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October 31, 2012

BYD Stalled Despite Japanese Carmakers' Woes in China

Doug Young

Dr. Zhengrong Shi
BYD's G3 at the Shenzen High -Tech Fair in 2009.  BYD needs more exciting new products to thrive despite Chinese buyers spurning Japanese auto brands. Photo credit: Brücke-Osteuropa.
The prognosis isn't looking good for Japanese car brands in China, with Honda (Tokyo: 7267) becoming the latest predictor that the gloom plaguing Japan's big 3 automakers could last into next spring and perhaps even longer. That looks like bad news for not only Honda, Toyota (Tokyo: 7203) and Nissan (Tokyo: 7201), but also their Chinese joint venture partners including Guangzhou Auto (HKEx: 2238) and Dongfeng Motor (HKEx: 489). Meantime, former high-flying car maker BYD (OTC:BYDDY, HKEx: 1211; Shenzhen: 002594) also continues to sputter for its own internal reasons, with the company predicting its profit will continue to plunge for the rest of the year to almost zero.

Both of these stories aren't really new, as Japanese car makers have seen their sales drop sharply since a territorial dispute over a small island chain first flared between Beijing and Tokyo in September. Meantime, BYD's woes date back even earlier, as the company's sales have been plunging for much of the last 2 years due to weakness plaguing its car business. In an alarming sign, it looks like that weakness is also starting to infect BYD's older and more stable battery unit as well.

Let's look first at the latest news from Honda, which quotes the company saying its business in China may not return to normal levels until February next year. (English article) Honda, which operates China joint ventures with both Dongfeng and Guangzhou Auto, also said the sharp drop in its China sales will cause it to miss its full-year profit forecast by around 20 percent.

What's most interesting to me in this latest gloomy report is the prediction that sales may not return to normal until February, as that indicates the Japanese automakers are expecting the current downturn to last longer than many people had expected. In fact, I think even February could be an optimistic prediction and the downturn could last well into the middle of next year, dealing a big blow to both the Japanese brands and their Chinese partners.

Many Chinese may soon resume buying most Japanese products at more normal levels by the end of the year as negative sentiment from this diplomatic crisis starts to fade. But cars are likely to suffer for a longer period due to the lingering images many Chinese consumers have of Japanese brand cars being burned and their owners beaten by angry crowds. Such fears are likely to linger for a while, as many consumers could easily opt to buy a US or European brand car over a Japanese one due to fears that they or their car could become a victim of angry mobs if tensions ever flare again.

Meanwhile, let's look briefly at BYD's latest results that show the woes continue unabated at this former high-flyer backed by billionaire investor Warren Buffett. BYD's profits slid 94 percent in the third quarter to less than $1 million, and the company forecast its profit for the full year would fall by an even bigger 98 percent. (results announcement; English article)

The company loves to talk about the big potential for its newer electric car business, which it sees as its big future growth engine and presumably was a big factor in Buffett's original decision to buy 10 percent of BYD. But the reality is that its core car business is hurting due to lack of exciting new products, and its battery business is now also starting to feel the pains of a slowdown.

I was somewhat amused by one report that said the company expects to return to profit growth in 2013, since it's quite easy to show growth after your profits have shriveled to almost nothing. Then again, I wouldn't completely believe the forecast for return to growth, as BYD could easily slip into the loss column as its prolonged winter continues.

Bottom line: Japanese car brands and BYD are both on the cusps of prolonged winters, as the former group battles negative consumer sentiment and the latter deals with declining businesses.

Doug Young has lived and worked in China for 15 years, much of that as a journalist for Reuters, writing about publicly listed Chinese companies. He currently lives in Shanghai where he teaches financial journalism at a leading local university. He also writes daily on his blog, Young’s China Business Blog, commenting on the latest developments at Chinese companies listed in the US, China and Hong Kong. He is also the author of an upcoming book about the media in China, The Party Line: How The Media Dictates Public Opinion in Modern China.

October 30, 2012

Flux Powers into Battery Management

by Debra Fiakas CFA

Flux logo.png  Proper electric and thermal management of advanced battery packs is imperative.  During operation, voltage and temperature differences in the battery cells can lead to electrical imbalances and decrease system performance.  A good battery management system can ensure strong power delivery and extend battery life.  Dozens of battery management systems have cropped up to fill this need for the lithium ion batteries used in new electric vehicles and alternative energy applications.  The highly populated field has not intimidated the newest competitor, Flux Power Holdings, Inc. (FLUX:  OTC/BB).

Flux is a 2008 spin-off of sorts of LHV Power Corporation (formerly HiTek Power Corporation).  The two companies still have common management as Flux’s chief executive officer is the president of LHV Power.  A series of distribution, development and manufacturing agreements also link the two companies.

LiFe_Silver24[1].jpg
The Wheego LiFe. Wheego Electric Cars was Flux Power Holdings' first customer in 2010. Photo credit: Wheego
  The Flux product line consists of a battery management system (BMS), battery modules and chargers.  The first prototype was shipped in 2010 and the next year Flux landed its first customer, electric vehicle producer Wheego Electric Cars.  Four new customers in the electric vehicle market have come along over the last year:  Greentech Automotive, Epic Boats, Artisan Vehicle and Boulder EV.

Battery modules represented 74% of total sales in the fiscal year ending June 2012 and sales of BMS represented 17% of total sales.  The technology behind Flux’s BMS was acquired in late 2009 from Joseph Gottlieb, notably of the pinball Gottlieb family.  He served as Flux’s chief technology officer for a time.  Seven patent applications are pending covering among other achievements, a method and apparatus for management of individual cells in a battery system and the composition of the BMS as a cell, a microcontroller, a bleed-off resistor and an analog circuit with a powered gate.

No patents have been awarded yet, so any technological edge relied upon by Flux hinges on trade secret protection.  Many technology companies benefit from being able to sequester critical process knowledge within the group that cannot be duplicated even if an employee or two decides to go out on their own.  With only four years of experience behind it, Flux probably does not yet have that ‘technological fortification.’

Flux has yet to turn a profit.  Total sales in fiscal year 2012 were $5.9 million, of which $1.5 million was sidelined on the balance sheet as deferred revenue.  Investors should also note that $1.1 million of 2012 sales were to Epic Boats, which is 35% owned by Chris Anthony of member of Flux’s leadership.  Flux reported a negative 37% net margin in the year and used $2.2 million in cash to support operations.

It is no secret that cash is in short supply at Flux.  The company had $812,000 on its balance sheet at the end of June 2012, just after completing a $1.1 million private placement of 1.7 million shares of common stock and warrants.  Since the fiscal year closed Flux has raised another $950,000 and issued 2.3 million new shares.  A disclosure in the company’s annual report indicates Flux management plans to continue trying to raise capital.

Besides limited resources, Flux management has to worry about competition from a host of lithium ion battery producers.  Flux’s battery is not particularly differentiated from any other lithium ion offerings.  The company markets it as a lower-cost alternative to lead-acid batteries.

In the battery management space, Flux competes with Ricardo Plc and Atieva, Inc. , along with at least a dozen other developers.  Even electric vehicle producer Tesla Motors, Inc. (TSLA:  Nasdaq) has a BMS.  Also of note is International Rectifier (IRF:  NYSE), which markets an algorithm-based system for heavy duty battery applications under the brand name Evaira EMS.

Investors might note that Flux Power has spent $972,000 on research and development over the last two fiscal years.  Of course, the company acquired a good portion of its technology in 2009 from Gottlieb Inventions through the issuance of an unspecified number of options to acquire common stock.  Flux Power reported in its fiscal year 2012 annual report that Gottlieb owned at least 782,997 options with an exercise price of $0.04 per share.

Flux Power became public through a reverse merger earlier this year.  Insiders own 83% of the company’s 46.3 million shares outstanding, giving them complete control over the company’s strategic direction.  The control issue is made particularly salient given that there are a number of related party arrangements with customers and suppliers that are also control by members of management.  Two suppliers, Current Ways and LHV Power, are owned and/or managed by Flux’s CEO James Gevarges and Chairman of the Board Chris Anthony is a significant owner of Epic Boats, a customer.  At least insiders have signed lock-up agreements, which sequester their shares for eighteen months from the date of the reverse merger.  This gives minority shareholders some protection from a flood of shares coming on the market.

As a closely held company, it is not surprising that Flux Power shares rarely trade.  That leaves a wide spread between bid and ask prices and few shares available to build positions.  This is never a good situation for minority investors.  Flux Power has moved into the advanced battery market at top speed.  Investors will have to move at a much slower pace to accumulate FLUX positions. 

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. 

October 29, 2012

Amyris: a 5-Minute Guide

Jim Lane

Amyris[1].jpgAddress: 5885 Hollis Street, Emeryville, CA

Year founded:

2003

Annual Revenues:

$38 billion (DuPont overall for 2011)
$1.2 billon (Industrial Biosciences unit for 2011)

Company description:

Amyris is an integrated renewable chemicals and fuels company founded in 2003 and based in Emeryville, CA, with additional operations in Chicago, IL and Campinas, Brazil. Amyris has over 400 employees, with three-quarters of its employees located in the United States. Amyris subsidiaries include Amyris Brasil Ltda., a wholly-owned Brazilian company through which Amyris conducts its Brazilian operations for the manufacture and trade of products; and Amyris Fuels, LLC, a wholly-owned subsidiary through which Amyris is building its U.S. fuels distribution capabilities.

Stock: NASD: AMRS

Type of Technology(ies): Amyris has developed genetic engineering technologies that enable modification of the way microbes process (i.e., metabolize) sugar. By controlling these metabolic pathways, Amyris is able to design microbes, primarily yeast, to be tiny living factories that convert plant-sourced sugars from crops such as sugarcane or sweet sorghum into target molecules. Using its industrial synthetic biology platform, Amyris develops yeast strains designed to produce a broad range of molecules. The first molecule that Amyris is focusing on is Biofene™, Amyris-brand farnesene, a hydrocarbon building block that can replace petrochemicals in a wide variety of products in the cosmetics, flavors and fragrances, consumer product, polymers, lubricants and fuel markets.

Feedstocks:Amyris can use a broad range of plant sugars to produce its products. Amyris expects to scale production initially using Brazilian sugarcane as a feedstock.

Products: Renewable fuels, lubricants, polymers and plastic additives, consumer products, flavors & fragrances and cosmetics.

Product Cost: Please see quarterly earnings statement

Offtake partners: As part of its go-to-market strategy capitalizing on the flexibility of its proprietary molecule, Amyris has entered a number of off-take and co-development agreements with partners in specific, high-value vertical markets such as cosmetics, consumer products, flavors and fragrances and lubricants. Amyris has an offtake agreement with Shell for the supply of Amyris No Compromise® diesel, with M&G Finanziaria S.R.L. to incorporate Biofene® as an ingredient into M&G PET processing and with The Procter & Gamble Company for use of Biofene in certain specialty chemical applications within P&G’s products. Amyris also has co-development agreements with companies in a variety of markets, including with Total to develop renewable jet fuel and with Kuraray to develop polymers to replace petroleum-derived feedstock such as butadiene and isoprene, allowing Amyris to target high-value markets while ramping up production of renewable diesel.

Past Milestones

1.      Completion of initial public offering.

2.      First purchase order for Amyris’s first commercial product, renewable squalane, followed by sales of Amyris renewable diesel and lubricants.

3.      Initial commercial production facilities in Brazil, Spain and U.S.

Future Milestones

1.      Build and operate two additional productions sites in Brazil (SMA and Paraiso).

2.      Remain on track for target production costs while meeting increasing customer demand.

3.      Add C5 and C10 molecules along with new products and customer agreements.

Business Model: (e.g. owner-operator, technology licensor, fee-based industry supplier, investor)

Amyris partners with biofuel producers to build new, “bolt-on” facilities adjacent to existing mills, instead of building new “greenfield” facilities, thereby reducing the capital required to establish and scale production, while simultaneously offering partners the opportunity to diversify and grow their product lines. Each of these steps in the production process – from the feedstock, through fermentation, to recovery and finishing – use processes that are already used by other industries today, enabling cost-effective scaling of production. Amyris’s streamlined production process employs an innovative take on established infrastructure and allows for lower start-up and capital costs and more efficient processes. In addition, Amyris’s partnership model incorporates cultivating long-term relationships with customers and co-developing ingredients with them to meet specific product development goals.

Competitive Edge(s):

Biofene provides a number of compelling advantages when compared to other renewable chemical and fuel alternatives, most notably that it is an oil. It can therefore be a drop-in replacement for many petroleum products, and it fits into the existing petroleum transport and distribution infrastructure. It is also an extremely flexible molecule that, with a few simple finishing steps, can replace petroleum derived chemicals in a number of markets, including ingredients in cosmetics, polymers, lubricants and consumer products, and renewable diesel and jet fuel. Amyris’s technology has been designed to be feedstock-agnostic and its platform is extremely flexible; Biofene is just one of thousands of molecules that Amyris can produce.

Research, or Manufacturing Partnerships or Alliances.

Amyris is a member of the National Advanced Biofuel Consortium under the Department of Energy (DOE) and NREL as well as a recipient of an Integrated Biorefinery (IBR) grant from the DOE. Amyris has ongoing research collaborations in Australia, Brazil and the U.S., and is a founding member of the Advanced Biofuel Association (ABFA), Biotechnology Industry Organization (BIO) and Diesel Technology Forum (DTF), among others. Amyris has manufacturing partnerships with Glycotech, Biomin, Sao Martinho, Tate & Lyle and Antibioticos.

Stage (Bench, pilot, demonstration, commercial): Commercial

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.

October 28, 2012

Solazyme: a 5-Minute Guide

Jim Lane

Solazyme logo.pngYear founded:

2003

Annual Revenues:

$38 billion (DuPont overall for 2011)
$1.2 billon (Industrial Biosciences unit for 2011)

Company description:

Solazyme, Inc. is a renewable oil and bioproducts company that transforms a range of low-cost plant-based sugars into high-value oils. Headquartered in South San Francisco, Solazyme’s renewable products can replace or enhance oils derived from the world’s three existing sources – petroleum, plants and animal fats. Initially, Solazyme is focused on commercializing its products into three target markets: (1) fuels and chemicals, (2) nutrition and (3) skin and personal care.

Stock: NASD: SZYM

Type of Technology(ies):

Solazyme has developed a proprietary biotechnology platform that creates tailored oils to address products across the fuels and chemicals, nutritional, and beauty and personal care markets. Solazyme’s innovative capability to “tailor oils” refers to their ability to produce oil with specific desired chain lengths, saturation and functional branching, providing benefits and functionality beyond those typically available with traditional oils.

Feedstocks:

Solazyme’s unique platform is feedstock flexible. The company is able to utilize a wide variety of plant sugars—including sugarcane-based sucrose, corn-based dextrose, and other biomass sources such as cellulosics —to produce their oils.

Products (e.g. ethanol, biobutanol, biodiesel, renewable diesel, renewable jet fuel, power, organic acids, bioplastics etc)

—         Solajet™: 100% algal-derived renewable jet fuel

—       Solazyme’s 100% algal-derived hydrotreated renewable jet fuel (HRJ-5) meets military specifications

—         SoladieselRD® : 100% algal- derived renewable diesel

—       Solazyme’s 100% algal-derived hydrotreated renewable diesel  (HRF-76) meets military specifications

—         Algenist™, a line of advanced anti-aging skincare products formulated with alguronic acid, sold at 850 Sephora locations throughout the US and Europe and all 26 Canadian Sephora stores. Algenist has been sold on Canada’s only nationally televised shopping service, The Shopping Channel, in addition to QVC in the US, one of the largest multimedia retailers in the world. Algenist is also available throughout the United Kingdom in all 60 retail locations of the innovative beauty retailer, Space NK.

—         Through Solazyme Roquette Nutritionals, our wide platform offers an entirely new category of natural, sustainable, and multifunctional ingredients based on microalgae that help consumers live healthier lives. Our portfolio includes a variety of whole food ingredients that deliver better tasting foods with a vastly superior health profile compared to ingredients in the market today.

Product Cost

-         Solazyme’s lead microalgae strains producing oil for the fuels and chemicals markets have achieved key performance metrics that they believe would allow them to manufacture oils today at a cost below $1,000 per metric ton ($3.44 per gallon or $0.91 per liter) if produced in a built-for-purpose commercial plant.

Offtake partners

Solazyme has entered into non-binding offtake agreements with Dow Chemical and Qantas. Dow Chemical will purchase up to 20 million gallons (76 million liters) of Solazyme’s oils in 2013, rising to up to 60 million gallons (227 million liters) by 2015. Qantas will purchase a minimum of 200 to 400 million liters of Solazyme’s jet fuel per year.

Past Milestones

-         Produced over 283,000 liters of military-spec diesel (HRF-76) for U.S. Navy contract. Further solidifying its relationship with the U.S. Navy, Solazyme has completed production of over 283,000 liters of in-spec marine diesel fuel, HRF-76, for the U.S. Navy, in fulfillment of the first phase of its Defense Logistic Agency (DLA) contract that calls for production of up to 550,000 liters in two phases. The initial fuel production for phase 1 of this contract was completed ahead of schedule and is currently expected to be delivered ahead of the contract delivery date. Additionally, the U.S. Navy has indicated its intent to exercise its phase 2 option and has transferred funding to the DLA, which is set aside exclusively for the phase 2 modification, which is currently being negotiated. The phase 2 fuel would be produced through the first half of 2012. Furthermore, Solazyme’s algal-derived marine diesel has been successfully tested in a United States Navy Riverine Command Boat, and Solazyme’s jet fuel has been successfully tested in a MS 60S Seahawk helicopter demonstration.

-         Signed framework agreement with Bunge Limited for commercial renewable oil plant in Brazil. Both companies have entered into a framework agreement for the formation of a joint venture focused on the production of triglyceride oils in Brazil. The JV will focus on the production of triglyceride oils from sugar cane, and will result in the construction of the first commercial facility dedicated to tailored oils. The plant, which will enable the production of 30 million gallons of triglyceride oils per year, will break ground in 2012 and begin operations in 2013. The facility will be located adjacent to a Bunge owned sugar cane mill in Brazil, and will leverage both Solazyme’s breakthrough sugar-to-oil technology and Bunge’s sugarcane milling and natural oil processing capabilities.

-         Partnered with Dow Chemical for development of Solazyme’s micro algae-derived oils for use in bio-based dialectic insulating fluids. Solazyme and Dow Chemical announced a non-binding agreement for the execution of both a joint development agreement and a letter of intent to advance the development of Solazyme’s algal oils for use in bio-based dialectic insulating fluids. Under the LOI, Dow Chemical will purchase up to 20 million gallons (76 million liters) of Solazyme’s oils in 2013, with the figure rising to up to 60 million gallons (227 million liters) by 2015.

-         Purchase of Peoria, IL facility and commencement of the build-out of Peoria facility including DOE approval of relocation of IBR . Solazyme will shift the location of its integrated biorefinery to its Peoria facility. Solazyme began the build-out of this recently acquired facility, adding fermentation capacity and performing upgrades after completion of the acquisition in May 2011. The fermentation portion of this facility is expected to be operational in the second half of 2011, with end-to-end manufacturing expected in the first half of 2012. Acquiring additional capacity and shifting from toll manufacturing to in-house production represents an important milestone.

Future Milestones

-         In 2012, Solazyme expects to break ground on their first Fuels and Chemicals facility; the facility is slated to come online in 2013

-         In 2012, Solazyme plans to increase their owned capacity to approximately 8.000 metric tons through the expansion of a Peoria facility as well as the completion of their Phase I and II Solazyme Roquette Nutritionals facilities

-         By the end of 2014, Solazyme expects to be approaching its goal of having 550,000 metric tons of production capacity by 2015, which would support over $1 billion in product revenue

Business Model: (e.g. owner-operator, technology licensor, fee-based industry supplier, investor)

-         Partnership model – Solazyme looks for strategic partners in major markets to drive forward development and commercialization.  In addition to funding development work and performing application testing, Solazyme’s expects that their partners will enter into long-term purchase agreements (offtakes) with them. They are currently engaged in development activities with multiple partners, including Chevron, Dow, Ecopetrol, Qantas and Unilever, any of which could represent attractive future offtake opportunities. They expect future partnerships to provide access to distribution, merchandising, sales and marketing, customer relationship management and product development knowledge and resources. In conjunction with these development activities, Solazyme has entered into non-binding letters of intent with Dow and Qantas for the purchase of our products (offtakes). Subject to certain conditions, including entry into a supply agreement, Dow will purchase up to 20 million gallons (76 million liters) of our oils in 2013 rising to up to 60 million gallons (227 million liters) by 2015 and Qantas will purchase a minimum of 200 to 400 million liters of our jet fuel per year.

-         Market entry- Solazyme has developed a sequential market entry strategy as their technology is capable of producing oils for multiple markets. Solazyme’s business strategy has been to enter into high value market as they ramp up production capacity. The flexibility of their technology platform, coupled with the myriad uses of oil gives them a $1.5 trillion dollar addressable market. Initially, they are focused on three large markets: Skin and Personal Care, Nutritionals, and Fuels and Chemicals. They have targeted commercialization in the higher margin Skin Care and Nutritionals segments, while aggressively ramping their planned manufacturing in Fuels and Chemicals.

Competitive Edge(s):

Feedstock and target market flexibility. Solazyme’s technology platform provides them with the flexibility to choose from among multiple feedstocks on the input side and multiple specific products (and markets) on the output side, while using the same standard industrial fermentation equipment. A manufacturing facility utilizing a given plant-based sugar feedstock can produce oils with many different oil compositions. Conversely, Solazyme can produce the same oil compositions by processing a wide variety of plant-based sugar feedstock. This flexibility enables Solazyme to choose the optimal feedstocks for any particular geography, while also enabling us to produce a wide variety of oils from the same manufacturing facility.

Low production cost enables broad market access. The production cost profile Solazyme has already achieved provides attractive margins when utilizing partner and contract manufacturing for the nutrition, and skin and personal care markets in which they are currently selling their products. Based on the technology milestones Solazyme’s have demonstrated, they believe that they can profitably enter the fuels and chemicals markets when they commence production in larger-scale, built-for-purpose commercial manufacturing facilities utilizing sugarcane feedstock.

Tailored oils. Solazyme has created a paradigm that enables the company to design and produce novel tailored oils that cannot be achieved through blending of existing oils alone. These tailored oils offer enhanced value as compared to conventional oils. Their oils are drop-in replacements such that they are compatible with existing production, refining, finishing and distribution infrastructure in all of their target markets.

Technology proven at scale. Solazyme believes that they have produced more non-ethanol, microbial-based fuels and oils than any other company in the advanced biofuels industry. From January 2010 through February 2011, Solazyme produced well over 500,000 liters (455 metric tons) of oil. To satisfy the testing and certification requirements of the US Navy, Solazyme partnered with Honeywell UOP to refine a portion of this oil into over 200,000 liters (182 metric tons) of military specification marine diesel and jet fuel.

Further solidifying its relationship with the U.S. Navy, Solazyme has completed production of over 283,000 liters of in-spec marine diesel fuel, HRF-76, for the U.S. Navy, in fulfillment of the first phase of its Defense Logistic Agency (DLA) contract that calls for production of up to 550,000 liters in two phases. The initial fuel production for phase 1 of this contract was completed ahead of schedule and is currently expected to be delivered ahead of the contract delivery date. Additionally, the U.S. Navy has indicated its intent to exercise its phase 2 option and has transferred funding to the DLA, which is set aside exclusively for the phase 2 modification, which is currently being negotiated. The phase 2 fuel would be produced through the first half of 2012.

Commercial products today. In 2010, we launched our first product, the Golden Chlorella® line of dietary supplements, as a market development initiative, with products incorporating Golden Chlorella® currently being sold at retailers including Whole Foods and GNC. In March 2011, we launched our Algenist™ brand for the luxury skin care market through marketing and distribution arrangements with Sephora International, Sephora USA and QVC. Distribution of our Algenist™ line of skin care products is expected to reach more than 850 retail stores worldwide by year end, including all 26 Canadian Sephora stores. Algenist has been sold on Canada’s only nationally televised shopping service, The Shopping Channel, in addition to QVC in the US, one of the largest multimedia retailers in the world. Algenist is also available throughout the United Kingdom in all 60 retail locations of the innovative beauty retailer, Space NK.

Research, or Manufacturing Partnerships or Alliances.

Solazyme is working with a range of companies and government organizations, including Chevron, the Department of Energy, Department of Defense, Dow Chemical, Bunge, Ecopetrol, Roquette, Sephora, Qantas, Unilever, and the U.S. Navy.

Notably, Solazyme has launched a JV agreement with Roquette (SRN), signed JDA extensions with Chevron, Unilever and Bunge, and entered into offtake agreements with Dow Chemical and Qantas. Solazyme also recently announced a JV agreement with Bunge focused on production of triglyceride oils in Brazil. Additionally, the U.S. Department of Defense (DoD) selected Solazyme to research, develop and demonstrate commercial scale production of algae-derived biofuel, meeting the U.S. Navy’s specifications for military tactical platforms. To date, Solazyme has delivered the largest quantities of non-ethanol, microbial-based fuels and oils in history to the US Navy.

As a result of their R&D, Solazyme has become the only company that has produced and delivered large quantities of microbial derived non-ethanol advanced biofuels that meet industry specifications as well as tough military fuel specifications.

Stage (Bench, pilot, demonstration, commercial):

Commercial

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.

October 27, 2012

Altair Nano: Advanced Battery Sellout

by Debra Fiakas CFA

altairnano[1].png Advanced battery developers have not had an easy time of it in recent years, or at any time for that matter.  There have been three bankruptcy declarations this year alone.  Ener1 and A123 Systems (AONE:  OTC/PK) were rescued by deep-pocketed buyers, who scooped up technology, contracts and relationships.  In this second post in the series we look at another advanced battery sellout.

Altair Nanotechnologies (ALTI:  Nasdaq) has managed to avoid court rooms.  However, it did have to put itself up on the block, selling a majority of its shares to China-based Canon Investment Holdings.  Its operations will ultimately be moved to China, where the company plans to establish a manufacturing capacity.

Some investors might think there is no rush to lease a facility.  So far Altairnano has recorded only nominal product sales.  That said, the company does have customer relationships. Altair has a development agreement with AES Energy Storage, a subsidiary of AES Corporation (AES:  NYSE), and put two 1-megawatt large-scale battery systems for electrical grid applications.  The success of the demonstration helped Altair win two orders in the frequency regulation market.  Altair was chosen to supply a turn-key 10 MW advanced battery system for frequency control at a power station in El Salvador.  The project is waiting for regulatory approval.

Altair also has a long-term agreement with Proterra, Inc., the maker of heavy duty drive systems, to supply advanced lithium-ion battery modules for Proterra’s all-electric and hybrid-electric buses.  Proterra has big plans to scale production capacity to 1,500 buses per year.

Proterra accounts for a significant portion of Altair’s sales, which were $2.9 million in the twelve months ending June 2012.  The balance of sales was to Yintong Energy Company Ltd. in China.  YTE had been buying Altair’s proprietary nano lithium titanate materials and battery cells and purchased a one-megawatt ALTI-ESS system.  Materials purchases have been suspended indefinitely, but the agreement can come back to life with minimum materials purchases.

Altair recently entered into a joint marketing agreement with Indiana-based EnerDel, now privately held by a Russian investor.   The idea is to leverage respective contacts and product capabilities.  EnerDel’s claim to fame is a prismatic cell design and modular stacking architecture for its batteries.  Altair uses a proprietary nano-scale processing technology to create lithium titanate materials for battery anodes.  The chemistries lead to a battery life as much as ten times longer than conventional lithium ion batteries.  It also makes possible faster discharge and charge sequences.

Investors should note that Altair reports a deficit of $214 million, suggesting that it has managed to let slip through its fingers nearly all of the $246 million in capital investors have put into Altair.  The company has spent a pinch over $80 million to perfect its lithium titanate technology since the company’s inception in 2000.  The balance of the loss is associated with production, selling and administrative activities.

Altair has been awarded twelve U.S. patents and 42 foreign patents.  They are evidenced on the balance sheet at a whopping $312,000 in value.  With so little visibility in future sales and cash flows, that amount may not be far off the mark.

The company still has a bit of time to drum up new business and make good on its technology investments.  Based on cash usage in the last twelve months, it appears Altair needs approximately $15.0 million a year to stay in business.  Altair has $35 million in cash on its balance sheet, providing it with support for another two years.
 
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. 

October 26, 2012

The Battle For the Heart of Suntech

Doug Young


Dr. Zhengrong Shi
Dr. Zhengrong Shi Suntech Founder, Chairman and CSO.  Photo credit: Suntech
Solar panel maker LDK (NYSE: LDK) started its long march to a takeover by the state with a major stake sale this week, but the equally cash-starved Suntech (NYSE: STP) looks like it may put up a bigger fight to maintain its independence. What's happening at Suntech comes down to a single word: Pride. The latest twist at Suntech also has broader implications, as the kind of pride we're seeing from founder Shi Zhengrong could foreshadow similar resistance we're likely to see at many of the nation's other solar panel makers.

Shi and many of his peers at the helms of other solar companies were once models for others to follow, as they quickly built profitable companies in a high-growth, high-tech area that Beijing had targeted for rapid development. Despite the rapid reversal of fortune for their industry, many of these chief executives remain fiercely proud individuals and thus are unlikely to agree to many of the tough conditions that Beijing wants in exchange for badly needed rescue funds. Perhaps the biggest and most difficult of those terms will be the loss of control of their firms, which many of these executives treat as their own individual fiefdoms.

Before I go any further, let's review quickly what happened earlier this week with LDK and what's now happening with Suntech, which was once an industry pioneer when it became China's first solar panel maker to list overseas with a New York IPO in 2005. LDK announced earlier this week that it would sell about 17 percent of itself to a consortium whose main members included a state-owned firm for a badly needed cash infusion of $23 million. (previous post) This looks like the first step to an eventual state-led takeover of LDK, which is the weakest of China's major solar firms and is losing tens or even hundreds of millions of dollars each quarter.

Suntech is in similar need of cash, both to fund its operations and also to pay nearly $600 million worth of debt that will come due early next year. But media are reporting that the company's proud founder and Chairman Shi Zhengrong is refusing 2 government proposals that would give him the funds he so desperately needs. (Chinese article)

One of those proposals would see the government buy the bonds coming due next year and provide an additional capital injection. But a key condition of that package would require Shi to provide his own personal assets to guarantee that those bonds would be repaid -- meaning Shi would probably lose the 30 percent of Suntech shares he owns. Those shares once made him one of China's richest men but are now worth a meager $46 million based on the company's latest market capitalization. The second plan would see Suntech de-list and become a state-owned company.

Both of these plans would obviously see Shi lose control of the company he worked so hard to build, and the new government owners would almost certainly force him to leave as part of any rescue package. Shi may believe he can negotiate a rescue under any terms he wants, but ultimately I do think that Beijing will also insist on its own conditions for a rescue, including Shi's departure from the company. The result could be an interesting and entertaining stand-off, which the government will ultimately win but perhaps not before Suntech itself is significantly damaged.

Bottom line: Beijing will insist on nationalization and the exit of Shi Zhengrong in exchange for saving Suntech, resulting in a bitter battle for control of the company that the government will win.

Doug Young has lived and worked in China for 15 years, much of that as a journalist for Reuters, writing about publicly listed Chinese companies. He currently lives in Shanghai where he teaches financial journalism at a leading local university. He also writes daily on his blog, Young’s China Business Blog, commenting on the latest developments at Chinese companies listed in the US, China and Hong Kong. He is also the author of an upcoming book about the media in China, The Party Line: How The Media Dictates Public Opinion in Modern China.

October 25, 2012

Siemens Bows Out of Solar, Announces Renewed Focus on Wind and Hydro Power

Vince Font

Gunfleet_Sands_Offshore_Wind_Farm_-_geograph.org.uk_-_2091181[1].jpg
Siemiens wind turbines at the Gunfleet Sands Offshore Wind Farm 4 km from Gunfleet Sand, Essex, Great Britain. Siemens AG is selling its solar business, and will focus its renewable energy efforts on hydro power and wind energy.  Siemens is an established “clear market leader for offshore wind power” according to Managing Board member Michael Süß
Photo credit: Ashley Dace
Citing slow growth, low profit and high cost, Siemens AG (NYSE:SI) announced that it would be selling its solar energy business as part of a larger strategy to reorganize the company's overall stake in renewable energy. According to Bloomberg, Siemens also plans to end its involvement in DESERTEC, a joint venture it entered into in late 2011, which would build an immense network of solar farms in the Sahara desert.

“Due to the changed framework conditions, lower growth and strong price pressure in the solar markets,” Siemens said in a statement, “the company’s expectations for its solar energy activities have not been met.”

Already in talks with prospective buyers, Siemens unveiled a plan earlier in October to develop an optimized infrastructure through cost reduction and the strengthening of its core activities. Indicating the company’s continued commitment to the pursuit of renewable energy, Siemens said it plans to push further into developments in wind and hydro power, which have so far proven more profitable for the company.

Michael Süß, member of the Managing Board of Siemens AG and CEO of its Energy Sector, said, “the importance of renewable energies in the global power mix will continue to grow and hydro power and wind energy will remain the major renewable contributors. Our renewable energy activities will be focused on these two areas.” Süß added that Siemens is an established “clear market leader for offshore wind power farms” and said the company is “making good progress in onshore business.”

Despite the intended dissolution of its solar division, Siemens said it would continue to manufacture products for solar thermal and photovoltaic power plants. These products will include generators, steam turbines, control systems, and grid technology. Siemens has also pledged to continue operations of its solar thermal energy and photovoltaic business units until both have been sold, ensuring continuity of business for its existing contractual obligations.

Ingo-Martin Schachel, an analyst with Commerzbank AG in Frankfurt, told Bloomberg that the reasoning behind the decision by Siemens to divest its solar business activities was “obvious” and added: “Solar is no core business and no core competency of Siemens. The growth prospects for these markets have deteriorated such that there is really no reason to remain active here.”

Calling solar thermal energy “a hard sell,” head of solar research for Bloomberg New Energy Finance Jenny Chase said, “This is more evidence that there is no such thing as too big to fail at the solar industry.”

Siemens acquired Israeli company Solel Solar Systems and Italian company Archimede Solar Energy in 2009, but operating profits in its renewable energy division within the last year have plummeted 34 percent. Siemens presently employs 680 employees in its solar business, but its wind power division employs over 7,000.

The move by Siemens will not be seen as a surprise by many solar industry analysts. Shyam Mehta, Senior Solar Analyst with GTM Research recently told RenewableEnergyWorld.com that he expects many diversied firms will abandon solar in the next year. “I would say we would see a lot more market exits in terms of plant closures or in terms of divestment from PV from diversified firms or insolvencies,” Mehta said. “We expect a lot more over the next year.”

Vince Font is a professional freelance writer specializing in the fields of renewable energy, high tech, travel, and entertainment. Read his blog at www.vincefont.com or follow him on Twitter @vincefont.

This article was originally published on RenewableEnergyWorld.com, and is republished with permission.

Dupont Industrial Biosciences: a 5-Minute Guide

Jim Lane

Address:

1007 North Market Street
Wilmington, DE 19898

Year founded:

DuPont: 1802
DuPont Industrial Biosciences: 2011

Annual Revenues:

$38 billion (DuPont overall for 2011)
$1.2 billon (Industrial Biosciences unit for 2011)

Company description:

Last year, DuPont purchased Danisco and its Genencor unit and added their expertise into a new unit: DuPont Industrial Biosciences. This integration allows us to optimize DuPont’s bioscience technology and commercialization capabilities with Genencor’s biofuel enzyme technology.

DuPont is committed to being a part of the solution to develop renewably sourced biofuels. For close to ten years, we have invested hundreds of millions of dollars and put our best researchers to work to find answers to the pressing global issue of increased need for food, feed and fuel. We have developed a three-part strategy to deliver these new technologies to the growing biofuels market to help biofuels become more competitive with petroleum. The strategy includes:
  1. Improving existing ethanol production through differentiated agriculture seed products and crop protection solutions as well as through improved bioprocessing aids and enzymes that allow animals to get the most out of valuable ethanol co-products;
  2. Developing, commercializing, and licensing new technologies to allow conversion of cellulose to ethanol; and
  3. Developing and supplying advanced biofuels, such as biobutanol, a performance drop-in fuel easily integrated with the existing liquid fuel system.
In addition, as part of DuPont Industrial Biosciences, DuPont Pioneer helps farmers by delivering high-yielding products, supported with proven expertise and innovative services to meet growing demand from the biofuels industry. Pioneer offers more than 230 High Total Fermentable (HTF) ethanol hybrids that increase the fermentable starch content of corn plants for greater outputs. Many ethanol hybrids contain Herculex® insect protection traits to reduce insect damage to grain and help prevent molds and mycotoxins. This helps ensure a consistent supply of high-yielding, high-quality grain. DuPont Crop Protection further helps growers produce and maximize the yield and quality of biofeedstocks including sugarcane and corn with solutions that help reduce weeds and control insect and disease.

Stock: NYSE: DD

3 Top Milestones for 2009-12:

1. The launch of ACCELLERASE® TRIO™ in 2011 http://biosciences.dupont.com/fileadmin/user_upload/genencor/documents/AccelleraseTRIOProductLiterature_120719.pdf (and see product description below)

2. DuPont’s 250,000 gpy Cellulosic Ethanol demonstration plant in Vonore, Tennessee producing ethanol from corn stover and generating key data for commercial production (see details below) psychoanalyze

3. The Success of the DuPont Stover Harvest Collection Project http://www.ddce.com/news/120315.html (and collaboration description below)

3 Major Milestone Goals for 2013-15:

1. Commercializing cellulosic ethanol through the planned DuPont cellulosic ethanol biorefinery in Nevada, Iowa (see below).

2. The licensing of the cellulosic ethanol technology produced at the DuPont Nevada, Iowa biorefinery

3. BioIsoprene™ Monomer: DuPont builds relationships to enable further pilot and commercial development of BioIsoprene™ monomer, to be used in the manufacture of synthetic rubber for tires and the potential for various other applications, such as specialty elastomers and adhesives .

Business Model (e.g. owner-operator, technology licensor, fee-based industry supplier, investor):
• Merchant enzyme supplier to ethanol/biofuel industry
• Integrated solutions provider in cellulosic ethanol industry through DuPont Cellulosic Ethanol Program
Competitive Edge(s):

DuPont has a unique position in the industry because its offerings span farm, feed and fuel. For example, we are able to build on Genencor’s expertise in designing and operating cell factories, leverage Pioneer’s knowledge of production agriculture and relationship with growers, and apply DuPont’s capabilities in engineering and advanced materials.

Research, or Manufacturing Partnerships or Alliances:

DuPont has a 50/50 joint venture with BP Biofuels called Butamax™ Advanced Biofuels which is working to develop and commercialize biobutanol. Isobutanol is a molecule that is similar to gasoline, and can be readily dropped into the current liquid transportation infrastructure, without changes to the refiner or distribution. Biobutanol is deployed through retrofit of current ethanol facilities, so does not require building entirely new facilities. It also can be blended at a higher rate than ethanol into gasoline under current regulations. So far in 2012, Butamax has signed up seven existing ethanol producers with a total of 11 plants for its early adopters program to convert their facilities to biobutanol production. Butamax will begin retrofit of the first facility in 2013.

DuPont also has a partnership with The Goodyear Tire & Rubber Company. Through this collaboration, DuPont and Goodyear have been developing a first of its kind biobased process to produce isoprene (BioIsoprene™) from renewable raw materials.

DuPont’s Stover Harvest Collection Project involves collaboration with farmers, DuPont Pioneer biomass supply chain experts and Iowa State University, as well as custom harvesters and equipment manufacturers. It is focused on standardizing equipment and techniques for collection, transport, storage and pre-processing of stover, while ensuring stewardship of farms and achieving economics of the biorefinery. In 2010, DuPont began the project by partnering with six leading Iowa corn growers and conducting a pilot-scale stover harvest on 2,500 acres. The project has grown to partnering with more than 100 corn growers for 2012 and harvesting approximately 25,000 acres of stover, representing about one seventh of our first biorefinery’s annual commercial feedstock requirement.

Stage: (Bench, pilot, demonstration, commercial)

DuPont Industrial Biosciences currently operates a demonstration facility in Vonore, Tenn., which is producing cellulosic ethanol from stover and is generating data for commercial production.

The next step is the construction and operation of our commercial-scale cellulosic ethanol biorefinery in Nevada, Iowa. DuPont plans to break ground on that project later this year (2012), with a 12-18 month build out. Once completed, this will be one of the first commercial scale cellulosic biorefineries in the world and will generate 28 million gallons of cellulosic biofuels from corn stover (corn residues, including cobs, stalks, leaves).

DuPont Cellulosic Ethanol is also currently working with local farmers to build and scale up the supply chain for this biorefinery. DuPont’s Stover Harvest Collection Project involves collaboration with farmers, DuPont Pioneer biomass supply chain experts and Iowa State University, as well as custom harvesters and equipment manufacturers. It is focused on standardizing equipment and techniques for collection, transport, storage and pre-processing of stover, while ensuring stewardship of farms and achieving economics of the biorefinery.

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.

October 24, 2012

Last Battery Developer Standing

by Debra Fiakas CFA

battery clip artAdvanced battery producer A123 Systems, Inc. (AONE: Nasdaq) has flamed out, with the cinders of its lithium ion technologies snapped up by Johnson Controls, Inc. (JCI:  NYSE).  Much has been written in the financial press over the past few weeks about the fate of A123 and the next step by Johnson Controls.  What is more, because A123 had received government loan assistance, the political pundits have taken advantage of the company’s embarrassment to make their case for or against government in general and public alternative energy investment in particular.

What really has me wondering is what this turn of events means for the other upstart battery producers.

Two prominent advanced battery developers have sought bankruptcy protection already.  Ener1, Inc. (private, previously HEVVQ:  OTC/PK) filed for bankruptcy protection in early 2012.  Ener1’s operating subsidiary EnerDel survived through an acquisition by Russian investor Boris Zingarevich.  Valence Technology, Inc. (VLNCQ:  OTC/PK) filed for bankruptcy protection in July 2012, and is currently operate its business as a debtor-in-possession.  That final chapter in that story has not been written.

That leaves still standing at least three other developers which are attempting to commercialize advanced battery technologies:  Altair Nanotechnologies, Inc. (ALTI:  Nasdaq), privately-held Winston Battery in China and Maxwell Technologies, Inc. (MXWL:  Nasdaq).  Flux Power Holdings, Inc. (FLUX:  Nasdaq) is another recent entrant to the lithium ion race.  Maxwell Technologies, Inc. (MXWL:  Nasdaq) is trying to challenge all the lithium ion battery makers with ultracapacitors. 

A123 Systems spent $186 million on research and development over the last three and a half years and ran up a $329.1 million loss on $151.9 million in sales in the company’s last fiscal year ending June 2012.  Numbers like those could lead an investor to suspect mismanagement.  Have the others operated with greater prudence?

In a new series on advanced battery technologies, we will look at spending on research and development by these companies and make some comparisons of operating strategies.   
 
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. 

Codexis: a 5-Minute Guide

Jim Lane

Address:

200 Penobscot Drive
Redwood City, CA 94063

Year founded 2002

Annual Revenues: $107 million (2010)

Company description: Codexis serves major worldwide markets where clean technology can make a positive economic and environmental impact. Codexis CodeEvolver ™ directed evolution technology accelerates development of high value sustainable products. Our focus is on the cost-effective conversion of renewable resources into transportation fuels, pharmaceuticals and biobased chemicals, and on the development of new technologies for effective air and water treatment.

Stock: CDXS; NasdaqGS

Type of Technology(ies):

Directed evolution – CodeEvolver™ directed evolution technology
DNA shuffling
Synthetic biology/Systems biology
Multiplexed gene SOEing
Bioinformatics
Green chemistry

Feedstocks:

All – Codexis’ technology is feedstock agnostic.

Products

Ethanol and Cellulosic ethanol

Past Milestones

Completed IPO April 2010
Received EPA Presidential Green Chemistry Award with Merck
Initiated detergent alcohol product line and completed cellulose enzyme scaleup 2011
Negotiated worldwide (ex. Brazil) rights and Shell royalty agreement to commercialize cellulase enzymes

Future Milestones

Commercialize detergent alcohol product line
Establish significant commercial presence in Brazilian fuels and chemicals markets

Competitive Edge(s):

There are a few things that make Codexis a formidable competitor in the biofuels industry:

- Codexis’ CodeEvolver™ directed evolution technology platform which combines sophisticated DNA shuffling and proprietary bioinformatics with advanced systems biology and nearly a decade of research experience to create “super” biocatalysts that are “custom fit” to solve complex bioindustrial problems. The Codexis CodeEvolver™ technology has been shown to reduce manufacturing costs, improve yield and reduce environmental waste in multiple applications in the pharmaceutical industry and is now under development for us in the advanced biofuels, biobased chemicals and carbon capture markets. Future applications include new methods of cost-effective wastewater treatment.

- Codexis’ role in Raizen, Shell’s $12 billion joint venture with Cosan – Shell has contributed its 16% ownership stake in Codexis to the joint venture company, Raizen, with the goal of developing and commercializing next-generation biofuels.

Stage (Bench, pilot, demonstration, commercial) Development

Website: www.codexis.com

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.

October 23, 2012

LDK Sells 16.6% of Company in Chinese State Bailout

Doug Young

ldk logoThe nascent state-led bailout of China's struggling solar industry has taken another step forward with word that LDK Solar (NYSE: LDK) has just sold a big chunk of itself to a partly state-owned consortium for enough cash to perhaps fund its operations for another month or 2. This new rescue package values LDK at just $140 million, which is probably still too high a figure for one of China's weakest solar panel makers in an industry where everyone losing big money due to a huge supply glut.

Let's take a closer look at this latest announcement from LDK, which says it will issue new shares and sell them to an entity called Heng Rui Xin Energy, a consortium that includes a state-run entity as one of its major members. (company announcement) Other media are reporting the sale will give Heng Rui about 16.6 percent of LDK's total shares for a price of about $23 million. (English article)

I'm not a mathematician, but even I know that $23 million is a tiny sum for a company like LDK that is losing hundreds of millions of dollars every quarter, as it scrambles to close to down production lines and lay off employees to conserve cash. The amount is even less than the $32 million emergency government loan received last month by Suntech (NYSE: STP), a relatively stronger player that is facing both a cash shortage and also a major debt repayment that is coming due early next year. (previous post)

Both the Suntech and now the LDK cash infusions are short-term first-aid measures that will help the companies finance their operations for the next month or 2. But clearly a longer term solution is needed to clean up the mess that has become China's once-promising solar panel manufacturing sector. Ironically, such an overhaul could easily leave many companies' publicly traded shares as worthless, meaning emergency investors like Heng Rui Xin may be get back little or no return for their investments.

Media previously hinted that the needed overhaul could be coming soon in a rescue package being assembled by China Development Bank, a state-owned policy lender that would provide financing for about a dozen of the industry's biggest players. Now media have also reported over the weekend that the government is currently crafting a more comprehensive plan to salvage the industry. (English article)

That plan will including a 2-pronged approach, including measures to force consolidation and also to speed up the building of new solar power plants to give the remaining players more business. A crucial piece of the plan will call on State Grid, operator of China's national power grid, to assume most of the costs for connecting new solar power plants to the national grid. Those costs are typically quite high, especially because many solar plants are located in remote areas of China such as interior Qinghai and Xinjiang provinces, which have the most desert-like conditions.

At the end of the day, this comprehensive plan is what the industry really needs before it can move forward, and any new funds like the ones just received by LDK will only be temporary stop-gap measures. Look for a few more similar short-term solutions through the rest of the year as other players seek money to continue funding their operations, and for announcement of a more comprehensive rescue plan perhaps as early as the end of the year.

Bottom line: LDK's new share sale marks the acceleration of a state-led bail-out for China's solar panel makers, with a more comprehensive rescue plan likely as soon as year-end.

Doug Young has lived and worked in China for 15 years, much of that as a journalist for Reuters, writing about publicly listed Chinese companies. He currently lives in Shanghai where he teaches financial journalism at a leading local university. He also writes daily on his blog, Young’s China Business Blog, commenting on the latest developments at Chinese companies listed in the US, China and Hong Kong. He is also the author of an upcoming book about the media in China, The Party Line: How The Media Dictates Public Opinion in Modern China.

October 22, 2012

Big Biofuel Balance Sheets: A Stampede of Elephants

Jim Lane

elephant herd
Elephant herd running photo via Bigstock
28 big balance sheets deploying capital into commercial-scale advanced biofuels.
Who’s writing the checks, and for what, and when?


It’s become an article of faith among the unenlightened that advanced biofuels are always five years away, and the chief investors are the US Department of Energy and a gaggle of key Obama campaign donors.

The Wall Street Journal, last December, opined:

“Congress subsidized a product that didn’t exist, mandated its purchase though it still didn’t exist, is punishing oil companies for not buying the product that doesn’t exist, and is now doubling down on the subsidies in the hope that someday it might exist. We’d call this the march of folly, but that’s unfair to fools.”

Well, as we do here in Digestville, let’s look at the facts on the ground. Typically, we typically look at advanced biofuels sector through the lens of the processing technologies, feedstock developers or downstream customers. Today, we’ll look at the bigger balance sheets to see who is investing what, and when, with whom, and why.

We’ve added in a few bonus smaller balance sheets that are financing commercial scale projects off the balance sheet – like Solazyme (SZYM), KiOR (KIOR) and Gevo (GEVO) – but our primary focus here are the elephants rather than the antelope.

We’ve also focused here, for the sake of brevity, on those financing commercial scale projects. So, Exxon’s $300 million commitment into algae biofuels R&D is not here, nor are activities at Bayer, BASF, Dow and elsewhere which are still in the joint development agreement stage. Also, we have not reported investments by sovereign wealth funds, family offices or VCs, although they can be in the tens of millions.

What do we see? If it is indeed a march of folly, it is a popular parade. Oil & gas companies, major chemical companies, steelmakers, airlines, Big Ag, enzyme producers and food companies – from 14 countries in all. There are upstream feedstock aggregators, technology developers, and downstream customers. It’s a varied lot, not known for folly, or light-hearted investing strategies.

Abengoa (ABGOY)

Building a 23 million gallon cellulosic ethanol plant in Hugoton, Kansas – off its own balance sheet – opening in 2013. The company is reported to be looking at developing a second commercial plant for mid-decade.

Bao Steel

Investing, with LanzaTech, in deploying gas fermentation technology, in China, utilizing steel mill off-gases. Bao financed a 100,000 gallon demonstration and the next stage is the construction of a 40 milion gallon project. Indian Oil Corp., LCY Chemical Corp, Posco, Mitsui & Co., Petronas, Shougang Group and Harsco Corp are among those who have also begun discussions or development projects with LanzaTech.

Beta Renewables

Building and financing, off its balance sheet, a 20 million gallon first commercial cellulosic ethanol project in Crescentino, Italy – and is aiming to build another on its own dime in North Carolina.

BP

There are now more than 4,000 employees in BP Biofuels – the unit has grown immensely with the acquisition of Tropical Bioenergia in Brazil. The company is financing, off its balance sheet, a first commercial (36 million gallon) cellulosic ethanol plant in Florida, expected to open in 2014.

British Airways

The company is moving forward on the construction, contributing equity from its balance sheet, of a first commercial project producing aviation biofuels from municipal solid waste, located east of London. The plant is expected to open by 2014.

Bunge (BG)

The company has formed a JV with Solazyme to build a commercial scale renewable oils production facility in Moema, Brazil – 26 million gallons in capacity, expected to open in 2013.

Cargill/NatureWorks

Cargill is financing, through its NatureWorks subsidiary, in a venture with PTT Chemical, the construction of a second Ingeo biopolymer facility, in Thailand. The 18 million gallon facility is expected to open in 2015.

Chesapeake Energy (CHK)

Chesapeake is financing, off its balance sheet, a 50 million gallon facility expected to open in 2014, using Sundrop Fuels technology including methanol synthesis and the Mobil MTG process to produce renewable gasoline.

COFCO

COFO is financing, off its own balance sheet, the construction of a 26 million gallon cellulosic ethanol facility in Singapore – first phase of 13 million gallons is expected to open in 2013.

Darling (DAR)

In a JV with Valero, is financing off its balance sheet a 135 million gallons renewable diesel project, Diamond Green Diesel, scheduled to open by 2013.

DONG Energy

Financing, off its balance sheet, a first commercial Inbicon cellulosic ethanol in Maabjerg, Denmark, expected to open in 2014 with an 18 million gallons capacity. DONG (Danish Oil and Natural Gas), which is the parent of Inbicon, previously financed a demonstration-scale plant off its balance sheet.

Dupont (DD)

Financing, off its balance sheet, a first commercial Dupont Cellulosic Ethanol plant in Nevada, Iowa – capacity of 27.5 million gallons.

FHR

Just bought a 155 million gallon corn ethanol plant this week in Nebraska from Advanced Bioenergy. Has invested in advanced jatropha via SG Biofuels, advanced biodiesel via Benefuel, and cellulosic ethanol via EdeniQ.

Graal Bio

Financing, off its balance sheet, construction of a 21 million gallon cellulosic ethanol plant in Alagoas, Brazil. Expected to open in 2013 – technology from Beta Renewables.

INEOS

Financing, off its balance sheet, a first commercial (8 million gallon) cellulosic ethanol plant in Vero Beach, FL – for which construction is complete and commissioning is underway.

Mitsubishi Chemical

Financing off its balance sheet, through its MCC Biochem JV with PTT Chemical, a 13 million gallon succinic acid plant in Thailand – project expected to come online in 2014.

Neste Oil (NEF.F)

Financed, off its balance sheet, the construction 572 million gallons of renewable diesel capacity in Finland, the Netherlands and Singapore. ALl projects complete, commissioned and producing.

Petrobras

Financing, off its balance sheet, a 4 million gallon demonstration of its cellulosic ethanol technology developed in partnership with Blue Sugars. Expected to open in 2013.

POET-DSM

Jointly financed a $250 million JV, POET-DSM, to complete a 23 million gallon first commercial cellulosic ethanol plant in Emmetsburg, Iowa – opening in 2013. The JV expects to deploy numerous additional plants.

PTT Chemical

Financing off its balance sheet, through its MCC Biochem JV with Mitsubishi Chemical, a 13 million gallon succinic acid plant in Thailand – project expected to come online in 2014. PTT is financing, through its in a venture with NatureWorks, the construction of a second Ingeo biopolymer facility, in Thailand. The 18 million gallon facility is expected to open in 2015.
Raizen (Royal Dutch Shell-Cosan)

Financing, off its balance sheet, a first commercial cellulosic ethanol plant in Brazil, in partnership with Iogen.

Roquette

Financed, through a 50/50 joint venture with Solzayme, a first small commercial renewable oils plant in Lestrem, France.Subject to approval of the board of directors of the JV, Roquette has also agreed to fund an approximately 50,000 metric ton per year facility that is expected to be sited at a Roquette wet mill and owned by the JV.

Total

Invested more than $175 million in Amyris, and has also invested in Gevo and Coskata.

Tyson

Financed, off its balance sheet, through a JV with Syntroleum, the 75 million Dynamic Fuels renewable diesel plant in Geismar, Louisiana – which is commissioned and operating.

Valero

In addition to operating numerous corn ethanol plants, Valero has invested in Algenol, Enerkem and Mascoma, and is proving major financing for Mascoma’s first commercial cellulosic ethanol plant in Michigan, scheduled to open in 2013-14.

Waste Management (WM)

Invested in Enerkem, Fulcrum Bioenergy and Renmatix – and is proving financing, off its balance sheet, for Fulcrum Bioenergy’s first commercial cellulosic ethanol project near Reno, Nevada.

Wilmar

Financing off its balance sheet, in a JV with Elevance, a 52 million gallon first commercial integrrated biorefinery in Gresik, Indonesia, scheduled to open in 2012-13.

Zhejiang Hisun Biomaterials

Financing off its balance sheet a 16 million gallon first commercial project to produce polylactic acid (PLA) from cassava, in Zhejiang province in China, scheduled to open in 2013.

Smaller balance sheets financing projects

Gevo (GEVO)

Financed, off its balance sheet, the acquisition of the Luverne Ethanol plant in Luverne, Minnesota and conversion to isobutanol production.

KiOR (KIOR)

Financing, off its balance sheet, its first commercial (13 million gallon) biocrude project, in Columbus, Mississippi. Construction is complete and the plant is now in commissioning.

Solazyme (SZYM)

See the JVs with Roquette and Bunge. Financed, off its balance sheet, a demonstration of its technology, now commissioned and operating in Peoria, Illinois.
More data and project details: a free download

For more data, see the Advanced Biofuels Project Datanbase, a free Digest download available here.

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.

October 21, 2012

How Grid Parity (Among Other Fallacies) Almost Killed The Solar Industry...

...and why it will survive.

Paula Mints

The photovoltaic industry is currently in a state of extreme contraction brought about by overbuilding, which was brought about by the belief that the feed-in tariff incentive model would continue expanding from region to region and which was exacerbated by decades of fighting for profits and incentives in a world that largely considered the PV industry either a science experiment or the lifestyle choice of hippies. The current infighting has made enemies of colleagues. Artificially low prices have encouraged governments to believe that enough progress has been made, and that incentives are no longer required.

Since the beginning of photovoltaic industry time participants have had to fight for every incentive dollar.  The term "grid parity" has been used as almost a promissory note towards the end of achieving continued incentives.  That is, a promise was made by the solar industry and all of its participants that the cost/price of installing a PV system would decrease at an aggressive rate to the point that the electricity generated would be at parity with other electricity generating technologies. One of the assumptions used in this regard was that the cost/price of conventional energy would continue to rise. This assumption ignores the volatile pattern of pricing behavior for any good, while also assuming that the cost of manufacturing solar technology would follow a more or less smooth downward slope.

The promise of grid parity also ignores (or, at least looks the other way) the fact that during most of its incentive-driven history, the cost of manufacturing a solar panel and its selling price have been disconnected.  One reason for this disconnect between cost and price is that for most of its history there has not been significant pull (the term to describe when buyers pursue a product). The promise of grid parity and the goals that have been set up in its name also ignores the fact that at every point in the chain all participants must enjoy a margin comfortable enough to conduct R&D, pay employees, expand, develop products and, in short, conduct business in the global market place. The solar industry, in sum, has promised itself into a precarious state where margins are memories and company failure is accepted instead of mourned. 

Figure 1 offers a history of PV industry pricing and demand from 1975 through 2011.  Note that periods of strong demand and significant decreases in average technology prices have coincided with periods in which significant incentives were available. 

 

In 2009, at the height of the feed in tariff era, the average selling price (ASP) for PV modules decreased by 33% over the previous year, from an ASP of $3.25/Wp in 2008 to an ASP of $2.18/Wp.  The price of cells decreased 61% from $3.20/Wp in 2008 to $1.26/Wp in 2009.  Though a one year decrease in prices of >30% for modules and 61% for cells cannot be considered normal progress, and though this price correction was driven almost entirely by aggressive pricing, it was proclaimed a great achievement and absolute proof of progress.  This progress has continued through to the current period, Q4 2012, and is continuing to drive technology manufacturers into bankruptcy.  If this is progress, a healthy period of stagnation would be preferred. 

Grid parity is a concept with many definitions.  Grid parity is also a marketing term and is an unhealthy goal as it pits solar in a battle for energy share with conventional energy, which will continue to enjoy healthy subsidies.  Prices are currently held down by high levels of inventory (which is being resold) and the expectation of low prices springing primarily from rumor.  Figure 2 offers prices from 2011 through Q4 2012. 

Despite it All, Solar Will Survive

The solar industry, and all of its technologies including CSP and CPV, is currently facing challenges and this painful period will continue for some time to come.  The current contraction is complicated by a trade dispute in the U.S. and discussions of a trade dispute in the European Union. A slowing global economy complicates recovery for an industry that needs significant investment on the manufacturing and installation sides of the solar value chain. Decreasing incentives are further straining margins and the new incentive paradigm, PPA and tender bidding, does not support the true value of solar.  Business models, including the US lease model, need maturing.

It is a good thing that a) innovation thrives in times of hardship and b) the solar industry has significant experience with hardship.  Over its ~40 year history, industry participants have continued to innovate — through technology development, system design and balance of systems improvements — all the while fighting governments for continued incentives and a complacent energy buying public.  Moving forward, technology innovation will continue. Right now it is crucial to develop business models that allow for healthy margins and provide value to customers. Along with business model development an educational effort must be undertaken by the industry. Energy buyers need to learn the details about the subsidies that conventional energy continues to enjoy so that they can make clear choices based on facts. Forget LCOE for a while and focus on data — facts — about the true, unsubsidized cost of conventional energy and yes, nuclear.

True facts about costs are important and so is a solid effort to change the conversation from cheap to quality.  Solar does not have to be the cheapest electricity choice. It needs to be recognized as a high quality, reliable, long lived energy technology.  Once a solar electric system is installed the fuel (sun) is free. 

Distributed generation (DG) solar — power at the point of need — involves individuals and communities in their energy future, offering all stakeholders energy independence. As storage technologies mature and become more economical the value that energy independence offers will be clear.

Paula Mints is principal analyst, PV Services Program, and a director in the energy practice at Navigant Consulting.
This article was originally published on RenewableEnergyWorld.com, and is republished with permission.

October 20, 2012

Solar REITs: A Better Way to Invest in Solar

Tom Konrad CFA

KD501The last day for a solar developer to submit an application for the Treasury’s 1603 grant program was September 30th, and only for grandfathered solar projects which broke ground before the end of 2011.

Solar panel prices have continued to drop this year, but solar project development remains a capital-intensive business.  The 1603 program allowed solar developers to monetize the solar investment tax credit (ITC) much more quickly than they could otherwise, and this essentially reduced their cost of capital.  As the rush of projects begun before the end of 2011 are completed, developers are looking for new ways to finance their next projects, especially since traditional forms of financing have been harder to come by since the financial crisis.

Jan Schalkwijk, CFA, a portfolio manager with a focus on sustainable investments at JPS Global Investments based in San Diego, CA  says, “Any solution that further improves financing of solar projects should be of interest to investors; especially if returns come in the form of dividends, from financial structures that are collateralized.”

The Solar REIT

Currently, the only way a small investor can invest in solar is by buying stock in solar manufacturers.  I have long argued that solar manufacturers are unattractive as an asset class because of the fiercely competitive nature of the solar industry.  The massive decline of solar stocks over the last several years has convinced most investors of the danger of investing in solar manufacturers, even when solar installations are skyrocketing.  Since inception in April of 2008, the Guggenheim Solar ETF (NYSE:TAN) has fallen 93%, while solar installations have risen six-fold with rapidly falling costs.

While those rapidly falling costs destroy solar manufacturer margins, they improve the opportunities for profitable solar farms.  Yet stock market investors find themselves shut out of this opportunity.  The two layers of taxation for public companies make common stocks a less than ideal investment medium for solar farms, unlike the private equity investments and LLCs used by large investors.

What sort of structures might be attractive?  Master Limited Partnerships, or MLPs come immediately to mind, since they combine the tax structure of a limited partnership with the liquidity of public exchanges.  MLPs allow the investor to avoid the two layers of taxation by passing their tax liabilities (and benefits) through to their limited partners (shareholders), which leads to a level of tax complexity most small investors are unaccustomed to.

In addition, MLPs are limited by law to specific businesses, mostly fossil energy extraction and transport.  While extending MLPs to solar and other renewable energy has a certain appeal on the basis of fairness, such an extension would require an act of Congress.

WILMINGTON, DE - SEPTEMBER 16: Democratic U....

Sen. Chris Coons introduced the Master Limited Partnership Parity Act on June 7th

Senator Chris Coons (D) of Delaware introduced The Master Limited Partnership Parity Act to allow MLPs to invest in renewable energy on June 7th, and Representative Ted Poe (R) of Texas introduced identical legislation in the House September 19th.  Unfortunately, the chances of these bills becoming law seems low.  Govtrak.us puts their chances at only 4%.

A second appealing structure is the Real Estate Investment Trust (REIT).  Like MLPs, REITs avoid the double taxation of traditional corporate structures, and are limited to investing in certain asset classes, which in the case of REITs means real property.  REITs pass through their income, rather than their tax liability to investors: REIT dividends are treated as ordinary income to the investor.

As Jim Hansen, a financial consultant at Ravenna Capital Management in Lake Forest Park, Washington and publisher of the Master Resource Report notes, “for retail investors the REIT would be the simplest and could be used in IRA’s which MLP in many cases cannot”  because a certain portion of MLP income may be taxable, even if the MLP is held in an IRA.  Indeed, Congress first enacted the REIT model in the 1960s to enable small investors to “secure advantages normally available only to those with large resources.

Garvin Jabusch, Cofounder and CIO of Green Alpha Advisors in Boulder, CO and manager of the Sierra Club Green Alpha Portfolio also thinks REITs would be a good structure for solar investments.

“Making PV [photovoltaic solar] a REIT eligible asset class will give investors access to what is currently the best value in solar, the annuity of electric power sales agreements.  Currently investors can mainly invest in panel manufacturers (and to some degree BOS [balance of system] providers such as converter manufacturers), which is not these days the most profitable way to play solar. Buying a piece or pieces of solar PV projects on the other hand is profitable right now but is currently the province of private equity investors. Utility scale solar on a project basis is very attractive because, unlike a coal or other fossil-fuels based plants, once the solar plant is running it produces electricity which can then be sold essentially indefinitely without risk of the price of its fuel increasing (or indeed ever costing anything at all), with very low risk of plant failure (and if it does fail, it’s likely only offline for a short time, no risk of explosion), and relatively low overhead in terms of maintenance.

 Legal Considerations

“The IRS could declare that solar assets were REIT-safe with a stroke of the pen.”

Joshua Sturtevant has done extensive research on the legal requirements to allow REITs to focus on solar investments.

The other potential advantage of REITs as an solar investment structure is that it would not require an act of Congress for PV to become a REIT-qualified investment class.  Joshua L. Sturtevant, an Associate with solar aggregator, financier, and developer Distributed Sun of Washington, DC, has done extensive research on the changes which would allow REITs which would generate all or most of their income from solar generation.

He found that “the IRS could declare that solar assets were REIT-safe with a stroke of the pen.  Because of the broad authority it has been granted to regulate REITs, it could bring solar assets into the fold simply by issuing a ruling to that effect. … [I]t wouldn’t require legislation or huge changes to the tax code.”  Getting a favorable IRS ruling might not be easy, but it would almost certainly be easier than getting legislation through Congress.

Sturtevant says that an IRS ruling might take the form of a “private letter ruling”  or through a “revenue ruling.”  The IRS grants a private letter ruling in response to a taxpayer asking for clarification on an aspect of the tax code applies to them.   A private letter ruling does not have broad applicability, in that it is only binding on the requesting taxpayer and the IRS.  However, private letter rulings “often end up having some trickle-down influence on business decisions as they are generally accessible to tax lawyers and accountants.”

A revenue ruling is  ”often issued at the prompting of a government official. To the extent that an issue might be a close call, it is better for the request for clarification to come from within the government as there is a better chance of obtaining a favorable (from the perspective of the requestor) outcome.”

The Wheels of Government Turn Behind the Scenes

No one was able to tell me anything definite, but there are rumors that a request for an IRS revenue ruling is imminent.  In June, the National Renewable Energy Laboratory (NREL) issued a report, ”The Technical Qualifications for Treating Photovoltaic Assets as Real Property by Real Estate Investment Trusts (REITs).”  The report concluded that PV meets many of the important criteria to be considered “real property” and hence a proper asset class for investment by REITs.

The fact that NREL issued this report suggests that someone in the government is working to prepare the way for a favorable revenue ruling.  David Feldman, an NREL analyst and co-author of the report, said ”We’re not trying to make the decision — the Internal Revenue Service will do that.  We’re giving them the technical information they need to make the decisions.”  But somebody asked them to write the report.

Sturtevant says, “My pulse of the situation suggests that there are parties who are moving to place a request to the IRS by election time. If such a request were successful, it could be less than two quarters before a company claiming REIT status is developing solar.”

Jabusch has also heard rumors predicting everything “from year end this year to Q2 2013.”

UPDATE: The Renewable Energy Trust Capital, Inc., a San Francisco, CA based mission-driven company founded in 2011 to “facilitate the transition to a clean and sustainable economy” apparently already has ruling request “on file with the IRS.”  I’m seeking an interview with RET to determine if this is a request for a private-letter ruling (most likely since this is not a government entity) and when the request was filed.  10/12: I’ve published an article about Renewable Energy Trust’s request based on my interview here.

Will the IRS Rule in Favor of Solar REITs?

If there has already been a request to the IRS for a revenue ruling on PV as real property, the the odds are good that the ruling will be favorable for those of us who would like to see Solar REITs.  According to Sturtevant, enough political will would be sufficient to guarantee a favorable ruling.  The political will is likely to depend on the outcome of the election on November 6th.

Giving solar a similarly advantageous  investment structure to the MLPs enjoyed by investors in fossil fuels should be a “politically neutral concept,” as Sturtevant puts it.  Obama has long been in favor of leveling the playing field between alternative energy and fossil fuels, while allowing Solar REITs is seemingly in line with Romney’s expressed belief that alternative energy should sink or swim on its own merits: Investors would evaluate each deal on its investment merits, as both Hansen and Schalkwijk implied above.  On the other hand, Romney has repeatedly called green jobs “fake” or “illusory” while championing the fossil industries, and has plans to sharply cut funding for clean energy: He may have already concluded that PV has no “merits,” and hence might see little point in giving it similar privileges to the extractive industries he promises to promote in the name of energy independence.

The First Solar REITs

Even if there is a favorable ruling, it may take a while for the first REITs dedicated to solar to emerge.  The first movers are most likely to be traditional REITs that are already thinking about renewable energy investments.

A few REITs have dabbled with solar already as a revenue enhancement.  IRS rules allow them to generate up to 25% of their income from sources other than real property, and this allows some scope for solar on REIT-owned buildings, for instance.  Some solar developers are even specifically targeting the traditional REIT market.  However, few REITs are likely to use this option to obtain more than a few percent of their income from solar because “ the IRS tends to be very wary of anything that doesn’t smell right in the context of REITs” and “ leads to wariness and conservatism by many REIT managers,” according to Sturtevant.  REIT managers generally feel that a little extra revenue is not worth risking greater IRS scrutiny.

ProLogis Global Headquarters, Denver, Colorado

ProLogis Global Headquarters, Denver, Colorado (Photo credit: Wikipedia)

The conservatism of REIT managers has most likely already proven a barrier to some potential solar installations on REIT property, and a positive revenue ruling would have the added advantage of giving a green light for existing REITs to install solar on their property.

ProLogis, Inc. (NYSE:PLD) is one of the few REITs not waiting for a ruling.  ProLogis had installed 75 MW of solar on its buildings by the end of 2011, and claims to be “just getting started.”  According to  my calculations (using aggressive assumptions of a 20% capacity factor and $0.10 per kWh electricity price), even 75 MW of PV would generate only $13 million in annual revenue, or 0.85% of ProLogis’s 2011 total revenue.

pwlogo5[1].jpgAnother REIT which might be expected to take advantage of a positive revenue ruling in a big way is Power REIT (NYSE:PW).  Power REIT invests in the embedded real estate of transportation infrastructure and renewable energy installations.  PW currently owns only railroad real estate, but its CEO, David Lesser plans to acquire real estate underlying renewable energy generation (most likely a wind or solar farm) in the near future.

Talking ‘Bout a Revolution

ProLogis and Power REIT will undoubtedly continue investing in renewable energy in any case.  Lesser says, “We believe that that there is an attractive investment role for Power REIT to play in the renewable energy space with or without a clarification of PV being included as a real estate asset for REIT purposes.”

But for both investors and solar developers, the IRS could completely revolutionize the solar investment landscape by classifying PV as real property.  That revolution could be upon us before year-end.

Disclosure: Long PW

This article was first published on the author's Forbes.com blog, Green Stocks on October 9th.

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.

October 19, 2012

Bankruptcies (A123,Satcon) and Life After (Solyndra): The Week In Cleantech, 10-19-2012

Jeff Siegel and Tom Konrad

October 14: Is a Heating Oil Crisis Coming?

oil furnace
Heating Oil Furnace.  Photo by Tom Konrad

“People still use heating oil?”

Those were the words said to me by a friend of mine who's spent 41 of his 45 years on earth in Southern California.

To be honest, I'm not sure he's ever even seen an oil delivery truck.

But here in the Northeast, there are still plenty of folks that rely on heating oil. Particularly those living in older homes in the cities, and of course up in some of the more remote rural areas of Pennsylvania, Vermont and New York, where you still can't access a natural gas line.

In any event, those who do still rely on heating oil are certainly hoping for a mild winter this year. Because according to the Energy Information Administration, a crisis could be coming.

Check out this excerpt that was recently published in the industry publication, This Week in Petroleum. . .

For the week ending October 5, distillate inventories in the U.S. Northeast (PADDs 1A and 1B) were 28.3 million barrels, about 21.5 million barrels (43 percent) below their five-year average level (Figure 1). Distillate inventories have historically been used to meet normal winter heating demand but are also an important source of supply when demand surges as a result of unexpected or extreme cold spells. The low distillate inventories could contribute to heating oil price volatility this winter. In addition, outages at several major refineries, notably Petroleos de Venezuela’s Amuay Refinery, Shell Oil’s Pernis Refinery in the Netherlands, and Irving Oil’s Saint John Refinery in Canada, have added to the fundamental market pressures in the Atlantic Basin.

Translation. . .

If you're relying on heating oil to keep your home warm this winter, you definitely should consider topping off the tank before winter kicks in, and maybe get used to wearing a light sweater.

And for more long-term planning. . .

If you can access a natural gas line, I strongly recommend making the investment. Although natural gas prices are going to start heading back up next year, there's still going to be a lot more volatility in heating oil pricing going forward.

Interestingly, up in some of the more rural areas of New York and Vermont, where heating oil is quite common, solar is quickly becoming very popular. Particularly for farmers who use solar to supplement their power generation.

One gentleman I met last week during a trip to Essex, NY installed a solar array two years ago. Since then, he's been able to offset his heating oil usage by more than 40 percent. And at the Essex Farm, owners use a sizable solar array to power their small, but profitable operation.

Not bad.

I suspect that as solar prices continue to fall while oil prices continue to rise and remain volatile, we'll see more and more solar in some of these rural areas where family farms still exist, and natural gas is not on its way.

October 16: Will Bankrupt Solyndra Get Another $1.6 Billion?

As Bright as a Beijing Sky

While taxpayers get screwed on the Solyndra deal, Solyndra owners may now be able to walk away with another $150 million.

I'm serious! Turns out the IRS has suggested Solyndra's bankruptcy plan was essentially a way for owners to use an empty shell corporation to avoid paying taxes.

As stated by the IRS, the only reason for the shell corporation to exist post-confirmation is to enable its owners to exploit tax attributes, which would be lost in liquidation.

Tax expert and Forbes' contributor Robert Wood recently wrote: “Is it a good deal for creditors to get $7 or $8 million out of the Solyndra mess? Maybe, but the IRS claims the outsize tax benefits Solyndra’s smiling owners will reap are more like $150 million.”

If this all adds up, I think the real conspirators here are the folks that facilitated this entire Solyndra fiasco.

At least the Chinese have a market for their product...

Of course, China's dominance in the solar space won't last forever. The Middle Kingdom's heavily-subsidized and heavily-manipulated solar industry will eventually crumble, because over-investment always leads to failure.

Nouriel Roubini pointed this out last summer, using the Soviet Union in the 1960s and 1970s, and East Asia before the 1997 financial crisis as examples of over-investment scenarios that have gone wrong.

Rest assured global solar demand will only continue to grow by leaps and bounds. And this is why the big dogs — like GE (NYSE: GE) and Siemens (NYSE: SI) — are watching and waiting patiently, ready to pounce when the future of China's solar industry inevitably becomes as bright as a Beijing sky during rush hour.

If you're unfamiliar with that reference, here's a visual:

beijing

Some view, huh?

October 15: Is A123 Systems (NASDAQ:AONE) Going to Zero?

There was so much enthusiasm when high-performance battery manufacturer A123 Systems (NASDAQ:AONE) came on the scene.

The promise of an advanced battery manufacturing facility pumping out batteries for next-generation electric cars while providing jobs for US workers was a bold one, and one that a lot of folks cheered. But certain realities rapidly turned that promise into what now looks like another bankruptcy in the alternative energy space.

Yesterday A123 put out the following statement. . .

The company may not have sufficient cash to fund operations and may need to seek the protections provided under the U.S. Bankruptcy Code. No assurance can be given that the company will be able to avoid restructuring, reorganization, or a bankruptcy filing.”

Now despite the fact that we never wished anything but success for the company, we've been warning investors all year about this one, even when a handful of analysts got all giddy when the stock popped back in June.

Here's what I wrote back then. . .

Yesterday, A123 Systems (NASDAQ: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.

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. In fact, I honestly wouldn't be surprised if the company went belly up by the end of the year. I hope I'm wrong on that, but it doesn't look good.

Unfortunately, I may not have been wrong when I wrote those words.

And what really makes this sting is that A123 landed a $249 million federal grant to build a U.S. factory back in 2009. Rest assured, you'll be hearing plenty about that over the next few days. And rightly so. After all, these are your tax dollars we're talking about here. And you have every right to know how they've been spent.

Of course, you'll probably be hearing all about it tonight during the second presidential debate, too. Romney campaign strategists must be doing back flips right now.

I just hope the analysis following the debate doesn't mutate into yet another attack on electric cars. Which, as I've said a thousand times before, serve as one of the many tools we can use to end our reliance on OPEC.

But I'm sure it will. Because nowadays, it's more important to dive into the pool of partisan buffoonery than it is to embrace positive contributions to our national security, our environment and our nation's long-term economic sustainability.

And so it goes. . .

October 17: First Solar (FSLR) Lands Huge Deal

TK: First Solar (NASDAQ:FSLR) has signed a memorandum of understanding with PT. Pembangkitan Jawa Bali Services to collaborate on and deliver 100 megawatts of utility-scale solar power plants in Indonesia.

“We are excited by the opportunity to collaborate with a world leader in solar energy for the development of utility-scale PV power plants in Indonesia. Solar PV electricity can help Indonesia meet its fast-growing power needs while reducing its dependence on fossil fuels,” said PJB Services president Bernadus Sudarmanta in a press release. ...

Full article at Wall St. Cheat Sheet.

October 17: Satcon (SATC) Files for Bankruptcy

TK: Details at Renewable Energy World.

DISCLOSURE: No positions

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

Tom Konrad, CFA is Editor of AltEnergyStocks.com.

China Speeds Up Solar Lifeline

Doug Young

bigstock-Lifebuoy-white-against-the-blu-15580121.jpg
Solar Lifeline image via Bigstock

A new Chinese media report shows that after more than a year of talk, Beijing is finally turning its aggressive talk on solar energy into action by more than doubling its approval of new solar power plants this year. The main question now is: Will any of its struggling solar panel makers survive long enough to enjoy the expected boom in business when some of these new plants start to get built. Of course industry watchers will know the answer is probably "yes", as Beijing and local governments get set to hand out generous rescue packages to support these companies through a massive supply glut that has sent prices plunging and left everyone reporting big losses. (previous post)Let's take a look at the latest news, which comes in a Chinese media report saying the National Development and Reform Commission (NDRC), China's powerful state planner, has approved 60 new solar power projects so far this year with a total installed capacity of 1.17 gigawatts. (English article) Presumably that number is through September, meaning the final figure could come out to around 80 new projects with 1.55 gigawatts of new capacity by the end of the year if the NDRC keeps approving new projects at the same rate.

That would mark more than a doubling from last year, when the NDRC approved 36 projects with installed capacity of just 0.34 gigawatts. So based on these figures, it's clear that the number of projects itself is not only growing fast, but the size of each of these projects is growing even faster. If all these projects are built, it would mean that China will add nearly 2 gigawatts worth of solar power capacity to its national grid over the last 2 years. While that's not bad, the figure seems likely to accelerate even more next year since China previously set a goal of installing 15 gigawatts worth of solar power producing capacity by 2015, a target that looks difficult to achieve based on these latest figures. (previous post)

We're already starting to see some of the results of this aggressive building binge, with mid-sized player JA Solar (Nasdaq: JASO) announcing in late September it had received orders from 2 customers for panels capable of producing 160 megawatts of power at planned new facilities in the interior provinces of Qinghai and Xinjiang. (previous post)

Of course, this is the same JA Solar that also announced earlier this week that it has been notified by the Nasdaq that its shares could soon be de-listed after trading below the minimum $1 threshold for more than 30 consecutive trading days. (company announcement) Its shares now trade at $0.71, meaning they are unlikely to cross above the necessary $1 mark anytime soon.  The $1 requirement alone isn' t usually enough to cause delisting, since a company can always do a reverse split to increase its share price.  However, JA Solar has so many other financial issues and its market values have shrunk so dramatically that it may choose to delist to get a fresh start.  Larger peer Suntech (NYSE: STP) may also de-list for the same reasons, underscoring how far these former high-flying companies have fallen in the current downturn.

Beijing is reportedly in the process of assembling a rescue package that it will extend to about a dozen of the nation's largest producers, which will presumably require them to shutter a big portion of their capacity and also merge with some smaller rivals. If and when that happens, perhaps the coming consolidation, combined with what looks like a big new wave of construction, could finally help to move this struggling industry back into the profit column.

Bottom line: New data indicates Beijing is ramping up construction of new solar power plants, which together with a government-led retrenchment could help to return the industry to health.

Doug Young has lived and worked in China for 15 years, much of that as a journalist for Reuters, writing about publicly listed Chinese companies. He currently lives in Shanghai where he teaches financial journalism at a leading local university. He also writes daily on his blog, Young’s China Business Blog, commenting on the latest developments at Chinese companies listed in the US, China and Hong Kong. He is also the author of an upcoming book about the media in China, The Party Line: How The Media Dictates Public Opinion in Modern China.

October 18, 2012

Solazyme: Microbes in the Dark

by Debra Fiakas CFA

Solazyme logo.pngThe previous post “Solazyme's Detours on the Way to Algae Biofuel” began a discussion of Solazyme, Inc. (SZYM:  Nasdaq), a self-described “oil developer” targeting three commercial markets that are known heavy oil users:  chemical and fuel, nutrition and skin care.  Solazyme touts its ability to serve customers with oils tailored to their specific needs, creating a paradigm shift from the status quo where formulators and manufacturers must design around the limitations of conventional oils.

Solazyme is attempting to harness the oil producing capability of microalgae -  the most diminutive of algae.  Based on average yield rates, biodiesel from oil crops, waste cooking oil and animal fat cannot realistically satisfy even a small fraction of existing demand for transport fuels, largest oil market.  However, microalgae can produce up to 300 times more oil than conventional crops and have been clocked at growth speeds 20 to 30 times faster than oil-producing crops such as corn or soybean.

The exceptional efficiency derives from the simplicity of microalgae.   Simple one-cell organisms, they take nutrients directly from the water where they live.  They do not need the growth-sapping stems and stalks of crops growing in fields.  What is more they are content to live in harsh environments such as seawater and wastewater.

The U.S. Department of Energy estimates that microalgae can produce enough oil to replace all petroleum fuel required in the U.S. market using less than 1% of the country’s land area.  Even with such great promise of efficiency and productivity from algae, actual substitution of algae-based oil for petroleum has yet to begin.  In part that is because scaling up production is not so easily accomplished.

Algae in the Dark

Algae beakers doe.png Most algae rely on sunlight to drive photosynthetic processing of carbon dioxide.  The first algae-based biofuel developers started with open ponds stocked with algae and exposed to year-round sun, only to find that as the ponds got larger they were beset with poor light diffusion near the center.  What is more, the algae were stressed by changing weather conditions and airborne contaminants.

To side step these problems Solazyme has tapped a special kind of algae that thrive in the dark  - “heterotrophic” Chlorella.  Instead of using photosynthesis to process carbon dioxide, heterotropic algae get carbon from sugars in a dark, watery environment.  This makes it possible to put the algae indoors, housed in large, closed containers.  There is no worry about light diffusion at the center of the pond or contaminants or weather conditions.  The Japanese have been successful with Chlorella cultures in containers as large as 100,000 liters, generating useful biomass of hundreds of kilograms.

Solazyme uses cane-based sucrose or corn-based dextrose to feed its algae.  The increased cost of buying a sugary lunch for the algae is at least partially offset by reduced costs of the containers or fermenters in which they are housed.  That is because practically any fermenter used in food or pharmaceutical processes will work for heterotrophic algae.  Standard fermentation containers mean lower costs.

Not all is smooth sailing for developers using hetertrophic algae.  Competition with other microorganisms in the fermenter can put a damper on the algae’s oil production.  Excess organic substrate can inhibit rather than fuel growth, making it necessary to fine tune the cultivation process and monitor it carefully.

Nonetheless, it is worth the try for Solazyme to be among the first to pursue hetertrophic algae cultivation.  One study completed in 2006 by Chinese researchers found that the lipid content in certain heterotrophic algae were four times greater than algae cultures grown with photosynthesis.  So besides using algae to produce oil  -  an organism that is substantially more efficient than another of the other “oil” crops like corn  -  Solazyme is using the most productive type of algae.

Investors in the Dark

It would seem logical that the chain of efficiencies would translate to commercial value and subsequently to shareholder value.  Until a year ago Solazyme had only been able to scale production at a 75,000-liter facility operated by a partner.  Last year the company began fermentation at a facility in Peoria, Illinois with multiple 128,000-liter fermenters and an annual oil production capacity in excess 2 million liters.  Solazyme also has access to production capacity one the facilities owned by its joint venture with Roquette.

So far management has been a bit protective about yield rates, leaving investors in the same dark space as its algae.  Solazyme is pushing forward with new production capacity.  They broke ground for 100,000 metric commercial facility in Moema, Brazil earlier this year and more capacity is planned.  Production yields would need to be significant to justify expansion of this level.  Without disclosures, investors will just have to take management’s word for it  -  and the risk that they have overstepped.  This risk may be one of the reasons the stock is trading at a level well off its IPO price of $18.00.

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. 

October 17, 2012

Solar's War of the Dead

Doug Young

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The fight for survival among the world's embattled solar panel makers is starting to look more like a battle of the dead, with word that bankrupt US player Solyndra is suing 3 of its biggest Chinese rivals over allegations of running an illegal cartel. Some of you might be saying: "Wait a minute, doesn't Solyndra have better things to do than to be filing lawsuits against rivals who are also flirting with bankruptcy?" If that's the question, then the answer appears to be "no". Perhaps the failed Solyndra is still seeking some final respect, and also perhaps some money through a quick settlement of this lawsuit to repay a long list of creditors that includes the US government.

Solar energy historians will recall that Solyndra's bankruptcy filing in August 2011 was the event that sparked a US anti-dumping probe against Chinese solar panel makers over allegations of unfair state-support through policies like low-interest loans and export rebates. That investigation resulted in the announcement of large punitive tariffs against Chinese solar panel makers just last week, with the actual tariffs set to take effect by the end of the year.

In this latest wrinkle to the story, Solyndra has filed its lawsuit in California against a number of Chinese solar firms, including sector leaders Suntech (NYSE: STP), Trina (NYSE: TSL) and Yingli (NYSE: YGE). The lawsuit claims the Chinese firms schemed with each other to flood the US market by selling panels there at prices that were below costs. If that was there intention, then the Chinese firms certainly succeeded spectacularly, so much so that the entire market is now going through its worst-ever crisis as prices have plunged to unsustainably low levels due to a massive supply glut.

Yingli and Trina both issued statements over the weekend denying the allegations and saying they would defend themselves vigorously in the case. (Yingli statement; Trina statement) Personally speaking I think the claims in this lawsuit do seem hard to believe, as Chinese solar cell makers are an extremely competitive group don't seem organized or willing enough to work together for the kind of collusion that the lawsuit describes.

That doesn't mean that the bigger claims of unfair state support aren't true, as I also do believe that all of the Chinese firms get big backing from both Beijing as well as their local governments. That support will most likely continue in the months ahead, with word that China Development Bank, a Beijing-based policy lender, is busy working on a rescue package for about a dozen of the industry's top players. (previous post)

What's more likely with the Solyndra case is that the US company is in the process of liquidating its assets to pay off creditors, and perhaps hopes it can get a quick settlement from the Chinese companies to earn just a little more money to make those repayments. Readers may recall that one of those creditors just happens to be the US government, which guaranteed a $535 million loan for Solyndra.

But to return to my original metaphor about a battle of the dead, this new lawsuit does seem like an ominous development for a group of companies already fighting for survival amid a downturn that is showing few signs of easing. Suntech, once considered an industry pioneer and sector leader, recently received an emergency $32 million government loan just to keep its operations going for the next few months; and I'm sure that Trina and Yingli are probably facing similar cash crunches.

I could easily see other US and European solar panel makers like First Solar (Nasdaq: FSLR) and Solar World (Frankfurt: SWV, OTC:SRWRF) filing similar lawsuits, and the cash-starved Chinese companies could even start to attack each other if they thought such tactics could improve their own chances for survival. If and when that happens, look for the inevitable consolidation among global solar panel makers to turn quite ugly, pitting a group of zombies against one another as each battles to be the last one still walking.

Bottom line: A lawsuit by Solyndra against Chinese solar panel makers could be the start of a wave of litigation within the sector as players battle for survival.

Doug Young has lived and worked in China for 15 years, much of that as a journalist for Reuters, writing about publicly listed Chinese companies. He currently lives in Shanghai where he teaches financial journalism at a leading local university. He also writes daily on his blog, Young’s China Business Blog, commenting on the latest developments at Chinese companies listed in the US, China and Hong Kong. He is also the author of an upcoming book about the media in China, The Party Line: How The Media Dictates Public Opinion in Modern China .

October 16, 2012

2013 Alternative Energy Stock Predictions

Will Natural Gas Crush Alternative Energy in 2013?

By Jeff Siegel

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Swami photo via Bigstock
In 2004 a hotshot Wall Street type cornered me after I spoke at a private luncheon in New York.

He told me I had a lot of balls wasting his time talking about alternative energy — declaring he was an “important man” who didn't find it amusing that some tree hugger in a suit (yes, that's what he called me) would lecture him about a coming boom in solar...

I never forgot that guy. In fact, over the years I had hoped to run into him again, just so I could remind him that not only was I 100% right about and made a fortune as a result of the solar bull market from 2005 to 2008, but that he was also kind of an asshole.

Of course, it's not healthy to hold grudges. And quite frankly, after all these years my success in playing the modern energy space more than makes up for my inability to engage him in a spirited debate back then, when I was still fairly new to the public speaking circuit and hadn't quite built up the confidence to take on guys like him.

Since then, I've come to realize that a lot of these Wall Street guys — with their overpriced suits and overpriced educations — aren't any smarter or any more “in-the-know” than you are.

In fact, when push comes to shove, most of these guys are completely clueless...

Especially when it comes to the world of modern and alternative energy.

This is why a lot of the same guys who trivialized my analyses back in 2004-2005 now regularly read these pages and invite me to speak at their conferences...

Next week I'll be at a private meeting in New York where I'll be discussing some of my predictions for 2013. Here's a preview...

Electric Cars Ride Steady

Electric cars will remain the target of naysayers and partisan slaves in 2013.

Sales will be light, but not nearly as dismal as many continue to suggest — particularly given the higher pricing that typically comes with any new, game-changing technology.

Early adopters will continue to move these things out of showrooms and onto highways at a pace that is actually faster than what we saw with the conventional hybrids back in the late 90s.

Every major carmaker will have electric and plug-in hybrid electric vehicles in production or on the road, but battery technology will not progress much next year outside of the lab. I don't expect to see much improvement on miles-per-charge as it relates to battery technology; most increases here will likely be the result of lighter-weight materials, body design, and software developments.

Either way, while these increases will be valuable, they won't tack on the additional 80 to 100 miles — nor will they provide the cost reductions necessary to facilitate the next wave in consumer interest, taking us away from early adopters and onto the early majority. I don't expect to see that unfold for at least another five to six years.

In the meantime, fleets will also steadily add electric vehicles to the mix, particularly in regions where gas and diesel prices are exceptionally high. Sales won't be so strong that it'll move the needle much, but it'll definitely help automakers move inventory and gain visibility in the marketplace...

On the political front, it won't matter who wins the next election. Although Romney will talk a good game when it comes to ending those very generous tax credits for electric vehicles, he won't have enough support in Congress or from the auto industry to make it happen.

Solar Stocks Struggle to Survive

Solar investors looking to hit it big this year will be disappointed.

Most solar companies (primarily panel and cell manufacturers) will continue to suffer another year of unpleasant margins.

China will continue to pump more money into its solar industry which will result in two things:

First, solar prices will continue to fall, albeit probably not as fast as we saw in 2012. This will benefit solar installers that are making a killing right now in the United States. Installation growth will remain strong, particularly with all these new solar leasing companies that are breaking records on both commercial and residential installations.

Worth noting is SolarCity, one of the largest and most successful solar leasing companies in the nation. It's set to go public this year, and will trade under the symbol SCTY.

Second, with so much cash being pumped into China's solar industry (just to keep it afloat), we're definitely seeing the stage being set for a massive implosion. China's solar industry ATM machine is working overtime, and it's doing so while the world is clearly starting to see visible cracks in China's economy.

China solar companies will continue to pump out cheap solar in 2013, but they'll be among the first casualties when the house of cards comes crashing down.

For investors, solar will remain tricky. The most lucrative opportunities in 2013 will continue to be in those small niche tech sectors and in installation. The latter could prove to really launch the SolarCity IPO, so definitely watch that one carefully.

Wind Energy Blues

In the absence of the wind energy production tax credit, the U.S. wind industry will absolutely stall in 2013.

In fact, you can pretty much kiss the domestic turbine industry goodbye next year... Layoffs will continue, and aside from GE (NYSE: GE) and Siemens (NYSE: SI), most shops will be mothballed until a new mechanism is introduced to jumpstart the industry again — or subsidies for oil, gas, and nuclear are phased out. And that's just not going to happen.

Of course, there's not much left for investors in this space now, any way. And publicly-traded wind development companies that are already operational, like Western Wind Energy (TSX-V: WND), will be fine, as they won't be affected by the loss of the production tax credit.

In fact, Western Wind is currently finishing up construction on a new project while its older projects are actively generating revenue via long-term power purchase agreements with the utilities. The company's also now selling off its assets, which we believe will get the stock up to at least $3.00 a share. The timing on this one is actually pretty spectacular.

It's Good to Be King

Natural gas will remain king in 2013. And while it will continue to be dirt cheap, prices will start inching back up next year.

Also worth noting is that going forward, we're definitely going to see more trucks and buses running on natural gas.

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

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

October 15, 2012

SolarCity Announces Expansion in New York, Files for $200 Million IPO

Vince Font
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Just days after announcing the launch of major expansions in New York state, the San Mateo-based solar company SolarCity has filed for an IPO in excess of $200 million. Having already received more than $1.5 billion in funding from a variety of high profile companies including Google, PG&E, and U.S. Bancorp, SolarCity is betting on the success of its business model to appeal to stock investors eager to snatch up a slice of the potentially lucrative solar pie.

The company’s business model is simple and effective, and has led SolarCity to rapidly become one of the most successful solar power providers in the country. Rather than requiring customers to pay the high costs associated with the purchase and installation of solar PV panels for their homes, SolarCity offers the option for residential customers to instead lease the electricity-generating technology for an affordable monthly fee. Since its launch in 2006, it has serviced over 33,000 buildings in 14 states, and as of June 30, it claimed to have 31,600 solar system customers. This number is expected to grow exponentially as the company continues its expansion efforts.

A statement issued by Robert M. Hallman, New York’s Secretary for Energy and Environment, cited the NY-Sun Initiative as the principal driving force behind SolarCity’s decision to expand in New York State. “We are dramatically increasing solar energy installations all across New York,” Hallman said. “[The] announcement by SolarCity shows that NY-Sun is not only good energy and environmental policy, it is also good for business and the economy of the State.”

The NY-Sun Initiative, which was announced in August by Governor Andrew M. Cuomo, will see the state investing $800 million in the next three years in rebates and grants to consumers and businesses that install PV solar systems on their homes and businesses. With these added incentives expected to generate increased interest in solar alternatives, SolarCity appears poised to take perfect advantage of the opportunity. In July, SolarCity opened an expanded operations center in Albany. With its announcement in early October for the opening of two new facilities in Westchester County and Long Island, SolarCity is effectively doubling down on the opportunity to corner the market on affordable solar power while simultaneously bringing jobs to the local economy. 

Ed Steins, the Northeast Regional Vice President for SolarCity, said the company’s New York expansion accomplishes the task of killing two birds with one stone. “This expansion brings new jobs and cleaner power to New York,” Steins said. “Installers, electricians, construction managers and field sales are good local jobs that can’t be outsourced.”

Meanwhile, SolarCity’s intent to go public could result in wide-scale expansion and a hiring spree that might serve to dwarf the number of jobs created in New York state since its arrival there in 2011. The IPO offer is being underwritten by Goldman Sachs, Credit Suisse Securities and BofA Merrill Lynch. Plans are for the company to adopt the ticker symbol SCTY and list its stock on the Nasdaq Global Market.

Vince Font is a professional freelance writer specializing in the fields of renewable energy, high tech, travel, and entertainment. Read his blog at www.vincefont.com or follow him on Twitter @vincefont. This article was originally published on RenewableEnergyWorld.com and was republished with permission.

October 14, 2012

Solazyme's Detours on the Way to Algae Biofuel

by Debra Fiakas CFA

Solazyme logo.pngInvestors who took the time to read my last two posts on algae-based biofuel – “Algae Takes Flight” and “Emission Standards Driving Aviation Fuel Sourcing”  -   might have wondered why there was no mention of Solazyme, Inc. (SZYM:  Nasdaq).  California-based Solazyme has been pursuing algae-based oils for transportation since 2004, and managed to record its first product sales in 2011.  However, that revenue was not from biofuel.

On the long road to finding a scalable and efficient way to get renewable fuel from algae, Solazyme scientists found an interesting extract from the microalgae that settled in the filters of Solazyme’s culture tanks.  The extract appeared to increase cell regeneration and protect skin from ultra-violet rays.  Solazyme dubbed it “alguronic acid” and turned it into a line of anti-aging skincare products under the brand name Algenist.    They started distributing the skin care products in 2011 in Sephora stores in Europe, the Middle East and U.S.  Those product sales in 2011, totaled $7.2 million and were principally from its “algae skin creams.”

This was not the first time Solazyme had found a market for by-products of its processes that yield both oils and proteins from microalgae.  In 2010 the company launched a dietary supplement called Golden Chlorella, but recorded no revenue in that year.  Golden Chlorella is an alternative to standard protein sources such as soy or egg.  It is now available at Whole Foods and GNC stores.

 While Golden Chlorella is not likely to show up on a plate next to a steak, it has attracted the attention of Roquette, the French food ingredients conglomerate.  Solazyme entered into a joint venture with Roquette for the development and marketing of food products using algae proteins and oils.  The partners apparently have high hopes for a second food ingredient, “whole algalin flour.”  The flour was launched in 2012 at food trade shows under the brand name Almagine.  Solazyme sales reps offered chocolate chips cookies made with the novel flour to prove how tasty it is.

Skin care products using Solazyme’s microalgae extracts are already generating respectable revenue.  Solazyme’s oils and proteins are expected to show up in food products on store shelves as early as 2013.  That may disappoint some investors who thought Solazyme would turn the transport fuel market on its ear with an algae-based biofuel.

A funny thing seems to have happened on the way to high volumes of algae oil to power in cars and trucks.  Solazyme accumulated a vast knowledge base in microalgae and appears to have developed a new respect for algae’s full potential.  The company has not given up on its objective to produce oils that can be substituted for petroleum in chemicals and fuels.  However, a singular focus on one category would probably sell algae short.  Like petroleum there is opportunity for algae oils in pharmaceutical applications.  A bonus is that live algae present a third use in nutritional applications.

Just the same, investors might look at Solazyme and suggest that after nearly ten years in business with only nominal revenue and significant losses, the company is an abject failure.  (The same investors might be content to wait twice that long for a pharmaceutical company to bring a drug or market, but I will let that go for now.)  Particularly in this presidential election year when the incumbent president has been criticized for support of alternative energy, Solazyme might be a good whipping boy.  The company received $22 million in December 2009 from the Department of Energy that was used to develop biofuel production capabilities in Solazyme’s Peoria facility.

Before coming down to hard on Solazyme, it is important to note that pharmaceutical and nutritional applications can be satisfied with low volume production capacity.  Furthermore, products aimed at these market segments typically generate high margins.  It makes sense to target these markets first to support subsequent development of high volume production capacity required for transport fuel production.  I do not think Solazyme should be considered failure for pursuing what is just smart business.

To be fair, Solazyme has accumulated a deficit of $142.8 million.  Despite $78.9 million in revenue earned from research projects over the last six and a half years, the company has had a fairly hefty bill to pay for research and development.  Since the beginning of 2006, research and development spending has totaled $136.7 million.  After its initial public offering in 2011, the company geared up its R&D activities, spending over half of the total R&D or $79.4 million in the last eighteen months.

So far Solazyme’s R&D efforts have earned it four patents and adequate technology for another 150 patent applications (some are duplicates in the U.S. and foreign jurisdictions).  None of this intellectual property is represented on Solazyme’s balance sheet.  Indeed, its tangible assets are near $239 million, composed most of $185.5 million in cash and marketable securities.  The rest is principally property, plant and equipment and receivables.  On per share basis net tangible assets (net of total liabilities) are approximately $3.40 per share or nearly a third of the current stock price.  This suggests investors are valuing Solazyme’s intellectual property at around $7.10 per share.

On the surface that value might seem fair, or even a premium, if the investor has no confidence in Solazyme’s ability to launch a product into its primary target market for chemicals and fuels.  In the next post, we will take a closer look at Solazyme’s sugar-to-oil process and try to figure out the probability it can yield the volumes needed to bring a return to Solazyme shareholders.

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. 

October 13, 2012

Bio-Power Shows Competitive Edge

David Appleyard
 
IRENA, the International Renewable Energy Agency, has published a study on the costs of biomass power generation, concluding that the most competitive projects can generate electricity at a cost as low as US$0.06/kWh.

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Bio Power Plant With Storage Of Wooden Fuel photo via BigStock
Around the world, large quantities of agricultural and forestry wastes go underutilised and the agency argues that using these wastes as a feedstock to provide power and heat can cost less than electricity from the grid.

According to the study, the total installed cost of biomass power generation technologies varies significantly by technology and country. For example, the total installed costs of stoker boilers were between US$1880 and $4260/kW in 2010, while those of circulating fluidised bed boilers were between $2170 and $4500/kW and anaerobic digester systems of between $2570 and $6100/kW.

Operations and maintenance (O&M) costs can make a significant contribution to the levelised cost of electricity (LCOE) and typically account for between 9% and 20% of the LCOE for biomass power plants, the study finds. However, they can account for a lesser percentage than this in the case of co-firing and greater for plants with extensive fuel preparation, handling and conversion needs. Meanwhile, fixed O&M costs range from 2% of installed costs per year to 7% for most biomass technologies, with variable O&M costs of around $0.005/kWh. Landfill gas systems have much higher fixed O&M costs, which can be between 10% and 20% of initial capital costs per year.

A key finding is that secure, long-term supplies of low-cost, sustainably-sourced feedstocks are critical to the economics of biomass power plants. Feedstock costs can be zero for wastes which would otherwise have disposal costs or that are produced onsite at an industrial installation, for example, black liquor at pulp and paper mills or bagasse at sugar mills. Feedstock costs may be modest where agricultural residues can be collected and transported over short distances.

However, citing the trade in wood chips and pellets, the authors note that feedstock costs can be high where significant transport distances are involved due to the low energy density of biomass. The IRENA analysis covers feedstock costs of between $10/tonne for low cost residues to $160/tonne for internationally-traded pellets.

Reducing Costs

Potential for cost reductions in biomass power generation equipment is complicated by the range of technologies available, from the mature to those still at the pilot or R&D stage, and by the often significant variations in local technology solutions, the IRENA analysis states.

Many biomass generation technologies are mature and are not likely to undergo significant technological change, while cost reductions through scale-up will be modest. However, for the less mature technologies, significant cost reductions are likely as commercial experience is gained.

Gasification technologies using wood or waste wood as feedstock may achieve capital cost reductions of 22% by 2020, while those for stoker/BFB/CFB direct combustion technologies will be more modest at between 12% and 16%. By 2015 cost reductions for BFB and CFB gasification technologies could be in the order of 5% to 11%, while for direct combustion cost reductions they may be 0% to 5%. anaerobic digester (AD) technologies could benefit from greater commercialisation, and cost cuts of 17% to 19% might be possible by 2020, with cost reductions of 5% to 8% by 2015.

However, the authors conclude that combustion technologies are well-established and are generally bankable if the project economics are solid. Gasification with low gas energy content and internal combustion engines are an established niche technology in India, but shifting from these simple gasifiers to ones with greater efficiency, using oxygen as a reactive agent, gas clean-up and gas turbines to scale-up this technology to larger power plants still requires more demonstration, especially because it requires expensive gas clean-up, which is currently the main focus of gasification technology improvements. In AD systems, the main technological development needed is linked to the digesters (as better control of the process: enzymes, pH, temperature) and pre-combustion gas clean-up.

According to IRENA, the main question regarding the viability of biomass power plants lies in the development of a reliable feedstock supply chain, especially because long-term feedstock agreements are essential for financing any biomass project. Predicting biomass cost reduction potentials is challenging because many factors are involved, such as the supply chain, resource potential, sustainability criteria and so forth.

Research into cost saving processes is currently underway. For example, it has been shown that denser fuel pellets can offer LCOE savings, but the drawback is that often the pelletisation process results in significant feedstock loss and increased cost. At the same time, the storage and transportation costs of denser pellets are significantly lower than other options, such as baling. Efforts to integrate biomass with traditional agriculture, for example through the use of crop rotation and agricultural intensification, may lead to yield increases and price reductions, the report continues. Sustainable harvesting techniques, such as one-pass harvesting, can reduce harvest site fuel consumption significantly. Further, developing synergies between harvest and transport, for example by using self-compacting wagons for both harvesting and transportation, may also provide cost savings, they add.

Analysis of the potential for biomass feedstock cost reductions for the European market to 2020 suggests that cost reductions of 2% to 25% could be achieved, although average cost reductions for energy crops by 2015 are difficult to estimate. It is assumed that dedicated energy crops will be 5%-10% cheaper as the result of harvesting and logistic improvements by 2015. Trends for forestry and agricultural residue prices and costs are more uncertain due to the complex balance of positive and negative effects.

Competitive Impact

The economics of biomass power generation are critically dependent upon the availability of a secure, long-term supply of feedstock at a competitive cost.

Observing that feedstock costs can represent 40% to 50% of the total cost of electricity produced, the authors note that the lowest cost feedstock is typically agricultural residues. For forestry, the cost is dominated by the collection and transportation costs. The low energy density of biomass feedstocks tends to limit the economical transport distance from a biomass power plant. This can place a limit on the scale of the plant, meaning that biomass struggles to take advantage of economies of scale.

The prices of pellets and woodchips are quoted regularly in Europe by ENDEX and PIX for delivery to Rotterdam or North/Baltic Sea ports and do not include inland transport to other areas.

Prices for biomass sourced and consumed locally are difficult to obtain. Prices paid will depend on the energy content of the fuel, its moisture content and other properties that will impact the costs of handling or processing, the document notes.

Dedicated energy crop availability is strongly related to cost, representing the important impact that the best crop, land and climate conditions can have on feedstock costs.

Other important cost considerations for biomass feedstocks include the preparation the biomass requires before it can be used. Analysis suggests that there are significant economies of scale in biomass feedstock preparation and handling. The capital costs for preparation and handling can represent around 6% to 20% of total investment costs. Assuming a heat value of forest residue with 35% moisture content to be 11500 kJ/kg, the handling capital costs could therefore range from a low of $772/GJ/day to as high as $2522/GJ/day.

In Europe, the analysis identified feedstock costs of between $5.2 and $8.2/GJ for European sourced woodchips. Local agricultural residues were estimated to cost $4.8 to $6.0/GJ. Imported pellets from North America are competitive with European wood chips if they must be transported from Scandinavia.

Prices for feedstocks in developing countries are available but relatively limited, the report notes. In the case of Brazil, the price of bagasse varies significantly, depending on the harvest period. It can range from zero to $27/tonne with the average price being around $11/tonne, where a market exists.

In India, the price for bagasse is around $12 to $14/tonne, and the price of rice husks is around $22/tonne. Multiple biomass resources are available, as rice straw, rice husks, bagasse, wood waste, wood, wild bushes and paper mill waste.

Levelised Costs

The range of biomass-fired power generation technologies and feedstock costs result in a large range for the LCOE of biomass-fired power generation. Even for individual technologies, the range can be wide as different configurations, feedstocks, fuel handling and, in the case of gasification, gas clean-up requirements can lead to very different installed costs and efficiencies for a technology.

Assuming a cost of capital of 10%, the LCOE of biomass-fired electricity generation ranges from a low of $0.06/kWh to a high of $0.29/kWh, IRENA states.

Where capital costs are low and low-cost feedstocks are available, bioenergy can provide competitively priced, dispatchable electricity generation. However, with higher capital costs and more expensive fuel costs, power generation from bioenergy is not likely to be able to compete with incumbent technologies without support policies in place. Many of the low-cost opportunities to develop bioenergy-fired power plants will therefore be in taking advantage of forestry or agricultural residues and wastes where low-cost feedstocks and sometimes handling facilities are available. The development of competitive supply chains for feedstocks is therefore very important in making bioenergy generation competitive.

When low-cost stoker boilers are available and fuel costs are low stoker boilers producing steam to power a steam turbine offer competitive electricity at as low as $0.062/kWh. However, where capital costs are high and only imported pellets are available to fire the boiler, the LCOE can be as high as $0.21/kWh.

Combustion in BFB and CFB boilers has a slightly higher LCOE range than stoker boilers due to their higher capital costs.

The LCOE range for gasifiers is very wide, in part due to the range of feedstock costs, but also due to the fact that fixed bed gasifiers are a more proven technology that is cheaper than CFB or BFB gasifiers.

The LCOE for gasifiers ranges from $0.065/kWh for a fixed bed gasifier with low-cost bioenergy fuel to $0.24/kWh for a small-scale gasifier with an internal combustion engine would be suitable for off-grid applications or mini-grids. However, although this is expensive compared to grid-scale options, it is more competitive than a diesel-fired solution.

CHP systems are substantially more expensive but they have higher overall efficiencies, and the sale of heat produced can make CHP very attractive, particularly in the agricultural, forestry and pulp and paper industries; where low-cost feedstocks and process heat needs are located together. The LCOE of stoker CHP systems ranges from $0.072 to $0.29/kWh, including the impact of the credit for heat production. Gasifier CHP systems have a higher but narrower range from $0.12 to $0.28/kWh due to their higher capital costs.

Landfill gas, anaerobic digesters and co-firing have narrower cost ranges. For landfill gas, this is due to the narrow capital cost range and the fact that this also determines the fuel cost. For anaerobic digestion, the capital cost range is relatively narrow, but the feedstock can vary from free for manure or sewage up to $40/tonne for energy crops for digestion. For co-firing, the incremental LCOE cost is as low $0.044 and $0.13/kWh.

Cost of Biomass

According to the IRENA analysis, the LCOE of biomass-fired power plants ranges from $0.06 to $0.29/kWh, depending on capital and feedstock costs. Where low-cost feedstocks – such as agricultural or forestry residues and wastes – are available and capital costs are modest, biomass can be a very competitive power generation option.

Even where feedstocks are more expensive, the LCOE range for biomass is still more competitive than for diesel-fired generation, making biomass an ideal solution for off-grid or mini-grid electricity supply, the report concludes.

The document adds that many biomass power generation options are mature, commercially-available technologies, for example direct combustion, co-firing, anaerobic digestion and municipal solid waste incineration. While others, such as atmospheric biomass gasification and pyrolysis, are less mature and only at the beginning of their deployment, still others are only at the demonstration or R&D phases, for instance integrated gasification combined cycle, bio-refineries and bio-hydrogen.

The potential for cost reductions is therefore very heterogeneous. Only marginal cost reductions are anticipated in the short term, but the long-term potential from the technologies not yet widely deployed is good.

David Appleyard is Chief Editor of Renewable Energy World. He also currently holds the position of Chief Editor for sister publication Hydro Review Worldwide. A journalist and photographer, he graduated with a degree in Applied Environmental Science.

October 12, 2012

Suntech Gets Set to Tackle Debt

Doug Young

Struggling solar cell maker Suntech (NYSE: STP) has just issued a euphemistically upbeat plan on how it intends to "solidify market leadership," as it tries to return to health amid a prolonged industry downturn that has seen prices plunge more than 70 percent over the last 2 years. But investors are clearly focused on the last part of the plan, specifically discussing how the company intends to deal with nearly $600 million in convertible bonds that will come due in March next year. The process of renegotiating that debt is likely to be a long one, and is hardly guaranteed success without major support from Beijing and other government entities.

Before we look at the latest news, let's take a broader look at Suntech and its debt. Unlike some of its peers that arrived later to the solar cell-making industry, Suntech once prided itself on its ability to fund its rapid expansion with money from financial markets as it sold investors on its vision of a future powered by solar energy. By comparison, weaker rivals like LDK (NYSE: LDK) funded much of their growth from state-backed sources, such as state-run banks that were usually more motivated by political factors such as pressure from local governments than from real commercial factors.

Now Suntech may be starting to regret its former hubris, as many of the private-sector investors who bought its $575 million in convertible bonds that will mature next March are hardly likely to be sympathetic when the company asks them to forgive a big portion of that debt. Suntech doesn't provide much detail about what's happening with the debt situation in its latest announcement, except to say that it has hired investment bank UBS to "to evaluate alternatives to address its convertible notes due March 2013." (company announcement)

Observers are saying the process of renegotiating that debt is likely to be long and arduous, with no guarantee of success without some strong government support. In that regard, perhaps the signs are good since local governments are already starting to indicate they are prepared to provide the funding that solar companies within their jurisdictions need to avoid outright closure.

Suntech itself received an emergency $32 million loan from the city of Wuxi where it is based just a couple of weeks ago to keep operating. (previous post) Similarly, LDK also announced around the same time that some of its biggest creditors had agreed to delay their debt collection by a year, and I'm certain that most of those creditors were state-owned and clearly taking their orders from worried government officials. (previous post) At the national level, Chinese media have also reported that the central government is planning to assist in the rescue by providing emergency funding to around a dozen of the biggest players through the China Development Bank.

So, what exactly is likely to happen to the $575 million in debt that Suntech owes to international investors? My prediction is that investors, aware that Beijing doesn't want to see Suntech fail, will take a relatively hard position on the debt repayment, perhaps demanding as much as 40 cents for each dollar of their investment. At the end of the day, they will probably have to settle for quite a bit less, perhaps 20-30 cents, and most of the funds for that repayment will have to come from a Beijing rescue package. Still, that kind of package, combined with big production and cost cuts at Suntech, could help the company survive for yet another year, perhaps even pushing its US-listed shares back above the critical $1 mark to help it avoid a de-listing.

Bottom line: Suntech will require a government rescue to help it avoid defaulting on $575 million in debt coming due in March, with investors likely to recoup 20-30 percent of their investment.

Doug Young has lived and worked in China for 15 years, much of that as a journalist for Reuters, writing about publicly listed Chinese companies. He currently lives in Shanghai where he teaches financial journalism at a leading local university. He also writes daily on his blog, Young’s China Business Blog, commenting on the latest developments at Chinese companies listed in the US, China and Hong Kong. He is also the author of an upcoming book about the media in China, The Party Line: How The Media Dictates Public Opinion in Modern China .

Chinese Government Comes to Suntech's Rescue

Doug Young

New reports of a government-sponsored rescue package being assembled for for fast-sinking Suntech (NYSE: STP) and other major solar firms highlight everything that's wrong with China's struggling solar sector, most notably exposing the ridiculous levels of state report it receives. At this point the Chinese seem to no longer care about denying the allegations of unfair government support made by their western peers, and instead are focused on simple survival as the industry remains caught in its worst ever downturn created by a massive supply glut. The western allegations have only made the situation worse for the Chinese, as both the US and the European Union have launched probes that are likely to result in punitive tariffs for Chinese-made solar cells imported into those markets.

Suntech, once considered the industry leader and one of its strongest players, is quickly becoming a poster child for everything that's wrong with the industry, pushing the company to the brink of bankruptcy. The company announced during the summer that it was the victim of a massive fraud, which itself was the result of Suntech's own misleading business practices that made its sales look stronger than they really were. (previous post)

Suntech only discovered the fraud as it was scrambling to raise cash to repay more than 1 billion yuan in debt due by the end of this year, and more than $500 million more in bond repayments that will come due in early 2013. As pressure built from the company's looming cash crunch, its stock that once traded as high as $80 plunged below the critical $1 mark, prompting the New York Stock Exchange to warn of a potential de-listing.

Now Chinese media are reporting that the government of the city of Wuxi, where Suntech is based, has made an emergency $32 million loan to allow the company to keep operating. (English article) The report further states that the local government has taken additional measures like granting subsidies and other loans to Suntech and other solar cell makers in the area so that they can stay in business. Other Chinese media reported earlier last week that China Development Bank, a policy lending arm of Beijing, was also preparing to grant more emergency financing to Suntech and 11 other major solar panel makers to ensure their survival.

First of all, I would like to say that this kind of government support for failing key industries certainly isn't limited to China. The US and European governments all engaged in bailouts for major banks and auto makers like General Motors (NYSE: GM) at the height of the global financial crisis in 2008, and it's fairly certain that most of those companies wouldn't have survived without the outside support. But these solar companies, while important to their local economies, don't even come close in size or importance to big global names like Citigroup (NYSE: C) and GM. Furthermore, the current solar crisis is the direct result of a much more market-oriented problem, namely oversupply, and closure and consolidation are urgently needed if the industry is ever going to return to health.

Adding to the problem, these new bailouts may help the Chinese companies to survive for another year or maybe 2, but they will also help to openly show that the western allegations of unfair government support are true, meaning punitive tariffs from the US and Europe won't go away anytime soon. If China is smart, it will use this "emergency funding" opportunity to force consolidation among its oversupplied solar sector, requiring healthy companies to merge and unhealthy ones to sharply reduce their output or close completely. Otherwise, the crisis will continue for at least another year or 2, potentially sending a chill over an industry that will be key to the world's future energy security.

Bottom line: China's rescue plan for its bloated solar sector will only prolong the current oversupply crisis for another year or 2, dealing a broader setback to the global industry.

Doug Young has lived and worked in China for 15 years, much of that as a journalist for Reuters, writing about publicly listed Chinese companies. He currently lives in Shanghai where he teaches financial journalism at a leading local university. He also writes daily on his blog, Young’s China Business Blog, commenting on the latest developments at Chinese companies listed in the US, China and Hong Kong. He is also the author of an upcoming book about the media in China, The Party Line: How The Media Dictates Public Opinion in Modern China .

October 11, 2012

Solar Day of Reckoning Nears

Doug Young

Despite China's best efforts to avoid it, a much needed day of reckoning seems to be drawing nearer for the bloated global solar panel industry, which should include a major shake-up for Chinese firms that supply over half the world's output. The latest signs of a looming judgment day are coming in news that US firm MiaSole has just agreed to be purchased by a Chinese buyer, and from Chinese giant LDK Solar (NYSE: LDK), which disclosed it has received a brief reprieve from its lenders for repayment of its rapidly souring debt.

Of course, the big wild card in this non-stop stream of solar news is Beijing and the local governments that strongly support the big field of Chinese solar panel makers, which are important contributors to regional economies even as they post massive losses. Over the weekend, Chinese media reported that many local governments are already coming to the rescue of rapidly failing solar panel makers in their jurisdictions, and that the Beijing-based policy lender China Development Bank was preparing a massive bailout package for a dozen of the nation's biggest manufacturers, including former industry leader Suntech (NYSE: STP). (previous post)

Let's have a look at the latest news, which contains all the major elements of a financial soap opera that has unfolded over the last following a massive overbuilding of solar panel factories in China that created a huge global supply glut. In the first of the news bits, MiaSole, once an investor darling that promised to revolutionize the industry with its cutting-edge technology, has been sold to privately held Chinese firm Hanergy Holding Group, according to a foreign media report citing unnamed sources.

What's most interesting about MiaSole is the huge hopes once held for the company by private investors, including such big names as Silicon Valley venture firm Kleiner Perkins Caulfield & Byers. According to the reports, those investors pumped some $500 million into Miasole since 2006, and will now get back a scant $30 million, which is reportedly the price that Hanergy will pay for the company.

Investors were particularly bullish on MiaSole, which received new funding as recently as March of this year, because of its technology in an area called thin film, which is more flexible and less bulky than traditional solar panels. Now, one analyst estimates that investors in this former high-flyer will get back as little as 6 U.S. cents on the dollar that they put into the company.

Meantime back in China, LDK, the weakest of China's major solar panel makers, appears to be in a race with Suntech to see who will become the first big Chinese player to lose its independence, most likely after being purchased by a big state-owned company. LDK has just announced that its lenders have temporarily agreed not to start seizing the company's assets -- including more than half of LDK's stock -- as a result of a recent series of credit defaults. (company announcement)

LDK obviously wants people to focus on the positive news that it has received a 1 year reprieve through September 2013 from its lenders, which are mostly big state-owned banks that take their orders from Beijing and other government organs. But from my perspective, the bigger news is that LDK is finally publicly admitting to "various prior defaults" on its loan and other credit repayments, which I suspect now amount to hundreds of millions of dollars in overdue payments.

Wall Street investors also seem to be focusing on this negative element of the story, with LDK shares dipping 2 percent to a new all-time low of $1.04 after the announcement came out. I would predict the stock will probably dip below the critical $1 mark within the next week or 2, triggering a de-listing notification as the company joins Suntech and JA Solar (Nasdaq: JASO) in the sub-$1 range. But at this point, de-listing is probably the least of the big concerns for LDK, Suntech and their peers, which are probably more focused on simple survival.

Bottom line: The fire sale of a former US solar technology high-flyer and loan defaults by LDK point to a looming day of reckoning for China's solar panel makers, with a big sale likely by the end of the year.

Doug Young has lived and worked in China for 15 years, much of that as a journalist for Reuters, writing about publicly listed Chinese companies. He currently lives in Shanghai where he teaches financial journalism at a leading local university. He also writes daily on his blog, Young’s China Business Blog, commenting on the latest developments at Chinese companies listed in the US, China and Hong Kong. He is also the author of an upcoming book about the media in China, The Party Line: How The Media Dictates Public Opinion in Modern China .

Kandi Technologies Says "Here's the Beef"

Tom Konrad CFA

KD501
The Kandi KD501 Mini-EV to be leased in Hangzhou. Photo by Marc Chang.
Ever since July, when I wrote about Kandi Technologies' (NASD:KNDI) deal to sell 20,000 mini-electric vehicles (EVs) to a leasing program in the Chinese city of Hangzhou, the company’s detractors have been harping on the fact that this deal was simply a “Letter of Intent” (LOI) and not legally binding.   This morning, Kandi put those concerns to rest, with a signed sales contract for 5,000 mini-EVs to be delivered in between now and the end of the year.

This contract is good news in a second way as well.  The LOI had only envisioned 4,000 vehicles being delivered by December, so this announcement also shows that the time frame is accelerating.   The price for the 5,000 vehicles will be RMB 199,000,000 (approximately US$31,587,301 or $1.06 per share), or 277% of the Kandi’s entire revenue in Q4 2011.

When I first wrote about the Hangzhou deal, KNDI was trading near $3.  It has risen fairly rapidly since then as details of the Hangzhou deal come out, and also as a result of a much bigger deal  in Shandong province announced in late July, as well as prospects for a 100,000 vehicle EV Hangzhou rental program in addition to the 20,000 vehicle leasing program  discussed above.  As I write, KNDI is trading at $4.50, and it would have been much higher except for a rambling and article last Thursday on Seeking Alpha, which claimed to “connect the dots” on related party transactions within the company, as well as dragging out the usual critique that Kandi does not yet have a viable EV business.

Rational investors like to buy a stock before all the good news comes out, so the critique that Kandi does not have significant past EV business seems irrelevant to the typical forward looking investor.  As for the related party transactions, investors who have been following Kandi closely for several years tell me that these transactions have long been disclosed, and while I found the article hard to follow, I did not see anything which made me believe that company insiders were using related party transactions to drain money from the company.  The theory that the article was simply an attempt to manipulate the stock lower and allow a short to get out (the author was short) makes the most sense to me.

On the bright side, the scare from Thursday’s article gave me a chance to pick up a trading position at $3.50 and sell it on Friday for $4.40.  I would have held on and added those shares to my long term position If I had known about the news which would be coming out this morning.

Disclosure: Long KNDI

This article was first published on the author's Forbes.com blog, Green Stocks on October 1st.

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.

October 10, 2012

Emissions Standards Driving Algae Aviation Fuel Sourcing...or not

by Debra Fiakas CFA

bigstock-Flowers-Blue-green-Algae-In-Th-6678297.jpg
Algae in the River Wate photo via BigStock

My post “Algae Takes Flight” featured Algae-Tec (ALGXY:  OTC/PK),  Lufthansa’s new biofuel partner.  Algae-Tec has agreed to operate an algae-based biofuel plant in Europe to supply Lufthansa with jet fuel.  Lufthansa is footing the capital costs of the plant, which is to be located in Europe near a carbon source.  Algae thrive on carbon so industrial plants and power plants using fossil fuels make the best neighbors.  Lufthansa has agreed to purchase a minimum of 50% of the algae-based biofuel Algae-Tec can produce.

Australia-based Algae-Tec is not Lufthansa’s first biofuel source.  The same week it inked the deal with Algae-Tec, Lufthansa also entered into a memorandum of understanding with synthetic fuel developer Solena Fuels Corporation.  Solena has already decided on a location at the PCK Industry Park in Schwedt/Oder, Germany.  The plant will use municipal waste to produce bio synthetic paraffinic kerosene, which Solena calls Bio-SPK.

Lufthansa is eager to adopt biofuels in order to comply with the European Union’s emissions trading system (ETS), which added aviation to the mix of industries that must reduce carbon emissions in the EU region.  Airlines had until March 2012 to reach compliance to the EU standards.  In the future, airlines that do not comply could face fines of US$128 per ton of carbon dioxide emissions.  Non-compliance could lead to a ban from European airports.  It is not surprise that According to the U.S. Energy Information Administration, worldwide over 5,000 barrels of jet fuel are used each year, resulting in as much as 635 million tons of carbon dioxide emissions.

Lufthansa burns at least nine million tons of jet fuel each year.  The airline has had some difficulty in sourcing renewable fuels that could reduce it carbon footprint.  In July 2011, Lufthansa began using Neste Oil's (NEF: Berlin) NExBTL renewable aviation fuel in an Airbus A321 aircraft.  Flights between Hamburg and Frankfurt were run in both directions four times a day.  One of the engines of the aircraft operated using a blend of 50% NExBTL renewable aviation fuel and 50% fossil fuel.  However, in January 2012, Lufthansa announced it would be discontinuing flights using renewable jetfuel because it had not been successful in securing long-term sources of biofuel. In all, Lufthansa completed 1,187 biofuel flights between Hamburg and Frankfurt that relied on biofuel.  Lufthansa claimed CO2 emissions were reduced by 1,471 tons.

It would seem that meeting aviation emissions standards in Europe would be a source of significant demand for renewable fuels.  However, it might be premature to expect anything more than modest shifts in fuel sourcing.  After considerable pushback from China and India airlines, the European Union has been considering a rollback of emissions standards.  Members of the U.S. Senate met in August 2012 with representatives from twenty countries to draft a resolution against the EU’s fines.  The group was unable to reach agreement, but the meeting made clear that U.S. leadership is more concerned about profits than environmental sustainability.

In the meantime, several biofuel companies have been cozying up to the aviation industry.  Amyris (AMRS: Nasdaq)is working with Brazil’s Azul Airlines.  Solazyme (SZYM: Nasdaq) has been mentioned as in cooperation with both United and Quantas airlines.  Honeywell’s UOP (HON:  NYSE) is working with India’s Kingfisher Airline, United Airlines, British Airways, France Airways and Spain’s Iberia.  U.S. carriers alone used at least 16.4 million gallons of aviation fuel in 2011 (U.S. Bureau of Transportation Statistics).  At least a third of that is used in international flights.  It presents a very large market opportunity for the biofuel producer that can deliver renewable fuel.  Unless, of course, politicians get in the way.

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. 

October 09, 2012

Why Aren't First Gen Biofuel Companies Making Money?

Jim Lane

On October 8th, Renewable Energy Group (REGI), the leading US biodiesel producer, announced unexpectedly that it now expects to report Adjusted EBITDA ranging from a loss of $2 million to a loss of $7 million. The company’s prior guidance for Adjusted EBITDA was a gain of $10 million to $15 million. The company expects to report gallons of biodiesel sold in a range of 60 to 63 million, compared to prior guidance of 55 to 60 million.

The good news

REG CEO Daniel Oh said that “Despite these fluctuations in our markets, we remain optimistic about the long-term prospects for REG and the biodiesel industry. The recent finalization of the [1.28 billion gallon biodiesel obligation for 2013] provides growing demand for the next year. Our flexible feedstock technology gives us a long term advantage as a low cost producer, since we can adjust to fluctuations in feedstock prices. Furthermore, REG continues to have a strong balance sheet with cash to sustain our growth strategy.”
What’s going on?

In biodiesel, the change in REGI guidance is directly related to movements in commodity prices, a steep depreciation in the price of RINs and tighter margins than expected.

On the ethanol side, it’s been commodity margins that have led to rough times. Caused, in turn by drought-induced steep corn prices, falling gasoline demand and the resulting overcapacity in ethanol production leading to surplus ethanol stocks.

Accordingly, Biofuel Energy announced in late September that it has decided to idle its Fairmont, Minnesota ethanol facility until further notice. The plant ceased ethanol production as of the end of last week. The Company reported that its second plant in Wood River, Nebraska continues to operate.

Low-cost ethanol capacity

Company Symbol Capacity(mgy) Marketcap($M) Value/gallon
Pacific Ethanol PEIX 200 43.62 $0.22
Biofuel Energy BIOF 220 39.69 $0.18
Aventine Renewable Energy AVRWD 312 5.34 $0.02
Green Plains Renewable Energy GPRE 740 179.71 $0.24
Ethanol total
1472
268.36 $0.18





Renewable Energy Group REGI 201.58 220 $1.09

The market caps on publicly traded pure-play ethanol stocks are averaging $0.18 per gallon of installed capacity, a fraction of the construction cost. Biodiesel is down on the weaker outlook for REGI, but still substantially better.

Relief in sight?

Futures prices 10/9/2012
Date Corn Ethanol Ratio
Dec-12 7.460 2.385 0.32
Mar-13 7.462 2.376 0.32
May-13 7.400 2.397 0.32
Jul-13 7.342 2.391 0.33
Sep-13 6.580 2.31 0.35
Dec-13 6.300 2.191 0.35

For first-generation ethanol capacity, there’s marginal relief in sight starting in mid-2013 when corn prices are expected to climb down from the $7.40 range – first falling to $7.34 next July, according to the futures price at CBOT this week, and then falling into the mid-$6 range by September. But, with ethanol prices expected also to fall, there are modest improvements expected in the ethanol-to-corn price ratio, but it’s not exactly time to strike up “Happy Days Are Here Again”.

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.

Algae Takes Flight

by Debra Fiakas CFA

bigstock-Algae-Powered-Plane-8238367.jpg
Algae powered plane photo via BigStock

No one has been more disappointed than me in the failure of algae-based biofuel operations to achieve commercial production  -  at least so far.  The model is beguiling:  feedstock for biofuel production in the form of oils produced by simple and widely available algae that can thrive on carbon dioxide, an otherwise be a toxic emission.  However, scale seems to have eluded algae-base biofuel producers.

GreenShift Corp. (GERS:  OTC/BB) recently shifted its focus to corn oil extraction to serve ethanol producers hungry for a process efficiency.  Earlier this year Valcent Products changed its name to Alterrus Systems, Inc. (ASIUF:  OTC/BB) turned to vertical farming.  Green Star Products (GSPI:  OTC/PK) was already sidelined last year and is now concentrating on new product testing and certifications and is introducing a line of lubricants.  PetroSun (PSUD:  OTC/PK) claims it has not abandoned its microalgae and macroalgae interests, but its focusing on energy sources that can be a “bridge” to renewable fuels.

OriginOil (OOIL:  OTC/BB) is not exactly producing biofuel.  However, it has found alternative commercial applications for its technology and expertise.  OriginOil has developed an energy production process for cleaning up oil and gas water.  OriginOil is marketing its technology to oil and gas operators using hydraulic fracturing.  A partner in Japan is also deploying the OriginOil’s algae harvesting technology in a novel process to clean up radioactive materials.

We were nearly ready to delete the Algae Group from our Beach Boys Index.  Then Germany’s air carrier Lufthansa came flying in with a press release, announcing its plans to build “a large-scale algae-to-aviation biofuels production facility in Europe.”  Lufthansa has partnered with Australia’s Algae-Tec Ltd. (ALGXY:  OTC/PK or AEB: ASX), a developer of algae-based biofuel technologies, and has agreed to foot the bill for the facility, but has so far been mum on the cost.  Algae-Tec will run the facility.

The commitment of a large company like Lufthansa to such an undertaking is impressive.  The air carrier had previously run several test flights using biofuel but complained about inadequate biofuel supplies.

Commissioning and running the biofuel plant for Lufthansa will not be a maiden voyage for Algae-Tec.  Just two months ago the developer opened a new algae-based biofuel plant in Australia’s New South Wales. The company claims to have perfected a “high-yield, enclosed and scalable algae growth and harvesting system.”

One of the attractive elements to the Algae-Tec system is reliance on carbon emissions as feed for the algae.  I noted that Lufthansa’s announcement made much of the emissions savings and that the location of the plant in Europe would depend upon finding a reliable source of carbon.  They should have little difficulty in finding a partner willing to give up carbon.

It will take some months to find out whether Algae-Tec’s system will take flight with Lufthansa.  However, after the many delays algae-biofuels investors have experienced already, a bit more time on the tarmac should not be a problem.

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. 

October 08, 2012

Solar Companies Say Trade War With China Bad for US Industry

Charles W. Thurston

CASE logo.png Members of the Coalition for Affordable Solar Energy (CASE) railed against the impending "trade war," arguing that the steep price drop in imported Chinese photovoltaic modules was good for "98 percent" of U.S. solar industry jobs. "We are growing U.S. solar jobs and this trade case will undermine all the advances we have made in the U.S. solar industry," said one CASE member.

Holding a press conference Thursday morning in Washington after testimony was heard Wednesday by the U.S. International Trade Commission (ITC) about the alleged dumping of Chinese modules in the United States, CASE member Kevin Lapidus, senior vice president for legal and government affairs at SunEdison, a division of MEMC Electronic Materials (WFR), said, "This case is not good for U.S. policy. SolarWorld (SRWRF), a German company, is using the U.S. legal system to compensate for its own business mistakes. It has triggered a global trade war that has mushroomed beyond the United States." 

Hoyle Kim, general counsel for GT Advanced Technologies (GTAT), went further in his rejection of the dumping charges as bad for the U.S. solar industry: "I strongly feel that this anti-dumping case is a horrible incidence in the legal process intended to protect American competitiveness. Trade barriers will not improve the solar industry and the tariff exercise is counter-productive. The timing of the situation is a pity because of the tremendous technological progress (that has been seen in this country) in increased efficiency and reduced costs."

Francine Sullivan, the vice president and legal counsel or REC Silicon (RNWEF), observed, "If the Commerce Department does uphold tariffs, it will increase the cost of solar in the United States. Protectionism is bad for the U.S. solar industry." She added that, "If solar growth is left on its own, the Chinese module capacity -- and more -- will be required; solar is a global market."

George Hershman, vice president of San Francisco-based Swinerton Renewable Energy, a utility-oriented developer, echoed the group sentiment, saying, "There are a number of solar projects on hold now, as this issue gets resolved. Uncertainty and time drive up costs, so we are fighting a race against lower cost solar."

Lapidus noted that while the European solar industry -- which also is considering Chinese dumping charges -- may be slowing, growth is rampant in several other parts of the world. "Many new countries are coming on line as solar markets, like Japan and Saudi Arabia, and regions like Southeast Asia and South America also are very good markets for solar."

The ITC will determine in early November whether U.S. manufacturers have been harmed by Chinese imports. If the ITC does determine injury has occurred, preliminary tariffs imposed by the U.S. Commerce Department in May, ranging from 30 percent to 250 percent, would continue. Commerce is expected to issue a final ruling by October 10. The dumping complaint was initiated by SolarWorld, and has been joined by several other U.S. manufacturers.

In retaliation, China in May filed a complaint against U.S. subsidies that affected over $7 billion worth of Chinese products.

Charles W. Thurston is a journalist who specializes in renewable energy, from finance to technological processes. He has been active in the industry for over 25 years, living and working in locations ranging from Brazil to Papua New Guinea.
This article was originally published on RenewableEnergyWorld.com and was republished with permission.

October 07, 2012

Wind Developers For Sale: 11 Clean Energy Stocks for 2012, October Update

Tom Konrad CFA

September Overview

September was another quiet month for my Clean Energy model portfolio and the stock market in general, with the exception of Finavera Wind Energy (TSX:FVR, OTC:FNVRF), which put itself up for sale last Monday (see below.) 

Since my last update, my model portfolio rose a modest 4.5%, shadowing my broad market benchmark, the Russell 2000 index (^RUT), also up 4.5%.  Although my clean energy picks rose in line with the broader market, the clean energy sector as a whole lost 0.6%, as measured by the most widely held clean energy ETF, the Powershares Wilderhill Clean Energy ETF (PBW).
 
For the year, my clean energy model portfolio increased its lead compared to PBW to 26%, but still lags the broad market by 9%.  The unhedged portfolio is up 6.5% for the year, while the hedged portfolio is down 0.4%, having lost money on the hedge as the broad market rose.  For comparison, PBW is down 16.1% and the Russell 2000 is up 15.4%.

For details on the performance of my individual picks, see the chart and discussion below.
11 for 12 Sep.png

Stock Notes

Among individual stocks,

  • Western Wind Energy (TSX-V:WND / OTC: WNDEF) gained 8.2% over the month as management released more details about the sale process, revealing that 14 potential buyers were looking over company data, and five other interested parties were in the process of negotiating non-disclosure agreements so that they could also look over the data.  Some uncertainty also was dispelled when management saw off an attempted by Savitr Capital to replace the board at the company's annual meeting on September 25th with 74% of the vote.
  • On October 1st, Finavera Wind Energy (TSX:FVR, OTC:FNVRF, up 30.4%) shot up after announcing that it had put itself up for sale and was already in discussion with three serious bidders.  This was most likely prompted by the termination of a planned sale of the company's Wildmare wind project to Innergex Renewable Energy Inc. (TSX: INE, OTC:INGXF), leaving Finavera desperately short of liquidity.  On Friday, Finavera revealed that it had entered discussions with a fourth potential acquirer, and that initial bids are expected soon. The fourth bidder is most likely B9 Energy of Northern Ireland, since Finavera director Robert Ian Harvey stepped down because of a "conflict of interest with one of the bidders" the same day the fourth bidder was announced.  Harvey is a founding director, shareholder, and CFO of B9.  B9 is the largest independent operator of wind farms in the UK.
  • New Flyer Industries (TSX: NFI / OTC:NFYEF) was up1% from last month.  The company declared second-quarter earnings of $3.6 million, compared to a $7.3 million loss in the second quarter of 2011.  Canaccord Genuity increased it's price target for NFI from $7.25 to $8.00, but BMO Capital markets reduced it's price target from $7.50 to $7.25.  The stock was helped by the rising Canadian dollar, but hurt by lower production caused when New York City delayed an order for 90 buses in order to complete an independent review.
  • Waste Management (NYSE:WM) fell 6.7% on a downgrade to neutral from overweight by JP Morgan, which also lowered its price target to $34 per share.
  • Rockwool International A/S (COP:ROCK-B, OTC:RKWBF) advanced 11.3%, riding the improving outlook for Europe and a strengthening Danish Krone, but did not release any significant company news.
  • Lime Energy (NASD:LIME, down 1,6%) continued to tread water as investors wait for the results from an internal investigation into the company's revenue reporting.  Early in the month, I thought Lime had found a bottom at $0.70 because it looked like everyone who wanted to sell had sold.  I was wrong about that: Volume selling resumed in force on September 27th, knocking the stock down to $0.69 at the close on October 5th.  I picked up a little more at $0.65 with a limit order.

    Lime Chart 2.png
There was little change for Alterra Power (TSX:AXY / OTC: MGMXF, down 5%) , Accell (Amsterdam:ACCEL, down 1.5%), Veolia (NYSE:VE, up 2.1%), Honeywell (NYSE:HON, up 5%), or Waterfurnace Renewable Energy (TSX:WFI, OTC:WFIFF, up 3.5%).

DISCLOSURE: Long WFIFF, LIME, RKWBF, WM, ACCEL, NFYEF, FNVRF, WNDEF, MGMXF, VE.

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.

October 06, 2012

The End of Abound Solar - What Have We Learned?

By Joseph McCabe, PE

Timeline for Abound Solar

The sad news on July 2nd 2012 was that 125 employees were being laid off at the Abound Solar factories in Colorado. Abound listed assets at $100 million and liabilities of $500 million in the bankruptcy filing. The final auction of the equipment assets was performed this past week.

Abound's accoplishments

I feel fortunate to have visited Dr. W.S. Sampath's Cadmium Telluride (CdTe) photovoltaic (PV) manufacturing laboratory at Colorado State University in February 2005.  At that time the laboratory was depositing CdTe PV materials onto 16” X 16” glass panels. That soon became AVA Solar Incorporated in Fort Collins, January 2007;  they announced their first round of funding on February 8, 2007. AVA then became Abound Solar in March 2009, and announced they were building a new factory in Indiana in July of 2010. Between September 2009 to January 2012 Abound’s modules increased in performance from 50 watts to 80 watts on their standard 2’ x 4’ panels. (Video: Hallway of framed accomplishments at Abound). This was an exciting technology, at an exciting time when huge amounts of investments were being made in PV manufacturing technologies.

The People

Keith Nichols, Director of Facilities Engineering at Abound exemplified the mentality of Abound's early days when he told me, "We were going to change the world".  Veterans from all over the PV industry are intimately familiar with the feeling.


Some of the former Abound Solar people were at the auction, purchasing testing equipment and reinventing themselves as new northern Colorado companies marketing PV reliability services. A small number of other former employees with intimate knowledge of the sold equipment will be hired by the companies who purchased the salvaged gear for pennies on the dollar. Colorado may become known as one of the best knowledge bases for PV system performance services in part because of the experience developed at Abound Solar.

The Gear and Auction

With the Abound facility open for inspection, it was interesting to see one blackboard showing the day to day plans for the manufacturing floor. The chance to implement these were never realized.

Unfinished plans

Abound Solar factory plans that were never implemented.

In hindsight, perhaps Abound should have teamed with a glass factory.  This would have helped the process and reduced glass breakage. The complicated CdTe line was not a turnkey system, it was pieced together from various company machines and glass handling automation. And it was in-line so any bottlenecks would slow or shut down a production line. This inevitably creates integration challenges as processes were improved, and requires extensions in time to solve unforeseen issues. Time was not an option in today’s PV industry with rapidly dropping module prices.

A video of the various equipment pieced together for the full thin film manufacturing shows ATS Automation (TSX:ATA), Cardinal (S-Corp), Von Ardenne, and other glass handling equipment making up the very long manufacturing process.  A closer video look at Abound second CdTe line shows previously unavailable information, due to confidentiality, but now is a publicly available understanding of the Abound CdTe tools and  process.

The companies who lost financially due to this bankruptcy are those that teamed with Abound including ATS, Cardinal, Von Ardenne, companies making racking, inverters and installation companies betting on Abound’s future sales. Anyone owning an Abound PV system are now owning the warranty risk, as well as any recycling of the CdTe promised by Abound for the end of the system life. The CdTe technology requires proper collection and recycling through programs like those offered by PV Recycling.

Cardinal was at the auction, trying to buy back their own materials, for which a Cardinal representative said they had not yet been paid. 8,000 pieces of Cardinal tempered glass was sold on the web for $2,500.

One example of the discounts available at this auction was a piece of Von Ardenne sputter equipment that originally cost $5M and sold at the auction for $300k. Representatives from Singapore bought what appeared to be one complete CdTe PV manufacturing line from the auction. The results from the auction should become publicly available at which time they will be posted in the comments section of this article at altenergystocks.com.

Where was General Electric (NYSE:GE)?

Back in April 2011, I wrote an article titled “The Cadmium Telluride Solar Factory Race" describing the horse race of thin film CdTe companies competing in the PV space. At that time, it was First Solar (NASD:FSLR)  to win, Abound to place and General Electric to show (first, second and third place in horse racing terms). Abound and GE Solar were basically a photo finish for last place. On July 3rd of this year I helped break the news that GE Solar was laying off employees in Colorado.

GE seemed missing from the public Abound auction. Why didn’t they buy-out Abound at bankruptcy?  The gear would be very similar as what GE Solar/Primestar uses, and the intellectual property would be available to GE Solar. Instead the Abound equipment was sold piece by piece at auction this past week. To me this says "GE is not serious about manufacturing CdTe" or they would have been at the table purchasing specific process or support equipment. It is possible that they were hidden on the web during the auction, but they were not evident at the onsite auction. Perhaps GE doesn’t think that Abound's intellectual property or manufacturing equipment was good enough to produce profitable CdTe PV in the current price environment.  

Lessons Learned

Investors can learn from this Abound Solar experience.  When analyzing future investments be looking for signs that people are being too optimistic about the company, the technology, the competition, and the market opportunities. Many US PV module manufacturer bankruptcies are claiming low international prices as major reasons for their downfall. PV module prices have historically reduced in prices based on the well known logarithmic experience curve (see SunShot Grand Challenge: The SunShot Swerve by Ed Gunther; a September 2012 Bloomberg version is also available). In the past two years, PV module prices have reduced in price per watt more than expected; possibly because the increased experience was more than expected. "We were going to change the world" became “The solar industry has changed the world even faster than most solar companies could handle." The bankruptcies of Abound Solar, Evergreen Solar, United Solar, Solyndra and others are part of this world-wide-learning-curve that will continue to reduce PV modules prices.

The book “Thinking, Fast and Slow ” by the Nobel Prize winning economist Daniel Kahneman describes how emotionally-charged-investment-decision-making is fraught with challenges.  “We were going to change the world" was in hindsight too passionate. In only a few years, solar has changed the energy industry with low cost PV panels now replacing conventional sources of energy. Using experience curves, the lower priced PV modules were predictable, but not to the extend the current module prices of $0.60-$0.70 per watt discussed at the recent Solar Power International conference held in Orlando. The good news is that at these prices, there will be more and more opportunities for low cost PV system installations, more experience in the PV technology, with the positive feedback loop continuing to reduce system prices. The market becomes bigger and bigger with every drop in module and system level pricing. We are changing the world, and Abound Solar has been a part of that change.

Abound Solar

Front of Abound Solar October, 2012 (click image for link to empty parking lot video).

This Abound Solar experience has helped the PV industry by investigating new technologies with specific advantageous over conventional technologies. The lesson of Abound is not that it’s impossible to change the world.  Changing the world is possible... but the new world is not always what we expected.

Disclosure: No positions.
Photos and Videos by author.

Joseph McCabe is a solar industry expert with over 20 years in the business. He is an American Solar Energy Society Fellow, a Professional Engineer, and is internationally recognized as an expert in thin film PV, BIPV and new business models for the solar industry. McCabe has a Masters Degree in Nuclear and Energy Engineering and a Masters Degree of Business Administration.

Joe is a Contributing Editor to Alt Energy Stocks and can be reached at energy [no space] ideas at gmail dotcom.

October 05, 2012

The Chinese Key to Electric Vehicle Adoption

Tom Konrad CFA

Vertical parking structure
Kandi Technologies Vertical Parking Garage Mock-up at 2012 Hangzhou Green Expo. Source: Kandi investor presentation.

The Chinese State Council Development Research Center Enterprise Institute, “a leading policy research and consulting institution directly under” China’s State Council, just released a policy whitepaper endorsing business model innovation as the key to China’s goal of rapid electric vehicle (EV) adoption.

The policy details the well-known differences between electric and conventional car technology which create barriers to rapid EV adoption:

  • Limited range when compared to gasoline vehicles (100-150km, compared to 400-500km)
  • High cost (approximately double the cost of gasoline vehicles)
  • Slow charging (6-8 hours, compared to 4-6 minutes)

US EVs: Square Pegs, Round Holes

The US policy (if it can be called that) for overcoming these barriers, has been to provide purchase and manufacturing subsidies (although not nearly enough to make the costs comparable) and some local support for vehicle charging networks.  Beyond these, we have relied on the hope that technical innovation in charging and batteries will reduce charging times and cost quickly.

The lack of a US policy to overcome slow charging times, and only weak policies to overcome the high cost and limited range consigns electric vehicles to niches and prevents their use as truly mass market vehicles.  In this context, Tesla’s (NASD:TSLA) lowered guidance and possible need to renegotiate its loan covenants with the Department of Energy should come as no surprise.  Tesla CEO Elon Musk attributed the massively lower third quarter revenue guidance ($44-46 million, vs. analysts’ expectations of $83 million) to quality issues similar to those which have plagued rival Fisker Motors, but was that the root cause?  Quite possibly these quality issues are a symptom of American EV manufacturers trying to make EV technology work within the current internal combustion vehicle paradigm.  This square peg, round hole approach means that problems are almost certain to pop up in unexpected places.

Chinese EVs: Cut a Square Hole

Rather than trying to force EV technology to work like conventional car technology, the new Chinese policy outlines steps to cutting square holes suited to the square peg of rapid EV adoption  in the mass market.  These models overcome slow charging and the high initial cost of electric vehicles by endorsing swappable batteries owned by their parties, such as electric utilities.

Electric utilities can charge batteries centrally, timing their charging to help balance grid loads, and can also ensure that batteries are always charges in optimal environments, extending their useful lives and extracting additional vale in the form of electric grid stabilization.

EVs designed with quick swappable batteries also solve the problem of slow charging.  An automated battery swap can be completed in three minutes, less time than it takes to fill a conventional vehicle’s tank.

China’s many compact, dense cities make limited range less of a problem.  According to the paper, average daily commutes in Beijing are less than 50 km, and a network of battery swapping stations can provide extra range when it is needed.

The paper points out that while electric bikes are still niche products in the West, they are already mass market in China, with 120 million on the road in 2010.  They see new business models as the key to achieving the same success with EVs.

Chinese Models

The paper details three pilot programs as models for EV adoption around China, depending on local needs and character.

The first model is most suitable to fleet vehicles, with a single customer contracting for a large number of vehicles.  This model is similar to that which is being experimented with by some companies like GE (NYSE:GE) in the US, and is appropriate both for fleet cars and larger vehicles such as buses, delivery trucks, and sanitation vehicles.

The second model is from the City of Hangzhou, where EVs from Kandi Technologies (NASD:KNDI) designed for quick battery swapping will be paired with a network of battery swapping stations and quick chargers.  The cars will be rented to the public rather than sold, with rental stations at the city’s airport, rail stations, commercial centers, and residential areas.  The rental model allows vehicle charging, maintenance, and battery recycling to all be centralized, leading to economic efficiency.  The batteries will be owned by the local utility, allowing another revenue stream from grid stabilization to improve the economics.

The third model involves the local government promotion of particular vehicle types most suitable to the locality.  For instance, the promotion of electric buses running on a busy routes with fast charging, while a police vehicle fleet could be paired with slow charging in parking lots.

Stocks

Will China succeed in the rapid mass adoption of electric vehicles?  It would be foolish to bet against them, given the advantage of central planning and less established car culture make the country much more suitable to experimentation with new business models more suited to EVs than Western countries.  Even limited success of a few of these models has the potential to produce massive revenue growth for the companies involved.

The only US-traded public company mentioned in the policy paper was Kandi Technologies (NASD:KNDI), whose mini-EVs are designed with automated rapid battery swapping in mind.  Kandi has also developed a multi-level smart garage (see photo), suitable for EV rental operations because it allows many of the company’s cars to be stored and quickly accessed in a vertical structure that uses only one square meter of real estate per vehicle.  This efficient footprint should prove a large advantage in China’s dense cities, where land is often at a premium.

Kandi stock currently suffers from a “China discount,” and at less than $5 has plenty of room for upside if the company achieves its production targets.  A recent article put the potential profits from these plans at $4.42 annually in the first year of production ramp-up, up to $13.26 in the third year.  If China’s plans for rapid EV adoption are realized, that $4.42 of earnings will likely come  in 2014, and the $13.26 (or more) in 2016.  Even a modest earnings multiple of 10 would give a stock price of $44 in two years, and $133 in four.

For those who think Chinese EV adoption will be slower than the government hopes, a good bet might be Maxwell Technologies (NASD:MXWL.) Maxwell is also reasonably valued now because the European crisis has caused delays in the adoption of the company’s ultracapacitors in hybrid car models.  Company insiders have been taking the opportunity to load up on the stock.  Maxwell makes significant profits from ultracapacitors in Chinese hybrid buses.  While it’s possible to see quick charging Chinese electric buses also use significant ultracapacitors to reduce the strain of quick charging on the buses batteries, a failure of China’s EV plans would likely lead to an even greater reliance on hybrid technology in China, which would likely be a boon to Maxwell.

I personally see both Chinese EV and hybrid markets growing rapidly, so I own both stocks.

Disclosure: Long KNDI, MXWL

This article was first published on the author's Forbes.com blog, Green Stocks on September 25th.

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.

October 04, 2012

Obama Versus Romney: Everything You Need to Know About Where the Candidates Stand on Energy Policy

By Daniel J. Weiss and Jackie Weidman, Center for American Progress

Clean energy is an important part of the economy of Colorado, which is the location of the first presidential debate on October 3rd.

Colorado’s robust wind industry and 70,000 jobs in green goods and services could suffer if the Production Tax Credit for wind isn’t extended by the end of 2012. The presidential candidates differ on this, as well as other energy issues. Hopefully the Denver debate, scheduled to focus on the economy, will also address energy policies so vital to Colorado and the nation.

The United States is in the midst of significant changes in our energy outlook. We are producing and burning more natural gas for electricity, while reducing coal use. Domestic oil production is at a 15-year high while oil imports are at a 15-year low. Renewable electricity doubled over the past four years, while worldwide carbon pollution and the impacts of climate change grow. The next president will face these and other serious challenges posed by a changing energy world.

President Barack Obama’s first term featured the adoption of essential toxic and carbon pollution reduction measures to protect public health. In addition, he modernized fuel-economy standards for the first time in two decades, which also helped the auto industry; invested in energy efficiency and renewable electricity; and created tens of thousands of jobs.

Gov. Mitt Romney’s energy agenda couldn’t be more different. He would undo new safeguards from mercury, carcinogens, soot, and smog from industrial sources. He opposes the improved fuel-economy standards, and would continue and expand tax breaks for big oil companies, while openly disparaging clean energy and investments in wind power.

In short, there are stark differences between the two presidential candidates that must be discussed on October 3 so Americans have a clear view of the energy path each candidate would lead us down.

Below is a more detailed direct comparison of their positions on the most visible energy challenges facing the nation. Following this chart is documentation on the candidates’ positions:

1-large-obama-versus-romney-everything-you-need-to-know-about-where-the-candidates-stand-on-energy-policy[1].jpg

Oil and gas production

Obama:

  • Oil imports lowest since 1997; dropped by 15 percent during term to 42 percent; vowed to cut current oil imports in half by 2020. [[Energy Information Administration, 6/12]
  • Domestic oil production is the highest in 15 years. The United States has more drilling rigs at work than the rest of the world combined. [Center for American Progress Action Fund,9/13/12; Energy Information Administration, 9/11/12]
  • Crude oil production from federal lands and waters was higher in 2009, 2010 and 2011 than in any of the last three years of the Bush administration. [EIA, 3/14/12]
  • Raised worker and environmental safety standards for drilling in the Gulf of Mexico following the Deepwater Horizon oil disaster, strengthening well design, testing, control equipment, and workplace safety. The Gulf Coast region was not hurt economically by a temporary moratorium, which has the same unemployment as two years ago and had rising personal income in 2011. [White House, 3/30/12, NOLA, 4/15/12]

Romney

  • Would open the Florida portion of the Gulf of Mexico, the Atlantic and Pacific Outer Continental Shelves, public lands, and the Arctic National Wildlife Refuge to new drilling. Would accelerate drilling permits, short circuiting health and environmental reviews. [MittRomney.com, 2011]
  • Defense Department concerned about Florida and Virginia drilling expansion since it could interfere with military training. [Panama City News Herald, 4/4/12]
  • Called the temporary moratorium on drilling in the Gulf following the Deepwater Horizon disaster “illegal.” [CBS News, 3/9/12]
  • See “Public lands protection”

Big Oil tax breaks

Obama:

  • Calls on Congress to end $4 billion in oil tax breaks and to invest in clean energy instead. [White House, 3/28/2012]
  • Pledged to cut subsidies for oil, coal, and natural gas internationally, along with  G20 nations. [Economist,10/1/09]

Romney:

  • Romney supports the House Republican budget, authored by his running mate, Rep. Paul Ryan (R-WI), which preserves $40 billion in tax breaks for the oil and gas industry over a decade. [CAP, 3/20/12]
  • Romney’s economic plan would give the big five oil companies–BP, Chevron, ConocoPhillips, ExxonMobil, and Shell–an additional $2.3 billion annual tax cut on top of existing tax breaks they currently receive. [CAPAF, 7/26/12]
  • Romney’s plan cuts the corporate tax rate from 35 percent to 25 percent, but does not make specific mention of oil and gas loopholes which let oil companies pay much lower effective federal rates. [MittRomney.com, 2012]
  • Asked directly in an interview about whether he is for or against subsidizing Big Oil, Romney responded: “I’m not sure precisely what big tax breaks we’re talking about.” [Fox News, 4/3/2012]

Clean energy

Obama:

  • Federal government invested billions of dollars in renewable energy projects, creating tens of thousands of jobs; doubled generation of (non-hydropower) renewable electricity to 6 percent. [EIA, 7/1/12]
  • Supports extension of the production tax credit for wind generated electricity. [White House, 5/22/12]
  • “Governor Romney calls [renewable sources of energy] ‘imaginary.’ Congressman Ryan calls them a ‘fad.’ I think they’re the future. I think they’re worth fighting for.” [Climate Progress, 8/28/12]
  • “I will not walk away from the promise of clean energy. I will not cede the wind or solar or battery industry to China or Germany because we refuse to make the same commitment here.” [State of the Union, 1/24/12]
  • Transforming the Pentagon energy use by reducing the military’s dependence on fossil fuels that cost the Pentagon up to $20 billion annually. [National Journal, 4/11/12]

Romney:

  • Opposes the extension of the production tax credit for wind energy, which could cost 37,000 jobs in the industry. [Des Moines Register, 7/30/12]
  • “In place of real energy, Obama has focused on an imaginary world where government-subsidized windmills and solar panels could power the economy. This vision has failed.” [Columbus Dispatch op-ed, 8/8/12]
  • “You can’t drive a car with a windmill on it.” [ThinkProgress, 3/6/2012]
  • Endorses the House passed budget authored by Ryan, which gives a 60 percent funding increase to coal, oil, and natural gas, while it decreases funding for research on vehicle batteries and solar projects, and loans to companies to retool to build fuel-efficient cars. [Politico, 4/17/12]

Reduce oil use and imports with efficient vehicles

Obama:

  • New modern standards require cars and light trucks to achieve an average 54.5 miles per gallon by 2025. This, combined with the first round of standards, will save 3.1 million barrels of oil per day in 2030. This is equivalent to the amount of oil we currently import from the Persian Gulf, Colombia, and Venezuela combined. [CAP, 8/28/12]
  • Invested in fuel-efficient vehicle and advanced battery research and development to spur job growth and increase international competitiveness; increased affordability and reliability of electric vehicles. [CAP, 8/28/12]
  • Proposed a “race to the top” for communities to seek federal investment in public electric vehicle recharging infrastructure. [White House, 3/30/11]

Romney:

  • “Gov. Romney opposes the extreme standards that President Obama has imposed, which will limit the choices available to American families,” said campaign spokeswoman Andrea Saul. [LA Times, 8/28/12]
  • Disparaged the first plug-in hybrid electric Chevrolet Volt as “an idea whose time has not come,” and said, “I’m not sure America was ready for the Chevy Volt.” [Michigan Live, 12/23/11, MSNBC 4/5/12]. EPA says the Volt gets at least 94 miles per gallon.
  • Advocates ending the federal loan program helping companies develop and produce efficient cars. [Orange County Register, 10/24/11]
  • Supports House passed budget authored by Ryan that would slash investment in alternatives to gasoline powered cars. [House Budget Committee, FY 2013]

Gasoline prices

Obama:

  • Commodity Futures Trading Commission should increase market oversight of  Wall Street speculators who have driven up oil prices;, increase penalties for illegal activity. Dodd-Frank Wall Street  Reform and Consumer Protection Act includes rules to limit commodities speculation by Wall Street speculators that do not affect commercial end users. [CNN, 4/17/12; Media Matters, 4/18/12]
  • Favors investments in alternatives to gasoline, including electric vehicles and public transportation. [CAP, 8/28/12; American Public Transportation Association, 2/13/12]

Romney

  • Would repeal Dodd Frank and opposes reining in Wall Street speculators, calling Obama’s move “gimmickry.” [MittRomney.com, 4/17/12]
  • Supports House passed budget authored by Ryan that would cut Commodity Futures Trading Commission funding by nearly $40 million; cuts would hinder the CFTC’s ability to police the oil and other  markets that the Commission oversees.. [House Budget Committee FY 2013; White House, 4/17/12]

Green jobs

Obama:

  • Historic level of investment in green jobs sector now with 3.1 million Americans employed according the Bureau of Labor Statistics. [AP, 3/22/12]

Romney:

  • Repeatedly called green jobs “fake,” such as calling them “illusory” in an op-ed on his energy plan. [Orange County Register, 10/24/11]
  • “[Obama] keeps talking about green jobs, where are they?” [OC Register, 10/24/11; League of Conservation Voters, 9/15/11]  The Economic Policy Institute estimates that there were nearly 1 million clean energy jobs created or saved by the Recovery Act.  [BlueGreen Alliance, 2/17/11]  

Public lands protection

Obama:

  • Approved 17 major solar energy installation projects on public lands that are generating 6,000 megawatts of power; will expedite permitting process to increase development in Western states. [Department of Energy, 7/24/12]
  • Announced he would “allow the development of clean energy on enough public land to power 3 million homes.” [White House, 1/24/12]
  • Signed a sweeping public lands bill in 2009 that designated 2 million acres of wilderness and created three national parks. [AP, 3/31/09]
  • Used the 1906 Antiquities Act to create three national monuments – Fort Monroe, Virginia; Fort Ord, California; and Chimney Rock, Colorado. These monuments will bring tourists and economic development to these places.. [ClimateProgress, 9/20/12] ]

Romney:

  • Romney’s energy plan would give states the authority to allow drilling in National Park Service units and other public lands within state borders. The New York Times noted that “states, as a rule, tend to be interested mainly in resource development.” [NYT, 8/18/12]
  • The Romney plan significantly increases the likelihood that drilling could take place in 30 National Park units, including the Flight 93 Memorial and Everglades National Park.  [Center for American Progress, 9/12/12]
  • Romney said “I haven’t studied […] what the purpose is of” public lands. But he finds it unacceptable when conservation is “designed to satisfy, let’s say, the most extreme environmentalists, from keeping a population from developing their coal, their gold, their other resources for the benefit of the state.” [McClatchy, 2/16/12]
  • Fully embraced the House passed budget, authored by Ryan, which would sell off 3.3 millions of acres of national parks and public lands. [ThinkProgress, 3/21/12]

Climate change

Obama:

  • “My plan will continue to reduce the carbon pollution that is heating our planet – because climate change is not a hoax. More droughts and floods and wildfires are not a joke.  They’re a threat to our children’s future.” [Climate Progress, 9/6/12]
  • Finalized the first ever carbon pollution reduction rules for motor vehicles, which will cut carbon pollution from vehicles built between 2012 and 2025. The standards will slash billions of tons of carbon pollution. [White House, 8/3/2012]
  • Proposed the first carbon pollution reduction for new coal-fired power plants. [NPR, 3/27/12]
  • State Department is leading a group of countries in a program that cuts global warming pollutants like soot, methane, and hydrofluorocarbons. [NYT, 2/16/2012]

Romney:

  • Romney made fun of President Obama’s commitment to fighting global warming at the Republican National Convention when he said “I’m not in this race to slow the rise of the oceans or to heal the planet.” [Climate Progress, 9/19/12]
  • “There remains a lack of scientific consensus on the issue — on the extent of the warming, the extent of the human contribution, and the severity of the risk — and I believe we must support continued debate and investigation within the scientific community.” [NYT,9/5/2012]
  • “I oppose steps like a carbon tax or a cap-and-trade system.” [Science Debate.org, 9/4/12]
  • Says the Clean Air Act doesn’t apply to carbon emissions: “My view is that the EPA in getting into carbon and regulating carbon has gone beyond the original intent of that legislation, and I would not take it there.” Would overturn Supreme Court decision by blocking EPA from setting carbon pollution reduction standards.[Politico, 7/18/11; MittRomney.com, 2012

Protect public health from mercury, toxic air pollution

Obama:

  • Finalized historic standard that limits harmful mercury and air toxic pollution from coal-fired power plants. Proposed rules to reduce mercury and toxic air pollution from industrial boilers, incinerators, and cement manufacturing. Together, these initiatives will result in $187 billion in annual health benefits and would prevent 21,600 premature deaths, 199,000 cases of asthma, and 12,540 hospitalizations annually. [CAPAF, 9/18/12]
  • Proposed Cross-state air pollution rule that would save up to 34,000 lives, and $280 billion in economic benefits, annually; rule was struck down in 2-1 federal appeals court decision, but EPA could appeal.  [CAPAF, 9/18/12]

Romney

  • Would promptly issue an executive order that “directs all agencies to immediately initiate the elimination of Obama-era regulations that unduly burden the economy or job creation.” [MittRomney.com, 2011]
  • “Aggressively” develop all our coal sources. “Coal is America’s most abundant energy source. We have reserves that—at current rates of uses—will last for the next 200 years of electricity production in an industry that directly employs perhaps 200,000 workers.”  [MittRomney.com, 2011]
  • Against new EPA regulations of harmful mercury and air pollutants from coal: “I think the EPA has gotten completely out of control for a very simple reason. It is a tool in the hands of the president to crush the private enterprise system, to crush our ability to have energy, whether it’s oil, gas, coal, nuclear.” [The Hill, 12/5/11]
  • Romney’s campaign spokesperson falsely claimed that the mercury pollution-reduction standard “costs more than $1,500 for every one dollar reduction in mercury pollution.”  The EPA projects “that for every dollar spent to reduce pollution, Americans get $3 to $9 in health benefits in return.” [Climate Progress, 8/21/12]

Keystone XL pipeline

Obama:

  • Delayed decision to permit construction of Keystone XL pipeline in November 2011 until a new route was identified and evaluated. The original proposed pathway crossed  Nebraska’s Sandhills, the recharge zone for the Ogallala Aquifer that supplies water for nearly one-quarter of American agriculture. Nebraska’s Republican governor Dave Heineman also opposed this route.   President Obama noted that the original route could “affect the health and safety of the American people as well as the environment.” [White House, 11/10/11; NRDC, 7/11/11; Nebraska Government, 8/11/11]
  • Congress forced President Obama to decide whether to approve or deny the Keystone XL in January 2012 before a new route was selected. He denied it because a new route had not been identified or analyzed. The president said that “the rushed and arbitrary deadline insisted on by congressional Republicans prevented a full assessment of the pipeline’s impact, especially the health and safety of the American people, as well as our environment.” [White House, 1/18/12]
  • Approved the Cushing, Oklahoma to Gulf of Mexico leg of Keystone XL in March to address the over stock of oil in Cushing due to lack of transportation capacity; promised to ensure that construction and operation will proceed in an environmentally sensible way. [CAP,5/5/2012]
  • Obama will decide whether to approve TransCanada’s new proposed northern pipeline route in 2013, after the Nebraska state government and the State Department assess the environmental impacts of the new route. [U.S. Department of State, 5/4/2012]

Romney:

  • “If I’m President, we’ll build it if I have to build it myself.” [Huffington Post, 5/4/12]
  • Used his first TV ad of the general election to say he would approve Keystone XL on “day one” if elected. [The Hill, 5/18/12]

Daniel J. Weiss is a Senior Fellow with the Center for American Progress; Jackie Weidman is a Special Assistant for energy policy at the Center for American Progress.

This article was originally published on Climate Progress and was republished with permission.

October 02, 2012

Tesla Motors: Is This the End for Electric Cars?

By Jeff Siegel

Back in March, I was speaking at a conference about the future of personal transportation.

I discussed how a new generation called the Millennials or Generation Y would ultimately force change in the marketplace and present a real challenge to car makers.

You see, there have been a number of studies that have suggested this particular generation — which represents the kinds of numbers that allowed the baby boomers to dictate a lot of our consumer decisions today — is less interested in car ownership than previous generations...

They prefer public transportation, biking, walking, and car-sharing services like Zipcar (NASDAQ: ZIP).

And for those folks who now fall between the ages of 19-31 who are receptive to car ownership, they account for about 25% of the U.S. automobile market. In ten years that's expected to rise to 40%.

So, what will they drive?

According to a recent Deloitte study, these folks tend to mock gas guzzlers and embrace hybrid, plug-in hybrid, and electric vehicles (EVs).

If you're a regular reader of these pages, you know I've long been a supporter of electric vehicles. I firmly believe that by the end of this decade, EVs will capture between 1% and 1.5% of the total US vehicle market.

On the surface, this may not seem like much. But it's actually a pretty aggressive target — and a pretty big deal.

As a result, we've profited from the early development of this market from every angle; most of this came from riding the early wave of lithium and high-performance battery plays a few years back. Today it's a bit more difficult. And while I remain a strong supporter of electric vehicle development, I'm extremely cautious as an investor.

In fact, the only EV-related stock I've played this year was Tesla (NASDAQ: TSLA), and I jumped out back in March after the stock started looking a bit top-heavy after crossing the $36 mark.

Since then, I've watched the stock tumble and rise a few times. I've seen a number of trading opportunities (although I did not play the stock this way), and I've read some pretty long and detailed analyses of the company by both credible analysts and overly-optimistic bloggers posing as analysts, as well as by the typical anti-EV narcissists who get off at watching a game-changing industry struggle with the early bumps and bruises that come with any disruptive technology.

The latter, of course, typically provide little more than noise. But they came out in full force this week after Tesla's recent announcement that it was cutting its 2012 revenue forecast... 

Due to a slower-than-expected rollout of the Model S sedan, the company has adjusted its full-year revenue to come in at around $400 million to $440 million. This is down from Tesla's prior outlook of between $560 million and $600 million.

mertsla

Tesla Model S

This is a pretty big discrepancy. And on the day of that announcement, the stock fell in excess of 10%

Needless to say, the knuckle-dragging naysayers were busy little bees over the past few days, finding as many ways as they could to not only trash Tesla, but the EV market as a whole.

We heard the same broken record rhetoric about how no one wants these cars, how sales are disappointing, and how the technology “isn't there yet”...

It's all nonsense.

Don't get me wrong; I'm not rushing out to buy shares of Tesla. And quite frankly, I think some analysts' price targets on this one are a bit off base. I was very suspicious last week after Morgan Stanley put a $50 price target on this thing.

Of course, I don't have access to the same intelligence and data as the suits at Morgan Stanley, so perhaps I'm missing something...

But I don't believe Tesla will even have the capacity to impress enough to push the stock to those levels until we get some better clarity on Q4.

It is only then when we will have a better read on Model S volumes. If volumes do in fact increase, then we should see the cost improvements necessary to improve gross margins.

I remain bullish on Tesla as a small but growing force in the auto industry. And I definitely wouldn't bet on Tesla to crash and burn, as some not-so-honorable analysts have suggested.

However, I'd be hesitant about believing overzealous price targets on this one. Because the truth is, until we see how Q4 shakes out, there's just not enough data to back a price target exceeding $35.

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

 signature

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

October 01, 2012

Energy Storage: Q4 2012 Winners and Losers

John Petersen

In late June I wrote a forward looking article that identified several companies in my energy storage and vehicle electrification group that I expected to perform well or perform poorly during the third quarter. Since short-term market changes are notoriously hard to predict, it’s worthwhile to look back and see where I got things right and where I got them wrong. So I’ll start today with a quick summary table and assess the relative accuracy of my Q3 calls, and then turn my attention to Q4, which is shaping up as a time of bright opportunity for some companies and continuing risk for others.

9.30.12 Q3 Performance.png

My list of expected Q3 winners included Exide Technologies (XIDE), Active Power (ACPW) and Axion Power International (AXPW.OB). I was wrong on all three counts because Active Power lost 1.2%, Exide Technologies lost 7.7% and Axion Power lost 20.6%

My list of expected Q3 losers included Valence Technologies (VLNCQ.PK), which lost 98.4% when it filed a voluntary petition under Chapter 11 of the Bankruptcy Code, and Tesla Motors (TSLA), which lost 6.4%. While I was right on both counts, Tesla didn’t perform as poorly as I expected and just last week it completed a $195 million secondary offering that should keep it out of the ditch for a couple more quarters. While I rarely have glowing praise for Tesla’s business model or product line, its management team deserves double kudos for pulling off a critical eleventh hour financing transaction on better terms than I would have thought possible.

Q-4 Winners

Exide Technologies was on my list of likely Q3 winners and it remains on my list of likely Q4 winners. 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 earnings were so bad for so long, Exide trades at a 10% discount to book value and 8% of sales while its peers trade at an average of 1.6 times book and 44% to 70% of sales.

I maintain long-term price tracking charts on all the companies I follow and believe Exide's chart is signaling a turn to the upside in the fourth quarter. If you look at the chart you'll see that the 10-, 20- 50- and 200-day weighted moving average prices are clustered in a $0.13 range and during the third quarter the 10-, 20- and 50-day averages all moved up through the 200-day average, signaling the beginning of a new trend. Similar chart patterns existed in the summer of 2009 and the fall of 2010. While I'd be reluctant to estimate the next peak, Exide's past performance is enough to convince me that a double is likely and a good deal more is possible.

9.30.12 XIDE.png

Active Power was on my list of likely Q3 winners and it remains on my list of likely Q4 winners. Since the end of June the 10-, 20-, 50- and 200-day averages have all drifted down a couple cents and are currently clustered in a two-cent range. Active Power's historical stock price behavior is enough to convince me that a double is likely, if not a triple.

9.30.12 ACPW.png

Axion Power International was on my list of likely Q3 winners and it remains on my list of likely Q4 winners. The last couple years have been very difficult for Axion as one legacy holder after another decided to liquidate for reasons that had little or nothing to do with Axion’s business and technical progress. As near as I can tell the legacy holders, as a group, are down to something less than a million shares. Since much of the buying over the last couple years has come from readers of my blog, I expect the market dynamic to quickly reverse from a supply driven downtrend to a demand driven uptrend. In addition to price data like I provided for Exide and Active Power, my Axion chart includes a fifth line that tracks 50-day average trading volume to highlight periods of intense selling pressure since January 2010.

9.30.12 AXPW.png">

Last week I had the pleasure of delivering a keynote presentation for the 13th European Lead Battery Conference in Paris. For readers who are interested, an online version of my ELBC presentation with voiceover is available here.

While other lead battery manufacturers who presented at the ELBC talked about improving their charge acceptance rates from 0.05 to 0.1 amps per amp-hour of rated capacity, Axion was presenting charge acceptance rates of 2.0 to 3.0 amps per hour of rated capacity with four to five times the cycle life. These are not modest incremental gains like one typically sees in the battery world. Instead, they’re disruptive step changes that have several first tier OEMs and battery users making substantial direct investments in the kind of redundant validation testing that always precedes the adoption of a new technology for use in mass market products. While Axion’s PbC is not a silver bullet for all battery applications and the company still faces a variety of manufacturing, commercialization and financing risks, the principal technical risks of developing an entirely new class of energy storage device have, in my view, been successfully overcome.

In addition to my three primary picks, I’m seeing interesting chart patterns develop for Altair Nanotechnologies (ALTI), Johnson Controls (JCI), Maxwell Technologies (MXWL) and UQM Technologies (UQM). The stock prices for all four of these companies have been beaten down this year and could well be poised for a turnaround.

Q-4 Losers

The scariest company in my tracking list is A123 Systems (AONE) which peaked shortly after its IPO and has been on a downhill slide ever since. In May and June of this year, A123 announced a pair of toxic financing deals that had variable conversion rates and seemed likely to be highly dilutive. In August A123 announced that China’s Wanxaing Group had agreed to provide up to $450 million of additional financing in exchange for an 80% ownership stake. The combination of these three transactions has had A123 printing stock faster than the Fed prints money ever since.

On June 30th A123 had a total of 147 million shares outstanding. By August 6th the total had climbed to 170 million and by August 23rd the total had climbed to 202 million. The reason for the explosive ramp in the number of shares outstanding was a decision to leave the toxic securities in place, instead of redeeming them, and to alter the terms of the Wanxaing financing to provide for a variable conversion rate that’s tied to a percentage of ownership rather than a fixed stock price.

During the period from June 30th through August 23rd, total reported trading volume in A123’s stock was 305 million shares, or roughly 5.5 times the number of newly issued shares. Since August 23rd, another 491 million shares have traded. Since it’s impossible to tell whether the proportionality between new share issuances and total trading volume has held steady over the last three months, it’s also impossible to estimate the total number of shares currently outstanding. At a minimum I’d expect A123 to report 300 million shares outstanding on September 30th, but the actual number could be far higher. Based on the terms disclosed for the Wanxaing transaction, that would imply a fully diluted share count in the 1.5 billion range.

9.30.12 AONE.png

In light of the production problems it’s experienced to date and a recent brush with insolvency that will be clearly visible on the face of its September 30th financial statements, I continue to believe that Tesla Motors will soon pass its peak of inflated expectations and begin a descent into the Valley of Death that resembles the A123 experience. I don't want to denigrate Tesla's accomplishments as 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 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 battery and auto industries, 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.


« September 2012 | Main | November 2012 »

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