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April 30, 2013

First Solar Optimistic About Future

Liz Nelson

First solar logoThe largest thin-film panel manufacturer in the world has an optimistic view of the immediate future for renewable energy demands. First Solar (FSLR) had an impressive charge for several years until the final quarter of 2008 when the stock value of the photovoltaic manufacturer began to plummet. Over the course of four years, the stock had dropped from approximately $311 per share to a dismal $11.43 nearing the end of the second quarter in 2012. At the beginning of April of 2013, the stock had nearly tripled in value and continues to gain momentum.

The beginning of First Solar's downward spiral came in the form of U.S. government not developing a proper action for subsidies and credits as these would help reduce costs making solar power a cost effective solution all-around. During the same time First Solar's stock hit its all-time low, European subsidies were pulling from open fields to rooftop models. Combined with the competitive market for eco-friendly energy development, the solar power company suffered from little sales growth by the middle of 2012.

Many photovoltaic companies are feeling the brunt of the lack of support from the governing bodies of respective countries. Other manufacturers such as SunPower (SPWR) rely on lower-scale residential installations and are able to thrive in the European market due to the subsidy change. First Solar is attempting to overcome the recent obstacles by providing a more cost effective solution without relying on these subsidies in order to make the process cheaper. Since the company's stock hit its all-time low, the focus has been slightly shifted to produce goods for areas that can be utilized without government relief. 

1. Future Contracts - Currently, First Solar is one of the contenders for developing 500 to 1,000 megawatt power plants that are to be assembled in the Middle East and North African areas. Experts state that the solar giant could easily win a large portion of these bids greatly increasing the company's revenue based on the low-cost effectiveness of the manufacturing process of the thin-film panels. This comes on the heals of First Solar's acquisition of TetraSun, a start-up silicon cell developer that has created a proprietary method of cost-effective manufacturing. The acquisition will give First Solar more diversity when bidding on projects and expand the market creating more opportunities later on by reducing costs in manufacturing which reduces the price to consumers.


2. Environmental Sustainability - First Solar is committed to sustainability in a variety of forms. When it comes to the carbon footprint left behind by energy production, First Solar systems are cleaner than nuclear sources. Surpassed only by wind generation, photovoltaic power generation is one of the most environmentally sound applications currently in production. Recycling of these CdTe photovoltaic modules at the end of their lifespan that are featured in First Solar's developments continues the waste reduction even further.

3. Social Sustainability - A social conscience is what makes a good eco-friendly organization, and First Solar proves to be mindful of the future of humanity. The solar power giant has generously donated panels, equipment, and training to a wide variety of locations stretching from schools in California to non-profit organizations in Australia. First Solar has also teamed up with a number of other organizations around the globe in order to bring solar awareness and efficient productivity to as many people as possible regardless of their location.

4. Economic Sustainability - Launching campaigns to inspire job creation, First Solar provides knowledge and training to a variety of locations around the globe. The goal is to reduce the overall cost of photovoltaic manufacturing in order to compete with markets that are based in fossil fuels. With energy security on the minds of a great deal of people and governments world-wide, First Solar puts forth manufacturing efforts to ensure this security never diminishes. If we are unable to tap solar power, the planet has far more immediate and pressing concerns relating to our Sun.

245px-Fullplan[1].jpg
Siemens discussed pulling out of the DESERTEC project in 2012

 Some companies have begun to rethink strategies regarding renewable energy development as the value of such products are over-shadowed by doubt in their opinions. Siemens (SI) discussed pulling out of the Sahara Desert project, DESERTEC, and solar power in general, in October of 2012 due to variables such as falling government subsidiaries. This is shortly after being criticized over the controversial move of making a deal for windmill plants in Morocco occupied Western Sahara earlier in 2012. With as much attention as renewable energies have witnessed recently, First Solar is primed to be on the ground level of a variety of projects and is anticipating greatness in the future.

As long as companies like First Solar can keep the cost of building power plants low, the success will only increase. Since the middle of 2012, many photovoltaic manufacturers have been looking for methods and innovative creations in order to reduce these costs. First Solar has done a great deal to accomplish this task as well as restructure internally. With the acquisition of TetraSun, First Solar has been on the rise with manufacturing projects all around the globe. Between August of 2012 and nearing the end of April 2013, FSLR stock rose from $19.99 to $44.08. As manufacturing costs decrease, buyers are interested in building solar arrays once again and First Solar has the ability to offer a very competitive price while still being able to generate a profitable net income.

This is a guest post by Liz Nelson from WhiteFence.com. She is a freelance writer and blogger from Houston. Questions and comments can be sent to: liznelson17 @ gmail.com.

April 29, 2013

Energy Efficiency Stocks Rally on Shaheen-Portman Bill

Tom Konrad CFA

Former Gov. Jeanne ShaheenRob_Portman_official_photo[1].jpg
Senator Jeanne Shaheen (Photo credit: sskennel) and Sentaor Rob Portman (official photo)

While the chance for broad energy reform to come out of our dysfunctional and divided Congress are slim,  there is one area of broad agreement across the aisle: Energy Efficiency is good for jobs, and the environment.  Much can also be done at modest or no cost to the taxpayer.

Today, Senators Jeanne Shaheen (D-NH) and Rob Portman (R-OH) are reintroducing their Energy Savings and Industrial Competitiveness Act, supported by a broad range of industry leaders, energy efficiency advocates, and environmental stakeholders.   A similar bill passed the Senate Energy and Natural Resources Committee in the 112th Congress with broad bipartisan support, but drew fire from Republicans for expanding a Department of Energy loan program.   This bill eliminates that provision, along with another revolving loan program which had been intended to fund energy efficiency upgrades.

A representative of insulation manufacturer Owens Corning (NYSE:OC) applauded the bill.   She said,”Energy efficient buildings must be a cornerstone of National Energy Policy as the building sector remains the nation’s single largest energy consumer. As the residential insulation market leader for over seven decades, we are keenly aware of the energy savings, environmental improvements, and job creation opportunities derived from strong energy efficient buildings policies and practices.”

Owens Corning’s shareholders cheered as well.  Although the broad indexes were down at mid-day, Owens Corning stock was up 0.2%.

More specialized energy efficiency companies were also rallying.  Waterfurnace International (TSX:WFI, OTC:WFIFF) rose 0.2%, while turn-key energy solution provider Ameresco (NYSE:AMRC) was up 3.7%.  Energy efficiency LED lighting players Cree (NASD:CREE)  Revolution Lighting (NASD:RVLT), and Phillips (NYSE:PHG) were also up, although broader conglomerates with a strong energy efficiency focus, such as Honeywell (NYSE:HON) and Johnson Controls (NYSE:JCI) followed the broader market down.

The Bottom Line

The bill’s success is not guaranteed, but the senators have spent months of negotiations getting buy-in from more than 200 groups and organizations, from the Union of Concerned Scientists to the U.S Chamber of Commerce.

If the Senators have or will gather enough support for a version of this bill to make it into law, expect many of the energy efficiency stocks listed above to rally further, although that is far from the only factor which will be affecting these stocks over the next several months.

Disclosure: Long AMRC, WFIFF, JCI

A previous version of this article was first published on the author's Forbes.com blog, Green Stocks on April 18th.

DISCLOSURE: No Positions.

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

April 28, 2013

Biodiesel's Big Comeback

Jim Lane
Biodiesel 335.jpg
Filling up with Biodiesel in 2007.  Photo source: Tom Konrad

Darling of the mid-2000s, still beloved by its many fans — biodiesel is increasingly a key to delivering advanced biofuels volumes now — and even more so between now and 2022.

Presentations by NBB CEO Joe Jobe and REG CEO Daniel Oh at ABLC 2013 explained the how and why.

In the excitement over cellulosic biofuels and drop-ins, it is easy to forget that the backbone of advanced biofuels in the US and around he world is biodiesel — and not the least of the many services that biodiesel has rendered is enabling the biofuels industry to make up for a shortfall in the production of cellulosic biofuels, by over-delivering on the targets for biomass-based diesel.

While the boom years of biodiesel capacity building are long over, the sector has been going through a renaissance in the past two years, which was plainly in evidence from the bullish outlooks presented at the Advanced Biofuels Leadership Conference by National Biodiesel Board CEO Joe Jobe, and Renewable Energy Group [NASD:REGI] CEO Dan Oh.

Jobe presented on the first morning of ABLC, alongside the chiefs of the other four trade associations, and while the theme of stewardship and sustainability was a common one – touching on issues such as the protection of RFS2 and RIN fraud — the growth scenarios he presented were the most aggressive and the record of growth delivered in the past year was the most impressive.

Meeting RFS2 targets

He discussed the 5×15 initiative — converting 5 percent of the US diesel market to biodiesel by 2015, and said that the industry was well on the way to delivering on that goal.

The longer-term? The biodiesel industry is aiming for 10×22 — or 10 percent of the US diesel market, just north of 5 billion gallons, by the last year of the current Renewable Fuel Standard. That would deliver nearly 8 billion gallons towards the 2022 RFS obligation, because biodiesel gallons count for 1.5 ethanol-equivalent gallons because of their higher energy density.

Were US biobutanol production able to reach its current blend wall in the same period through conversion of the ethanol fleet — replacing 16 percent of the US gasoline market, or roughly 18 billion gallons of projected 2022 demand — that would total 23.4 billion ethanol-equivalent gallons, and between this total and biodiesel, the US would need just 4.6 billion gallons of ethanol-equivalent drop-in fuels to meet its 2022 obligation. Without requiring E15 ethanol blending or putting additional infrastructure requirements on auto manufacturers or the supply system.

That 4.6 billion gallons of ethanol-equivalent fuel would translate to 2,8 billion gallons of actual operating drop-in fuel capacity — and global capacity is over 21 billion gallons today. In short, RFS2 presents reachable targets — but biodiesel is key to accomplishing them.

With such a rosy picture of growth — it’s astonishing that in the entire debate on food vs. fuel there is hardly ever a word about biodiesel — and ranchers, poultry farmers and food manufacturers are never seen targeting biodiesel for the kind of all-out assault that is seen with corn ethanol.

Over to REG

The reason was plain from REG CEO Dan Oh’s presentation at ABLC – looking at how biodiesel is highly complimentary to the food and ranching industries — and supports a “food, then fuel” production system.

More on Renewable Energy Group

REG-1[1].png

First, some background on REG for those less familiar. The company has increased sales from $132 million in 2009 to $1.015 billion last year, and EBITDA rose from a 2009 loss of $12M to last year’s $188M. The company has increased biodiesel sales to 188 million gallons last year, and now owns 227 million gallons of capacity — and has another 150 million in development or construction.

Encouraging both protein and carbohydrate production

In his ABLC presentation, Oh noted that biodiesel is the driver for meat and meal producers to realize higher income off their leftover fats and oils — in turn, encouraging farmers and ranchers to produce more, taking pressure of food prices by assuring them of a secondary market for the byproduct stream.
REG-2[1].png

The protein boost

Soybeans are 80% meal and 20% oil — by provising a growing market for the oil, biodiesel producers help to support the expansion of meal production. This vital cattle feed is helping to hold down the lid on food prices despite China quadrupling its meat consumption in the past 30 years.
REG-3[1].png
According to REG and a December 2010 study by Centrec Consulting, global soybean meal prices could increase by $36 per ton without the biodiesel market — and loss of the biodiesel sector would cost US livestock producers $4.6 billion over a five-year period. Hence the low levels of noise and outrage over biodiesel, compared to the hoo-hah over corn ethanol.

REG-4[1].png

But the value does not stop at soybean oil and meal. There’s the animal fats, oils and greases market to consider – the residues captured and monetized by renderers like Darling. Overall, REG contents that the US biodiesel market consumed 1.29 billion pounds of animal fats in 2011 – providing another channel of monetary gain for the global farmer and rancher community, and lessening price pressures all along the food chain.

According to REG, biodiesel adds $16.79 in value per head of cattle, $2.89 for swine and $0.33 for poultry.
 
REG-5[1].png
Then, there is the restaurant market. You might recall that restaurant owners have generally taken a dim view of the RFS because of the price pressures they contend that the energy policy causes on grain prices.
REG-6[1].png
However, they are generally less outraged by the impact of biodiesel — which has almost single-handedly converted restaurant cooking oil from a $25 per store per week liability — and an odious component of landfill — to a $0.30 per pound or higher commodity that relieves environmental impact of restaurants and institutions while contributing to the bottom line.

The Bottom Line

Put all those benefits together, you not only get a good idea of why biodiesel’s popularity endures — and why, as so many cleantech IPOs have sunk more than 50 percent off their high values, REG continues to trade just a few percentage points off its IPO price of $10.00. As an investment proposition, we’ll know more shortly because REG reports its quarterly earnings next week (Wednesday, May 1).

But the positive impacts ripple far beyond the balance sheet.

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.

April 27, 2013

The LED Gold Rush

Tom Konrad CFA

Cree bulb

Last week, a prominent display of $10 LED light bulbs from Cree, Inc. (NASD:CREE) arrested my attention as I entered a home improvement store.

These were officially launched in March, and are similar to a 40 watt-equivalent bulb I bought in 2009.  I still have that bulb, which I use for outdoor lighting, because Compact Fluorescent Lights (CFLs) take too long to warm up in the winter.  It’s still going strong.  The only problem: it cost $50, and used as much energy as a CFL for the same amount of light.

Four years later, we have a  five-fold drop in price, and the energy use is better as well: these are 6 watt bulbs (with similar light output,) while my old one was an 8-watt bulb.  Cree also has a $13, 60-watt equivalent bulb.

Cree is not alone in improving the efficiency, light output, and price of LEDs to challenge fluorescents.  On Friday, Koninklijke Philips Electronics (NYSE:PHG) launched a replacement for conventional T-12 fluorescents widely used in offices.  Because fluorescents are so efficient, previous LED replacements had to compete on other attributes – such as fewer  replacements.  While replacing a bulb is usually a trivial task for a home-owner, when you are paying maintenance workers salary and benefits to go around a building with a ladder replacing bulbs, the costs can add up.  This is especially true in hard-to-reach applications.

Phillips’ new bulbs can now compete on energy usage as well: they produce about 200 lumens of light per watt, approximately twice as much as a typical office fluorescent.  But I expect a more significant driver of adoption will be improved light quality.  Happier workers are a much bigger benefit to companies than saving a few dollars on their electric bill.

Stocks

With new price points and higher efficiency, LEDs seem set for rapid growth in market share.

Not every LED stock will benefit equally, however.  Pure-play LED companies like Cree and Revolution Lighting Technologies, Inc. (NASD:RVLT) are likely to gain more than broader lighting companies like Phillips and Acuity Brands (NYSE:AYI).

Navigant Lighting Revenue

Navigant Research predicts that while logbal LED lamp sales to commercial buildings will grow by 23% per year for the next 8 years,  the longer life of LEDs will cause industry revenue from lamp sales to decline slightly over the coming decade.

All that said, I worry that LEDs today are where solar was a few years ago: in danger of chronic overcapacity as new players jump into a rapidly growing market.

I initially thought that LED equipment suppliers like Aixtron SE (NASD:AIXG) and Veeco Instruments. (NASD:VECO), as well as upstream play is Rubicon Technology, Inc. (NASD:RBCN), which sells monocrystalline sapphire for LEDs as well as radio frequency and optoelectronics.  In solar, upstream players were profitable for longer than solar manufacturers, although they, too, eventually felt the competitive heat.

Of these three upstream players, Veeco has the best exposure to LEDs.  Aixtron sells deposition equipment to the larger semiconductor and compound semiconductor industries, while Veeco makes  equipment used in the manufacture of LEDs, solar and hard disk drives.  LED equipment accounts for most of Veeco’s revenues, but only a fraction of Aixtron’s.  Rubicon is somewhere in between.

I'm not sure what the competitive situation for Rubicon is, but Aixtron and Veeco are already feeling the heat.  Taiwan's DigiTimes reported that Veeco and Aixtron had slashed prices for their equipment on April 17th.

Conclusion

I suspect that the $10 bulb may be the price point where consumer demand begins to take off, but if too many would-be miners join the gold rush for limited LED revenues, none of them will make any money.

In elementary school, I learned that the surest way to get rich in the California Gold Rush of the late 1840s was to sell picks and shovels to would-be miners.  It seems like even that "tried and true" method won't be enough to make money in the LED Gold Rush.  Better to stick to being the jewelery buyer, and benefit from the rapidly growing supply and falling price of LED gold.

A previous version of this article was first published on the author's Forbes.com blog, Green Stocks on April 17th.

DISCLOSURE: No Positions.

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

April 26, 2013

Solar PV Inverter Market Shakeout Continues With ABB and Power-One Deal

James Montgomery

A pair of analyst reports issued last week came to roughly the same conclusion about the market for solar PV inverters: It's getting crowded and complicated, with top incumbents facing challenges in maintaining near-term growth in an increasingly fragmented market.

Those PV inverter stalwarts will need to pursue more restructuring and mergers & acquisitions to stay atop the shifting and broadening customer base, addressing everything from tough-to-crack markets (e.g. China, Japan) and embracing newer technologies such as module-level power conversion, i.e. microinverters, say IMS Research and GTM Research. This consolidation has already started to play out: SMA (S92.DE) bought Chinese inverter maker Jiangsu Zeversolar New Energy in December 2012, and earlier this month Advanced Energy (AEIS) acquired REFUsol, a German maker of three-phase string solar PV inverters.

And Wednesday there was another M&A splash in solar PV inverters: Swiss machinery component conglomerate ABB Group (ABB) is acquiring No. 2 PV inverter company Power-One (PWER) for approximately $1 billion.

The $6.35/share cash consideration — which, including Power-One's $266 million net cash, amounts to a 6.4× multiple on 2012 EBITDA and 13× on projected 2013 earnings — was a 57 percent premium to Power-One's closing on April 19 and a 50 percent premium on its 90-day average stock price. (PWER's stock already has shot up today and absorbed all of that premium.) The deal is expected to close in the second half of this year, and be accretive to earnings in the first year. Power-One will be slotted within ABB's discrete automation and motion division, alongside power control and quality, industrial motion, and electric vehicle charging and components.

The solar PV inverter market is expected to grow 10 percent annually through 2021, say the companies, citing data from the International Energy Agency (IEA). IMS Research pegs it as a $7 billion market today and exceeding $9 billion in 2016, rising 14 percent annually through 2017. Within that, the inverter segment is "the most attractive and 'intelligent' part of the PV value chain," the companies say.

Global PV Inverter Revenues

Global PV inverter revenues. (Source: IMS Research/IHS)

Here's what both sides gain from the deal:

ABB: Gains better access to the Americas region (USA, Canada, Central/South America). Power-One is active here and is targeting this as a key growth segment for 2013 at all levels, residential, commercial and utility. The company's Trio (commercial) and Ultra (utility) inverters were recently UL-certified. Adding Power-One also gives ABB inroads into residential and commercial markets in Europe and worldwide beyond its traditional utility-scale focus, points out Cormac Gilligan, a lead analyst on IMS Research's inverter team.

Jefferies analyst Scott Reynolds likens this deal to ABB's 2012 acquisition of Thomas & Betts, which expanded its portfolio into low-voltage technology but also added 6,000 distribution points and wholesales in North America. Power-One "has a significantly larger sales and distribution footprint than ABB which will enable the combined entity to accelerate growth," he writes in a research note.

Power-One: Gains access to ABB's broader worldwide footprint for manufacturing and R&D capabilities, including in-house know-how of power electronics. It also can leverage ABB's brand and background for "bankability" in securing access to finance, Gilligan says. ABB also cites its own strengths in the wind inverter sector, plus monitoring/control, infrastructure, and services.

ABB/Power-One Renewables Portfolio

As a combined entity, ABB and Power-One will still have to balance the trend of decreasing prices for PV inverters that will squeeze profits. And like everyone else they'll have to secure inroads into emerging markets (Asia, Middle East, South America). Markets in Japan, China, and India in particular will be key: working with local suppliers and meeting each country's unique requirements (e.g., JET certification in Japan) and price points.

To that end, M&A activity in the PV inverter market is likely only just getting started. ABB pursued this Power-One deal now because waiting for more clarity in market direction could very well lead to paying more, said Joe Hogan, ABB CEO, during an investor conference call. There are no midsize or large deals in ABB's short-term pipeline, he noted, and emphasized that "you won't see us ever do a solar panel deal" because "we're not a machinery company at all."

Some might question ABB's long-term appetite for solar M&A given last fall's backpedaling of investment CPV startup Greenvolts. But PV inverters are very much in the company's wheelhouse of expertise in power electronics, power management and grid interactions, Hogan reiterated. Solar PV inverters have to interface with grids in diverse regions with unique technical and regulatory requirements, and "we know how to do that. It's in our DNA," he said.

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.

April 25, 2013

Yingli Queues Up For Next Chinese Solar Bailout

Doug Young

Yingli logoYingli (NYSE: YGE) has become the latest player in China’s struggling solar sector to get a lifeline from Beijing, as an interesting picture starts to emerge of the relative health of the sector’s major players and who is likely to lead a coming consolidation. The list of who gets these lifelines could also reflect the relative importance Beijing places on China’s wide and varied field of solar panel and panel component makers, meaning some of these lifeline recipients could emerge as potential leaders to help consolidate the sector in the months ahead.I should make a big disclaimer here by saying my observations are based only on public disclosures that I have seen, and that some of the industry’s other major players could also be quietly receiving their own state-backed lifelines that they simply haven’t disclosed yet with official announcements. But that said, I do suspect that most of the big solar names will disclose any big new state support they get, since such support is usually critical to their survival.

With that lengthy disclaimer as an introduction, let’s take a closer look at the latest news that has Yingli saying it has secured 2 new loans worth a combined $165 million from China Development Bank, a major policy lender that is quickly emerging as Beijing’s main tool to bail out the solar sector. (company announcement) Yingli didn’t say very much else in its announcement, except to state the obvious that the loans would help to strengthen its balance sheet.

Investors welcomed the news, bidding up Yingli shares by 8.5 percent after the announcement. Other big solar players also rallied, with Trina (NYSE: TSL) up 9.6 percent, Canadian Solar (Nasdaq: CSIQ) up 4.4 percent and JA Solar (Nasdaq: JASO) up 3.4 percent. Even beleaguered LDK (NYSE: LDK), which is rapidly selling off assets to stay afloat, rose 4.6 percent, though bankrupt Suntech (NYSE: STP) managed to buck the trend and fell slightly.

With its announcement, Yingli becomes the latest in China’s solar sector to receive a temporary reprieve from China Development Bank. Mid-sized manufacturer ReneSola (NYSE: SOL) announced its own new 320 million yuan ($51 million) credit line from China Development Bank in March (previous post), which followed LDK’s announcement a month earlier that it received a similar 440 million yuan in new financing from the bank. (previous post) China Development Bank has also provided past financing for Suntech, and late last year provided major new funds for wind power equipment maker Ming Yang (NYSE: MY) to build new projects in India. (previous post)

So the big questions become: How can one interpret this flurry of activity by China Development Bank, and what’s likely to happen next? I would expect we’ll see CDB make 1 or 2 more similar big loans to other major players in the next month or two, giving everyone the funds they need to survive for the next couple of quarters. The bank will then use its clout with the companies to promote consolidation, providing financing and other assistance to force a series of mergers and closures of smaller, inefficient players.

Investors are likely to look favorably on most loan recipients, as many will believe those companies are likely to emerge as the top new players after a state-led consolidation. If I were a betting man, I would say that loan recipients do indeed look like Beijing’s picks to become future leaders. That’s because even though CDB is a policy lender with less emphasis on earning profits, it’s still unlikely to pour money into companies that Beijing thinks has no future.

Bottom line: Yingli’s receipt of a lifeline from Beijing indicates it and other similar loan recipients are likely to lead a state-sponsored restructure of the solar sector.

Doug Young has lived and worked in China for 15 years, much of that as a journalist for Reuters writing about Chinese companies. He currently lives in Shanghai where he teaches financial journalism at Fudan University. He 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 author of a new book about the media in China, The Party Line: How The Media Dictates Public Opinion in Modern China.

April 24, 2013

Tesla, Graphene, and the 1,000 Mile EV

By Jeff Siegel

A good friend of mine recently took delivery of a brand-new Tesla (NASD:TSLA) Model S.

This is the electric car you've read about in these pages before: a sleek, all-electric vehicle boasting high-end luxury, state-of-the-art design, and an all-electric driving range of 300 miles...

Take a look:

modelstesla

Not only is the Model S a top-notch vehicle that crushes every other electric car available in the marketplace today, but its ability to travel 300 miles on a single charge has proven to be a serious game-changer in the world of electric cars.

In fact, in the first quarter of this year, Tesla delivered more electric cars than any other automaker selling electric cars.

Remember, this is a small, Silicon Valley start-up competing against the manufacturing muscle of companies like GM (NYSE: GM), Nissan (PINK SHEETS: NSANY) and Ford (NYSE: F). And they're crushing it, thanks mostly to the fact that the Model S provides the kind of driving range that calms the nerves of those who worry about their electric car running out of juice.

It also doesn't hurt that this pure-play electric car company has been building a network of charging stations across the country...

Here's a map of the projected network to be completed in less than two years (much of the Northeast corridor and a string of stations along California are already in place and operational):

teslamap

Bottom line: In these early days of electric vehicle integration, the ability to provide exceptional all-electric ranges is paramount to any electric car manufacturer's success.

Of course, while 300 miles on a single charge is worthy of respect and admiration, the truth is in another six or seven years, 300 miles will be considered the “low end” of what is possible for commercially viable electric cars.

1,000-Mile Electric Car

An Israeli-based tech company announced last month it has developed an electric vehicle that can travel 1,000 miles on a single charge. The vehicle is “fueled” by a lithium-ion battery and an aluminum-air energy system that uses the energy released by the reaction of aluminum with oxygen to generate power. And because the system is mechanically reloaded, charge times are quite fast.

The company behind this technology, Phinergy, claims it will have production volumes ready in 2017.

In the meantime, there are plenty of other tech companies and universities looking to get a piece of this action as well...

Take the new microbattery recently developed at the University of Illinois. This is essentially a millimeter-sized battery that has the ability to jump-start a car battery and charge a cell phone in just a few seconds.

Although the battery technology is currently focused on personal electronics, the possibilities for these microbatteries in electric cars are quite enticing, as this technology can help shrink battery sizes down by 30 times while allowing electric vehicles to charge 1,000 times faster than what's available today.

Professor William King, the man behind this research, claims this technology will be available for use in consumer electronics in as soon as two years.

Graphene Matters

While the future of battery technology is enough to excite any tech geek, as investors, it's merely something we have to monitor from a distance — while focusing on opportunities that are available to us today, not five to ten years from now.

Fortunately, when it comes to electric car battery technology, we don't have to wait very long to profit from the next big thing...

Though there are a number of new battery chemistries that'll be entering the market in another five to ten years, right now lithium-ion remains the chemistry of choice.

But thanks to a new development in supercapacitor technology, the next generation of electric cars could be equipped with graphene supercapacitors that'll allow you to charge an electric car in just minutes instead of hours.

My friends, that's the kind of game-changing technology that changes everything.

And thanks to graphene — the same material that's now being used to double the efficiencies of solar panels and make airplanes 70% lighter — electric cars are on the verge of offering the kind of power and range that is demanded by most Americans.

Yes, this completely changes the dynamic of electric cars.

So keep your eyes peeled for some good graphene plays in the future. Because it's ultimately going to be graphene — not lithium — that'll deliver the biggest profits in the electric vehicle space over the next few years.

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

 signature

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

April 23, 2013

BYD Junks Traditional Cars, Issues Shares

Doug Young

byd logo Billionaire investor Warren Buffett has remained faithful to Chinese car maker BYD (HKEx: 1211; Shenzhen: 002594; OTC:BYDDF), refusing to change his 10 percent holdings in the company despite a rapid tumble as its bet on electric vehicles (EVs) fails to take off. But soon the man known as the Oracle of Omaha may have no choice but to reduce his stake, since BYD has just announced a plan to issue more shares to raise desperately needed cash. Of course Buffett may choose to buy some of those new shares to maintain his stake at 10 percent; but I suspect his patience is probably running out with this company, with the result that his stake in BYD will get diluted with this planned share issue. BYD has announced it wants to boost its Hong Kong-listed share count by up to 20 percent, meaning it could sell up to 159 million more shares. (company announcement) Based on its Friday closing price, the company could raise around $500 million if it issues all the news shares. If it did that, then Buffett could see his stake reduced to about 8.3 percent, helping him to automatically lower his holdings as a possible prelude to an eventual exit from the company.

BYD is quite frank about its need for cash, which should come as no surprise since its profits have plunged over the last 2 years as sales of its traditional gasoline powered cars plummeted and its EV program failed to gain much traction. In its announcement on the plan to issue more shares, it says the capital raising plan is the result of the “current capital strain” on the company due to fierce competition.

In a separate media report, BYD also disclosed that it plans to abandon its older gasoline-powered car business completely over the next 2 years as it focuses on its EV program. (English article) Traditional cars were once BYD’s biggest money maker, helping the company to rake in big profits at the time when Buffett made his landmark investment in 2008. But BYD has seen its sales of those cars tumble over the last 2 years as it failed to find a replacement for its F3, once China’s best selling car model.

The company is trying to put a positive spin on its decision to abandon gas-powered cars, calling the move part of a “rebirth” to end its downward skid that has seen its profits evaporate over the last 2 years. Perhaps somewhat ironically, this so-called rebirth plan could send the company into a death spiral if BYD’s EVs don’t start to find a bigger audience in the near future.

I personally have been quite mixed on BYD in the past. On the one hand I think the company is risking its future by placing too much emphasis on EVs, even though most of the world’s top automakers have failed to succeed in the space despite years of effort. On the other hand, I do like BYD’s recent decision to focus on big customers who operate fleets of taxis and buses, since such customers have the resources to build necessary infrastructure and their driving patterns are more suited to EV use.

The most immediate problem for BYD is that time is emerging as its biggest enemy. Many of its bus and taxi fleet customers have launched pilot programs in the past year, meaning it will probably be at least another year or two before they place major orders if those programs are successful. In the meantime, the company is burning through lots of cash to support the EV program, even as its traditional car business sputters.

At the end of the day, this decision to abandon gas powered cars and issue new shares will probably buy BYD another year or two to keep developing its EV program. But the company could face a very challenging future if results from the EV pilot programs are mixed or negative, and it’s quite possible that future won’t include the continued support of Warren Buffett.

Bottom line: BYD’s decisions to abandon traditional cars and issue more shares could buy it 2 more years to make its EV program succeed.

Doug Young has lived and worked in China for 15 years, much of that as a journalist for Reuters writing about Chinese companies. He currently lives in Shanghai where he teaches financial journalism at Fudan University. He 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 author of a new book about the media in China, The Party Line: How The Media Dictates Public Opinion in Modern China.

April 21, 2013

Three New Green Bonds

by Sean Kidney
  • The International Finance Corporation (IFC) is planning to issue $1bn Green Bonds per annum.
  • Hawaii is setting up a bond-funded green bank
  • Germany’s PNE Wind is planning a €100m corporate bond
IFC Logo Trade Finance magazine reports that the IFC is planning to issue $1bn a year of Green Bonds. After talking with IFC folk in Washington DC last week I think I can say that the resounding success of last month’s first $1bn IFC Green Bond is making them think much more ambitiously than before.

We think they should also be looking at stretching their balance sheet by securitizing some of their existing climate change related loans, with a small dollop of credit enhancement to get them an A rating. Result: blue chip (I mean green-chip) bonds with at last a bit of yield for suffering insurance and pension funds, and the IFC gets to more quickly recycle capital in climate investments. Watch this space.

Bloomberg’s Sally Bakewell (one of our favourite clean energy journos) reports that Germany’s PNE Wind AG (PNE3.AG) is planning to issue a €100m ($131m) corporate bond. (Given the pure-play windpower nature of PNG’s activities, that’s a Climate Bond for our purposes.)

Hawaii is pushing through legislation to set up a new “green infrastructure authority” that would make loans to consumers wanting to install solar panels on their roofs. Hawaiian consumers, who pay among the highest prices for electricity in the US, would repay the loans from the energy savings on their electrical bills. Hawaii has a goal of getting 70% of its energy needs from renewable and conservation by 2030.

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. 

April 20, 2013

Suntech May Sell Italian Assets, LDK Defaults

Doug Young

Suntech logo]A restructuring storm continues to blow through China’s battered solar sector, with word of a potential major asset sale by Suntech (NYSE: STP) and a debt default by LDK Solar (NYSE: LDK). Of these 2 news bits, the Suntech one is easily the most interesting as it finally helps to make sense of reports last week that billionaire investor Warren Buffett might want to buy the former solar superstar that last month declared bankruptcy. But Suntech investors will be disappointed to learn the latest reports don’t seem to include a major cash infusion from Buffett, who isn’t really known for investing in such troubled assets.All that said, let’s take a look at the latest Chinese media reports, which say that Suntech may be looking to sell its Italian assets as part of its bankruptcy restructuring. The main asset up for sale would be its 88 percent stake in GSF, a fund that was building solar plants in Italy mostly using Suntech-supplied solar panels. Some readers may recall that Suntech came under fire last year after disclosing its relationship with GSF, since it was using sales to the firm to inflate its own revenue figures.

But let’s move past that scandal to the latest reports, which say that Suntech could sell its stake in GSF to raise some badly needed cash. GSF has an enterprise value of up to $800 million, but Suntech’s stake would likely be worth far less than that amount since the solar plants that are GSF’s main assets were built when solar panels prices were sharply higher than their current levels. A Suntech spokesman said the company intends to operate GSF for now, though he did add that it will consider its options to maximize shareholder value.

So where does Warren Buffett come in to all this? Media reports have suggested that Buffett may actually be interested in purchasing Suntech’s GSF stake, most likely at a steep discount to GSF’s current value. Suntech’s battered shares briefly jumped last week after media reported rumors that Buffett was interested in buying Suntech’s core manufacturing assets in its hometown of Wuxi.

This latest report that Buffett would buy Suntech’s GSF stake makes much more sense than the earlier one last week. That’s because Buffett has a record of buying existing solar power plants, which is essentially what he would be getting by purchasing Suntech’s GSF stake. It’s easy to calculate the rate of return for such plants, since costs and revenue are all well known quantities. These latest media reports point out that Buffett is likely to ask for a steep discount for Suntech’s Italian assets if he really makes a bid, meaning Suntech isn’t likely to get anything close to the $700 million that the stake may officially be worth.

ldk logoFrom Suntech let’s look quickly at LDK, which didn’t surprise anyone with its announcement this week that it has "partially” defaulted on payment for some of its convertible bonds due to lack of cash. (company announcement; English article) This current partial default was relatively minor, involving a $23 million payment that was due on April 15. But the media reports also point out that LDK has another $240 million in debt coming due in June, and that a default on that amount could well trigger the second bankruptcy for a major Chinese solar panel maker after Suntech.

LDK is trying desperately to sell off its assets to various state- and privately-owned entities to avoid Suntech’s fate. It does seem to be attracting some interest in those assets, which it is selling at sharp discounts. At the end of the day, perhaps it will avoid a bankruptcy through such asset sales. But when all is said and done, such sales are probably the same as a bankruptcy reorganization, since the “new” LDK is likely to be a fraction of its original size if it even continues to exist at all.

Bottom line: Suntech could sell its Italian assets to Warren Buffett at a big discount, while LDK could avoid bankruptcy by selling off most of its assets.

Doug Young has lived and worked in China for 15 years, much of that as a journalist for Reuters writing about Chinese companies. He currently lives in Shanghai where he teaches financial journalism at Fudan University. He 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 author of a new book about the media in China, The Party Line: How The Media Dictates Public Opinion in Modern China.

April 19, 2013

Are Investors Right To Panic About Exide Technologies?

Tom Konrad CFA

Thursday Afternoon Panic

On Thursday, April 4th, battery manufacturer and recycler Exide Technologies’ (NASD:XIDE) stock plunged, starting around 2pm.  There was no press release or SEC filing from the company, or stories on the public newswires.  Likely short sellers were stoking rumors on the chat boards that the company had filed for bankruptcy, and that the story was on Reuters.

320px-Exide_advert_in_Horseless_Age_1918-01-15_v43_p82[1].png
Electric Storage Battery Company advertisement for Exide batteries in the journal Horseless Age, January 15, 1918

Intraday, panicked shareholders dumped their shares for as little as $1.16, down 56% from the previous day’s close.  Nasdaq circuit breakers stopped the plunge at 2:17.  I spotted the decline when I checked the market at 2:45, and began hunting for its cause.  The company’s IR contact line was busy, and I found nothing credible in the public newswires or chat boards. I knew the bankruptcy rumors were exaggerated in the absence of an SEC filing, and the fact that Exide has plenty of cash and capacity in its line of credit to meet its short term needs.

There was also an April 3rd story in the Los Angeles Times about LA council members irate about arsenic emissions from one of Exide’s lead recycling facilities in nearby Vernon, but the timing of this article did not correspond to the sudden stock drop at 2pm the next day.  Further, Exide seemed to be making best efforts to locate and prevent the emissions at the source, and to keep the public informed.  While possibly exposing as “many as 110,000″ people to unsafe levels of arsenic is clearly bad, it did not seem proportional to the $100 million plus decline in Exide’s valuation.

I bought two blocks of the stock at $1.40 and $1.42 in my managed account with  most aggressive mandate, planning to sell into the relief rally I expected Friday morning.

The News Comes Out

As the market closed, Exide confirmed that Debtwire had reported on the company hiring Lazard to explore debt restructuring.  With this additional confirmation that a bankruptcy was not immanent, I purchased additional shares at $1.40 in aftermarket trading in a number of managed accounts for sale in the expected Friday morning rally.

Short Lived Rally

Friday morning, the expected rally emerged with the stock opening at $1.77.    Although I expected the relief rally to continue into the low $2 range as the day progressed, short term market dynamics become harder to judge the more time traders have to process the news.  I took my 25-30% overnight profits from the short term trades in the first few minutes of trading, retaining my long term holdings.

The rally quickly began to fade, with the stock closing up only modestly at $1.57 on Friday.  Over the weekend and Monday I began a more in-depth investigation to re-assess my first impression that the bankruptcy fears were overdone, and to decide what to do with my long term holdings.  I contacted Debtwire to obtain a copy of their story, re-read Exide’s most recent earnings call transcript from February, and read the allegations of the class action lawsuits and news stories which are now coming out in relation to the stock decline.

Class Actions

By my count, there have now been four class action suits filed in relation to Exide’s stock decline.  While the law firms plan “to investigate securities claims” against Exide regarding the failure to disclose the arsenic emissions and restructuring, it is unlikely they have any information unavailable to investors.  Most of these law firms seem to be focusing on lack of disclosure around the arsenic emissions at the Vernon plant, but the Rosen Law Firm also plans to investigate allegations that “that it had  concealed information relating to its impending bankruptcy.” [Italics mine.]

Given the inaccessibility of the Debtwire story to non-subscribers, I suspect that some shareholders read Rosen’s statements as confirmation that bankruptcy is actually impending for Exide, and this fueled the panic around the stock.

Chances of Bankruptcy

Exide’s debt consists of a $200 million revolving facility, a $675 million 8.625% bond due in 2018, and a $55.7 million floating rate convertible note due in September.  Concerns about bankruptcy center around Exide’s ability to repay the September convertible note.  A hedge fund analyst anonymously quoted in the Debtwire story was quoted as saying that EBITDA for 2014 is expected to be $130 million, $96 million short of the $80 million of expected capital expenditures, $70 million of interest, $30 million of cash taxes and pension costs, and the $55.7 million maturity.

However, the analyst’s calculations do not include $80 million in cash on hand and $82 million of available credit which Exide had in their revolving in the most recent quarter, ended December 2012.  Furthermore, due to restructuring, Exide ended the quarter with cyclically high levels of inventory, which management intends to draw draw down over the coming quarters.  Total inventory stood at $548 million on December 31st.  With the shut down to two battery recycling operations, they should be able to reduce inventory below the $516 million seen at the end of 2011, freeing up an additional $32 to $50 million.  The approximately $200 million in liquidity from these three sources should be more than sufficient to cover the $96 million cash shortfall identified by the hedge fund analyst in the the Debtwire story.

The above calculations also fit with management’s stated intention of repaying the convertible note from available cash.   It seems unlikely that the September convertible maturity would send Exide into bankruptcy, even if Lazard is unsuccessful in restructuring the company’s heavy debt burden.   The current panic is also reducing the price of Exide’s debt in the open market, and may even be strengthening Exide’s position if it allows the company to purchase some convertible notes at a discount on the open market.

It’s worth noting that Exide’s earnings are currently under pressure from both high input prices for lead, and economic weakness in Europe.  Debt holders are unlikely to want to force Exide into bankruptcy now, before recent restructuring efforts and declining lead prices have a chance to improve the company’s cash flow and improve Exide’s ability to repay its debts.

Class Action Emanations

In terms of the other apparent investor concern regarding the arsenic emissions from the Vernon facility, these seem to have been primarily the result of the class action lawsuits.  Yet these lawsuits would not have been filed without the Thursday stock decline, triggered in turn by the Debtwire story.  Between the time the Los Angeles Times story was published the morning of April 3rd, and the Debtwire publication at 2 pm April 4th, XIDE declined only 8 cents or 3%.  The magnitude of the emissions has not yet been determined, but it would be extremely premature to take the alarm of local lawmakers an indicitave of the severity of the problem.  Their alarm is much more indicative of their need to be seen to be doing something than of the health risks, or any risks to Exide’s finances.

Nor did the news break on April 3rd.  Local papers carried stories about the emissions on March 25th and 28th.  The company’s obligation under existing environmental laws seem to be to reduce the emissions as quickly as possible, and to communicate with local communities about the risks and the steps taken to mitigate them.

The oft-repeated press report that 110,000 people may have been exposed also seems to overstate the real risk.  The local Air Quality Management Board identified the problem when a group of workers who work near the Exide facility showed increased cancer risk of 156 in 1 million, mainly due to the increased levels of arsenic emissions.   Since these workers were near the Exide facility, it seems very unlikely that the entire area of 110 thousand people were exposed to anything like the same level of emissions.  If even ten thousand people had a similar level of increased risk, we would expect only one or two extra cancer cases to result from the arsenic emissions.

In short, while any harmful emissions are a concern, the cost of complying with environmental standards and potential compensation which Exide might be liable for seem tiny relative to the enormous fall in the company’s market value.

Conclusion

Exide Technologies’ stock decline from $2.61 on April third to $1.44 where it is currently trading  seems completely out of proportion to the real chance of bankruptcy and the likely costs posed by arsenic emissions at the Vernon facility.

Reporters and analysts are right to be focusing on the bankruptcy risk as the primary cause of the stock’s recent decline, even if class action law firms and some investors are transfixed by the arsenic emissions.  Yet the fact that Exide has retained Lazard (the solid piece of information revealed in the Debtwire story) does not necessarily mean that bankruptcy risk has increased in any way.  If Lazard is successful, bankruptcy risk will be reduced.

Near-term bankruptcy worries seem overblown.  As Wedbush analyst Craig Irwin put it to StreetInsider, “the statements [suggesting Exide had failed to refinance its convertible notes] were aggressive, premature, and inconsistent with company communications.”

In the course of writing this story, I added to my positions in Exide.

Disclosure: Long XIDE.

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

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

April 17, 2013

Ormat's Enhanced Geothermal Project Now On Line

Meg Cichon
 
Ormat+geothermal%2C+Desert+Peak%2C+NV[1].jpg
Ormat's 21.8 megawatt Desert Peak 2 plant in Nevada. Photo Source: Ormat

A major challenge for the geothermal industry is reducing the risk of its exploration and drilling phase – there is a 40-60 percent chance that each $5-7 million well is ultimately deemed unproductive. But that statistic may soon change. In what many in the industry are calling a game-changer, the nation's first enhanced geothermal system (EGS) to supply electricity to the grid came online last week. ORMAT's [NYSE:ORA] Desert Peak 2 project is producing an additional 1.2 megawatts (MW) of power to its existing nearby power plant.

ORMAT started the project back in 2002 and has spent the past decade researching with U.S. Department of Energy (DOE) how to make an in-field EGS project work. When hot rocks below the surface cannot be permeated with conventional geothermal technology, EGS technology is used to pump highly pressurized fluid into existing fractures of the hot rock in order to create a flowing reservoir.

At Desert Peak, ORMAT had previously drilled a well that only allowed an injection rate of about four gallons per minute, which was then deemed unproductive and abandoned.  After performing years of research that included creating seismicity protocol, the EGS procedure was a success, and the well now has an injection rate of up to 1,600 gallons per minute — it was essentially connected to the existing reservoir at the site.

“The really exciting part is that this technology is, in short, a game-changer,” said Paul Thomsen, director of policy and business development at ORMAT. “Folks in the industry can now go back to existing wells that were unproductive if they had permeability problems, implement this technology at a relatively low cost, and potentially breathe life into unproductive wells — this can essentially increase the longevity of an existing project or increase power output.”

Acknowledging that this project is a huge leap for geothermal technology, Karl Gawell, executive director of the Geothermal Energy Association (GEA), reminded industry advocates that the technology has a long way to go at a recent press conference. “I don’t want to overstate where EGS is — there have been some successes and a green light is on the program right now to move forward,” he said, “but we’re decades away from the MIT ideal of EGS projects.”

Thomsen admits that ORMAT took a “conservative” approach to utilizing EGS technology. Instead of trying to create a new geothermal reservoir in an area with unknown potential, it started by proving the technological aspects of EGS in-field at an existing facility. Thomsen is confident that the technology can be used to further develop standalone EGS systems.

Doug Hollett, program manager of the U.S. DOE Geothermal Technologies Program, reiterated the importance of this project during a telephone conference. He explained that Desert Peak 2, and other EGS projects in the works, are establishing a pathway to low-risk and low-cost EGS. “Rather than EGS being a large number that sits out there in the future, we’ve got a pathway were developing that allows us to perform EGS in-field, which allows us to get to larger targets,” said Hollett.

“This is a shining moment for the geothermal technologies program. We don’t see any barriers to implementing this technology to date,” said Thomsen. “There are no existing unknowns — we’re going into wells and breathing new life into them.”

  Meg Cichon is an Associate Editor at RenewableEnergyWorld.com, where she coordinates and edits feature stories, contributed articles, news stories, opinion pieces and blogs. She also researches and writes content for RenewableEnergyWorld.com and REW magazine, and manages REW.com social media.  Formerly, she was an Associate Editor of ideaLaunch in Boston, MA. She holds a BA in English from the University of Massachusetts and a certificate in Professional Communications: Writing from Emerson College.

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

April 16, 2013

Casella Waste Systems: Cheap Enough to Recycle?

by Debra Fiakas CFA

Solid waste has been one of the business types that has a natural hedge against macroeconomic distress.  No matter how bad things get, as long as our neighbors draw breath there will be trash to handle.  Casella Waste Systems, Inc. (CWST:  Nasdaq) sits in the shadow of larger waste handlers such as Waste Management (WM:  NYSE) and Republic Services (RSG:  NYSE).  Consequently, it is often passed over by investors despite a significantly better profit margin.

One of the reasons investors might not take Casella seriously is its history of net losses.  However, the bottom line is only part of Casella’s story.  After hitting peak sales in 2007 and then suffering the effects of recession, the company has delivered successively higher sales in each of the last four years.  What is more Casella generates strong cash flows  -  enough to cover capital expenditures.

So now that I have started ‘bull’ case for CWST, I have to let investors down a bit.  Casella’s profit margins have been eroding.  Even as sales began to recover in fiscal year 2010 (ending April 2010), higher costs began to nip away at profits.  The gross profit margin was 28.4% in the nine months ending January 2013.  This compares with 31.9% in the same period of the previous year.  The profit margin peaked in fiscal year 2010 at 33.7%.

Protracted economic stress has also shown up on the Casella’s balance sheet.  The company’s financing interval has been deteriorating over the last four years.  Mind you, Casella gets more than enough credit from its suppliers to cover capital requirements for inventory and accounts receivable.  Indeed, payables days have consistently exceeded the sum of inventory and account receivable days.  The problem is that the cushion diminished dramatically over the last few months.  It could be a temporary situation or the signal of a new business reality for Casella.

Casella’s waste disposal and recycling services for municipalities have put the company in line for favorable financing.  Its most recent financing was accomplished through the sale of $5.5 million in solid waste disposal revenue bonds that will bear interest at the rate of 0.2%.  We expect such arrangements to remain a small portion of Casella’s total debt.  Nonetheless, it will have the effect of reducing total interest cost.

It is a mixed bag of analysis, but it is a cheap bag.  CWST has a negative price/earnings ratio because of net losses.  However, on the basis of cash flows, the stock looks very attractive.  The waste management group trades at 11.7 times cash flow, but Casella is on sale for 3.8 times CFO.  Casella does not pay a dividend so any investors taking a long position in CWST must count on price appreciation.  Unfortunately, the stock has exhibited little upward momentum in recent months.  Thus the stock might be cheap, but realizing a gain from this bargain will require patience and plenty of time to wait for price recovery.
 
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. 

April 15, 2013

BioAmber Sets Price Range for IPO

BioAmber Logo.png Jim Lane

 8 million share offering at $15-$17 aims to raise $128 million.

“We are selling 8,000,000 shares of common stock,” begins BioAmber’s latest SEC update, written in IPO-legalese.

“The initial public offering price of our common stock is expected to be between $15.00 and $17.00 per share, which is the equivalent of €11.48 and €13.01 per share, based on an assumed Bloomberg BFIX Rate for USDEUR at the pricing of this offering.

If completed, it would be the first successful IPO in the sector since Ceres (CERE) and Renewable Energy Group (REGI) completed IPOs in 2012. In total, seven companies (Codexis (CDXS), Amyris (AMRS), Gevo (GEVO), Solazyme (SZYM), Ceres, Renewable Energy Group and KiOR (KIOR)) have completed IPOs in this wave. In recent months, Fulcrum BioEnergy, Genomatica, Enerkem and Mascoma have pulled planned IPOs, citing market conditions.

“We have applied to list our common stock on the New York Stock Exchange, where it will trade in U.S. dollars under the symbol “BIOA.” We have also applied to simultaneously list our common stock on the Professional Segment of NYSE Euronext in Paris, where it will trade in Euros under the symbol “BIOA.”

“The underwriters have an option to purchase a maximum of 1,200,000 additional shares to cover over-allotments of shares.”

Latest news from BioAmber

Last November, BioAmber reported that it will be the supplier of biobased succinic acid to the Faurecia-Mitsubishi Chemical partnership for the production of automotive plastics.  This is in response to environmental constraints associated with vehicle weight reduction and the regulations intended to increase the recyclability of materials used in the automotive industry (85% in Europe by 2015) call for increased use of new materials derived from natural resources, which will ultimately replace petroleum-based plastics.

Last October, the Sustainable Chemistry Alliance reported that BioAmber is expected to complete commissioning in 2014 of a new biosuccinic acid plant, now under development in Sarnia, Ontario. “The $80 million project is being constructed at the LANXESS Bio-Industrial Park in Sarnia. The site is located in a large petrochemical hub with existing infrastructure that facilitates access to utilities and certain raw materials and finished product shipment, including steam, electricity, hydrogen, water treatment and carbon dioxide,” the Sustainable Chemistry Alliance newsletter reported.

Financial activity

Last year, BioAmber raised $30 million in its Series C round of financing with $20 million invested in November by Naxos Capital, Sofinnova Partners, Mitsui & Co. Ltd. and the Cliffton Group, and a second tranche of $10 million on February 6th, 2012 closed with specialty chemicals company LANXESS. BioAmber and LANXESS are jointly developing phthalate-free plasticizers and expect to begin sampling succinic-based plasticizers in 2012.

The IPO filing: The Digest’s 10-Minute Guide

Can BioAmber translate a lead in succinic acid’s smallish market into leadership in a vast array of high-priced renewable chemicals? Here’s our 10-minute version of the BioAmber IPO, with a translation of the risks into English.

The latest as filed with the SEC

More on the story via the updates SEC filing, here.

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.

April 14, 2013

Key Players in New Wind Turbine Technology

David Appleyard
 
322px-Eoliennes_a_Sloterdijk[1].jpg
Vestas Wind turbines in Sloterdijk. Photo by Aloxe.
With annual market growth of almost 10 percent, and cumulative capacity growth of about 19 percent according to the latest figures from the Global Wind Energy Council, the wind sector continued to make robust progress in 2012. But while these figures suggest a relatively buoyant market for installations, perhaps a more accurate way to judge the health of the wind sector is to consider investment in R&D, and more specifically the products of that research, development and testing.

Indeed, alongside the expansion of wind markets - notably in Asia and the US, with Europe not far behind - wind technology also continued to show progress over the last year. Key trends appear to focus on larger offshore machines, new versions of existing turbines that have been upgraded and modified to suit a wider range of wind regimes and operating conditions, and a number of developments that aim to reduce installation and operations and maintenance costs.

For example, in January this year A2SEA's new second generation vessel, Sea Installer, erected two Siemens 6-MW test turbines at DONG Energy's demonstration site Gunfleet Sands 3.

“The turbines are getting bigger, and the future sites are further out to sea. This calls for more flexible vessels,” says Jens Frederik Hansen, CEO at A2SEA A/S. The vessel was launched from Qidong in China where it had spent two years under construction.

In autumn 2012 Hochtief also revealed a new vessel. Developed in conjunction with Areva [ARVCF], Innovation is a new heavy lift jack-up offshore installation vessel. Operating in depths of up to 65 meters, its cargo capacity is up to 8000 tons and the onboard crane can lift up to 1500 tons. Innovation was built by HGO InfraSea Solutions, a joint company of Hochtief Solutions and GeoSea.

Areva also showcased its new Single Blade Installation system (SBI) enabling the installation of blades on the hub in all positions up to 330 degrees and at wind speeds up to 12 m/s. By avoiding the need to transport assembled rotors, the system saves deck space and increases the number of machines which can be transported as a single load, Areva says. They add that the 55-ton remotely-controlled yoke was first tested in May at its prototype site in Bremerhaven, with the average time to mount or demount a blade around three hours.

Onshore, for example, Vestas [VWDRY] and SNCF Geodis are using the railways to transport blades, with up to nine 55 meter long blades transportable by train. Although railway transportation of blades is still in its early phases in Europe, Vestas says it expects to reduce costs by 10-15 percent compared to transport by road.

Larger Rotor Diameters, Higher Speeds Explored

Among the major manufacturers announcing new, larger rotor, versions of existing machines, in February Spanish player Acciona [ACXIF] revealed its new 125 meter diameter rotor for the company's existing AW300 platform. Designed to give the 3-MW turbine superior performance at low-wind IEC Class III sites, the AW 125/3000 model stands on Acciona's 120 meter concrete tower and has a swept area of more than 12,300 m2. Design certification for the new rotor is due for completion in 2013, with the first blades installed by the end of the year. The machine will be available for delivery in 2014 for both 50 and 60 Hz markets, Acciona says. It launched the 116 meter rotor version for IEC Class II sites in 2011.

At the recent EWEA 2013 Annual Event in Vienna, Alstom [AOMFF] also announced an upgrade of its ECO 100 3 MW platform, currently designed for medium (Class II-A) wind sites, to medium and high winds (IEC Class II-A and IS Class). The ECO 122 turbine, currently suitable for Class III sites, is also being upgraded to medium and low winds (IEC Class III-A and II B). This upgrade increases the net capacity factor to up to 48 percent for both turbines with rotor diameters of 100, 110 and 122 meters, the company says.

Meanwhile, the first wind farm featuring ECO 110 wind turbines has been inaugurated in Brittany, France, following the signing of a March 2011 contract between Alstom and Eole Generation GDF SUEZ Group for installation of 11 machines. These feature a 110 meter diameter rotor designed for Class II wind regimes and sit on a 145 meter tower.

In a related development, September 2012 saw Alstom sign a deal for the manufacture of their ECO 122 wind turbines in two wind complexes, located in the North-East of Brazil with a 600 MW annual production capacity.

Vestas also revealed a number of new machines over the past year. In the low-wind arena the wind power giant sold its first V126-3.0 MW machines in November 2012, having launched the machine at the Husum Wind fair in September. Finland's TuuliWatti Oy is expected to see delivery of the initial batch of units in the fourth quarter of 2013.

The turbine is the latest variant of the 3 MW platform first launched in August 2010, has a rotor diameter of 126 meters to target low wind conditions (Class III) and features a structural shell blade design. The swept area has been increased by 27 percent compared with the previous model, the V112-3.0 MW, with its 112 meter rotor diameter. Featuring 55 meter-long blades, it is suitable for all three wind classes as well as offshore, Vestas says. Indeed, in June 2012 Vestas released a high-wind version of the machine. The new IEC S uses a beefed-up gearbox modified to handle the increased loads.

“The global market for high-wind turbines is diverse. In traditional and mature wind markets like the European mainland, there are not that many high-wind sites and opportunities left. However, in other markets, there are huge untapped high-wind resources and potential for high-wind specific turbines,” says Knud Winther Nielsen, senior product manager for Vestas Turbines R&D and head of the commercial development of the V112-3.0 MW.

Nielsen's words are backed up with another new product, announced in 2012 by General Electric [GE] and the latest version of its trusty 1.5-MW platform. The 1.85-82.5 machine is destined for high wind sites in Brazil, the company says.

IEC-certified for higher wind speed sites, the new turbine offers an 8 percent increase in annual energy production at 9 meters per second over its previous model. GE says its proprietary Advanced Loads Control allows siting of the 82.5 meter rotor in more aggressive wind regimes.

New Machines, New Manufacturing

Along with new machines, new manufacturing facilities are also being developed which will produce the new generation of products.

For example, in January 2013 Alstom launched construction of two new turbine plants in France. The Saint-Nazaire plants, expected to be commissioned in 2014, will be entirely devoted to assembling nacelles and manufacturing generators for the 6 MW Haliade 150 offshore wind turbine featuring a permanent magnet direct drive generator and a 150 meter rotor diameter. The two industrial buildings will be next to each other and will cover approximately 2.5 hectares in Montoir-de-Bretagne, within the harbor zone of Saint-Nazaire. They will be scaled for a production capacity of 100 machines per year and will take over from the temporary workshop in Saint-Nazaire where Alstom is already producing early series machines. By 2015, two other plants in Cherbourg intended for the production of blades and towers are set to be completed. The blades plant is being developed with LM Wind Power, whose 73.5 meter blades became the first 70+ meter blades to be installed when Alstom inaugurated the turbine.

LM Wind Power vice president of sales & marketing, Ian Telford, states: “Our technology enables us to design and manufacture relatively lighter glass fibre and polyester blades for the length, but above all, LM Wind Power has proven ability to handle the industrialization of these blades, which is not easy.”

Three out of the four offshore wind turbine factories will be financed through the “investissements d'avenir” (investments for the future) scheme managed by the French Environment and Energy Development Agency (ADEME).

Enercon has also announced new manufacturing capacity this year, having proceeded to series production in its new concrete tower factory in Zurndorf in Austria's Burgenland state. At full-scale production, the plant is expected to produce up to 24 tower segments a day - a complete tower - for the E-101 3 MW turbine series. The new factory is set to produce towers for projects throughout Austria, Hungary, Romania, Croatia, Poland, and southern Germany. This latest plant followed the October 2012 start of operations at a similar, slightly smaller, facility in the province of Picardy, France.

Elsewhere, for example, China's Sinovel [601558.SS], is reportedly in advanced discussions with Romanian heavy machinery plant Faur to jointly invest in a wind turbine production facility in Romania.

Onshore Developments

Operating exclusively onshore, Germany's Enercon has announced a slew of developments with its new machines over the last few quarters. In mid-October the company erected the prototype of its new Class IIA 2.3 MW E-92 series atop a 97 meter precast concrete tower in Simonswolde, Ostfriesland in Northern Germany. With a rotor diameter of 92 meters, the machine is designed for lower wind sites and sits between the E-82 2.3 MW and the E-101 3 MW machines. Compared with the 82 meter machine, the E-92 can achieve up to 15 percent more yield, Enercon says. Once the power curve rating has been completed, due as REW went to press, Enercon says it will start series production.

News of the larger 2.3 MW variant followed close behind the announcement of another new machine, a 2.5 MW series with a 115 meter rotor diameter, specially designed for inland locations. Designed for average wind speeds of 7.5 meters per second and gust intensities of up to 59.5 meters per second, the E-115 is particularly suitable for less windy locations, Enercon says. Available with hub heights of 92 to 149 meters the first prototype is due to be installed this year and serial production is expected to be launched in 2014.

Nordex,[NRDXF] another wind major operating exclusively onshore, chose the recent EWEA event in Vienna to unveil its latest turbine. The fourth generation — Generation Delta — of its 3-MW platform has larger rotors, increased nominal output and optimized technical systems, the company says. The new range comprises turbines for strong and medium wind speeds (IEC Class 1 and 2) and includes the 3 MW N117/3000 for medium wind speeds. This is a 20 percent increase in nominal output over its predecessor. Designed for locations characterized by high wind speeds, the N100/3300 is rated at 3.3 MW, resulting in a more than 30 percent increase in nominal output. Larger rotors are being used for both platforms with the N117/3000 adding 17 meters on its predecessor, resulting in a 37 percent increase in swept area and a 10 percent boost to full load hours. Meanwhile the N100/3300 has a rotor 10 meter larger than its predecessor, increasing the swept area by 23 percent, and a taller 100 meter tower. The new machines also come with Nordex's anti-icing system. Commercial deliveries of the new machines are set to commence at the beginning of 2014, with initial projects being installed from mid-2013. Finland's Raahen Tuulienergia Oy will see two N117/3000 turbines installed in the port area of the Northern Finnish town of Raahe. One turbine is to be mounted on a 91 meter and the other on a 120 meter tower.

In mid-2012 Nordex also began series production of its newest variant of the 2.4 MW platform, again featuring a longer 117 meter rotor, the N117/2400 turbine.

GE, meanwhile, announced its new low wind onshore machine, the 2.5-120, at the end of January 2013. Featuring the company's new “brilliant” technology, the turbine includes energy storage capability. With 120 meter rotor diameter, GE says the machine has a maximum hub height of 139 meters - suitable for forested regions - and produces 15 percent more power than its current 2.5 MW model.

Vic Abate, vice president of GE's renewable energy business, said: “Analyzing tens of thousands of data points every second, the 2.5-120 integrates energy storage and advanced forecasting algorithms while communicating seamlessly with neighboring turbines, service technicians and customers.” The first prototype of the 2.5-120, optimized for Class III sites, was expected to have been installed in the Netherlands as REW goes to press. The 2.5-120 will be available at 50 Hz and 60 Hz.

Spanish firm Gamesa [GCTAF], with its range of onshore platforms from 850 kW through to 4.5 MW, unveiled both on- and offshore turbines earlier in 2012. For the onshore sector a new, longer bladed, version of its 2 MW platform has been unveiled. New blades giving a rotor diameter of 114 meters will see this 2 MW machine become available in five different rotor diameters: 80, 87, 90, 97 and 114 meters. Due to be commercially launched in the second quarter of 2014, this Class IIIA machine is designed for use at low-wind sites. The new machine has a 38 percent larger swept area than its G97-2.0 MW turbine and produces 20 percent more energy annually, Gamesa says.

Asia's Wind Technology Giants

Among the leading manufacturers based in Asia, Goldwind [002202.SZ] has been busy with certification of its flagship permanent magnet direct-drive platforms - it offers 1.5 MW, 2.5 MW, 3 MW machines. In February 2013, variants of both its 1.5 MW and 2.5 MW PMDD machines received ETL certification for US and Canadian markets from assessment group Intertek.

The 1.5 MW was initially certified in August 2011, the latest covers series products for low wind speed areas. In October 2012 the company announced that its 'ultra-low' wind 93 meter rotor diameter variant of its 1.5 MW had received domestic certification in China. This machine, the GW93/1500 was launched in April 2012 and is designed for IEC Class S, an annual average wind speed lower than 6.5 meters per second.

During the first half of 2012, a prototype was installed in Zhucheng, Shandong province. Based on operational field data, the company says the turbine can produce close to 9 percent more power on average than the earlier model GW87/1500 series turbines (designed for IEC III class) under the same conditions.

Goldwind unveiled its 6 MW prototype in 2011 and plans to mass produce the turbines by 2014. The company assembled several of the six MW offshore wind turbines this year and plans to put at least one into operation in the first half of 2012, the company said.

Meanwhile, Japan's Mitsubishi Heavy Industries (MHI) has unveiled a novel hydraulic drivetrain. Test operations at its Yokohama Dockyard & Machinery Works began in January 2013, the company says.

Part of a project launched in September 2012 to develop a hydraulic drivetrain for offshore turbines - supported by the New Energy and Industrial Technology Development Organization (NEDO) - MHI says it will accelerate its development of system in the 7 MW class, with installation and operation slated to begin at Hunterston, in the U.K. An onshore demonstration unit in the UK and an offshore floating wind farm project in Fukushima, Japan are slated to begin trial operations in June 2013 and August 2014, respectively, the company says. A mass-produced commercial model will be targeted for market launch in 2015. The Yokohama system is based on an existing MWT100 gear-driven wind generation system, retrofitted with the new hydraulic drivetrain.

Sinovel, another global giant, has continued with its testing program on its 2010-launched 5 MW and its 6 MW machine, launched in May 2011. Sinovel has commercially launched 1.5 MW and 3 MW and is in R&D and early production of its 5 MW and 6 MW turbines. The company is also moving to develop a 10 MW machine, with the project being listed in China's Central budgeting last autumn. The turbine is expected to be installed as a demonstration project in Jiangsu coastal area. China's National Development and Reform Commission awarded Sinovel a grant of RMB42 million (US$6.6 million) to accelerate commercialization of the 10 MW offshore design. Along with Sinovel both Goldwind and Guodian United Power are competing to develop a 10 MW machine after the project was deemed critical by the Chinese government last year.

Also in 2012, Sinovel teamed with Mita-Teknik to co-develop next generation control systems. Sinovel will purchase PLC hardware and the software with source code of the control systems from Mita-Teknik. The same year the company also filed a patent for a reactive voltage control system for a DFID wind generator. However, a fatal crane accident last autumn while attempting to lift a 5 MW wind turbine nacelle at the production facility in Gansu Province and continued wrangles with AMSC over intellectual property have rankled.

India's Suzlon [SUZLON.BO] has also been active developing new versions of its existing platforms. Mid-2012 saw the company reveal its S111 low-wind turbine. This Class III 2.1 MW machine features a rotor diameter of 111 meters. The platform is now available in rotor diameters of 88, 95, 97 and 111 meters. The S111 is available with tower heights of 95 and 120 meters, and will deliver a 20-29 percent increase in annual energy production over the S97 design. The first prototype is due to be operational in late 2013 and serial production is planned to begin in 2014. Suzlon also announced improvements to IEC Class II machine, the S95 first introduced in 2011.

Outlook

It's clear that the wind sector is benefitting from a surplus of choice when it comes to a range of turbines from the world's manufacturers. It's not all good news though. There have been closures and go-slows, with Nordex cutting staff at its Dongying blade manufacturing site in China and Sinovel ordering a go-slow on production, for example. In the U.S., Vestas laid off workers at blade factories in Colorado last year, with the company reducing its workforce in the U.S. and Canada by about 20 percent in 2012.

Nonetheless, while the ebb and flow of global business will inevitably see production capacity ramp up and decline in response to demand, at its core the wind business represents a technology and innovation business. We see evidence for this beyond the new variants and new machines. For instance, in the last year Gamesa raised €260 million from the European Investment Bank for its R&D+I investment program, focused on developing its two new wind turbines. Meanwhile Enercon launched the construction of its new R&D Centre, the Wobben Research & Development (WRD) facilities, scheduled to be operational by mid-2013. Investment in R&D pushes the economic boundaries of wind power today and given evidence, that boundary is being pushed hard.

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

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

April 13, 2013

Gevo wins a judgment in latest Butamax vs Gevo dust-up


Jim Lane

Gevo a winner? Not the issue, says Butamax, as the Capulets and Montagues get it on again.

It’s a tennis match in which the score is never love.

Scene: Verona. A public place.gevo logo

The Prince: Three civil brawls, bred of an airy word,

By thee, old Butamax, and Gevo,
Have thrice disturb’d the quiet of our streets,

And made the Digest’s ancient citizens
 setteth aside
required reading of matters thermochem and RFS,
to hear again, and again, and thence again
your claims and counterclaims and all the pleadings
that issueth, containing more commas than there are microbes under heaven.

This case shall confuseth us most relentlessly,
until we rent our clothes and throweth ourselves
into vats of isobutanol and drinketh thereof
until, verily, we goeth mad and blind.

Butamax logoIn Delaware, the United States District Court for the District of Delaware entered a final judgment in favor of Gevo (GEVO) and against Butamax Advanced Biofuels, LLC (Butamax), a 50/50 joint venture between DuPont (DD) and BP, ending the trial court proceedings on Butamax’s Patent Nos. 7,851,188 (’188 Patent) and 7,993,889 (’889 Patent).

For those newer to the saga, Butamax and Gevo both make isobutanol, using modified microorganisms and employing a separation technology to part the butanol from the broth.

It is not entirely clear who owns what rights, and there has been an awful lot of suing going on.

“This is a huge victory for Gevo and our shareholders,” noted Patrick Gruber, Ph.D., Gevo’s chief executive officer.

Over to Butamax

There was substantially less cheering over on Planet Butamax.

Butamax spokesman Mark Buse said, “As we previously stated, Butamax strongly disagrees with the Court’s claim construction and decided instead of going to trial decided to appeal the case immediately.  This issue was decided two weeks ago.”

Gevo general counsel Brett Lund was incredulous. “Instead of going to trial? You don’t get to skip a trial. You lose.”

Butamax wasn’t buying any of that.

“The only real news today,” said Buse, “is that the Patent office has dealt a huge blow to Gevo, by issuing an Action Closing Prosecution rejecting all claims from their so called landmark GIFT patent. ”

From the ruling

From Judge Sue L. Robinson: “It is hereby ordered and adjudged this 10th day of April 2013 that final judgment be and hereby is entered in favor of Defendant Gevo, Inc. and against Plaintiff Butamax Advance Biofuels, LLC with respect to the claims relating to ’188 and ’889 Patents.”

Final judgement? We are afraid not.

The press release flurry

In a release, Butamax set forth its argument.

On April 10, 2013, the United States Patent and Trademark Office (“USPTO”) issued an Action Closing Prosecution (“ACP”), rejecting all claims of Gevo Inc.’s U.S. Patent No. 8,101,808 (“‘808 patent”), in the inter partes reexamination filed by Butamax on May 7, 2012. The ‘808 patent was described by Gevo as “a landmark patent … on its GIFT® separation unit, a central element in the Company’s unique fermentation technology”.

“The significance of this ACP is that the Patent Reexamination Specialist responsible has now heard both sides of the argument with respect to this patent, and has concluded that all of the original, amended and added claims are unpatentable.

“In making this decision, the USPTO adopted all prior art grounds for unpatentability cited by Butamax against both the originally issued claims and the claims Gevo amended and added during the proceedings. These included the claims for both Gevo’s GIFT® system, as well as all claims purported to cover Butamax’s technology. The USPTO also rejected Gevo’s claims related to retrofit of an ethanol plant, which was already known due to prior disclosures from BP and DuPont.

Gevo responds post-haste

The Examiner’s decision, which dismissed 110 previous grounds of rejection and introduced a limited number of new rejections, is a non-final action called an Action Closing Prosecution (ACP), and gives Gevo the opportunity to respond to the limited new questions raised by the USPTO Examiner. During this period of review, the ’808 Patent remains valid and fully enforceable during the reexamination process.

“Importantly, Gevo was successful in eliminating all of the previous 110 rejections presented in the first office action and the minimal number of new rejections are based on obviousness as opposed to novelty.” said Brett Lund, Gevo’s executive vice president and general counsel.

The bottom line

You have three main lines of gravity here.

1. The Butamax vs Gevo suit. Butamax is going to appeal the decision just handed down today. That could take (easily) more than a year to work its way through the courts.

2. The first Gevo vs Butamax suit. Gevo is suing Butamax for infringing the ’808 Patent. This case is scheduled to go to trial in the US District Court of Delaware in July of 2014.

3. The second Gevo vs Butamax suit. Gevo is suing Butamax for infringing the ’375 and ’376 Patents. This case is scheduled to go to trial in the US District Court of Delaware in August of 2014.

So – with the loser likely to appeal, all of these three cases could drag for years. And, more suits may be filed in the future based on new patents.

It tells you one thing. For sure, the owners of both these technologies see massive value in them – enough to undertake the costly and debilitating legal parry and thrust.

The best news, then? Someone is going to end up owning these technologies — and drivers and chemists will all stand to benefit from isobutanol’s attractive properties and what we expect will be good prices for the customer and great margins for the owners.

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.

April 12, 2013

Solar Stock Alerts

By Harris Roen

Three companies in solar had gains yesterday. Duke made a significant acquisition; First Solar offered positive guidance; JinkoSolar posted an upsetting loss.

Duke Energy Corporation (DUK)
More Info
Duke Energy Renewables acquired two PV power projects in Southern California. Highlander Solar 1 and 2 have a combined capacity of 21 MW, and have 20-year power purchase agreements with Southern California Edison. Operations should become commercial in mid-2013. This brings Duke to more than 100 MW of generating capacity. The stock is up 18% for the year. Press release
First Solar, Inc. (FSLR)
First Solar announced strong guidance for 2013, beating analyst estimates. Revenues are projected to be 13%-19% above 2012 levels, and consolidated operating income should reach $430-$460 million. The stock went up 2% for the day on the news, and is up 70% for the year.
Reuters article
JinkoSolar Holding Co., Ltd. (JKS)

JinkoSolar released a disappointing fourth quarter 2012 earnings report, posting a $122 million net loss. This is more than double the loss from the same quarter last year. For the fiscal year, JinkoSolar had a net loss of $248 million, reversing a net income of $43 million for the previous year. Despite this, the stock jumped 4% for the day, and is up 5% for the year. Press release

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.

Disclosure

Individuals involved with the Roen Financial Report and Swiftwood Press LLC do not own or control shares of any companies mentioned in this article, but 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.

Remember to always consult with your investment professional before making important financial decisions.

April 11, 2013

Will Buffett Rescue Suntech?

Doug Young


bigstock-Lifebuoy-white-against-the-blu-15580121.jpg
Solar Lifeline image via Bigstock
Intriguing rumors that billionaire investor Warren Buffett might be eying bankrupt former solar superstar Suntech (NYSE: STP) are breathing new life into embattled solar shares, as traders bet that western investors could help to revive the sector. Such a move would indeed be a major vote of confidence in this tarnished industry, since most observers believe that no private investors would want to bet on this group and a state-led rescue will be necessary to save the shaky sector. But all of that said, I’m quite skeptical that the latest rumors are true, since Buffett isn’t know for investing in problem-plagued companies or sectors.

Regardless of whether they’re true, the rumors that Buffett might want to buy Suntech helped to spark a rally in Chinese solar shares, with Suntech’s own shares up nearly 16 percent in Monday trade. (English article) Other solar shares joined the rally, with Trina (NYSE: TSL) and Yingli (NYSE: YGE) up 7.6 percent and 4.5 percent, respectively. Even mid-sized players joined in the rally, with Canadian Solar (Nasdaq: CSIQ) and JA Solar (Nasdaq: JASO) also gaining 9.7 percent and 3.7 percent, respectively.

Let’s take a look first at the reasons why the rumors might be true to see why investors were so excited. Buffett has shown a recent interest in new energy companies, some of which could be poised for big growth as many governments try to wean their economies from overdependence on traditional fossil fuels.

One of Buffett’s earliest investments in the area came in 2008, when he purchased 10 percent of BYD (HKEx: 1211; Shenzhen: 002594; OTC:BYDDF), a China-based maker of electric cars and buses.  More recently, Buffett has also invested in solar power projects in California and Arizona, and in an Illinois-based wind farm. (previous post) While the US-based investments are likely to produce their promised returns, results from the BYD investment have been decidedly worse as the company’s EV program struggles.

Now let’s take a quick look at the reasons why an investment in Suntech doesn’t really sound like something Buffett would consider. Leading the list is the complexity of Suntech current situation, after the company defaulted on more than $500 million in debt and was forced into bankruptcy last month by its largest lenders.

Not only is Suntech now in bankruptcy, but the case is being heard in a court in Suntech’s home city of Wuxi where the local government wields big influence. Buffett would have to be very brave to try his luck in this unfamiliar territory, which is hardly like a bankruptcy case in the US court system.

The case is further complicated by Suntech’s problematic founder Shi Zhengrong, formerly one of China’s richest men but now better known for creating many of the problems that led to his company’s rapid crash. Shi’s refusal to yield control of his company in exchange for a government bailout was largely responsible for the bankruptcy that was ultimately forced on Suntech.

Many expect that Shi will be pushed out of the company as part of a restructuring that will see government entities become Suntech’s controlling stakeholders. Beijing and the Wuxi government might actually welcome Buffett’s participation in such a restructuring, since it would provide the company and also China’s broader solar sector with a huge new credibility boost.

But I suspect that Buffett is too smart to get involved in such a messy affair, especially since there’s no evidence just yet that the industry can be commercially viable in its present state. Accordingly, this latest rumor is probably either just wishful thinking by Suntech or some of its rivals, or perhaps it was deliberately created by traders looking to make some quick cash from the stock rally. I expect the rumor will quickly disappear after this week, though it’s still is possible Buffett could invest a year or two from now when the sector finally returns to more stable footing.

Bottom line: Rumors of a Warren Buffett investment in Suntech are most likely false, though Buffett could ultimately invest in China’s solar sector when it returns to health.

Doug Young has lived and worked in China for 15 years, much of that as a journalist for Reuters writing about Chinese companies. He currently lives in Shanghai where he teaches financial journalism at Fudan University. He 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 author of a new book about the media in China, The Party Line: How The Media Dictates Public Opinion in Modern China.

April 08, 2013

OMG! A Cheap Specialty Chemical Company

by Debra Fiakas CFA

Most investors probably pass over specialty chemical producer OM Group, Inc. (OMG:  NYSE).  It has a recent history of losses and by the usual multiples of sales and earnings its stock appears pricey.  I have taken a second look.  The modernization of the chemicals industry is a key step in attaining a sustainable and environmentally benign economy.

chemicals clip artOM Group has undertaken an ambitious reorganization.  Besides specialty chemicals, the company produces advanced materials and technologies for a variety of industries.  OM Group has held leading positions in cobalt-based and nickel-based chemicals.  Its advanced materials product list looks like the table of periodic elements:  iron, manganese, zinc, copper, barium, all the rare earth elements and more.

It’s products end up in everything from batteries to pharmaceuticals to semiconductors.  The renewable energy, waste clean-up and water filtration industries are particularly dependent upon high quality chemicals and materials and are thus becoming increasingly important markets.  The company claims over 4,000 customers in 50 countries.

OM Group had been ‘greening’ itself up with new recycling efforts for hard metals and battery scraps.  Indeed, residues and by-products had been important sources for cobalt supplies such that over half of OM Group’s cobalt material is now sourced from recycled material.  The thing is OM Group has sold off its Advanced Materials division including the cobalt business in March 2013 as part of an effort to get out of commodity markets.  Proceeds from the sale are being used to reduce debt.

One of the most interesting developments at OM Group in recent years is its participation in REACH, the European Community regulation on chemicals.  The idea is to protect health and environment through safer use of chemicals.  Use of dangerous chemicals is to be phased out.  This year the program is entering into the second phase of called registration.

As environmentally friendly OM Group is trying to be, it is probably not a justification for paying a premium price for the stock.  OM Group reported $1.6 billion in total sales in the last fiscal year ending December 2012, but registered a net loss of $38.6 million.  After two years of plump profit margins near 24%, in 2012 OM Group’s profitability slipped back to 2008-2009 recession levels near 19%.  The company also recorded $56 million in charges related to a mix of write-off, write-ups and assessments:  a step up in VAC inventory purchase accounting, pre-tax pension settlement expense of $2.5 million, $2.9 million pre-tax gain recognized on the sale of property in China, $6.5 million acceleration of deferred financing fees and an per-tax EPT escrow settlement of $6.0 million.  Whew!  Without laundry list of charges I estimate OM Group would have reported a small profit in the year 2012.

There is a handful of analysts following OM Group who seem to think profitability is in OM Group’s future.  The consensus estimate is $0.99 in earnings per share on $1.3 billion in total sales for the year 2013.  The consensus is composed of a small group of four analysts, so it is a limited read on investors’ collective thinking.  Still growth and profitability seem to be the common views.  That means OMG is priced at 22.5 times the 2013 consensus estimate.

Perhaps more important to the investor decision is OM Group cash flow.  In 2012, the company converted 12.7% of its revenue to cash.  Even with the significant change in business lines brought about by the sale of the advanced materials operations, OM Group is likely to remain a strong generator of operating cash flow.  Thus while the stock seems overbought on the basis of projected earnings, in terms of cash flow it is trading right in line with its specialty chemical peer group.
 
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. 

April 05, 2013

Energy Storage: Why We Need It, Why We Don't

StorageRTE[1].PNG

It's almost a cliché that there's a "friendly debate" pitting utilities against renewable energy. But concerns on the utility side of the table are real: intermittency, potential destabilization at the feeder level, non-baseload, and peaks in generation that don't necessarily match demand peaks. Today's power infrastructure involves unpredictability in both supply and demand that is extremely difficult to manage. The choice comes down to two options: over-generate so as to not undersupply, or find ways to better match up supply and demand.

"To balance the grid and keep it in a stable condition, you're going to need energy storage," said Doug Staker, VP of business development for Demand Energy. "Every customer interaction, every presentation, one question I'm getting now: what can you do to help me with storage?" He said there's a "huge lack of information and education" about whether energy storage is ready and in what form (e.g. which technology to use, and whether it's centralized vs. distributed) "People really want to understand how to integrate energy storage into a variety of applications."

As more renewable energy comes into the power mix, "high-response energy storage seems to be the way," added Chris Wheaton, CFO of Energ2. "We think storage is an equivalent leg of the chair" alongside solar and wind energy generation.

"In general energy storage is a good thing — except that it is not cost-effective for bulk energy storage," counters Mahesh Morjaria, VP of PV technology applications at First Solar. If the goal is to manage variable energy generation, Morjaria suggests, then the whole grid can act as energy storage, if managed properly. "When part of the resource is not available or generating, other resources are able to provide the load," Morjaria said. "That's the beauty of it, in a more cost-effective manner." Storage too can provide grid flexibility, agreed Morjaria, but it's simply not yet cost-effective enough.

What's It For?

Discussing large-scale energy storage depends on what problems are being solved. "People forget what energy storage is: an enabler," explained Erick Petersen, VP of marketing at Demand Energy. It's not that grid-scale energy storage *can't* be deployed — it's a question of what do you want do with it, whether it's achieve true grid stability, or flatten loads to reduce peak congestion, or provide ancillary services. "The benefits stack up the highest as you move the edge of the grid," he said. "People get lost in the debate whether it should be grid-scale, which battery is right — the answer is, 'All of it,' depending on the problem you're trying to solve."

Reliability and Flexibility

Germany is widely accepted as having a much more robust incorporation and management of renewable energy generation. But even there, many believe the nation's energy overhaul means storage is a matter of not if but when. Wheaton thinks "the jury's still out whether Germany will have an energy storage program." Rick Luebbe, CEO of Energy2, points to a Sandia Labs calculation that problems start emerging at a 20 percent renewables mix at which point storage has to enter the discussion.

Germany has been able to accommodate roughly 22 percent of a renewables mix, mostly variable wind and solar — and they're doing it by leveraging flexibility in their grid "without going out and acquiring a whole bunch of storage," Morjaria points out. Similarly, California's 33 percent renewables target won't rely on building massive amounts of bulk energy storage. In both cases, "they're figuring out other ways to achieve grid flexibility," he said.

In California the difference between trough and peak load on a summer day can be 20 gigawatts, Staker pointed out. "People talk about the [grid] having flexibility and capability to absorb excess generation — and that's true," he said. "But more system saturation becomes more problematic," once you have to start doing things like firming up wind power with gas peakers that by definition want to run in a steady-state condition and not vary up and down to plug intermittent gaps.

Demand Response

"Demand response has been the cure-all for all kinds of system challenges," Staker said. He recalled an effort from Baltimore Gas & Electric with a demand/response plan to reimburse customers for turning off their air conditioners for a few hours during critical peak events. But the system was one-way and radio-based, and closed-loop — no way to really know who responded. So an urban secret spread: wrap your AC in tinfoil to block the signals, and cash in the reimbursement. That, he said, illustrates a problem with demand/response: "at the end of the day, customers can just opt out."

If response time is the target, hydro and possibly compressed air make sense, balancing on a 24-hour cycle, says Luebbe. But either of those options are selective based on geography. For shorter-timeframe needs, electrochemical storage comes into play, with multiple technologies to choose from (lead/acid, lithium-ion, flow, molten, ultracapacitors, hybrid configurations). For balancing solar power into a facility or a grid, lead-acid batteries "will probably be just fine," he said, while flow and molten batteries will emerge at point-of-use to balance intermittent power from a local grid (e.g. cell-phone towers).

Still, Morjaria thinks the costs for energy storage still aren't low enough to make it feasible for this time-shifting. Even if there's a significant difference in the cost of every kilowatt-hour that can be fed into and pulled out of the grid, adding costs associated with energy storage eliminates those potential gains. "In California they're talking about PPAs on the order of $85/MWh [$0.08/kWh]. That's what they expect from solar energy," he points out. (Note that a recent deal in New Mexico was for less than six cents/kWh, and ironically for a First Solar [FSLR] project.) Storing energy and pumping it out adds to that cost — Morjaria ballparks it at $0.20/kWh — which quickly snuffs out any price arbitrage.

Frequency Regulation

Morjaria did acknowledge one area where energy storage is indeed viable: frequency regulation. Constantly adjusting power input to offset increased/decreased demand and keep frequency constant, responding very fast with charging and deploying energy in very short cycles — "that's where energy storage has an interesting role to play," Morjaria said. A123 and Beacon Power have explored that in NY ISO and other places, FERC has tweaked regulation to support it, and "it seems to be making some sense," Morjaria noted. But that isn't necessarily a practice that depends on variable generation from renewables.

Frequency response can stretch out some power output at the expense of some quality, but power coming from renewable sources "is simply not high enough for most independent power producers and transmission to handle," said Chris Wheaton, CFO of Energ2.

What It Costs

The big question in energy storage, Wheaton says, boils down simply: what does it cost to build more generation (to oversupply), vs. how to store and manage energy? Today it's more "economically rational" to build more generation, whether it's solar or wind or even coal, he noted. As energy storage technology costs come down — and as there is better understanding and calculation of externalized costs, such as societal impacts — "we will see those lines cross, and more utilities will go to energy storage as a more economical means to serve the grid."

Fundamentally, economics determines the decision of over-generation vs. energy storage; right now "either energy storage is not cheaper, or the payback is not enough to shift over," noted Luebbe. As the cost (dollars per kilowatt-hour) come down and energy storage costs intersect with those in over-generation, "then everyone will do it because it's economically the logical thing to do."

Part of that economic determination, Luebbe says, has to define, manage and regulate the externality of emissions. That will play out differently in different countries and economies, he noted — how will many countries hit the Kyoto Protocol targets without big changes to grid infrastructures, and how is oxygen interpreted as contributing to emissions calculations. Even the presence of some pilot stage energy storage projects "tells me we're pretty close" to that cost intersection, Luebbe said.

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.

April 04, 2013

Metal-Air Battery Stocks

by Debra Fiakas CFA

A small Israeli battery developer, Phinergy, is getting attention in the press for a road test of a Citreon C1 car outfitted with Phinergy’s metal-air batteries.  Confined mostly to military applications, metal-air batteries have not gained as much attention as lithium-ion applications. Indeed, the Citreon is principally powered by a lithium-ion power package that has been installed in the trunk.  Phinergy’s metal-air batteries are to be used as a range extender.

Long-use is really the metal-air battery’s main attraction.  Like regular batteries Phinergy’s metal-air battery has an anode.  It is made from aluminum plates.  However, here is where convention ends.  In conventional batteries, there is a cathode container of electrolytic material that supplies the oxygen needed for the electro-chemical process.  Phinergy’s cathode is decidedly unconventional, because it just taps the ambient air for the oxygen molecules. 

Phinergy’s calls it an “air cathode.” It is a porous structure that can absorb oxygen and reduce it into the electrolyte.  This capacity yields one of the metal-air battery’s most significant feature  -  low weight.  That is a key attraction for transportation solutions where every ounce of weight must be justified.

energy density for metal air batteries
Energy density of Zinc-Air batteries vs. conventional batteries.  Image source: NASA

It is no surprise that the Phinergy battery was installed on the Citreon to extend range.  Aluminum is an energy dense metal, which in turn gives Phinergy’s metal-air a second major advantage  -  long range use.  Phinergy has suggested its battery could add 1,000 miles to the trip in that Citreon C1!  That is significant since many lithium ion batteries have a range of 100 to 200 miles.

Unfortunately, metal-air batteries have some shortcomings.  The aluminum metal anode component entails some cost, especially since the metal is consumed in the electrochemical process and must be replaced.  Phinergy has made some progress in recharging its zinc-air batteries from the electric grid.

The only hint the company provides on its financial situation is the acknowledgement of government support for its battery development projects.  Phinergy is a private company so likely the only way for an investor to get involved is through a private placement.

For the rest of use, an investment in metal-air battery technology is confined to couples of public companies that have ventured into the field.  Rayovac offers zinc-air batteries to the U.S. military for specific applications.  Rayovac is owned by consumer brand manager Spectrum Brands Holdings (SPB:  NYSE).  Spectrum is a ‘small’ mid-cap stock that is trading at an intimidating multiple of 138 times trailing earnings.  This is because Spectrum has just returned to profitability after a series of net losses.  On a forward basis the stock is trading at 14.4 times the consensus estimate.  No matter how much the U.S. military might like the Rayovac metal-air batteries this stock is far removed from metal-air battery development.

A stake in Arotech Corporation (ARTX:  Nasdaq) is much closer to batteries and even metal-air batteries.  Arotech tested a zinc-air battery in a hybrid vehicle in 2004, but progress has been limited.  Instead Arotech has concentrated on military applications for its rechargeable zinc-air battery technology.  The company sells the Soldier Wearable Integrated Power Equipment System (SWIPES) to the U.S. military.  Combined, its lithium battery and zinc-air batteries and systems account for approximately one-fourth of total sales.  Arotech reported $80.1 million in total sales in 2012 compared to $62.1 million the year before.

Arotech is largely unnoticed by investors, probably because it has yet to achieve profitability.  The company occasionally produces positive cash flow from operations and so has staved off insolvency.  There was $1.5 million in Arotech’s bank account at the end of December 2012.  Consequently, ARTX trades a paltry 200,000 shares per day.  Then again, that shallow trading volume could be a blessing as it may be limiting stock price volatility.  ARTX beta measure is 1.00.

Metal-air batteries are now on my list of technologies to watch.  Phinergy and Arotech have both been added to our Mothers of Invention index of innovators of energy technology.
 
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. 

April 03, 2013

Ten Clean Energy Stocks for 2013: March Update

Tom Konrad CFA

march.gif
March Clip Art by Phillip Martin
While the broad market of small stocks as measured by my benchmark the iShares Russell 2000 Index (IWM) managed to turn in a small 2% gain in March for the third month in a row, clean energy stocks repeated February's performance, giving back more of January's spectacular gains.  My clean energy benchmark, the Powershares Wilderhill Clean Energy Index (PBW), declined 3.2% to end the quarter up 5.5% for the year, while IWM closed up 12.2% for the first quarter..

As designed, my ten clean energy picks for 2013 (introduced here) again weathered the downdraft of the broader clean energy sector, a relative stability which comes at the expense of not participating in the clean energy sector's periodic blistering rallies.  For the month, my model portfolio was flat, turning in a total return of 6.8% for the first quarter.  For the first time this year, my portfolio has closed ahead of its industry benchmark, although it still lags the broader market.

The chart and table show individual stock performance for my ten picks plus the six alternative picks I presented in a second article.

10 for 13 March.png

Significant Events

Below, I highlight significant events I feel affected performance of the stocks in these two lists. 

Waterfurnace Renewable Energy (TSX:WFI, OTC:WFIFF)
Geothermal heat pump manufacturer Waterfurnace reported 2012 annual and fourth quarter results on March 13th.  The headline numbers were weak, but the outlook was strong.  In the conference call, management said they expect a much stronger 2013:  Heat pump sales tend to lag housing starts by six to nine months, and the housing market has recently been recovering.  While most of my managed portfolios are already heavily invested in Waterfurnace, I added it as a holding to a hedge fund which I co-manage.

Ticker
Company
March USD Return
TSX:WFI Waterfurnace Renewable Energy
3.6%
NASD:LIME Lime Energy
-5.4%
TSX:PFB PFB Corporation
-5.5%
NASD:MXWL Maxwell Technologies
-39%
Amsterdam:ACCEL Accell Group
-4.2%
NASD:ZOLT Zoltek Companies, Inc.
46%
NASD:KNDI Kandi Technologies
6.7%
TSX-V:FVR Finavera Wind Energy
5.4%
TSX:AXY Alterra Power
-16%
NYSE:WM Waste Management
5.6%
Alternative picks
TSX:NFI New Flyer Industries
2%
NYSE:LXU LSB Industries
-14.2%
NASD:AMRC Ameresco, Inc.
-8.4%
NYSE:PW Power REIT
-1.2%
NYSE:HTM US Geothermal
12.4%
TSX:RPG Ram Power Group
-14.1%

Lime Energy (NASD:LIME)

On March 6th, a NASDAQ hearings panel granted Lime until June 30, 2013 to file all its delayed and restated financial results.  Expect the company to push the deadline.  Unsurprisingly, Lime just announced that its 2012 results would also be delayed until prior years' results are sorted out.

Maxwell Technologies (NASD:MXWL)

Maxwell Technologies gave investors a nasty shock on March 7th, when they announced that some revenue had been booked too early.  When writing an article about it on March 9th, I realized that there would probably be more bad news to come.  Growth in Maxwell's Accounts Receivable was not fully explained by revenue growth and the errors they had reported on the 7th.  Details are here.

I promptly sold in all my managed accounts at $8.  Readers of the article on my Forbes blog should have been able to sell in the $7.90 to $8 range.

On March 19th, Maxwell's independent accounting firm McGladrey LLP resigned.  McGladrey stated that it "could no longer rely on management's representations," and that "there are material weaknesses in [Maxwell's] internal control over revenue recognition and potentially, more broadly, in [its] overall control environment."  

I take the accountants' resignation as likely confirmation of my suspicions, and believe readers should sell even at the current price of $4.98, down 39% for the year.  Hence, I am replacing Maxwell in the portfolio with an equal amount of Ameresco, Inc. (NASD:AMRC,) one of my six alternative picks.   Ameresco is also down this year (-25.9%) but I believe the company's fundamentals are strong, for reasons I will discuss below.

I will substitute the two as if MXWL had been sold at the current (April 2nd) price of $4.98 and Ameresco had been bought at the current price of $7.27.  Although it would be tempting to use their prices when I published my warning about Maxwell, this portfolio is intended to model the results of a small investor who follows my advice, and only trades more than once a year in very unusual circumstances.  Such an investor would likely not be following my writing closely enough to get out as soon as I published my warning.

PFB Corporation (TSX:PFB, OTC:PFBOF)

Green building product manufacturer PFB also reported 2012 results. Headline earnings were ugly, hurt by a slow housing market and a margin squeeze caused by high chemicals costs and a charge due to the failed acquisition of an upstream supplier.  Despite the poor 2012 results, PFB, like Waterfurnace, should be able to benefit from the recovering housing market, and management believes that cash flow is sufficient to protect PFB's C$0.06 quarterly dividend going forward.  I recently added a little to my position at $5.51.

Zoltek Companies (NASD:ZOLT)

Carbon fiber manufacturer Zoltek's recent rise was explained when turn-around specialist investment firm Quinparo partners and allied investors revealed a 10.13% stake in the company and called for a special election to replace the board.  I interviewed Quinparo's founder, Jeffry Quinn, and concluded that the firm would not go quietly, and possibly make a hostile bid for Zoltek (details here.)

On April 2nd, Zoltek announced a "review of its strategic options," part of an agreement with Quinparo to defer the investment firm's special meeting request.  Such a review will almost certainly include an independent evaluation of offers from Quinparo, as well as any other outside bidders which might be interested in the firm.  The stock was up 46% in March, and continues to rally as I write today.

Kandi Technologies (NASD:KNDI)

Chinese ATV and Electric Vehicle (EV) maker Kandi announced 2012 results, with full year revenues up 60.6% and earnings up 33.6% to 30 cents a share.  EV sales for the year were 3,915, with EV revenues up 204% to $19 million.  This was still less than the 1,000 vehicles per month starting in August I expected when Kandi signed their agreement with the city of Hangzhou last July, but Kandi's EV sales are clearly ramping up, and a trailing P/E of 13 is quite cheap for a company growing this quickly.

This morning, Kandi announced the completion of its (and China's) first full-scale EV production line, with annual production capacity expected to reach 100,000 EVs.

Finavera Wind Energy (TSX-V:FVR, OTC:FNVRF)

Finavera is taking longer than expected to finalize its deal with Pattern, announced in December, and the reason I included the stock in my list.  In the meantime, Finavera issued C$42,200 worth of shares at the current market price of $C0.21 a share to settle debts to insiders.  While I don't like even this mild dilution, it does show some faith among insiders that the deal is likely to go through, since a failure of the Pattern deal would be disastrous for the otherwise cash-starved company. 

Alterra Power (TSX:AXY, OTC:MGMXF)

Renewable energy developer and power producer Alterra lost ground because of delays in multiple development projects caused by uncertainty surrounding the terms of one off take power purchase agreement, and planning studies for for a hydropower project being more complex than anticipated.  Also, the possible sale of Alterra's stake in the Icelandic HS Orka geothermal plant has been put on hold because Iceland's capital controls would prevent the repatriation of the sale proceeds.  Instead, Alterra is working to arrange for HS Orka to start paying a small dividend, the proceeds of which should not be affected by the capital controls.

Alterra has trimmed staff and cut overhead to accommodate the delays and preserve cash for its longer than anticipated pre-construction periods.  While the delays reduce the current value of development assets, I don't feel any of these events undermine the original reason I included the stock in my list: the stock price is far below the value of its assets, especially when the stock's recent decline in considered.  I also added to my position in Alterra in March.

Six Alternative Clean Energy Stocks

New Flyer Industries (TSX:NFI, OTC:NFYEF)

Transit bus maker New Flyer also had lower sales and profits in 2012 compared to the previous year, but this was mostly due to a now-resolved supplier quality issue and the delay of a notice to proceed on a large order from the New York City Transit Authority.  Nevertheless, the results exceeded analyst expectations, and the company's backlog continues to grow, most recently with an order for 120 compressed natural gas buses for the city of Phoenix.

LSB Industries (NYSE:LXU)

LSB fell significantly in March, despite beating analyst estimates for both earnings and revenue at the end of February.  My best guess as to the reason for the decline is significant stock sales in the $38-$40 range by a number of insiders.  My regular readers were fortunately able to exit this one as well, since I highlighted it as one to sell at $42 in mid February, after which it traded as high as $42.15.

I'm considering getting back in if it falls below $30.

Ameresco, Inc. (NASD:AMRC)

Performance contractor Ameresco again disappointed expectations in Q4 because many of its clients were delaying making final decisions on previously awarded projects.  Because they are unable to determine when the current climate of uncertainty will end, management revised revenue and earnings guidance for 2013 downward.  The stock fell significantly as a result.  I added to my positions because I like the company's long term prospects and growing backlog, as well as the current price.

Note that I'm going to be substituting Ameresco for Maxwell in the "10 Clean Energy Stocks for 2013" portfolio for the remainder of the year; see the comments under Maxwell above for more details.

US Geothermal (NYSE:HTM)

US Geothermal announced what I expect to be the first of many quarterly profits.  Commercial operations and higher output at multiple geothermal plants achieved in 2012 mean that I expect a profitable 2013 is a near certainty, and will probably be over 4 cents a share for the year.  The company also received a $33 million cash grant for the completion of its Neal Hot Springs project this month.

Ram Power Group (TSX:RPG)

Geothermal developer Ram Power announced 2012 results and raised C$50,855,000 in secured 8.5% debt and $0.30 warrants to refinance the company's outstanding balance on its credit facility, where the company had been paying 16% annual interest, and extended the term to 2018.  Revenue increased six-fold to C$28 million in 2012 from 2011 with Phase I of its signature project operating for most of the year.  The increased revenues narrowed Ram's loss from 64 cents in 2011 to 19 cents per share in 2013.  Most of this loss was due to an impairment charge, and with Phase II having achieved commercial operation in December, we should see a move to positive earnings in 2013.

Conclusion

While I like to be beating my benchmark, I would prefer if clean energy stocks as a whole were ahead of the broad market for once.  Still, I'm happy that the good news at Zoltek offset the ugly surprise at Maxwell.  Such effective diversification is the reason why I chose ten stocks, and not just one or two.  I hope most of my readers also managed to do a bit better than this portfolio by getting out when I raised the alarm about Maxwell on my Forbes blog, rather than waiting until now.

I added to existing positions in several of these stocks in some of the accounts I manage.  Stocks bought are Waterfurnace, Accell, Finavera, Alterra, and Ameresco. I sold Maxwell Technologies, and reduced my exposure to Zoltek by selling calls. New Flyer and PFB Corp were both bought and sold, depending on the need for investment or cash in particular accounts.

Disclosure: Long WFI, LIME, PFB, ACCEL, ZOLT, KNDI, FVR, AXY, WM, NFI, LXU, AMRC,PW, HTM, RPG.  Short: MXWL.

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

April 02, 2013

The Hydrogen Problem

Jim Lane

Hydro-Man[1].jpeg HydroMan may do his hydrogen-shift thing via water, at will – but outside of the Marvel Cinematic Universe, we have some hydrogen issues.

Psst! Like cutting out a fossil hydrogen dependency for many biofuels.

But, new pathways ensure that the status hydroquo may not last for long.

A numbers of readers responding to “Biofuels from a raging fireball” (on research work with the raging fireball, Pyrococchus furiosus, to make biofuels and renewable chemicals from hydrogen gas and CO2) raised the question, where is all the hydrogen going to come from?

As many know, hydrogen is not found in a free state in nature in much quantity — and we supply most of our hydrogen needs through steam reformation of natural gas, or cracking fossil petroleum. In other words, renewable fuels made using external hydrogen may well have a hidden fossil fuel dependency.

It all comes down to cost. There are alternative ways to make hydrogen gas, and renewable pathways for sure — if society is not using them, it is generally due to cost issues. In there, to some extent because the costs associated with renewable hydrogen are generally internalized in the process, while many of the social costs of fossil fuels are externalized — e.g. the venting of sequestered CO2.

The hydrogen dependency

Hydrogen gas is a dependency in a number of processes that make renewable fuels — most notably, those that have a hydrotreating step to remove excess oxygen. That includes the upgrade of pyrolysis oils, and even the production of aviation biofuels from renewable oils (the HEFA pathway that is currently powering most of the current flight activity).

Those beyond H2.

Now, hydrogen gas is not a required production element. Fermentation of biomass to produce an alcohol fuel does not require it. The production of diesel and jet fuels fuels using the processes pioneered by Amyris (AMRS) and LS9 do not. Neither does Joule’s process, not Cool Planet’s drop-in fuels (we think). We’ll get to the interesting case of LanzaTech shortly. Upgrading alcohol fuels to hydrocarbons can be accomplished without hydrogen gas — ORNL has developed such a process.

But some of the most promising companies are using hydrogen — Coskata, Sundrop Fuels, Primus Green Energy being three examples of companies that have begun to source fossil natural gas to get affordable feedstock. But processes such as Honeywell's (HON) UOP’s hydrotreating, used to make drop-in fuels with the Envergent process, or HEFA aviation biofuels in partnership with the likes of Dynamic Fuels and Solazyme (SZYM) — well, they need hydrogen.

So, what about hydrogen gas — can it be made renewably, and where and how?

The technical answer is, you bet. Affordably? Another question entirely. Let’s review the state of play with the two main pathways – and two outliers.

Electrolysis

The process? Hydrogen can be produced from water, and routinely is, using an electrolytic process that you can demonstrate in a high school lab.

The problem? The process will chew up some 35-50 kilowatt hours of electricity per kilo of hydrogen. There being roughly a kilo of hydrogen in a gallon of hydrocarbon fuel — at $0.10 for lowest cost renewable electricity (e.g. wind), there’s $1.70-$2.50 cost per gallon just to provide the hydrogen feedstock, and you still have to pay for the process and whatever cost of aggregating CO2.

Solution? Advocates routinely talk about producing hydrogen using excess (and thereby, nominally priced) renewable power — at times when the grid is loaded, rather than shunting biomass steam energy to cooling towers (as opposed to the turbines) or using large scale battery storage of the type that Duke Energy put in place at its Notrees wind farm in North Carolina.

Another solution. ORNL has developed a low-cost process – yet to be demonstrated at scale. More on that here.

Anaerobic digesters.

The process? Here, microbes chew waste materials and produce biogas, rich in methane.

The problem? Costs have been the issue. But systems have been getting bigger, and options for producing hydrogen from them are there, using essentially the same processes by which hydrogen is produced from natural gas.

Solution? As an example of progression in system size, Western Plains Energy announced plans to build a $40 million anaerobic digester to produce enough biogas to replace 90% of the fossil fuel used in the manufacturing process at the company’s 50-million-gallon Oakley ethanol plant. When completed, the digester is expected to provide 15 jobs converting manure, grain dust and food waste to power. The project received a $5 million grant in April from the U.S. Dept. of Agriculture, and $15.9 million one year ago when Kansas Gov. Sam Brownback redirected unspent American Recovery and Reinvestment Act funding to the project.

Steam reformation or other catalytic processes from biogas or biooil

The process? Cracking hydrogen from biomass using heat and catalysis.

The problem? Cost, again. Steam reformation itself has struggled with high costs associated with the high temperatures at which the system operates. But it has been a technology worth chasing, for in the development of F-T plants it eliminates both the need for expensive oxygen plants and larger footprints needed to deal with nitrogen dilution from air, lowering capex and space requirements.

Solution? In 2010, we reported on a team from East China University of Science and Technology and Guangxi University  has conducted a study of hydrogen production via catalytic steam reforming of bio-oil in a fluidized-bed reactor. They note that “hydrogen production from renewable biomass is particularly adapted to sustainable development concerns. Biomass, a kind of renewable resource that adsorbs CO2 during its growth, contributes net zero carbon emissions when used to produce hydrogen.”

A system that has been attracting the most attention in this area is the ClearFuels gasifier, the star gasifier at Rentech’s (RTK) Product Demonstration Unit in Colorado. Unlike other gasifiers or pyrolysis processes, ClearFuels HEHTR is a one-step rapid steam reforming process that converts all the biomass to syngas with no char, no liquid intermediates, no ash slagging/fouling and low tar content.

The technology has operational controls for a tunable hydrogen to syngas ratio of 1:1 up to 3.5 to 1, while also interchangeably running on syngas, tailgas, biogas or natural gas.

A first outlier. Syngas as a source of hydrogen — and renewable fuels, all at once.

You may recall that LanzaTech can use hydrogen-free gases for the production of ethanol. That is because their proprietary microbe can produce hydrogen from carbon and water as required.

Which, of course, raises the possibility of combining a LanzaTech-type process with a process that needs hydrogen — and obtaining both feedstocks at the same time from synthesis gas (a combination of hydrogen and carbon monoxide), produced by gasifying biomass. Just a matter of membrane separation of the hydrogen gas. Voila, renewable hydrogen, ready to be fed to a second system that uses CO2 and hydrogen to make fuels.

A second outlier – mimicking photosynthesis.

As you might have reflected during your reading this morning, what can plants teach us? Clearly they are obtaining hydrogen to make their own biomass, from water — presumably affordably, since trees are not filing for bankruptcies.

In California last week, HyperSolar announced its plan to build renewable hydrogen generators for commercial use. Named the H2Generator, the company’s first commercial product is expected to sell at a substantially lower price than other renewable hydrogen systems that rely on expensive and energy intensive electrolyzers to split water.

By optimizing the science of water electrolysis, the low cost device mimics photosynthesis to efficiently use sunlight to separate hydrogen from water, to produce environmentally friendly renewable hydrogen.

Tim Young, CEO of HyperSolar commented, “We believe that our intensive R&D efforts will finally pay off in the form of a go to market commercial product. One key discovery was an efficient and low cost polymer protective coating that will allow us to protect solar devices against photocorrosion. Using this coating to treat traditional silicon solar cells, we are able to eliminate the expensive electrolyzer by integrating the electrolysis function directly into a solar cell immersed in water.

“We have given our tech team the green light to complete the product design required to build the first demonstration system,” Young continued. “With a demonstration system in hand, we can then move to the manufacturing phase of the business.”

The HyperSolar H2Generator will be designed to be a linearly scalable and self-contained renewable hydrogen production system. As a result, it is intended to be installed almost anywhere to produce hydrogen fuel for local use. This distributed model of hydrogen production will address one of the greatest challenges of using clean hydrogen fuel on a large scale – the need to transport hydrogen in large quantities.

The bottom line.

Digesterati, take faith. There are multiple paths to renewable hydrogen — all a matter of cost. Our take: look for symbiotic systems, of the LanzaTech type we discussed above, where hydrogen or electricity becomes available as a residue from another process. In terms of bolting on to a second technology, there’s no better way to be capital light, and get closer, faster, to parity costs with fossil pathways to hydrogen.

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.


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