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May 31, 2013

Bluefield Solar Eyes £150 Million IPO

Bluefield IPO to Be the Second Green Energy Fund Flotation in London This Year

by Alice Young

KD501Bluefield Solar Income Fund Limited, an investment fund focussed on solar power, plans to raise £150 million in a London IPO. The Bluefield IPO will be the second flotation of a green energy find on the London Stock Exchange this year following the IPO of Greencoat UK Wind (LON:UKW).

Bluefield Solar Plans London IPO

On Wednesday, May 29, London-based Bluefield Solar announced that it intended to launch an initial public offering on the LSE’s main market. The fund, which is focussing on large-scale agricultural and industrial solar assets, said in a press release that it was seeking to raise £150 million by way of a placing and an offer for subscription of ordinary shares. Bluefield expects its shares to start trading in July.

One of the fund’s cornerstone investors will be Vestra Wealth LLP which has committed to subscribe for no less than 15 million ordinary shares. Numis Securities is acting as broker and financial adviser to Bluefield in relation to the London IPO. The fund will also be advised by Bluefield Partners.

The fund plans to invest the proceeds from the IPO in UK-based agricultural and industrial solar energy assets. “Solar energy should play an important part in the UK’s energy mix going forward,” John Rennocks, the proposed Non-Executive Chairman of the fund, said in the press release. On Wednesday, the Financial Times quoted James Armstrong, a managing partner in Bluefield Partners, as saying that large-scale solar energy was “poised to become a major investment theme in the UK”.

Bluefield Solar was founded by former partners of Foresight Group, a large renewable technology investor. Jon Moulton, the private equity tycoon and chairman of investment company Better Capital (LON:BCAP), sits on its investment committee.

Green Energy IPOs

The Bluefield IPO announcement came two months after the floatation of Greencoat UK Wind (LON:UKW), a wind energy investment fund managed by UK-based infrastructure fund Greencoat Capital, which raised £260 million in March through a London IPO. Greencoat owns stakes in onshore and offshore wind developments.

UK government support for clean energy has offered an incentive to renewable energy producers to seek London listing. Electricity suppliers have been encouraged to increase the share of renewables such as solar and wind power in the electricity mix they sell to customers.

The Renewables Infrastructure Group (TRIG) backed by Renewable Energy Systems is reportedly considering a flotation, hoping to raise £300 million for its portfolio of 18 wind farms and solar parks in Britain, Ireland and France.

This article first appeared on iNVEZZ.com, an informational and educational resource for retail investors. The portal provides news, analyses, commentary on data on the markets and investment products available to private investors. It encourages engagement and contribution from all stake holders in the retail investment world, covering energy, equities, funds, forex, real estate and more.

May 29, 2013

Get Ready for a Revival in Solar Tech Investments

James Montgomery

The Skies are Brightening as Manufacturers Resume Spending to Improve Efficiency

Slumping solar PV equipment spending has finally bottomed out, and we're about to witness a "revival" in investments that will finally close the yawning gap between oversupply and demand, according to a pair of analysts reports.

Solar PV manufacturers spent nearly $13 billion in 2011, but then their investments plunged more than 70 percent to $3.6 billion in 2012, and will probably drop another 36 percent this year to $2.3 billion, the lowest level since 2006, says Jon-Frederick Campos, analyst with IHS Solar. But with prices showing signs of stabilizing, companies that idled manufacturing lines and lowered utilization, and put off expansions in the last 12-18 months, are adding new plants and production capacity in emerging markets where some of the best growth is happening: Middle East to Africa to Latin America, he said.

Two signs Campos has seen over the past six months that indicate reached the bottom of PV investments: "average selling prices, though still not completely favorable, have been stabilizing and have actually shown increases thus far in 2013," he said. And second, he points to improved forecasts and stronger financials from PV companies, thanks to improving market conditions. "The rest of 2013 and early 2014 will eliminate much of the overcapacity still out there."

Ed Cahill, research associate at Lux Research, isn't exactly so optimistic, saying we haven't actually reached the bottom yet: "It'll be worse next year, when a lot of consolidation will happen," starting with the vertically integrated manufacturers who are most exposed to price pressures across the board. But like Campos he sees demand going up and supplies going down over the next couple of years, with prices rising and profits reemerging. "When will those two match up? We see it in 2015," when capacity dips to 58 GW, and demand surges to 52 GW. (He clarifies that roughly a 12 percent overcapacity beyond demand is "a healthy amount" that provides a cushion for manufacturers; after 2015 that buffer could shrink down to 5 percent and create what he calls a "supply-constrained" environment in 2016.) Total demand is seen reaching 62 GW by 2018, led by China (12.4 GW of installations) and the U.S. (10.8 GW). Those numbers assume "multiple large movements within the market," from new financing models for distributed solar projects, to governments fast-tracking utility-scale project development in emerging markets, and shutting off government support for smaller and struggling manufacturers.

PV supply demand & overcapacity Lux
Increasing demand and decreasing capacity lead to the market's return to equilibrium in 2015. (Source: Lux Research)

Both Campos and Cahill think crystalline silicon (c-Si) will continue to dominate the solar PV market and that's where the real gains will be seen to further lower costs. Improvements continue to be made all over the module bill-of-materials, from the starting wafer material (direct solidification, epitaxial silicon, and quasi-mono silicon ingot) to structured saw wires, selective emitters, rear passivation, backside contacts, metal wrap-through, and anti-reflective coatings. Small improvements in specific areas can add up; just ramping utilization back up to 90 percent should save manufacturers $0.09/W, Cahill notes. "Capacity-boosting investment is what got the industry in trouble," Campos adds. "Technology and process step-up investments are the key to our industry's continued revival."

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.

May 28, 2013

EU, China Solar Talks Fall Apart: What's Next?

Doug Young

Trade War
Trade War. photo via Bigstock
It’s been interesting to watch all the different interpretations coming out of a brief flurry of talks in Europe late last week aimed at settling a trade dispute between the EU and China over Beijing’s support for its solar panel makers. About the only thing that everyone agrees on is that some talks did happen, and that China took the interesting step of letting an industry association rather than government officials handle its side of the negotiations. But after that, no one seems to agree on why exactly the talks fell apart or whether there’s hope that they might be restarted before the EU finalizes proposed punitive tariffs on imported Chinese solar panels. Adding further intrigue to the mix, German Chancellor Angela Merkel has come out during a meeting with visiting Chinese Premier Li Keqiang to say that Germany opposes punitive tariffs and wants to see the dispute resolved before a trade war begins.

I have to commend Merkel for breaking with the EU trade commission to try and find a constructive solution to the dispute, since a trade war isn’t in anyone’s interest and could deal a serious blow to this important sector. But that said, it’s far from clear that China’s inexperienced negotiator will be able to work constructively to find a solution to this impasse, which stems from western allegations that Chinese solar panel makers receive unfair state support.

The current state of confusion has its origins in remarks last week by an official from the Chinese Chamber of Commerce for Import and Export of Machinery and Electronic Products, a government-backed industry group that was chosen to represent Chinese solar panel makers in talks with the EU. After the talks broke down, the frustrated official returned to Beijing where he said his group had made an offer that had been rejected by the EU’s trade office. (English article)

That prompted an EU to quickly fire back to call the Chinese statement misleading because formal talks had yet to be launched. An EU spokesman further added that the meeting last week was only “technical preparatory talks”, and that formal negotiations could only begin after the EU commission considering the case publishes its preliminary findings.

Clearly there are some communication problems here, which I blame on both sides. For his part, the Chinese representative probably has little or no experience negotiating in this kind of major trade dispute, and simply thought he could make a quick offer and settle the matter. The EU, meanwhile, failed to realize the Chinese negotiators lacked understanding of the EU’s process for settling this kind of talks. If they wanted to handle the situation better, the EU negotiators should have realized they would be dealing with a relatively inexperienced Chinese team and made more effort to educate them about the EU’s dispute resolution process.

Merkel’s entry into the situation seems a bit unusual, since individual EU leaders seldom speak out on this kind of dispute and usually let the bloc’s trade representative handle such matters. (English article) As I said before, I’m happy to see such a major national leader finally speaking out on the need to negotiated solutions in these kinds of disputes rather than conducting investigations and unilaterally imposing punitive tariffs.

Merkel’s words and China’s willingness to finally admit there is a problem and seek a negotiated solution both look like good signs that both sides want to resolve the matter and perhaps a trade war can be averted; accordingly, I’d put the chances of success for a negotiated settlement relatively high, perhaps at about 70 percent.

Bottom line: Despite some confusion, talks to resolve the EU-China dispute over solar panels should have a good chance of success due to both sides’ desire to avert a trade war.

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.

May 24, 2013

Advanced Biofuels in the Valley of Disbelief

Jim Lane
bigstock--D-Roadsign-Of-Facts-Vs-Lies-W-42313771.jpg Lies, Truth, and Disbelief via BigStock Photo

Are you missing out on great investment returns – is the Dow really headed for 20,000? Is the advanced biofuels rally for real?
Why are investors sitting on the sidelines in the Valley of Disbelief?

This year in the United States, despite awesome returns in the stock market and miserable bond yields, the Investment Company Institute estimates that $85.4 billion in new investment has poured into bonds — by contrast, only $73.2 billion into stocks.

Seth Masters, CIO of Bernstein Global Wealth Management told the New York Times last week that “people were so traumatized by the financial crisis that they were seriously underestimating the stock market” – and projected that the Dow would reach 20,000 by the end of the decade.

Let’s look at investor trauma.

A contrarian investor who, by contrast, put money into an S&P tracking fund on the day after the Thanksgiving holiday, would have realized an 18.4 percent return in less than six months.

What would have happened to same investor putting money that same day into the highly-maligned category of advanced biofuels equities (Amyris [AMRS], Ceres[CERE], Codexis[CDXS], Gevo[GEVO], KiOR[KIOR], Renewable Energy Group[REGI] and Solazyme[SZYM]), and weighted the investment according to their market cap?

A 31.6 percent return.

Advanced Biofuels stock returns

So why all the negativism - both inside biofuels — and without? Twitter, as seen through the lens of a keyword like “biofuels” — offers a heavy stream of sarcasm about crony capitalism, broken technologies, government interventionalism, third world oppression, infrastructure incompatibility, and lousy investment performance.

Advanced biofuels — and equities as a class — appear to have entered into a geography which you might call the Valley of Disbelief.

Irrational inexuberance

If the Valley of Death describes the dangerous period when emerging companies face difficulties in raising expansion capital to build their innovative products at scale — the Valley of Disbelief represents the period when companies have figured out a means across the Valley of Death but the market remains irrationally skeptical. You could call it a period of irrational inexuberance.

True, public markets have always been less patient sources of capital than early-stage or strategic investors — and advanced biofuels companies came out early.

(But then, so have biotech companies. Gilead paid an 89% premium over Pharmasset’s stock value to acquire the company, for $11B, more than two years before its signature all-oral Hepatitis C treatment (Sofosbuvir) was even expected to win FDA approval. Gilead shares have rocketed up 43% this year as Sofosbuvir gets nearer to market.)

Which is to say there’s long been an arbitrage between perception (in the public markets) and reality. The explosion of information in the digital age was supposed to level the playing field for the small investor, but seems to have exacerbated the gap. Let’s look.

It’s a period that Apple (APPL) famously went through — to mention the highest-flying stock of the 2000s, when it tumbled 71 percent between the spring of 2000 and the fall of 2001, even while it was launching its seminal Mac OS operating system and the seminal iPod. In fact, its shares continued to tumble for some time after the iPod appeared – investors had a hard time grasping that the world had changed. A $10,000 investment made the day after the iPod launch is worth more that $480,000 today.

And anyone who ever listened to a Steve Jobs keynote back in those days can assure you that Jobs was not shy in describing Apple technologies as the revolutionary unlockers of value that, in fact, they proved to be. He described the iPod as a “breakthrough digital device” — and as a first step in Apple’s “digital hub” family of devices, which ultimately included the, er, iPhone and the iPad.

A year after Job’s launch keynote and the iPod launch? You could pick up APPL for 19% less than the day before the announcement. Remember, this was a company that had already rolled out the strategy, was rolling out the products, was getting rave reviews, and had assembled the cash to execute its strategy (as it did) without a single dilutive equity issue or even a debt offer. Plus has the Steve Jobs “reality distortion field” working for it.

There are powerful magnets dragging on reasonable expectations — down there in the Valley of Disbelief.

Advanced biofuels in the Valley of Disbelief

It affects many great companies. You might notice that a company like KiOR, in our advanced biofuels set, has seen its shares fall dramatically since last autumn. Last week we saw this meme floating around Twitter, “Yesterday Molchanov reiterated his Outperform on KiOR despite losing 61% since his initial Outperform rating”

KiOR’s unforgivable market sin? Producing drop-in renewable fuels successfully in its new first commercial facility for the first time in Q4, as promised. Shipping drop-in renewable fuels to customers starting in Q1, as promised.

For meeting all its pre-IPO commitments and timelines, Solazyme was rewarded with a post-IPO 50%+ fall in its stock price — before beginning a meteoric rise last November. Renewable Energy Group, which was operating at scale for years before its IPO, experienced a 40% drop-off, post-IPO, before crossing back into positive territory just this month, 15 months after its IPO.

The problem of information overload

Why causes companies to fall into the Valley of Disbelief? At a time in history when digital distribution of information has made investing so much more transparent. You can find more chatter about stocks today than ever before – whole television channels, message boards, newsletters. Why does the information revolution not result in the death of disbelief?

In the 2003 book Anchoring America, I observed that rate of information distribution was rising, but that the circles were narrowing — in short, intensity was on the rise, but broad awareness was falling. The number of private messages received by the average individual had grown at two times GDP since the 1920s — from one per day to 48 per day (as of 2002). Information has only increased in intensity — as anyone knows who counts their emails, tweets, facebook postings, phone calls and texts.

The result is not a shared information base of common public knowledge — but a shattered glass a highly-fragmented culture — divided into little tribes of people, daily reinforcing their beliefs through shared messaging, selective news distribution, and inductive reasoning. Technologies that challenged tribal values, or were irrelevant to them, are misunderstood or ignored. The jungle drums are broken.

In Anchoring America, it was noted that there were an increasing number of children who would name and describe every single character in the world of Harry Potter, but only 20% of US sixth graders could correctly identify the United States on a world map.

We are left with no effective means of efficiently communicating the impact of new technologies. Consequently, technologies can begin to transform society long before the culture can embrace the significance.

There was a time when the cost of innovation was so high that transformative technologies were owned by corporations for year, even decades, before they were rolled out to individuals. So there was a long stretch of time for ideas to diffuse through the culture.

For example, consider the 30 years it took for computers to migrate from the corporate sphere to the consumer. By contrast, the iPhone was pushed into corporations because of consumer pressure — executives rebelled against their own IT departments.

The Problem of Dogma

For the intrepid investor, there is evidence of a significant lag time between the moment that a company has transparently assembled the means to go big, and the moment when that fact is valued in the market.

For everyone, a challenge. Given that 80% of new start-ups fail within five years, it is pretty easy to look smart by picking holes in the strategies and technologies of new ventures. You’ll look mighty smart practicing your “no,” but no one ever found happiness or riches without practicing their “yes” from time to time. Your “yes” will set you free.

You might ask and answer for yourself three questions.

1. Do I have “the right stuff “to study and understand these technologies — and decide which places on the Monopoly board I will place my bets, practice my “yes” and place them?

2. Can my belief withstand the terrors of the Valley of Death — or the Valley of Disbelief — or both, or neither?

3. If I can answer those two questions in the affirmative, what am I doing about it?

As Jobs himself said in remarks at the 2005 Stanford commencement exercises, “Your time is limited, so don’t waste it living someone else’s life. Don’t be trapped by dogma — which is living with the results of other people’s thinking. Don’t let the noise of others’ opinions drown out your own inner voice. And most important, have the courage to follow your heart and intuition. They somehow already know what you truly want to become. Everything else is secondary.”

I’ll leave you today with a YouTube link to Steve Jobs’ October 2001 keynote.

Think Different.

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

May 23, 2013

Chinese and EU Clash Over Airline Emissions

Doug Young

China’s increasingly contentious trade relations with Europe suffered another setback late last week, when the EU threatened to fine Chinese airlines that were refusing to comply with a new controversial program to reduce greenhouse gases. China responded with its own threat by saying it won’t accept the EU’s planned carbon tax, raising the prospect of a dangerous new trade war. This latest in a recent series of trade conflicts between China and both Europe and the US is developing into a troublesome pattern that could spin out of control, endangering the nascent global economic recovery. While the West bears some blame for initiating most of the conflicts, China’s approach of angry public denials and refusal to negotiate only makes the problems worse and leaves little room for negotiated settlements.

The latest clash broke out last Thursday, when the EU threatened fines and a ban from its airports for eight Chinese airlines that failed to provide flight information required under Europe’s new greenhouse gas reduction program. (English article) China says the plan violates international law, and has ordered the country’s airlines not to participate.

China responded to the EU’s latest threats by saying that Chinese airlines won’t accept the tax, indicating it has no intention of yielding in the matter. A resulting trade war could ultimately cost Chinese airlines millions of dollars in lost revenue and undermine their competitive position by forcing them to cut back or cancel many of their flights to Europe.

China’s stance of angry defiance was nothing new, since leaders in Beijing have opposed the plan for more than a year since it was first announced. This approach of public anger and behind-the-scenes defiance is fast becoming China’s preferred way for handling a growing number of disputes with both Europe and the US, two of its most important trading partners.

Two weeks ago, the EU moved closer to imposing punitive tariffs on Chinese solar cells after formally launching a probe last year into unfair state support for the sector. The EU has also threatened similar action against Chinese telecoms equipment. In both cases, China’s response has been largely to deny existence of a problem and to threaten retaliatory action.

Meantime, China has also had similar clashes with the US, which has imposed anti-dumping tariffs on Chinese solar cells and banned the import of Chinese telecoms equipment over national security concerns. Again, Beijing’s reaction has been to deny existence of a problem and threaten retaliation.

In all of these cases, signs of grievances by both the EU and US emerged months and sometimes more than a year before the imposition of concrete punitive measures. And yet in all of the cases, China did little or nothing to try to find a solution before the conflicts reached crisis levels.

If China wants to avoid an escalation in these kinds of trade wars, it needs to take a more proactive approach, both publicly through more positive public relations and also behind the scenes by making a real effort to negotiate solutions. A continuation of its current approach of defiance and denial will only result in a growing number of trade wars that hurt everyone and benefit no one.

Bottom line: Beijing needs to take a more positive, conciliatory approach in its trade disputes, or risk a growing number of damaging trade wars.

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.

May 22, 2013

Geely Revs Up EV Drive; BYD Brings EVs to Hong Kong

Doug Young

Kandi Coco
Geely recently signaled its committment to EVs by forming a joint venture with Kandi Technologies, the maker of the Coco EV above.  Photo by Tom Harrison.

After making increasing noises about its intent to develop electric vehicles (EVs), domestic automaker Geely (HKEx: 175) is getting serious about the effort by moving one of its top executives into a new role overseeing its EV sales. Meantime, rival EV maker BYD (HKEx: 1211; Shenzhen: 002594, OTC:BYDDF) has gotten its own new boost in the space with the launch of a new pilot program for its electric taxis in Hong Kong.  Both developments are certainly positive for the sector, and indicate the Chinese automakers haven’t given up on their dreams of bringing EVs to both China and the world.I’m no expert on EVs, but based on what I’ve seen and heard the current technology still isn’t quite ready for true commercialization and will require another generation or two of new technologies before it’s ready for true mass market sales. But that said, perhaps BYD and now Geely are positioning themselves to become leaders in the space if and when that happens, alongside most major western players that have been in the market for more than a decade.

Let’s start with a look at the latest news from Geely, which has announced that Liu Jinliang has left his older role as head of the company’s car sales to focus exclusively on developing its EV business. (company announcement) In a bid to ease concerns that the move might represent a demotion, Geely is quick to add that Liu will retain his role as a company executive director.

I’m no expert on the inside workings of Geely, but recent signs do appear to indicate this move really does represent what Geely says, namely an effort to seriously develop its EV business. The company’s sales have been weak in the last few years as it lost share to more aggressive foreign players. But it’s done relatively well so far this year, with sales up 21 percent in the first 4 months of 2013 as it works to revive its traditional car business. At its annual meeting last week in Hong Kong, Geely also said it expects sales growth to accelerate in the second half of the year as it introduces new models. (English article) That certainly doesn’t sound like the kind of performance that would merit a demotion for Liu.

Geely is also planning to roll out an electric vehicle model in the second half of the year, the EC7, hinting that Liu’s move might be related to a major push for the car. This latest move would come just 3 months after Geely announced a new joint venture to produce electric cars with Kandi Technologies (Nasdaq: KNDI), again emphasizing the company’s intent to make a serious bid into the EV space.

From Geely, let’s take a quick look at BYD, the Warren Buffett-invested company that has just announced the latest in a series of pilot programs aimed at selling its electric taxis and buses to fleet owners outside of China. The company has already launched trial programs in Europe and the US and its hometown of Shenzhen, and now has just begun another program in Hong Kong. (company announcement) This latest deal will see 45 of BYD’s electric taxis rolled out initially in the former British territory, and includes a program to build up the necessary charging infrastructure.

As a former Hong Kong resident, I have to say this latest deal looks quite encouraging to me due to the territory’s heavy reliance on taxis as part of its public transportation infrastructure. This pilot program could easily become a major selling point for BYD’s EVs if the taxis perform well on Hong Kong’s crowded roads. But BYD could also suffer a major blow if there are lots of problems, which is always a possibility with this kind of new technology. All that said, this latest move for BYD certainly looks positive for the company — if it can survive long enough to see some of its EV pilot programs finally bear fruit with major fleet and eventually consumer sales.

Bottom line: New moves by Geely and BYD indicate the EV space is gaining momentum among China’s domestic automakers, providing a psychological boost for the 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.

Tesla Issues First EV-Related Climate Bond

by Sean Kidney

Tesla issues $600m, 5yr EV convertible bond

Tesla Motors’ [NASD:TSLA] inaugural bond issue has been, as you’d expect, electrifying (just had to say that). The US electric sports car manufacturer has just issued a 5 year, $600m convertible bond in a fundraising program which has seen it raise approximately $1bn through shares and convertible bonds. Coupon is 1.5-2%; conversion premium is 35%; bookrunners were JPMorgan, Goldman Sachs, Morgan Stanley.

Tesla had planned to raise $450m through convertible bonds, but this was raised to $600m after strong demand from investors. That demand allowed Tesla to drop what was going to be a 2-2.5% coupon down to 1.5%-2%. Investors were certainly bullish on the notes.

Over 200 investors participated in a group investor call and Tesla management also held a number of one-to-one investor meetings. We’re not sure yet who the main investors were (although we do know that one of them was the company’s co-founder and CEO Elon Musk) but unlike many convertible bond deals, buyers were primarily long-only funds (few hedge funds).

Approximately $450mn of the money raised will go towards repay a $452mn loan from the Federal government through the  DOE’s Advanced Technology Vehicles Manufacturing loan guarantee scheme.

Would the Tesla bonds qualify for Climate Bonds certification? Well, electric vehicle (EV) technology will be eligible, although we are still working on details of inclusion definitions. At this stage, we don’t see any problem with convertible bonds for pureplay companies like Tesla; but if it wasn’t pureplay then we’d have to take a deeper look. In our 2012 Bonds and Climate Change report, we didn’t find any bonds solely linked to EVs, so (as far as we can tell) this is a first!

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. 

May 21, 2013

The Farm Bill: 5-Minute Guide to the Energy Title

  Jim Lane
5 min clock.jpg
Only 5 min BigStock Photo

What’s in that Durn-tootin’ US Farm Bill, anyhow?

For the harried taxpayer, some relief. For energy security and rural economic development, targeted investments that now head to the legislative floor.

Here are the need-to-knows.

In Washington, the House and Senate Agricultural committees have now passed their respective versions of the proposed 2013 farm bill, which would take effect for fiscal 2014 through fiscal 2018.

Both bills have energy titles — meaning that, should they find passage, as expected this summer, in the House and Senate, the measures in the Energy title will come up for negotiation in the House-Senate conference, but not the existence of the title itself. In today’s Digest, we look at the two different versions of the Energy title — what’s getting funding, what’s not — and how much, and how.

Weighing the bills

The Senate’s bill weighs in at 1150 pages, no ounces — the House Bill at a comparatively light 576 pages.

The Overall Farm Bill

The Senate version reduces spending by $18B over the previous Farm Bill ($24.4B if the sequestration provisions are repealed by Congress, which itself slashed $6.4B), to $955B over a 10 year period between 2014 and 2023.

The Energy Title

Overall spending on the Energy Title is increased by $780M (2014-2023) under the proposed Senate version.

By section, the changes are

Biorefinery Assistance — $216M
REAP — $240M
Biomass R&D — $130M
BCAP — $174M
Other programs — $20M

Timeline to passage

House Ranking Minority Member Collin Peterson said, “With today’s action, I’m optimistic the farm bill will continue through regular order and be brought to the House floor in June. If we can stay on track, I think we should be able to conference with the Senate in July and have a new five-year farm bill in place before the August recess.”

The Details


The House Bill does not add language to include renewable chemicals under the provisions of an Energy title — the Senate does.

Biobased Markets Program

Both the Senate and House include a biobased markets program. The House voted $2 million in discretionary funding (e.g. subject to annual appropriations). The Senate expanded the program’s scope to include assembled products, expands outreach and educational efforts, a study on market impact — and adds $3 million in mandatory funding from the Commodity Credit Corporation in addition to the $2M in discretionary funding offered by both the House and Senate.

Biorefinery Assistance

The House offered $75M per year here in discretionary funding, while the Senate offered $100M in for 2014 in mandatory funding and $58M in each of 2015 and 2016. The Senate also broadened the language to include renewable chemicals and biobased materials.

Repowering Assistance Program

The House authorized $10M for the program per year in discretionary funds, while the Senate did not vote funding.

Bioenergy Program for Advanced Biofuels

The Senate Bill authorizes $20M annually in discretionary funds, while the House authorizes $50M per year, also discretionary.

Biodiesel fuel education program

The Senate version keeps this program intact, but changes it from discretionary to mandatory funding. The House version doubles discretionary funding to $2M per year.

Rural Energy for America Program (REAP)

Both the Senate and House versions ask the Secretary to develop a three-tiered application process (for projects costing up to $80K, 80-2200K, and over 200K) and structure the comprehensiveness of the information required according to the cost of the program. The House version authorizes $45M per year in discretionary funding. The Senate offers $20M in annual discretionary funds, and $68M in mandatory funds via the Commodity Credit Corporation.

Biomass Research and Development

The Senate version offers $30M in annual discretionary funding, and $26M in mandatory annual funds. The House version authorizes $20M in annual discretionary funding.

Feedstock Flexibility Program

Both the Senate and House voted to extend this little-known, no-cost program through 2018. It’s purpose:

For each of the 2013 through 2018 crops, the Secretary shall purchase eligible commodities from eligible entities and sell such commodities to bioenergy producers for the purpose of producing bioenergy in a manner that ensures that section 7272 of this title is operated at no cost to the Federal Government by avoiding forfeitures to the Commodity Credit Corporation.

Biomass Crop Assistance Program

The House version eliminates the prohibition on animal, food or yard waste, and algae — and strikes the authorization to “assist agricultural and forest land owners and operators with collection, harvest, storage, and transportation of eligible material for use in a biomass conversion facility.” The House also increases funding from $20M to $75M per year, but changes this from mandatory to discretionary funding.

The Senate version adds a prohibition on funding “invasive species” and restricts use of lands enrolled in the conservation reserve program or is native sod — and generally prohibits food crops. The Senate version also sets a maximum BCAP term of 5 years for annuals or perennial crops and 15 years for woods.

Towards collection and harvesting, a maximum of $20 per ton for up to four year, on a matching dollar basis.

The Senate authorizes $38.6M per year in mandatory funding.

Forest Biomass for Energy program

The Senate voted to repeal the program, while the House version simply ignores and thereby effectively kills by de-funding.

Community wood energy program

The Senate voted to keep this program at $5M per year in discretionary funding, while the House version votes to reduce annual funding to $2M.

The Senate also creates a new category of ‘biomass consumer cooperative’ —”a consumer membership organization the purpose of which is to provide members with services or discounts relating to the purchase of biomass heating products or biomass heating systems.’’ and offers grants of up to $50K towards the establishment of expansion of such cooperatives.

The Bottom Line

It’s not a visionary Farm Bill for Energy — more about fine-tuning and maintaining provisions that were originally introduced in 2002 and 2008. But there’s a lot more meat on the bone, so to speak, with $780M in increased funding over a 10-year period.

On the other hand, it’s not a hugely expensive program when seen in the context of the federal budget — representing an addition expenditure of $0.26 per capita, per year.

There isn’t all that much for a House-Senate conference to bicker about — primarily, the status of renewable chemicals on the downstream side, and the inclusion of various new types of crops on the upstream side.

And there are funding differences that need to be ironed out – in particular, the balance between mandatory funding and discretionary embraced in the Senate version – while the House generally opts for a discretionary approach, especially for high ticket items.

There’s language in the BCAP program that will need to be settled out.

The Digest continues to point to opportunities for the creative use of Conservation Reserve program land — sensitive to and subject to hunting and environmental uses — for bioenergy projects, and thereby highlights the prohibition on BCAP funds being used for CRP lands, as envisioned in the Senate version of the bill (but not the House bill). We hope the House and Senate come to a creative mutual approach on this provision.

Read More:

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.

Ameresco, New Flyer, PFB: Q1 Efficiency Earnings Highlights

Tom Konrad CFAAmeresco logo

Performance contractor Ameresco, Inc. (NYSE:AMRC) reported earnings on May 9th. Revenues were below analyst expectations, but Chairman, CEO, and President George Sakellaris put this down to timing issues, and stuck by his full year guidance. Strong growth in the firm’s backlog and awarded project’s seem to back up this relatively optimistic view.  From the earnings call transcript

[W]e are very confident about the improving market conditions in few of our regions, as well as continued growth in our all other offerings. These are expected to be the growth drivers for the near-term. We are also very confident about the medium to long-term pipeline development, as shown by the continued increase in awarded projects. Where we are cautiously optimistic near term, is the select areas where we continue to see softness in the awarded project conversion rates. The varying conversion rates at the local level lead us to believe that overall market conditions will improve gradually over time. We continue to believe, however, that energy efficiency represents a large growth opportunity over the long-term. We are excited about our own growth or potential within this market opportunity, given our leadership role, as well as our current pipeline development. As a result, we are very optimistic about the long-term fundamentals of our business.

Sakellaris’ comment re-affirm my view of the company, which I have been repeating all year.  At $7.50, this is a great opportunity to acquire one of the leading companies in the energy efficiency space.

new flyer logoLeading North American transit bus manufacturer New Flyer Corp (TSX:NFI, OTC:NFYEF) reported increased revenue on higher bus deliveries and the acquisition of Orion’s aftermarket parts business.  The company continues to grow its backlog rapidly, and demand for new buses looks likely to remain strong, despite a 5% cut in US federal funding for transit buses due to sequestration.   Bus ridership and state tax revenues (which also fund bus purchases) have been strong.

The company continues to look for attractive acquisition targets (such as Orion’s parts business), to be funded by the investemtn from Brazillian bus manufacturer Marcopolo announced in January.

New Flyer expects to maintain its current C$0.585 annual dividend.

PFB Corp logoGreen Building company PFB Corporation (TSX:PFB, OTC:PFBOF) also announced first quarter results.  Year over year, comparable revenues and earnings were slightly down from the first quarter last year.   In my opinion, this is most likely due to the much colder weather than in 2012, which would have slowed building conditions.  Going forward, I expect to see earnings growth for the rest of the year. The first quarter also included a previously announced sale and leaseback of four of PFB’s Canadian properties, resulting in a one-off after tax gain of C$6.2 million, or 92 cents a share.  The proceeds will be used to pay off all PFB’s debt and pay a special C$1 dividend, in addition to its regular C$0.06 quarterly dividend.

Management has good reason to return cash to shareholders when they can: the company is 70% owned by insiders.

Oh, yeah, and Tesla (NASD:TSLA) also announced very strong earnings.  Long time readers know I don’t follow “popular” stocks, but I’m happy to see good news for electric cars. The fairy dust from high profile stocks like Tesla tends to fall on all green stocks, and increase valuations across the board.

Disclosure: Long AMRC, PFB, NFI. 

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

May 19, 2013

Does Buying Green Stocks Do Any Good?

Tom Konrad CFA

Volt owners are almost universally happy with their cars, despite the fact that very few will recoup the extra costs of the car in gas savings.   Even though the financial savings are small compared to the large up front payment for the vehicle, the emotional payback more than compensates.

As someone who helps people invest in green stocks, I can tell you from first hand experience that investor enthusiasm has everything to do with recent financial returns, and not much to do with the good we’re doing.

In 2007, when practically any stock which could be labeled green was going stratospheric, my phone was ringing off the hook.  Then came the crash in 2008, with green stocks falling more than the market as a whole.  Worse, they failed to participate in the market recovery since then.  Green investors are a dedicated lot.  Many of my clients worried that the slump might never end, but none left.  But the calls from new clients became very few and far between.

Finally, in late 2012, green stocks began to rally.  The leading clean energy ETF, PBW, is up 40% from its November low.  The leading solar ETF, TAN, is up 65% from its low.

The phone is ringing again.

Why the Difference?

To judge by the comments from Volt owners, their enthusiasm has a lot to do with the regular thrill they get driving by a gas station without stopping.  Whenever they drive, they are reminded that they’re doing good for the environment.  This makes them feel good, and that feeling keeps them feeling good about their cars, even without positive financial returns.

A green stock portfolio is different.  Few investors make the emotional connection between their green stocks and the success of green companies.

Too Cerebral

Green money managers, in general, are not much help.  I asked my panel of thirteen green money managers, ranging from investment advisors to hedge fund managers how buying green stocks helps green companies.  Here is a sample of their responses:

Investment advisor Jan Schalkwijk, CFA at JPS Global Investments:

In theory, higher demand for green stocks –  to which small investors would contribute by purchasing green stocks, mutual funds, and ETFs – should decrease the cost of capital for these companies, thus improving their ability to expand. Additionally, to the extent that the purchase is funded by a redemption of a non-green stock, this should increase the cost of capital for that company; thus reducing its scope for expansion. However, I don’t think small investors have enough clout to make this theory pan out in reality. It really requires big buy-in from large investors to make a dent.

Solar hedge fund manager Shawn Kravetz at Esplanade Capital:

[T]he small investor is in effect providing capital to the green company and depriving capital of other alternatives.  While the green company has already raised the actual capital, the market purchase fuels demand for that sliver of ownership and in essence rewards the green company, making it easier and lower cost for them to raise more capital in the future and thereby spread their greenness.  One investor does not move the needle per se, but the sum of multiple such investors indeed does.

That’s all true, but it does not exactly get the heart racing.  Schalkwijk, Kravetz and I are immersed in the stock market on a daily basis.  To us, moving the price of a stock a smidgen is very real, we do it and see its effects regularly.  To the average small investor, however, this logic must seem hopelessly abstract.

Your Money, Direct to Clean Energy Projects
Fortunately, it’s not the whole story.

With the arguments for investing in green stocks so intellectual, it’s no surprise that even the most environmentally minded prospective investors are more interested in last month’s returns.

On Monday, I spoke to John Fullerton is the Founder and President of Capital Institute.  The Capital Institute’s mission is to transform finance to effect a more sustainable economy.  Its focus is on large institutional investors such as pension funds and endowments, but he agreed to speak with me about my personal focus: small investors.

In general, Fullerton thinks that the focus on trading in the stock market makes it very difficult for the sustainable investor to affect change.  But he sees some exceptions.  In particular, Master Limited Partnerships (MLPs) and REITs return their cash flows to investors, so they need to conduct secondary offerings (sell shares) whenever they make new investments.  Investors in these vehicles are buying the future cash flows derived from the expansion of the enterprise, not just speculating on a future stock price.

At the moment, the MLP structure is limited to depleting resources such as fossil fuels and their transport, and so are not likely to be of interest to green investors.  However, the MLP Parity Act, which was designed to correct this imbalance, has been re-introduced in the Senate with bipartisan support.  If the act passes, small investors will have the opportunity to invest in publicly traded MLPs which will directly use the money to fund solar, wind, geothermal, and other clean energy projects.

For now, there are two publicly traded REITs investing in clean energy projects.  The larger of the two is Hannon Armstrong Sustainable Infrastructure (NYSE:HASI), which went public last month and is investing the proceeds in eight clean energy projects that it had lined up in preparation for the IPO.  Since Hannon Armstrong is a leading financier of clean energy projects, investors can be confident that secondary offerings to fund other projects are not too far in the future.  By buying and holding HASI, they increase the amount of money the company can raise for new projects with a fixed amount of stock.  The profits from those projects will then be returned to the investors as dividends.

With the second clean energy focused REIT, Power REIT (NYSE:PW), the connection between the small investor and the clean energy project they are financing is even more direct.  Power REIT has just signed a term sheet for the acquisition of 100 acres of California land underlying approximately 20MW of to-be-constructed solar projects for $1.6 million.  PW will fund that purchase with a combination of debt and equity.

The equity will be raised by the company selling stock through a broker on the New York Stock Exchange under PW’s existing At Market Issuance Sales Agreement.  In other words, if you buy the stock today, there is a good chance that the money won’t go to another investor; it will go straight to Power REIT to fund a solar farm.  Even new investors who buy from other investors are directly helping by keeping the price up and ensuring that for every share PW sells as much money as possible helps finance the solar farm.  Profits from the solar farm will then flow back to Power REIT and be returned to investors as dividends.

Venture Capital

Many small investors wanting to make an impact envy the venture capitalists (VCs) who can fund a start-up green technology company with a better battery or a more efficient wind turbines design.

They should not be jealous.  VCs take their cues from the stock market, not the other way around.  Without the stock market and the ability to sell a company to ordinary investors in an IPO, the only ways for venture capitalists to get a returns on their investments would be to sell them to other companies, or wait for the start up to generate enough profits to pay them back itself.

Many VC-backed companies are sold to other firms, but this is a second choice option, mostly used when stock market valuations are low.  Waiting for a start-up to pay back its initial investors is simply not an option of VCs: the returns take too long.   They prefer the money sooner, in five to ten years at most, so they can move on and fund the next promising start-up.

Because VCs count on IPOs for their best returns, they’re much more likely to fund start-ups in sectors with high valuations.  When  solar stocks are in the stratosphere, VCs fund solar start ups.  When Smart Grid stocks are all the rage, VCs will be looking for the next great smart grid technology.

It’s not only First Solar’s (NASD:FSLR) management and shareholders who are paying attention to FSLR’s share price.  It’s VCs, and all the entrepreneurs hoping to get those VCs to fund the next breakthrough solar technology.

We’re Invested in More Ways Than One

In addition to pointing out that buying a green company helps its stock price, Shawn Kravetz made another point:

[W]hen people own stocks they tend to patronize and talk about those companies.  This vested interest and evangelism, when aggregated, does move the needle.

Fullerton makes a similar point in a recent blog post.  He argues that we should understand investment in the context of a holistic decision-making process that seeks to harmonize (not trade off) financial, social, and ecological objectives.

Both are saying that it’s too simple to just look at the effect our investment are having on companies, we also have to consider the effect our investments have on us.  People whose retirement depends on the continued profits of a coal companies are much more likely to give those companies a sympathetic ear when they complain that regulations to limit mercury emissions (or any other environmental harm) are too expensive and will undermine their profits.

If we invest in companies that stand to lose from the shift to a sustainable economy, the vested interests we are fighting are our own.  Much better to invest ourselves, both financially and emotionally, in companies that will benefit from the changes we know must be made to protect our planet and our children.


Even the smallest investors’ green investments make a difference.  This is most direct when they buy the shares of companies  in the process of raising money for green investments.  Yet they also makes a difference to a company’s ability to reward valuable employees with shares or options, and to the prospects of start-ups in similar industries.   Higher prices for green stocks mean more green companies having successful IPOs, and more green start-ups secure funding.

Perhaps most important are the effects owning a slice of a green company has on the investor.  It is much easier to make the right decisions for the planet and our future when we know the stocks we own will benefit from those decisions as well.

When green investors understand the very real changes their investments are having on the world, perhaps they’ll love their portfolios as well, like Volt owners love their cars.

Disclosure: HASI, PW

This article was first published on the author's Forbes.com blog, Green Stocks on May 8th.

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

May 16, 2013

Ten Economic Risks of Fossil Fuels

Garvin Jabusch


A train, loaded with coal, crashed into the back of a passenger train in Czechloslovakia in 1868.

Securities of fossil fuels firms, as an economic sector, may soon be on the decline. Predictions as to when oil, gas and coal will become a smaller part of the investment society makes into its total energy mix in favor of renewables (such as solar, wind and ocean energies) vary, ranging from 2060 on the long side (this prediction from oil industry powerhouse Shell) to 2030 or even sooner on the shorter side (as reported by Bloomberg). But so far, markets appear to be mispricing the risk this presents to fossil fuels companies, and their share prices for now remain stable. In our opinion, it’s not too soon to consider divesting from fossil fuels while one might still recover significant value.

Coal, oil, and natural gas, though, are the main sources of energy that have gotten civilization this far (at least since the late 1700s, or the entire industrial revolution), so why are many expecting them to so quickly diminish in importance? 

Mostly because of recent innovation and renewable energies’ efficiency and cost gains. Our ‘next economy’ thesis asserts that the energy and material resources we need to host an indefinitely thriving economy exist in more than sufficient quantities (particularly energy), if we would only collect and use them in smart and efficient ways. The innovations required to put world economies on a long term sustainable path largely exist today. For example, the various forms of solar energy collection have become so efficient over the last 20 years that all of civilization’s energy requirements could presently be met by covering 0.3% of the earth’s land surface with solar panels and concentrated solar thermal systems. Our models insist that through promoting true sustainability solutions in materials and energy, we can indeed maintain a healthy, thriving biosphere, all while growing our economies and improving standards of living potentially everywhere, for everyone.

This in mind, we put together 10 primary reasons why fossil fuels investments, in next economy terms and indeed in general economic terms, no longer appear to be the attractive source of risk-adjusted returns they have historically been.

Fossil fuels are economically becoming subprime because:

1. Fossil fuels have the capacity to threaten basic systems.

Warming and its sequelae such as severe weather, droughts, floods, more frequent and intense storms and attendant uncertainties all undermine our basic economic foundations. A recent World Bank report conceded that “There is … no certainty that adaptation to a 4° C world is possible,” referring to a global average temperature increase of 7.2 degrees Fahrenheit from pre-industrial times that is considered likely by scientists over the next few decades if fossil fuels’ use is not soon severely limited. To rephrase what this means, the traditionally conservative World Bank believes that human economies may not be able to adapt to a world that has on average warmed four degrees Celsius or more. Note that the global temperature has risen nearly one degree Fahrenheit since 1975.

Millions of pages have been written on the underlying reason for the unsustainability of fossil fuels. Their power to disrupt basic climate and therefore world societies is vast, complicated and is a topic best left to our best specialists. I suggest to the interested reader the works of more qualified practitioners including Dr. James Hansen, Lester Brown and Bill McKibben.

2. Fossil fuel assets present abandonment risk.

Fossil fuels companies are now confronted by the risk that many of the still-in-the-ground assets they count on their balance sheets and/or in their future revenue projections may never be recovered or realized. As this becomes the apparent, their asset valuations and revenue guidance may be revealed as currently far too high, and the values of their companies and stocks overvalued. Citing abandonment risk, Bloomberg recently reported that “Investors in carbon-intensive business could see $6 trillion wasted as policies limiting global warming stop them from exploiting their coal, oil and gas reserves.”  Carbon Tracker reports that “Between 60-80% of coal, oil and gas reserves of publicly listed companies are ‘unburnable’ if the world is to have a chance of not exceeding global warming of 2°C.”

The press down under is reporting that “Australian based analysts at Citigroup say fossil fuel reserves in Australia face significant value destruction in a carbon constrained world, with the value of thermal coal reserves likely to be slashed dramatically if governments get serious about climate action…Fossil fuel asset owners could be best advised to dig the resource up as quickly as they can.”

Over at HSBC they recently pushed up a similar report, encompassing a global scale, essentially saying we can’t count all the fossil fuel reserves on firms’ balance sheets because we cannot burn them all and therefore “Oil and gas majors, including, BP, Shell and Statoil, could face a loss in market value of up to 60 percent should the international community stick to its agreed emission reduction targets.” (As reported by GreenBiz.com.) (I don’t believe most policymakers in governments around the world currently have the wherewithal to honor their various carbon reduction treaties, but I also don’t believe that matters. Peak oil demand is upon us because the alternatives are simply becoming far more competitive and because awareness of fossil fuels’ dangers is rapidly advancing.)

What Bloomberg, Citi and HSBC are saying, in sum, is that infinite growth of a known harmful asset – in this case an asset with the ability to disrupt climate and civilization – must come to an end, and soon.  And shares of the firms exploiting this asset are at risk.

3. Renewables are becoming too competitive for fossil fuels.

Forbes has quoted Rick Needham, director of energy and sustainability at Google saying, “While fossil-based prices are on a cost curve that goes up, renewable prices are on this march downward.” That pretty much sums it up. In just the last five years, solar photovoltaic module prices have fallen 80 percent and wind turbines have become 29 percent less expensive. Moreover, after the initial investment, renewables such as wind and solar, having no cost of fuel, will prove far too competitive for fossil fuels no matter how cheap those may appear to be. Cheap fuel is still more than free fuel.

One of the first major investors to recognize this was Warren Buffett. Via his MidAmerican Energy subsidiary, he has quietly made Berkshire-Hathaway America’s single largest owner of both solar and wind electrical power generation capacity. Patrick Goodman, Buffett’s CFO of MidAmerican said simply “we believe renewables is the better investment right now.” Warren Buffet, who believes that once a good investment has been identified it’s time to “back up the truck,” is showing no signs of giving up his leader status on solar, having just begun construction on the “largest solar plant in the world.”

All this is happening now, today, with today’s technologies and today’s economics. That the smart money already sees renewable energies as more competitive long term than fossil fuels is obvious. The ‘smart money,’ by the way means individuals as well as institutions. Solar crowdfunding pioneer Mosaic in April of this year sold out the first tranche of $100 million in solar project investments to Californians in just hours.

Further technological advances aren’t required to make renewables competitive, but advances are occurring. Fossil fuels will represent only a small percentage of all energy investments in just a few years for a simple reason: few will want to invest in the less profitable technologies of the past.

4. Fossil fuels firms are beginning to have to pay for their externalities.

Fossil fuels companies have never had to pay for their economic externalities such as pollution, warming, health effects and contaminated water and farmland. There are signs that this is beginning to change, and firms will increasingly be liable for damages in the tens if not hundreds of billions. The highest profile example is BP’s Deepwater Horizon spill, the worst oil spill in U.S. history. BP has already been required to set up a US$20 billion fund to cover cleanup and damage costs, and perhaps far more significantly, is facing potentially “tens of billions” in additional damage payments pending the outcome of what the Financial Times is (in a dedicated section) calling the “trial of the century,” now underway in Louisiana. The FT is also reporting that BP is facing an additional 2,200 lawsuits related to the spill. Even if BP should prevail in most or even all of these suits, the massive costs of these litigations will start to become a drag on the firms’ traditionally easy profitability. Newsweek has a longform piece covering many details including additional BP liabilities such as: “that BP lied about the amount of oil it discharged into the gulf is already established. Lying to Congress about that was one of 14 felonies to which BP pleaded guilty last year in a legal settlement with the Justice Department that included a $4.5 billion fine, the largest fine ever levied against a corporation in the U.S.” BP’s continuing potential liabilities from this one incident, including “uncapped class-action settlements with private plaintiffs” and “civil charges brought by the Justice Department” and “a gross negligence finding [that] could nearly quadruple the civil damages owed by BP under the Clean Water Act to $21 billion,” show the danger to shareholders. Any representative of an asset class carrying this kind of risk can justifiably be labeled a subprime investment.

Other firms facing liability issues surrounding the dangerous nature of their products include Chevron, which has had to abandon Ecuador altogether to avoid paying a $US19 billion settlement there in a “nightmare case” that threatens to drag on around the world as Ecuador seeks payment via Chevron’s assets in other nations.

5. Fossil fuels are likely to have to face carbon taxes.

There will be carbon taxes in many if not most countries that will directly impact the profit margins of fossil fuels firms. The New York Times Op-Ed framed the argument like this:

“Substituting a carbon tax for some of our current taxes — on payroll, on investment, on businesses and on workers — is a no-brainer. Why tax good things when you can tax bad things, like emissions? The idea has support from economists across the political spectrum, from Arthur B. Laffer and N. Gregory Mankiw on the right to Peter Orszag and Joseph E. Stiglitz on the left. That’s because economists know that a carbon tax swap can reduce the economic drag created by our current tax system and increase long-run growth by nudging the economy away from consumption and borrowing and toward saving and investment.”

A carbon tax is good for everyone but fossil fuels companies, who will see their profits reduced (or attempt to pass the costs on to consumers, reducing demand for their products further). So far, several nations, provinces and individual municipalities have implemented a carbon tax, and many others have carbon trading schemes (the Carbon Tax Center is a good resource for keeping up with these). Carbon taxes can raise revenues, shrink deficits, and move tax burden away from citizens, all while slowing the worst effects of warming. Look for their implementations to continue to spread.

6. Fossil fuels will soon face diminishing governmental subsidies and benefits.

Fossil fuels have received as much as half a trillion dollars per year in subsidies from the U.S. alone. To the extent that austerity or desires to balance budgets, combined with legislation to limit greenhouse gas emissions, reduce the scale of this windfall, the seemingly easy profitability of these companies will be undermined. This point, as well as point five above, is more fully developed in point seven.

7. There is growing global institutional belief that transition to renewables solves climate AND economy.

We’ve already seen the dire warnings about warming coming from the World Bank, and discussed the positions of Bloomberg, Citi and HSBC. These institutions are far from alone. The International Monetary Fund, in calling for “Energy Subsidy Reform,” recently calculated that between directly lowered prices, tax breaks, and the failure to properly price carbon, the world subsidized fossil fuel use by over $1.9 trillion in 2011 — or eight percent of global government revenues, representing a huge drag on economies. The United States taxpayer is fossil fuels’ largest benefactor at $502 billion in 2011. China came in second at $279 billion, and Russia was third at $116 billion. For perspective, that $502 billion is just over 3% of the US economy, currently being given away to big fossil fuels companies.

The IMF concluded that the “link between subsidies, consumption of energy, and climate change has added a new dimension to the debate on energy subsidies.”  The IMF’s solution to both economic and climate risk (as reported by The Hill) is in two simple parts: “end fossil fuel subsidies and tax carbon.”  The solution to both climate and economy is worldwide conversion from fossil fuels to renewables.

8. Fossil fuels are the ultimate non-circular: they’re completely consumed upon first use, so more primary source extraction is required.

As I mentioned above, to get global economies on an indefinitely sustainable foundation, we need to make far more efficient use not only of energies but also of raw materials. Fossil fuels represent both raw resources and energy sources, and they represent the worst of both. Smart, efficient use of materials means reusing nearly everything at the end of its lifecycle to repurpose into something else we need. For a thriving, sustainable long-term economy, we need to get close to perfect recycling of resources of all kinds so we can minimize our depletist impacts on earth and avoid the basic environmental degradations that go along with those.

This approach of course excludes fossil fuels and other resources that are consumed entirely on their first use. Raw materials can keep economies growing for a long time if we preferentially mine our huge stockpiles of already extracted resources and minimize extraction from primary, geological sources. But fossil fuels, unlike materials used to make solar panels and wind turbines, don’t work like that. Since they are consumed entirely on their first use, reuse is impossible and we have to literally go back to the well for more. This means ever more greenhouse gasses in the atmosphere, ever more degrading of the local environments where extraction takes place, ever more risk of accidents, and the possibility of eventually exhausting the resource completely (although on this last point I personally believe we will – for the reasons presented here – reach peak demand far before we fully exhaust fossil fuel reserves).

9. Distributed renewable energy grid is more secure than traditional hub and spoke systems, even those powered by domestic fossil fuels.

FERC Chairman Jon Wellinghoff has recently said, “It wouldn’t take that much to take the bulk of the power system down. If you took down the transformers and the substations so they’re out permanently, we could be out for a long, long time,” and “A more distributed system is much more resilient…Millions of distributed generators can’t be taken down at once.”

This is common sense. And short of equipping every home and business with its own diesel or natural gas generator – which of course would be disastrous for local areas’ air quality – fossil fuels can never offer anything like the kind of security and resilience that distributed renewables like rooftop solar can.

10. Renewables will counter fossil fuels’ endless ‘boom and bust’ economic cycles.

As I’ve posted before, the price of oil and other fossil fuels has, at least since World War II, been the main control knob permitting expansion and causing contraction of world economies. It’s widely known that 10 of the last 11 major recessions were preceded by peaks in oil prices. Rising oil prices are inflationary, adding to the costs of almost everything from transportation to fertilizers to plastics, and they therefore cause demand for all these affected items to become depressed, slowing economic production.  Renewables, relying as they do on free fuels like sunlight, present no such economic pressures, and as they become an ever larger percentage of our energy mix, fossil fuels’ huge GDP drag will begin to disappear.


What then is the future for fossil fuels versus renewables? Fossil fuels have already begun to rapidly lose market share. In 2012, most new electricity generating capacity brought online in the United States was from renewables, and in January and now March 2013, all new U.S. electrical generating capacity was provided by renewables. So where is this headed?

Clean Energy Investment Projection
Image courtesy BNEF

Bloomberg New energy Finance (BNEF) has calculated that “70% of new power generation capacity added between 2012 and 2030 will be from renewable technologies (including large hydro). Only 25% will be in the form of coal, gas or oil.” BNEF CEO Michael Liebreich has said "I believe we're in a phase of change where renewables are going to take the sting out of growth in energy demand," which goes to our thesis that we can both lighten our ecological footprint and increase our standards of living.

So add Bloomberg to the growing group of financial analysts warning that fossil fuel investments are poised to become a bad bet. 

Citi bank, in its note about the Australian coal industry, went as far as to warn investors that it will be difficult to extract value from their still-in-the-ground resources as action on climate change advances, stating, "If the unburnable carbon scenario does occur, it is difficult to see how the value of fossil fuel reserves can be maintained, so we see few options for risk mitigation." (Italics added; Source.)

Well, with all due respect to Citi, I can think of one option: we, like Buffett and Google, can instead invest in civilization’s non-carbon sources of power. As the IMF pointed out, the solution to both climate and economy is worldwide conversion from fossil fuels to renewables. This massive conversion program will lead to powerful economic growth, less economic drag from energy costs, higher revenue for treasuries, and strong employment drivers.

If we fear for the future, it is paradoxical to attempt to mitigate risks by remaining invested in fossil fuels. What we do now will bring about the future for better or worse. If we’re to emerge from our 19th century energy system, it must be us, now, today, who set that emergence in motion. Leave fossil fuels for those who prefer to look backwards.

Garvin Jabusch is cofounder and chief investment officer of Green Alpha ® Advisors, LLC. He is co-manager of the Shelton Green Alpha Fund (NEXTX), of the Green Alpha ® Next Economy Index, and of the Sierra Club Green Alpha Portfolio. He also authors the Sierra Club’s green economics blog, "Green Alpha's Next Economy."

May 15, 2013

SolarCity: Mixed Results But Good Prospects

By Harris Roen

SolarCity (SCTY) has been one of the hottest alternative energy stocks since its Initial Public Offering five short months ago. Yesterday it shot up 24% in one day, on the largest one-day volume since it opened, in anticipation of its quarterly earnings release. It is up 95% in the past three months, and has more than tripled from its initial trading price. As of this writing SCTY has given back about a third of yesterday’s stratospheric gains.

Now that earnings have been released, let’s take a grounded-in-reality look at this innovative solar company.

Scty Revenue and Income

SolarCity’s earnings results were mixed, showing steady revenues, but also a net loss for the first quarter of 2013 (chart above). It’s disconcerting that net income has been negative for the past four quarters, and on a per share basis, the most recent losses were 28% greater than analyst expectations. Revenues, on the other hand, came in ahead of analyst estimates, but just barely.

If SolarCity is to make it as a company, it needs to successfully implement a business plan that grows its customer base in a big way. It therefore makes sense to look at data relating to its clients. The chart below shows data for each of the past four years, and compares it to the most recent quarter.

SCTY Clients

Customer growth remains robust for the first quarter of 2013. 2012 was off the charts, with SolarCity adding on 30,950 new clients. The first three months of 2013 added close to a quarter of that number, which is good news for FY 2013 projections.

Total revenue per customer is declining steadily, but that is to be expected as the number of customers dramatically increases and the price of solar panels falls. What is occurring though (and what we want to see) is that the net loss per customer is steadily decreasing. It has changed from a low of around $5,000 in 2010 and 2011, to about $500 in the most recent quarter. If SolarCity can keep that trend going then the company will soon be in the black again. Another important metric is the acquisition cost per customer, which has remained steady at 2012 levels.

SCTY debt

I also find it encouraging that SolarCity’s debt levels remain reasonable, just about the same as 2012 levels. It is important to understand that in many ways SolarCity is a financial company, crafting and offering creative finance options to allow clients to get solar done with minimal up-front costs. As with other financial firms, debt is a big part of SolarCity’s business, so it must be analyzed under that spotlight.

Though I still view SolarCity as an investment for the speculative portion of a portfolio, the long-term prospects for this company are very compelling. For example, SolarCity recently announced its biggest project to date—a 24 megawatt, 6,500 Homes in Project at Navy and Marine Bases in Hawaii. Investors that are willing to ride the SCTY stock price rollercoaster are likely to be rewarded in the long term.

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.


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.

May 14, 2013

SunPower (NASDAQ: SPWR) and Graphene Investing

By Jeff Siegel

've said it before, and I'll say it again...

If you want to profit from solar, the money is in installation and technology.

Certainly SunPower (NASDAQ: SPWR) knows this to be true. One of the few U.S. solar plays still around, SunPower surprised analysts with a narrower Q1 loss and sales that exceeded estimates. This, by the way, was due to an increase in installations. No surprise there.

And certainly those of us who regularly monitor installation data, which is not hard to come by, have been quietly picking up shares since the start of the year.

The result? Take a look:


This isn't to say SunPower is in the free and clear; the solar business remains a tough one with nearly impossible margins.

But those still in the game are stronger today compared to where they were last year — and the year before that.

With global installations continuing to soar — especially here in the United States — installers are busier and more profitable than ever. Certainly the only publicly-traded solar installer and leasing company SolarCity (NASDAQ: SCTY) is proof of that. Just look at this chart:


Of course, you may want to wait for these to cool off a bit for jumping on for the ride.

But there are still other solar plays that you can get into now and turn a very nice profit over the next six months or so...

$8.6 Billion Worth of Product

As you saw, there's big money in solar installation these days. And investors who have taken advantage of this reality and invested accordingly have done quite well.

But the second opportunity for solar investors is actually much more impressive than installation...

I'm talking about solar technology. The top-notch solar tech plays of today will be the gatekeepers of the industry tomorrow. And that's why we're loading up the boat while they're still insanely cheap.

We're most impressed with two specific solar tech angles right now: The first is through a new solar material that's currently being perfected at the University of Manchester and the National University of Singapore. I won't dive too far into the particulars, as you'd need a few chemistry books to even attempt to understand it. (I even needed to run this one by my old chemistry professor to get a handle on this thing). But here's the basic idea...

As explained by research reps from the University of Manchester, this particular materials discovery could lead to entire buildings being completely powered by sunlight, which is absorbed by its exposed walls.

Antonio Castro Neto from the National University of Singapore said, "We were able to identify the ideal combination of materials: very photosensitive TMDC and optically transparent and conductive graphene, which collectively create a very efficient photovoltaic device."

While some of that may sound like scientific mumbo jumbo, the only thing you need to know here is that the key element is graphene.

Graphene is what makes this entire process possible.

As you know, we've been singing the praises of graphene for years. And nearly every week we discover a new use for this miracle material.

From advanced desalination systems and high-powered supercapacitors... to cellphone touchscreens and bulletproof vests... graphene will be found in nearly every commercial and industrial application in just a few short years.

And this is why it's so important that you load up on quality graphene plays NOW — before the herd rushes in and jacks the price up. That, by the way, will be when we cash out.

Solar in the Black

A more direct way to play the solar tech angle is through manufacturing systems and tools.

The interesting thing about solar is that over the years, it's been the suppliers of these “tools” that have benefited the most. Applied Materials (NASDAQ: AMAT) actually made a sizable chunk of change in this space back in 2006-2007.

But like most solar manufacturing processes, what's hot today is nearly useless tomorrow.

That being the case, we're always on the lookout for the next big thing in manufacturing technology. And right now, the next big thing coming around the bend is “black solar.”

You may have read about black solar before, as it's long been a sort of dream deferred for solar manufacturers. It's essentially a specialized chemical coating that allows solar panels to trap ten times more light than what's available today.

A great idea in theory, but in practice, hard to prove...

Well, those days are over. Not only has black solar been proven effective and completely doable on a commercial scale, but there's a conga line of solar manufacturers looking to license this technology right now. Because the end result of having this technology in place is a 50% cost reduction and a full doubling in efficiency.

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


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

May 13, 2013

Two Thumbs Up for Solazyme: AkzoNobel deal, new technology for structured oils

Jim Lane

solazyme logoThe sector’s perennial hottest company strikes again — with “potentially disruptive” new technology to change the positioning and performance of triglyceride oils.

In California, Solazyme (SZYM) and AkzoNobel announced an agreement targeting the development of advanced tailored triglyceride oils and commercial sales for near-term product supply. The agreement focuses on supply for the chemical giant’s Surface Chemistry and Decorative Paints businesses.

Commercial supply of multi-thousand ton quantities of highly sustainable algal oil is expected to originate from the Solazyme Bunge Renewable Oils Joint Venture oil manufacturing plant in Brazil. Sales of product are anticipated to commence in 2014, with pricing to be competitive and based upon Solazyme’s cost of manufacturing.

In addition, Solazyme announced a new technology for structured oils — which analysts termed “potentially disruptive” and opens up a number of possibilities in the $2500+ per ton triglyceride oil price range.

What exactly is a structuring capacity in triglyceride oils?


As you might expect from the “tri” in triglyceride oil — essentially it is a glycerol hand with three fatty acid fingers sticking out of it — though they are generally described as fatty acid chains.

Now, as you can imagine if you were re-engineering a hand — you’d want to work with three properties that might be interesting. One, finger length. Two, the finger’s musculature. Three, the position of the fingers along the hand.

Roughly speaking, these correspond to fatty acid chain length, saturation (the number of double bonds), and positioning. Each of those factors contribute to the performance of triglycerides — just as they do with fingers.

The latest Solazyme news is that — having previously demonstrated technology to manipulate – chain length and saturation — it now has the third, positioning.

Imagine, for example, reengineering your hand to give yourself thumb and forefinger capabilities down towards the pinky end of the hand — that’s more performance.

Moreover, it’s optionality — and in the world of oils for everything from nutrition to paints, options give you performance benefits. In this case, by reengineering essentially the same basic algae fermentation process — rather than laying a layer of expensive process chemistry steps to get from one target molecule to another.

Since with petroleum oil (or traditional plant oils) you are working with a defined feedstock that you cannot change – the more process steps it takes to get from feedstock to a desired target — or the rarity of the target molecule in the mix of natural oils — well, that’s a sweet spot for synthetic biology companies.

It’s the difference, in layman terms, of owning a piano and knowing how to play it — instead of owning one of those self-playing pianolas that operate the piano via pre-programmed perforated paper or metallic rolls.

What does that mean in terms of everyday applications?

In nutritionals, there is the potential to eliminate trans fats in food but retain texture. Where oil profiles have benefits of animal fat without “bad” cholesterol

In industrials and personal care, it offers the potential for product formulations with sharp
melting at desired temperatures, and creamy textures with consistent, long lasting results.

Financial results for Q1

At the same time, Solazyme announced revenues of $6.7 million for Q1 2013 and a GAAP net loss of $26.5 million, compared to a loss of $16.8 million for Q1 2013.

Building capacity

“We are off to an excellent start in 2013 executing on our three primary focus areas: completing capacity projects on schedule; developing our portfolio of tailored oils; and bringing our tailored oils to market,” said Solazyme CEO Jonathan Wolfson. “In addition to the newly announced agreement with AkzoNobel, the first quarter included several important milestones such as our Mitsui partnership, our technology breakthrough that allows us to develop new structuring oils, and key financing achievements that support a clear path to commercialization. We remain on target to be in commercial production in multiple facilities by early 2014.

Cowen and Company analysts Rob Stone and James Medvedeff commented, “Q1:13 loss per share was in-line and full-year guidance was unchanged. A new partnership with AkzoNobel should contribute R&D funding this year and product sales in 2014. Unique, new structuring oil capability should open high-value product opportunities. Capacity expansion is on track. We see 70% upside relative to the market in a year. Reiterate Outperform.”

According to Nasdaq.com, Solazyme is currently rated a strong buy by 8 of the 10 equity research firms offering coverage of the stock. One rates the company a “Buy,” and one gives the company a “sell” rating.

The AkzoNobel agreement

Compared to some of its peers, which have maintained a relatively splashy posture n the green chemistry space, AkzoNobel — the largest global paints and coatings company and a leader in specialty chemicals — has been in a stealthy mode. It makes the agreement with Solazyme its most high-profile to date.

However, stealth does not mean non-activity ‘Last year we worked on a road map for AkzoNobel’s green chemistry,’ Jos Keurentjes, Director of Technology in AkzoNobel told Biobased Society. “We have already reached a level of 9% renewables in our feedstock. That is exceptionally high, chemical industry’s average is at 3%.”

To date, AkzoNobel’s work has largely been in the substitution of feedstocks — especially surfactants and cellulose derivatives — with renewable content in the coatings businesses on the rise.

The Paints business, at AkzoNobel, is big business — and paints consist of pigments, solvents and binding agents. Last year, the company tipped that it was investigating the use of algae in producing binding agents with a lowr carbon footprint.

As Keurentjes indicated to BioBased Society, “Sustainability issues now constitute our ‘license to operate’. Our customers request sustainability, and from the demand side the whole chain is becoming greener.”

Back in 2011, AkzoNobel acquired China’s Boxing Oleochemicals, which was integrated into AkzoNobel’s Surface Chemistry unit.  The unit manufactures bio-polymer and synthetic additives with uses ranging from home and personal care to asphalt road paving.  The company also acquired Integrated Botanical Technologies’ patented Zeta Fraction technology, which makes it possible to harvest and separate constituent parts of a living cell from any plant or marine source without requiring any solvents.

Reaction from Solazyme and AkzoNobel

“AkzoNobel’s leadership in specialty chemicals and sustainability makes them a natural partner for us to work with,” said Jean-Marc Rotsaert, Chief Operating Officer, Solazyme. “Akzo’s significant product sales and growth strategy in the Americas also overlaps well with our manufacturing footprint.”

“We think the tailored triglycerides developed by Solazyme can offer valuable new technology for our Surface Chemistry and Decorative Paints businesses, and we are excited about our partnership with such an innovative, promising new business” said Graeme Armstrong, Corporate Director for Research, Development and Innovation, AkzoNobel. Added Peter Nieuwenhuizen, Director Future-proof Supply Chains “We look forward to a multi-faceted alliance with Solazyme, including supply in the Americas region, and joint research and development to drive new functionality alongside improved sustainability.”

Product development efforts are anticipated to begin in the second half of 2013, and are focused on a number of AkzoNobel’s end market applications, specifically surfactants and paints and coatings.

A dissident voice

Over at Piper Jaffray, analyst Mike Ritzenthaler remains a Solazyme bear, terming the AkzoNobel announce “Another ambiguous, non-binding agreement,” and advocating “a cautious approach to shares into the commercial ramp – a process fraught with stumbling blocks.” Ritzenthaler added that “the commercialization phase will likely bring with it several stumbling blocks, no matter how well prepared the company may appear. Additionally, production costs of less than $1000/MT continue to be far too optimistic in our view.”

More on the story.

You can read the transcript of the quarterly earnings call here — and follow the quarterly investor presentation here.

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

May 12, 2013

BioAmber Completes IPO

Jim LaneBioamber logo

Raises $80M at $10 per share; becomes first new industrial biotech company to complete IPO in more than a year.
What went right and how? Is the IPO window re-opening?

In Minnesota, BioAmber announced the pricing of its initial public offering of 8 million units consisting of one share of common stock and one warrant to purchase half of one share of common stock at $10 per unit, before underwriting discounts and commissions. All units are being sold.

BioAmber has granted the underwriters an option for 30 days to purchase up to an additional 1.2 million units at the initial public offering price to cover over-allotments.

The units are expected to start trading on the New York Stock Exchange today under the symbol “BIOA-U”.  BioAmber also intends to list its common stock on the Professional Segment of the regulated market of NYSE Euronext in Paris under the symbol “BIOA.”

Credit Suisse, Barclays and Société Générale acted as joint book-running managers for the offering. Pacific Crest Securities was co-manager for the offering.

What went right: the structure

First and foremost, there’s the modesty factor.

The IPO is a relatively small one, raising $80M, compared to the nearly $200M hauled in by the likes of Solazyme and Gevo at the height of the IPO boomlet in 2011. Codexis had a similar result, in terms of overall cash raised, when it became the first company in this wave of next-gen technologies to complete an IPO in 2010. The overall company begins trading today with an $180 million market value — well below the billion dollar valuations that Solazyme and KiOR commanded at the time of their IPOs.

In terms of the structure of the offering — the late addition of warrant sweeteners could well have made the difference — providing that upside “kicker” for the investor that balanced more effectively against the perceived risk of an early-stage company.

In terms of market structure — we see that qualifying BioAmber as an “emerging growth company” under the terms of 2012′s JOBS Act ensured that the offering hasd more regulatory latitude – particularly in permitting more interaction between investors and BioAmber and its investment banking team between the original S-1 and the actual IPO.

We covered the impact of warrants and the JOBS Act this week in BioInvest Digest.

What went right: the company

Revenue-producing. In general terms, BioAmber came later to the market than some of its peers — although still a development-stage company that lost $39 million in 2012 and $30M in 2011, the company has been ramping up revenue and recorded $2.2 million in product sales for 2012, with a 24% margin. In all there were 227 tons of biosuccinic acid sold to 19 different customers — and BioAmber is the first to achieve biosuccinic sales on this scale.

Reduced scale-up risk. Though the IPO proceeds will, in part, be dedicated to the first commercial plant, BioAmber has been running at its demo plant for three years now in Pomacle, France at the 350,000 liter scale — far more progress towards scale-up than some of its peers.

Improvements in the first commercial design to increase margin. As BioAmber related in the S-1A, “We have incorporated numerous lessons learned and improvements gained from operating the facility in France into our engineering design for our planned manufacturing facility in Sarnia, Ontario. We expect to produce bio-succinic acid [without subsidy] cost-competitive with succinic acid produced from oil priced as low as $35 per barrel.”

Lower feedstock risk exposure. As BioAmber detailed in its last revised S-1A registration statement, “Our process requires less sugar than most other renewable products because 25% of the carbon in our bio-succinic acid originates from carbon dioxide as opposed to sugar. This makes our process less vulnerable to sugar price increases relative to other bio-based processes.”

Less policy risk. An advantage that the pure-play renewable chemical companies have over their fuel-only or “fuels and chems” peers? There was never any expectation of market subsidies or mandated usage — and the pure-plays have inherently less policy risk — a risk realm that has proven highly toxic to both public investors and project finance suppliers.

Biggest risk left?

The market for succinic acid itself is relatively small. The key to BioAmber (and other developers, like Myriant) is finding a market for biosuccinic as a “drop-in” replacement for other, incumbent petroleum-based chemicals, addressing what BioAmber termed “a more than $30 billion market opportunity.” That claim is yet to be proved — and the hard yards of commercialization lay ahead for the company to develop novel markets at scale.

But that, in many ways, is the market position of Solazyme — and we have seen the public markets more embracing of the risk of new markets. It has been fear of technology risk, feedstock risk, finance risk and policy risk that has been more notable in the drubbing handed out to several IPOs that happened earlier in the cycle.

Bottom line – is the IPO window re-opening?

Yep, it’s open again, but narrowly.

Lessons learned? Avoid as much technology risk (and the accompanying delays) as possible. Have a clear path for raising debt — fear of dilution is a share price-killer too. Manage that input cost exposure.

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.

Save 31% on BioAmber’s IPO

Jim LaneBioamber logo

Will BioAmber complete its IPO?
As the industry waits, fingers crossed, the biosuccinic developer sweetens the pot with warrants, lower share prices.

In Canada, BioAmber has reduced the proposed price range for its IPO to $10-$12 per share, down from a $15-$17 range — as it seeks to keep the initial public offering on track.

Overall, the company now proposes to raise between $80 million and $110.4 million in the offering, now scheduled for May 13th according to the latest calendar from NASDAQ.

At the offering’s midpoint — and excluding the sale of up to 1.2 million shares in over-allotments — the company would raise $88 million, or 31% less than its previous SEC filing.

The company’s common stock has been approved for listing on the New York Stock Exchange, where it would trade under the symbol “BIOA” and the company also intends to list the stock on the Professional Segment of NYSE Euronext in Paris.

Credit Suisse, Societe Generale and Barclays are acting as bookrunners on the deal.

With the revised S-1A filing with the SEC yesterday, which revealed the lower target and can be read in its entirety here, the company said that each share of common stock would be sold in combination with a warrant to purchase half of one share of common stock at an exercise price of $11.00 per whole share of common stock.


BioAmber Inc. is the first industrial biotech company to attempt an IPO, defined as an “emerging growth company” under the Jumpstart Our Business Startups (JOBS) Act of 2012. More than 75 percent of companies that completed IPOs in the past year elected that designation — which provides, among other benefits, a five-year phase-in until the company has to fully comply with Sarbanes-Oxley provisions.

Complete coverage

BioAmber’s IPO: The 10-Minute Version.

We’ll explore the impact of the JOBS Act on IPOs, plus the impact of the warrants provisions in the revised filing — what it means, and how those work — in BioInvest Digest, where you can find a special report on BioAmber.

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

May 11, 2013

Finavera Takes $28M for Two (Not $40M for Four)

Tom Konrad CFA

finavera_logo[1].gifMonday morning, Finavera Wind Energy (TSXV:FVR, OTC:FNVRF) announced that it had finalized its agreement with Pattern Energy Group  to sell two of its four Canadian wind energy projects for $28 million.  This should come as a relief to shareholders, who had been concerned when the original date by which they had expected to ratify the deal, March 31st came and went.

Since the start of March, when shareholders would reasonably have expected to have heard an announcement of the meeting date and the circulation of proxy materials, Finavera’s stock had drifted down 15% (from C$0.20 to C$0.17.)  Some of investors’ worries seem to have been justified, in that the original agreement outlined in December had been for the purchase of all four projects.

Meet The New Deal. (Pretty Much) Same as the Old Deal

I spoke to Finavera’s CEO, Jason Bak, to try to better understand the changes.

A view of Finavera's Miekle Wind Energy project.  Photo Source: Finavera

The revised agreement is only for the purchase of Finavera’s 47 MW Tumbler Ridge and 117 MW Meikle Wind Energy Projects.  Pattern retains an option (but not an obligation) to purchase the 77 MW Wildmare and 60 MW Bullmoose projects for the remaining C$12 million of the C$40 million originally envisioned for the four projects.  According to Bak, these latter two projects had run into a number of obstacles in discussions with the local utility (BC Hydro) and “other stakeholders.” Because of this, Finavera will not be able to bring them to financial close as quickly as hoped.  Since Pattern’s purchase had always been contingent on the projects reaching financial close, the downgrade of the agreement from an obligation to purchase the projects to an option is less of a change in Pattern’s position than it may seem at first.  The real problem are the difficulties bringing these projects to financial close in the near term.

Despite this change, the most important aspects (for Finavera and its shareholders) of the December agreement remain in place:

  • Pattern will still forgive Finavera’s C$9.3 million in debt when Finavera’s shareholders ratify the agreement at a shareholder meeting to be scheduled before the end of June.
  • Pattern will provide Finavera with a credit facility at a 10% interest rate to cover its liquidity needs until the end of 2013.
  • Finavera will receive 70% of the compensation originally envisioned in exchange for only 54% (on a per-MW basis) of the projects.

Most importantly, the revised deal alleviates the liquidity problems which forced Finavera to seek a deal to pay off an overdue loan to GE late last year.  With the ability to repay outstanding liabilities and still put cash in the bank, Finavera will be in a much stronger position when it comes to acquiring attractive development projects, or even returning some cash to its long-suffering shareholders.  Bak says the use of the funds will be put to a shareholder vote after the cash is in hand and Finavera has potential projects to present to shareholders.


Finavera still expects to receive approximately C$9.4 million for bringing its Cloosh wind project in Ireland to financial close in the fourth quarter of this year.  This, along with the C$9.3 million of debt forgiveness from Pattern upon shareholder and exchange approval of the deal should be enough to cover Finavera's outstanding liabilities.

The Tumbler Ridge project already has completed environmental and construction permits, and Finavera will submit Meikle for environmental permitting later this year.  Bak expects both projects will achieve financial close in the second half of 2014, at which point Pattern will pay the approximately C$19 million balance.

Bak says that Finavera will issue an information circular with details on the agreement in the next couple of weeks, after which he will hold a shareholder conference to address shareholder questions.  A shareholder meeting and a vote on the contract will take place by the end of June.


In the press release, Bak said, “Based on the Pattern transaction and the value of the Cloosh Valley Wind Project assets, and using a set of conservative working assumptions, Finavera estimates the Company’s net asset value to be $0.41 per share.”  I asked him to walk me through the calculation, in order to assess if I also felt he was being conservative.

  • C$28 million from Pattern
  • C$19 million in debt
  • C$10 million payment for Cloosh
  • C$3 to C$4 million residual value for 10% interest in Cloosh.
  • No value attributed to Wildmare or Bullmose projects.
  • Minus ongoing expenses to achieve the payments listed.

That sums to about C$22-3 million in net cash and assets expected before the end of 2014.  Finavera has 39.6 million shares outstanding after a debt-for-share swap announced in March.  Management and the Board have options exercisable at C$0.205 a share for an additional 1,783,800 shares.  After exercise, Finavera would have 41.4 million shares outstanding and an additional C$365,679 in cash.

At 41.4 million shares, Bak’s C$0.41 per share comes to a net asset value of C$17 million, compared to my C$22 to C$23 million, minus the time value of money and two years of operating expenses.   Finavera’s free cash flow in the first 9 months of 2012 was an outflow of C$1.6 million, so two years of operations and project development should easily be covered by the C$5 to C$6 million difference in Bak’s C$0.41 per share estimate and my back-of-the-envelope calculations.

Bottom Line

While less attractive as the original deal, the finalized agreement with Pattern still relieves Finavera’s liquidity problems, and Bak’s reasonably conservative valuation for the company at C$0.41 a share should still produce decent upside for investors who buy today at C$0.17 a share, or even investors who bought at the C$0.225 the stock was trading at when I analyzed the original deal in December.

The 24% decline in price since then more than compensates for not selling Wildmare and Bullmoose.  If Pattern eventually exercises its option to buy those projects as well, that will just be gravy.

Disclosure: Long Finavera

This article was first published on the author's Forbes.com blog, Green Stocks on April 30th.

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

May 10, 2013

Chinese Anger at EU Solar Tariffs

Doug Young

Majishan_angry_20090226 I’ve been trying to avoid writing about the latest punitive tariffs for Chinese solar panels that look set to come from the European Union this week, since the story has dragged on for more than a year now and the outcome was almost inevitable. But that said, it would be a bit remiss of me not to write at least something on this latest move, which is expected to see European Trade Commissioner Karel De Gucht formally recommend the introduction of anti-dumping tariffs for solar panels supplied from China. (English article) The latest reports say the recommended levies are likely to be set at 40 percent or higher, even though industry insiders say anything above 30 percent could seriously hurt China’s already struggling solar panel sector. [Ed. Note: Recommended Tariffs were release on Thursday, averaging 47.6% in a range from 37.3% to 67.9% More here.]  But instead of focusing on this tired old story, I’d like to move my attention to China’s predictable reaction, which was to lash out with a warning to the EU on the risks of levying such tariffs.

Personally speaking, I do believe that China regularly engages in the kinds of unfair support for its solar sector that prompted the initial US and EU investigations. That’s just the way that Beijing does things: it picks industries it wants to promote, especially in emerging high-tech areas, and then showers them with all kinds of benefits like tax rebates, free or cheap land and other forms of policy support.

But instead of acknowledging this problem, which gives Chinese firms an unfair advantage over companies in other markets, China simply continues to do nothing to address the source of the complaints. Instead, its approach is always reactionary, whereby it sits back and watches momentum slowly build against its solar panel makers, and then reacts angrily at each negative development.

China certainly can’t say it didn’t see this coming, as this clash has been building for nearly 2 years now. It all began with the bankruptcy of a US solar panel maker in 2011, which led to a congressional hearing because the failed company had received a government-backed loan. That hearing resulted in the launch of a formal investigation, which ended with the decision to levy punitive tariffs last summer, and the finalization of those tariffs in November. (previous post)

In the meantime, the EU launched its own investigation since many European solar panel makers also struggled for similar reasons. Like the US case, the EU process has been long and involved a number of major milestones, the latest of which will be the recommendation to impose tariffs this week. That move will be followed by a few more administrative steps, before such tariffs are most likely finalized later this year.

In the face of this tired and ultimately destructive cycle, leaders in Beijing should seriously reconsider their approach, taking a more constructive and proactive tack. This kind of angry and reactive approach is actually quite typical for Beijing in many areas, from trade disputes to diplomacy and domestic social issues.

Chinese leaders typical abhor the idea of any kind of “interference” in such issues, and usually just prefer to let matters build to a crisis level before taking any action. The only problem is that usually by that time, the problem has become so great that it’s difficult to solve. What’s more, frustration and anger from all parties make constructive dialogue difficult or impossible, which ultimately results in this kind of destructive deadlock.

At this point in the solar panel dispute, it’s probably already too late for Beijing to take any constructive steps to try and address concerns in the US and Europe. But that doesn’t mean that China shouldn’t at least try to make at least some kind of conciliatory effort, which could perhaps help to end this dispute sooner rather than later. That’s important, since it’s in everyone’s interest to salvage this key sector  that will be critical to creating a sustainable energy environment in the future.

Bottom line: Beijing needs to change its approach to one of constructive dialogue rather than angry warnings to solve its solar panel disputes with the US and EU.

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.

Photo: Angry sculpture in Majishan Grottoes in Gansu Province, northwest China.  Photo by MarsmanRom via Wikipedia Commons.

European Commission Recommends Tariffs on Chinese Solar

James Montgomery

Trade War
Trade War. photo via Bigstock
The European Commission has decided to recommend duties on Chinese solar panels up to 67.9 percent, according to reports from multiple sources.

Wall Street Journal reports that the tariffs will affect more than 100 companies, and be implemented at a range from 37.3 to 67.9 percent at an average of 47.6 percent, close to projections earlier this week. Companies will face tariffs as follows:

  • Suntech (STP) and its subsidiaries: 48.6 percent
  • LDK Solar (LDK): 55.9 percent
  • Trina Solar (TSL): 51.5 percent
  • JA Solar (JASO): 58.7 percent

Other companies that cooperated with the investigation will likely be hit with a 47.6 percent tariff, while those that did not cooperate will face a 67.9 percent tariff.

China strongly opposes the tariffs and is calling for extended dialogue to resolve the situation, according to Bloomberg. The Alliance for Affordable Solar Energy (AFASE) also expressed its concern in a statement, claiming that punititve tariffs at any level will cause "irreversible damage to the entire European Photovoltaic value chain."

Last November the U.S. handed down antidumping and countervailing duties. Europe already was eying actions against China's solar manufacturers in motion for more than a year, before the U.S.' own trade case was finalized, though presumably the U.S.' decision provided momentum.

The EC's preliminary decision on antidumping was scheduled for early June, followed by a preliminary ruling on antisubsidies in August. Both are expected to be finalized in December.

In recent weeks the EC has further tightened the screws on Chinese solar imports, first requiring registration of panels, and more recently initiating antisubsidy and antidumping investigations into solar glass from China. The latter, spawned by a complaint by EU ProSun Glass, is a distinct investigation from the Chinese solar panel investigation, and is said to be not formally affiliated with the SolarWorld (SRWRF)-led "EU ProSun" coalition which launched the broader solar complaint a year ago.

Not all of Europe is united in this solar dispute. The Solar Trade Association (STA), a collection of EU national industry associations — UK, Italy, Romania, Poland, Hungary, Sweden, and Slovakia — has expressed "deep concerns" and "overwhelming opposition" in an open letter to European Trade Commissioner Karel De Gucht, arguing that the EC's investigation into Chinese solar manufacturers already has been damaging. "The impact on employment and EU value added will far outstrip any impact that the duties may have on EU photovoltaic producers, particularly because these producers are struggling with structural issues that cannot be efficiently addressed through the imposition of duties," they say. "Duties at any level are already having a significant impact, dwarfing any possible benefit for European solar producers and setting back the objective for grid parity for years." Meanwhile, China and France have been formally discussing broader "economic relations and the cooperation of common interest," including having the French urge the EU "to cautiously utilize trade remedy measures" regarding the PV investigations.

And China has repeatedly suggested it might retaliate with its own probe into US and European polysilicon suppliers. "I continue to not understand the logic" of a retaliatory Chinese penalty on silicon imports, said Thomas Gutierrez, president and CEO of GT Advanced Technologies (GTAT), which makes equipment for producing the silicon starting material for solar cells and modules, days ago during the company's quarterly results conference call. "China can't support itself in high-quality production of polysilicon. And if they put tariffs on polysilicon, they're going to increase the cost of their already profitless wafer and cell manufacturing industry."

Among the arguments lobbed in the EU/China trade dispute is the issue of jobs at risk, as it was in the U.S./China dispute. A report earlier this year suggested nearly a quarter of a million jobs might be at stake across several European countries, potentially wiping out €18.4-€27.2 billion of market activity. Chong Quan, deputy international trade representative with China's Ministry of Commerce, has suggested 400,000 Chinese workers could be affected by Europe's solar trade decision. The STA acknowledges the European Photovoltaic Industry Association's calculation of a €39.4 billion value in the PV value chain and "no less than 265,000 jobs — but that the companies behind Europe's antidumping investigations "represent no more than a maximum of 8,700 jobs," or at most 3 percent of all jobs in the PV value chain, according to the STA.

Both types of trade disputes have dangerous consequences on the overall global market. "If domestic requirements are forced to be abandoned and incentive policies changed radically, that would change demand in specific countries," explained Michael Barker, senior analyst at Solarbuzz. The upstream trade disputes, meanwhile, could change supply arrangements across key regions; placing duties on products "could change investments going forward and short-term supply."

"Trade issues are big — but PV demand is driven more by local policy and regulatory movements than by cost," Barker said. As costs come down, so do incentive policies — even down to the city level. "While the cost portion is certainly very important, it's also what countries are doing at the local level to make it easier, or harder, for PV to be competitive or get ample returns," Barker said. "Local regulations and policies will be the ones enabling end-market demand, or hindering it."

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.

May 09, 2013

Bloom Energy's IPO Will Soar on Cheap Natural Gas

By Jeff Siegel

It was boasted as an energy breakthrough. Bloom Energy

Bloom Energy's Bloom Box paraded around the media — including a very generous piece aired by 60 Minutes as some kind of new, game-changing magical energy creation device that would change the world.

Problem is, it's not really “new.” And it's certainly not going to change the world.

But don't tell that to the folks who are looking to take the company public, perhaps as soon as this year.

Now, I'm not saying a Bloom Energy IPO would fail. In fact, based on the hype surrounding the company, I imagine it would do quite well. And as far as getting these things in the field, Bloom has been more successful than any other fuel cell company before it.

But is that enough to justify all the praise?

When Gas Heads North

Bottom line: Bloom Energy is fuel cell company, no matter how anyone tries to spin it.

Bloom Energy Servers debut at eBay headquarters in San Jose, CA. Photo by Jakub Mosur
Bloom's distinguishing advantage, however, is its fuel flexibility.

In other words, it's not dependent upon one resource, unlike most other fuel cell manufacturers that are married to hydrogen. And with natural gas so cheap these days, it certainly makes the economics of Bloom a lot more attractive.

The question is, how long can that last? Moreover, will dirt-cheap natural gas actually impede growth in the near term?

While the news keeps getting better and better for natural gas reserve numbers, the debate over decline rates continues. And the truth is no one really knows how steep the decline rates are for these shale gas wells.

But there's plenty of data that suggest it could be a lot worse than industry cheerleaders and bureaucrats are letting on...

As oil and gas expert Chris Nelder wrote last year:

... the decline rates of shale gas wells are steep. They vary widely from play to play, but the output of shale gas wells commonly falls by 50% to 60% or more in the first year of production. This is why I have called it a treadmill: you have to keep drilling furiously to maintain flat output.
In the U.S., the aggregate decline of natural gas production from both conventional and unconventional sources is now 32% per year, so 22 bcf/d of new production must be added every year to keep overall production flat, according to Canadian geologist David Hughes. That's close to the total output of U.S. shale gas, after nearly a decade of its development. It will require thousands more shale gas and tight oil wells to keep domestic gas production flat.

One way or another, natural gas prices are going to head north again — whether it's because of rapid decline rates, a transition of our trucks and buses to run on natural gas, or the export of our bounty to other nations that are wiling to pay five times as much for it.

So at the end of the day, for the sake of long-term planning, we simply can't ignore the inconvenient truth of finite resources. Or maybe we can. Certainly we've been doing it for years.

For consumers, this is a constant headache. For investors, however, it's a mentality that can make you rich.

But how does this affect Bloom's growth prospects?

When the Grid Is Down

The Bloom Box can use natural gas as a fuel, as well as a number of other fuels, including methane.

But when using cheap natural gas, Bloom's fuel cells allow us to stretch out our already abundant supply of natural gas while allowing the company to provide a more profitable distributed generation solution.

Though when we do finally see natural gas prices head north again, which I believe will be sooner than later, it will become harder for the economics to make sense, not to mention incentives that exist today won't be around forever.

Of course, from a practicality standpoint, the biggest advantage to a system like the Bloom Box is its ability to provide uninterrupted power.

You see, Bloom and other fuel cell manufacturers often make the claim that these systems serve as safety mechanisms that allow homes and businesses to operate when the grid is down — something that is going to happen more and more as the intensity and extremity of weather events become more common.

My friends, there is some real value to this.

And in an effort to combat a future of increased extreme weather events, distributed generation is a must...

Microgrids, fuel cells, rooftop solar — all of this stuff can serve as a hedge against the fallout from extreme weather events and supply disruptions. Although I have to admit, strictly from a reliable form of power generation when the grid goes down, I'm more fond of solar. The economics are better right now and there is no requirement to “feed” the system.

In comparison, the Bloom Box relies on a direct fuel source — which will most likely come in the form of a finite resource that carries with it price fluctuations. And if, for some reason, that supply is disrupted... well, you're out of luck.

That's not to say the Bloom Box doesn't have its advantages over solar. Certainly if there is no supply disruption, you get 24-hour power generation, whereas solar will leave you high and dry when it gets dark out — assuming you don't have backup storage already in place, which most don't.

In any event, I suspect fuel cell manufacturers like Bloom do have a future. In the near term, however, I'm convinced the dual threat of cheap natural gas and overall complacency on the part of individuals and governments will result in limited interest.

That being said, because Bloom is expected to hit profitability this year — and it seems to get about as much publicity as Lindsay Lohan at a strip club — I would certainly be interested in wetting my beak on the first day of a Bloom Energy IPO, then trade it a bit on hurricane and storm warnings.

As more develops on this Bloom Energy IPO, we'll keep you posted.

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


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

May 08, 2013

Will Electric Bicycles Get Americans to Start Pedaling?

by Marc Gunther.  First Published on Yale Environment 360

Electric bicycles are already popular in Europe and in China, which has more e-bikes than cars on its roads. Now, manufacturers are marketing e-bikes in the U.S., promoting them as a "green" alternative to driving.

Most Americans know about Tesla [NASD:TSLA], the Chevy Volt, and the Nissan Leaf. But what about Evelo, the eZip Trailz, and the Faraday Porteur?

The first three are, of course, electric cars. They benefit from a lot of media attention and generous government subsidies, including a $7,500 tax credit for buyers in the United States. The latter are electric bicycles, and they attract neither.

Yet Americans bought as many electric bicycles as they did electric cars last year. About 53,000 electric bicycles were sold, according to Dave Hurst, an analyst with Navigant Research who tracks the industry. Electric car sales came in at 52,835.

Globally, electric bicycles outsell electric cars by a wide margin. An estimated 29.3 million e-bicycles were sold in 2012, with perhaps 90 percent of those selling in China, which has more electric bikes than cars on its roads. E-bicycles are popular in Europe, too, selling about 380,000 a year in Germany and 175,000 in the Netherlands in 2012. By comparison, about 120,000 electric cars were sold worldwide.

All of which raises a question: Can electric bicycles help solve big environmental problems? The industry — which is making a push to expand its sales in the U.S. — says e-bicycles will reduce greenhouse gas emissions, air pollution, and traffic congestion, while enabling Americans, two-third of whom are obese or overweight, to become more active. In Europe and China, most electric bicycles are sold to commuters, although it’s not clear whether they are replacing conventional bikes, mopeds, or cars.

E-bicycle makers eagerly market themselves as “green.” Dashboards on e-bicycles sold under the Polaris brand and made by a Miami-based company called EVantage include a “carbon footprint savings” function to calculate how many pounds of CO2 are saved by using the bicycle in place of a gasoline-powered car. Evelo, a Boston-based startup, recently launched a 30-day electric bike challenge, asking people to give up their car keys and blog about using their electric bikes. “We don’t want to wean people from bicycles,” says Boris Mordkovich, Evelo’s founder, who previously worked at car-sharing company RelayRides. “We want to wean people from cars.”

Yet if electric bikes end up replacing human-powered bikes, or if they are used only for exercise or fun, they could well add to pollution because they consume electricity, much of which comes from burning fossil fuels. Only if electric bicycles replace cars will their environmental benefits materialize — and that’s the goal, say bike makers.

“Traditionally, people don’t use bikes for transportation,” says Larry Pizzi, the president of Currie Technologies, a leading e-bicyle manufacturer based in Simi Valley, California and part of the international Accell Group (ACCEL.AS). “We’re trying to change a paradigm.” There are reasons to believe that the e-bicycle industry may be able to do just that.

Before explaining why, let’s make clear what we mean by an electric bicycle. These are not mopeds or motorcycles, but bicycles that can be pedaled with or without an assist from an electric motor. They’re sometimes called “pedelecs” or “pedal assist” bicycles because in Europe the boost from the motor only kicks in if you pedal; in the U.S., most e-bicycles also come equipped with a throttle to turn on the motor without any pedaling required. Riding an electric bike feels a bit like riding a conventional bike with a brisk wind at your back; the motor helps you go faster and climb hills, but it’s not the primary source of propulsion. Unlike mopeds or electric scooters, e-bicycles are typically permitted on bike paths, and they can’t travel faster than 20 mph.

Like electric cars, electric bicycles are manufactured by a mix of startup companies and established players, including Schwinn (part of Dorel Industries (DIIBF.PK), Trek (private), and Giant (9921.TW). Industry executives cite several reasons why e-bicycle sales are poised to take off in the U.S. Most important is the fact that more Americans than ever already bike to work, and that cities and towns are building infrastructure to accommodate them. According to the League of American Bicyclists, bike commuting grew by 47 percent nationally between 2000 and 2011, and it grew by 80 percent in communities designated as “bicycle friendly” by the league. Cities including New York, Chicago, Washington, and Los Angeles are building dedicated bike lanes, like those found in northern Europe, to make commuting safer and easier.

“It’s happening in every major city, and a lot of secondary cities around the country, and it’s causing people to think differently about getting around on two wheels,” says Pizzi. “If you don’t have safe infrastructure, people don’t feel as if biking is safe and secure.”

Electric bikes make commutes more inviting by easing worries about hills, headwinds, and fatigue. “They increase the distance that people can ride comfortably,” says Evelo’s Mordkovich. Commuters on e-bicycles are also less likely to arrive at the office dripping with sweat. “It seems like a small detail,” Mordkovich says, “but it’s a big deal to a lot of people.”

Chinese Buddhist monk riding an electric bike. Photo by J.G. (Flickr user "clip works")
Baby boomers are an obvious market for electric bicycles. “We’re seeing an aging population, and a growing number of people getting back into cycling,” says Bill Moore, an Internet publisher who recently launched ePEDALER, an electric-assist bicycle retailer. Urbanization will be another driver of electric bike sales, Moore said, as will the obesity crisis, rising health care costs, and the desires of employers to encourage their workers to become more active.

Like electric cars, electric bikes are pricey. A basic e-bike can be had for as little as $499 on Amazon, but sturdy, well-designed models with better-quality batteries cost between $2,000 and $3,500. (Conventional bikes sell for an average of about $450 in speciality stores and about $100 in retailers like Walmart and Target where most bikes are sold.) Prices could come down as batteries and electric motors become more efficient, and economies of scale come into play. “The technology is getting better, rapidly,” says Dave Hurst of Navigant.

Unlike drivers of electric cars who are plagued by “range anxiety,” electric bike owners don’t have to worry about running out of electricity: They can travel under their own power, assuming they’ve got the energy to pedal a bike that weighs 45 to 60 pounds. Batteries typically deliver 20 to 40 miles of assisted riding, and they can be recharged in a few hours in ordinary power outlets.

While some companies are emphasizing the practical benefits of electric bikes — they’re good for your health, good for the planet and a low-cost way to get from here to there – others focus on fun and style. They are targeting urban buyers in their 20s and 30s, without a lot of money to spend, for whom the allure of owning a car has diminished.

“We want our bike to be a sexy product, one that everyone will want,” says Daniel Del Aguila, a co-founder of Prodeco Technologies, which is about to open a new factory near Fort Lauderdale. By squeezing efficiencies out of its supply chain, Prodeco sells a number of models for $1,000 to $1,500 that, Del Aguila contends, compare favorably to bikes selling for $2,000 or more.

For the premium buyer, there’s the Faraday Porteur, the brainchild of Adam Vollmer, a mechanical engineer from Ideo, the famed design firm. First launched as a Kickstarter project last year, Faraday is now taking pre-orders for the Porteur, which is priced at $3,500. It weighs less than 40 pounds, features a leather saddle and bamboo fenders, and its Web site promises that it is “crazy fun.” Even more expensive is the $4,000 eFlowE3 Nitro from Currie, which was designed by a Swiss firm, Flow AG, and promises “fast, powerful and nimble handling.” And if you’ve really got money to burn, there’s a German e-bicycle called the Blacktrail BT-1 that claims a top speed of 65 mph and retails for $80,000. Think of it as the Tesla of electric bikes.


Marc Gunther is a contributing editor at FORTUNE magazine, a senior writer at Greenbiz.com and a blogger at www.marcgunther.com.

May 07, 2013

Solar Gainers and Losers

By Harris Roen

Five solar stocks announced key updates – three show improved prospects, and two warn of danger.

Power REIT (PW)
More Info
Power REIT will acquire 100 acres of land underlying a 20 megawatt solar array to be developed. The leasee will sell electricity to Pacific Gas & Electric (PG&E) and Southern California Edison (SCE), which should then provide a steady income stream to PW shareholders. The stock price is up 11% for the year, in addition to a yield of 3.9%. Press release
Advanced Energy Industries (AEIS)
More Info
AEIS issued a respectable, though mixed, earnings report. Profits were up and net income jumped considerably, but revenues dropped slightly and EPS was down 17% from the previous quarter. Q2 2013 guidance was in line with analyst estimates, which are projected to come in 18%-30% above current levels. The stock had a nice bounce on the news, and is up 34% for the year. Reuters article
SunPower Corp (SPWR)
More Info
A positive earnings report caused a jump in SunPower’s stock price, up 18% yesterday and 171% for the year. Revenues dropped slightly for the quarter, but were 30% higher than the same quarter one year ago. The company also announced it will supply Verizon with rooftop and ground-mounted PV systems in 6 states. Press release
GT Advanced Technologies Inc (GTAT)
More Info
GTAT stock remains battered on a poor earnings report. The stock dropped 5% in one day on large volume, and is down 43% for the year. The company announced it sill stop offering earnings guidance going forward. SolarServer article
STR Holdings, Inc. (STRI)
More Info
Losses continue for STRI, with revenues 30% below the previous quarter, and 64% below the same quarter last year. Profits and net income showed improvement compared to losses of the previous quarter, but still remain negative. STRI stock is down around 90% from its highs in late 2010. 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.


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.

May 06, 2013

Reports of Price Increases and Better Margins Boost Solar Stocks

Doug Young

Sun peaking out of clouds.jpg
Solar panel makers are finally seeing signs that the clouds could be lifting from their embattled sector, sparking a stock rally for their volatile shares. Canadian Solar (Nasdaq: CSIQ) led off the upbeat news, releasing preliminary results that included better-than-expected first-quarter sales and margins. But perhaps more importantly, other reports said the industry is seeing some of its first sustained price increases after more than 2 years of declines. Those 2 pieces of good news ignited a rally for solar shares, led by Canadian Solar whose stock rose more than 12 percent to a new high not seen for more than a year and a half. (company announcement) Shares of JA Solar (Nasdaq: JASO) also rose a healthy 11 percent, while Trina Solar (NYSE: TSL) was up 7.5 percent. Even embattled LDK (NYSE: LDK) shared in the gains, rising 8 percent in the rally.

Let’s start with Canadian Solar, which said it now expects to report that first-quarter shipments totaled 335-345 MW, or about 13 percent higher than its previous forecasts. The company also said first quarter gross margins would come in at 9-10 percent, a slight improvement over its previous forecast. Equally important, the latest margin forecast is a significant improvement over the 5 percent gross margins in last year’s fourth quarter, indicating the company’s net loss is likely to show strong improvement when it releases its final first-quarter results.

Canadian Solar made its relatively upbeat announcement as other media reported the first sustained pricing gains for solar panels in more than 2 years. The reports cited data tracking firm iSuppli saying the price of Chinese panels shipped to the European Union rose 4 percent in March and another 1 percent in April. (English article) Those increases marked the first monthly rise for the sector in more than 4 years before it entered its current prolonged downturn caused by massive oversupply. iSuppli further predicted that solar panel prices in Europe would rise by an average of 4 percent over each of the next 3 months.

So now the big question becomes: Will these new price increases help companies return quickly to profitability, and what does that mean for these companies’ stocks? The answer is probably quite complex, since this nascent rebound comes just as China embarks on a major overhaul for its solar sector. That retrenchment is likely to see bigger names like Canadian Solar and Trina pressured to take over operations of smaller, less efficient firms as part of a Beijing-led effort to salvage as much of the sector as possible.

I doubt that any of the larger companies will have to take over completely hopeless operations of other companies, which are more likely to simply be shut down as part of this overhaul. Still, the big players will ultimately have to take over at least some other companies’ operations, creating integration issues and also prolonging their own return to profitability.

In terms of stocks, the bigger names like Canadian Solar, Trina and Yingli (NYSE: YGE) do indeed look like strong bets at this point, as most still trade far below the meteoric highs reached just 3 years ago at the height of bullishness on solar energy. Protectionism in the US and Europe remain potential risks, but even those are at least partially offset by expected new demand in developing markets and also in China.

In a world where overly optimistic companies have incorrectly predicted an end to their downturn for much of the last year, it’s hard to say if this time the worst is really finally over. But the recording of the first price increases in more than 4 years by a third party observer like iSuppli is certainly a good sign, and it’s possible we could finally start to see companies’ losses start to shrink later this year.

Bottom line: Recent price increases indicate the solar sector may finally be exiting its prolonged downturn, which could help to spark a rally in solar stocks.

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.

Photo by Tom Konrad

May 05, 2013

Ten Clean Energy Stocks for 2013: April Update

Tom Konrad CFA

April Showers While the sun was shining on most clean energy stocks in April, my ten clean energy picks for 2013 (introduced here) got relative showers.  The Powershares Wilderhill Clean Energy Index (PBW) was up a sunny 14.1% for April to 19.6% for the year, rising quickly past my picks, which inched up a relatively meager 0.7% to 7.5% for the year so far.  Meanwhile, the broad universe of small stocks gained 2.6% for a year to date gain of 15.1%, as measured by my benchmark the iShares Russell 2000 Index (IWM).

The low volatility of my relatively value-oriented picks is so far looking less attractive than it has in previous years, now that my clean energy benchmark is on track for what looks like excellent performance.  Nevertheless, I remain optimistic that the clouds will pass for many of these stocks which have so far failed to catch investor attention.

The chart and table show individual stock performance for my ten picks plus the six alternative picks I presented in a second article.  Note that the fourth stock in the list is now Ameresco (NASD:AMRC), which I substituted for Maxwell Technologies (NASD:MXWL) last month.  The return shown is that for Maxwell for Q1 and Ameresco for the last month.  Unmixed returns for these two stocks are shown in the 'Six more' section.

 10 for 13 Total return thru May 2

Significant Events

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

April USD Return
TSX:WFI Waterfurnace Renewable Energy
NASD:LIME Lime Energy
TSX:PFB PFB Corporation
NASD:AMRC Ameresco, Inc. -0.6%
Amsterdam:ACCEL Accell Group
NASD:ZOLT Zoltek Companies, Inc.
NASD:KNDI Kandi Technologies
TSX-V:FVR Finavera Wind Energy
TSX:AXY Alterra Power
NYSE:WM Waste Management
Alternative picks
TSX:NFI New Flyer Industries
NYSE:LXU LSB Industries
NASD:MXWL Maxwell Technologies 13.4%
NYSE:HTM US Geothermal
TSX:RPG Ram Power Group

Ameresco, Inc. (NASD:AMRC)

Turnkey energy efficiency and renewable energy solution provider and performance contractor Ameresco spent its first month in the main portfolio going nowhere, but I see two developments behind the scenes which bode well for its long-term prospects.  First, there seems to be some bipartisan support in Congress for action on energy efficiency, which is Ameresco's bread and butter. 

Second, in the course of its IPO, Hannon Armstrong Sustainable Infrastructure (HASI) revealed that it had received a private letter ruling from the IRS which allows HASI to treat the securitized performance contracts it specializes in as mortgages on real estate assets.  This means performance contracts can be held within the in tax-advantaged REIT structure, and, over the next couple years, should open up a new source of low cost capital to be deployed by performance contractors such as Ameresco.

Accell Group (Amsterdam:ACCEL)

Bicycle manufacturer and distributor Accell Group held its annual general meeting (AGM) where shareholders approved its €0.75 (5.6%) annual dividend.  The Stock went ex-dividend on April 29th, but still ended up 4.2% for the month.  Although the annual report was published in March, the stock seemed to be responding to positive comments in the AGM presentation (Google translation).

Accell grew sales by 20% from acquisitions and 3% organically in 2012, despite a tough bike market, led by strong electric bike and North American sales but hurt by slow sales in its Dutch home market, where the company will conduct a reorganization to cut costs. 

The company announced it had arranged for up to €300 million in credit from six banks, which the company intends to use to pursue further acquisitions on top of expected sales and profit growth.  Accell is well placed as an experienced consolidator in a fragmented industry given its access to capital when many smaller brands and distributors are having difficulty raising financing.

Zoltek Companies (NASD:ZOLT)

Carbon fiber manufacturer Zoltek continued to appreciate.  I took the opportunity to reduce my exposure to this stock because the promise of further gains have to be set against the risk that the company's board is using its review of strategic options (discussed in the last update) as a pretext, and is not serious about considering the proposals put forward by turn-around specialist Quinparo group and its allies, or any other outside offers. 

Kandi Technologies (NASD:KNDI)

Chinese EV and off road vehicle manufacturer rallied on announced progress in its joint venture with leading Chinese Auto manufacturer Geely, as well as a series of positive articles from its supporters on Seeking Alpha.  Although the company is exceedingly cheap by any conventional valuation, its shares have long been held back articles alleging improprieties in the way it went public in the US through a reverse merger and misreporting of its US EV sales from 2009 to 2011. I had intended to boost the stock myself by tackling these allegations head-on in an article last month, but instead found myself troubled by the misreported sales.

Kandi's supporters will say that all this is ancient history, and the result of inadvertent errors which have since been corrected..  The problem with history, ancient or otherwise, is that if we don't learn from it, we're doomed to repeat it.  Much of Kandi's recent progress is corroborated by third party sources, and I'm confident that Kandi will benefit from Beijing's push for rapid growth in EV sales if any automaker does.  However, the history of exaggeration by the company has undermined my confidence in Kandi's financial reporting.  The all-important numbers in Kandi's financial reports remain impossible to corroborate.  Did Kandi really sell almost 4,000 EVs in 2012, as the company claims and I relayed in the last update?  I find it impossible to be sure.

Given these doubts, I took advantage of the recent rally to greatly reduce my exposure to the stock.

I still plan to write that article, after interviewing both Kandi's supporters and detractors.  Perhaps one side or the other will help me make up my mind.

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

Wind developer Finavera finalized its long-awaited agreement with Pattern Energy holdings.  The revised deal is smaller than the companies had originally envisioned in December, but still contains the most important aspects which should solve Finavera's liquidity problems.  I interviewed Finavera's CEO and covered the finalized deal in detail here.

Alterra Power (

Diversified renewable energy developer Alterra power seems to have bottomed, with the turn-around likely triggered by a purchase of 15 million shares of stock by well respected mining magnate Ross Beaty.  Beaty, who is Alterra's founder and chairman, says the stock should be worth C$0.90, not the C$0.32 it is currently trading for.  He intended his purchase to demonstrate that conviction, and hinted that the might buy the whole company and take it private if the stock stays at its current levels.

At the end of the month, Alterra announced a partnership with Greenbriar Capital to (TSXV:GRB) develop 100 MW of solar in Puerto Rico.  This fits well with Alterra's strategy of diversifying into solar and wind from its base of geothermal and run-of-river hydropower assets, so I would not have considered it even worth mentioning except that Greenbriar's CEO is none other than Jeff Ciachurski, whom I am all to familiar with after covering Western Wind Energy for over two years.

Ciachurski built up Western Wind from nearly nothing to a sale for C$182 million to Brookfield Renewable Energy Partners (TSX:BEP-UN, OTC:BRPFF) in March while relying entirely on bank financing.  Shareholders like myself who got in at the right time did very well, but a development partnership with Pacific Hydro ended in a lawsuit and eventual settlement, with Western Wind keeping the development assets. My assessment of Ciachurski is that he is good at developing renewable energy projects on a shoestring, and working the system of a public company to pay himself very handsomely for doing so.  Shareholders and development partners may also profit, given good timing and better legal representation.

I trust that Alterra's management is well aware of this, and Alterra's CEO and IR representative have agreed to an email interview in which I hope to get some more insight into their perspective on the Greenbriar partnership.  I suspect they are already aware of my opinion of Ciachurski: When I first inquired about an interview, Alterra's IR representative was confident I could speak with Alterra's CEO, John Carson.  A day later, he got back to me, saying Carson was unavailable for an interview, but he would relay my questions.  I suspect that someone at Alterra made the connection to my rather public disagreement with Ciachurski over the sale of Western Wind to Brookfield in the intervening day, and they were worried I might ask Carson uncomfortable questions about the relationship.

Waste Management (NYSE:WM)

Waste Management was up 7% in April. The company's first quarter results missed expectations by a penny, but analysts liked what they heard about the company's expectations of future profits, based positive pricing trends, an increase in volumes in the first quarter, and cost control. 

Six Alternative Clean Energy Stocks

LSB Industries (NYSE:LXU)

Chemicals and climate control company LSB Industries also seems to have bottomed out.  In the absence of news, I think much of its decline since the start of February may be explained by rising prices for natural gas, but the stock seems to me to have fallen too far.  While I was selling when the company was over $42 in February, I was buying in April when the company was below $32.

Maxwell Technologies (NASD:MXWL)

Ultracapacitor firm Maxwell rallied 13.4% on the back of unaudited financial highlights for the fourth quarter (Q4) of 2012 and first quarter (Q1) of 2013.  Invoiced shipments were down 1.5% compared to reported revenues from the previous year in Q4, but up 19% in Q1 from the previous year's reported revenue.  The company is not currently reporting quarterly revenues because improper revenue recognition is why the company is having to restate previous financial statements.  The company attributes the strong Q1 invoicing to a surge in demand for ultracapicitors for buses in China after a government subsidy program was reinstated, but is unable to predict if this demand will prove durable.

Perhaps Lime Energy's (NASD:LIME) stock would be doing better if they'd taken a page from Maxwell's book and provided unaudited quarterly updates on sales even while they are sorting through the mess of the last several years' financial statements.


Power REIT took one more step along the road to becoming a renewable energy focused Real Estate Investment Trust by signing a term sheet for the acquisition of 100 acres of land underlying approximately 20MW of to-be-constructed solar projects with existing power purchase agreements to sell power to Pacific Gas and Electric (NYSE:PCG) and Southern California Edison (NYSE:SCE.)  PW will pay approximately $1.6 million for the land.  Unlike PW's proof of concept deal for land under a solar farm signed in December, this deal is with an established solar developer with a proven track record. As such, it could lead to a series of future deals with PW providing the financing for land under many solar project in the future.  Such an assembly line approach will be key to PW building its portfolio of renewable assets without excessive demands on management time.

Power REIT plans to finance the deal with a combination of equity and debt.  The equity will be raised under PW's existing At Market Issuance Sales Agreement, meaning that the stock will be sold to ordinary investors bidding on the New York Stock Exchange.  Investors who buy shares in PW over the coming months will have a good chance of having their money go directly to finance these solar projects.

US Geothermal (NYSE:HTM)

US Geothermal's long time CEO Daniel Kunz retired and was replaced by Dennis Giles, who brings with him 23 years of experience at Calpine Corporation (NYSE:CPN), a leading independent natural gas and geothermal independent power producer.  Kunz will stay on as a consultant to advise the transition for one year.  The stock fell on the news, and I used the dip to increase my position because I expect the company to achieve its first full year of profitability in 2013 with earnings in excess of $0.04 per share based on power sales from its operating plants.  At $0.33, that would give HTM a forward price/earnings ratio of 8 or lower, which I consider attractive.

The company also has room for growth from its expansion plans at existing plants, and, longer term, the commencement of drilling at its El Ceibillo project in Guatemala.


My swap of Maxwell for Ameresco last month proved poorly timed, but this portfolio is designed as a tool for infrequent traders.  It's only under extraordinary circumstances that I move any stocks into or out of the portfolio in the middle of the year.  This can be seen from the fact that I sold much of my holdings of both Kandi and Zoltek in April, but I'm leaving both in portfolio.

The blistering performance of my clean energy benchmark PBW in April has much to do with a rally of always volatile solar stocks.  I can't say if that rally will continue for the rest of the year.  I've spent so long focusing on other clean energy sectors because of the poor industry structure I see in Solar that I simply don't have the solar expertise to judge if this current solar rally is the start of something bigger, or will prove to be just one more abortive flash in the pan.

A continued economic recovery along with industry consolidation could continue to allow solar stocks to shine, with other clean energy stocks following close behind.  On the other hand, such trends can reverse as quickly as they started.  This is why I've significantly reduced my exposure to Zoltek  and Kandi.  At Zoltek, price appreciation has reduced the inherent protection of the company's former inexpensive valuation.  At Kandi, the valuation still appears extremely cheap, but I've become more cautious about judging the company solely on appearances. In both cases, discretion seems the better part of valor.


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.

Selling Exide

Tom Konrad CFA

Electric Storage Battery Company advertisement for Exide batteries in the journal Horseless Age, January 15, 1918

I sold my position in Exide Technologies (NASD:XIDE) on April 25th after the company was forced to shut down its Vernon secondary lead recycling facility by the California Department of Toxic Substances (DTSC.)  In addition to the known arsenic furnace emissions, the DTSC cited the facility’s underground storm water system as not being in compliance with CA requirements.

When I last wrote about Exide, I felt that the problems at the Vernon facility were not as bad as most investors thought.  This forced shut-down, however, seems like it could be the proverbial straw which broke the camel’s back.  With the company’s liquidity already tight, the lack of revenues from the Vernon facility (in conjunction with the ongoing employee expenses and the expenses of fixing any problems) could rapidly mount.

On the other hand, they might be able to fix the problems in a few days, with minimal impact to revenue or cash flow.  Nevertheless, given the company’s existing difficulties, I feel that the downside risks for shareholders outweigh the possible gains from a quick resolution.

Only time will tell if this turns out to be a good move on my part.  Here are a few other factors behind my decision to consider when you make your own decisions:

  • Management is already under pressure to improve margins and cash flow, as well as negotiate with possible lenders the refinance debt.  Can they afford the additional distraction at Vernon?  Would the problems at Vernon have gotten this bad if management had been giving them the attention they deserved?
  • Even if Vernon can be reopened promptly, this episode has made Lazard’s job of restructuring Exide’s debt harder.  Exide needs to restructure its debt or sell significant assets if it is to return to a long term sustainable footing.

Given the company’s long term problems, my decision really was, “Should I sell today, or wait until the company’s next conference call, in the hope that some good news allows me to get out at a slightly better price?”

In the end, I decided not to wait, but I admit I don’t have a high degree of confidence it was the right decision.  We’ll probably know in a few weeks.


In the week and a half since this was first published, Exide's 2018 notes have dropped to 65 cents on the dollar, and Exide's stock has fallen from $1.03 when I sold it to $0.75 at the close on May 3rd. So far. getting out looks like a wise, if belated, decision.

Disclosure: No position in XIDE.

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

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

May 04, 2013

MidAmerican, SunPower Begin "Major Construction" at Antelope Valley

James Montgomery
Joshua trees in Antelope Valley, CA. Photo by Tom Hilton

MidAmerican Solar and SunPower [SPWR] have begun "major construction" at the Antelope Valley Solar Projects (AVSP), two co-located megasolar projects totaling a combined 579 megawatts (AC) generation capacity that MidAmerican bought earlier this year for $2+ billion.

Construction work technically began in January with laying groundwork and putting infrastructure in place, such as trailers and supplies. One MW has already been installed at AVSP, and now efforts will ramp up over the coming weeks with more workers on the ground driving piers for subsequent arrays, according to a MidAmerican spokesperson.

Celebrating this milestone at what MidAmerican Solar and SunPower call "the world's largest solar power development under construction," the two companies hosted a community picnic and celebration at the project site, with representatives of the company and local and state officials discussing the project's construction schedule, environmental values, and technology and community-centered plans for the future.

The AVSP projects, developed by SunPower using its own solar panels and trackers (and eventually SunPower's operations & maintenance services), are on roughly 3200 acres of land spanning Kern and Los Angeles Counties near Rosamond, CA. Both projects are under 20-year power purchase contracts with Southern California Edison (SCE). Construction technically began in January and will continue through the end of 2015; during that three-year stretch the companies expect to employ about 650 workers and generate the majority of an anticipated $500 million in "regional economic impact."

Other large solar projects in the same proximity reportedly have run into delays with problems about environmental impact during construction. AVSP's dust mitigation efforts are "a multi-pronged approach," says the MidAmerican spokesperson. This site won't need massive grading, and road creation will be the only land disturbance, they claim; crews will drive posts where they're needed and then leave the ground as-is. Also there is ongoing spot reseeding of native grass where it's not already growing in, continuing efforts by the previous local property owners.

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.

May 03, 2013


Jim Lane

Has Gevo whipped its problems, and whipped them good?Gevo logo

When a problem comes along, you must whip it
Before the cream sets out too long, you must whip it
When something’s goin’ wrong, you must whip it
Now whip it into shape
Shape it up, get straight
Go forward, move ahead
Try to detect it, it’s not too late
To whip it, whip it good.
    Devo — “Whip It”

When last we took an in-depth look at Gevo, (NASD:GEVO) the company was beset by a swarm of motions, cross-motions and lawsuits in its long-running patent infringement drama, co-starring Butamax, “Bio’s Montagues and Capulets get it on, and on, and on“.

At the same time, Gevo had been forced by low yields induced by higher-than-desired levels of bacterial contamination in tis fermenters to switch back from isobutanol to ethanol production. Then, as the US drought caused corn prices to soar into the $8 range, Gevo all-but-halted production entirely as it improved its isobutanol process, shored up its cash position, and dealt with litigation.

The perfect storm of poor conditions in feedstock costs, processing yields and a cloudy picture on the “freedom to operate” front caused a number of investors to declare “there goes the neighborhood” and the stock has eventually run down into the sub-$2 range. Today, the company’s market cap is roughly the cost of acquiring and retrofitting its first commercial facility in Luverne, MN.

That was then, this is now.

The stock has not recovered much — but it’s remarkable the progress the company has made, all the same. Analysts are now expecting the company to bring its first production train up later this month with its improved isobutanol process, and moving towards full production on all four trains by year end.

Meanwhile, on the legal front, a Digest reader writes: “Gevo was very clear on their call last night that they had won on all counts and that Butamax had even greater legal risks.  I am sure Dupont disagrees, but the last time Dupont disagreed, they lost a $1 billion award to Monsanto.  And this is exactly the same legal team.”

Perhaps most remarkably, the company continues to enjoy strong support it continues to receive from key industry equity analysts at Piper Jaffray, Raymond James, and Canaccord Genuity — all of whom are rating the stock a buy. Piper Jaffray has a price target of $9 on the stock — more than five times its current value.

In a research note titled, “Less legal drain helps to regain (the focus on) the Train”, Canaccord Genuity analyst John Quealy writes: “While the Street continues to take a wait-and-see approach on the success of this speculative biorefinery business model, we find the technology and opportunity supporting a positive risk/reward long term.”

Looking at the legal front

Here’s what you need to know. Gevo has at this stage complete freedom to operate, and has been a consistent winner to date in the courts on patent infringement.

We asked a friend last week:

“From a legal strategy POV, why it is advantageous for a company like Butamax to sue now, before there is a product on the market?”

We heard back quickly.

“There is absolutely no reason to sue someone before they have a product on the market.  The reason you don’t sue someone before they have a product on the market is because there are no damages for you to recover.  The only reason to sue before there is a product on the market is to try to injure your competitor.  Butamax started this litigation fight in January 2011, years before Gevo could ever have a product on the market.”

Last word, we give to Piper Jaffray’s Ritzenthaler:

“Worst case scenario, in our view. Despite the negligible probability of a negative outcome for Gevo, a common inbound question is: what is the worst case scenario? We define a worst-case scenario as Gevo having to pay a royalty for use of some element of Butamax’s technology. If we assume an industry-standard licensing rate of 2% of revenues, our 2015 EBITDA estimate would be reduced by $25 million, resulting in a $12 stock using the same methodology – nearly 3x Monday’s closing price. In all reasonable likelihood, Gevo will emerge without any such strings attached.”

Looking at the production front

Cowen & Co’s Rob Stone writes, “Luverne is expected to begin limited production in one train in Q2, and be shipping by year end, with ramp pace hinged on corn/oil/isobutanol prices. The paraxylene pilot should also be operational by year end.

Raymond James’ Molchanov adds, “Finally, there is clarity. The plant is ready to start operating in single-train mode in May/June, and management made it clear that the entire facility (four fermenters and three GIFT systems) should be operational by year-end. We project full nameplate utilization (18 million gallons) by mid-2014.”

Looking at the financial front

In looking at the work-ups by the analysts, we see some different assumptions on timing, the expected price of isobutanol and the cost of inputs, but all analysts agree that a rapid expansion of revenues is expected throughout the 2013-15 period and beyond.

The consensus view? Revenues climbing from $14M this year to $99.4M in 2014, en route to $317.2M in 2014 — and analysts expect the company to reach break-even in 2015.

analyst estimates

Looking at Gevo and Butamax’s relative progress

Butamax is inherently more opaque (as a private company), and comparisons are somewhat difficult to make. However, we understand that Butamax’s demo plant in Hull is about the same size as the demo plant Gevo did in Denver in 2008. Gevo has subsequently built a 1 Mgy demo plant in St. Joseph, MO and the 18 million gallon plant in Luverne.

By that measure, there’s some evidence that Gevo is something on the order of 1-2 years ahead of Butamax in commercialization — and Butamax has confirmed that it expects to go into commercial scale production some time next year.

On the customer front, both companies have signed up an impressive roster of plants for their early adopter conversion program. However, Gevo has a definitive deal for its Redfield, SD plant, whereas all the others for both companies are at this stage, so far as is publicly revealed, non-binding letters of intent.

In addition, Gevo has firm offtake agreements with SASOL and the US Air Force.  In addition, deals of a less definitive nature with Coca-Cola, Lanxess, Mansfield, Total and others.   All of which supports the view that Gevo is leading by a year or more.

The stakes

Well, there’s a lot on the line. From a fuel POV, we’ve pointed out before that a conversion of the US ethanol fleet to isobutanol is the surest low-cost, low-pain path towards meeting a target of 36 billion gallons of (ethanol equivalent) renewable fuel by 2022. The reason? Blend wall, baby. The US could use as much as 22.9 billion gallons of ethanol-equivalent by switching to isobutanol, before it reached a blend wall, owing to butanol’s higher energy density and blend restrictions.

By contrast, anything above 12 billion gallons of ethanol blended into the fuel supply in 2022 supposes moving beyond E10 blending to controversial business cases associated with E15 through E85.

The bottom line

On all fronts, it appears that Gevo is, indeed, whipping its problems, and whipping them good.

Evolution or revolution — we’ll know more in a year, and certainly by 2015. But either way, there’s been significant Gevolution, and there’s a lot more reason to feel Gevolicious as we head towards the critical 2013-14 period for the company — when it will need to raise capital and move definitively and forever into commercial-scale production.
Disclosure: None.

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

May 02, 2013

A Clean Energy REIT: Hannon Armstrong Sustainable Infrastructure

Tom Konrad CFA

hannon armstrong logo On April 18th, Hannon Armstrong Sustainable Infrastructure Capital (NYSE:HASI) IPOed on the New York Stock Exchange.  HASI is one of only two publicly traded Real Estate Investment Trusts (REITs) dedicated to sustainable infrastructure.   The other such sustainable REIT is Power REIT (NYSE:PW), which I have written about extensively.  PW is both illiquid and involved in significant litigation, two factors which may put off the conservative investors who gravitate towards REITs. 
Salisbury Solar Farm
In December, Power REIT purchased the land under the 5.7MW True North Solar Farm in Salisbury, MA. Photo Source: Power REIT

HASI, on the other hand, has market capitalization approximately ten times larger than PW, and traded over five million shares on its first day. That is about as many shares as PW trades in nine months.  HASI’s liquidity will fall as its shares enter the hands of long term investors, but the company will remain far more liquid than PW.

About Hannon Armstrong

Hannon Armstong has long been a leader in financing sustainable energy projects.  The company is a fixture at clean energy financing events, and its partners have impressed me with their level of knowledge in our conversations at such events.

By going public and converting to a REIT structure, HASI is tapping a pool of relatively low-cost capital from small investors.  Many small US investors have previously had few opportunities to invest in sustainable infrastructure.  The most comparable investments I know are solar-backed loans from Solar Mosaic, and PW.  Those few of Mosaic’s  loans available to small investors sell out quickly, and are currently limited to investors in California and New York State.  Further, these loans cannot be purchased within a retirement plan such as a self-directed IRA.  HASI will have none of these problems; I have purchased small amounts of HASI in IRAs and a brokerage Health Savings Account which I manage.  REITs are particularly suited as investments in such tax-sheltered accounts because their distributions are not “qualified dividends” and are taxed as income.  The interest on Mosaic loans (4.5% on recent offerings) is also taxed as income, but cannot be purchased in a tax-sheltered account.

Hannon Armstrong’s business is arranging finance for sustainable energy projects.  Jeffrey Eckel, the company’s  President and  CEO defines these as projects of sufficient quality which reduce carbon emissions.  Such projects include the installation of sustainable HVAC equipment as well as (potentially) clean energy generation such as solar and wind farms.  Such projects are not the typical investment which you would normally expect to find in a REIT, but there has been some ambiguity regarding how photovoltaic solar and similar infrastructure should be treated.

Private Letter Ruling

In an interview, Eckel told me that the IRS issued a private letter ruling detailing exactly what types of such infrastructure HASI will be able to invest in and maintain REIT status in July 2012.   The issue of what sorts of renewable energy projects are suitable for inclusion in a REIT is of great interest among developers and financiers over the last few months.   Joshua Sturtevant, an Associate with solar aggregator, financier, and developer Distributed Sun of Washington, DC, tells me that “based on its historic approach to issuing private letter rulings, I am skeptical that the IRS will go far enough in any of the new rulings to enable broad-based direct investment in development-stage solar projects. Some of the existing rulings could conceivably benefit certain individuals who are making requests to address specific boutique structures, but it is not likely that anything that has been issued will lead to the sea change that many in the industry are hoping for. ”

In the event, Sturtevant may have been too pessimistic.  Not only did HASI request and receive their ruling before many industry observers were even talking about the possibility, but it seems to be quite comprehensive.  Eckel has not been forthcoming about its contents: He told me, “
We’re keeping the ‘private’ in ‘private letter ruling.’” However, he did say that, while the ruling is very specific to what Hannon Armstrong does, it allows the company to continue its existing business investing in solar, wind, geothermal, and energy efficiency infrastructure as a REIT.

All that means that solar, wind, and geothermal can be suitable REIT assets.  Since Hannon Armstrong does not have to significantly change the way it structures deals and manages its portfolio, other REITs may also be able to make similar investments without a prohibitive number of convolutions.  More details of the exact requirements will emerge as more PLRs are issued, and when HASI’s ruling is published by the IRS.

HASI as an Investment

Now that the IPO is complete, HASI intends to invest the funds in eight sustainable energy projects which they have lined up and ready to go.  Eckel told me that they expect their investment mix will not change significantly now that they are a public REIT, so we can expect these new projects will roughly mirror their current portfolio of managed assets.

Roughly a third of the projects will be invested in renewable energy such as solar, wind, biogas, and geothermal, with the balance in energy efficiency projects and other sustainable infrastructure.  Because Eckel specifically mentioned “baseload renewables such as geothermal” as a sector he is particularly excited about, I would not be surprised if at least one of the eight initial projects is geothermal.

If HASI funds multiple geothermal projects over the next few years, this could be excellent news for geothermal developers with projects in the United States, such as Ormat (NYSE:ORA), Ram Power (TSX:RPG, OTC:RAMPF), and US Geothermal (NYSE:HTM).

Likely Dividend

Hannon Armstrong is still in a quiet period because of their recent IPO, so Eckel was unable to tell me anything about their likely earnings prospects or planned dividends.  We do know that the company earned $0.60 a share in 2012, and that they intend to distribute 100% of their REIT earnings as dividends to shareholders.  REIT earnings are defined by the IRS, and will differ in some respects from the GAAP earnings.  In addition, the IPO has increased HASI’s share base six-fold, meaning that the profitability of the new investments will dominate earnings going forward.

That said, the mix of HASI’s projects will not change going forward. The main difference will be that the improved ability to raise equity means that the REIT will retain a larger stake in projects it finances.  This could increase earnings per share if it allows more profitable deals which might not have gone through without HASI having skin in the game, but it could also dilute earnings if the income HASI earns by managing projects is diluted over a larger equity base invested in the projects themselves.  That said, HASI’s partners would not have taken the firm public if they thought it meant they would earn significantly less than they would have had the firm remained private.

One other factor to consider is the pricing of the IPO.  HASI priced at the low end of the $12.50 to $17.50 range in the prospectus.  Because of that, they will be able to invest less new money per share than they could have if it had priced higher, which will lead to lower earnings per share than we could have expected at a higher IPO price.  On the other hand, new investors are paying less for the earnings from HASI’s existing business.  After dilution from new equity, 2012 earnings would amount to approximately ten cents a share.  According to the April 19th prospectus update, HASI netted $9.70 per share from the IPO, after dilution of the new money and estimated expenses.   Assuming they can invest this at a yield between 5% and 8%, we can expect total earnings per share to be between $0.58 and $0.87 per share, all of which we can expect to be distributed as dividends.

At the current price of $11.25, HASI will have a dividend yield of between 5.1% and 7.7% if my assumptions are correct.  A quick survey of the top 10 holdings of the SPDR Dow Jones REIT ETF (NYSE:RWR), shows that these REITs yield between 2.6% and 4.2%, so I expect HASI will appear attractively priced in comparison to other REITs when it starts paying dividends, assuming it does not appreciate before then.  It should also be attractively priced in comparison to the green infrastructure investments I mentioned earlier: Loans from Solar Mosaic yielding 4.5% and Power REIT, which yields 3.9% at $10.20.


I can’t help but be enthusiastic about Hannon Armstrong Sustainable Infrastructure Capital.  The REIT presses all my buttons:

  • It invests in sustainable infrastructure.  
  • It has an emphasis on energy efficiency.  
  • It’s likely to pay an attractive dividend yield from long-term stable income.  

What’s not to like?

Disclosure: Long PW, HASI, HTM, RAMPF.

This article was first published on the author's Forbes.com blog, Green Stocks on April 22nd.

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

May 01, 2013

Alternative Energy Mutual Funds Outpace ETFs

By Harris Roen

Investors love Exchange Traded Funds (ETFs). They trade like stocks, and are an easy way to diversify within a certain sector. Over the past year, though, alternative energy investors would have been much better off putting their money in regular mutual funds. The results are detailed in the April edition of the Alternative Energy Mutual Funds & Exchange Traded Fund report.


Performance for alternative energy mutual funds were very good for the past 12 months, averaging 11.7% for the eleven funds covered by the Roen Financial Report. In fact, eight out of 10 funds had double-digit gains for the year (there is no data for Brown Advisory Winslow Sustainability (BAWAX) since it only started trading in June 2012). Also, Most of the mutual funds are trading near the top of their annual price range.

Three month returns have also been respectable, with ten out of eleven funds posting annual increases (and Guinness Atkinson Alternative Energy (GAAEX) just showing a slight loss).


Returns for ETFs were much more variable than MFs. One year returns ranged from a gain of 24.2% for Market Vectors Global Alternative Energy ETF (GEX), to a loss of 35.2% for iPath Global Carbon ETN (GRN). Of the 17 alternative energy ETFs that the Roen Financial Report covers, over half showed annual gains. On average, though, returns were basically flat for both 12 months and 3 months.

Despite this lackluster performance for ETFs, their prospects seem to be getting better. On a rolling average basis, one-year returns have improved for alternative energy ETFs. In March, for example, the average ETF lost 6.8%. Similarly, there were one-year losses for February, January and December 2012. In fact, December saw an average ETF loss of 15.1% over the course of a year. The Roen Financial Report will be watching this trend closely to see if alternative energy ETFs continue to improve.

Though this discrepancy between ETFs and mutual funds may vary over time, alternative energy investors are wise to look at the entire fund landscape when deciding where best to deploy their assets.

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.


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.

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