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February 28, 2013

Photovoltaics: 10 Trends to Watch in 2013

2012 Report Card plus my 2013 trends and predictions.

Ed Gunther

20122013[1].png Though I’ll blame my lingering flu, the Photovoltaics: 11 Trends to Watch in 2012 review and 2013 photovoltaic (PV) trends and predictions post has again extended well into February. As usual, I won’t be grading on a curve.

Photovoltaic Market Demand Growth

Last year, I said:

In 2012, I predict at least 25% global PV installation demand growth. I am tempted by the under since the early year Feed-in Tariff (FiT) headwinds seem stronger than ever with serious talk of a 1 GW cap in Germany and PV installations in Italy expected to decline sharply from 2011. Has the German PV market peaked with the estimated 7.5 GW of installations in 2011?

Grade: Fail

For the context of the prediction, both IMS Research and iSuppli believed global 2011 PV installations exceeded 26 GW around this time last year. NPD Solarbuzz now claims photovoltaic (PV) demand for 2012 reached just 29.0 GW (GigaWatt), short of earlier estimates of 30 GW or more. My empirical observation has been prior year demand numbers settle by the end of March, but my prediction is well short of 25% demand growth even using the 26 GW baseline for 2011.

If that’s not enough, the German PV market did not peak in 2011, and eked out a small gain in 2012 PV installations to 7.6 GW.

I wonder if NPD Solarbuzz 2012 PV demand will be revised back upward because of 4Q12 (fourth quarter of 2012) module shipment growth at Yingli Green Energy Holding Co. Ltd. (NYSE:YGE) and JA Solar Holdings Co., Ltd. (NASDAQ:JASO) raising 4Q12 shipment guidance with others maybe to follow?

In the second part of the prediction, I said:

For the US, I’ll prognosticate at least 75% PV installation demand growth buoyed by modules purchased under the expiring 1603 Treasury Grant safe harbor, utility scale solar projects, and residential growth.

Grade: Fail

Per GTM Research, a division of Greentech Media, the US was forecast to install 1.2 GW of PV in 4Q12 and totaling 3.2 GW for 2012. Since the US installed 1.855 GW of PV in 2011 again per GTM Research, that implies about 72.5% growth in 2012, just short of my prediction! Perhaps the final numbers will settle in my favor when the next U.S. Solar Market Insight report is released?

In 2013, I predict near 20% global PV installation demand growth from the 2012 29 GW baseline to almost 35 GW.

For the US, I’ll swing for the fences and prognosticate at least 4 GW of PV installations even though we make things so difficult here for solar. More of these 4 kW (kiloWatt) installations at $2.50 per Watt in Texas would help.

As a bonus, I’ll predict the German PV market will still be larger than the US PV market in 2013. The timing and investor uncertainty caused by proposed amendments to the Renewable Energy Sources Act (EEG) and the national fall elections in Germany will decide this one.

 1603 Treasury Grant and Tax Equity and Solar Finance

I did not make a prediction last year. For 2013, I have a lot of questions.

First, if the US sequester is not avoided, 1603 Treasury Program grants awarded in Fiscal Year 2013 are subject to a 7.6% reduction.

I wonder if US Federal tax reform does happen after the manufactured fiscal cliff and sequester crises pass? How will comprehensive tax reform impact the Investment Tax Credit (ITC) and the chances of the Treasury Grant program being resurrected? If discussions about 2017 and beyond develop, I hope the SEIA (Solar Energy Industries Association) has strategized on an ITC phase out plan much like the AWEA (American Wind Energy Association) proposed for the PTC (Production Tax Credit).

How available is tax equity in 2013 and has the delayed extension of the wind PTC increased the availability for solar?

There are a number of innovative solar finance trends to watch in 2013 including solar leasing, crowdfunding, Real Estate Investment Trusts (REIT), and Master Limited Partnerships (MLPs). Most originated or are developing fastest in the United States.

Of course, solar leasing or so-called third party financing is on fire, and over 70% of residential solar installations in California and other states opted for solar leases in 2012. GTM Research forecasts the residential solar financing market will “rise from $1.3 billion in 2012 to $5.7 billion in 2016” according to the report, “U.S. Residential Solar PV Financing: The Vendor, Installer and Financier Landscape, 2013-2016”.

I’m a bit concerned about the solar lease gold rush and believe the downsides to this model may become apparent by yearend 2013. Much as with car leasing, I expect more regulation in terms of disclosure and proper comparison of lease versus buy options. I was pleased to see a low interest rate loan option being offered to California residents going solar. By the way, “Sunrun Faces Class Action Lawsuit Over Its Marketing” strikes me as frivolous but may be a harbinger of things to come.

On the solar crowdfunding front, I tried SunFunder on the suggestion of Bloomberg New Energy Finance CEO Michael Liebreich at the end of his Energy All-Stars presentation. I found investing in a not for profit SunFunder solar project to be a fun, easy, and rewarding experience. By contrast, I just looked over at the Solar Mosaic website and get the impression I have to sign up just to browse the potential investments. I wonder if Solar Mosaic is targeting certain gross sign up metrics?

I am less enthralled about REITs and MLPs though “Solar REITs: A Better Way to Invest in Solar [Updated]” by Tom Konrad at Forbes has these covered.

As soon as I hear the word securitization in the context of solar, I think of Wall Street and boom, bubble, and bust cycles.

 US solar trade claim against China et al.

Jumping into the trade area, I said:

For political reasons, I’ll go further to argue the imposed tariffs will not be punitive but amount to a slap on the wrist. Indications are China will respond with equivalent retaliation against polysilicon imports from the United States. The message is abundantly clear from a headline just today at DigiTimes: “Four China polysilicon firms demand government start anti-dumping and anti-subsidy investigation against US firms, according to China media”.

 I think the Harmonized Tariff System of the United States (HTSUS) schedule for the complaint subheadings will impose duties in a range from 2.5% to 10% on cells and modules manufactured in China and imported to the US. The duties will be tiered; cells will have a lower tariff than modules to encourage NAFTA (North American Free Trade Agreement) based module assembly.

Grade: Fail

I got a lot wrong here beginning with the countervailing duty (CVD) and antidumping duty (AD) only applying to Chinese photovoltaic cells and not modules. Of course, a recent Coalition for American Solar Manufacturers (CASM) appeal looks to close the PV module/panel loophole.

Global solar trade cases have proliferated since the US China trade case. A European Union (EU) solar trade investigation into Chinese PV manufacturers spearheaded by the SolarWorld AG (FRA:SWV, OTC:SRWRF) led EU ProSun may be decided as early as April 2013 per “EU and China stumble towards solar trade war” by Robin Emmott and Michael Martina for Reuters. Meanwhile, India’s antidumping investigation of China, Malaysia, Taiwan, and US based solar manufacturers has resulted in a US challenge at the WTO (World Trade Organization) concerning domestic content requirements in India’s Jawaharlal Nehru National Solar Mission. The WTO set a precedent on domestic content requirements in the ruling against Ontario, Canada, with regards to their solar Feed-in Tariff program.

Not be left out of the solar trade investigations, the Chinese Ministry of Commerce initiated an anti-dumping investigation of US, EU, and South Korean polysilicon manufacturers last year. US and EU polysilicon manufacturers are also being investigated for countervailing duties. The Chinese decision on the polysilicon investigation is supposed to have been delayed until at least March 2013.

 Polysilicon and solar grade silicon outlook

Regarding polysilicon, I said:

I expect polysilicon spot prices will remain below $38 per kg in 2012 and may briefly dip below $20 per kg at some point later in the year as the largest polysilicon supply versus demand correction since the Internet bubble plays out.

Grade: Fail

In another tough grade, polysilicon spot prices did not dip briefly below $20 per kilogram (kg) but smashed it for an extended period of time. I heard of polysilicon prices as low as $14 per kg for high quality material, and I’m sure a topper will claim a lower price for material of unknown vintage. Reports conflict if these spot prices were for material direct from polysilicon oligarchs or second hand, resold material.

Using the latest data, polysilicon prices appear to have reached an inflection point in February and are on the rise per IHS Inc. (NYSE:IHS) as polysilicon spot market volumes declined to 20% of total sales in December 2012 indicating inventories had been cleared.

On the 2013 polysilicon outlook, Mr. Johannes Bernreuter, head of Bernreuter Research, said:

The global polysilicon industry will return to the path of growth and increase its production by 6.5% in 2013, according to the latest analysis of Bernreuter Research. The polysilicon market research firm projects the global polysilicon net demand – including that of the semiconductor industry, but excluding the consumption of inventories – will amount to approximately 250,000 metric tons (MT) this year. The spot price is predicted to rebound to a level of US$20 to 25/kg by the end of 2013.

Going conservative, I expect polysilicon spot prices will remain below $30 per kg throughout 2013.

 Thin Film Photovoltaics

For thin film PV, I said:

Beyond the Solar Frontier, I’ll be watching Stion and strategic partner TSMC Solar Limited, a subsidiary of Taiwan Semiconductor Mfg. Co. Ltd. (NYSE:TSM), along with MiaSolé and the Solibro division of Q-Cells SE (FRA:QCE) for a third thin film contender.

Grade: Pass

After First Solar, Inc. (NASDAQ:FSLR) and Solar Frontier K.K., a wholly owned subsidiary of Showa Shell Sekiyu K.K. (TYO:5002), Stion, TSMC Solar, MiaSolé, and Solibro were the emerging thin film companies to watch though both MiaSolé and Solibro were acquired (saved?) by Hanergy Holding Group, Ltd. However, all of these firms have not been manufacturing at capacity or expanding during the PV shakeout. To this short list, I would add NuvoSun which began ramping a 40 MW production line in early 2012, and AVANCIS GmbH & Co. KG by virtue of being a subsidiary of Compagnie de Saint Gobain SA (EPA:SGO).

Just since my CIGS PV Poll Results and Analysis post in December, Nanosolar has had a reported 75% layoff, and per “State approves $20 million tax credit for SoloPower, as Portland plant struggles to meet job, manufacturing benchmarks” by Molly Young for The Oregonian, SoloPower replaced CEO Tim Harris and President Bruce Khouri left the firm as it has apparently failed to meet production, efficiency, and sales milestones.

OK, I’ll jump out on a limb and predict Nanosolar will line up further investment or be acquired and survive 2013.

 HCPV (High Concentration PhotoVoltaics)

In 2012, I said:

I predict at least 100 MWp (MegaWatt-peak) of HCPV will be installed in 2012.

Grade: Fail

It could have been close, but I’m not counting the 50MW CPV Power Plant in Golmud, Qinghai, China, listed by Suncore Photovoltaic Technology Company Limited as “Grid-tied: Will be the first Quarter of 2013”. Suncore is a Sino-US joint venture between San’an Optoelectronics Co., Ltd. (SHA:600703) and EMCORE Corporation (NASDAQ:EMKR).

In 2013, I believe Soitec SA (EPA:SOI) will become =the= HCPV market leader based on project pipeline and installations leveraging their state of the art concentrator photovoltaic module manufacturing capacity in San Diego and Germany.

 Oil and Natural Gas

On crude oil, I said:

Once again I’ll predict oil will stay below $135 per barrel through 2012 barring a force majeure event including tensions with Iran over the country’s nuclear program. I don’t believe rumblings of oil prices dipping to $85 per barrel or even $70 per barrel unless the global economy tanks into recession.

Grade: Fail

According to U.S. Energy Information Administration (EIA) data, 2012 per barrel oil prices ranged from $83.59 to $111.26 per barrel through November 2012 across domestic and imported supply so there was a brief dip below $85 per barrel for Domestic First Purchase Prices.

Oil and gas price forecast for 2013” by Chris Nelder for SmartPlanet has a detailed analysis with both WTI (West Texas Intermediate) and Brent average crude oil prices forecasts.

I’ll predict oil will stay above $79 per barrel throughout 2013 unless the global economy tanks into recession referencing the same EIA data. I’ve got to get bailed out by these caveats sometime?

Of course, natural gas prices are even more important from an electricity generation and new capacity addition perspective especially in the United States. In the post mentioned above, Mr. Nelder said:

My forecast is for gas prices to approach $4 by the end of 2013, simply because unprofitable endeavors don’t go on forever and after two years this one feels about played out.

Mr. Nelder also believes the $4 per mcf (1000 cubic feet) natural gas price will reverse the trend resulting in some power generation switching back to coal.

 PV Industry Shakeout

As the PV industry shakeout intensifies in 2012, even more companies across the value chain will fail than in 2011. I predict at least one of the CIS/CIGS start-up companies listed in the PV Blog Poll will fail in 2012.

Grade: Pass

Well, I could have said several. As recapped in CIGS PV Poll Results and Analysis, Soltecture, once known as Sulfercell Solartechnik, began insolvency proceedings in May. AQT Solar put its assets and intellectual property (IP) up for sale in August after promising to commercialize CZTS (copper zinc tin sulfide) technology by 2013.

With “Global Solar Energy Continues Operations and Pursuit of Strategic Alternatives” in December, “Global Solar had reduced its work force by about 70% to preserve operational and production flexibility.” So the Global Solar soap opera continues.

Not content with a single choice, I’ll prognosticate Global Solar will cease operations, and SoloPower will fail to meet it’s milestones to tap the $197 million US Department of Energy (DOE) Loan Guarantee under the 1705 Program in 2013.

PV IPOs (Initial Public Offerings)

I said:

I don’t believe a western PV module manufacturer will IPO in 2012. Outright acquisitions or majority stake strategic investors are far more likely possibilities.

Grade: Pass

Wow, that was a pretty wimpy prediction! The only solar IPOs in 2012 were Enphase Energy, Inc. (NASDAQ:ENPH) and SolarCity Corporation (NASDAQ:SCTY) after both reduced the price range in order to make the respective IPOs happen.

Following the downstream trend, I’ll predict Sunrun Inc., Clean Power Finance, or perhaps Sungevity Inc. will IPO in 2013.

 My 2012 “Out There” Prediction

So I said:

In a multiyear “Out There”, I predict the General Electric Company (NYSE:GE) will either divest it’s majority investment in thin film PV manufacturer PrimeStar Solar or move production offshore by yearend 2014 when they come to their offshoring, portfolio theory, photovoltaic senses.

Grade: Incomplete

Before the 4th of July, the General Electric Company (NYSE:GE) laid off workers and placed their Colorado CdTe solar manufacturing plans on hold in order to develop the next generation of CdTe (Cadmium Telluride) technology with at least 15% module efficiency. As I have said to those who will listen, be careful with the word success in connection with solar companies such as “Another SunShot Success: GE to Make PrimeStar Solar Panels at New Colorado Plant” by Minh Le, DOE Program Manager, Solar Program.

So far, no CdTe follower has succeeded. Will GE wise up and just acquire First Solar already if they favor CdTe thin film solar so much? That’s a question, not a prediction!

Who ever said tough Pass/Fail grading was easy?

DISCLOSURE: No position in any of the stocks mentioned.

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

February 27, 2013

Good News for Kior: EPA Greenlights Camelina and Energy Cane

Jim Lane
Camelina microcarpa, aka Littlepod false flax.   Photo by Jim Pisarowicz, National Park Service

New renewable feedstock OKs. Good news, bad, neutral?

In Washington, the US Environmental Protection Agency issued a final rule qualifying biofuels produced from camelina oil as biomass-based diesel or advanced biofuel, as well as biofuels from energy cane which qualify as cellulosic biofuel.

This final rule also qualifies renewable gasoline and renewable gasoline blendstock made from certain qualifying feedstocks as cellulosic biofuel.

“This decision adds to the growing list of biodiesel feedstocks that meet the EPA’s standards for Advanced Biofuel and gives us yet another option for producing sustainable, domestic biodiesel that displaces imported oil,” said Anne Steckel, NBB’s vice president of federal affairs. “This is important for our energy security, for our economy and for addressing climate change, and we thank the EPA for conducting a thorough and fair review.”

By qualifying these new fuel pathways, this rule provides opportunities to increase the volume of advanced, low-GHG renewable fuels— such as cellulosic biofuels— under the RFS program. EPA’s comprehensive analyses show significant lifecycle GHG emission reductions from these fuel types, as compared to the baseline gasoline or diesel fuel that they replace.

Lastly, the rule clarifies the definition of renewable diesel to explicitly include jet fuel. This clarification offers additional market certainty and opportunity for renewable diesel producers.

Rulemaking Process

EPA published a direct final rule and a parallel proposed rule in January 2012 to amend the RFS regulations, but subsequently received adverse comment on certain aspects of the direct final rule and in March 2012, EPA withdrew the direct final rule.

EPA commented: “The adverse comments we received centered on a few narrow aspects of the assumptions underlying the greenhouse gas (GHG) estimates of producing biofuel feedstocks, including camelina, energy cane, napier grass, giant reed and corn stover. These comments were based on a misinterpretation of our analysis.

“In this final rule, we provide additional clarification regarding our assumptions, and the underlying analysis remains unchanged from the proposed rule.

“Commenters also stated the direct final rule did not properly address issues related to control of invasive species. The information provided did not raise significant concerns about the threat of invasiveness and related GHG emissions for camelina and energy cane. Therefore, we are finalizing the camelina and energy cane pathways in this rule based on our lifecycle analysis.”

No joy for elephant grass and arundo

EPA commented: “We are not finalizing at this time determinations on biofuels produced from giant reed (Arundo donax) or napier grass (Pennisetum purpureum), or biodiesel produced from esterification. We continue to consider the issues concerning these proposals, and will make a final decision on them at a later time.”

Pathway Determinations

The final rule describes EPA’s analysis and determinations for the following new fuel pathways:

Camelina oil

• Biodiesel and renewable diesel (including jet fuel and heating oil)— qualifying as biomass-based diesel and advanced biofuel
• Naphtha and liquefied petroleum gas (LPG)— qualifying as advanced biofuel

Energy cane cellulosic biomass

• Ethanol, renewable diesel (including renewable jet fuel and heating oil), and naphtha— qualifying as cellulosic biofuel

Renewable gasoline and renewable gasoline blendstock

• Produced from crop residue, slash, pre-commercial thinnings, tree residue, annual cover crops, and cellulosic components of separated yard waste, separated food waste, and separated municipal solid waste (MSW)

• Using the following processes— all utilizing natural gas, biogas, and/or biomass as the only process energy sources— qualifying as cellulosic biofuel:

o Thermochemical pyrolysis
o Thermochemical gasification
o Biochemical direct fermentation
o Biochemical fermentation with catalytic upgrading
o Any other process that uses biogas and/or biomass as the only process energy sources

Winners and loserslogo[2].png

Well, clearly any venture woking with camelina or energy cane. But there’s some love in there for jet fuel, pyrolysis and a host of other processing technologies that had aimed at cellulosic biofuels.

It’s good news for KiOR, Inc. (KIOR) and Dynamic Fuels, too.

Losers? For the time being, it puts a kibosh on some of the plans at Beta Renewables to employ arundo donax as a feedstock for cellulosic biofuels.

The bottom line

It’s an incredible leap forward in terms of broadening opportunities to meet RFS targets with a broader range of feedstocks, conversion technologies and downstream products and by-products.

There are ever more way to earn RINs — although, suffice to say, it would have been more exciting if there had been go-to major projects that were immediate beneficiaries. Disclosure: None.
Jim Lane is editor and publisher  of Biofuels Digest and BioInvest Digest where this article was originally published. Biofuels Digest is the most widely read Biofuels daily read by 14,000+ organizations. Subscribe here.

February 26, 2013

While Others Seek to Inject CO2, Airgas Sells It

by Debra Fiakas CFA
airgas logo Just one of the many suppliers of industrial and commercial carbon dioxide, Airgas, Inc. (ARG:  NYSE) recently announced plans to build a new carbon dioxide plant in Houston.  The press release hit news wires right along with announcements of carbon capture projects and other investments to reduce greenhouse effect from too much CO2 in the atmosphere.

In one those strange twists that makes our world so interesting and vexing at the same time, is the fact that we use carbon dioxide all the while we invest wildly to reduce CO2 emissions.  An inert gas at normal temperature, carbon dioxide liquefies under high pressure.  Carbon dioxide is highly reactive, making it is a handy compound to a wide range of applications such as freezing food, treating alkaline water and facilitating oil recovery that wells.  It also finds its way into various products such as fire extinguishers.  It is used to de-caffeinate coffee and jazzes up carbonated beverages.   

Airgas claims a total of eleven plants for purification and liquefaction of carbon dioxide.  Much of the supply goes to Airgas’ dry ice facility also in Texas.  Airgas has struck an agreement with oil and gas exploration company Denbury Resources (DNR:  NYSE) to deliver raw carbon dioxide to the new Houston plant. The new plant replaces an older plant that is being shuttered this year after the principal supplier of raw carbon dioxide discontinued operations.

There are a variety of sources for carbon dioxide.  Besides the CO2 that you and I respire, CO2 results from the combustion of coal or other hydrocarbons.  Unfortunately, the concentration of CO2 in ambient air and in stack gases from simple combustion sources such as heaters, boilers, furnaces is not high enough to make carbon dioxide recovery commercially feasible.

Commercially-produced carbon dioxide is principally recovered from large-scale industrial plants which produce hydrogen or ammonia.  These sources typically use natural gas, coal or some other hydrocarbon for feedstock.   Another carbon dioxide source is large-volume fermentation processes in which plant products are made into ethanol. Breweries producing beer from various grain products are a traditional source. Corn-to-ethanol plants have been the most rapidly growing source of feed gas for CO2 recovery.  CO2 is also comingled with oil and gas deposits.

Denbury will be supplying raw carbon dioxide it brings up in its Gulf Coast gas wells.  The company claims ownership in every known producing CO2 well in the Gulf Coast region.  Denbury also owns CO2 producing wells in the Rocky Mountain region, where it simply re-injects the CO2 back into the geological formation.  With demand growing for "injection” CO2 to facilitate extraction of oil and gas from stubborn deposits, Denbury is planning a CO2 capture facility and pipeline at Riley Ridge in the Rocky Mountain region.  Denbury says it will require $70 million to complete the initial phase of the CO2 capture facilities at Riley Ridge.  The company expects to capture up to 13 million cubic feet per day of CO2.

The required investment for Denbury is a drop in the bucket compared to the hundreds of millions being spent to get CO2 back into the ground.  A recent forecast for CO2 prices starts at $0.75 per thousand cubic feet in 2015, and rises to approximately $4.00 per thousand cubic feet in 2030.  A separate feasibility study estimated that CO2 from industrial processes or power plants can be captured and transported approximately 100 miles at costs ranging between $1 and $3.50 per thousand cubic feet.  It is not hard to understand why carbon capture requires public support. 

Airgas trades at 17.5 times estimated earnings for 2013  -  a bit of a premium to the industrial chemicals sector.  A higher than average profit margin helps set the company apart from the crowd.  While Airgas is a major player, others in the industry have larger market share.  Debt-to-equity is 110.0% is nearly double the industry average.  After the recent run-up in the U.S. equity markets, Airgas appears fully valued.  A review of recent trading patterns suggests that Airgas is headed toward $113.00.  From the vantage point of the current price level, anyone considering a long position in the stock is well advised to accumulate shares judiciously.
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. 

February 25, 2013

Seven Green Stocks I Told My Sister to Buy

Tom Konrad CFA

Sister Guide Winds 2012 099.jpg
I guide my sister through the stock market, she guides me through the mountains.

An earlier version of his article was first published on the author's Forbes.com blog, Green Stocks on February 15th.  This version has been updated to reflect market action and news since then.

Earlier this week, I wrote about how my annual green stock trading advice had worked out for my sister and readers (well) and the two stocks where I thought she should take profits LSB Industries (NYSE:LXU) and Potlatch Corp (NYSE:PCH).)  I also promised a follow up article on my buy recommendations.  Here they are:

Ameresco, Inc. (NYSE:AMRC)

Current Price: $8.44

Suggested Limit Price: $9.20 (sister); $8.50 (readers)

Suggested Allocation: 21% (sister); 25% (readers)

Ameresco is a leading performance contracting company, meaning that they install energy efficient and renewable energy solutions for institutions and government entities which are paid for out of the institution’s energy budget, from the cost savings.  Ameresco disappointed investors with their guidance last quarter, largely due to the dysfunction in Washington.  Ameresco’s largest customer is the US government.

The stock has been trading down since.  On February 15th, Ameresco released an outlook for its Fiscal 2012 results, which will be released in  full on March 1st.  It said 2012 earnings should be even worse than previously expected, due to weather and fiscal uncertainty, yet Ameresco’s backlog is at a record high.  As expected, Q4 2012 was bad, but the next few years look good.  This “disappointment” has produced a buying opportunity which I don't expect to last.

 I’m more focused on the future than last quarter, and I expect that future to be bright.  In his State of the Union Address, Obama promised to take executive action to reduce carbon pollution and accelerate our transition to more sustainable sources of energy, unless congress acts to combat climate change. 

SOTU 2013.png

While Obama can't change legislation, he can require increased energy efficiency and use of renewable energy within the government itself.   And goverment entities rely on Ameresco and other performace contractors to fulfull just such mandates while staying within (and sometimes reducing) existing energy budgets.

Ameresco's 2012 results may be weak, but it can look forward to growing demand for its services from the Federal government (already its biggest customer) over the next four years.

Zoltek Companies (NASD:ZOLT)

zoltek logo.png

Current Price: $8.86

Suggested Limit Price: $7.50 (sister); $8 (readers)

Suggested Allocation: 21% (sister); 10% (readers)

Zoltek makes carbon fiber.  Their biggest market is currently large wind turbines, and their biggest customer Vestas (Copenhagen:VWS; OTC:VWDRY).  The extension of the Production Tax Credit extension should help the company this year, but the long term bullish reason to own this stock will come when auto manufacturers turn to carbon fiber to reduce vehicle weight and improve fuel efficiency, as they are likely to do over the next few years to meet increasingly stringent CAFE standards and EU emissions requirements.

Zoltek is the stock that led me to pick last week to send my sister her annual recommendations.  It was briefly trading below $8, and even fell below $7 for a day.  I did not think the opportunity would last.  Unfortunately, the window was shorter than I expected, and her limit order did not execute.  It probably won’t now, so I’m afraid we’re going to chalk this one up as “the one that got away.”  It could still fall back again, but I don’t expect it.   It’s still a good buy around $8, but not the screaming deal it was.  I’d suggest readers put in limit orders at $8, but for fewer shares.

Power REIT (NYSE:PW)pwlogo5[1].jpg

Current Price: $10.79

Suggested Limit Price: $10.75

Suggested Allocation: 18%

Power REIT is a tiny Real Estate Investment Trust which owns 112 miles of railway and is starting to invest in Real Estate under renewable energy farms.  The $0.40 (3.8%) annual dividend makes it a nice dividend stock for a long term hold in my sister’s conservative portfolio, but the company also has the potential for some incredible upside if they prevail  in an attempt to foreclose on the massively unfair lease of their track.  Details here.

US Geothermal (NYSE:HTM, TSX:GTH)

US Geothermal logo.png

Current Price: $0.32

Suggested Limit Price: $0.31

Suggested Allocation: 5%

US Geothermal is a geothermal project developer with projects in Nevada and Oregon.  Many of its plants have recently come on-line, so earnings growth over the next year is already built in.  Nevertheless, developing geothermal projects is a very risky business, so I was conservative on the limit price (there’s a good chance the order won’t execute) and kept the allocation small.

Canadian Stocks

I found out after I sent my sister her suggested trades that her broker does not let her trade Canadian stocks, even if they have a US OTC ticker, so my sister has not purchased any of these.  I won’t be including any Canadian stocks next year unless I can persuade her to open an account with a better broker.   But there’s no reason readers can’t benefit from this year's picks below.

Waterfurnace Renewable Energy (TSX:WFI, OTC:WFIFF)waterfurnace logo

Current Price: $17.07

Suggested Limit Price: $15.50

Suggested Allocation: 18%

Waterfurnace is a leading manufacturer of geothermal heat pumps.  A reliable dividend payer (C$0.96 annually) it’s a long time favorite of mine.  I traded as low as $14.90 in late January, but was already well above the limit price I gave her when I suggested buying to my sister.  Although I did not really expect the trade to go through, I would have been happy if it had.  This is one to watch long term and accumulate on any dips.

Finavera Wind Energy (TSXV:FVR, OTC:FNVRF)finavera_logo[1].gif

Current Price: $0.20

Suggested Limit Price: $.21

Suggested Allocation: 12%

Finavera Wind Energy is a wind project developer with a focus on the early stages.  The signed an agreement in December to sell almost all their current projects when those projects are ready to build (probably in the next 1-2 years) for a total of $40M.  According to my valuation, the stock would be worth C$0.77 a share if they succeed.  While nothing is certain, the stock is only trading at C$0.20 to C$0.21, which seems like an absolute bargain to me.  That’s why I told my sister to put such a large allocation into such a tiny stock.  Too bad she can’t buy it.

Alterra Power (TSX:AXY, OTC:MGMXF)

alterra logo

Current Price: $0.39

Suggested Limit Price: $0.41 (sister); $0.40 (readers)

Suggested Allocation: 5%

Like US Geothermal, Alterra is a renewable energy project developer and operator that seems currently undervalued.  Their assets are mostly geothermal, wind and run of river hydroelectric in the Western US, Iceland, and Chile.  The stock has been going nowhere recently, but could rise on the possible sale of a geothermal plant in Iceland or if the Phillipine utility Energy Development Corporation decides to move ahead with a partnership to develop Alterra’s South American assets.


Zoltek and Waterfurnace may have risen a bit far to buy now, but Ameresco is looking like a deal which may not last past their earnings announcement on March 1st.  Finavera still looks like a steal to me as well.   Power REIT, US Geothermal, and Alterra can also currently be bought at attractive prices.

I can’t real expect to produce the stunning returns I managed for my sister last year unless the clean energy sector as a whole takes off.  Yet that could easily happen with prices at their current depressed levels and the President's re-affirmation of his commitment to combat climate change in his State of the Union address.


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.

February 24, 2013

Two Green Stocks I Told My Sister to Sell

Tom Konrad CFA

Sister Guide Winds 2012 099.jpg
I guide my sister through the stock market, she guides me through the mountains.

Once a year, I give my sister stock trading advice.

Managing money is not her thing, so any more often and she’d likely lose interest, and not do anything.  With that constraint, I wait until there are a large number of stocks I think she should trade, and send he a list of trades, along with quantities and limit prices for her to enter “good ’til canceled.”

Last May, I told her to buy 10 green stocks, and wrote about the picks here. It’s been one of my most popular articles.  Even better, the picks have done spectacularly well.  As of Friday, February 8th, my sister had a 35% total return in nine months.  Readers who bought the stocks listed in the article with the suggested allocations had a 32% return over the same period.  Meanwhile, the S&P 500 has gained 16.6% and the Powershares Wilderhill Clean Energy ETF (NYSE:PBW) has gained only 8.6%.  I’ll explain the differences between my sister’s returns and those of readers below.

Last week, I gave her my recommendations for 2013.  I told her to sell two of her holdings and to buy seven other stocks.  I’ll also discuss the sells below, and I’ll write about the buys in a follow-up article.

Many Happy Returns

Sister Picks.png

Since I told her to enter limit orders, not all of my sister’s trades executed.  The red bars in the chart above represent her actual allocations to particular stocks.  In contrast, the blue bars are the target allocations I told readers to use.   The yellow bars are the returns my sister would have achieved if her orders had executed at the limit prices I gave her.  Some of her orders did not execute because her broker (USAA) does not accept trades for Toronto-listed stocks, others did not execute because the limit prices were never met.  I did not know that USAA would not let her trade Canadian stocks when I gave her my recommendations.

The green bars represent the total return from the closing price on May 22nd, the day the article was published.

One other difference is that I told my sister to buy Exide Technologies (NASD:XIDE) while I told readers to buy Waterfurnace Renewable Energy (TSX:WFI / OTC:WFIFF.)  This is because, after I sent the email to my sister, I decided Waterfurnace was a better pick for her conservative portfolio, since it pays a healthy dividend, while Exide is more of a turnaround play.  In the end, that made little difference, since she left a “0″ off the quantity when she was entering her limit order for Exide, and ended up owning only a trivial amount of the stock.  If I’d told her to buy Waterfurnace, she wouldn’t have gotten any of it, since it trades in Toronto.  Readers would have done better with Exide in these first nine months (with more risk), but that’s just hindsight.

Two Sells

I told her to sell Potlatch Corp (NYSE:PCH) at $44, and the order executed on Friday.  I like Potlatch because this timber REIT is a leader in sustainable forestry, but the price rise has dropped the annual yield from 4.2% last May to 2.8% today.  I consider that a bit low for a non-preferred dividend in a low-growth stock.

I also told her to sell LSB Industries (NYSE:LXU) at $42.  The order has not executed yet.  If it does not execute, I’m not particularly worried.  As I said when I included it in my article Six More Clean Energy Stocks for 2013, the main reason I’m getting out of this stock is that it has become a bit less green since the company bought a working shale gas interest as a hedge against its exposure to the price of natural gas.   I think the stock will probably rise a bit more this year, but it’s no longer nearly as undervalued as it was last May, or even when I wrote about it at the start of January.  [Update: This order has now executed.  Since LXU has fallen below $40, the sell is looking like a good call.]


Because I’m trying to build up her stock portfolio one year at a time, I have a bias towards having her hold stocks that she already owns, so I would not have told her to sell any of the other stocks in the list, even the ones she ended up not buying.  In my personal portfolio, I’ve sold covered calls on ABB Group (NYSE:ABB), as well as on Potlatch and LSB.  The calls on PCH and LSB look likely to be exercised and take me out of my positions unless the stocks decline before the options expire.

I’m holding on to all my other positions in the list.


My sister told me she’d be keeping me on as an advisor for another year.  I probably should have warned her that past performance is not a guarantee of future results.  It would be too much to expect to beat the market by over 15% for two years running.  Fortunately, I’m quite optimistic about the potential for clean energy stocks in 2013, and I suspect even matching the PBW’s returns this year will allow me to comfortably keep my “job” as her unpaid, informal, once-a-year advisor.  Perhaps more importantly, she’ll keep me from getting lost when we go on our annual backpacking trip next fall.

Stay Tuned

I also told her to buy seven stocks not already in her portfolio.  Stay tuned for an updated article this week.  [Or, since this is a reprint, you can see an earlier version here.]


This article was first published on the author's Forbes.com blog, Green Stocks on February 12th. 

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.

February 23, 2013

Air Products Goes Operational with Carbon Capture

by Debra Fiakas CFA
Air Products logo In October 2009, the U.S. Department of Energy selected a dozen projects aimed at bringing relief to a planet suffocating in a cloud of toxic carbon dioxide emissions. The DOE called the program it’s Large-Scale Industrial Carbon Capture Storage Projects and wrote checks for $575 million out of American Recovery and Reconstruction (ARRA) funds.  A little more than a year later the DOE weeded out all but three projects for the second phase of the program.  Besides Leucadia Energy (subsidiary of Leucadia National, LUK:  NYSE) and Archer Daniels Midland (ADM:  NYSE), the DOE tapped Air Products and Chemicals, Inc. (APD:  NYSE) to move forward with design and construction of their carbon capture schemes.

Like Praxair, Inc. (PX:  NYSE), which was profiled in the last post “Praxair’s Long Road to Carbon Capture,” Air Products is a supplier of industrial gases.  Oxygen appears to be a key requirement of carbon capture technology, and both suppliers are actively working to cultivate the market by pushing carbon capture demonstration projects.

For its part Air Products is to build a system to concentrate carbon dioxide (CO2) from two steam methane reformer (SMR) hydrogen production plants located in Port Arthur, Texas.  The two plants are being retrofitted with using vacuum swing adsorption (VSA) technology to separate CO2 from the gas streams coming out of the SMRs.  After capture the CO2 will be concentrated to 97% purity and shipped to the West Hasting oil and gas fields in Texas.  The CO2 will be injected in underground formations to help squeeze out so-called “shut in” oil in late-stage oil fields.  In January 2013, the DOE announced Air Products had gone fully operational in Port Arthur and declared the project a success.

Air Products estimates that as much as 90% of the CO2 can be removed from the gas stream and apparently in the initial weeks of operation the yield has been as much as 97%.  That is an impressive accomplishment, if it can be deployed widely across industrial and power generation sectors.  At what cost?

The Port Arthur project had a $430.0 million price tag, for which Air Products received $284.0 million in grant monies from the ARRA.  For the trouble, Air Products estimates that approximately 1.0 million metric tons of CO2 will get removed from the atmosphere and an incremental 1.6 million barrels of oil will result from the injection and storage stage.  At current West Texas crude prices the oil represents over $150 million in value.  Certainly, that justifies an attractive sales price for the CO2 concentrate.

From another angle, the two hydrogen plants in Texas represent less than 5% of hydrogen production capacity for refinery use in the U.S.  Thus if Air Products’ CO2 capture demonstration remains successful, there may be some chance to recover its investment with technology licenses or sales.

Calculation of that revenue might be akin to putting the cart before the horse. There is nothing new about the vacuum swing adsorption (VSA) technology that Air Products is relying on to tease out the carbon dioxide from the rest of the gas stream.  The adsorbents are special solids mixed to attract particular gases and act like a molecular sieve to adsorb the target gas  -  in this case CO2.  This takes place at ambient air temperatures and pressure.   After the CO2 is separated, the system “swings” to the vacuum phase where the adsorbents are regenerated.  VSA is already used in refineries, chemical plants and water treatment facilities to purify air, and to manufacture oxygen, nitrogen and hydrogen.

No matter how well established in applications for ordinary gases, VSA is only just now being proven effective for CO2 separation.  If it really works in practice, the VSA technology could overcome one of the many criticisms of carbon capture  -  prohibitively high cost.  Remember the process works at ambient temperature and pressure, which means that less energy is needed to start and run the gas separation step.  VSA systems also require less maintenance. Will VSA economy be enough to make economically feasible to layer this added equipment onto the normal costs of running the hydrogen plant?

Air Products reported $9.9 billion in total sales in the last twelve months, providing $1.1 billion in net income.  That measured out to $5.59 per share.  Those impressive numbers and not some unproven, but politically popular carbon capture project are what drive Air Products shares.  The company pays out as much as 46% of net income and over the next year shareholders expect to get $2.56 per share in dividends.  Based on the stock price at the time of this post the forward dividend yield was 2.9%.  Add that to the average projected growth rate of 9% and shareholders have quite a bit to look forward to in Air Products shares.  That said, the stock is trading at 13.8 times earnings expected next year, suggesting the stock is fully priced.
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. 

February 22, 2013

Earnings Season: Heading to the Biobased Scorecard

Jim Lane

harbourtown[1].jpeg Earnings season is upon us — time to go, as they say, to the scoreboard for an update on some of the sector’s perennial favorites.

GPRE earning, DSM acquiring, AMRS shipping — some welcome pars, even a birdie or two, from the front-lines.

Now, the ethanol sector has been going through one of its periodic rough patches in recent months — in this case, courtesy of the dire US drought last year which has forced up corn prices and tightened inventories. A number of ethanol plants have tumbled into the red, or shut down production entirely until corn and ethanol prices become better aligned.

First up to bat: Green Plains Renewable Energy

So, it was surprising news when Green Plains Renewable Enegy (GPRE) came out with positive earnings for the 4th quarter and the year as a whole.

Net income attributable to Green Plains for the full year of 2012 was $11.8M, compared to net income of $38.4M in 2011. Revenues were $3.5B for 2012 compared to $3.6B in 2011. For Q4, net income was $33.0M, compared to $13.3M in 2011. Revenues were $883.7M for Q4 compared to $922.8M for Q4 2011.

“All of our business segments reported positive operating income during both the fourth quarter and the last half of 2012,” said CEO Todd Becker. “We ended 2012 with $280 million in cash and the lowest ethanol plant debt in our history. This positions us for the future to take advantage of growth and diversification opportunities and to continue to withstand the cyclicality of our business.”

The strong earnings earned high marks from investors. Overall, shares jumped from a closing low of $7.59 on January 30, to $9.90 at the closing bell on Valentine’s Day before settling back to $9.88 at yesterday’s close. A very impressive 30% leap — and an upgrade from TheStreet Ratings (from sell to hold).

Looking at the company’s longer range future, news continues to be positive in GPRE’s BioProcess Algae venture. The start-up initiated and completed construction of Phase III Grower HarvesterTM reactors in Shenandoah, Iowa. Construction of Phase IV, involving an additional 4.25 acres of reactors and a new downstream processing facility, has begun with completion expected in September 2013.

The upside there is to convert the low-value CO2 byproduct at the conpany’s Shenandoah plant to a feedstock for a high-value algae venture in producing feed, nutraceuticals and fuels. A Bioseutica deal for Omega-3 oils is a first step in monetizing that project.

It’s proof positive, GPRE’s results that is, that lean times in corn do not necessarily have to translate into disaster at the earnings call. Investors who bought in during the company’s long run at the $10-$12 range may not have received satisfaction — both those who took the plunge when the company’s shares were trading at $3.57 back just 6 months ago are pocketing large gains.

Over to Amyris

Next on the docket — Amyris, Inc. (AMRS) reported in yesterday with its Q4 and year-end results.

Overall, aggregate revenues for the quarter ended December 31, 2012 were $5.9 million versus $41.5 million in the fourth quarter of 2011. The decline in revenue was due to the Company’s planned transition out of the ethanol and ethanol-blended gasoline business, which was completed in the third quarter of 2012.

Of the $5.9 million in aggregate revenues during the quarter ended December 31, 2012, $3.0 million related to renewable product sales compared to $0.7 million for the same period in the prior year.

On a non-GAAP basis net loss attributable to common stockholders was $29.7 million compared to $52.8 million ($1.15 per share) in 2011.

For the year as a whole, 2012 revenues were $73.7 million versus $147.0 million for 2011. On a non-GAAP basis, the net loss for 2012 was $131.8 million ($2.32 per share) compared to $153.4 million ($3.42 per share) in the prior year.

“In the final quarter of 2012, we completed commissioning and began commercial production of our industrial-scale farnesene production plant in Brazil. Also, we secured additional capital from some of our largest shareholders,” said John Melo, President & CEO of Amyris. “Amyris is focused on continued execution of our business strategy with the goal of achieving positive cash flow in 2014, underpinned by a reduced operating expense profile, strong product and collaboration revenues, and ongoing support from our investors,” Melo concluded.

Over at Cowen & Company, Rob Stone wrote: The Q4:12 cash loss was 20% wider than St. on lower revenue, weak mix, and higher expenses. Product and collaboration revenue both fell short of our estimates. Squalane and niche diesel are still the only products shipping; others should follow in H2:13. Despite the recent financing, only about 50% of expected 2013 collaboration funding is firm. Maintain Neutral (2).

Over at Piper Jaffray, Mike Ritzenthaler wrote:

“We maintain our Neutral rating and $3 target on shares of AMRS following their 4Q GAAP print of ($0.72) in loss per share, below our estimate of ($0.55). Gross margins on farnesene again appeared to be above zero, and $3 million in product sales were about half of the total 4Q revenues. Management’s focus continues to be on reducing costs, but with ~$30 million of burn in 4Q, cash availability remains a central tenet of the Amyris story. The Paraiso startup and new potential volumes are promising steps in the right direction, but with $30 million in cash on hand and ~$85 million in burn on tap for 2013, we remain on the sidelines.”

The stock is on a run in recent weeks — running up over $4.00 per share briefly, prompting a technical downgrade from Raymond James after shares shot up 60% in a month and overshot the RJ’s price targets. Since then, the buyer jets have cooled somewhat and the stock has settled back to $3.13 this morning after taking an 8% hit following the earnings announcement.

But, by any measure, miles better than the $1.57 low that AMRS shares reached after a steep slide last spring when the company’s ramp-up targets were abandoned due to technical problems in scale-up.

Over to DSM

This morning, Koninklijke DSM NV (DSM.AS) reported €243 million in EBITDA for Q4, with the company noting that this result came despite a €100 million lower contribution from its caprolactam activities compared to Q4 2011. For the full year EBITDA amounted to €1,109 million, 14% lower compared to 2011. Profit growth in all clusters was more than offset by approximately €300 million lower results from DSM’s caprolactam activities in Polymer Intermediates and Performance Materials.

Nutrition results in Q4 increased by 6% versus Q4 2011 and full year results increased by 8%, as a result of contributions from acquisitions and continued organic growth.

Pharma results in Q4 as well as for the full year 2012 were slightly above the level of the comparative periods of 2011.

Performance Materials recorded 21% higher EBITDA in Q4 compared to Q4 2011 due to higher volumes, improved margins and lower costs. Full year EBITDA was 4% lower due to lower margins in the polyamide-6 value chain (caprolactam effect) and lower volumes at DSM Dyneema.

In early trading, NYSE-traded shares in Royal DSM were up to $15.78, nestled quite close to an 18-month high (the stock briefly touched $16.00 in late January). DSM has not hit the $18 mark in the past five years — is the company poised to make a strong run in 2013, after dipping to as low as $10.83 in mid-summer. Certainly, the company has been active in M&A, most recently acquiring enzyme-related businesses from Cargill.

The Bottom Line

For all three reporting stocks — the companies have recovered strongly from share price jitters in the past year. Intrepid investors have been making large returns in all three stocks over the past few months. Each of the three issued relatively bullish outlooks for their development efforts — more cautious on the short-term economics and earnings.

But a whale of a lot batter than seven months ago — when scale-up concerns, drought concerns and capital-finding woes had tumbled shares associated with advanced bioenergy and renewable chemicals into the tank.

Disclosure: None.

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

February 21, 2013

The Catholic Church Shouldn't be Investing in Abortion Clinics

Tom Konrad CFA

Jesus Saves, but where does he invest?
Photo via Bigstock.

This article is not about the Church, or abortion.  As far as I know, the former does not invest in the latter.

This article is about investing, and morality.

Since 350.org began its campaign to get endowments and pensions to divest from fossil fuels, I've heard two basic criticisms of the movement from my colleagues in the investment management profession.

  • Endowments selling their fossil fuel investments won't stop us from using fossil fuels.
  • Morality has no place in investment decision making.

Both these arguments fail to pass the sniff test, and the point of my title and subtitle were show their failings in a stark light to those who don't necessarily agree with the need to transition away from fossil fuels.

The Effectiveness of Divestment

Starting with the first argument, that divestment will not be effective at combating climate change.  While there may be some question about the effectiveness of divestment, its effectiveness or ineffectiveness is beside the point.  If you doubt me, try to imagine trying to persuade His Holiness the Pope that the Church investing in abortion clinics would be all right, since abortions would continue to be performed with our without the Church's money.  You may not agree with the Pope's stance on abortion, but I'm sure you'll agree that you'd be unlikely to get out of that conversation without having to say more than a few Hail Marys.

Since the Church's stance on abortion is a moral one, the effectiveness of abortion divestment is irrelevant compared to the hypocrisy of any such investments.  As is the hypocrisy of institutions whose mission is to ensure our future well-being when they invest in companies which undermine that well being.

Morality and Investing

The second argument, that morality has no place in investment decisions, is equally specious.  Just ask His Holiness (assuming you still have a voice left, after all the Hail Marys.)  If you think this only applies to religious institutions, consider the following investment:

You are traveling in a country where murder is perfectly legal on Fridays.  A trustworthy man of your acquaintance has been hired to feed a dozen children to starving lions for the amusement of his wealthy patron, for which he will be paid $100,000.  Unfortunately (for him, if not for the children), your acquaintance lacks the funds to acquire the necessary starving lions, and he turns to you.  If you invest the $10,000 he needs to purchase the lions today, and he will repay you with half of his fee ($50,000) after he is paid next week.  In order to emphasize the moral aspects of the investment, we are assuming that all this is perfectly legal, and, because of both your acquaintance's reputation and the legal documents which have been drawn up, you have no doubt you will be paid.   As an investment, feeding children to hungry lions would be rock solid,  and would result in a five-fold return on your investment in less than a week.

Low risk, high reward: Sounds like a great investment. Except for the feeding children to lions part. You wouldn't have to be religious to want to avoid this lion-feeding investment.


There are still valid arguments that Endowments and other such institutional investors should continue to invest in fossil fuels.  If it it is their considered belief that the profits from such investments can be used to more than offset the harm done by those investments, then they might consider it moral to invest anyway.  Yet even this decision would be morally questionable.  Is it right to feed a dozen children to starving lions, even if the funds will be used to save two dozen children from similar fates?

In any case, this is not an argument that morality has no place in investing.  Rather, it is about what is the best way to serve the institution's mission.  In short, it is about taking a moral stance with investments, both the institutions' and our own.

Is there a cost to investing with out morals?  Perhaps.  There is also the possibility of financial gain.  If governments ever decide to get serious about climate change, they will take actions which make it less profitable to extract and burn fossil fuels.  Less profitable operations would hurt the stock prices of such companies.  That's why oil and coal companies are so adamant about opposing any sort of climate legislation.  Companies which provide alternatives to fossil fuels, or enable us to use less of it will benefit from the same legislation.

When regulators enforce regulations which reflect a moral principal, moral investors will benefit, and amoral investors will be hurt.  This brings us to another reason to apply our morality to our investment decisions: it aligns our financial interests with what we know to be right.  In a democratic society, this frees us to push our lawmakers to act in a moral fashion, without having to worry that the reforms we are pushing for will harm our financial interests.

There may or may not be a cost to investing in fossil fuels, and divesting from fossil fuels will not stop the economy running on them.  But if you believe that burning fossil fuels is harming our current and unborn children, why are you investing in them? And why is your college or pension fund?

Update: Although this article was published at shortly after Pope Benedict XVI announced his resignation, it was written before the news came out, and has nothing to do with the resignation, which was apparently due to poor health.

This article was first published on the author's Forbes.com blog, Green Stocks on February 11th.  Forbes' editors felt the headline would be offensive to some, and a reworked version is now posted here.

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.

February 20, 2013

China: The Rise of the Global New Energy Scavenger

Doug Young

King Vulture Sarcoramphus papa. Photo by Hein waschefort via Wikimedia Commons.
New reports that major car maker Dongfeng Motor (HKEx: 489) is bidding to buy a struggling US hybrid car maker are casting a spotlight on China's emerging role as scavenger for global new energy companies struggling to stay in business. A number of factors are driving this budding trend, led by the fact that many of these Chinese suitors are relatively cash rich and in a good position to provide much-needed funds for cash-starved western new energy firms.

What's more Chinese firms in general love a bargain when they shop for global assets. Then there's also the technology factor, as many of these Chinese buyers are hoping to bring some of the technology they get from their purchases to their operations back home. Lastly there's also the Beijing factor, as many of these buyers are making such purchases to show their commitment to developing new energy technologies, a top priority for the central government. Of course, the only problem in all of this is that most of these factors have little or no foundation in running a commercially viable business, meaning many of these purchases are ultimately likely to result in headaches and quite possibly failure for their buyers.

But now that I've said all that, let's take a look at the latest headlines, which say that Dongfeng is one of several potential bidders for Fisker Automotive, a US maker of high-end hybrid cars. (English article) Dongfeng's bid would see it pay about $350 million for 85 percent of Fisker, whose luxury hybrid cars sell for more than $100,000 each. Fisker was forced to halt production of its Karma model car last year after one of its key suppliers declared bankruptcy, but has said more recently that it plans to restart production soon.

According to the reports, Fisker will face its own cash crunch around the middle of this year if it doesn't find a new big investor by then. If Dongfeng succeeds in buying the stake, it could eventually move some of Fisker's production to China -- a common strategy by Chinese buyers who often think they can fix troubled western companies simply by moving their manufacturing operations to China.

This latest deal follows a series of similar recent Chinese purchases of struggling western new energy firms over the last year. The latest of those deals saw China's Wanxiang Group recently win approval to purchase most of the assets of bankrupt high-tech battery maker A123 Systems. (previous post) That deal previously faced some uncertainty due to national security concerns, but the US government ultimately approved the transaction last month.

Last year also saw a number of Chinese companies make global acquisitions in the solar panel sector, which has been struggling for the last 2 years due to a massive supply glut. Chinese firms Hanergy Holding Group reached a deal last fall to buy struggling Silicon Valley company MiaSole for a bargain price. (previous post) Hanergy also made an acquisition in Germany, buying a unit of QCells for about $500 million. Other deals saw LDK Solar (NYSE: LDK) buy 33 percent of Germany's Sunways AG last year, and TFG Radiant Group buy a 41 percent stake in US firm Ascent Solar Technologies (ASTI) in 2011.

This latest Dongfeng bid for Fisker shows the Chinese appetite for western new energy firms is still strong, and could even accelerate in 2013 for many of the reasons that I described above. These kinds of deals are important in one sense, because they will help to drive consolidation in crowded sectors like solar panels that are suffering from overcapacity.

But as I've already said, I do believe that many of these purchases are destined for difficulties and failure because the Chinese companies lack the resources and experience to turn around the troubled assets they are buying. From a broader perspective, look for more of these purchases in the next 2 years by bargain-seeking Chinese companies, followed by the first signs of trouble for many of these acquisitions starting by the end of this year or even sooner.

Bottom line: Dongfeng Motor's purchase of a struggling US hybrid automaker reflects China's growing appetite for western new energy firms, which is likely to accelerate this 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 .

February 19, 2013

The Dew Drop Inn — Who’s Dropping in What in Biofuels?

Jim Lane

Dew Drop Inn, Hathern
© Copyright Chris J Dixon and licensed for reuse under this Creative Commons Licence.

B20, B5, B100, E10, E22, E85, Bu12.5, HEFA 50

Is your head swimming with acronyms and blend ratios? Who exactly is making drop-in fuels, and what does that mean?

“Drop-in” — a spectrum more than a spec when it comes to renewable fuels.

In the world of alternative fuels and transport, there are two types of technologies that are highly controversial:

1. Specifically to biofuels, fuels made (exclusively) from feedstocks that are also used for food production.

2. In every alt transport sector, infrastructure-incompatible fuels or engine technologies.

While fuel or vehicle cost impact is a huge factor in adoption, much of the squabble over the US Renewable Fuel Standard, for example, has to do with how ethanol matches up with the existing vehicle fleet and fuel transport infrastructure.

The fact that Brazil solved a lot of those challenges, years ago, is one of the reasons why major petroleum producers like BP, Shell and Petrobras are diving into Brazilian ethanol while refiners in the US have been, by and large, tepid in their support.

Meanwhile, in the US producers have reached the distribution wall imposed by E10 blend limits; E15 blending is early-stage and controversial; for higher blends, there’s an acute shortage of pumps, and E85 prices aren’t tempting many customers.

But the controversy over infrastructure extends well beyond ethanol. Biodiesel producers have worked hard to move accepted blend ratios beyond B5 towards B20 and eventually B100. For compressed natural gas (CNG), there are only around 500 pumps in the country; for liquified natural gas (LNG), there are only around 40, and most of those in one state (California). Battery-electric vehicles struggle with recharge facility availabilities and charge-time.

Over to drop-ins

Which brings us to the drop-in fuels.

These are, by definition, infrastructure-compatible fuels — although, as we shall see, fuels form a spectrum and there really isn’t a simple “wall” dividing incompatible fuels and drop-ins.

Generally around the world, fuels are blended by refiners – who add anything from oxygenates to detergents — and for the foreseeable future, expect to live in a world of blends.

So, here’s a guide to the world of drop-ins and dropping in.

1. Drop-in intermediates for petroleum refineries.

These are feedstocks that can “drop into” existing refining capacity and can be used to make infrastructure-compatible fuels. These can include, for example, upgraded pyrolysis oils of the type that KiOR (KIOR) makes. For now, KiOR is upgrading at its own facility to demonstrate that it can make 100% drop-in, finished fuels — but they could, long-term, position themselves as a supplier of intermediates to conventional refiners.

These also can include renewable oils which can be “dropped into” a hydrotreating unit to make HEFA jet fuels, which are now certified for use in commercial aviation at 50/50 blends with conventional jet fuels.

2. Drop-in intermediates for biorefineries.

These are, for example, renewable sugars that can be dropped in to fermentation systems and used to make, for example, cellulosic sugars at an old corn ethanol plant; or, synthetic biology technologies of the LS9, Amyris (AMRS) or Solazyme (SZYM) type can use them to make a range of tailored drop-in fuels and chemicals including diesel and jet. Catalytic technologies of the Virent type can also convert them into renewable diesel or jet — as well as chemicals.

The renewable sugars can be made from a variety of non-food feedstocks — and Proterro is making them via synthetic biology directly from water, CO2 and nutrients.

Renewable sugars developers include Renmatix, Virdia, Sweetwater Energy, Comet Biorefining, Proterro, and Bluefire Renewables (BFRE).

3. Drop-in gasoline, diesel and jet fuels.

Companies like Diamond Green Diesel, Dynamic Fuels and Neste Oil (NEF.F) have built or are constructing, in biofuels terms, large-scale refineries to convert biobased oils to diesel fuel via hydrotreating. These can be blended by refiners or used as a 100% drop-in replacement. And, these providers can also produce renewable jet fuel at their plants.

In addition, there are the above-mentioned diesel and jet fuels made by the likes of LS9, Amyris, Virent from renewable sugars. The jet fuels are generally of the HFA spec, that can be blended in 50/50 ratios with conventional jet fuels.

Coming along in the development pipeline, there is the technology developed by Chevron Lummus and ARA – that makes a 100% drop-in jet fuel from renewable feedstocks. There has also been research in making jet fuel from biobased terpenes — and these could have enough fuel density to be used as a 100% drop-in replacement for JP-10 fuels, which are used for selected high-performance technologies like guided missiles.

4. Butanol

Companies like Butamax, Gevo (GEVO), Cobalt and Green Biologics are developing biobased isobutanol(Butamax, Gevo) and n-butanol (Green Biologics, Cobalt).

Isobutanol is case in point when we talk about “drop-in” being a spectrum rather than a spec. It is fully compatible with fuel infrastructure – e,g, tanks and pipelines and vehicle tanks and fuel lines. In terms of engine performance, it blends in at up to 60 percent with no loss in performance. However, EPA rules on emissions limit biobutanol right now to 16 percent blends (as a maximum – DuPont (DD) earned a waiver some time ago at that level) or 12.5 percent (generally). There is hope that biobutanol waivers could be issued by EPA for up to 24 percent blends in the future — but that is a ways off.

Of course, for those comparing butanol to ethanol, it’s also worth noting that a gallon of isobutanol has the energy density of 1.3 gallons of ethanol. So, you can travel roughly 50 percent farther on the renewable molecules in a 16 percent biobutanol blend than a 10 percent ethanol blend.

5. Biodiesel

A lot of people regard biodiesel as a drop-in fuel — and it's true, there are vehicles out there running on B100 today. Generally, though, B20 is the maximum blend for which carmakers will not void a warranty, today, and a lot of vehicle models are still only approved for B5. That’s changing – slowly.

At the same time, biodiesel has some infrastructure incompatibility when it comes to pipelines — it can’t be mixed, not one drop, with jet fuel.

6. Ethanol

Now, there are E100 cars in Brazil, and there are ethanol pipelines there, too. So, for that reason, sometimes you hear about ethanol being described as a drop-in fuel. Which is to say, it drops-in to some cars and infrastructure, but far from all.

In the US, ethanol is not compatible with pipelines, and requires its own special tanks and equipment because it corrodes conventional fuel storage.

With vehicles, it depends. Cars made since 1995 tolerate E10 ethanol blends. Cars made since 2001 tolerate E15 blends. Plus, there are more than 10 million “flex-fuel” vehicles that can drive on blends up to E85. Of course, there’s the problem with pumps — very few E15 pumps out there, and only about 3,000 E85 stations compared to well over 100,000 conventional fuel outlets.

Who’s Making What?

In the chart below, we look at the 50 Hottest Companies in Bioenergy to see exactly who is making what, and what progress they have made towards commercial-scale.

6 companies are excluded because they made the Hot 50 as feedstock developers (e,g, seeds and crops) or as downstream strategic partners. Of the remaining 44, eight make renewable sugars, yeasts or enzymes — these do drop-in at biorefineries, but are outside of the “fuels” category.

Of the remaining 36, 18 make ethanol, 2 make biobutanol, 3 make biodiesel, and 13 make high-blend or 100% drop-in replacements.

Of the 13, eight have completed scale-up demonstrations of the technology and are developing first commercial projects, one is constructing a first commercial facility, two have completed small commercial plants and two are operating (Neste and Dynamic Fuels) full-scale commercial biorefineries.

That’s a lot of progress. Six years ago, none of the 13 were operating at anything larger than pilot-scale – at least four were still at lab-scale.

Interest in companies with drop-in capabilities remains intense. Of the 13 companies in the Hot 50, eight of them are found in the top 16, and they currently hold the top two positions (Solazyme and KiOR).

The Digest’s 3-Minute Drop-In Guide


Disclosure: None.

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

February 18, 2013

Praxair's Long Road to Capturing Carbon

by Debra Fiakas CFA
Praxair-Logo-20percent[1].gifIn 2007, industrial gas supplier Praxair (PX:  NYSE) teamed up with power plant equipment dealer Foster Wheeler (FSLT:  Nadaq) to work on demonstration projects for cleaning up coal-fired electric generating plants.  At first the duo planned to pursue clean coal technologies and oxygenated coal combustion systems.  The joint press release at the time indicated Praxair’s “oxy-coal’ technology would be applied to Foster Wheeler’s ‘circulating fluidized-bed steam generators.’  The oxycombustion process is one of several proposed methods to capture carbon dioxide from coal-fired power plants. In a retrofit situation, pure oxygen would replace air required for combustion, and the oxygen would likely be supplied via a cryogenic air separation unit.  Praxair was to provide the upstream oxygen supply and the downstream carbon dioxide capture and gas processing technologies.

A year later, in August 2008, Praxair seized on a U.S. Department of Energy program supporting clean coal technologies.  This time Praxair was locked arm-in-arm with the Jamestown Oxy-Coal Alliance to demonstrate the capture of carbon dioxide emissions from coal-fired power plants.  Praxair was trying to develop a process configuration for integrating ‘oxygen transport membranes’ in the power generation process at coal-fired power plants.

Subsequently Praxair received $1.2 million in funds from the American Recovery & Reinvestment Act in 2009, to demonstrate carbon capture and sequestration from a hydrogen production facility in oil refinery.  The project has been reported as complete, but Praxair has been somewhat circumspect on actual results.

Then in September 2010, the DOE cut a bigger check for $35 million for the oxy-combustion project.  The grant was one of a long list for industrial carbon capture projects.  In total the DOE pledged $575.5 million to carbon capture.  The Jamestown project has been soundly criticized as ill advised because of high costs for oxygen production, compression of carbon dioxide to liquid and pumping to and injection in the storage site.  Some estimated a permanent government subsidy would be necessary to keep the project going.  The DOE was undeterred. A key promise in Praxair’s oxygen transport membranes is efficiency, resulting in a 75% reduction the costs for in oxygen production.

Praxair’s perseverance in carbon capture is remarkable.  This is especially more the case since Praxair is also one of the world’s largest producers of carbon dioxide in box liquid and gas form.  Yes, Praxair sells carbon dioxide for everything from carbonating beverages to helping loosening up gas deposits.

A stake in Praxair is more a stake in carbon production than carbon capture.  Praxair trades near 20 times trailing earnings, which totaled $1.7 billion in the most recently reported twelve months.  Revenue was $11.2 billion.  Even with a 2.2% dividend yield that valuation seems a bit pricey given that the consensus estimate for annual earnings growth is only 12.0% over the next five years.  The company is not among our usual small-cap fare, but I have to think that Praxair is going to be a leader in carbon capture it is coming about.  The required technology appears to be challenging, but when a fix is found, it will benefit from a very large market opportunity represented by coal-fired power plants the world over.    
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. 

February 15, 2013

GE Snatches Wind Installation Crown from Vestas

James Montgomery

Offshore Wind Farm photo via Bigstock.
Preliminary rankings of global wind installation capacity show something not seen in 12 years: longtime market leader Vestas looking up at someone else.

BTM Consult, a division within Navigant's Global Energy Practice, says General Electric (NYSE:GE) installed more wind turbine MW capacity than any other original equipment manufacturer (OEMs) in 2012. While not offering specific numbers, Aris Karcanias, senior analyst with BTM, acknowledged that it was "a clear win" for GE, and "not a difference of 50 megawatts)," though also "not a landslide."

The full report isn't due until late March, but here's a quick look at BTM's preliminary rankings:

  • GE Wind: Was No. 3 in 2011. Three-quarters of its business is in the surging US market.
  • Vestas (OTC:VWDRY): Was No.1 since 2000.
  • Siemens (NYSE:SI): Moving up from ninth. Partly thanks to US exposure, partly to dominance in offshore wind.
  • Enercon: Up one spot from fifth. Especially strong in its home market (Germany); also has good presence in markets outside the US and China.
  • Suzlon Group (Bombay:SUZLON): Up one spot from sixth, thanks to its REPower subsidiary.
  • Other top 10: Chinese OEMs Goldwind (was No. 2 in 2011), Guodian United Power, Sinovel (Shanghai:601558), and Mingyang (NYSE:MY) are in the top 10, but Sinovel is barely hanging onto that grouping. Gamesa (OTC:GCTAF), another former top-5 wind turbine OEM, is weighed down by reliance upon China and a FiT moratorium in its home Spanish market.
The change at the top of the rankings carries some importance because of Vestas' longtime position of market leadership, particularly amid the past few years of turmoil. "Vestas has always been the one to catch," points out Karcanias -- even while also being at the front of the pack in feeling growing pains following the financial crisis.

GE's success can be attributed almost entirely to the robust US wind market, where roughly 13 gigawatts (GW) was installed in 2012 amid a mad rush to get wind projects completed ahead of the expiring production tax credit (PTC). As much as three-quarters of GE's 2012 installed capacity was domestic, which boosted its business relative to its more international competitors, according to Karcanias.

Such reliance upon a single market is a double-edged sword. The PTC's renewal could very well cause another rush in the US later this year, but even GE admits it likely will be nowhere near last year's wind capacity surge. Many firms are awaiting clearer definition of "continual construction" as a key metric for PTC qualification; "there is very little spillover, very little construction at present," he said. That means GE, despite making inroads into other markets e.g. Latin America, likely won't have the same bump in business in 2013, while wind OEMs with a more distributed portfolio (Vestas, Siemens) might fare better. A 2013 return to the top for Vestas could very well happen, Karcanias said.

Other trends being gleaned from BTM's forthcoming report:

- Policy uncertainty weighs down many key markets: the US, Europe (Spain, Italy, France, Portugal, the UK), and Asia (India, Australia, Japan). Even so, 2012 showed record global installations, with the U.S. and China accounting for 60 percent of the global market for wind power.

- Delayed payments from utilities to power producers in India (up to 14 months) and China (up to two years) are tightening cash flow throughout the wind turbine value chain.

- There's a lack of transmission buildout, both land-based (China, Brazil, Mexico, Germany, US) and offshore (Germany). The big question: who's ultimately responsible for the buildout -- is it a state-level or national regulatory issue? This won't be answered quickly, and will cost a lot of money.

- Capacity factor improvements are pushing down wind's levelized cost of energy (LCOE), but new shale gas extraction methods are lowering the bar for natural gas too, so the generation cost comparison for wind power isn't as compelling. Karcanias suggests grid parity for wind might occur around 2017, but offshore wind is "still a long way from being cost-competitive."
Jim Montgomery is Associate Editor for RenewableEnergyWorld.com, covering the solar and wind beats. He previously was news editor for Solid State Technology and Photovoltaics World, and has covered semiconductor manufacturing and related industries, renewable energy and industrial lasers since 2003. His work has earned both internal awards and an Azbee Award from the American Society of Business Press Editors. Jim has 15 years of experience in producing websites and e-Newsletters in various technology.

This article was first published on RenewableEnergyWorld.com, and is reprinted with permission.

February 14, 2013

Western Wind & Brookfield: Time To Declare Victory and Go Home

Tom Konrad CFA

Western Wind logo.png Yesterday, I tendered my shares of Western Wind Energy (TSX-V:WND, OTC:WNDEF) to Brookfield Renewable Energy Partners' (TSX:BEP.UN, OTC: BRPFF) extended offer for Western Wind at C$2.60 a share.  This is despite the fact that I think (and was even quoted in a Western Wind press release) saying Western Wind is worth more than C$2.60.

Two things have changed.  After conversations with other investors, Western Wind CEO Jeff Ciachurski, and a representative of Brookfield, as well as reading some evidence of extremely bad governance in Western Wind's Q3 2012 filing, I no longer think that Western Wind's management or board are committed to the sale process.  If there is another bidder willing to offer more than C$2.60 a share, I don't have confidence that the directors will present it to shareholders.  On September 20, Western Wind issued a press release, signed by all five directors, where they committed to the sale process.  They said, "The highest bid will not be denied and regardless of market conditions, the highest bid will be forwarded to the shareholders, for their approval."

C$2.60 is the highest bid, yet the directors are recommending we reject it.  It does not build confidence.

I went into a lot more details as to why I don't think we'll see a higher bid and why we should tender our shares in an article on Forbes yesterday.  Here are the basic points:
  1. While there may be potential bidders willing to pay over C$2.60 per share, none are willing to pay C$3 or more.
  2. Ciachurski and the board have already paid themselves the change of control bonus for selling the company, and no longer have that incentive to sell.
  3. Bringing the Yabucoa project to financial close will not add significant value for potential bidders.
  4. If the Brookfield’s offer expires unsuccessfully, WND will decline significantly in the short term.
  5. Ciachurski has a habit of alienating possible buyers.  This reduces the potential pool of bidders, and lowers the price that shareholders can expect for their stock.
  6. Brookfield is very close to succeeding; the readers of this article are likely to make the difference.
The title of this article comes from my conclusion:
It’s not as if I or most of my readers are selling at a loss.  Since I started writing about the company shortly before the Algonquin bid in 2011, Western Wind has traded mostly in the $1 to $2 range, so we’re all looking at gains between 25% and 100%.  It’s time to declare victory and go home.
You can read the details here.

You'll note that point 5 above was that Ciachurski has a habit of alienating possible buyers.  It's not just buyers he goes after... it's anyone who gets in his way.  Here's an email he sent me this morning, in response to the Forbes piece.
Hi Tom,

I read your news blast today.  I have no problem with your desire to do what you want with your stock I do find the reasoning to border on stupidity.
Do to your conclusions, I am certain your lack of knowledge is the reason you have a very few followers.  I should of done my DD on you first, but now I know why you have no followers.

I do not have the time to respond to anywhere near you babbling comments, but a few come to mind.

1)  AQN [Algonquin Power and Utilities (TSX:AQN, OTC:AQUNF)] and BEP are the largest pure play renewable energy players in NA.  reality check - AQN has a huge portfolio of fossil fuel generating assets, clearly making you a moron when it comes to research and knowledge.

2) I can take my money and invest in FVR.[Finavera Wind Energy (TSXV:FVR, OTC:FNVRF)] reality check - FVR has no production, has been rolled back 10 for 1 and is down 1000% in three years.  FVR has no production or decent revenues.  Looks like you need the public to bail out your position.

3) I am getting paid bonuses not to sell the company - Tom, I could sue you until you are in the poor house for this serious defamation and lies. You printed this now it is easy to sue you.

4) By having low dilution and therefore low equity into our projects our project loans are higher. -  You have exceeded the moron threshold by a factor of 500%.  Our project loans are the lowest in the industry. In fact triple AAA banks that we use could NEVER charge more interest. This would imply more risk which no A rated bank will take on.

5) I do not care what Brookfield did in Brazil, I just want their Canadian dollars - really - yet you published a defaming article about myself last year and now you lie about the WSJ article.  It said many people were indicted and Brookfield hire an armoured truck to carry the pay off bribes.

Anyhow, the 39% like you who have tendered have weakened the case for the 61% who want more dough.

I hope you are aware that I can use unlimited funds to sue you for your defamation. In addition to defamation you have displayed total stupidity in your investment recommendation to sell WND to buy FVR.

Tom, I look forward to seeing you in court and sanctioned by the regulators.

I'm not particularly concerned about the threats, since everything I said is backed up by published documentation.  I do have to wonder where the "unlimited funds" with which he is threatening to sue me for defamation are going to come from.

According to several people I've talked to about Ciachurski over the two and a half years I've been covering Western Wind, such threatening letters (as well as text messages and midnight phone calls) are his standard MO when anyone crosses him.  (Here's a quick note to you, Jeff: If you want to annoy me, you'll have more luck with the midnight phone calls.  With phone calls, it will be annoying to transcribe them for publication.  With email, I can just cut and paste.)

Needless to say, I won't be investing in another a Jeff Ciachurski-run company any time soon.

Disclosure: Long WNDEF, BRPFF, FNVRF, AQUNF.

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.

February 13, 2013

The POTUS and his SOTUS: RT@moreofthesame TL;DR

Jim Lane

The President’s State of the Union speech.

What was new? (Not much). What was feasible amongst DC gridlock? (Not much)

What about energy? (moreofthesame) Where was the Farm Bill? (AWOL).

SOTU 2013.png

In case you were watching wrestling, President Obama gave the State of the Union speech last night.

Big vision, small vision – practical, impractical – partisan, bipartisan. Cable news chattered away all night on those topics — but the speech had the feeling of a long retweet.

Amongst the Twitterati, he’s the POTUS, giving the SOTUS, and in a Twitterverse dominated by 140-character thinking, the SOTUS is, these days, suffering from a case of TL; DR —  Too Long, Didn’t Read. And the tweets focus, instead, on Michelle Obama’s bangs-embracing hairstyle.

The SOTUS contained 18 references to energy — more than enough for the Digest to take a close look at what was said, what was not — and the likelihood of all (or any) of the President’s energy agenda finding its way into the law books or the departmental budgets.

The “You knew it wasn’t a compelling response, when…” Award.

This year’s formal Republican response featured Florida Senator Marco Rubio — and I kid you not that the Associated Press, in its coverage, highlighted a manufactured controversy over the way that Rubio paused to take a drink of water.

Most Premature Response Award

Why wait for a chance for rebuttal when you can go for a “Pre-buttal”? The Institute for Energy Research sent around a pre-buttal “reading list to address claims the President may make.” Priceless.

18 references to energy – is that a lot? The Soundbite Scorecard

Here’s the State of the Union “mentions of energy” scorecard, dating back to President Bush’s “Addicted to oil” speech in 2006.

Obama era

2013: 18 energy mentions, 0 biofuels
2012: 23 energy mentions, 0 biofuels, 1 for “alternative transport fuels”
2011 10 energy mentions, 1 biofuels
2010 15 energy mentions, 1 biofuels
2009 14 energy mentions, 1 biofuels

Bush era

2008 5 energy mentions, 0 biofuels
2007 3 energy mentions, 1 biodiesel 1 ethanol
2006 8 energy mentions, 2 ethanol (the “Addicted to Oil” speech)

The Policy That Dare Not Speak its Name

If you guessed “biofuels,” you get another spin.

In fact, it was “Farm.” Not one mention in the State of the Union. No farm bill, no farmers, no farm exports, no farm jobs. Pretty rough go for a sector that is desperately in need of a renewed Farm Bill — and for one of the most vibrant export sectors of the economy.

What Exactly did the President say about Energy?

After years of talking about it, we are finally poised to control our own energy future. We produce more oil at home than we have in 15 years. We have doubled the distance our cars will go on a gallon of gas, and the amount of renewable energy we generate from sources like wind and solar – with tens of thousands of good, American jobs to show for it. We produce more natural gas than ever before – and nearly everyone’s energy bill is lower because of it. And over the last four years, our emissions of the dangerous carbon pollution that threatens our planet have actually fallen.

But for the sake of our children and our future, we must do more to combat climate change. Yes, it’s true that no single event makes a trend. But the fact is, the 12 hottest years on record have all come in the last 15. Heat waves, droughts, wildfires, and floods – all are now more frequent and intense. We can choose to believe that Superstorm Sandy, and the most severe drought in decades, and the worst wildfires some states have ever seen were all just a freak coincidence. Or we can choose to believe in the overwhelming judgment of science – and act before it’s too late.

The good news is, we can make meaningful progress on this issue while driving strong economic growth. I urge this Congress to pursue a bipartisan, market-based solution to climate change, like the one John McCain and Joe Lieberman worked on together a few years ago. But if Congress won’t act soon to protect future generations, I will. I will direct my Cabinet to come up with executive actions we can take, now and in the future, to reduce pollution, prepare our communities for the consequences of climate change, and speed the transition to more sustainable sources of energy.

Four years ago, other countries dominated the clean energy market and the jobs that came with it. We’ve begun to change that. Last year, wind energy added nearly half of all new power capacity in America. So let’s generate even more. Solar energy gets cheaper by the year – so let’s drive costs down even further. As long as countries like China keep going all-in on clean energy, so must we.

In the meantime, the natural gas boom has led to cleaner power and greater energy independence. That’s why my Administration will keep cutting red tape and speeding up new oil and gas permits.

But I also want to work with this Congress to encourage the research and technology that helps natural gas burn even cleaner and protects our air and water. 

Indeed, much of our new-found energy is drawn from lands and waters that we, the public, own together. So tonight, I propose we use some of our oil and gas revenues to fund an Energy Security Trust that will drive new research and technology to shift our cars and trucks off oil for good. If a non-partisan coalition of CEOs and retired generals and admirals can get behind this idea, then so can we. Let’s take their advice and free our families and businesses from the painful spikes in gas prices we’ve put up with for far too long.

I’m also issuing a new goal for America: let’s cut in half the energy wasted by our homes and businesses over the next twenty years. The states with the best ideas to create jobs and lower energy bills by constructing more efficient buildings will receive federal support to help make it happen.

Is it true — the United States, which famously failed to sign the Kyoto Treaty, is cutting emissions?

Yep — credit renewables, and credit replacement of coal with natural gas. Is this ironic or what? There’s a good chance that the US will meet the 2017 Kyoto targets it did not accept, while the EU, which has been pressing hard on all fronts since 2005 to meet them, will miss.

What is a “market-based solution to climate change, like the one John McCain and Joe Lieberman worked on together a few years ago”?

That’s cap-and-trade.

And the chances of cap-and-trade passing in this Congress?

Um, I’ll take “Zero Chance” for $500, Alex.

What is an Energy Security Trust?

Well, that’s (sort of) defined here, in “The President’s Plan for a Strong Middle Class & a Strong America”.

“The Energy Security Trust proposal, which is funded by revenue from oil and gas development on federal lands and offshore…will support research into a range of cost-effective technologies — like advanced vehicles that run on electricity, homegrown biofuels, and vehicles that run on domestically-produced natural gas.”

Is there an actual bill in the Congress for this?

Not lately.

What else is the President proposing for energy?

Doubling wind and solar, increasing fuel economy standards to 54.5 mpg by 2025, directing cabinet officers to find executive actions that can be taken to tackle climate change, renewing the renewable energy Production Tax Credit, and Race for the Top Awards that will help states adopt energy efficiency policies.

Anything new in there?

Not much.

Will the Production Tax Credit include biofuels?

We’ll see. Hasn’t been a priority for the Congress in the past.

Industry reaction to the POTUS SOTU (in 140 characters or less)?

Fuels America: [Obama is 4] cutting our dependence on oil, fighting climate change, creating jobs. The RFS [is] crucial in encouraging investment in oil alternatives.

RFA: Biofuels can provide the eco-boost the U.S. economy needs.  Ethanol is a high octane engine driving economic growth and job creation, especially in rural America.

Growth Energy: The biofuels industry is already working for the American people, [providing] consumers with a choice and savings at the pump, reducing our dependence on foreign oil

NRDC: We can’t power a 21st-Century economy with the fossil fuels of the past. We [need] energy-efficient cars, workplaces and homes, clean power plants, renewable energy

Disclosure: None.

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

February 12, 2013

Alternative Energy Funds Deliver Stunning Quarterly Returns, But Beware the Risks

By Harris Roen

The Roen Financial Report closely covers the universe of almost 30 alternative energy Mutual Funds (MFs) and Exchange Traded Funds (ETFs). We use a proprietary ranking method to pick the best funds, looking at measures that include fees, risk, tax liability, and the financial health of individual holdings within each fund. Subscribers can see the complete list of funds, including rankings and technical breakdowns, in both Excel and PDF format by clicking here .

Mutual Funds

Alternative energy MFs showed improving ranks for this February update. In all, three funds were bumped up to a Rank 1: Allianz RCM Global Water A (AWTAX), Guinness Atkinson Alternative Energy (GAAEX) and Alger Green A (SPEGX). This coincides with the fact that the alternative energy MFs we cover have gained an impressive 14% on average in the past 3 months. Contrarily, one alternative energy MF declined to the bottom of the heap, becoming a Rank 5.


Quarterly returns have been spectacular for all of the MFs, ranging from a low of 8.8% all the way to a remarkable 25.2% for GAAEX. Many of the equities held in these funds hit bottom at the end of 2012, so these returns reflect the upward surge since that time. Because of these gains, it should be noted that 8 out of 11 MFs are at the top of the annual trading range. Therefore, I would not be surprised to see a modest pullback from here for many of these funds.

Exchange Traded Funds

All the Rank 1 ETFs retained their current top slots: Market Vectors Environmental Services (EVX), First Trust ISE Global Wind Energy Index Fund (FAN) and First Trust ISE-Revere Natural Gas Index Fund (FCG). In addition, PowerShares WilderHill Clean Energy Portfolio (PBW) increased from a Rank 5 to a Rank 3. It shows improved capital gains exposure, and a reduced turnover ratio.

As with MFs, three-month returns for alternative energy ETFs have been extremely impressive. ETFs have gained 12% on average, with Market Vectors Solar Energy (KWT) up over 38%! The one exception is iPath Global Carbon ETN (GRN), an Exchange Traded Note that tracks Barclays Capital Global Carbon Index. Unfortunately, GRN has lost over half its value in the past three months. This is due to the depressed carbon market, which has been trading at all time lows.


It is important to note that a fund like GRN has the potential to close up shop and liquidate its assets, not an uncommon occurrence in the over-crowded ETF world. GRN has an extremely low amount of assets under management, less than $1 million. It also trades at low volumes. These are two warning signs that its underwriter may decide to pull the plug sooner than later.

As is true with many alternative energy equities these days, they can be highly speculative on both the upside and the downside. Consequently, alternative energy investments may only be appropriate for a small portion of an investors overall portfolio.


Individuals involved with the Roen Financial Report and Swiftwood Press LLC do not own or control shares of any companies mentioned in this article. It is possible that individuals may own or control shares of one or more of the underlying securities contained in the Mutual Funds or Exchange Traded Funds mentioned in this article. Any advice and/or recommendations made in this article are of a general nature and are not to be considered specific investment advice. Individuals should seek advice from their investment professional before making any important financial decisions. See Terms of Use for more information.

About the author

Harris Roen is Editor of the “ROEN FINANCIAL REPORT” by Swiftwood Press LLC, 82 Church Street, Suite 303, Burlington, VT 05401. © Copyright 2010 Swiftwood Press LLC. All rights reserved; reprinting by permission only. For reprints please contact us at cservice@swiftwood.com. POSTMASTER: Send address changes to Roen Financial Report, 82 Church Street, Suite 303, Burlington, VT 05401. Application to Mail at Periodicals Postage Prices is Pending at Burlington VT and additional Mailing offices.
Remember to always consult with your investment professional before making important financial decisions.

February 10, 2013

Why Did Finavera Wind Energy’s Stock Crash?

Tom Konrad CFA

finavera_logo[1].gifA month ago, I was convinced that Finavera Wind Energy’s (TSX-V:FVR, OTC:FNVRF) stock was only temporarily trading at depressed levels in the low 20 cent range because investors were disappointed at the deal with Pattern Energy.  Many shareholders had been hoping for an outright sale, and were selling into the thinly traded holiday markets.  I predicted that Finavera stock would “quickly rebound to at least the C$0.30 range over the next few days or weeks, as liquidity returns to the market, and investors revalue the stock based on the agreement with Pattern.”  (My valuation based on the Pattern deal put the present value of a Finavera share at C$0.375, and its value at the end of 2014 at C$0.75.)

My valuation has not changed significantly, but the stock has fallen, after an initial rally. Yesterday, I was able to add to my Finavera position for a mere $0.18 a share.  What happened?

There have been only two news items over the last month.

Conference Call

First, Finavera held an investor conference call on January 9th to explain the Pattern deal.  My takes from the conference were first, that the Pattern deal would definitely win shareholder support, since there was not going to be any buy-out offers forthcoming, and the consequences of rejecting the deal would be dire.

Second, I had misunderstood the Pattern deal originally.  Finavera will be getting funds from Pattern in the form of $9M in debt forgiveness as soon as the deal is approved by shareholders, and many of Finavera’s development costs will be charged to the projects (and hence, effectively, to Pattern.)  This increased my expected value of Finavera slightly.

Option Grant

Last week, Finavera cancelled all outstanding employee and director options (most of which had strike prices of C$1 or above), and re-issued them with new options exercisable at C$0.205 per share.  The grant (1,783,800 options or 4.5% of outstanding shares) seemed large to me, and may have also turned off other shareholders, contributing to the heavy selling this week.

I asked Jason Bak, Finavera’s CEO, to give his justification of the option grants by email.  He responded with the following points:

  1. Finavera is operating within its registered stock option plan, which was approved by shareholders in September of last year.
  2. There have been no significant option grants in three and a half years.
  3. Finavera’s directors have been working entirely without compensation since 2007, and have been significant investors in the company over that time.
  4. The option grants are in line with similar Toronto Venture listed companies.

I thought he made good points, especially regarding director compensation, and so my governance concerns were alleviated.  The option grants do change my per diluted share valuation of the company marginally (see below.)

New Valuations

My new understanding of the Pattern deal means that a significant portion of the deal’s value will be realized sooner than expected. The debt forgiveness along with the expected $9.3 million payment for bringing the Cloosh wind farm to financial close should be sufficient to substantially eliminate all Finavera’s liabilities by the end of the year.  This will give Finavera a book value per diluted share of C$0.45 after the receipt of the Cloosh payment.

If Finavera is then able to bring its Canadian projects to financial close by the end of 2014, as expected, the payments for those projects should give Finavera C$0.77 worth of net assets, most of which will be in the form of cash (the balance will be their remaining 10% stake in the Cloosh wind farm.)

Given these valuations, I continue to see Finavera stock as an easy double over the next year, with the potential to double again in 2014.

That is why I’m buying more.  I still have no idea why anyone is selling.

Disclosure: Long Finavera

Finavera's Wildmare Wind Energy Project is one of three projects in Bristish Columbia to be sold to Pattern Renewable Energy Holdings Canada for C$40M.  Photo source: Finavera

This article was first published on the author's Forbes.com blog, Green Stocks on January 31st.

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.

February 09, 2013

KiOR and the Compression Spread

Jim Lane

logo[2].pngYou’ve heard about the crack spread, and the crush spread — as means to value oil refining and crop refining.
Let’s think about biomass densification and compression, and in that context, a little about KiOR.

You might have heard a little or a lot about KiOR, Inc. (Nasdaq: KIOR) — which is currently commissioning its first commercial-scale (11 million gallon) biofuels plant in Columbus, Mississippi.

Now, the oil industry might, via the American Petroleum Institute, be currently talking down the validity of the Renewable Fuel Standard — but it is not entirely clear that KIOR would have found the financing that it did without the EISA Act galvanizing investors into action.

KiOR’s secret sauce

Now, it is getting more clear — among all the glittering pieces of technology that the biofuels industry has developed — that the oil refining and marketing sector would really, really like to have invented KiOR’s BFCC unit — KiOR’s secret sauce.

What is a BFCC? It is a fluidized-bed catalytic cracker that works with biomass (in KiOR’s case, they are working now with southern yellow pine they expect to obtain at $72 per bone-dry ton).


Why is it coveted? It takes biomass, which has low density, and liquifies it into an intermediate with very high energy density — and does so at a transformatively low cost. That intermediate can be hydrotreated into an in-spec drop-in fuel — either in the gasoline range, or diesel, or even jet.

Why is that important? Because it is expected to be available at a lower cost than the marginal cost of oil production — when taken to an appropriate scale.

Equally importantly — because it is produced from renewable biomass — it can help de-carbonize an atmosphere that is producing increasingly wacky weather.

The marginal cost of producing oil

In a world where oil prices are highly volatile, one statistic for price prediction has held true for a long time — and that it is averaged cost of marginal production of oil for the world’s 50 largest public oil companies.

What exactly does ” the marginal cost of production” mean? It is the cost of exploring and capturing the last barrel of oil needed to meet overall global demand.

Bernstein Research circulated a note last year estimating that the marginal cost of production (for the top 50 public companies — note that some national oilcos have very different cost structures) increased by 229 percent between 2001 and 2010. Meanwhile, oil prices increased by 228%. Eureka — a driver of long-term oil prices.

It stands to reason. If the oil price falls below the marginal cost of production – productio stalls until the price rises. That’s simple economics.

All that lovely Bakken crude

Further, it is not as easy as many suppose to disrupt that price with, for example, an explosion of oil production in the Bakken oilfields of North Dakota or the tar sands of western Canada. Bakken crude sells at a very deep discount, already, to Brent Crude — the spread has exceeded $30 per barrel at times.

That’s because of the lack of pipeline and railcar capacity to move it to international markets.

Which brings us back to KiOR — and the possibility that, long-term, the future of the company may focus less on building complete field–to-wheels fuel capacity via hydrotreating intermediates onsite, at its own facilities.

It has a future — perhaps a very big one— not so much as a supplier of finished fuels to its own customer base of fuel buyers, but as a supplier of crude-equivalent feedstocks to existing refinery infrastructure.

That’s where that $92 a barrel becomes important — not the $100-$115 retail value of the barrel, but the production cost of that barrel.

Recovering prehistoric algae as an energy business

You see, at the end of the day what you get from punching holes in the ground (i.e. oil exploration) is a well tapping into some prehistoric algae which — over 60 million years or so — has been transformed by Nature into crude petroleum and natural gas.

Nature made the biomass for free — via its own cocktails of carbon dioxide, water, and trace nutrients. Then, Nature conveniently densified the biomass for free, too. What we pay for is the harvest — it’s the energy equivalent of hunter-gatherer.

With a barrel of oil, you get around 5.8 million BTUs. That’s around $15.86 per million BTUs for the marginal cost of production.

In the case of KiOR, you have to pay for the biomass — the aforementioned $72 for each bone-dry ton. In that ton, you start with 14-20 million BTUs. So, you are paying $3.60-$5.14 per million BTUs for the wood.

The problem is, you can’t burn wood in a car engine — and even if you could, you think range anxiety for battery-electric vehicles is bad. Sheesh!

So, here’s the challenge, and here’s the prize, and a caveat.

Challenge? Densify the wood biomass into a crude-equivalent refinery feedstock for less than $12.72 per ton of biomass, including your operating and capital costs and your cost of capital.

Prize? Well, the International Energy Agency expects that energy demand will rise some 50 percent over the next 25 years — rising demand that you can serve.

Caveat? Lowest-cost producer wins. No one is likely to buy your $92 per barrel intermediate if there’s a $90 barrel available.

Catalytic fast pyrolysis

Where does this all lead us? In the case of making crude-equivalent intermediates — catalytic fast pyrolysis has emerged, of late, as the lowest-cost path towards answering that challenge. It is not entirely clear this class of technologies will actually reach scale — and reach the targeted costs — and find boatloads of affordable capital any time soon. But the signs are quite encouraging.

Catalytic fast pyrolysis — that’s what KiOR does. That’s why so many people watch their development with such attention. Why there is such an intense interest in their progress that media have been snooping around the plants, trying to get information on production prior to the company’s quarterly earnings call (earnings are expected to be reported March 25, according to NASDAQ).

Other paths to biofuels heaven

Nor is it entirely certain that crude-equivalent intermediates are the only viable path to market. For instance — there is the entire class of alcohol fuels, which are controversial in the US and the EU because of infrastructure issues, but are well-established in Brazil.

Crude-equivalent intermediates certainly are attractive — if one of your goals is to avoid finding out how much the oil & gas industry is willing to spend to send you to the devil, if you come up with a technological path to affordable meeting transportation fuel demand that doesn’t pass through oil refineries.

The oil industry’s anguish over alcohols is as profound as the Prohibition Party’s anguish used to be.

Back to KiOR

So — that brings us back to KiOR, and its prospects. We’ll know quite a lot more on the next earnings call. For now, they are in the business of making finished fuels and earning revenues from RINs and fuel sales.

For sure, right now they are proving the validity of their process to investors. One might speculate that they are also surrounding their IP — their secret sauce — with a complete path to market so that never become the captive of a refiner & marketer who can form a barrier to entry between their crude and the downstream gas station. With ethanol producers we have seen, ahem, where that can lead.

Long-term — we don’t see a process that can turn that much southern yellow pine (and other biomass, down the line) into sub-$92 crude-equivalent intermediates having a market cap of $584 million, as KiOR has today. If the technology does not work out — well, it’s not very valuable, is it? But if it does work out – as sports broadcaster Keith Erickson used to say “Whoa, Nelly!”.

Why? Looked at it as a technology that converts resources into proved reserves (valued at, say, $20 per barrel, or the spread between Brent crude and the marginal cost of production) – KiOR is valued at around 29 million barrels of oil. That’s the volume of oil you get from converting 400,000 tons of wood into oil refining intermediates.

But there’s a lot more wood out there.

The above-ground oil field a/k/a the US wood basket

The US Department of Energy, in their Billion Ton update study in 2011, estimated that there would be 120 million tons of wood biomass available, per year, at $80 per ton, that could be sustainably used for bioenergy. The figure declines to around 85 million tons at $40 per ton.

That’s a big spread.

So — in all things biofuel – keep that cost of densification very much in your mind.

The Compression Spread.

In traditional oil and agricultural economics, we think about the the cost of liberating a known molecule. In the new bioenergy — getting biomass sufficiently densified, via technology instead of Nature — may open the door to ultra low-cost feedstocks and some amazing upside value for the liberators and their inventions.

That’s the compression spread.

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.

February 08, 2013

Southern Company's Carbon Capture Testing

by Debra Fiakas CFA
Coal emissions photo via BigStock

An electric utility of Southern Company’s size  -  $38.3 billion in market capitalization  -  is not among the typical company covered in the Small Cap Strategist weblog.  Southern (SO:  NYSE) owns and operates six dozen power plants in the southeastern U.S., generating 12,222 megawatts of power from a mix of fossil fuel, hydroelectric, nuclear and solar plant assets.  The company earned $2.68 in earnings per share on $16.5 billion in total electric power sales.  Sales dipped in 2012 compared to the prior year as mild weather conditions led to a fall off in heating and air conditioning needs.  Nonetheless, profits were a bit higher in the year on higher profit margins.  Indeed, Southern is a bit more profitable than the industry average.  Still Southern’s stock trades a bit below the average multiples of earnings and cash flow.  The gaggle of analysts following Southern expect growth over the next year.  The consensus earnings estimate is $2.76 on $18.0 billion in total sales and predicted growth rates are near 5.0%.

Most investors probably focus on Southern’s generous dividend payout ratio that has resulted in a dividend yield of 4.5%.  However, we are more interested in how progressive Southern appears as one of the founding members of an international group devoted to developing carbon capture technologies.

The U.S. managed to reduce its overall carbon emissions in 2011 by 1.7%.  The verdict is still out on 2012.  One of the principal drivers of reduced emissions is the swap of coal-based power plants for new plants that burn cleaner natural gas.  As beguiling as this dynamic might be given ample natural gas supplies, it may still not be enough.  This is apparently why Southern is hard at work trying to find a means to tuck away offending carbon emissions.

Southern Company manages and operates the U.S. Department of Energy's National Carbon Capture Center.  The Center is testing a technology which would capture carbon dioxide in flue gas and then deposit then deposit it underground. An amine solvent reacts with the carbon dioxide in the flue gas, making it possible to sequester it.  Pilot tests are relying on an underground oil field near Alabama where the Center is located.  Southern claims this is the largest carbon capture demonstration in the world, capturing 150,000 tons of carbon dioxide annually.

The project has no impact on Southern’s near-term financial results.  However, with 34 emission-belching fossil fuel plants in Southern’s power generation portfolio, it will benefit in the long-term from a technology that could provide a shield from emissions fines.  Greenhouse gas emissions (GHGs), of which carbon dioxide is the principal culprit, are regulated from large stationary sources under the EPA’s GHG Tailoring Rule.  In January 2013, an oil and gas production company became the first business in the country fined by EPA for violations of the Act.  The fine totaled $34,000.  It is not such a significant sum, but the action makes clear the EPA will pursue fines.

Under the Clean Air Act, new power plants may not emit more than 1,000 pounds of carbon dioxide per megawatt hour.  Most new natural gas-fired plants meet that standard.  However, even new coal-fired plants emit as much as 1,800 pounds per megawatt hour.  That means realize the value of existing coal-fired plant assets or to build new coal-fired plants where natural gas is not available, utility companies must capture the carbon dioxide before it hits the atmosphere. 
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. 

February 07, 2013

Kandi Technologies' Art of War

Denny Schlesinger

Machiavelli's The Prince and Sun Tzu's The Art of War are the two best known classic treatises on strategies to conquer and to govern. As Kandi Technology Group's [NASD:KNDI] electric vehicle strategy unfolds, I'm reminded of these masterpieces.

The Challenges

There are many of them. To start with, the current personal land transportation paradigm, the internal combustion engine, is not just well entrenched, it is becoming more efficient as time goes by. The fears of peak oil are vastly exaggerated specially now that fracking technology has added billions of barrels of recoverable reserves to the inventory. Fuel efficiency continues to increase with not just better engines and lighter and better designed cars but also with developments like hybrids, micro-hybrid start-stop technology and alternative fuels like natural gas for light vehicles and LNG for heavier ones. Cheap and abundant natural gas is a strong incentive to develop the required fuel distribution infrastructure.

The batteries themselves are a huge challenge. Batteries cannot compete with hydrocarbons in fuel density. The weight and bulk of the batteries cuts down on the range and payload of the electric vehicle requiring frequent recharging and recharging a battery takes a lot more time than filling a tank with gas. This makes recreating the driving experience of an internal combustion engine vehicle with an electric car very difficult. As if this were not enough, the lifetime expectancy of batteries is low when compared with the life of a gas tank which lasts as long as the car itself. Add to that the high cost of the battery and electric cars become mission impossible except for specific and limited uses like certain fleets (post office, etc.).

With high expectations for wind and solar power it seemed logical to people who did not think the problem through, that electric vehicles were a given. Traditional auto makers expected to replace the gas guzzler with a similar car but with an electric motor. This does not work for, among others, the reasons given above. The challenge, then, is to think outside the box.

Disruptive vs. Sustaining Technology

Clayton Christensen labels new technology as being either sustaining or disruptive. A sustaining technology is one that fits easily into a company's exiting frame of reference. Hybrids such as the Toyota Prius and micro-hybrid (start-stop) electric cars are example of sustaining technology. An upstart like Kandi has practically no chance against the incumbent industry giants with such a technology.

Disruptive technology, to the contrary, is one that incumbents find hard to incorporate into their exiting frame of reference. The challenge, then, is to think outside the box to find or to create a disruptive technology. A paradigm shift, if you will.

Kandi's Paradigm Shift(s)

Technology Adoption Life Cycle

In his marketing books, Crossing the Chasm and Inside the Tornado, Geoffrey Moore uses the Technology Adoption Life Cycle (TALC) to describe how high technology products move from garage to market. He calls TALC "a model for understanding the acceptance of new products." In The Gorilla Game, he tells investors how to use TALC to help identify the winners -- the gorillas -- and how to use TALC to time the investments.

The Whole Product

If you have a car but there are no roads in your vicinity and no gas pumps and no mechanics, then the car is not useful to you except as a conversation piece. The whole product includes the car, the roads and all the services like gas pumps, oil companies, mechanics, spare parts, driving schools and traffic lights.From Telecosm Crosses the Chasm
Of course, I cannot get inside the head of Kandi CEO Xiaoming Hu. I can only report what has happened. Kandi started out making all terrain vehicles (ATV) for export. It was suggested to Kandi that a US listing of its stock would create a more solid image that would help sales in the USA. The listing was done via a reverse merger which turned out to be unfortunate because several other Chinese reverse mergers turned out to be frauds, tarring the legitimate ones in the process. Business was doing well until the financial crisis of 2008 hit. Whether for that reason or for some other, Mr. Hu redirected Kandi into the pure electric vehicle business of which I became aware through the Seeking Alpha articles of Arthur Porcari in mid 2010. [Editor note: These articles were first published on AltEnergyStocks.com, and syndicated on Seeking Alpha.] I liked what I saw and I wrote my first Kandi article on October 31, 2010.
Can electric vehicles (EVs) be disruptive technology? Not the way the major auto makers are approaching the market. To be disruptive a technology has to be cheaper and the Volt sure isn't, and it has to serve an under-served market and the Volt sure doesn't. To have a chance of success, EVs need a really new paradigm. It seems that Kandi Technologies has found such a new way.
The first big shift was in battery ownership which in hindsight makes perfect sense since the battery is the main stumbling block. The car would be sold (with the help of subsidies) and a swappable battery would be leased. The program was announced with great fanfare, an initial lot of cars was sold and then sales dried up. What happened? According to the Technology Adoption Life Cycle (TALC), some "innovators" bought the cars but there was no follow up. The Whole Product was missing. A viable infrastructure, which was quite beyond Kandi to establish, was missing. For that Kandi needed help.

Again, I don't know what happened behind closed doors but the powers that be in the PRC wanted electric cars and Kandi had them. In addition to provincial governments providing subsidies, the two principal state electric utilities got involved. They would own the batteries which would serve double duty powering the cars as well as serving as grid storage in what is being called Vehicle to Grid (V2G) for plug-in rechargeable batteries and Battery to Grid (B2G) for swappable and otherwise stand alone batteries. This makes for a very powerful combination. Batteries that are no longer good enough to power cars can be used for grid storage extending their useful life. As grid storage the electricity subscribers help defer the batteries' cost. Selling electricity is the utilities' business which is a good reason for them to build the battery swap service stations.

The next important paradigm shift was to stop looking at it as private transportation. The EVs would become public transportation with the various city or provincial governments creating lease and rental programs. The lease vehicles would have swappable batteries while the rental cars would have rechargeable batteries which would be charged in the program's vertical garages while waiting for the next customer.

Not only would these programs lower the cost of entry for users, it guaranteed a much larger initial sales volume for Kandi, removing some of the obstacles created by the more usual TALC style adoption. The first lease program would be for 20,000 vehicle to be delivered over a period of 12 months. Although some orders for batteries and cars were placed, the 20K vehicle lease program was also delayed on account of the missing Whole Product. Now we are expecting it to go forward after the Lunar New Year (February 9 to 15, 2013).

Alliances Mr. Hu Has Made

Clearly Kandi could not expect to go it alone. Each province wants to have its own industries which means Kandi needs provincial partners. Kandi needs the cooperation of the electric utilities and also reliable battery suppliers. These are some of the strategic alliances Kandi has made:
  1. State Grid Power Corporation
  2. Jinhua City, Zhejiang province, 3,000 EV subsidy program
  3. Tianneng Power International, Ltd., batteries for Jinhua City project
  4. Wanning City, Hainan Province, parts factory 100,000 cars
  5. Wei Fang City, Shandong Province, parts factory 100,000 cars
  6. Hangzhou, Zhejiang Province, 20,000 car lease program
  7. Zhejiang Guoxin Car Rental Co., Ltd., Hangzhou EV leasing program
  8. Hangzhou Green EV Rental Co., Hangzhou EV leasing program
  9. Hangzhou Yulong EV Technology Co., Ltd., Hangzhou EV leasing program
  10. Zhongju (Tianjin) New Energy Investment Co., Ltd., Hangzhou EV leasing program
  11. China Aviation Lithium Battery Co., Ltd. ("CALB"), a subsidiary of Aviation Industry Corporation of China ("AVIC"), Batteries for Hangzhou 20,000 EV leasing program
  12. Hangzhou 100,000 EV rental project with vertical parking garage
  13. Zhejiang Zotye Holding Group Co., joint venture
  14. Geely Automobile Holdings Ltd., joint venture
  15. TongXu AoXing Vehicle Co., Ltd., marketing agreement in TongXu County, KaiFeng City, HeNan Province
Mr. Hu is systematically covering all his bases getting partners to do all the things that are outside Kandi's core competence. I found it significant that Mr. Hu visited Mr. Li at Geely last November, not the other way around. It shows that Mr. Hu is the driving force.

Name Change

It might be entirely symbolic but last December Kandi changed its name from Kandi Technologies Corp. to Kandi Technologies Group, Inc. to better reflect the new reality: Kandi is no longer just a go-kart and ATV maker but the leading developer of pure electric vehicles in China, a position it has achieved in barely three years.

Kandi claims to have an annual capacity to make 300,000 cars. There is no reason why the two manufacturing joint ventures can't make a similar number. When this venture finally takes off, and it could well be this Year of the Snake, the results should be impressive.

Disclosure: Long KNDI.

Denny Schlesinger is a retired management consultant, individual investor and editor of Software Times where this article was originally published.


The Prince Niccolo Machiavelli (Author), Daniel Donno (Translator, Introduction)
The Art of War Sun Tzu (Author), Samuel B. Griffith (Translator), B. H. Liddell Hart (Foreword)
The Innovator's Dilemma: When New Technologies Cause Great Firms to Fail by Clayton M. Christensen
Telecosm Crosses the Chasm Software Times
FORM 8-K Name change, 2012 Annual Meeting of Stockholders

Arthur Porcari's four part series on KNDI at Alt Energy Stocks

February 06, 2013

First Solar's New Mexico Project: The Parity and the Pain

James Montgomery

Unusually public details about a newly signed solar project deal in New Mexico raise some interesting questions about the purchasing power of solar energy, how close it's getting to grid parity -- and just how much pressure is on upstream suppliers to fulfill that objective.

First Solar (FSLR) has acquired a 50-megawatt (MW) solar power project in New Mexico from the solar division of Element Power. The deal is billed as the state's largest solar project; it also, according to some unusually public information revealed in a regulatory filing, raises some interesting questions about the purchasing power of solar energy.

The Macho Springs Solar Project is on land leased from the New Mexico State Land Office in Deming (Luna County); it's expected to be completed in 2014. (Element Power also has a 50-MW wind project at Macho Springs, selling power to Tucson Electric Power.) Electricity will be purchased by El Paso Electric, which had sought more electric peaking resources for its current energy mix. In a statement, the companies said the project's PPA is still subject to regulatory approvals, which is expected to happen "in the first half of 2013."

In fact, a regulatory filing from the New Mexico Public Regulatory Commission (PRC) is already loose in the wild, revealing exactly what El Paso Electric is paying: 5.79 cents per kilowatt-hour (kWh). That's almost a third of the price that thin-film solar PV projects typically sell for (16.3 cents/kWh), says Bloomberg New Energy Finance, and less than half the 12.8 cents/kWh average price for new coal plants. That's also roughly half of what First Solar will get for its marquee solar projects: Antelope Valley, Topaz, and Agua Caliente, points out Maxim Group analyst Aaron Chew. (We obtained a copy of the official document; but a quick Google search will reveal it too.)

Bloomberg points out that El Paso Power will be submitting more information about whether any renewable energy credits are being applied to the deal to lower its cost. In an interview, Chew points out that New Mexico's performance-based incentives (PBI) will probably add 2-4 cents/kWh. Assuming manufacturing cost targets of $0.60, plus $0.80 adding in balance-of-systems costs, that suggests a system price target of $1.50/W. But don't forget to factor back in the undisclosed price that First Solar paid for this project in the first place, Chew points out. "It is hard for us to fathom how it could possibly build this project profitably," he says.

Paula Mints, founder and chief market research analyst at Solar PV Market Research, says PPA prices were ranging from 8-14 cents/kWh in 2012. Even on the high-end that's a tough pill to swallow for suppliers; at the low end it's brutal. Meanwhile, she points out crystalline silicon modules have been selling in the $0.65-$0.75/W range -- roughly the same, and with higher efficiency, than First Solar's manufacturing costs alone.

We've contacted First Solar for clarifications, though they've already publicly declined to comment on the details of this deal. The project will use First Solar's thin-film panels, since the company only does EPC for projects using its thin-film technology. To that end, Chew points out that First Solar's project pipeline is stocked for probably a year and a half, but he calculates that with the company's current capacity (1.6 GW, averaged to 450 MW a quarter) it needs to keep pulling in a lot more deals -- and maybe is willing to make a little less in this deal, or is making up the difference with other projects, to keep its factories humming.

Still, the big takeaway from this new deal is that El Paso itself "is still only paying six cents for solar out of pocket," Chew notes. That means two things: yet more evidence that solar energy is becoming more attractive and competitive; and that the economics are becoming severely compressed on the manufacturing side, even more than we knew.

Jim Montgomery is Associate Editor for RenewableEnergyWorld.com, covering the solar and wind beats. He previously was news editor for Solid State Technology and Photovoltaics World, and has covered semiconductor manufacturing and related industries, renewable energy and industrial lasers since 2003. His work has earned both internal awards and an Azbee Award from the American Society of Business Press Editors. Jim has 15 years of experience in producing websites and e-Newsletters in various technology.

This article was first published on RenewableEnergyWorld.com, and is reprinted with permission.

February 05, 2013

Roundtable Greenlights Effort on Renewable Energy Covered Bonds

by Sean Kidney
“There is more liquidity than ever being put into the system, but funds are still not being allocated to renewable energy projects”
“The bottleneck for renewable energy is not in construction financing but a year or two after construction [re-financing].”

“[Renewable Energy] is not an asset class where risk changes over time – it changes [only] between pre-completion to post-completion stages… it is incorrect to think that offloading an asset post-completion dumps risk onto others because the riskier part of the project is past.”

“Alignment of interest with investors is strong as the issuing bank retains the credit risk in Covered Bonds.”
On 14 December some 40 people attended a Renewable Energy Covered Bonds Roundtable London, either in person of via teleconference facilities. It was a very interesting discussion; highlights are noted below.

Click here for the original paper proposing Renewable Energy Covered Bonds.
Members of the Roundtable Discussion Panel were:
  • Frank Damerow: LBBW bank, Climate Bonds Advisory Panel
  • Sean Kidney: CEO Climate Bonds Initiative
  • Stuart Clenaghan: Climate Bonds Advisory Panel
  • Christoph Anham: Royal Bank of Scotland, Head of Covered Bond Origination
  • Angela Clist: Allen & Overy, Partner. Experience: Worked on first covered bond in UK and on committee setting up law, involved in setting up other laws in Canada, NZ, Belgium, Greece and Cyprus. Currently working with World Bank on covered bond regimes in Latin America.
  • Julia Hoggett: Bank of America Merrill Lynch, Managing Director, Head of Short Term Fixed Income Origination, EMEA, Head of Covered Bonds and FIG Flow Financing, EMEA
  • Alexandre Chavarot: Clinton Climate Initiative, Climate Bonds Advisory Panel
  • Fabrizio Baicchi: CitiBank, infrastructure energy finance
  • Sarah Eastabrook: Alstom, Head of Strategy Development. Perspective is on the project end and how and financial products might help with scale up.
  • Karlo Fuchs: Standard and Poor’s, Structured Finance
  • John Hale: Association of British Insurers, fixed income committee
  • Georg Grodski: Legal & General, Head of Credit Research: The preferred way of investing is to do it themselves even if it’s more resource intense as they know what they are getting into.
  • Paul Guire: ICAP CEO. ICAP is involved primarily in the secondary markets and is very involved in the Pfandbriefe market


The financial requirements for a transition to a low carbon economy are huge ($1trn p.a. above business as usual, according to the International Energy Agency), and policy makers are looking for ways to encourage such investment.  However there is a massive shortfall between targeted and current levels of investment.

Given recapitalisation pressures of the banking sector, this gap will not currently be able to be bridged by bank lending. Pressure on bank balance sheets means that they are not willing to hold long-term assets such as renewables on their balance sheets so lending will remain constrained unless banks have an exit strategy (as they have for mortgages). There is, therefore, currently credit capacity to finance a sizeable amount of short term construction risk, but limited capacity to fund the term take-out.

On 14 December 2012, a group of 30 finance experts and investors was convened in London by the Climate Bonds Initiative in a Roundtable to discuss the possibility of bridging part of this finance gap through the development of a Renewable Energy (RE) Covered Bonds market.
Covered Bonds are an on-balance sheet financing mechanism, where the holder has recourse to a pool of assets (cover pool) in the event of a default by the issuer.

Covered bonds have been used for decades to pursue policy imperatives such as homeownership (where mortgage loans are used as the cover pool). Given their dual recourse nature, Covered Bonds could help to address the finance gap by allowing pools of RE loans to support highly rated Covered Bonds.

The participants see covered bonds as one of a myriad of potential financing options available for RE all of which will need to be utilised to bridge the finance gap. Therefore while Covered Bonds may not be the lowest hanging fruit, they are an important tool which may be suitable to certain assets and investors.

Discussion points at the roundtable

The idea to build a renewable energy Covered Bond market is still in a concept stage and therefore the roundtable was held to discuss issues, practicalities and process to define whether or not the idea should be pursued further. The following topics were covered at the meeting:

Changes to legislation

Substantial changes are required in most jurisdictions to allow renewable energy assets to act as collateral and form a cover pool. Changing legislation can take time, suggesting RE Covered Bonds might be a long rather than short term option — for example in Germany it took 5-6 years for aviation covered bonds to be approved. The development of a fully-fledged covered bonds market was therefore seen by the group as a 5-7 year project, assuming the process starts now.

However, a shorter term option might to allow existing mortgages that have a qualifying green aspect – solar cells on the roof, or a high level of energy efficiency – to be used as a separate cover pool. Ideally governments would then attach a differentiated risk weighting for these, further educing the costs of finance for banks and for green end-homeowners. For governments, agreeing on definitions may be an issue; however definitional work is part of the remit of the Climate Bond Standards and should be able to be used.

Quality, diversity and track record of assets

Typically, Covered Bonds are backed by a portfolio of liquid, transparent and stable assets. While pools of mortgage loans are relatively homogenous and therefore meet these criteria, each renewable asset is “different to the next”. They vary significantly in size, type and quality and may be difficult to put into a single cover pool.

In addition to this, RE assets do not presently have a long enough track record in the debt market for an accurate credit rating process to be conducted; however, such adequate track records are likely to exist by the time new legislation can be brought into being, and it may be possible to accelerate the process by conducting performance reviews of existing wind bonds.

In the short term there is still scope for RE Covered Bond issuance where cash flow characteristics  are strong (i.e. Feed-in Tariffs – FiTs) and where overcollateralization is part of the structure to compensate investors for this additional risk. Initially, the haircut required for RE assets to serve as collateral and for a bond to get a good credit rating would need to be significant but, as the track record increases, the required haircut should also decrease.

Cost of issuing a covered bond

The up-front cost of structuring, issuing and running a Covered Bonds programme is high, but in case of repeat issuance can be more favourable when compared to securitisation. For RE, as for all other covered bond assets, a bond would only be issued in cases where it is deemed to be worth these costs. Such cases could include:
  1. where the capital raised is sufficient to offset these costs; covered bonds can prove more cost effective than other forms of funding due to their wide recognition
  2. when a broader range of investors can be attracted who wouldn’t otherwise be interested;
  3. if other methods of financing have been exhausted.

Metrics for financing

Financing for covered bonds is usually done on a loan to value basis; this may not be possible for renewable energy where cash flow predictability is the important metric. Feed-in Tariffs can play a pivotal role here. Solving these technical issues is pivotal for the long-term development of fully-fledged covered bond market.
However short term proposals (see below) do not require for this to be solved. In the long-term and as the assets gain a longer track record, adequate metrics and appropriate regulation will be discussed and proposed.

Ability to re-sell assets in the event of default

In the event of default, assets will need to be liquidated in order to compensate bond holders. However, selling renewable assets may prove challenging particularly if there is a time limit on the sale. Wind farms, for example, cannot easily be dismantled and there is a cost involved in doing this. However, they can continue to be operated by a new owner post-bankruptcy..

While this was seen as a concern if a utility or developer issued a Covered Bond, there was general consensus that the bottleneck in RE financing exists for term re-financing rather than for construction financing. As such, it is anticipated that issuances will be backed by cover pools of RE loans rather than the assets themselves. Liquidation potential is therefore less of a concern if a default occurs.

The way forward

There was widespread acknowledgement by the group that renewable assets are not like mortgage assets (generic, good track record, granular asset pool, high quality and liquid) and are unlikely to become so in the short term. However, the value of using covered bonds as one of the tools to bridge the finance gap for low carbon infrastructure was also clear. Therefore, in order for this idea to move forward, both short term and long-term proposals are necessary.

Short term

It is possible that legislative change could be accomplished quickly (1-2 years) by a determined government; but the most likely time-frame is around 5 years.

However, there are also some short and medium term options not requiring legislation that could be considered:

a)     Demonstration issuance with development support

In the short-term, demonstration RE Covered Bonds could be issued under existing regulatory environments, assuming an adequate cover can be assembled.

There are precedents for issuing covered bonds that are not governed by legislation.  In particular, ”structured” covered bonds are issued in a number of markets that don’t have special covered bond laws; the terms and conditions are simply defined in the issue-specific legal documentation rather than legislation.[1]

There are a few investors interested in this asset class & structure, particularly when getting them involved at an early stage of the structuring process. The search for assets, the hunger yield and the need of 10yr+ plus tenors are strong driving factors.

We believe there is potential to develop a Structured Covered Bond in Germany, Austria, Switzerland, the United Kingdom and the Netherlands.
It may be that without the benefits of eligibility under regulated schemes, the success of a Structured Covered Bond will depend on a modest level of credit support from government or development banks, for example providing an insurance wrapper. Our aim will be to see if it can be done without such support.

b)     Green mortgages

In the European Union an option for the medium-term would enable mortgages for buildings that meet certain green criteria (e.g. solar panel or energy efficiency technology installed) to have a different risk-weighting attached to them compared to standard mortgages. As a result homeowners would be able to get a discount on the running costs of their mortgage from mortgage provider.

That differential could be achieved with either a change to the eligibility criteria governed by either national regulation (or, in the EU, by the Capital Requirements Directive) or possibly because energy efficient housing assets and green mortgage bonds are seen to have better credit characteristics than old stock

Because this would involve a only a modest variation of rules for existing eligible loan pools, this may be politically achievable at national levels. These mortgages would go into a dedicated covered bonds pool – thus allowing a green mortgage cover pool without requiring significant changes to legislation.

Long term

In the long term, it should be possible to create a fully-fledged covered bonds market. This will require proposals to change the legislative and regulatory framework as well as the building up of a track record for renewable assets.

This process of achieving regulatory change, primarily by expanding the list of eligible assets for cover pools to include RE, will take some years and requires clarity on FiTs over many years in grid-based energy supply policy. Initial feasibility studies can be conducted to ascertain which jurisdictions have the highest potential for developing a market. The group thought that potential candidates would be the UK, Austria and the US.


  • Despite some hurdles, initial discussions have indicated that the concept is worth pursuing but that different products are applicable and/or viable in the short term and the long term.
  • A fully regulated Renewable Energy Covered Bond market will take legislative and regulatory change; that process of change will invariably take some years.
  • While we see that as an important longer-term objective, in the short-term we will focus on options that do not require legislative support, such as separating and differentially risk-weighting green mortgages, demonstration Structured Covered Bonds, potentially supported by public sector banks, and other models that would work within existing legislative arrangements.
  • The Steering Group, formed of industry experts Christoph Anhamm, Stuart Clenaghan, Angela Clist, Frank Damerow, Sean Flannery, Julia Hoggett and Sean Kidney, will take these discussions forward.

[1] As cited in Global Financial Stability Report: Navigating the Financial Challenges Ahead.  IMF 2009. http://www.imf.org/external/pubs/ft/gfsr/2009/02/pdf/text.pdf

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

February 04, 2013

Biobased and Biofuel Investments: A System

Jim Lane

A Biofuels and Biobased investment primer: An 18-combination, 8-character system for classifying bio investments
Here’s our investment primer on how to size up the risks and the rewards and tune them to meet your goals.
And, a system for organizing opportunities.

So, you’re thinking about investing in bio? Here’s the good news – you’re not alone. Here’s the bad news – you’re not alone.

There are retail, private equity, hedge fund, sovereign wealth, strategic, grower, VC and institutional investors snooping around too, and making active investments.

For one thing, carbon’s making a comeback as the economy recovers and the weather continues to get wilder, whackier and scarier. As DOE Deputy Chief of Staff Jeff Navin observed, “Just because the appetite to tackle it went away, didn’t mean the [climate change] problem went away”.

As investors are discovering, the whole world changes when the rain doesn’t fall where it used to fall.

Though there are hundreds of companies, you can parse it all down into some pretty simple categories – in order to measure the rewards (which, generally speaking, you’ll hear a lot about from the promoters) against the risks (er, less chatted up).

That’s what we’re going to cover today — with three broad strokes: stage, stream and degree of novelty. There are only 18 combinations. They are the first keys to unlocking opportunities.

3 Streams

There are lots of ways to sector out the biobased space. The most useful way is to divide it, like oil &gas, into upstream, midstream and downstream. The way these work are a little different, and here’s how.

Upstream. In a word, feedstocks – typically crops or residues. Could be anything as mainstream as year’s corn crop, to something as exotic as carbon monoxide and water or municipal solid waste and sludge. A seed company or a grower fits into this category. More exotically, an algae grower does too. Sometimes, a polluter does, if there’s a residue in the mix. If you’re invested in Syngenta, Monsanto or Ceres, you are right here.

Midstream. These are the processing technologies. Could be standard fermentation that has been used for centuries to make alcohols from grain – could be exotic technologies that make bio-oils and char. They could be owner-operators of projects, or technology licensors. If you are invested in Solazyme, Gevo, Renewable Energy Group or Amyris, you fit right here.

Downstream. These are the molecules themselves – their distribution into the marketplace.

2 degrees of novelty

There’s known, and there’s novel. For example, gasoline is known, ethanol is novel (though less so).

Known molecules cause no infrastructure change or change in other processes. Making renewable diesel or jet fuel is an example.

Novel molecules can be substitutes with new uses, such as using biofene as a lubricant— or known molecules that have never been feasible before (e.g. using adipic acid as an intermediate pre-cursor for nylon 6,6 – which wasn’t economically feasible before).

Known molecules have equivalent performance. Novel molecules can be varied – they can perform better, or worse.

3 investment stages

There’s early stage, mid-stage and late-stage. Now, everyone has a different definition – for instance, late-stage can mean “pre-IPO” for VC investors. SO, here’s how we look at it.

Early stage. The proof of concept phase. Not just proving that, for example, you can train an given organism to secrete a hydrocarbon. It means — from the first moment of the idea until the point where, at any scale, the process is shown to work and is feasible.

This assumes that results hold up during scale-up, the molecule performs as expected in an engine or in green chemistry, input and product prices hold, and that the process bolts into the rest of the field-to-wheels supply chain as expected).

Proof-stage. The point from proof of concept to proof of process.

Late-stage. Process is proven, economics are known. From here, it is a a matter of lining up location, customers and capital in an optimal way. For example, Shell’s Gas-to-Liquids project in Doha, Qatar.

OK, so you’re done. There are 18 different combinations – ranging from “Early-stage, novel, upstream” (e.g. a jatropha seed developer) to a “late-stage, known, downstream” (e.g. investing in a fuel marketer that is distributing, as an offtaker, renewable diesel from a producer’s sixth commercial plant).

You can use acronyms if you like. You use U, M or D for stream, E, P or L for stage, and K or N for novelty. In the examples cited above, you have ENU, and LND. There are just 18 combinations.

Assessing risk and opportunity

From that point, you can start to make some rational investment risk assessments. It’s helpful to line up opportunities within categories (like for like), and compare.

For example, early-stage investments tend to be smaller, and riskier – than later-stage. The “will it work?” factor looms large, early-on. Later, you have more certainty — and, as a result, less upside. The more you understand technology and market forces, the more you will like the early-stage.

Upstream technologies are more fully exposed to the biobased sector, than midstream and downstream, while the farther you move down the stream the more you are exposed to a market in a given molecule (downstream), or the arbitrage between the molecule price and feedstock price (midstream).

In terms of novelty — for sure, novel technologies have transformative economics on price as well as cost – known molecules tend to offer opportunities in terms of cost savings (cheaper production) or market share shifts (as customers adopt, for example, equally-priced molecules with attractive carbon attributes).

By contrast, novel technologies can have superior performance, or can eliminate a step in a chemistry – even if they cost more, they can offer customers amazing opportunities. But the more novel the molecule, feedstock or technology, the more important the IP protection is, and potentially devastating the loss of patent protection is — speed to market will matter in terms of producing ROI.

A real-world example

Let’s take a popular area for investment these days — adding technology to enable an existing ethanol plant to make biobutanol.

They are currently in proof-stage, making known molecules, and midstream. Call it a MPK.

So, there you have it. The biobased world of thousands of molecules, a hundred feedstocks and several dozen technologies, parsed down into 8 simple letters, and 18 combinations, that you can use to rate opportunities for risk and reward.

In the retail investing world, in debt-side investing, or in pre-IPO equity investing — there are companies of all combinations available. Parse away.

Disclosure: None.

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

February 03, 2013

New Loans For LDK and Canadian Solar Just Band-Aids

Doug Young

Stock Band-Aid Image via BigStock
  A couple of items from the struggling solar panel sector are showing how the industry is limping forward, receiving minor rescue loans to continue funding operations while manufacturers await a bigger rescue package from Beijing. I can only guess that the bigger package, which has been talked about for much of the last half year, will finally be rolled out by the middle of this year. That will finally allow the industry to try and put itself on more sustainable long-term footing instead of continuing to limp forward in this current state of malaise.

One of the latest news bits is coming from LDK Solar (NYSE: LDK), the unhealthiest of the major Chinese players, which announced it has just finalized terms for a 440 million yuan loan from the Beijing-backed policy lender China Development Bank. (company announcement) Meantime, healthier rival Canadian Solar (Nasdaq: CSIQ) has announced its similar receipt of a $40 million loan to help finance its construction of a new solar plant in Canada. (company announcement) Unlike LDK, Canadian Solar is also being quick to point out that it received the loan from a major western commercial lender, in this case Credit Suisse, rather than having to rely on handouts from Chinese policy lenders.

Let's start with a look at LDK, which is currently in the process of a slow-motion takeover by the Chinese government. LDK recently "sold" one of its most problematic assets to a state-run entity, and also last fall "sold" 17 percent of itself to a consortium of mostly state-owned firms in exchange for a desperately needed $23 million in cash. (previous post)

I use quotation marks around the word "sold" in both cases, since neither of those 2 deals ever would have happened on the free market, and the only reason they happened at all is most likely because the buyers were ordered to make their "purchases" by Beijing. For anyone who hasn't done the math, this latest LDK loan of 440 million amounts to a relatively modest $70 million, which is perhaps enough to fund LDK's money-losing operations for a few months.LDK says the money will be used to upgrade one of its polysilicon plants, though I suspect much of the funds may end up going to other more practical uses like paying employee salaries.

Meantime, Canadian Solar says its $40 million loan from Credit Suisse will be used to finance its purchase of 4 solar plants under construction in Canada. This kind of solar plant construction is relatively common, which sees third-party builders construct new plants in cooperation with a big panel supplier like Canadian Solar. The panel maker, in this case Canadian Solar, would then typically purchase the plant upon its completion, and try to sell it to a commercial power producer.

But in this case, the builder apparently ran out of funds before the completion of construction, forcing Canadian Solar to announce it would step in to buy the plants before their completion. (previous post) While Canadian Solar should be commended for financing its deal from a private commercial lender, the fact remains that it and the rest of the sector are facing growing financial pressure due to their massive losses amid the industry's current state of oversupply.

Look for a few more of these "band-aid"-style loans to be announced over the next few months as companies look for ways to keep funding their operations. But in the meantime, all eyes will be on Beijing as everyone looks for the central government to announce its bigger industry-wide bail-out package by the middle of the year.

Bottom line: New loans for LDK and Canadian Solar represent short-term fixes for the companies, as everyone awaits a broader rescue package from Beijing.

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 .

February 02, 2013

Ten Clean Energy Stocks for 2013: January Update

Tom Konrad CFA

Clip art by Philip Martin
January has been a great month for clean energy stocks, and the stock market as a whole.  My clean energy benchmark, the Powershares Wilderhill Clean Energy Index (PBW), returned 10.9%, while the broad universe of small cap stocks which I benchmark with the iShares Russell 2000 Index ETF (IWM) is up a lesser but still impressive 9.5%. My ten clean energy picks for 2013 (introduced here), are up a solid 5.3%.

So far this year my picks are losing the relative performance game, but 2012 started in a similar fashion.  At the start of February, PBW was up 21% and my picks were up only 15%.  The year ended with PBW down 16.4%, and my picks up 7.4%.  I have much better hopes for this year,especially for clean energy as a whole.  There's a meme that's even finding it's way into mainstream media and Wall Street research notes that 2013 could be an inflection point for clean energy.  The long decline has certainly produced a number of great values which few would expect to see in a sector most people would associate with growth stocks.

Total USD Return
TSX:WFI Waterfurnace Renewable Energy
NASD:LIME Lime Energy
TSX:PFB PFB Corporation
NASD:MXWL Maxwell Technologies
Amsterdam:ACCEL Accell Group
NASD:ZOLT Zoltek Companies, Inc.
NASD:KNDI Kandi Technologies
TSX-V:FVR Finavera Wind Energy
TSX:AXY Alterra Power
NYSE:WM Waste Management
Alternative picks
TSX:NFI New Flyer Industries
NYSE:LXU LSB Industries
NASD:AMRC Ameresco, Inc.
NYSE:HTM US Geothermal
TSX:RPG Ram Power Group

The table shows individual stock performance through February first, for my ten picks plus the six alternative picks I presented in a second article.

Significant Events

Below, I highlight significant events I feel affected stock performance. 

Lime Energy (NASD:LIME) started the month with a rapid rise of $0.81 only to fall to $0.53 as worries surfaced about a possible NASDAQ delisting.  It's regained some lost ground over the last few days since Lime won a stay of delisting from NASDAQ.  While I can't predict what NASDAQ will do, I think they should give Lime's management the extra time they're asking for to complete their internal audit and file their much delayed financial reports.  Lime seems to me to be complying with the spirit of the listing rules, in that they are attempting to provide accurate financial information, even if the ongoing internal review is taking much longer than anyone ever expected when Lime's audit committed first discovered the misreported revenue.

Lime is the biggest gamble in the portfolio.  Right now, the market is discounting a large chance of a delisting and some very bad news from the internal audit.  Both fears are real, but I think the risks are not nearly as great as is reflected in the current stock price.  We should know the truth by the end of March.

Zoltek Companies (NASD:ZOLT) started the month with a big jump when the wind Production Tax Credit (PTC) was extended as part of the fiscal cliff package.  Then it gave back all its gains on February first when the company missed analyst's earnings estimates for the fourth quarter for 2012.  I think the PTC extension is more significant than the weak fourth quarter performance, and used the sell-off to add to my position.

Kandi Technologies (NASD:KNDI) lagged for most of the month, only to surge on February 1st on the announcement that the company was setting up an electric vehicle joint venture with Geely Automotive Holdings Ltd (Hong Kong:0175).  Geely announcement (PDF).  Geely is a major Chinese automaker without a significant presence in EVs, but an extensive dealer network throughout China.  The partnership should allow Geely quick entry into the EV market, and provide strong manufacturing prowess and distribution muscles to Kandi.

Finavera Wind Energy (TSX-V:FVR, OTC:FNVRF) shocked me by finishing the month below its already depressed levels at the end of December.  However, the company's fundamentals have not changed, and I used the recent lows to add to my position in Finavera as well.  I gave a more detailed analysis of the stock's moves and an updated valuation of the company here.

Waste Management (NYSE:WM) rose sharply on rumors that it might convert into a REIT.  REIT or no, I like the dividend, and the continued expansion of their recycling business.  WM expanded its recycling footprint with the January 31st acquisition of Texas based Greenstar

New Flyer Industries (TSX:NFI, OTC:NFYEF) got a big cash infusion by selling a 20% stake to Brazilian busmaker Marcopolo S.A at C$10.50 a share.  The companies will also explore opportunities to explore synergies in engineering, purchasing, technical, and operational matters.  That announcement, plus a growing backlog and several increases in analysts' price targets all boosted the stock.

Power REIT (NYSE:PW) produced a $1M proof-of concept deal by investing in Solar Real Estate, showing that its plans to become a renewable energy REIT are more than just hot air. It also payed a $0.10 dividend, which had been delayed from the fourth quarter of 2012 for tax reasons.


The year is still young, but it's off to a great start for clean energy.  My stock picks have been lagging a little, but at least in the case of Finavera and Zoltek, that should be looked on as a buying opportunity.


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.

February 01, 2013

Earnings Season – Alternative Energy Stocks to Watch

By Harris Roen

Some 44 companies active in alternative energy have reported earnings in January 2013. Results have been all over the map, so it is important for alternative energy investors to know where to be cautious, and where the best potential profits are to be found. Below is a summary of selected earnings results from alternative energy companies that the Roen Financial Report tracks.

Linear Technology Corporation (LLTC)
More Info
1/15 Earnings came in on target for this integrated circuit company, but EPS were down 16% for the quarter and down 3% year-over-year. The stock, however is trading at annual highs, up 13% for the quarter and 7% in 12 months. We consider LLTC stock overvalued at these levels. Conference call


1/16 Earnings slightly beat analyst estimates, coming in 22% higher than the previous quarter but still remaining flat year-over-year. The stock shot up over 5% in one day, and 7% in 10 days on the news. Press release

Xilinx, Inc. (XLNX)

1/17 This smart grid company announced disappointing earnings, with revenues dropping 6% for the quarter, and both net income and earnings down double digits. Additionally, 2013 guidance dropped below analyst estimates. XLNX stock fell close to 25% on the news. Reuters article

Johnson Controls Inc (JCI)

1/18 EPS remain low for Johnson Controls, though earnings have bounced back up since last quarter. Sales remain flat, and profits have dropped slightly. The stock is down 8% for the year, but has gained 33% since its lows in August. Still, the stock is considered undervalued at current prices. Press release

General Electric Co (GE)

1/18 Revenues increased 8% for GE last quarter. Both earnings and net income were up double digits, though orders for wind turbines were down. The stock has had solid gains, up 17% for the year. Webcast

Rock-Tenn Co. (RKT)

1/22 EPS dropped 8% for the quarter, but this recycling company still beat analyst estimates by 6%. Sales have leveled off but remain strong, and the company retains excellent cash flow. We consider the stock undervalued at the current trading range in the mid to high $70s. Press release

Google, Inc. (GOOG)

1/22 Google came in with stronger than expected earnings, up 28% for the quarter and 15% greater than the same quarter last year. This means another in a long uninterrupted string of annual revenues increases for the company. The stock is up 7% since the announcement, and up 22% in one year. Press release

Cree, Inc. (CREE)

1/22 Cree's stock price surged after a stronger than expected earnings report, beating analyst expectation by over 8%. Profits increased 15% for the quarter and 27% year-over-year. The stock traded up 22% in one day on historically high volume on the news. Earnings call transcript

Siemens AG (SI)

1/23 Siemens posted lackluster earnings, with revenues dropping 16% for the quarter and EPS down 8%. It plans to sell its Solar Thermal business and Water Technology unit. This is in addition to 1,100 job cuts in its energy division due to decreased economic activity in the European Union. Bloomberg article


1/23 This smart grid company issued a strong earnings report, with profits up 36% for the quarter and EPS more than doubling. The stock is up on the news, and has gained 29% in the past year. Press release

Hexcel Corp (HXL)

1/23 Revenues were flat and earnings went down slightly for Hexel this quarter. Guidance from the company remains strong for 2013, with revenues projected to be between 4%-10% above 2012 levels. The stock is up 22% off its lows in August, but is still essentially flat for the year. Reuters article

Timken Company, The (TKR)

1/24 Even though Timken beat analysts estimates by almost 30%, earnings for the fourth quarter were still sluggish. Revenues, profits, and EPS all fell for the quarter and year. This power transmission company is expecting a 5% drop in sales for 2013. Press release

Corning Inc (GLW)

1/29 This silicon company took a big hit on net income this quarter, but EPS gained on rising profits. The stock has been bouncing around between the $11 to $14 price range, and is considered at fair value at current levels around $12/share. Press release


Individuals involved with the Roen Financial Report and Swiftwood Press LLC owned or controlled shares of GOOG. It is also possible that individuals may own or control shares of one or more of the underlying securities contained in the Mutual Funds or Exchange Traded Funds mentioned in this article. Any advice and/or recommendations made in this article are of a general nature and are not to be considered specific investment advice. Individuals should seek advice from their investment professional before making any important financial decisions. See Terms of Use for more information.

About the author

Harris Roen is Editor of the “ROEN FINANCIAL REPORT” by Swiftwood Press LLC, 82 Church Street, Suite 303, Burlington, VT 05401. © Copyright 2010 Swiftwood Press LLC. All rights reserved; reprinting by permission only. For reprints please contact us at cservice@swiftwood.com. POSTMASTER: Send address changes to Roen Financial Report, 82 Church Street, Suite 303, Burlington, VT 05401. Application to Mail at Periodicals Postage Prices is Pending at Burlington VT and additional Mailing offices.
Remember to always consult with your investment professional before making important financial decisions.

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