer a quick summary table with lots of red ink and turn my attention to Q3, which is shaping up as a time of bright opportunity for some companies and profound risk for others.

6.23.12 Q2 Performance.png

I expect three companies in my tracking group to perform very well in Q3 – Exide Technologies (XIDE), Active Power (ACPW) and Axion Power International (AXPW.OB). All three look terrible if you only look at historical performance, but when you dig deeper into business history and market dynamics it becomes clear why all three have market-crushing potential over the next three to six months.

Q-3 Winners

Exide Technologies has been the Rodney Dangerfield of the battery industry since emerging from Chapter 11 in 2004. The reason is simple. While Exide had solid prospects after its bankruptcy reorganization, it was not a healthy company and it was burdened by a lot of dead weight. During the four years I've been following Exide they've been restructuring their operations, closing marginal facilities and paring fat wherever possible. Over the last five years, Exide has reported total earnings of roughly $35 million after restructuring and impairment charges of almost $210 million. Since its net earnings were so bad for so long, Exide currently trades at a 38% discount to book value, 4.4 times earnings and 8% of sales while its peers trade at 1.5 times book, 11 times earnings and 70% of sales.

Restructuring costs are an accounting oddity. If a company builds a new plant to increase earnings, the costs of that plant are added to the balance sheet and depreciated over time. If a company closes an unprofitable plant to increase earnings, the associated restructuring costs are charged against net income. When a company like Exide embarks on a multi-year restructuring program, the positive earnings impact of the restructuring is not obvious until the restructuring is complete and earnings morph from dreadful to spectacular in very short order. Exide has reached the end of its restructuring and expects to emerge later this year. When the write-offs are old news and the positive impacts of the restructuring become obvious, the market's perception of Exide should change dramatically.

I maintain long-term price tracking charts on all the companies I follow and believe Exide's chart is signaling a sharp turn upward in the third quarter. If you look at the chart you'll see that the 10-, 20- and 50-day weighted moving average prices are clustered in a narrow range below the 200-day average and have already turned sharply upwards. When they push up through the 200-day average, Exide will have a classic golden cross to mark the beginning of a new uptrend. Similar chart patterns existed in the summer of 2009 and the fall of 2010. While I'd be hard pressed to estimate the next peak, Exide's historical price performance is enough to convince me that a double is likely and a good deal more is possible.

6.23.12 XIDE.png

Active Power is a classic Valley of Death stock. It went public in 2000 right before the tech wreck and reached a high in the low $70s before falling to its all time low of $0.25 in late 2008. Since then Active Power has been working its way out of the Valley of Death and getting stronger with each quarter. Like Exide, Active Power's chart is right on the verge of a golden cross like we saw in the spring of 2009 and the summer of 2010. While I'd be hard pressed to guess the next top, Active Power's historical stock price behavior is enough to convince me that a double is likely, if not a triple.

6.23.12 ACPW.png

Axion Power International is another Valley of Death stock that looks like a very ugly duckling until you dig down into the business fundamentals and understand the market dynamics that crushed the stock price over the past three years. Axion went public through a reverse merger in late 2003 when it was still an early-stage R&D company. During its first five years as a public company Axion's stock traded by appointment and total reported trading volume for 2009 was only 7.7 million shares, or about 3.8 million shares on the sell side and 3.8 million on the buy side.

In late 2009 Axion closed an immense private placement of 45 million shares, or the equivalent of 12 years of trading at historic levels. While I believed that the four anchor investors in the private placement were swinging for the fences with venture capital investments in a stock that offered no reasonable prospect of a short-term liquidity at a decent price, an unfortunate series of events including the death of one buyer, management changes in two more and unrelated financial problems in three legacy stockholders forced huge blocks of stock into a market that couldn't handle the selling pressure.

In addition to price data like I provided for Exide and Active Power, my Axion chart includes a fifth line that tracks 200-day average trading volume and highlights the seventeen-fold increase in daily trading volume over the last three years. When I contemplate the sheer mass of shares that have moved during that period, I'm amazed that the price didn't collapse completely.

6.23.12 AXPW.png

In spite of a dismal price chart, Axion's business execution over the last three years has been flawless. Its PbC battery has progressed from a pre-commercial prototype to a production ready energy storage solution that beat all contenders including nickel metal hydride, lithium-ion, sodium metal chloride and fuel cells in two and a half years of testing for battery-powered locomotive applications, was used in the first behind the meter frequency regulation resource in the country, is a front-runner in energy storage for micro-hybrid vehicles and has recently set its sights on hybrid solutions for the long-haul trucking market. I can still account for a few million shares in the hands of likely sellers, but once those shares are absorbed the future market price will be in the hands of the patient long-term investors who have been buying Axion's stock over the last two years and squirreling it away in their sock drawers. Unless trading volume collapses, the selling pressure can't continue for more than another month or two.

Q-3 Losers

After years of supporting a $150 to $200 million market capitalization with a negative stockholders equity it looks like Valence Technology (VLNC) will lose its Nasdaq listing within the next few weeks and be downgraded to the OTCBB. While the listing could be saved with capital infusion in the $60 million range, that possibility seems pretty remote.

While it's riding a wave of euphoria after the delivery of its first Model S sedans last week, I continue to believe Tesla Motors (TSLA) will pass its peak of inflated expectations in Q-3 and begin a dizzying descent into the Valley of Death. I don't want to denigrate Tesla's accomplishments as the first manufacturer of a high production volume electric vehicle and the first fledgling automaker to bring a new car to market since DeLorean, but it seems like all of the possible good news is already priced into Tesla's stock while the bulk of the execution risks and disappointment opportunities have become frighteningly imminent.

I get hundreds of comments every time I mention Tesla's name. The enthusiastic readers I hear from expect rave reviews, expect high reservation conversion rates, expect demand to skyrocket, expect the Model S to perform flawlessly in heavy daily use, expect Tesla's financial resources to be adequate for its foreseeable needs and expect Tesla to avoid the delays, defects and missteps that plague even seasoned manufacturers who launch a completely new product. I may be cynical when it comes to the applicability of Moore's Law in the auto industry, but I'm a firm believer in Murphy's Law, fondly known as the fourth law of thermodynamics, which states: "If anything can go wrong, it will."

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

June 22, 2012

3 EVs in the News: The Week In Cleantech: 6-15-2012

Tom Konrad and Jeff Siegel

June 18: Is First Wind's New Joint Venture Worth $3 Billion?

JS: First Wind Holdings, LLC (First Wind) and Emera Inc. (TSX: EMA) announced today the closing of their transaction to jointly own and operate wind energy projects in the Northeast U.S. through a new company called Northeast Wind Partners.  More here.

June 19: Rio Earth Summit Looks Unlikely to Mend Broken Promises

TK: The optimism of 20 years ago has been replaced by disillusionment and an uncertain future.  More here.

June 20: Renewable Energy Industry Pushes Back Against Bad Press

TK: The American Council on Renewable Energy (ACORE) launched a new resource to counter misinformation about energy.  ACORE and its members will respond to news items on EnergyFactCheck.org and @EnergyFactCheck on Twitter.  More here and here.

June 21: CTA Orders First Battery Electric buses from New Flyer

TK: The two buses will be used in a Chicago Transit Authority pilot program to determine how they perform in Chicago's cold climate.  The New Flyer (TSX:NFI, OTC:NFYEF) will be based on the company's light Excelsior chassis and feature traction drives from Siemens (NYSE:SI).

June 22: Tesla Launches the Model S: Make or Break?

TK: The first Tesla (NASD:TSLA) model S will be delivered today.  There has been much speculation this week about its likely success or failure, and what it will do to the company's stock.  But around the world in China, officials confirmed that Kandi Technologies (NASD:KNDI) will be part of the City of Hangzhou's 20,000 vehicle rental program.  Already profitable from selling off-road vehicles, there's no question about EVs breaking Kandi, and making large profits on mini-EVs in China is looking more certain by the day.  More here.

    TK: Long NFYEF, KNDI. 
    JS: No positions.

Jeff Siegel is Editor of Energy and Capital.
Tom Konrad Ph.D. CFA is Editor of AltEnergyStocks.com, and a blogger on Forbes.com.

Gevo marching: GEVOgraphy expands to Malaysia; advantaGEVOus ruling in Butamax case

Jim Lane

gevo logoGevo signs agreement for cellulosic biomass development in Malaysia, as the company secures a crucial win in preliminary injunction battle with Butamax over IP.

In Colorado, Gevo (GEVO) signed a collaborative agreement with the intent to site a cellulosic biomass isobutanol facility in Southeast Asia, with the Malaysian government’s East Coast Economic Region Development Council (ECERDC), Malaysian Biotechnology Corp (BiotechCorp) and the State Government of Terengganu.

The company is in the final stages of evaluating additional partners to complete the biomass to isobutanol value chain. The collaboration offers a diversified feedstock, organized approach and the opportunity to develop an economically advantaged business plan to meet this expanding market.

The current plan under consideration is to construct a fermentation facility to produce bio isobutanol made from cellulosic biomass. The proposed site is in the State of Terengganu at the Biorefinery Complex in Kerteh. Specific feedstocks were not disclosed by the parties – but palm waste opportunities abound in Malaysia, to name one option.

More on Malaysia

Kerteh, a small town on the northeast coast of Malaysia, is the base of operations for state oil giant Petronas in the state of Terrenganu, which itself has been lately revived through a combination of oil and gas discoveries offshore, and rising agricultural prices. Kerteh and nearby Paka have become petrochemical production hubs, and the Biorefinery Complex in Kerteh has become a signature effort in Malaysia’s integrated biotechnology strategy.

“The technology for a sustainable cellulosic feedstock is expected to be commercially viable this year, so now is the appropriate time to begin our cellulosic platform,” said Ryan. ” Our ambition is to move toward definitive agreements by the second half of 2012 with a target of having a cellulosic plant operational by late 2015 or early 2016.”

“The establishment of a Gevo facility in East Coast Economic Region Malaysia is further testament to investors’ confidence in the Region and we look forward to facilitating Gevo’s investment in Malaysia,” said Chief Executive Officer of the ECERDC, Jebasingam Issace John.

Key ruling in Gevo-Butamax IP dispute

In Delaware, last night a federal court judge denied a request by Butamax for a preliminary injunction in its IP dispute with Gevo.

In her ruling, Judge Sue L. Robinson, concluded “the court finds that irreparable harm would exist assuming defendant were infringing. Because, however, the court has concluded that plaintiff does not hold a valid patent, nor would the defendant infringe if it did, this factor is neutral.”

In the court opinion, Robinson concluded that the parties’ infringement dispute is, essentially, one of claim construction. The parties dispute the meaning of the term “acetohydroxy acid isomeroreductase enzyme,”also known as a “KARI,”4 the enzyme utilized in step two of claim 1.”

On the ’889 patent originally issued to Butamax, Robinson wrote, “The court concludes, therefore, that defendant has raised a substantial question concerning the validity of claims 1 and 14…the fact that the ’889 patent has been rejected on reexamination, combined with the finding by the court that plaintiffs likely claim construction is too narrow, demonstrate that defendant’s invalidity defenses do not lack substantial merit.”

Robinson adds: “In light of the court’s construction, and the fact that defendant uses an NADH dependent enzyme to catalyze its step two reaction, the court finds it unlikely that plaintiff will prevail on its claim of infringement.”

Butamax responds

Swiftly following the ruling, Butamax responded that “there are strong grounds for making this request”, and that the company “plans an immediate appeal.”

“The court’s decision is not a final determination of infringement or invalidity concerning the 188 and 889 patents as it is merely a determination that the extraordinary remedy of a preliminary injunction is not available at this time. This is an early step in a long and complex litigation process,” commented Paul Beckwith, Butamax CEO. “We remain highly confident in the ultimate outcome of this case and our other cases against Gevo.”

Butamax noted that request for the preliminary injunction was only based on a select number of claims of Butamax’s ‘889 patent. At trial, Butamax’s case on all the claims of both the ‘188 and ‘889 patents will be heard. Full trial in this case is scheduled for April, 2013. Additionally, Butamax has several other patents and patent applications it will seek to enforce as appropriate.

Analyst view

Piper Jaffray equity analyst Mike Ritzenthaler wrote, “Within the ruling that was posted this evening, the judge tested the conclusions of the Patent Office, and agreed that Butamax’s technology was obvious & non-novel, and therefore not worthy of protection.

“The ruling on the preliminary injunction is essentially a preview of the final resolution. We view the length of time the judge spent considering her ruling on the preliminary injunction as an indication that she was more or less considering the full case between Gevo and Butamax – including the various counter suits. We believe that the final ruling (from the April 2013 court date) will be consistent with the ruling on the preliminary injunction – Butamax does not have viable technology – and will add to it Butamax’s infringement on Gevo’s IP, essentially nullifying their largest competitor.

“We expect Butamax to appeal,” Ritzenthaler adds, “and to be clear there are several other turns left in this dispute – but this case was meticulously considered, and the 27 page ruling is an impressive amalgamation of science and patent language that confirms the outcome we had expected. We maintain our Overweight rating and $17 price target.”

Cowen & Company’s Rob Stone noted: “GEVO should be free to pursue R&D and sell any product to any customer, pending the trial next spring. New IP since the hearing could create key business advantages. Separately, GEVO plans to build a plant in Malaysia to process sugars from locally grown cellulosic materials. We see 40% upside rel to mkt in 12 months. Upgrading to Outperform from Neutral.

Stone added: “GEVO recently received patents on technology that cuts off isobutyrate, a material that renders the DDG co-product worthless. Selling DDG as animal feed lowers net cash cost by about 20%. Together with previous IP that increases yield by 20%, we believe GEVO has built a significant cost advantage.

On the Malaysia development, Stone noted: “Cost is preliminarily seen at $100-$150MM for a 20MGPY plant, with startup timing in late 2015/early 2016. The plan is to build/own, but use local operators.”

The bottom line

The trial, as Rob Stone said, could go either way, but Gevo’s rights to operate between now and the April 2013 trial date are cleared.

As Ritzenthaler says, the ruling is unexpectedly swift, given the issuance of a temporary ruling only last week, but Gevo has won this round, resoundingly. Though IP disputes are, like boxing, measured in rounds, and this is but one of several on the path towards final resolution.

As Butamax notes, “request for the preliminary injunction was only based on a select number of claims of Butamax’s ‘889 patent.” At trial, Butamax’s case on all the claims of both the ‘188 and ‘889 patents will be heard. So, there is far to go in this case.

Meanwhile, the announcement that Gevo will expand beyond corn starch fermentation to cellulosic, and now has a timeline in place to do so, dramatically expands the company’s potential scope of operation: to date, n-butanol developers such as Cobalt Technologies and Green Biologics have been the ones that have been more overtly focused on cellulosic biomass, while isobutanol developers such as Gevo and Butamax have been focused on corn starch.

Combined with the news on opening up opportunities with DDGs, Gevo has surely acquired Big Mo’ this quarter.

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.

June 21, 2012

First Solar's New Research Platform: Big News for Intermolecular

Tom Konrad CFA

logo[1].gif Two years ago, it seemed like First Solar (NASD:FSLR) could do no wrong.  The company could manufacture it’s thin film Cd-Te photovoltaic (PV) cells at a fraction of the price of traditional crystalline silicon (c-Si) cells.  First Solar was the first company to break the $1/W barrier for manufacturing cost.

That was then.  Now, a supply glut caused by overbuilding and reduced subsidies has dramatically slashed the price of c-Si cells.  Bloomberg New Energy Finance (BNEF) forecasts that demand will not catch up with supply until 2014, even in their most optimistic scenario.  In May, the spot price for a Chinese c-Si module was only $0.85 per watt, quite close to the $0.75 per watt manufacturing cost claimed by First Solar.  Since Cd-Te cells are less efficient than c-Si cells (currently 14.4% of First Solar cells, compared to the high teens to low 20% range for typical c-Si cells), First Solar’s modules need to be larger to produce the same power rating, which leads to higher costs at the module and solar installation level.  This leaves very little room for profit, from a company that once seemed to be an endless money-printing machine.

Like many other Solar companies, First Solar has diversified into project development, and set its sights on places where the high price of power means that its solar modules can be profitable without uncertain subsidies.  The idea is to compete with diesel, rather than with other solar industry players.

Yet markets with high electricity costs have those high costs for good reasons.  These reasons can include bureaucratic red tape, poor infrastructure, corruption, and a poorly educated local workforce.  Such markets  take considerable time and effort to develop the infrastructure for the rapid deployment of PV, meaning that, even there, solar manufacturers are jostling for a limited (if rapidly growing) market.

Betting on Intermolecular


With demand unable to grow fast enough to absorb all available supply, all solar manufacturers must also work to improve the cost effectiveness of their modules.  For First Solar, part of that effort is embodied in a new licensing agreement with Intermolecular, Inc. (NASD:IMI).  First Solar will license Intermolecular’s High Productivity Combinatorial (HPC) platform to advance its manufacturing technology and the efficiency of its CdTe solar cells.  According to the press release, the program will focus on “new opportunities in certain critical materials and processes that may significantly influence the conversion efficiency of CdTe technology.”  The work will be performed jointly at Intermolecular’s San Jose, Calif., facility and in First Solar’s research and development labs.

The licensing agreement was announced after First Solar had the opportunity to evaluate the HPC platform in a trial collaboration.  My instinct is that this is much bigger news for the $277 million market cap IMI than it is for the $1.1 Billion First Solar.

First Solar always works to improve efficiency, and has been proven to be quite capable of doing so in the past.  The fact that FSLR so the big news is that they have chosen to outsource part of this process to IMI is a resounding endorsement of the company’s technology.  It will also bring IMI to the attention of a large number of clean energy investors who had never before heard of it.

The First Solar agreement will also make other solar manufacturers look at Intermolecular’s technology more seriously, which will be important to IMI’s long term growth.  Craig Hunter, Intermolecular’s senior vice president of Global Sales & Marketing, was quoted as saying, “Leveraging our HPC platform to accelerate the PV  roadmap is central to our mission.”

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.

OECD Analysis Suggests That Electric Cars Are Not Ready For Prime Time

John Petersen

On June 14th the International Transport Forum of the Organization for Economic Co-operation and Development released a Policy Brief that asks the rhetorical question "Electric Cars: Ready for prime time?" I was very surprised that the OECD, an organization of 34 democratic, industrialized and overwhelmingly western nations, would even ask the question. I was even more surprised by their conclusions that most claimed benefits of electric passenger cars are illusory while the societal costs are $9,000 to $15,000 more per vehicle than conventional automobiles. In other words, every EV produced and sold makes society poorer. No matter how you "feel" about electric cars, the OECD Policy Brief and the related discussion paper, "Electric Vehicles Revisited – Costs, Subsidies and Prospects" suggest that global thought leaders are rapidly distancing themselves from the idea that electric drive is a sensible solution.

The discussion paper begins with an introduction that explains, "The International Transport Forum at the OECD is an intergovernmental organisation with 53 member countries. It acts as a strategic think tank with the objective of helping shape the transport policy agenda on a global level and ensuring that it contributes to economic growth, environmental protection, social inclusion and the preservation of human life and well-being."

These guys aren't oil industry puppets and they don't evaluate macroeconomic issues from the perspective of an individual consumer who's trying to make a car buying decision. Instead they focus on the broader questions of whether individual consumption decisions are productive or counterproductive for society and humanity as a whole. When the OECD starts openly questioning the fundamental economic and environmental value of electric drive, you know the geopolitical winds are shifting rapidly. When the first graph in an OECD discussion paper is a simplified version of the Gartner Group's Hype Cycle, it's a clear indication that evolving attitudes of policymakers are bad news for investors in companies like Tesla Motors (TSLA) that want to drive the auto industry in directions that don't serve the best interests of society or humanity.

As a staunch critic of electric drive, I was particularly pleased with the OECD's admission that electric cars are “displaced emission” rather than zero emission vehicles, that the environmental benefits of electric drive are wholly contingent on the marginal electricity production used to charge the vehicles, and that where electricity generation is relatively polluting, the air quality-related health impacts of electric vehicles are worse than gasoline ICEs but better than diesel ICEs. It's nice to finally see an honest acknowledgement that moving pollution from a tail pipe to a power plant doesn't solve the problem. It merely shifts the suffering from the polluter to somebody else.

Since I'm weary of juvenile arguments with EVangelicals who cleave to eco-religious dogma without exercising their power of independent thought, I'll refrain from providing a detailed analysis of the OECD policy brief and discussion paper. I will, however, suggest that both documents are Must Reads for prudent investors who want to understand the likely future of government support for the fatally flawed proposition that battery-powered electric vehicles can overcome the laws of thermodynamics, chemistry, physics and economic gravity.

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

June 20, 2012

Solar Inverter Shakeout: 3 Survivors, 2 Buyers, a Loser and a Wildcard

Tom Konrad CFA

The inverter for the solar array...
Inverter for a solar array. (Photo credit: Wikipedia)
Solar inverter stocks are looking cheap, but until the weaker players are forced out, they are likely to get cheaper.

The major publicly traded solar inverter companies are Power-One (NASD:PWER), Satcon (NASD:SATC), SMA Solar (OTC:SMTGF), Siemens (NYSE:SI), Advanced Energy Industries (NASD:AEIS), Schneider Electric (OTC:SBGSF) and upstart Enphase Energy (NASD:ENPH).  Over the  last year the industry has faced eroding margins and an increasingly competitive environment.  This parallels the problems of solar manufacturers: the industry has too much capacity for a market that is not growing as fast as many expected.

Power-One and SMA currently look quite cheap in terms of Price to Earnings ratios (5.9 and 4.9, respectively), so I asked my panel of green money managers for their thoughts on the industry.  Is the industry near bottom?

I received responses from Rafael Coven, Managing Director at the Cleantech Group, and manager of the Cleantech index (^CTIUS) which underlies the Powershares Cleantech ETF (NYSE:PZD), and from Garvin Jabush, the Cofounder and CIO of Green Alpha Advisors and manager of the Sierra Club Green Alpha Portfolio.   Here are their thoughts:

Coven on the Competitive Landscape

Solar Inverter industry economics have deteriorated with the decline in overall solar market and diminishing  government budgets for solar incentives.   Given the difficult demand picture and insufficient product differentiation the market is becoming commoditized and increasingly price-driven.

Jabusch on How it Will Be Resolved

[T]he problem, as with panels and wafers, is narrowing margins.  The solution, as with panels and wafers, will be to make up for that with increasing scale….  [We] believe the scale of renewables will continue to expand, although timing their turnaround is proving challenging.

Which Companies Will Survive

Both agree that diversification and a strong balance sheet will be key to company survival.


Just as in Solar PV, the shakeout will weed out the weaker (undercapitalized) players (thankfully there  are far fewer players than in solar PV).   There are better emerging inverter technologies, but I’m don’t know their time to commercial launch, nor how good the product pipelines of the current solar inverter players are vis-à-vis coming entrants.   I doubt that the undercapitalized inverter players will have the resources either survive new low-cost entrants from Asia nor be able to buy or license some of the better emerging technologies.  Companies such as Siemens or Schneider can afford to buy whatever looks like the winning technology.   In this business, having diversification is critical.


[T]he respective sector leaders with the strongest financial and market positions will weather the downturn the best, and we feel like Power-One is one of these.

Two Buyers and Three Probable Survivors

As Coven says, Siemens and Schneider are diversified giants, and so will not feel pressure as much as more focused industry players. Power-One and SMA are also well capitalized with negligible debt and current profits.  Power-One is more diversified than SMA, with a large electronics business selling power supply products to computer and storage industries.  I expect all four will survive the shake-out.  Solar is only a sideline for Advanced Energy Industries, so it, too should be able to weather the decreasing margins in the industry.

Probable Loser

Satcon looks unlikely to survive the shake-out.  The company is losing money, has shrinking sales, and a horrible operating margin of -46%.  Even rapid growth would not help the company’s economics, unless it were accompanied by increased pricing, which seems unlikely.  I expect Satcon to declare bankruptcy, with its rivals buying any valuable pieces from Satcon’s creditors after.


Like Satcon, Enphase has a weak balance sheet and is losing money rapidly.  Unlike Satcon, Enphase has one of the “emerging technologies” Coven spoke about, selling microinverters which are integrated with the individual panels.  Microinverters have the advantage that they simplify installation by removing the need to work with direct current, and they are also better at optimizing system output.  Because of this, Enphase is growing rapidly, while Satcon is shrinking.

Given Enphase’s weak balance sheet, the stock is likely to continue to decline despite the strong revenue growth.  Either Enphase will be acquired by a stronger player, or existing shareholders will suffer significant dilution as the company is forced to return to the markets for additional operating capital.

China Takeover

An acquirer might not just be one of the stronger industry players Coven pointed to.  Jabusch speculates that one of the stronger diversified Chinese solar companies might look to acquire a newly cheap power conversion player.  He thinks it “makes sense for a larger solar firm to want to add power control devices such as inverters, storage and distribution to their verticals,” while emphasizing that this is only speculation.  ”But,” he says, “ the pieces fit, so it can’t be ruled out.”


Given the consensus that the shake-out is far from over, it is too early to buy into the solar inverter industry.  Even likely industry survivors will continue to see deteriorating margins until the weaker players exit.  Possible buy-out targets may receive a price bump on buy-out news, but any acquirer (even one from China) will probably wait for weakening industry economics to allow them to pick up their target our of bankruptcy, or at least a better price than is available today.

Disclosure: No positions.

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.

June 19, 2012

Has the fuel-cell industry reached a tipping point?

Tyler Hamilton

200px-Ballard_Power_Systems_logo.svg[1].png There was a shareholder who stood up at Ballard Power’s annual meeting last week to share her experience with the company’s stock price. It pretty much summed up the frustration shared by most investors in the fuel-cell industry.

This investor has owned Ballard (BLDP) shares for most of 20 years. She sold in early 2000 when the stock hit $140 a share and did quite well. That was when the hype around fuel-cell powered cars was approaching its fever pitch.

Later that year she bought back into the company at about $120 a share, believing the stock was poised for another run. Bad move. The drop continued, to the point where today shares are struggling to stay above $1.

What’s a CEO to say? Ballard chief John Sheridan, who holds 500,000 or so shares himself, said he understood and felt the pain. But he emphasized, as he has in the past, that the market continues to undervalue fuel-cell companies generally and Ballard specifically.

There’s no question the industry has had a history of over-promising and under-delivering, and it continues to pay dearly for miscalculations. German automaker Daimler AG predicted a decade ago that 100,000 fuel-cell car engines would be produced annually by 2005.

Even less ambitious targets—but no less unrealistic—have been missed. Ballard told Time magazine in 1999 that fuel-cell vehicles would be economical by 2010. PricewaterhouseCoopers predicted in 2001 that sales of the vehicles would reach one million a year by 2010.

Of course, we know how that turned out. Around mid-2000 the government and auto industry began shifting attention to battery-powered vehicles. The media lost interest, tired of reporting on yet another pilot project or hydrogen-powered bus sale.

Big investors, more importantly, lost their appetite for the technology. Too much had been spent, and it was taking far too long for the promised hydrogen economy to emerge. Time to move on.

Technology analyst Brian Piccioni, most recently of BMO Capital Markets, said governments are in no mood these days to spend, let alone engage in another wave of support for fuel cell projects. And raising capital from the private sector remains a huge challenge.

Despite this tough environment, there was a true sense at Ballard’s annual meeting that the industry is nearing a tipping point.

No, I’m not suggesting that fuel-cell cars will soon be in a showroom near you. That’s still a long-term dream given existing infrastructure challenges. But fuel cells are seriously beginning to gain traction in certain sectors and for specific applications.

Volumes are building to impressive levels, costs are coming down, and some companies – Ballard among them – are flirting with profitability.

Since 2009 Ballard’s average product cost has fallen by 60 per cent. Revenue is expected to surpass $100 million in fiscal 2012, more than double 2009 results. As a result, the company is projecting it will have positive cash flow in the second half of 2012.

It also expects to hit the breakeven mark for “adjusted” earnings before interest, taxes, depreciation and amortization, which is a sneaky way of measuring operating performance that excludes certain items. It does, however, hint at true profitability within reach.

“It’s a true milestone in our history and our industry as well,” Tony Guglielmin, chief financial officer of Ballard, told shareholders.

In fact, there’s a bit of a race to profitability going on in the industry, with companies such as FuelCell Energy (FCEL) and ClearEdge demonstrating that they’re closing in on that goal.

More telecommunications firms are seeing the benefits of fuel cells for providing clean back-up power. More municipalities are adding fuel cell-powered buses to their fleets, and more warehouses are ditching lead-acid batteries in favour of fuel-cell forklifts. It’s not a tsunami, mind you, but it’s also not a trickle anymore.

This isn’t just because it’s the “greener” option. Products are gaining traction because, in certain applications and geographies, they are cost-competitive and simply better.

Another growth area is the use of fuel cells for distributed power generation, either to more efficiently use natural gas or biogas to produce electricity, or to use surplus or off-peak renewable energy to make and store the hydrogen that powers fuel cells.

As more renewable energy sources are added to the power mix of grids, there will increasingly be a need to store and later retrieve that energy on a large scale. Grid stability will come to depend on it.

For that use, the hydrogen and fuel cell combo might have been too expensive five years ago, but today it fits the bill in many jurisdictions and for many companies. The outlook will only get better.

So is Ballard under-valued? Judging by the direction of its costs, sales and industry trends, there’s a good argument that it is.

We may not see the hydrogen economy that gave shareholders $140 a share 12 years ago, but the fuel-cell market is poised for growth and Ballard – after a long and painful transition – is finally in a good place.

Tyler Hamilton is editor-in-chief of Corporate Knights magazine a business columnist for the Toronto Star, and author of Mad Like Tesla.  In addition to the Clean Break blog, where this article first appeared, Tyler writes a weekly column of the same name that discusses trends, happenings and innovators in the clean technology and green energy market.

Five Green Dividend Stocks to Watch

Tom Konrad CFA

The Perfect Stock

My ideal stock is:

  1. Green (in that the company is helping to make the economy more sustainable)
  2. Pays a good dividend (in the current low-interest rate environment, I consider 4% to be “good”)
  3. Has earnings and free cash flow large enough to easily sustain the dividend, and
  4. Has low debt, leading to low earnings and cash flow volatility.

I like such stocks because I can buy them, and pretty much ignore them.  This leaves me time to research more speculative green stocks, while still knowing that much of my portfolio is producing reliable income.  Until recently, however, my ideal stock did not exist.

The recent decline of many green stocks has changed that, and I’m finally building a core of my portfolio around such reliable income producers.  For a list of the dividend stocks I am buying, see the end of the article here.

Dividend Stocks to Watch

Money Vision photo via Bigstock

Still, many green companies I like don’t meet all my criteria.   Here are five I’m watching, and why.

 #1 General Electric (NYSE:GE)

Why it’s Green: GE is involved in almost every green sector.  It’s a leading wind turbine manufacturer, produces all sorts of efficient vehicles, machinery, and appliances, and has a strong smart grid division.  The company’s Ecomagination initiative has long been core to its growth strategy.

Why I’m Watching, Not Buying: At $18.24, the dividend yield is a little lower than I’d like, at 3.7%.  Earnings and free cash flow are easily enough to support a higher dividend, but GE’s debt to equity ratio (3.65) is uncomfortably high.

What I’m Waiting for: GE’s high debt will probably be a barrier to me adding it to what I consider the “safe” part of my portfolio, but  if the dividend were to rise to 5% or more, and income still looked stable, I would probably buy, but to continue to watch the stock for signs of weakness.

 #2 Siemens (NYSE:SI)

Why it’s Green: Siemens is also a leading wind turbine manufacturer, as well as a leader in electric transmission and distribution technology.  Siemens’ automation technology helps innumerable industries use energy more efficiently.

Why I’m Watching, Not Buying:
 At $80.22, Siemens’ dividend is 3.5%.  Earnings could easily support a higher dividend, but free cash flow is weak.  Debt is at a comfortable 60% of equity.

What I’m Waiting for: I’d like to see free cash flow improve, and maybe a modest price decline to make this stock a better value.

#3 Honeywell (NYSE:HON)

Why it’s Green: Honeywell is a leader in efficient buildings, a key area society needs to address to become more sustainable.

Why I’m Watching, Not Buying: At $53.58, Honeywell’s dividend yield is 2.8% well below my threshold.  Income and cash flow are easily strong enough to support the dividend, and debt is also reasonable at 2/3 of equity.

What I’m Waiting for:  A fall in the stock price.  All Honeywell needs is the right price, and I’ll be a buyer.  If it fell below $40 today, I’d be buying.

 #4 Johnson Controls (NYSE:JCI)

Why it’s Green: Johnson Controls is a leader in efficient buildings, and a leading battery manufacturer.

Why I’m Watching, Not Buying: At $29.17, JCI’s dividend yield is 2.5% well below my threshold.  Earnings are easily enough to support a higher dividend, and debt is low, but free cash flow is negative.

What I’m Waiting for:  Like GE, Johnsons Controls is not likely to make it into the “safe” part of my portfolio any time soon, but a fall in the stock price might see me pick it up for the more speculative part of my portfolio.

#5 Veolia (NYSE:VE)

Why it’s Green: Veolia is a leading water and waste management company.  It also has a mass transit division, although it is looking to sell that.

Why I’m Watching, Not Buying: I own Veolia, but consider it speculative, not safe.  The company has a cash flow problem, but is currently working to restructure its operations.  Earnings are volatile, and, while the dividend is attractive at 6.8%, the company follows the European practice of setting a new dividend every year.  I’m far from sure the 6.8% level will be maintained.  Debt is high at over 2x equity. 

What I’m Waiting for:  The results of restructuring.  The company has the revenues and businesses to be a reliable cash producer.  If Veolia is able to sell some divisions and pay down its debt, the current low price ($12.18) would allow it to transform itself into my ideal stock.

UPDATE: I sold my position in VE when the stock rallied to $12.40.  I may repurchase if it falls below $11
This article first appeared on the author's Green Stocks blog at Forbes.com.

Disclosure: None.

June 18, 2012

The X Factor in Covanta's Capital Budget

Debra Fiakas, CFA

Waste Heirarchy.png
The Waste Hierarchy, with
energy from waste highlighted

In the last post “Covanta on a Mission to Up-cycle Municipal Waste," I noted that even a group of experts advising Covanta Holding (CVA:  NYSE), has some concerns about the wisdom of channeling municipal waste through mass burn facilities like those of Covanta.  Recycling and reuse are considered even higher uses for municipal waste that result in net lower toxic emissions and net higher energy savings or energy generation.  For example, a report published by the European Union and entitled Waste Management Options and Climate Change notes that sorting municipal waste at the source and then recycling offers the lowest net greenhouse gases.  Only when compared to coal-fired power generation are mass-burn facilities on par with recycling in terms of greenhouse gas savings.

Let me first concede this point before moving on to look at Covanta’s investment in plant capacity.  However, I would also like to add the thought that if the waste is not getting recycled anyway, it makes sense to use the waste for electricity and steam generation, especially with the metals recovery that Covanta achieves.

Covanta has not published an average cost per facility, but a review of the company’s most recent construction projects suggests a wide range of costs.  For example, an energy-from-waste (EfW) project in Ontario, Canada referred to as the Durham-York project is expected to process 140,000 tons of waste per year.  The price tag for the project is estimated at about $250 million based on current exchange rates, implying a cost of $1,786 per ton on an annual basis.

Another project currently underway is the expansion of an EfW facility in Honolulu that will increase tonnage capacity by 900,000 tons per day.  The expansion is expected to require $302 million, implying a cost of $918 per ton.  Granted the Durham-York and Honolulu projects are not comparable since the Honolulu expansion capitalizes on infrastructure already in place.

The cost burden for an EfW facility does not necessarily fall exclusively on Covanta’s shoulders.  That is because the company has a variety of relationships with local communities, which leads in some cases to Covanta operating an EfW facility owned a local entity such as a municipality or special services agency.  When Covanta builds a facility that it will simply operate on behalf of a local entity, the construction project ends up in Covanta’s top-line as revenue.

For its own portfolio of owned-facilities Covanta invested $143 million in facility construction in 2011  -  a significant increase over the $101 million in 2010 and $27 million in 2009.  Additionally, Covanta invested $307 million in maintenance and enhancement projects over the last three years.  During the year-end 2011 earnings conference call management outlined an investment budget for 2012 of $50 million for growth projects and another $80 million to $90 million for maintenance capital spending. 

Property, plant and equipment on the books at the end of March 2012 totaled $2.4 billion.  Any investor in CVA has to wonder whether fixed assets values are secure given the view that mass burn for electricity is not the highest and best use for municipal waste.  Even with Covanta’s kicker of recovering metals, it seems like a significant increase in reuse and recycling would cut into both the volume and quality of the EfW feedstock stream Covanta depends upon.  Just how long will Covanta’s facilities be economically viable?  This might be the X factor in Covanta’s capital budget. 
Covanta has been relying upon fixed fee and put-or-pay provisions in their operating contracts to protect the company from volume and cost risks.  The company recently lost a contract to operate a facility in Hartford, Connecticut because the Hartford community wanted a cost-plus-fee contract arrangement.  Covanta appears to have simply let the relationship go to a competitor to avoid the risks a cost-plus-fee contract might entail  -  letting go at the same time to a 100% contract renewal track record.  The put-or-pay provisions may be as important in the coming years as more pressure is put upon communities to promote “reduction, reuse and recycling.”  

This article is part three of a three part series.  Here are part one and part two

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.  CVA is included in Crystal Equity Research’s Beach Boys Index in the Waste-to-Energy Group.

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

Micro-hybrids And The Multi-Billion Dollar Battery Battle

John Petersen

Last week the stock of A123 Systems (AONE) soared 52% in a day after it announced that an enhanced chemistry would improve the cold and hot weather performance of its LiFePO4 batteries, reduce the need for ancillary temperature control systems and make them more competitive in a rapidly evolving micro-hybrid battery market that's dominated by lead-acid battery manufacturers like Johnson Controls (JCI) and Exide Technologies (XIDE). Investors seem to understand that micro-hybrids will generate several billion dollars of incremental annual revenue for battery manufacturers by 2015, but they haven't quite figured out who the winners will be. Today I'll try to clarify some of the issues.

The idea behind the global shift to micro-hybrid technology is simple and sensible – there's no good reason to run a four, six or eight cylinder engine while a car is stopped in traffic. It wastes fuel and pollutes the air while doing nothing to move the car from Point A to Point B. The solution is to turn the engine-off when it's not powering the wheels, a solution that's quickly finding its way into emissions control and fuel economy regulations worldwide. The problem is that turning the engine-off at a stoplight, carrying accessory loads during engine-off periods and restarting the engine when the light changes color puts immense strain on the battery.

The following graph comes from a joint presentation that Ford and BMW made at an industry conference in 2010. While there's way to much detail for most investors, the core lesson is simple – over 90% of the battery load during a one minute engine-off interval comes from the accessories while less than 10% comes from restarting the engine.

6.17.12 DCAT.png

In a car without stop-start, the battery has to start the engine when you leave for work and it can use the entire commute to recover the 400 to 600 amp-seconds of energy used by the starter. In a micro-hybrid with stop-start, the battery has to start the engine when you leave for work and it has to provide another 3,600 amp-seconds of energy for each engine-off event. In a typical 15-mile commute, a micro-hybrid requires its battery to do 100 times more work than the battery in a car without stop-start. This is not a modest change. It's an immense technical challenge.

The next graph comes from the same Ford-BMW presentation and shows how the performance of a high-quality AGM battery degrades in a micro-hybrid duty cycle. The downward curving blue line near the bottom is the amount of current the battery can accept as it ages. The upward curving black line in the middle is the amount of time required for the battery to regain an optimal state of charge in preparation for the next engine-off opportunity. Once again the core lesson is simple – a micro-hybrid with a new battery can recover from an engine-off event in under a minute, but a micro-hybrid that has 5,000 miles on the battery will need five minutes or more to prepare for the next engine-off event. Micro-hybrids that can't turn the engine off because they're waiting for the battery to recharge can't save fuel or reduce air pollution.

6.17.12 VRLA.png

Automakers understand the problem and their current solution is to disable the stop-start system when the battery hasn't returned to an acceptable state of charge. They also know that a short-term patch is not a long-term solution. Once you understand these two graphs, you'll understand why enhanced flooded batteries and even AGM batteries must eventually lose the battle for the micro-hybrid market. They just can't stand the strain.

The most important word in that last paragraph is "eventually." Automakers plan to build about ten million micro-hybrids this year and global production should ramp to 35 million micro-hybrids a year by 2015. There are several new battery technologies that are better suited to the micro-hybrid duty cycle, but they can't be manufactured in big enough volumes to make a difference over the next few years. That means automakers will be forced to settle for batteries they can buy in volume until the newer batteries are available at relevant scale. For the next several years, enhanced flooded batteries and AGM batteries will win the battle for short-term market dominance, even though they can't win the war.

In the emerging battery technology group the leading public company contenders are A123 Systems and Axion Power International (AXPW.OB). A123 will try to win the hearts and minds of automakers with an LiFePO4 battery solution that is superior to flooded and AGM batteries in most respects. Axion will try to win the same hearts and minds with its PbC® battery, a hybrid lead-carbon battery. Both of these new batteries have strengths and weaknesses, so it's too early to pick a winner. To help investors understand the issues, the following paragraphs will compare A123's LiFePO4 technology with Axion's PbC technology.

Battery weight – A123's LiFePO4 battery is the hands-down winner when it comes to battery weight, but it can only shave 40 to 50 pounds off the weight of a 3,000 to 4,000 pound vehicle. For some automakers the weight savings will be important, but I don't see weight as a mission critical issue in micro-hybrids.

Battery cost – Axion recently charged a customer $400 per battery for a thousand unit PbC order. Based on historic costs, it looks like A123 will have to charge about $800 for an engine start battery. Despite widespread rumors that the cost of manufacturing lithium-ion batteries is falling rapidly, A123's production costs have been stubbornly stagnant for years. As the PbC technology matures and Axion's production processes improve, significant cost savings and other economies of scale seem likely. So for now, at least, it appears that the PbC will enjoy a major cost advantage.

Dynamic charge acceptance Automakers need a micro-hybrid battery that can accept currents of up to 100 or 150 amps, the maximum power their alternators can generate. While the DCA of AGM batteries falls to less than 10 amps in a couple months, both of the new batteries boast DCA in the 100 to 200 amp range. While both batteries offer ten to twenty times better DCA than AGM batteries, neither has a clear advantage over the other in micro-hybrid applications.

Cycle-life – Automakers need a micro-hybrid battery that will last for at least three-years, and preferably longer. The data released by A123 and Axion indicates that both batteries can handle a five-year service life without breaking a sweat and may last the entire life of the vehicle with only modest performance degradation. While both batteries will last five times longer than AGM batteries, neither has a clear cycle-life advantage over the other in micro-hybrid applications.

Materials availability and recycling – Lithium-ion batteries are made from highly refined metals that are widely used in other consumer and industrial products. They can't be economically recycled but they don't pose any particular disposal risks. Lead-acid batteries are made from raw materials that don't have significant alternative uses. They're also the most recycled product on the planet and generate significant profit to recyclers. Lead is hazardous if it's disposed of improperly, but used batteries that contain $70 to $100 of recoverable metal are simply too valuable to throw away.

Capacity constraints and expansion – If all of A123's manufacturing capacity was devoted to stop-start batteries, it could make about 900,000 units a year. Axion will need to spend about $30 million to bring its annual production capacity up to the 900,000-unit level. Since PbC electrode assemblies are designed to work as plug-and-play replacement components in other lead-acid battery factories and Axion ultimately wants to become a component supplier, ramping PbC production will cost about $50 million for a million units of incremental capacity. Ramping LiFePO4 production will cost about $400 million for a million units of incremental capacity because the underlying technology can't leverage existing infrastructure.

Testing and validation – When it comes to their mainline vehicles, automakers are obsessive about performance and quality testing for both components and suppliers. For simple commodity components like flooded lead acid batteries from a new supplier, the process usually takes twenty-four months. For more complex components and systems, testing and validation can take significantly longer. Several automakers began evaluating the PbC for use in micro-hybrids in mid-2009. A123 will not have samples of its enhanced battery chemistry available for testing and validation until later this year. I expect the process to be less time consuming for A123 because several automakers have evaluated its products for use in specialty vehicles and some portion of that earlier work will apply to using LiFePO4 batteries in micro-hybrids. I believe, however, that Axion has a solid head start that should offer a first mover advantage.

Entrenched competition – Lead-acid batteries have owned the automotive starting, lighting and ignition market for almost a century and the industry has an immense and diversified global footprint of installed production and recycling capacity. Over the short-term, lead-acid battery manufacturers will resist innovations like Axion's PbC electrode assemblies because it's easier and cheaper to continue with business as usual. When alternatives like A123's LiFePO4 batteries threaten to encroach on their bread and butter markets, I think leading lead-acid battery manufacturers will quickly change their tune and eagerly embrace technologies that can protect their market position from interlopers. If the lead-acid battery industry rises to the micro-hybrid challenge, I believe automakers will be reluctant to change to more costly alternatives that offer no significant performance advantages beyond a modest weight savings.

Over the next three to five years enhanced flooded and AGM batteries will be the only products that are available in large enough volumes to serve the needs of the micro-hybrid market, so manufacturers like JCI and Exide will thrive as their per vehicle revenue doubles and their per vehicle gross margins triple. During that period advanced batteries like Axion's PbC and A123's LiFePO4 will establish toeholds in the heavy micro-hybrid sector that's expected to ramp to about eight million vehicles a year by 2015. As the performance differences between the new batteries and legacy technologies become clearer, and production capacity for the advanced batteries ramps, demand will shift from the legacy technologies to the newer batteries. When the lead-acid battery industry begins to view lithium-ion batteries as a credible threat in a major market, the rush to third generation lead-acid technologies like Axion's PbC will begin in earnest.

Readers who are looking for a silver bullet technology to dominate the energy storage sector always amaze me. Frankly, I don't think such a technology exists. Energy storage is a sector where you get no extra credit for cool and the only things that matter are price, performance, quality and serving the customers' needs. In that kind of market, the best anybody can hope for is silver buckshot. I do believe, however, that every company that can bring a cost-effective product to market in relevant scale will have more demand than it can handle.

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

June 17, 2012

Ram Power Negotiates for Higher Revenue

Tom Konrad CFA

Geothermal well photo via Bigstock

Ram Power (OTC:RAMPF, TSX:RPG) recently provided an update on progress at its flagship San Jacinto project in Nicaragua.  This was the project where cost overruns and construction delays last year sent the stock plummeting from over C$2 a share to around C$0.50 a share at the start of the year.  The decline has continued, despite the fact that the project seems back on track with the hiring of a new subcontractor, and the stock now trades at C$0.23, a fraction of book value (C$0.91.)

Tariff Increase

According to the update, a tariff increase was “contemplated by the initial Project concession [and] will allow the Company to recover unanticipated Project costs associated with both the development of the resource and plant construction.”   Because it was part of the original agreement, it seems likely that some tariff increase will be granted.

The company estimates that a new tariff would result in an annual revenue increase for Ram of between $8 million and $11 million upon completion of 72MW San Jacinto project expansion, which the company expects in December 2012.

Since any additional revenue from a tariff increase would not involve additional costs, we can expect substantially all additional revenue to flow to pre-tax income, and would amount to an additional 2 to 4 cents per share.   I expect the stock to jump on this news, with a much bigger jump in the event that the tariff negotiations are successful.   I think successful negotiations are very likely, since management would probably not have announced the negotiations if they had significant doubts.


I think past setbacks at Ram and the high profile problems at rival geothermal company Nevada Geothermal Power (OTC:NGPLF,TSXV:NGP) have led markets to heavily discount Ram’s chances of completing San Jacinto on time and on schedule.  In particular, I don’t think markets are considering the fact that geothermal field expansions are substantially less risky than initial development, because much more is known about the structure of the geothermal reservoir.

Ram’s COO of Latin America, Tono Rodriguez says,

With a majority of the engineering and construction completed, the Phase II expansion construction continues at a rapid pace. We fully expect the project to come in on time and on budget, with an expected on-line date in the fourth quarter of this year.

I believe this.  The riskiest part of project development is over, but investors are treating it as if it were riskier than ever.  While I doubt Ram will see a C$2 share price in 2012, I think a price double is likelier than not upon completion of San Jacinto and a successful tariff renegotiation.

Disclosure: Long RAMPF

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.

June 16, 2012

Opposite Day Blows Wind Tower Stocks Offshore

Tom Konrad CFA

Offshore Wind Farm photo via Bigstock

Wind tower stocks having opposite day, or rather opposite week.

When US-based wind power companies won a preliminary injunction to impose countervailing duties  in a trade dispute against China, their stocks fell.  They have continued to fall for the four trading days since the announcement.   In fact, as the chart and table below show, wind tower stocks Trinity Industries (NYSE:TRN) and Broadwind (NASD:BWEN, red) have fallen more than the wind industry stocks as a whole (NYSE:FAN, green) and Siemens AG (NYSE:SI), the German energy conglomerate which argued against the tariffs.

According to a Dow Jones story Thursday, Siemens and Vestas (OTC:VWDRY) are the most likely companies to be hurt, since they are the biggest customers for Chinese wind towers in the US.   While Siemens stock has declined less than the industry as a whole, only Vestas stock has declined as might be expected.

Industry role Change,
5/29 to 6/4
FAN Global Wind ETF Wind industry as a whole -4.3%
SI Siemens Chinese Wind Tower Customer -6.1%
VWDRY Vestas Chinese Wind Tower Customer -14.1%
BWEN Broadwind US Wind Tower Manufacturer -6.9%
TRN Trinity US Wind Tower Manufacturer -6.6%

The Chinese wind tower companies hit by the tariffs are not publicly traded.

Yesterday, a reporter from the Financial Times‘ Deal Reporter called to ask me if I had any insight into the unexpected market reaction.  My thoughts are these:

  • These wins are not a big deal for these wind tower companies, since wind tower markets are fairly local because of high transportation costs.
  • Wind tower stocks  are probably not declining from fear of Chinese retaliation, since that would likely affect the whole industry, not just wind towers, yet FAN is down less than any of the involved parties.
  • This trade dispute may be less about onshore wind towers today than offshore wind towers tomorrow.

Offshore vs. Onshore

There are several reasons I think this may case may really be preparation for a bigger dispute over offshore wind towers to come.

  1. Almost by definition, offshore wind farms will be accessible from ocean trading routes.  Even proposed offshore wind in the Great Lakes is accessible via a series of locks.
  2. The towers and pilings are a much larger proportion of the cost of offshore wind farms than they are for onshore farms.  According to Walt Musial, manager of offshore wind and ocean power systems at the National Renewable Energy Laboratory, turbines only account for 32% of the cost of an offshore wind farm.  Onshore, the turbine accounts for 75% of wind farm costs.
  3. Siemens, the only company to argue against the tariffs, is a big player in offshore wind.

I think the stock market is telling us that the $222 million of Chinese wind tower exports today are small potatoes.  This is just a prelude to the real fight, the fight over offshore wind towers.

Disclosure: No positions.

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.

June 15, 2012

Two Perspectives on A123, Solar's Strong Showing in Q1: The Week In Cleantech: 6-15-2012

Jeff Siegel and Tom Konrad

June 11: A trade complaint may filed against Chinese solar manufacturers in the EU

TK: The EU is still a much larger market than the US, which already has countervailing duties.  China's largest panel makers, will likely shift their focus to China's domestic market while boosting production.  More here.

June 12: A123 (AONE) announces battery new technology

TK: A123 (NASD:AONE) says their new Nanophosphate EXT technology will allows lithium ion batteries to operate at extreme temperatures, eliminating the need for liquid cooling systems in EVs, and reducing the cost of an EV by $600.  The greater temperature range would allow the new batteries to operate inside the engine compartment, as a drop-in replacement for conventional lead-acid starter batteries.  Perhaps the most promising application for these batteries would be in backup power systems in places with an unreliable grid.  Lead acid batteries charge too slowly to be recharged from the grid in such places, and so must be supplemented with diesel generators.   Lithium-ion's faster charging rate might allow some installations to dispense with a generator entirely, and would save others considerably in fuel costs.  More here.

June 13: A123 Systems (AONE) Soars For No Rational Reason

JS: A123 Systems (NASD:AONE) shot up more than 50 percent after announcing it  had developed an improved lithium-ion cell that can cut costs of electric cars.

While I've always been a big supporter of this company (wishing them the best), as an investor, I can't help but to wonder what happened yesterday.
Just a couple of months ago, the company began replacing defective battery packs at a cost of $51.6 million. This helped the company report a record loss of $125 million for Q1, 2012. The company even had to issue a “going concern” statement.

Last month, when shares closed below $0.90 the company had long-term debt of $161 million compared to a market valuation of $129.3 million. To put that in perspective, when the company went public, it debuted at $13.50.

Now don't get me wrong. The company's announcement of its technological breakthrough should not go unnoticed. But neither should the fact that this company is still dealing with $51 million in battery replacements, foreign competitors that continue to maintain a significant manufacturing cost advantage, and of course, bankruptcy concerns. I'm not certain the latter will happen, but I'm definitely not willing to roll the dice on that either.
Sure, technological breakthroughs are great. They're important, and they've been produced by plenty of other companies that no longer exist today. That's the reality. Personally, I do hope A123 comes out on top when all is said and done. But it's going to be a long, tough ride. And I just don't see any rational justification for a 50% pop on an announcement of a technological breakthrough from a company that's barely treading water right now.

TK: Rockwool International (COP:ROCK-B, OTC:RKWBF) announced plans for its first US manufacturing facility.  The Danish insulation company previously served the whole North American market from two facilities in Canada.  The new US facility will be built in Marshall County, Mississippi, and was prompted by continued double-digit growth in North America and demand for Rockwool's products and interest from "leading do-it-yourself chains."   North America accounted for 8% of Rockwool's sales in 2011, and the share is expected to increase in coming years.

June 14: U.S. Solar Industry Posts Solid Q1 With 506 MW Installed

TK: At this pace, installations in 2012 should easily surpass last year's installations, despite the expiry of the 1603 tax grants and tariffs on low-cost Chinese panels.  More here.

June 15: Global Wind Day

TK: Today more than 200 events in 40 countries will be held to build pressure on world leaders to commit to double the share of renewable energy by 2030 at next week's Rio+20 Summit.

Next Week: REFF-Wall St and Peak Oil Symposium

TK: I'll be in NYC early next week to attend the Renewable Energy Finance Forum - Wall Street and Oil Supply & Demand: Studying the Wildcards.  Unfortunately, I won't be able to attend all of both, since they overlap. 

JS: No positions.

Jeff Siegel is Editor of Energy and Capital.
Tom Konrad Ph.D. CFA is Editor of AltEnergyStocks.com, and a blogger on Forbes.com.

Tesla Motors; Automaker or Graphic Novel?

John Petersen

One of the hardest parts of blogging about energy storage and vehicle electrification is the inability of some readers to wrap their minds around large numbers. We throw around numbers like thousand, million, billion and even trillion with surprising alacrity, but many fail to grasp their significance because the underlying realities are too big to comprehend.

The other day I stumbled across a website that tracks the national debt and uses the humble second to put incredibly large numbers into perspective:
  • A thousand seconds is 16.6 minutes;
  • A million seconds is 11.6 days;
  • A billion seconds is 31.7 years; and
  • A trillion seconds 31,688 years.
In the last 12 months the US imported 3.25 billion barrels of oil and produced another 2.13 billion barrels domestically. That works out to a little over 226 billion gallons a year, an incomprehensibly large number. The following graph tracks monthly oil supplies in the US for the last 30 years and shows how slowly things change in the energy industry. We might want things to change quickly, but they can't because the baseline numbers are so immense.

6.15.12 Oil Supply.png

Since hitting a peak in 2005, oil consumption in the US has fallen by about 6% as higher prices encouraged more efficient vehicles and driving habits. During that same period improvements in oil production technology have increased domestic production by about 25%. There are many who think domestic oil production will contribute more to supply than imports by the end of the decade. I hope they're right because domestic production adds to the economic vitality of the nation while imports are a major drain. Whatever changes the future holds, however, they're not going to be big or fast. Energy transitions take decades to unfold and while there are no panacea solutions, false promises abound like flowers in an alpine meadow.

I enjoy making fun of electric car advocates who believe that companies like Tesla Motors (TSLA) and its iconic CEO Elon Musk will change the world with ambitious plans to make 5,000 prohibitively expensive toys this year and 20,000 next year if they can find enough buyers. The reason is simple. I know that even if Tesla succeeds the success is irrelevant. The cars it plans to make in 2012 and 2013 would save about a million gallons of gas a year, or two minutes and nineteen seconds on the US oil supply clock. No matter how you slice and dice the numbers, Tesla just can't matter.

From my perspective the most frightening aspect of Tesla hysteria is the pervasive view that Mr. Musk is some kind of new-age superhero. Earlier this week I got an e-mail from a group that had created a graphic that highlights the life and times of Elon Musk, "The Real Life Tony Stark." You can access it yourself by clicking here.

My first impression was that the group had a rich sense of humor and had crafted a brilliant parody. As I researched the host website, however, it became increasingly clear that the creators are serious and honestly believe that St. Elon of Palo Alto is a larger than life superhero who can change the world with bold plans and magic beans.

A Branch Davidian or Jonestown mentality is tragic in a religious cult. It's catastrophic in an investment security because those who believe in graphic novels usually believe in alternate universes where cruel realities like oil supply and demand and the physics of moving mass over distance at speed can change in the twinkling of an eye.

I track both short- and long-term volume weighted moving average prices for all the stocks I write about. At this point I think Tesla's chart is looking pretty ugly. The Model S was launched in 2009 when Tesla started taking reservations. The deliveries that will start next week are already baked into the stock price. Without a big surge to the upside, a death cross where the 50-day average plunges down through the 200-day average is all but inevitable by the 4th of July.

6.15.12 TSLA.png

I don't believe in superheroes and I haven't read a graphic novel since I was an adolescent. I plan to watch this train-wreck unfold from the sidelines. I'll be the first to congratulate Tesla and Mr. Musk if they can meet their lofty goals, develop sustained product demand and build stockholder value. I won't be holding my breath over the risk of a stewed crow dinner.

Disclosure: I have no direct or indirect interest in Tesla and I have nothing to gain or lose from its stock price movements. While I am a former director and current stockholder of Axion Power International (AXPW.OB), a nano-cap company that has developed a robust and affordable lead-carbon battery for use in micro-hybrid, railroad and stationary energy storage applications, I can't see how the success or failure of a graphic novel product like the Tesla Model S could impact the value of my investment in a company that's focused on relevant mainstream markets.

June 14, 2012

Where Electric Vehicles Make Sense

Tom Konrad CFA

Electric Transit Buses Coming to North America

electric Bus.png
Quayside electric bus in Newcastle. Photo credit: LHOON

On June first, New Flyer Industries (TSX:NFI, OTC:NFYEF) unveiled its first all-electric bus prototype.

New Flyer is far from the first manufacturer to launch an electric bus.   

The first deployment of electric buses on a commercial route was at the end of 2010 in Seoul, using buses developed by Hyundai and Hankuk Fiber. Wikipedia lists twenty manufacturers of electric buses worldwide.  Even in North America, Balqon Corporation (OTC:BLQN), a maker of heavy-duty electric vehicles,  launched their own 14-passenger electric bus a little over a month ago.

Yet so far, no major major manufacturer of heavy duty transit buses in North America has a battery-electric bus in commercial production.

The other major North American manufacturers of heavy duty transit buses are NovaBus, Gillig, and North American Bus Industries (NABI).  Orion was a fifth player until earlier this year, when Daimler, its parent, announced Orion would be wound down.

Here is what the other transit bus manufacturers are doing on the all-electric front:

  • New Flyer is developing its bus in partnership with the Manitoba government, Mitsubishi Heavy Industries, and a local utility and college.  They plan two years of operational testing before launching a commercial version.
  • In May, Nova Bus announced a partnership with Quebec to develop two electric buses over three years, a full size transit bus as well as a microbus like the one recently launched by Balqon.
  • Gillig and NABI have not yet made any announcements of electric bus development.

Assuming (a rather big assumption) that development proceeds on schedule, New Flyer’s more aggressive timeline should lead it to introduce the first full size, production model all-electric bus built to North American standards.   These standards are important because the market for transit buses is very regional.  New Flyer itself had a graphic demonstration of just how regional the world bus market is when it failed to find international buyers for a large number of used transit buses last year.  It ended up selling them all much closer to home.

Electric Drive and Mass Transit

I believe buses are a much better use for EV technology than cars, because buses are generally used much more intensively.  Intensive use allows for quicker recovery of the capital invested in expensive batteries.  Transit buses also have predictable routes, meaning that range anxiety is not an issue, and there is potential to charge the bus while it is on route.   Genoa and Turin have a system already in place to wirelessly quick-charge electric buses while they stop to pick up passengers.  On route charging could also be accomplished with traditional trolley bus overhead wires even while the bus is in motion.  Predictable routes and fleet ownership also make transit buses a good fit for battery swapping.

Since transit agencies are often owned by city governments, they may also be able to incorporate some of the non-financial benefits of electric drive in their investment decisions.  While an individual Leaf owner will see little benefit from improved city air quality, a city government may see a move to electric buses as a way to meet air quality goals.  Similarly, they may see benefits from reduced urban noise pollution, and increased ridership from the smoother ride that results from electric drive and regenerative braking, when compared to traditional buses.

Incidentally, I think New Flyer stock is quite attractive at the current price below $7.  I added to my position on Friday, even before  I heard of the electric bus announcement.

Disclosure: Long NFYEF

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.

June 13, 2012

Covanta on a Mission to Up-cycle Municipal Waste

Debra Fiakas, CFA

Waste Heirarchy.png
The Waste Hierarchy, with
energy from waste highlighted

Covanta Energy (CVA:  NYSE) is a champion of renewable energy.  So much so that Covanta commissioned an elaborate sustainability report in 2010, detailing the company’s three-year track record in elevating municipal waste from the landfill to a higher order of use.  Compliant with standards set by the Global Reporting Initiative, the report is full of choice tidbits from Covanta’s municipal waste experience  -  at least through the year 2009.

Let’s look at 2009, the last year covered in Covanta’s sustainability report.  Covanta says it takes about an hour to process one ton of municipal waste  -  the paper, cans, plastic grocery sacks, left over Chinese takeout and soda pop cans we toss in the garbage each day.   The waste goes through a high heat process  -  it is not incineration  -  leaving an ash heap about one-tenth of the volume of the original waste.  In 2009, Covanta processed 17 million tons of waste leaving behind 1.7 million tons of ash. 

What is important about Covanta waste process is not so much the dramatic reduction in what goes into landfills.  The heat is used to drive steam turbines that are part of a power plant.  In 2009, Covanta’s operations generated 8.8 million megawatt hours of electricity.  The process also allows for the recovery of metals  -  400,000 tons in 2009.

The “what goes in and what comes out” presentation is straightforward enough.  Covanta’s claims related to greenhouse gas emission reduction are a bit more complicated.  Covanta’s sustainability report claims a reduction of 17.0 million tons of greenhouse gases in 2009, measured through an estimation of how much methane might have been generated by the waste going directly to the landfill, the net gain in electricity and the metals recovered.

I will give Covanta the benefit of the doubt on the greenhouse gas reduction.  Of greater concern in my view is how much energy and resources are needed to sustain Covanta’s operations.  The company does not avoid the question, but does not really answer the question either.  Covanta’s plants do require some energy input during start-up, such as natural gas, fuel oil or propane.  However, once the high heat process begins, it is self-sustaining.  The plants only go off-line when needed for repairs or periodic maintenance.  That is encouraging, but we are left guessing just how encouraging, as Covanta report does not disclose its consumption of any of these fossil fuels.

It is also important to note that the basic Covanta plant design requires about 0.7 acres for each megawatt hour of electricity that the plant is intended to produce.  This is considerably less than is required for wind towers or solar farms.

Of course, whenever there is high heat, there is often also a significant water requirement.  In 2009, Covanta used 560,000 gallons of water to process the 17 million tons of waste.  It seems like a great deal of water.  Fortunately the Covanta process does not require potable water.  The 2009, water requirement was fulfilled with 400,000 gallons of grey water and another 160,000 gallons of landfill leachate water.

Covanta’s 2010 sustainability report is an impressive tome, but appears to be a one-time effort.  The company has not published on update, leaving us wondering how sustainable Covanta’s operations have been in the last two and a half years.  I do not think we should assume that the track record in 2010 and 2011 is exactly the same as 2009, but it is probably close.  Covanta’s 2011 annual report claims 19.0 million tons of waste were processed and 10.0 million megawatt hours of electricity were generated.

One of the most interesting admissions in Covanta’s sustainability report is that the company’s own advisory group has questioned the wisdom of diverting waste to energy generation.  There is apparently concern that Covanta’s minimum volume contracts with municipalities discourage recycling, which could be an even higher use for the waste than electricity generation.

The company’s experience suggests that one ton of waste can be used to generate 0.55 megawatt hours of electricity and 0.024 tons of recovered metals.  However, if towns and cities promoted recycling then even more metals and other materials could be recovered.  More importantly, communities should do more to encourage reuse and reduction in waste in the first place.

Covanta claims that you and me along with our fellow Americans generate about 390 million tons of waste annually.  The U.S. Environmental Protection Agency estimated municipal waste was 250 million tons in 2010, significantly lower than Covanta numbers.  According to Covanta about 69% of the waste is going to landfills.  Another 24% is recycled.  Covanta claims it has only got a lock on about 7% of municipal waste in the U.S. and wants to capture.  The EPA thinks recycling rates are higher  -  around 34%.  No matter which set of numbers you believe, it is clear we are an improvident bunch.  Those advisors’ objections notwithstanding, it seems Covanta is doing us a big favor by elevating our garbage out of the landfill and onto bigger and better things.

This article is part II of a three part series.  Part I is here.

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.  CVA is included in Crystal Equity Research’s Beach Boys Index in the Waste-to-Energy Group.

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

Why We Need More Energy in the Economy But Less in the Atmosphere

Garvin Jabusch

Preface: As per my usual, this post is more or less a narrative, and is definitely not math-centric. But, still, nothing quite conveys the stark reality of a thing like its governing equation.  So, two of those found their way in here, but both are short and explained in English.

With that, let’s look at why energy is so good. And bad.

Any system in nature, including the human economy, is bound by a simple fact: it can only thrive and grow in proportion to the energy inputs it has access to. Energy equals growth. In economic terms the basic model is: 

  1. Log Y = f(log Xi)

where Y = GDP and X is energy consumption, with both variables in per capita log form (to keep apples and oranges in their places), and f showing that Y is a function of X 

Simple fact.  From a pond hosting fish, birds and frogs, to the World Wide Web, to the global economy as a whole, there’s no growth in any system without increasing energy inputs per unit of output (efficiency gains are effectively a way of getting ‘more energy’). With world energy use expected to double by 2050, keeping world economies afloat and even growing will require new energy and lots of it.  (Of course the traditional production function has many inputs besides energy, such as labor, capital and materials, but none of those can be brought to bear without energy.) The economic production function is so closely tied to energy consumption, in fact, that economists routinely use it as a proxy for economic growth. 

Because constraints that define finite natural resources like fossil fuels will by definition place a serious drag on long-term growth, only the use of renewable energies will allow continued economic growth.  Recent high prices, especially in oil, are a clear manifestation of resource constraints leading to economic drag. We need energy, but conventional resources are finite. So ultimately, renewable energy will be the only way to keep our complex economy growing.

But the human economy isn’t the only system that grows and becomes more dynamic with increased energy inputs. So does the atmosphere. Greenhouse gasses in the atmosphere trap infrared heat, preventing it from escaping back in to space. The formula is clear: 

2. Equation

Where delta-F is the change in radiative forcing, C is CO2 concentration in parts per million (ppm) and Co is CO2 in ppm before we started burning fossil fuels (reference level, 275 ppm). 

What it means is that for each additional part per million of carbon in the air, the earth holds on to a bit more energy, measured in watts, for every square meter of surface area.

So far, all those additional watts per meter as we cross 400 ppm have warmed earth up a lot. They mean that, just between 1961 and 2011, we’ve trapped more than 210 sextillion additional joules of heat that would otherwise have bounced back into space. Earth’s systems can only function within society’s tolerances for so long with these joules piling up and up.


This image is a representation of Earth last time CO2 was at 400 ppm, some 15-20 million years ago. Note the greatly elevated shoreline and dearth of ice. Our map today doesn’t look like this yet because we’re still in the early days of 400 ppm this time around, and it takes a while for heat to build up under that CO2 blanket. Most of the trapped extra joules so far have gone into the ocean. If they had all gone into the air alone, we’d already be 72 degrees Fahrenheit warmer, every day, everywhere on earth, on average. An extra 210 sextillion joules (and counting) is a lot of energy.

So the earth’s natural systems grow with energy inputs too, and the resulting effects of additional energy into things like weather systems are hurricanes and tornadoes, not economic growth and money. Too many more greenhouse gasses in our air and we’ll begin to experience even more frequent extreme weather and climate events, and at some point those will begin to disrupt more than a single city or crop harvest at a time and start to threaten civilization.  

Economies and weather are similar in that they both have increasing opportunities for growth and acceleration as more energy is put into them.  So if we want to keep economies growing or even simply maintain a decent standard of living for the majority of civilization, we need way more energy, but we cannot emit too much more CO2, methane or other greenhouse gasses, or we risk literally overheating the natural world.

Fossil fuels energy into the economy equals heat energy into the atmosphere.

This observation about economic and atmospheric responses to increasing energy makes the basic case for developing all present and future economies on the basis of the truly renewable, self sustaining, free sources of energy, such as wind and sunshine. We’ll never have to pay to mine either one, and neither will ever emit atmosphere-heating byproducts (or other pollutants).

Critically, this means that policies based on renewables conceivably have the power to emancipate us economically from the real-world fact of finite resources. As oil economist Gregor Macdonald recently wrote, “only a policy recommendation that foregrounded energy as the primary lever to apply to Western economies, rather than merely including it, would now have resonance. It is the energy-intensity of America in particular that must be confronted, not only in its domestic consumption but in the global energy inputs it commands through its outsourced production. Let’s remember that oil, until it is eclipsed by coal, remains the primary energy source of the world, with a 33.56% share.” As we’ve seen, this can’t continue. 

Will we then wean ourselves from fossil fuels in a way that avoids a worldwide economic depression and/or dangerous climate change? Let’s check in on some interesting poll numbers. 55 percent of Americans now say they worry about global warming (a moderate improvement over a couple years back). But, and here it gets interesting, 72 percent believe that recent extreme weather such as our recent late spring heat wave may be global warming related.  Why the seeming disconnect?  To me, it suggests that deep inside most folks recognize that warming must in some way indeed be happening. But for lots of reasons, like fear that climate change itself or the process of adapting to mitigate it may change our way of life, we're loath to admit it out loud.  And if you belong to a tribe that as a collective is uninterested in accepting science and energy economics, changing course can feel like treason.  I can understand that.

Yet for all the stated disbelief in climate science, “92 percent of Americans think that developing sources of clean energy should be a very high (31%), high (38%), or medium (23%) priority for the president and Congress,” according to a March 2012 study conducted by the Yale and George Mason University. So clearly, for some combination of reasons, there is broad underlying support for an American transition to powering economic production with renewables.

Perhaps the psychological tipping point we need to work through then is realizing that by embracing the new achievements in technical innovation that can most directly slow warming, we are actually acting to preserve rather than change our way of life, our independence, and our standard of living. Consider the excitement at FedEx about switching to electric delivery vans. Self described Republican and ex marine CEO Fred Smith says the move will allow him to operate the vans with 75% less cost. "Not 7.5%, 75%. These are big numbers."

This is what continuing innovation has always promised: cheaper, better, more efficient economic production, all resulting in jobs and ultimately wealth. If the emerging improvement in the technologies with which we manage our economic production function help limit other dangerous threats such as warming and extreme weather, that’s fantastic, and could in some ways be seen merely as a fortunate byproduct of the new wave of technical innovation. I doubt Fred Smith cares whether you call his new efficiency innovation green or not.

Warming is real and is a threat. But let's also realize that the technologies and approaches that help us minimize the threats associated with warming are also the next phase of mankind’s innovation. Like all great innovations of the industrial revolution, the post fossil-fuels era will continue the promise of providing more economic output from less investment (efficiency gains), and ultimately make us both wealthier and more secure.

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."

June 12, 2012

Covanta Turns Waste into Cash

Debra Fiakas, CFA

Waste Heirarchy.png
The Waste Hierarchy, with
energy from waste highlighted

The self-styled “energy-from-waste” company Covanta Holding (CVA:  NYSE) turns municipal waste into electricity and recycled metals.  The operations also turned 21.9% of its revenue into cash in 2011.  We note that the conversation ratio has declined over the last three years from 28.7% in 2009 and 27.2% in 2010, but we are still impressed with any cash conversion rate over 20%.

The company operates forty-one mass-burn facilities around the U.S. that burn all manner of unsorted municipal waste to heat water into steam.  The steam in turn drives electricity-producing turbines.  Covanta sells the steam or the electricity through various off-take agreements.  Ferrous and non-ferrous metals are also recovered in the process and resold in the commodity markets.  These two revenue sources accounted for 24% and 10% of total sales, respectively. 

The real money makers for Covanta are the tipping and service fees it charges municipalities to handle the solid waste and dispose of the ash that is left over at the end of Covanta’s burn process.  Besides the mass-burn facilities Covanta owns and operates or just operates municipal-owned facilities  -  twenty-two of them  -  such as ash landfills, biomass projects, hydroelectric facilities and landfill gas operations.  Tipping and services fees from all these facilities totaled $1.1 billion in 2011 or 66% of total revenue.

Not a bad business  -  turning waste into cash.  Granted, Covanta is debt-heavy with $2.3 billion in debt on the balance sheet at the end of March 2012, including the short-term portion and including project debt.  This means Covanta has a debt-to-equity ratio of 2.20.  However, cash earnings are 6.1 times interest burden, suggesting Covanta’s operations generate enough profits and cash flow to handle even that level of debt.

Covanta has delivered some of the largesse to shareholders through dividends of $223 million and $42 million in 2010 and 2011, respectively, and the repurchase of shares valued at $230 million in 2011.  Not a bad haul for shareholders  -  turning stock into cash. 

To get in on the Covanta action requires a payment equal to 24.0 times expected earnings of $0.59 per share in 2012.  This might be an acceptable price tag if Covanta was expected to deliver that much growth in the future.  Alas the same analysts who came up with the expected earnings estimate think average growth is only going to be 17% in the next five years.

Covanta is included in the Waste-to-Energy Group in our Beach Boys Index.  CVA shares have corrected twice in the last two years, as much in response to broader equity market trends as to Covanta’s fundamental situation.  In my view, it is a stock worth watching for an entry point.

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.  CVA is included in Crystal Equity Research’s Beach Boys Index in the Waste-to-Energy Group.

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

June 11, 2012

Exide: Bargain Basement Battery Stock Ready to Start

Tom Konrad CFA

Exide's Sundancer Electric Car.  Photo by Frank Lodge, EPA.  Public Domain

NOTE: Since this article was first published, Exide Technologies (NASD:XIDE) stock has risen 22% from $2.31 to $2.82, but much of that rise was due to media confusion about a positive Credit Suisse research report on the unrelated Indian company Exide Industries, Ltd.  Details here.

Exide Technologies (NASD:XIDE) is shutting down its battery recycling plant in Frisco, Texas, and selling the surrounding 180 acres to Frisco Community Development Corp. for $45 million.  The move is part of Exide’s ongoing multi-year restructuring, and is good news in that there is a ready buyer for the land.  Exide will retain ownership of the plant itself, and will proceed with environmental clean-up.  Years of this protracted restructuring and earnings misses have XIDE  in the bargain basement, with a trailing P/E ratio if 4.2, a forward P/E of 4.7, and a price to book ratio of just 0.43.

Insiders seem to think the stock is cheap here.  Although there has only been one buy (at $3.02 in February), they are holding on to almost all of the stock they get from exercising options.   At below half book, and plenty of liquidity ($1.34 cash per share even before the additional $0.58 per share infusion from the sale of the Frisco land, for a total of $1.92 per share), Exide seems ready for a strong rebound on any hint of good news, such as an upside earnings surprise when the company reports on June 8.  It’s hard to see how even an earnings miss could send the stock down much from the current price of $2.31.  After all, the company is profitable, has no need to go to the markets for additional equity funding, and the stock price is closing in on cash on hand.

Stop-Start Ready to Start

I own Exide because I consider it a cheap way to speculate on the widespread adoption of  stop-start technology.  Stop-start is the less glamorous but far cheaper cousin of hybrid vehicle technology, and is taking off by stealth as automakers look for inexpensive ways to meet increasingly stringent fuel efficiency requirements.

Stop-start vehicles generally use much larger, more robust lead acid batteries than those used in traditional vehicles, although the lack of durability of these batteries is leading auto manufacturers to look at alternative technologies such as battery-ultracapacitor hybrids (from Maxwell Technologies (NASD:MXWL) in conjunction with traditional lead-acid battery makers), lithium-ion batteries, and lead-carbon (PbC) batteries from start up Axion Power (OTC:AXPW.)

All three new technologies are likely to grab slices of the enormous stop-start pie from lead-acid batteries, but only relatively expensive lithium-ion batteries would wholly displace lead-acid manufacturers.  As the second largest lead-acid battery manufacturer worldwide (the first is Johnson Controls (NYSE:JCI),) Exide seems set to benefit from the trend.  Exide is also well placed to benefit from the adoption of Axion’s PbC technology, since the two companies have worked closely together in the past.

That said, I own Maxwell and Axion as well as Exide, since I think all three are quite cheap and will benefit from the stop-start opportunity.  (See this recent article on Maxwell.)  The only reason I don’t currently own Johnson Controls is that I am uncomfortable with the company’s negative free cash flow.  With a trailing P/E of  12.5, a forward P/E of 9, and a price to book ratio of 1.8, JCI is not expensive, but it’s not nearly as deep in the bargain basement as Exide.

Disclosure: Long XIDE, AXPW, MXWL

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.

June 10, 2012

Is Maxwell Technologies the Next China Victim? Not So Fast

Tom Konrad CFA

Lishen branded UCap
Nightmare or business opportunity?  A Lishen-branded Ultracapacitor, with Maxwell electrode. 
Photo credit: Wedbush

On May 25,  research firm Wedbush released the green stock investor’s worst nightmare.  That is the specter of Chinese competition.

  • Why are solar stocks down 75% (as measured by the Guggenhein Solar ETF, NYSE:TAN) since the start of 2011?  Chinese competition, leading to overcapacity and an industry where most companies are losing money, even on greatly increased volumes.
  • Why are wind stocks down41% (as measured by the First Trust Global Wind Energy ETF, NYSE:FAN) since the start of 2011?  Again, increased production capacity from Chinese producers.

To be fair, another factor in the decline of Solar and Wind stocks has been reduced subsidies in the US and Europe.  Yet other green tech industries (such as LEDs and Demand-Response) have seen similar price erosion without losses of subsidies, meaning the competitive environment is more important to the profitability of these industries than the subsidy regime.

Intellectual Property Nightmares

Even worse than the fear of competition is the fear that a Chinese partner will reverse-engineer or steal your technology.  That’s exactly what happened to AMSC (NASD:AMSC, then known as American Superconductor) when it turned out the company’s biggest customer, Sinovel had stolen its intellectual property, in addition to refusing to pay for products AMSC had already delivered.

While investors were already wary of increased competition in Maxwell’s ultracapacitor (UCap) business, Wedbush unlocked investor’s nightmares with a research note dated May 25th.  It said,

Industry sources indicate Lishen has been selling Lishen-branded UCaps and modules directly to Chinese customers in Wind and other markets, which we believe goes around the spirit of the original outsourcing agreement with Maxwell. We had heard Lishen was working with Gore UCap electrode even before the initial 2007 outsource manufacturing agreement with Maxwell. We  are now more cautious on evidence of Lishen’s direct sales activity (even though it appears Lishen may possibly be using MXWL electrodes) and suggestions Lishen is actively working to develop its own electrode.

This clearly spooked investors, and already-depressed MXWL shares have fallen another 15% since Wedbush’s research note.  A small part of the decline may have been due to a downgrade by The Street, but that latter downgrade was based in large part on market price and earnings trends, meaning that it did not really reflect a change in investor attitudes.  The Street’s downgrade was more The Street catching up to the stock market reality, while the Wedbush note introduced truly new information to the market.

Maxwell’s Competitive Edge

Is Lishen the Sinovel to Maxwell’s American Superconductor?  Probably not, or at least not yet.  In a phone interview, Wedbush analyst Craig Irwin said, “Maxwell is most likely not at risk of being outcompeted.”

According to Maxwell CEO David Schramm, Maxwell’s competitive advantage lies in its unique dry process for manufacturing ultracapacitor electrodes, not the ultracapacitor assembly itself.  This process is protected by 12 patents, with another 29 pending. The dry process has much lower capital and energy costs than other companies’ wet processes, and he believes it would be very hard to reverse engineer by looking at the electrode ingredients.

Maxwell’s profit is built into the price at which is sells electrodes to cell assemblers like Lishen; Maxwell makes money from these electrode sales if they buy back the assembled UCaps, or if Lishen sells Lishen-branded Ucaps.   Further, the more UCaps Lishen sells, the lower the mark-up that Maxwell has to pay for the UCaps they buy from Lishen, although Lishen-branded sales are “only a rounding error” according to Schramm.

The Maxwell-Lishen Agreement

Further, Schramm says that the sale of Lishen-branded UCaps does not go “against the spirit of the original outsourcing agreement,” as the Wedbush research note states.   He says that the agreement always included a clause which allows Lishen to sell own-branded UCaps only in China, and only to customers that Maxwell is unable to sell to because of local content rules or other legal restrictions.

Schramm went on to say that he has long experience dealing with China, works very closely with Lishen, and has a personal relationship Lishen’s CEO, Mr. Qin.

Yes, But

Despite all these assurances from Schramm, Irwin has concerns.  He said,

[Maxwell needs] to be very careful not to make mistakes.  I believe it is a mistake to allow Lishen to sell own-branded capacitors.

In other words, the record shows that working with the Chinese around intellectual property can be very tricky.  Schramm may be overconfident, and that overconfidence may be leading him to put too much faith in his China experience and his relationship with Qin.

What about the disagreement about what “goes against the spirit” of Maxwell’s agreement with Lishen?  The company is telling anyone who asks that Irwin did not do his homework by checking before publishing his research report.  But an analyst’s obligation is to the investors who pay for his research, not to the company he is researching.

When Irwin found out about the Lishen-branded UCaps, it went against what he believed about the agreement based on numerous analyst calls and conversations with Maxwell over the proceeding years.  Those conversations had led him to believe that the agreement with Lishen was “ultracapacitor outsource manufacturing only.”

Irwin had based his previous analysis of the company on this understanding, and when he found that this understanding was incorrect, he revised it to incorporate the increased risk he now sees.  His obligation to Wedbush’s subscribers was to disseminate his new opinion in a timely manner, not to check with the company unless he thought they might have something useful to tell him.

Regardless of whether the original agreement allowed Lishen-branded capacitors or not, Irwin’s perception of the agreement changed, and so he lowered his rating of the company.


Maxwell is not at high risk of Lishen or a Chinese competitor stealing or reverse engineering their technology.  Schramm and Irwin agree on this point.  Investors selling because of fear of Chinese competition and intellectual property theft are misguided.

The difference between Schramm and Irwin lies in their level of confidence.

Irwin sees increased risk from allowing Lishen to develop its own ultracapacitor supply chain.  Schramm sees only upside.Irwin thinks Maxwell is worth $8 a share (his recent price target), while SEC filings show that Schramm and other insiders have been buying since the stock fell below $10.50.    The only difference is that Schramm thinks MXWL is massively undervalued at the current price of $6.50, while Irwin thinks it’s only somewhat undervalued.I fall somewhere in between.  When the stock first fell to $10, I thought it was a steal.  But Irwin makes some good points.  I’ve long been nervous about dealing with China, and while Maxwell’s intellectual property is much safer than AMSC’s, there is risk.

A bigger concern is the demonstration that Schramm plays his cards very close to his chest.  He told me directly that there are other business dealings he could not tell me about which are “very advantageous” for Maxwell.

Schramm is asking investors to trust in his experience and judgement.  Perhaps that trust would be well placed, perhaps it wouldn’t.  Schramm’s confidence may be justified, or he may be overconfident.  We have no way to judge, in part because he keeps so much of Maxwell’s strategy private.  There are doubtless some competitive advantages to this lack of transparency.  There are also costs for investors trying to value the stock.

That said, if I had not not already bought the stock at $9 and $10, I would be buying now.

Disclosure: Long MXWL

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.

June 09, 2012

Why Range Anxiety is the Mortal Enemy of EV Efficiency

John Petersen

Last week the green car press was abuzz with stories that General Motors (GM) was increasing the electric drive range of the 2013 Chevrolet Volt from 35 miles to 38 miles. The increase is due to better batteries. GM's battery supplier LG Chem (LGCIF.PK) has apparently improved the volumetric energy density of their cells to a point where GM can fit 16.5 kWh of storage into a space that could only accommodate 16 kWh in January 2011. The GM press release also noted "tests have revealed less battery degradation, the ability to withstand temperatures as low as -30 degrees Celsius and less impact by energy throughput."

According to my calculator the cell improvements represent a volumetric energy density gain of 3.125% in less than two years along with modest gains in cycle-life and cold weather performance. Since I know how hard it is to increase energy density and boost battery performance, I'm impressed. The accomplishment does, however, highlight the unpleasant reality that step-change gains in battery performance and major cost reductions are very unlikely. Battery research, development and commercialization is a long, slow, difficult and expensive process that has nothing in common with the short product development cycles and steep cost reductions we all came to know and love during the IT revolution.

The research, development and manufacturing dynamic is very different this time. It's so different that Professor Vaclav Smil refers to the new dynamic as Moore's Curse.

With last week's announcement from GM and this month's launch of the Model S from Tesla Motors (TSLA), now seems like a great time to revisit an issue that I discussed in December 2008 and most EVangelicals still don't grasp –

Range anxiety is always and everywhere the mortal enemy of EV efficiency

In the world of finance, the value of any asset is based on the number of payments its owner can receive in a given period of time and the amount of each payment. A hotel room that rents for $1,000 a day is more valuable than an executive suite that rents for $1,000 a week, which is more valuable than an apartment that rents for $1,000 a month. While living space and batteries have nothing else in common, their intrinsic value to an owner is based on the same ironclad laws of finance. Full utilization and daily turnover maximize asset values while inefficient utilization and slow turnover savage values.

In the US, an average driver puts about 12,500 miles per year on his car, or about 40 miles a day by the time you account for different weekend driving patterns. Compared to a CAFE compliant new car, each 40-mile daily commuting cycle in electric-only mode represents a potential savings of 1.3 gallons of gasoline for an effective "day rate" of about $5.

Using that day rate as a starting point, I can put on my green eyeshade and drill down into the operating inefficiencies that are directly attributable to range anxiety.

The most efficient battery in the plug-in vehicle world is the 5.5 kWh pack in the new plug-in Prius from Toyota (TM), which has an EPA certified electric-only range of 11 miles. A driver who has access to charging infrastructure on both ends of his daily commute can use 100% of the battery capacity twice a day. So the baseline battery efficiency factor for a plug-in Prius is 200%. Salesmen, soccer moms and others who have several daily trips and good access to charging infrastructure may be able to push their battery efficiency factor to 300% or more.

Second place belongs to the 16.5 kWh pack in the 2013 GM Volt with an electric-only range of 38 miles. Even without access to charging infrastructure, an owner will probably use 100% of his battery capacity every day.

Third place belongs to the 24 kWh pack in the Leaf from Nissan (NSANY.PK), which has an EPA certified electric-only range of 73 miles. Since the Leaf's electric-only range is nearly twice the average daily commute, the battery efficiency factor falls to 56%.

Fourth place belongs to the 40 kWh pack in the Tesla Model S-40, which should have an EPA certified electric-only range of 140 miles. Since the Model S-40's electric-only range is more than triple the average daily commute, the battery efficiency factor falls to 29%.

Fifth place belongs to the 60 kWh pack in Tesla Model S-60, which should have an EPA certified electric-only range of 200 miles. Since the Model S-60's electric-only range is five times the average daily commute, the battery efficiency factor falls to 20%.

Last place belongs to the 85 kWh pack in Tesla Model S-85, which should have an EPA certified electric-only range of 265 miles. Since the Model S-85's electric-only range is almost seven times the average daily commute, the battery efficiency factor falls to 14%.

Batteries cost money; lots of money. While GM is pretty tight-lipped on the subject of battery costs, most experts believe the battery pack for a Volt costs less than $12,000. In comparison the battery pack for a Tesla Model S-85 costs about $45,000. In most cases, the driver of a Model S-85 won’t save any more gas than the driver of a Volt. Paying a $33,000 premium for electric-only range that most drivers will rarely use is more than a little wasteful.

The first great tragedy is that electric-only range, the most over-hyped feature in EVland, is the mortal enemy of EV efficiency. Electric drive is most economic when you buy no more battery capacity than you plan to use a daily basis. Soothing range anxiety with a huge battery pack might feel better, but it destroys any pretense of efficiency.

The second great tragedy is that EV batteries cost $30 to $50 a pound to manufacture but they're not worth recycling. The commodity value of recoverable metals in most lithium-ion batteries ranges from $0.50 to $5 a pound, but collection, transportation, primary battery recycling and secondary metal separation and refining cost more than the recovered metals are worth. There are a few companies that have built pilot scale lithium-ion battery recycling facilities, but those facilities are experimental and current recycling technologies are nowhere near cost-effective. That range anxiety soothing battery pack that crushes EV efficiency during the battery's useful life also gives rise to unconscionable waste of scarce nonferrous metals at the end of life.

Notwithstanding the blistering, scurrilous and occasionally defamatory comments that my articles seem to draw from the ever vigilant and perpetually myopic Knights of St. Elon, efficient cars like Toyota's plug-in Prius are marginal economic propositions at their best while the least efficient electric vehicles like Tesla's Model S-85 are obscenely wasteful.

Benjamin Graham once said, "In the short run, the market acts like a voting machine, but in the long run it acts like a weighing machine." While Mr. Graham was talking about the stock market, his wisdom applies to all markets. EVangelical fervor over the Revenge of the Electric Car can only last so long. When consumers and government start weighing the true cost of electric drive against it's largely illusory benefits the house of cards will collapse and investors will suffer.

Disclosure: I have no direct or indirect interest in Tesla, GM, Nissan or Toyota and I have nothing to gain or lose from any of their stock price movements. While I am a former director and current stockholder of Axion Power International (AXPW.OB), a micro-cap company that has developed a robust, affordable and serially patented third-generation lead-carbon battery for micro-hybrid, railroad and stationary energy storage applications, I can't see how the success or failure of a niche product like electric drive could impact the value of my investment in a company that's focused on much larger and more predictable mainstream markets.

June 08, 2012

Biofuel and Solar Debates; News for New Flyer, LSB, Finavera, Ram Power & Exide -The Week In Cleantech: 6-8-2012

Jeff Siegel and Tom Konrad

June 4: Public Transit Ridership Rising Sharply

The American Public Transportation Association reported Monday that Americans took almost 125 million more rides on public transit in January, February and March than they did in the same period last year — an increase of 4.98 percent, the largest since the first quarter of 1999.  The rise was due to a combination of high gas prices and economic growth.  Good news for mass transit stocks, like New Flyer (NFYEF), which just unveiled a battery-electric bus prototype.

June 5: World Environment Day


  • RDM
Rio+20Today is World Environment Day, a day for positive environmental action.  This year's theme is the Green Economy: Does it Include You?  As alternative energy investors, it certainly includes us!  Artists Project Earth launched the album Rhythms del Mundo Rio+20 featuring Bob Dylan, Jack Johnson, Sting, and a host of other great artists to commemorate the day.
  • LSB Industries (LXU) gained almost a dollar today when it detailed the status of its El Dorado chemical plant, which had been damaged on May 15th.  The price increase is somewhat surprising, given that the damage was quite extensive, and my best guess is that LSB will be liable for it full insurance deductibles.  In other words, the financial impact on LSB is as large as it could have been.  But given that the stock sold off way too far (again, because of the insurance coverage) it perhaps should not be surprising that the stock is now overreacting on the upside.
  • New Flyer (NFYEF) completes an offering subordinated notes, the proceeds of which will be used to redeem the debentures which form a part of New Flyer's old IDS structure.  The new notes will be listed on the Toronto stock exchange, but not offered for sale in the US.

June 6: Solar Industry Unites to Avoid a Major Solar Trade War

JS: Here's the latest solar trade conflict update from the Coalition for Affordable Solar Energy.

TK: Finavera Wind Energy (FNVRF) secured an $850K bridge loan, at 7% interest.  This loan will be used to fund ongoing development, and should be enough to tide the company over until a development deal can be reached for Finavera's Tumbler Ridge project.

June 7: Debate over RFS2 is creating uncertainty for investors


  • The hope for a new Renewable Fuel Standard (RFS2) was to provide stability that investors needed to invest in the biofuels industry.  Now the political debate over RFS2 is doing just the opposite by "creating uncertainty in the minds of investors," according to Terrabon CEO Gary Luce.
  • Ram Power Corp (RPG.TO, RAMPF) is negotiating a tariff increase for its San Jacinto project in Nicaragua.

June 8: Exide (XIDE) surprises analysts with loss; stock rises.

TK: Exide (XIDE) missed analyst earnings expectations for their fiscal fourth quarter by 11 cents, reporting a loss per share of 3 cents against expectations of a 8 cent profit.  The stock initially sold off to a low of $2.35, but rose as soon as the market digested the details, and is currently trading at $2.67.  As I wrote last week, "It’s hard to see how even an earnings miss could send the stock down much from the current price of $2.31."  Still, the stock price jump is surprising.  From listening to the conference call, I think the positive reaction is mostly due to progress in restructuring the business, and a large jump in cash flow from a cash flow loss of $73 million in the previous quarter, to positive $8.2 million this quarter.

JS: No positions.

Jeff Siegel is Editor of Energy and Capital.
Tom Konrad Ph.D. CFA is Editor of AltEnergyStocks.com, and a blogger on Forbes.com.

Three Things Goldman Sachs' $40B Greentech Investment Means, and Two it Doesn't

Tom Konrad CFA

goldman sachs tower
Goldman Sachs Tower photo via Bigstock
Goldman Sachs’ Investment in Green Tech

More than any other investment bank, Goldman Sachs (NYSE:GS) is famed for its skill at picking good investments.  Last week, the bank  announced it would invest another $40 billion in green technologies over the next 10 years (or an average of $4 billion a year.)   While this is a drop from the $4.8 billion invested in 2011, the last time Goldman Sachs made a commitment to green tech was 2005.  The $1 billion pledged then ended up as $4 billion in direct investments of Goldman’s own money, and another $24 billion of financing arranged by the bank.

What the Investment Means

We can draw several insights from Goldman’s announcement.

1. The announcement is public relations (PR)

Since the $4 billion per year pledged is less than what Goldman is already investing, this is not a new commitment, or a stretch goal.  Rather than using the public forum as a way to bind its own hands, the bank is “committing” itself to something it’s already doing.  Hence, the announcement is designed more to bring attention to Goldman’s greentech expertise, and get articles (such as this one) written about the bank.

2. The investments are more than PR

Since the investments are real, this is not greenwashing (trying to give something that’s not really green the appearance of green.) It’s not new, either.  Goldman simply wants to be known for their green tech investment expertise.

Fair enough.

3. Goldman thinks there are good investments to be made in greentech

Goldman’s track record of investing more than promised means that the investments are being made for non-PR reasons.  Since they are not greenwashing, Goldman must be investing for some other reason.  Goldman Sachs is known more for being hard-nosed than for dreaming of butterflies and unicorns, so it’s a safe bet that they’re investing because they expect to make good financial returns.  A few PR points scored along the way are icing on the cake.

The head of Goldman’s clean technology and renewables investment banking group, Stuart Bernstein, says green tech is a “quite large” emerging investment opportunity, and compared it to investing in the BRICs (Brazil, Russia, India, and China) over the last decade.

What it Doesn’t Mean

1. Goldman Isn’t Buying Everything Green

Goldman’s investments since 2005 have been successful, or the bank would be unlikely to be coming back for more.  Yet the leading clean energy ETF, the Powershares Wilderhill Clean Energy ETF (NYSE:PBW),  has fallen 70% over the same period.  Clearly, Goldman was not just passively investing in a basket of green stocks, as PBW does.

Going forward, Goldman will continue to choose green investments carefully, just as they choose their investments in the BRICs.  Not every investment in Russia or China has been a good one, and not every green investment will be a good one going forward.

2. This is not an Endorsement of Green Stocks

A few weeks before Goldman announced the new commitment, the investment bank downgraded First Solar (NASD:FSLR) stock to Neutral, and slashed its price target.  The $40 billion announcement was not some coded reversal.  Goldman was saying that while First Solar may not be a great investment right now, there are plenty of very profitable opportunities in green tech.  Many of those opportunities will be investments in renewable energy deployment: wind and solar farms, as opposed to wind and solar manufacturers.


It’s a mistake to assume that just because Goldman thinks there are many profitable opportunities in green tech, all opportunities in green tech will be profitable.  Right now, I think the most profitable investments are likely to be investments in renewable energy and energy efficiency deployment: wind and solar farms, and upgrades to facilities to make them more energy efficient.

Green stock investors are likely to be best served by buying the companies that are acting like little green tech investment banks, and are buying up distressed assets in the sector.  Companies like Alterra Power (TSX:AXY, OTC:MGMXF) and Western Wind Energy (TSXV:WND, OTC:WNDEF), which both announced deals to buy wind assets this month, or companies like Power REIT (AMEX:PW), which plans to use investment-bank style financial engineering to bridge the gap between REITs and renewable energy.

If we can’t invest like Goldman Sachs, we can at least invest in companies that can.

Disclosure: Long MGMXF, WNDEF, 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.

June 07, 2012

Staying Alive: Could Thin-film Manufacturers Come Out Ahead in the PV Wars? Part 2

Jennifer Runyon

In part one of this article, we talked with a-Si equipment manufacturer, Oerlikon Solar, which was recently purchased by Tokyo Electric.  Here in part two, we talk with two heavy-hitters in the thin-film solar industry to hear their thoughts about the future of thin-film PV and the future of their technologies. 

First Solar (FSLR)– Maker of Cadmium Telluride (CdTe) Thin-film; Developer of Utility-Scale Projects

First Solar (FSLR) has robust plans for the future, according to David Erhart, Marketing Communications Manager at the company.

Erhart explained that it is First Solar’s “thin-film technology that takes a simple piece of glass and turns it into a complete solar module in less than two and a half hours in a continuous automated process,” that has fueled the company’s success so far.

To date, the company has more than 5 gigawatts of modules installed worldwide and was the 1st company to break $1 per watt cost barrier, he said.  It is currently manufacturers its panels at a cost of less than $.75 per watt and the company won’t stop there, according to Erhart.  A recently announced restructuring of First Solar should bring the company’s average manufacturing to $0.70-$0.72 per watt in 2012, below prior expectations of $0.74 per watt. In 2013 the company estimates average module manufacturing costs will range from $0.60 to $0.64 per watt.

Erhart said that First Solar is the current world-record holder for CdTe PV cell efficiency at 17.3 percent and PV module efficiency at 14.4 percent, numbers that have been verified by the National Renewable Energy Lab.  The company plans to take those efficiencies to scale.  “We expect to take cadmium telluride thin-film solar technology to levels that it has never been before,” he said.

In addition to module manufacturing, First Solar has become the world’s largest builder and operator of utility-scale power plants. It boasts the “largest pipeline in the industry with more than 2.7 GW of solar PV plants under construction or in development with PPA,” Erhart said.

He pointed to three U.S. projects — the 290-MW Aqua Caliente, the 550-MW Topaz Solar Farm and 550-MW Desert Sunlight projects — as examples of some of the power plants that First Solar is developing, which also happen to be among the largest PV power plants under development in the world.

First Solar has now set its sights on the developing world, in line with many other solar power players.

While acknowledging that markets can shift on a dime, Erhart said “regardless of where the existing markets go, we want to invest in what we call long-term sustainable markets.”  That makes a lot of sense when considering how the on-again, off-again subsidies that are in place in Europe have really dominated market development.

“We don’t want to wake up every day dependent on these subsidies,” said Erhart, explaining why the company is interested in more stable markets such as “markets that have a need for electricity, that have high irradiance, and have high costs of electricity,” he said.

First Solar CFO, Mark Widmar, echoed the company’s expansion plans in a conference call to investors. “Over the next couple of year, we also intend to make progress in sustainable markets,” he said.  More details will be available during the company’s first quarter earnings call, scheduled for early May, after this article goes to press.

First Solar modules use “98 percent less semi-conductor material than the semi-conductor materials required for traditional crystalline silicon manufacturing processes,” said Erhart. That has meant that the company has had a significant cost advantage over the years, although GTM Research’s MJ Shaio points out that the cost-advantage window is closing.

“Scores of thin-film silicon manufacturers, drawn by the pied piper of propped poly prices, suddenly saw utilization rates collapse and their low efficiency, very low cost product turn into a very low efficiency, average cost product, evaporating any competitive advantage they might once have had,” he said in his thin-film report.

In terms of competition, Erhart sees the “usual suspects” as First Solar’s main rivals in the space. These are the crystalline solar PV module makers below:

However, he explains that it is not always just other solar companies that First Solar is in competition with: “When you are going into these emerging markets to help them with their dire energy needs, you are not necessarily competing with other solar panel manufacturers, you are competing with other forms of renewable energy,” he said. “In Saudi Arabia, for example, we are competing primarily with diesel, which they would rather sell as gasoline or petrochemicals than burn for their own domestic electricity.”

And as a builder of power plants, the company also can go head to head with “very large construction firms that have been building power plants for a long period of time,” he said.

While those firms have a lot of experience, First Solar has a lot to be proud of as well, according to Erhart.  He said that the company has the lowest balance of systems (BOS) costs in the industry; an award winning safety record; and the fastest installation velocity in the industry.

First Solar CFO Widmar echoed Erhart’s enthusiasm about the company’s future. “Our captive pipeline shows that many of the world’s most sophisticated renewable energy investors continue to invest in projects using our technology, which is being deployed in some of the largest sites in the world, under the toughest desert conditions,” he said.

Other existing CdTe thin-film firms have not had quite the success that First Solar has had so far.  Abound Solar recently announced plans to layoff 180 employees while it builds its next-generation higher-efficiency module.

GE (GE), which acquired PrimeStar Solar last year, said it would be building a 400-MW CdTe factory in Aurora Colorado.  The facility is under construction right now and GE has said that it expects panels to come off the assembly line this year.

Solar Frontier, CIS Thin-Film Developer

With the exception of GE’s more recent entrance into the thin-film market, Solar Frontier is the only major thin-film player that has a huge parent company. Showa Shell Sekiyu K.K. owns Solar Frontier and having such a wealthy parent company means there is little doubt that Solar Frontier will be able to make strides in the solar power industry.

“So far, it’s a good year for us,” said Greg Ashley, the company’s Chief Operating Officer for the Americas.  “Even though global prices have stayed low, they pretty much stabilized over the past few months,” he continued.

Solar Frontier manufactures copper indium selenium (CIS) solar panels and has a 1-GW factory in Japan and several smaller facilities in other areas of the world.

Ashely said that CIS has a few advantages over CdTe and a-Si panels.  “Our measured performance ratio is still higher than CadTel,” he said. “I think the fact that we’ve stayed with a very strong framed module, whereas most of the other thin-film folks have gone to frameless, or stayed with frameless gives us some installation/design flexibility that they don’t have,” he explained.

“And our modules are slightly larger so the combination of the frame and the larger size, we typically have lower BOS and are easier to handle,” said Ashley.

Ashley said the company has its eyes set on Japan.  “Demand for us in Japan is exploding [as the country is] getting ready for the new feed-in tariff,” he said.

Japan’s feed-in tariff is supposed to go online July 1 as the country sets to aggressively pursue renewable energy as a result of losing much of its nuclear power capacity.  “So we are positioned pretty well,” said Ashley.

Like the other executives we spoke to, Ashley echoed the market shifts taking place.  He said that for Solar Frontier, the U.S. holds great potential.  “The sun belt is probably going to be, in the long run, the biggest market. Everyone expects it to be,” he said. In addition, he said the company is doing business in the Caribbean, and that it is “pursuing business in Hawaii and we are also pursuing business in Latin America.”

But Japan is where it really plans to grow: “Japan is probably a bigger, faster, easier growth market for us…but in the long run, it’s all the sun belt countries, the developing countries,” he said.

With Shell as a parent company, Solar Frontier doesn’t have a lot of trouble penetrating new markets.  Shell has a long history in the global energy markets said Ashley.  “We’ve got a very strong presence in a very large historical network of relationships both with the private and public sector,” he said.

He said the company is “treated with respect” and “granted some preferential access to the right types of opportunities with the right types of companies, with the right types of partners” in the emerging markets across the globe.  For example, “we have EPC partners with some of the larger players in India…same thing in Thailand and Malaysia and other parts of the world,” he said.

To date, however, Solar Frontier is working on smaller projects than its rival First Solar.  Ashley said that for now, even its utility projects are in the one to two-megawatt range. Except of course for the 130-MW Catalina solar project, which is located in Kern Coutnry, Calif. and being developed my enXco.  Solar Frontier shipped 30 MW of panels to the Catalina project in the last quarter of 2011 and expects the project to be completed by mid-2013.

Like Oerlikon’s O’Brien and First Solar’s Erhart, Ashley believes that PV module manufacturing pricing will remain in the one dollar per watt range but “in this race to get to installed cost of one dollar per watt, I think we are very far off from that,” he added.

Ashley said that the solar industry’s biggest problem right now is the excess inventory that has built up, a problem that he thinks could be resolved by the country that manufactured a lot of it: China. 

“Actually the market in China itself will have a big influence,” he said. Ashley thinks China will begin soon to stimulate its own internal demand and that will reduce the impact that oversupply is having on the market.

In addition to Solar Frontier, other CIGS players include MiaSole, Avancis, Global Solar, Nanosolar, Sotecture and Solibro, which is owned by Q-Cells.  Q-Cells filed for bankruptcy in early April, leaving the fate of Solibro up in the air.

But Solar Frontier’s Ashley remains incredibly optimistic about thin-film.  He said he believes that “thin-film is competitive with crystalline even at the lowest prices” and “not just our technology.”

“There’s going to be more thin-film manufacturers and it’s good that there are and it’s good that the existing ones continue to grow and thrive,” he said. “I’m very hopeful for all my competitors, as well as my own company.”

Thin-Film Outlook

GTM Research forecasts that global thin-film production and total market value will dip below $3 billion in 2012, it’s latest report projects an up-tick in thin film demand in 2015/16, where the total market, according to GTM will recover to $7.6 billion. 

GTM believes that industry’s rebound will be predicated on the continued, though muted, success of First Solar and the execution of efficiency, yield and scale roadmaps from other thin film manufactures.

In particular, GTM predicts strong growth in the copper-indium-gallium-diselenide (CIGS) technology segment, forecasting production at 4 GW in 2016. Even though in 2011, Solar Frontier is the dominant supplier with roughly 400 MW of CIGS PV shipments GTM said that companies like MiaSolé and TSMC could emerge in the next few years as top thin-film suppliers with cost of manufacturing approaching $0.50 per watt. Venture investments in CIGS surpassed $305 million in the past two quarters, albeit at depressed valuations. Coupled with increased interest from global industrial conglomerates on the sidelines, GTM Research predicts major acquisitions in the near future.

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

June 06, 2012

Tesla's Troubling Risk-Reward Profile

John Petersen

While the broader market focuses on trivial issues like Asia, the Eurozone and an upcoming presidential election, a small but extremely vocal segment of the car shopping public is breathlessly awaiting the dawn of a new age with the first deliveries Tesla Model S electric cars to customers on June 22nd. The excitement among fervent Tesla Motors (TSLA) acolytes is palpable, but I have to at least ask whether their view of the company's risk-reward profile is rational.

Is Tesla a great investment opportunity, or are we witnessing a weird form of transference that attributes a visceral hatred of oil companies and a love of flashy cars and speeding tickets to a moneyed adult population that couldn't care less? In four years of blogging about energy storage and vehicle electrification, the only truly compelling pro-EV argument I've heard is embodied in the mathematical equation: EV ownership = HOV lane access. The rest is coal smoke and mirrors.

Tesla's stock currently trades at space cadet levels of 19.9 times book value because the company plans to build 5,000 cars this year and 20,000 next year. With prices ranging from $57,400 to $105,400 (before subsidies), Tesla's potential revenue is huge, but I'm very unclear about who's going to buy all those cars. Seriously, how many people are willing to pay twice the national average salary for HOV lane access? Frankly I find Tesla's Ray Kinsella approach, "if we build it they will come," more than a bit disconcerting. In fact, it strikes me as a prescription for disaster.

In an effort to assess the reasonableness of Tesla's lofty sales ambitions, I started by cobbling together historical data from "Dashboard Reports" on the HybridCars website that break monthly green vehicle sales down by model and manufacturer. I learned that over the last year, sales of HEVs averaged 122,600 units per quarter and about two-thirds of those cars were made by Toyota. Plug-in vehicle sales for the same period averaged about 9,000 units per quarter with the GM Volt taking the lead at 4,075 units per quarter, the Nissan Leaf running second at 3,180 units per quarter and Toyota coming on strong with a plug-in version of the venerable Prius that launched in March and sold 3,638 units in three months. In comparison, green vehicles from Tesla and BMW in the Model S price range stumbled along at 262 units per quarter. Ouch!

While it's too early to reach firm conclusions about market behavior for new plug-in vehicles, the typical trend seems to be a respectable volume ramp for three or four quarters after a launch date followed by a sharp decline once the customers who were waiting for a particular model get their wish. When I study the following graph of quarterly sales for the leading plug-in vehicles, I don't see anything that even resembles a stable or sustained growth rate. As near as I can tell, the only reason for this year's surge in Volt sales was, you guessed it, HOV lane access in California.

6.6.12 Quarterly Sales.png

Tesla began accepting reservations for the Model S in the spring of 2009. It reported 2,000 reservations in 2009, 1,400 in 2010, 4,600 in 2011 and 1,800 in the first quarter of 2012. In its most recent quarterly letter to stockholders, Tesla said the current Model S reservation tally is over 10,000 vehicles. Reservation deposits on those vehicles total about $105 million and are fully refundable until a sales contract is signed.

While it's a decidedly unpopular view among Tesla aficionados, I can't bring myself to believe that all 10,000 reservations are certain sales. In February of last year, Edmunds reported that only 40% of Leaf reservations became purchases. While I would expect a higher conversion percentage for Tesla, which requires a $5,000 down-payment instead of the token $100 Nissan requested with a Leaf reservation, the $44,900 to $79,900 that's due when a reservation becomes a contract is a big number and I have to believe that a meaningful percentage Tesla of reservation holders figured an interest-free $5,000 loan to Tesla was a fair price to pay for a place in line and two or three years of bragging rights. It will be fascinating to watch over the next few quarters and see how all those reservations play out.

Regardless of what you think Tesla's reservation conversion percentage will be, it's clear that deliveries of 5,000 cars this year and 5,000 cars per quarter in 2013 will eat through the backlog in short order even if there are no cancellations. From that point forward a sales organization that's never booked more than 1,800 reservations in a quarter will need to generate sales of 5,000 units per quarter to meet production targets. Given the pattern I've seen with other plug-in launches, I can't help but believe Tesla's 2013 sales targets are unattainable.

A troubling aspect of the upcoming Model S launch that many investors don't understand is that building and delivering cars will savage Tesla's cash reserves. When Tesla accepts a $40,000 reservation payment on Model S Signature Edition, the cash gets added to the assets section of the balance sheet and a corresponding amount is reflected as a liability. When the reservation is converted into a $105,400 sale, the liability is cancelled but only $65,400 in cash flows into the company's coffers. That cash, in turn, must pay all costs of manufacturing the car plus the unabsorbed costs of underutilized property, plant and equipment. In the early stages of a production ramp, those unabsorbed costs can be big enough to eliminate any gross margin that might have been recognized with full factory utilization. Investors who are expecting 25% gross margins on automotive sales will be sorely disappointed by dreadful second quarter margins, dismal third quarter margins and lackluster fourth quarter margins. Things may improve in 2013 if everything goes off without a hitch, but the next three reports of operating results from automotive sales will look pretty grim.

At March 31st, Tesla had $123 million of working capital and $154 million of equity. It lost $89 million in the first quarter and burned $50 million of cash in operations. While Model S sales will generate a couple million of incremental second quarter revenue, I expect the operating losses and cash burn to increase, perhaps significantly. Additional cash stress will arise from significant inventory builds that will be necessary to support Tesla's transition from development to production. Collectively, these factors will leave Tesla in a position where its June 30, 2012 financial statements look like an absolute train wreck unless it sells a substantial amount of additional stock within the next three weeks.

When Tesla did a $150 million follow-on offering in June of last year market conditions were pretty good and it was able to sell 5.3 million shares at a price of $28.76 per share. This year market conditions are aggressively ugly, investors are timid and the risks of an exciting but uncertain product launch are immediate. Under the circumstances I'll be surprised if Tesla can pull off another follow-on offering without a 10% to 20% discount from the market price.

I know all about Tesla's strengths and virtues including whiplash inducing acceleration and an iconic CEO who can build cars, launch rockets and take a solar panel company public at the same time while giving each company's business and shareholders all the time, effort and attention to detail they deserve. What bothers me are things I don't know, like:
  • Whether Tesla can ramp production from under 200 cars a quarter to 5,000 cars a quarter inside a year;
  • Whether Tesla will be able to avoid the delays, defects and recalls that plague competitors like Fisker;
  • Whether 10,000 car reservations and $105 million in deposits will become revenues or refunds;
  • Whether reservation rates of 1,800 vehicles per quarter can ramp to sales of 5,000 cars per quarter;
  • How much additional working capital will Tesla need as it transitions from development to production; and
  • Whether new investors will provide additional capital at a reasonable price or pull Tesla over a barrel.
In my view the market price of Tesla's stock doesn't reflect any of these real and substantial business risks. Since 33 years of representing developing companies has made me a firm believer in Murphy's Law, I spend more time worrying about things that could go wrong than I do dreaming about things that could go right. When things go according to expectations, a modest uptick is not unusual. When things don't go according to expectations, the downdrafts are often severe.

It could all work out perfectly for Tesla, but we could also see a situation where a minor problem, hiccup or delay sets off a chain reaction of unpleasant events. Historically Tesla's done a great job of managing expectations by telling investors that nothing good would happen until June of 2012. The long anticipated performance date has arrived and the carefree can kicking days of youth are past. Now Tesla has to execute to perfection or suffer the consequences of disappointment.

Disclosure: I have no direct or indirect interest in Tesla and nothing to gain or lose from its future stock price movements. It should, however, be an entertaining show to watch from the sidelines. I am a former director and current stockholder of Axion Power International (AXPW.OB), which has developed a robust and affordable third-generation lead-carbon battery for micro-hybrid, railroad and stationary energy storage applications.

Staying Alive: Could Thin-film Manufacturers Come Out Ahead in the PV Wars? Part 1

Jennifer Runyon

As the solar PV market goes through its trials and tribulations, thin-film manufacturers could be poised to take on more market share.

In the solar electricity market, capitulation, consolidation and contraction are the buzzwords of the day. Today, all solar PV manufacturers face an over-supplied and underfunded PV market. The oversupply and drop in subsidy markets across Europe and the U.S. has forced crystalline silicon manufacturers to sell their PV panels below manufacturing costs or risk losing all market-share. As the weeks tick by, major manufacturers, one after another, are going under or announcing major scaling back of their operations. Thin film solar panel manufacturers have not been able to stay out of the fray, with many of them struggling to keep up with the falling panel cost and oversupply of panels on the market.

MJ Shiao, who authored a comprehensive 322-page report entitled, “THIN FILM 2012–2016: Technologies, Markets and Strategies for Survival” said that the industry may be dying, but it isn’t dead yet.  He pointed out “venture capital investment into thin film in Q4 2011 and Q1 2012 combined to reach nearly $300 million.”

Shiao also pointed to big announcements from the key players in the industry that indicate even as the industry struggles, it has big plans for the future.

Thin-Film Advantages over Crystalline PV

Crystalline PV has the cost advantage right now with slightly more efficient panels selling for below one dollar per watt. But thin-film works better in low light conditions and in hot environments, which means that in certain sun drenched areas of the world, thin-film turns out to have a lower levelized cost of energy (LCOE). The LCOE is the final cost to produce a kilowatt-hour of solar power and deliver it to the grid. So while a crystalline silicon PV panel may have a higher efficiency, meaning that it can convert more sunlight to power when the sun is shining, that same crystalline panel will produce energy for a shorter amount of time during the course of any given day.  And that same panel will experience greater degradation of power in hot environments than the thin-film panel, according to all of the thin-film experts interviewed for this article.

Couple the fact that thin-film has a lower LCOE in hot environments with the fact that the solar market is shifting towards more remote, unsubsidized markets that already experience high electricity prices and it becomes clear that thin-film has a chance at taking on more market share in the future.

Key Players in the Industry

Thin-film solar panels are created through three different manufacturing techniques that use different core components: amorphous silicon (a-Si), cadmium telluride (CdTe) or copper indium gallium diselenide (CIGS) and copper indium sulfur/selenide (CIS).

We checked in with makers of all three manufacturing types of thin-films to hear their thoughts about the future of thin-film PV and the future of their technologies.  All three have very big expansion plans.  See the image below for a list of the top suppliers by production:


Oerlikon Solar (OERL.SW)– Makers of Manufacturing Equipment for a-Si Panels

The only small silver lining to the very low solar power panel costs, according to Chris O’Brien, Head of Market Development at Oerlikon Solar (OERL.SW), recently acquired by Tokyo Electron (TEL), is that low module prices are driving increased demand for solar power in general. 

He points to markets in the Middle East, Africa and India as areas where there is a growing interest in solar PV.  Whereas PV projects in those regions used to be in the sub-megawatt range, he said they are now coming in in the multi-megawatt range.  This is a trend that many in the industry expect to continue.

O’Brien also said that pricing will remain low and only those manufactures that can innovate enough to bring down costs will be able to compete.

 “All in solar bids in California are coming in in the range of nine cents per kilowatt-hour.  I think what that reflects is not just the current low prices but an expectation that the price will continue to go down. In that case the RAM [renewable auction mechanism] was for deliveries in 2016.”

Oerlikon, which manufacturers the equipment to build amorphous silicon (a-Si) thin film module manufacturing plants, has seen a drop in equipment upgrades in 2012.  “Most estimates are that the investment this year will be down by more than 50 percent compared to last year,” O’Brien said.

O’Brien explained that in 2010 and 2011 manufacturers expanded aggressively, at what have turned out to be unsustainable rates. He called it a manufacturing equipment bubble. “A number of aspiring manufacturers wanted to copy the success of the 2009 emerging market leaders in China, like Suntech, Trina, Yingli,” he said.  Those tier 1 manufacturers successfully expanded to 2 GW of manufacturing capacity in 2009 and others wanted that success, he said.  What resulted was a glut of panels on the market.  Today, many of those manufacturers who aggressively expanded are now left sorely in debt, stuck with equipment that might not be sellable in the near future. 

“I expect there might be some buyer’s remorse,” said O’Brien.

Oerlikon is waiting for the next manufacturing equipment investment cycle to begin and O’Brien expects that to happen by the end of 2012. “I think the market is catching up to the investment that was made in 2010, 2011,” he said.

“What will be different for the next investment cycle,” he said, “is that the cost requirement will be much lower.” Obrien said he expects that manufacturers will need to diversify in order to stay afloat, which might mean that some crystalline silicon manufacturers will differentiate their lines. 

“I don’t expect that PV module prices will increase,” he said. “So during the next investment cycle, the cost requirement will be much lower.”

He continued: “The next investment cycle will be shaped by what technologies can provide a sustainable business model at PV module prices that are at or below today’s prices.”

O’Brien said that Oerlikon can deliver a 140-MW manufacturing line that will produce 10.8 percent efficient panels at $0.50 per watt as long as it is running at full capacity. He looks forward to working with Tokyo Electron (TEL) to further improve the line.  In early March Oerlikon announced that it was being sold to TEL, a leading semiconductor equipment supplier from Japan.

a-Si thin-film manufacturers producing panels with Oerlikon equipment include Astronergy, Auria, Baoding Tianwei, Bosch Solar Energy, Gadir Solar, HelioSphera, Inventux Technologies AG, Schott Solar, Pramac and Sun Well Solar. In addition to these players, Sharp Solar (SHCAY) has an a-Si thin-film line.

Click to view larger version

A chart showing all the players in the thin-film solar equipment manufacturing business is above. It comes courtesy of GTM Research’s “THIN FILM 2012–2016: Technologies, Markets and Strategies for Survival.”

In Part 2, we’ll talk with First Solar (FSLR) and Solar Frontier and take a look at the overall industry outlook for thin-film solar technology.

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

June 05, 2012

Geothermal Heat Pumps: The Next Generation

Tom Konrad CFA

The most efficient way to heat and cool a building just got more efficient.

Geothermal heat pump diagram via Bigstock

Climatemaster, a division of LSB Industries (NYSE:LXU), recently announced that their new Trilogy 40 geothermal heat pump (GHP) had been certified by the Air Conditioning, Heating, and Refrigeration Institute (AHRI) to exceed 40 Energy Efficiency Ratio (EER) under ground loop conditions.

EER is the ratio of effective cooling (heat removed) to the energy used, at maximal load, and is the standard measure of cooling effectiveness for geothermal heat pumps. A quick perusal of the list of Energy Star qualified GHPs shows just how big a leap this is: the highest EER rating currently available is 30, and many Energy Star qualified heat pumps have EERs as low as 17.  So the Trilogy 40 is a third again as efficient for cooling as the most efficient commercially available GHP, and more than twice as efficient as some Energy Star qualified GHPs.

Scott Lankhorst, President of Synergy Systems, a GHP installer in Kingston, NY, called the jump in efficiency “pretty amazing… 30 EER has been the max for quite a while now.”  Lankhorst says that Climatemaster hopes to have the Trilogy 40 in full production by the end of the year.

According to Barry Golsen, President and COO of LSB, the Trilogy 40 will also have improved heating performance, with a Coefficient of Performance (COP, the industry measure of heating efficiency) of 5 at ground loop conditions.  This is also a significant increase, with the best GHPs in the Energy Star list having COPs of 4.1.


In addition, they’ve added new functionality, called “Q-Mode.”  Q-Mode is the result of a collaboration between Climatemaster and Oak Ridge National Laboratory.  It allows the GHP to produce hot water even when it is not being used for space heating or cooling.  According to Chris Williams, technology evangelist at Heatspring, a provider of renewable energy and energy efficiency training and certification, producing hot water year round required additional equipment (and cost) with traditional heat pumps.

The Competition


Climatemaster is not moving into 40 EER territory unchallenged.  On GHP manufacturer Waterfurnace Renewable Energy’s (TSX:WFI, OTC:WFIFF) first quarter conference call, an analyst asked CEO Tom Huntington if Waterfurnace had an answer to efficiency breakthroughs at “a competitor.”  It does.  Huntington believes Waterfurnace’s new 7-Series GHP’s will be even more efficient than Climatemaster’s Trilogy.  Variable speed compressors (see below) are available from a number of vendors, and Huntington believes that the compressor used in the Trilogy is less efficient than the on Waterfurnace has selected for the 7-Series.

The Technology

How did they achieve these efficiency breakthroughs?  Both companies speak of “variable speed technology.”  According to Lankhorst, what they mean is variable speed compressors.  Current GHP models use two stage scroll compressors.   Variable speed blower motors and pump fields have been available for some time, although they often require the special controllers.

Variable speed compressors are new.  According to Williams, “there has been a huge amount of innovation in air source heat pumps,” and the innovations are now being applied to ground source technology.

Climatemaster’s Q-Mode a control system that integrates the GHP and components with the hot water tank, enabling the heat pump to deliver hot water year round.  Previously, year round hot water required additional components, or a back up heating source.  Q-Mode is patent pending, so it may be that it will give Climatemaster a competitive advantage if competitors like Waterfurnace are unable to duplicate the functionality without infringing patents.

ApplicationLSB logo

The integration of components and jump in efficiency should make these new systems attractive to installers in the field.  According to Lankhorst, the Trilogy may be especially cost effective in high-end residential applications, where the integrated system will eliminate several separate components.  Year round hot water is less of an advantage in commercial applications, since commercial installations operate nearly all the time in cooling mode, when free hot water is produced as a byproduct of cooling the building.

On the other hand, the spot efficiency ratings of a GHP are far from the only factor in determining the effectiveness of a GHP system.  According to Williams, proper ground loop, distribution, and system design can potentially have a greater impact on system efficiency.

Competitive Advantage

When contractors select a GHP, technology tends to be more important in commercial operations than in residential ones.  The cost of the heat pump is a small fraction of the cost of drilling the loop field, so residential installers are more interested in the level of technical support offered by the distributor, so these competitive advantages will vary from region to region.

On the other hand, if Q-Mode makes for much simpler installations, Climatemaster stands to gain residential market share unless its competitors can offer similar integration without infringing its intellectual property.


The next generation of efficient ground source heat pumps are a significant step forward in energy efficient climate control.  Nevertheless, for the next few years, I’d expect that these variable speed compressor pumps will only be used in a small fractions of installation.  Geothermal heat pumps are already so efficient that the additional savings may not be enough to justify the higher up-front cost.  Additionally, Waterfurnace introduced their new 5-Series line of GHPs with two stage compression in March, at a slightly lower price point than the Envision product it replaces.

Either way, the cost of saving energy continues to fall, and the potential customer base for geothermal heat pumps will grow as higher efficiency and lower prices make them an even more economical approach to climate control.

Disclosure: Long LXU,WFI.

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.

A Nuclear Waste Disposal Stock

Debra Fiakas CFA

Many are firmly opposed and a few more are skeptical of the nuclear energy industry.  A big concern is the waste resulting from the uranium enrichment process that is part and parcel of the reactors we have chosen to use for nuclear power generation.  Some see recycling of the waste as an answer.  First a short primer on uranium and then the recycling story.

Natural uranium consists of a mixture of three radioactive isotopes which are identified by the mass numbers U-238 (99.27% by mass), U-235 (0.72%) and U-234 (0.0054%).  Uranium is everywhere in the environment.  Most nuclear reactors used in the power industry require uranium in which the U-235 content is enriched from 0.72% concentration found in nature to about 1.5% to 3.0%.  Hence the nuclear power industry uses the practice of uranium enrichment.

The uranium remaining after removal of the enriched fraction contains about 99.8% U-238, 0.2% U-235 and 0.001% U-234.  These tailings of the enrichment process are called depleted uranium or DU.  There are some commercial uses for DU such as shielding material for other radioactive material and as ballast. Other examples include sailboat keels, counterweights and shielding in industrial radiography cameras.  

The military also has uses for DU.  Because of its high density, depleted uranium can also be used in tank armor, sandwiched between sheets of steel armor plate.  However, the military uses cannot consume all DU produced.  About 95% of the depleted uranium produced is stored as uranium hexafluoride (UF) in steel cylinders in open air storage yards close to enrichment plants.  The Department of Energy is thought to have accumulated at least 700,000 tons of UF in storage.

In a “one man’s garbage is another man’s treasure” sort of business model, International Isotopes (INIS: OTC/BB) proposes to turn these tailings into commercial products such as hydrofluoric acid and fluoride gas.  INIS has applied for regulatory approval to offer a de-conversion service to entities actively enriching uranium such as nuclear power generators.  The de-conversion process separates valuable elements from the tails and creates a chemically benign waste for disposal.

It is a compelling addition to the company’s usual business in nuclear medicine and radiochemical products.  INIS expects to not only get its DU raw materials for free, they will get paid to collect the DU.  The company has a five-year fixed price contract with Urenco USA, a uranium enrichment facility, to collect the resulting DU and de-convert these tailings.  INIS expects to produce hydrofluoric acid as part of the de-conversion process Urenco hiring INIS to perform.  There is also a contract in place to sell the hydrofluoric acid (HF) to an unnamed customer in the HF industry.

In a recent investment presentation management of International Isotopes described the new business opportunity as all tied up in a tidy knot.  However, there is a critical missing step.  A safety evaluation report was completed in May 2012, but INIS doesn’t expect a final environmental impact statement until August 2012.  With finalization a license could be received as early as September 2012.

We are adding INIS to the Efficiency Group of our Mothers of Invention Index.  Granted it is a stretch to view International Isotopes among providers of energy alternatives.  However, it seems worthwhile to watch a company that might provide a key link in improving the economics and safety of nuclear energy, one of the key alternatives to fossil fuels.

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. INIS is included in the Efficiency Group of Crystal Equity Research’s Mothers of Invention Index.

June 04, 2012

Green Dividend Values (11 Clean Energy Stocks for 2012)

Tom Konrad CFA

Performance in May

Fear of the disintegration of the Euro resurfaced in May, sending all stocks downward.  Clean energy stocks once again fell more than the market as a whole.  Possible causes are that many clean energy sectors are exposed to further loss of European subsidies, and that clean energy stocks tend to be more volatile than the market as a whole, with both up and down moves being magnified.  The Russell 2000 index (which I use as a broad market benchmark in this series) was down 7.1% in May, the Powershares Wilderhill Clean Energy ETF (PBW), was down more than twice as much, with a 14.6% decline.

This month, my strategy of avoiding the most subsidy -dependent clean energy sectors once again reduced my losses compared to PBW, with the equally-weighted portfolio of 11 stocks declining by 12.1% (total return.)  My losses might have been reduced more if I did not have fairly heavy exposure to European companies (Veolia (VE), Rockwool (RKWBF, ROCK-B.CO), and Accell Group (ACCEL.AS), but I don't regret the decision to invest in Europe.  Like Nassim Taleb, I think the structural problems in Europe are only more obvious than those in the United States.  In the longer term, we're likely to have more problems here.

As is to be expected in a down month, the hedged portfolio did a little better, declining only 10.2%.  Since my hedge is a long put, we can expect it to supply more protection than it did this month if the market continues to decline.  On the other hand, if the market stabilizes or rises, we can expect the hedge to return to being a drag on portfolio performance.

While every single stock and index (with the exception of the hedge) was down. The performance of the individual stocks in the portfolio are detailed in the chart below.  All percentages are in terms of the stock price at the start of the year.

11 for 12 May.png

Stock Notes

The portfolio's worst performer in terms of stock price was Veolia (VE), which fell from $13.74 to $11.20 (a 23% decline.)  However, much of that decline was due to the stock trading ex-dividend, so the loss in terms of total return (with the dividend added back in) was only 15%.  Although it's a global company, Veolia is based in France, which easily accounts for its relatively large decline.

In terms of total return, the largest decline was felt by Alterra Power (TSX:AXY / MGMXF), which fell by 24%, on the heels of a 25% decline in April.  In May, Alterra announced the acquisition of four wind development projects in British Colombia, and announced the resignation due to conflicts of interest of a director who would be taking a job at the company's auditor, KPMG.  Overall, Alterrra is still up for the year, and since there was no negative news of note, I think the decline was simply due to investors looking to sell one of their few stocks which were up for the year. 

New Flyer Industries (TSX:NFI / NFYEF) saw a decline of 16% after dividends, despite generally good news: A competitor closed up shop, there are signs of renewed strength in the market for transit buses, the company announced a partnerships to develop a new smaller "midi" bus, and unveiled a new battery-electric bus prototype.

Overall, only  Lime Energy (LIME) had what I would call "bad news," when the company missed analysts' estimates of earnings for the first quarter.  But even that was not particularly bad news, since the company has made good progress advancing its new utility-focused strategy.  Further, Lime raised money from it's biggest shareholder (without having to give him a discount to the market price) in order to fund the faster-than-expected growth of the utility business.  LIME fell 9% in May.


With many of these companies trading at lower prices despite making advances in their underlying businesses, I added to my positions in several of these names this month (New Flyer (NFYEF), Accell (ACCEL.AS), Waste Management (WM), and Waterfurnace (TSX:WFI / WFIFF), in particular.)  Given the number of attractive opportunities within this list and elsewhere in clean energy, my focus has been on buying dividend-paying companies which I think will be able to increase or maintain fairly high dividends. 

All four of the stock buys above pay over 4% dividends, as do several other acquisitions this month: Power REIT (PW), ABB (ABB), PFB Corp (TSX:PFB / PFBOF) and Potlatch (PCH).  These acquisitions are part of a long-term strategy to anchor my portfolio around a large block of reliable dividend-paying names which do not require as much attention as my more speculative clean energy picks.  (Note that all of these except WM, PW, and PCH are subject to foreign tax withholding, so they are better held in a taxable account, where the withheld tax can be usually be recovered through the Federal foreign tax credit.)


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.

Lime Energy Gets $2.5M to Fund Growth of Utility Business

Tom Konrad CFA


I was surprised when Lime Energy (NASD:LIME) announced that it was selling a million shares to Richard Kiphart, one of its own directors and its largest shareholder.  Last year, CEO John O’Rourke had told me that Lime  expected to reach profitability without having to raise additional capital.

What happened in the meantime?

It was the best of Limes, It was the worst of Limes

Two things had happened, one bad, one good.

The bad was that Lime’s C&I business turned in a particularly weak first quarter, cutting expected profits by a little over $1 million.  Cash reserves are always seasonally low at the end of the first quarter after the slow winter season, so liquidity was a bit tighter than usual.

I thought the earnings miss would bring a good opportunity to buy the stock, especially given that the company’s new strategy of focusing on utility contracts is paying off.

That’s the good thing that happened: four utility contracts were awarded in the first quarter.  That’s a total of seven, up from just one a year earlier.

Because of these contracts, analyst Graig Irwin at Wedbush Securities was quoted in a Charlotte Business Journal article (no online access) saying he expects the company to end the year in the black, despite the first quarter loss.

Kiphart’s Investment

To make Lime’s targets, the company will need to ramp up the new utility contracts quickly, and that takes cash.  Director Richard Kiphart, who already owned 9.6 million shares, 40% of the company, worth $24.5 million, stepped up to the plate for another $2.55 million for another million shares at the current market price.

Lime or Lemon? photo via Bigstock
Lime, not Lemon

The market’s currently treating this Lime like a lemon.  I look at this citrus and see green.  Apparently Kiphart, who knows as much as anyone can about Lime’s prospects, sees green, too.

Disclosure: Long LIME

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.

June 03, 2012

Two Numbers: One Matters, the Other Gets All the Attention

Garvin Jabusch

This morning, in the realm of those who follow such things, the world became aware of two newsworthy numbers, 69,000 and 400.  The former number is how many jobs were added to the U.S. economy in May according to the Bureau of Labor Statistics (BLS); the latter is how many parts per million (ppm) in our atmosphere are represented by carbon. 

You can guess our opinion: 400 parts per million is a far more significant milestone than the apparent ‘bad news’ of America adding 69,000 more jobs.

The jobs number is, at best, banal ephemera. It’s a trivially short snapshot of just one indicator of the immediate state of the U.S. economy, and it’ll be subject to revision a month from now.  Yet it’s almost all the financial press, and a lot of media in general, can talk about today.  Coverage like this from the LA Times is representative: “U.S. employers created 69,000 jobs in May, the fewest in a year, and the unemployment rate ticked up. The dismal jobs figures could fan fears that the economy is sputtering.”  Google news search the term “69,000 jobs” and you’ll see about 900 articles, most containing words like “bleak.” For what it’s worth, we think adding 69,000 domestic jobs in May, while below consensus forecasts, is a hell of a lot better than the alternative of losing jobs. Which, lest we forget, until October of 2009 there were 22 consecutive months of job losses. In relative, longer-view terms, today’s report isn’t especially awful. And again, for all the histrionics it’s causing in newsrooms, the BLS jobs report has the relevance lifespan of a mosquito. 

Unemployment Chart

Monthly jobs gained or lost, Jan 2008-March 2010. Source: BLS 

Meanwhile, in news that does in fact represent progress towards a cataclysm but that has been getting far less coverage, atmospheric carbon "readings are coming in at 400 and higher all over the Arctic. They've been recorded in Alaska, GreenlandNorwayIceland and even Mongolia." 400 ppm is at or beyond what scientists consider ‘safe’ in terms of human society. In reporting of a 2009 paper in the journal Science, researchers concluded “the only time in the last 20 million years that we find evidence for carbon dioxide levels similar to the [then] modern level of 387 parts per million was 15 to 20 million years ago, when the planet was dramatically different." How different? “Global temperatures were 5 to 10 degrees Fahrenheit higher than they are today, the sea level was approximately 75 to 120 feet higher than today, there was no permanent sea ice cap in the Arctic and very little ice on Antarctica and Greenland." Having just reached 400 ppm, our world doesn’t resemble that yet, but these are the society and economy wrecking outcomes of the path we have placed ourselves upon.  With these effects being the outcome of a sustained period at 400 ppm, it’s no wonder many activists are calling for a global stabilized level of 350 ppm.  As we go on beyond 400 ppm (a fate inevitable for now, as we continue to release 90 million tons per day of carbon into the air worldwide), things get far worse. According to NASA’s leading climate scientist, James Hanson, “that level of heat-trapping gases would assure that the disintegration of the ice sheets would accelerate out of control. Sea levels would rise and destroy coastal cities. Global temperatures would become intolerable. Twenty to 50 percent of the planet’s species would be driven to extinction. Civilization would be at risk.

Fixating on the monthly BLS jobs report while ignoring climate is like staring at your car’s tachometer while ignoring the road.  You’ll know exactly how fast your engine is revving at any given moment, but you’ll be oblivious to the collapsed bridge that’s rushing up in front of you.  

Jobs, of course, underpin the economy. So if creating jobs is our primary concern, we should seek to add them where they’re growing best and take a look at coverage of a new UN study that concludes that making the economic transition from fossil fuels to a lower carbon economy will create tens of millions of jobs worldwide.  Creating tens of millions of jobs while averting the worst of catastrophic warming. These are data we can subscribe to. Tentative monthly jobs estimate? Not as much.   Hitting 400 ppm shows us – incontrovertibly – where global economies have to invest at massive scale, soon, and for a long time if not indefinitely. 69,000 new jobs shows us where we were, for a second, last May.  

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

Buying Opportunity at Renewable Energy REIT, Courtesy of Disgruntled Shareholder

Tom Konrad CFA

Power REIT (AMEX:PW) aims to be the first renewable energy infrastructure Real Estate Investment Trust (REIT).

The Renewable Energy REIT

pwlogo5[1].jpg Renewable energy advocates have been calling for a change in the tax laws to allow renewable energy within the REIT structure.  A REIT is allowed to pass profits directly through to investors.  These profits are not subject to double-taxation like most corporate profits.  Owning shares of a renewable REIT would be much like owning a slice of a wind or solar farm.  This would open up the renewable energy investment opportunity to everyone, not just corporations and homeowners with with a roof suitable for solar.

The catch is that REITs are limited to certain types of real estate based assets, and without a new ruling from the IRS, wind and solar farms are out.  Which is why renewable advocates have been calling for just such a ruling.

Power REIT CEO David Lesser has beaten them to the punch.

Lesser was an investment banker at Merrill Lynch, where he helped create a large number of REITs to provide more equity to over-indebted real estate property.  That experience allowed him to see what the renewable advocates did not: there is a place in the existing REIT structure for renewable energy.   It’s possible to strip out the real estate assets from a wind or solar farm, and put them into the REIT.  Renewable energy developers are already familiar with complex ownership structures (thanks to our tax laws), so stripping out real estate assets should not be a big leap.

Power REIT

In order to implement his vision, Lesser and his team began buying the shares of what was then known as the Pittsburgh & West Virginia Railroad, an infrastructure REIT holding 112 miles of main line railroad real estate that is triple-net leased to Norfolk Southern Railroad (NYSE:NSC) for 99 years.  The renamed PW still holds the railroad asset, and has no debt.

Based on the income from the railroad lease, PW pays a $0.40 annual dividend, for a 5.5% yield at the current stock price of $7.24.  Lesser believes he can invest in renewable energy assets at yields in the 8.5% to 9% range.  These will be financed with debt at around 6.5% and potentially additional equity.  Any such transaction would bring an immediate increase in income per share.

Acquisitions have an added advantage of increased scale.  Power REIT needs to grow in order to better manage the expenses of being public.  Income from the existing railroad asset is insufficient to support these expenses.

One other potential upside lies in the railroad asset itself.  PW has initiated litigation with Norfolk Southern, which management believes has failed to pay all its contractual obligations under the lease.  The risks involved in this suit are limited to litigation costs, while the potential gains could be quite large for the microcap REIT.

Proxy Battle

The one hitch in Lesser’s plan was that he did not expect the actions of a disgruntled Pittsburgh & West Virginia shareholder, Paul Dorsey.  Dorsey owns 1,000 shares (0.06%) of PW stock, but feels that he is entitled to a board seat because he had been coming to board meetings for the last decade.  When Lesser (who is the largest shareholder, at 3%   almost 10%) turned him down because he lacked relevant experience, Dorsey decided to take matters into his own hands.

Dorsey has run proxy battles in both 2011 and this year, seeking to replace the entire PW board with a slate led by himself and his brother.  While he has no chance of winning due to lack of a business plan, experience, and backing by large shareholders, he has managed to scare smaller shareholders with a series of ad hominem attacks on Mr. Lesser in SEC filings.  The company maintains that these filings lack basis in fact.  I perused one of them myself, and feel that, even if all the allegations were true, Lesser would be better qualified than Dorsey to run the company.  (The allegations are mostly about poor performance of REITs under Lesser’s watch, but they at least claim that Lesser has extensive experience with running REITs.  The period of poor performance is cherry-picked to coincide  with a period of poor performance of REITs as an asset class and ignores dividend payments, which are significant.)

Buying Opportunity

Nevertheless, leading up to PW’s annual meeting tomorrow, small shareholders (who do not have the time or expertise to analyze the issues involved) are getting spooked, and the stock has fallen from the mid $9 range to the $6 range today in the last few days.

Because I believe the current selling is irrational and motivated by fear, I’ve been buying agressively all the way down, and PW is approaching the size of my largest individual holding.  I believe Lesser and other insiders would also be buying, if they could.  They were actively buying last year when the stock was in the $12.50 range.  Unfortunately for them, but perhaps fortunately for those of us with money to invest, they are most likely barred from buying by SEC rules.  So long as they believe they are near a material announcement, such as a deal to acquire assets, they cannot trade the stock.

Hence, there are few buyers who are both aware of the opportunity presented by Power REIT, and able to grab the shares dumped by skittish small shareholders.

If and when a deal materializes, I expect the stock to head up rapidly.  As I said above, insiders seem to believe such a deal is close.  Why else have they not been buying the stock at such a large discount to the $12.50 they were buying it at last year?

Disclosure: Long 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.

June 02, 2012

Tesla's Gift Box – Inefficiency Wrapped in Hype

John Petersen

Congratulations! You've been appointed Energy Czar for the island of Self Sufficiency; a wonderful place that can satisfy the bulk of its energy needs from domestic resources, but needs to import gasoline for a 10,000-unit automobile fleet that gets replaced at a rate of 1,000 cars a year. The island's battery factory can manufacture 45,000 watt-hours of lithium-ion batteries each year and depending on how they set the machines; the factory can make high-power batteries for HEVs or high-energy batteries for EVs.

Your mandate as Energy Czar is to minimize Self Sufficiency's fuel imports and CO2 emissions.

You have two competing proposals on your desk. The first is from Self Sufficient Motors, which wants to build a fleet of thirty HEVs using high-power batteries from the factory. The second is from Tesla Motors (TSLA), which wants to build one Model S using high-energy batteries from the factory. There is only enough capacity for one of the alternatives.

It you accept the proposal from Self Sufficient Motors, each of the HEVs will save 160 gallons of gasoline a year. So the combined fleet will reduce imports by 4,800 gallons a year and reduce CO2 emissions by 55 metric tons a year.

If you accept the proposal from Tesla Motors, the Model S will save one owner 400 gallons of gasoline a year and reduce CO2 emissions by 5 metric tons, but it will increase CO2 emissions from power generation by 2 metric tons, resulting in a net emissions reduction of 3 metric tons a year.

At first you're confused by the numbers because everyone knows that grid-powered electric vehicles are way cleaner than normal cars. Then your research assistant finds the following graph from the Union of Concerned Scientists that explains it all by showing that less costly HEVs fall nicely into the middle of the emissions range for grid-powered electric vehicles.

6.2.12 UCS Emissions.jpg

As a sensible, responsible and ethical public servant which alternative do you choose to support?

The fascinating thing about this simple example of an island nation is that the numbers closely approximate conditions in the US and they translate perfectly to a country, a continent or a planet. No matter how you slice and dice the fuel savings and CO2 emissions, there is absolutely no public policy justification for supporting grid-powered electric vehicles.

The bottom line is that grid-powered electric vehicles are unconscionable waste masquerading as conservation. There are enough batteries and battery materials to make electric vehicles for the few, the rich and the mathematically challenged, but there will never be enough batteries or materials to permit the implementation of grid-powered electric vehicles at a large enough scale to impact global, national or even local oil consumption. It's not an effective solution.

A grid-powered electric vehicle might make one driver feel warm and fuzzy about himself, but from a public policy and resource conservation perspective it's the most wasteful plan in history.

There is no room for rational intellectual debate.

At March 31st, Tesla had $123 million of working capital and $154 million of equity. It lost $89 million during the first quarter and burned $50 million of cash in operations. Its remaining DOE loan facility can only be used to buy equipment. Those funds cannot be used to buy parts, materials or labor to build cars, or to pay the overhead associated with running a company. At Friday's close, the market value of Tesla's outstanding shares was $2.96 billion, or 19.2 times book value.

I've heard the breathless claims that Tesla is the next Apple (AAPL) and Mr. Musk is a younger and far smarter version of Steve Jobs. That may be the case, but it can't change the reality that Apple trades at 5.2 times book value after a decade of extraordinary growth and profitability that consistently outperforms market expectations while Tesla is a rank startup with a long history of losses.

Many individual investors don't understand the Hype Cycle, the most dangerous dynamic in the stock market, until after they've been victimized at least once. Some investors never learn and they keep doing the same thing expecting different results. This graph from the Gartner Group conveys enough information to help sensible investors avoid Wall Street's version of a buffalo jump were the herd is sent stampeding over a cliff and the hunters feast on broken carcasses.

1.28.12 Gartner HC.png

A simpler tongue-in-cheek version from Paul Graham is too accurate to be funny. It shows his view of the stages all startup companies must survive on their path to becoming viable business enterprises. While the Gartner graph does a great job explaining the dynamics, I think the Startup Curve is closer to the truth.

3.25.12 Startup Curve.png

The root cause of the phenomenon is the simple fact that equity markets behave like people. During childhood and adolescence when all things are possible, equity markets act like voting machines – so Disney economics, wish upon a star thinking and irrational exuberance prevail. In most cases, investment decisions are based on the greater fool theory which holds that paying an outlandish price is acceptable because there will always be a greater fool to pay an even greater price. At some point, however, equity markets mature; children learn there is no Santa Claus and that wishing won't make it so. Then the weighing machine kicks in with a vengeance, stock prices collapse and neophytes who bought in reliance on the greater fool theory learn the identity of the last and greatest fool.

I can't predict when Tesla will reach that tipping point of market maturity, but I'm certain that it will.

If you doubt what I'm saying about the Hype Cycle and the Startup Curve, visit Yahoo! Finance and pull up the long-term price charts for Ballard Power (BLDP), Plug Power (PLUG), Pacific Ethanol (PEIX), First Solar (FSLR) and A123 Systems (AONE). The same pattern repeats itself time and time again because politically motivated energy policies and a technology du jour mentality that pervades every political organism repeat themselves time and time again, particularly when the last set of panacea technologies begins to generate backlash over fiscal black holes.

New readers love to assume that I hold some deep-seated animus for technology or that I'm simply an oil industry stooge. Nothing could be further from the truth. The fact is I'm an unrepentant early adopter when it comes to new technology. Notwithstanding my personal proclivities, I've been practicing securities law for over thirty years and have a profound understanding of the challenges all early-stage companies must face. I've also worked as an executive in the battery industry and understand the inherent wastefulness of battery-powered electric drive. Based on my knowledge and experience I see a perfect storm brewing for Tesla. Investors love to tell themselves that "it's different this time," but they invariably learn that it's never different.

Disclosure: I have no direct or indirect interest in Tesla and nothing to gain or lose from its future stock price movements.

June 01, 2012

Trade Wars and Patent Wars and EVs- The Week In Cleantech: June 1, 2012

Tom Konrad CFA

May 29: Chinese City of Hangzou Planning Electric Leasing Program to Include EVs

  • This article in Zhejiang Online does not mention Kandi Technologies (KNDI) by name, but it does say the city of Hangzhou is planning on adding electric cars to its electric vehicle rental system, and the price will be the same as electric bike rentals.  To keep the price and space usage down, Kandi Technologies mini-EVs and Smart Vertical Parking System (described here) seem ideal.
  • What Goldman's $40 billion investment pledge means, and what it doesn't mean.
  • Neste Oil's (NEF.F) claims against Syntroleum Corporation (SYNM) for alleged patent infringement of one patent were rejected by the US Patent office.  The office has yet to rule on infringement of a second patent.

May 30: Polysilicon Prices Rise, but Not for Long

According to Bloomberg, polysilicon prices rose for the first time since February last week.  But this tiny bit of good news will not be much help to polysilicon manufacturers like MEMC Electronic Materials (NASD:WFR.)  The article went on to quote an analystsaying that the modest gain does not “alter the fundamental dynamics of excess capacity coming in.”  Last week, S&P downgraded MEMC’s debt to junk, although Deutshe Banks says balance sheet at MEMC concerns are overblown and reiterates a Buy recommendation.

May 31: US slaps duties on Chinese Wind Towers

June 1: Exide Technologies (XIDE) closes recycling plant, looks cheap.


« May 2012 | Main | July 2012 »

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