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September 30, 2013

China's Electric Vehicle Subsidies: Winners And Losers

Tom Konrad CFA

On September 17th, the Chinese Ministry of Finance announced the long anticipated renewal of China’s New Energy Vehicle (i.e. electric vehicle or EV) subsidies.  The new subsidies for cars were in-line with market expectations, but will be reduced to 10% below the current levels next year, and 20% below the current levels in 2015.  Subsidies for buses fell short of expectations.

Conventional gasoline-electric hybrid models were not included in the subsidies, but some plug-in hybrid (PHEV) were.  The subsidies amount to 60,000 ($9,802) yuan for pure electric autos with a range over 250 km (155 miles), and 50,000 yuan ($8,168) and 35,000 yuan ($5,718) for EVs with range over 150 km (93 mi) and 80 km (50 mi), respectively. A restriction on the subsidy for low-speed electric vehicles was removed.

Electric and Plug-in hybrid electric buses also received subsidies, depending on length.  For buses over 50 m in length, EVs will receive 500,000 yuan ($81,680), and PHEVs will receive 250,000 yuan ($40,840.)  shorter PHEV buses do not receive a subsidy, by EV buses over 8 m and 6 m will receive 400,000 and 300,000 yuan respectively.

Stock Winners

The big winners here seem to be manufacturers of Chinese low-speed electric vehicles, among which are Kandi Technologies (NASD:KNDI note:I was long this stock when this article was written; I have since sold my position.) and its joint-venture partner Geely Automotive (OTC:GELYY.)  Several other Chinese manufacturers of low speed electric vehicles such as Chery Automotive, Shandong Shifeng Group,  and Hebei Yu Jie Ma may benefit as well.  The day after this article was first published, Kandi issued a press release detailing the benefits of the new subsidy policy on its operations, and received significant coverage in the US press.  The stock soared as high as $7 over the next two days, and I sold my position.


Makers of high-performance electric cars like Tesla Motors (NASD:TSLA) will benefit relatively less because, unlike in the US, the subsidies are based only on a vehicle’s range, not on the size of its battery pack.   This should not significantly effect Tesla’s prospects, however, since the company only recently started selling cars in China.

BYD Co (OTC:BYDDF Note: A hedge fund I co-manage is long BYD) has been falling, because, while it makes EVs, it also makes PHEVs, which received a lower than expected incentive.

Neither Winner Nor Loser

Surprisingly, Maxwell Technologies (NASD:MXWL Note: I am short MXWL) has been rallying.  On September 17th, I  assumed the rally was triggered by rumors that these subsidies included a subsidy for Chinese hybrid buses, which often account for over 50% of Maxwell’s revenue.  I found comments to that effect on the message boards, including a mis-identification of the plug-in hybrid subsidy as a hybrid bus subsidy.  On the 18th, as I was writing this article it appear that Maxwell's rally was triggered by a Piper Jaffray upgrade, a reversal of their downgrade in March following the resignation of Maxwell’s auditor.  I had not seen the research note, but I knew it could not be based on the Chinese subsidies, given that these do not include Maxwell’s customers.

I confirmed this with Mike Sund, Maxwell’s head of investor relations on the 17th .  He told me that this subsidy announcement does not include subsidies for Maxwell’s hybrid bus customers.  Those customers expect a separate subsidy package later this month to include hybrid buses, which is what the company had been saying all along.

Maxwell’s rally is even more surprising if we assume that the lower-than expected subsidies for PHEV buses and hybrid cars are an indicator of what the hybrid bus subsidies may be like.

Shortly after this article was first published, I read that  Piper Jaffray had reversed their upgrade, saying they had mis-interpreted the subsidies.  According to the fly on the wall:

This morning Piper Jaffray upgraded shares of of Maxwell to Overweight based on misinterpretation of data on China’s new hybrid bus subsidy, and failed to note it was only for plug-in hybrids, which the company has immaterial exposure too. The analyst has changed its rating and price target back to Neutral and $8.

This makes the large upgrade unsurprising, since the subsidies for PHEV buses are much larger than anyone expects for hybrids (which are much less expensive than PHEVs.)


The biggest winners from this announcement will be Chinese manufacturers of low-speed electric vehicles, such as Kandi.  The biggest losers seem to be makers of higher powered EVs like BYD and Tesla, but the total impact seems likely to be limited for both.

The announcement should have little bearing on hybrid bus manufacturers and their suppliers like Maxwell Technologies, unless we assume that the slightly disappointing subsidies for plug-in hybrid buses are an indicator of what is to come for hybrid buses.  The wild and short-lived rally of Maxwell stock on September 17th and 18th was triggered not by fundamentals but by a short squeeze triggered by the Piper Jaffray upgrade based on confusion about the Chinese subsidy announcement.  It ended shortly after they reversed their upgrade the next day.

An earlier version of this article was first published on the author's Forbes.com blog, Green Stocks on September 18th.

Disclosure: Short MXWL, Long BYD.

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.

September 29, 2013

Clarifying the Confusion – Storage and Cost Effectiveness

by Chris Edgette, Senior Director, California Energy Storage Alliance and Charlie Barnhart, Postdoctoral Scholar, Global Climate and Energy Project, Stanford University

Is storage cost effective?  Misinterpretations of a Stanford study[1] on the energetic performance of energy storage recently published in Energy and Environmental Science appear to have added to the confusion surrounding this topic.  To clarify a few misconceptions, we (California Energy Storage Alliance, or ‘CESA’) teamed with the Charles Barnhart, the lead-author of the Stanford study, to set the record straight.

The Stanford Study compared the energetic costs of energy storage resources to the energetic losses due to curtailment of wind and solar generation. Considerations of other key benefits delivered by real-world deployment of storage assets were beyond the scope of the study. Just like energetic performance, the benefits listed below add to the environmental, societal, and economic value of storage.

store_v_peaker_chart1_barnhart2013 (1).png

1.     Energy offset: Energy discharged from a grid storage resource is likely to offset production by traditional fossil generators.  Chart 1 compares the energy intensity of various forms of storage charged by wind or solar to the energy intensity of natural gas peakers.

Energy intensity is the lifecycle cost of energy production per unit of energy delivered to society.  Lower intensity values mean that less energy is invested in a resource for the energy delivered.  On average, wind or solar resources coupled with storage are less energy intense than peaking power plants.

store_v_peaker_chart2_barnhart2013 (1).png
Chart 2 shows an intensity comparison between peakers and various forms of storage charged by curtailed renewable energy.

The difference in this chart is that it was assumed that the energy used to charge the storage device would otherwise have been curtailed.  Thus, the energy input value for the storage device is considered to be zero.  Recent Long Term Procurement Planning studies by E3 have shown that renewable curtailment is likely in the next decade. Until the power grid achieves adequate flexibility to accommodate wind and solar power, curtailed energy presents energetic and market opportunities.

2.     Time value: As noted in the study, “The value of available energy depends on time, location and need.”  This dispatchability of energy storage provides operational benefits.  Time value is key to determining the cost effectiveness and environmental benefit of energy storage on the grid.

3.     Greenhouse Gas (GHG) Production: The study’s energetic evaluation did not account for GHG or pollution differences between resources.  A gas peaker releases CO2 and other GHGs during combustion, so the peaker will produce more GHGs per kilowatt hour than a solar or wind farm, even at comparable energy intensities.

4.     Recycling: The study does not account for recycling of storage systems or components.

5.     Additional Benefits: In addition to wind or solar energy shifting activities addressed by the Stanford Study, grid-connected energy storage resources can provide many additional benefits for the electric power system, society and the environment:

a.      Spinning reserve: Backup power reserved by the system operator replaces another generator or transmission resource that drops offline.  While most storage resources can provide this benefit with minimal standby loss, a fossil generator must expend fuel in preparation for a reserve event.

b.     Frequency regulation: Regulation responds rapidly to changing grid loads and generation.  Fast energy storage responds to regulation needs 2-3 times faster than traditional fossil resources.

c.      Peaking capacity: Energy storage peaking capacity avoids costly startups of gas peaker plants.

d.     Transmission and distribution upgrade deferral: Energy storage can smooth customer load or renewable generation at key times, allowing utilities to cost effectively defer or avoid expensive system upgrades.

e.      Transmission congestion relief: Transmission congestion causes high locational pricing and potential curtailment of load.  Energy storage can alleviate congestion and reduce electricity prices.

f.       Voltage support: Energy storage can provide voltage support to the grid instead of specific grid infrastructure.

g.      Locational benefits: Energy storage can be installed in locations where traditional generation might not be feasible, increasing the value of delivered energy while reducing pollution in urban centers.

h.     Reliability: Energy Storage may provide backup power to increase grid security and reliability.

Commercialized energy storage devices operating on the grid today provide a variety of benefits.  For example, Xtreme Power's  and Duke Energy’s 36 MW Notrees project provides ramping control and time shifting, while AES Energy’s 32 MW Laurel Mountain project provides wind ramping and regulation services. When evaluating the cost effectiveness of energy storage, these services must be considered – particularly for system planning and resource procurement.  

Based upon the above, we would like to emphasize points which should be accounted for in discussions related to the study:

1.     Stored energy from wind resources has a lower energy intensity than most fossil generators.

2.     Even at comparable intensities, solar resources will produce energy without the GHG impacts of fossil generators.

3.     Time of Delivery effects increase the environmental and societal benefit attributable to storage.

4.     Quantifying a storage system’s ability to provide grid services was outside of the study’s purview, but could point to environmental and societal benefits.

5.     Storage technologies have varying energetic performances, but increased lifecycles will lead to improved energetic cost-benefit ratios of all storage technologies.

In conclusion, the Stanford Study builds our understanding of the broad, societal-scale energetic performance of storage paired with renewables by providing useful energy performance metrics. It should not be taken out of an energetic context.  The study’s authors at Stanford and CESA agree: energy storage will play a crucial role in cleaner, more sustainable electric power systems.

Charles Barnhart, the Study’s lead author, and his colleagues at Stanford are working on additional research studies that will take into account many of the above points.  Their work should further expand our understanding of the energy value of energy storage on the grid, while pointing to deployment strategies that optimize the economic and environmental benefit of energy storage.  We look forward to seeing and discussing the results as this groundbreaking modeling effort moves forward.

September 28, 2013

Graphene Stock Investing: What The Pros Think

Tom Konrad CFA

Flexible Graphene Sheet image via BigStock

 Graphene is a crystalline form of carbon in which carbon atoms are arranged in a regular hexagonal pattern. It is very strong, light, and an excellent conductor of heat and electricity. It is also nearly transparent. New laboratory  techniques for creating large sheets of graphene, including a roll-to-roll production process, have triggered an explosion of research into new practical applications taking advantage of graphene’s unique properties.

Some potential cleantech applications are solar cells, ultracapacitors, water filtration and desalination, and electronics including touch-screens and better transistors. Graphene’s high electrical conductivity and near-transparency make it a good candidate for solar cells. Researchers have demonstrated the use of graphene conductors for dye-sensitized, organic solar cells, and silicon nanostructures.

While roll-to-roll production processes have yet to move out of the lab, researchers continue to improve the quality and size of graphene sheets produced in this way.  The most advanced version of the technology seems to be vapor deposition of carbon on copper sheets.  Other substrates have been used, but copper’s flexibility makes it uniquely suitable for roll-to-roll production.  Lockheed Martin announced that it has obtained a patent for perforated graphene nanopore-based water filters in March, and also produces its graphene on copper sheets.  The company has not yet commercialized the technology, however, saying that it is still figuring out how to scale up production.  Lockheed aims to have a prototype for testing in a desalination plant by 2014 or 2015.

One of the closest applications to commercialization is graphene ink used to lay down circuitry.  BASF SE is experimenting with graphene ink for printing flexible circuitry on car seats, something it hopes to commercialize in a few years.

Last week, I asked my panel of green money managers for their thoughts on investing in graphene, as well as polling my readers.  I’ll relay the professional’s ideas in the rest of this article, and then take a look at my readers’ responses in a follow-up article.  The reader poll is ongoing (you can take it here.)

Green Mutual Fund Managers

I received thoughtful responses from two managers of green mutual funds, Garvin Jabusch and Frank Morris.  Jabusch is co-founder and chief investment officer of Green Alpha Advisors and co-manager of the Shelton Green Alpha Fund (NEXTX.)  NEXTX invests in companies focused on solutions to the world’s key climatic-macroeconomic issues such as climate change, resource constraints and global production capacities.

Morris is co-founder of Ecologic Advisors and manages the Epiphany Global Ecologic Mutual Fund EPENX.  EPENX has a more diversified focus, and concentrates on companies that provide goods and services that maintain the ecologic health and viability of the Earth, or remediate damage already done.

I asked them each which graphene cleantech applications they thought were most promising, the commercialization timeline, and their ideas for stock market investments.

Top Applications

Jabusch says “[I]t’s hard not to be bullish on the long term prospects for graphene as a material.”  In particular,

Graphene has unmatched capabilities in both electronic and material/mechanical capacities. For example, it has the ability to convert almost every photon that it absorbs into direct current, meaning theoretically it could be used to make the holy grail of solar cells – one that is 100% efficient. This unmatched conductivity also means it could greatly improve energy storage and transmission, meaning everything from EVs (batteries and super-capacitors, etc.) to large-scale grid storage to transmission efficiencies of power and optical communications, and other infrastructure components may become so much better as to be disruptive to existing approaches to all these things. Graphene’s ability to be formed into nanowires means it may provide the smallest and most size and speed efficient circuitry for electronics and LEDs to date, by far. Graphene is the strongest material ever measured, ~200x stronger than steel, making it extremely light and resilient, offering the possibility of making many things we use, from vehicle chassis to airframes both lighter and more durable, like carbon fiber did decades before.  At one molecule thick, it is also transparent, meaning it offers possibilities in touch screens and displays and means that windows may become PV modules in time.

Morris focused only on its energy storage applications, and thinks that three firms in his Global Ecologic Mutual Fund are all researching its potential: EnerSys (NYSE:ENE), Tesla Motors (NASD:TSLA,) and Johnson Controls (NYSE:JCI.)

From my recent reading, I’m most optimistic about graphene’s applications as a thin, transparent conductor in solar and LED lighting applications.  Its ability to both conduct electricity and dissipate heat seem likely to be very useful for LEDs.  Graphene circuitry in devices where size and weight are critical also seems likely to be an early application, but are more likely to bring incremental improvement than revolutionary change.

Commercialization Timeline

Both Morris and Jabusch were cautious about predicting any commercialization timeline.  Jabusch said,

[W]idespread commercial viability of [graphene's] properties may still be further off than many  investors seem to be hoping. This is mainly because a lot of its benefits are paired with limitations that to greater or lesser degrees, still need to be overcome. For example, even though it has 100% energy conversion rate for absorbed photons, it only absorbs ~3% of photons striking it. There is a lot of research going on addressing this such as with dye-sensitized cells and other ideas, but all of this is primarily still in the lab and not ready for widespread use. Keep in mind, graphene was only discovered in 2004. Something we’ve been aware of for less than a decade will necessarily have a long way to go in terms of our understanding how to best unlock its potential.

This caution fits well with the results of my research.  A Wall Street Journal article printed cautionary notes from two industry experts,

Graphene faces hurdles. It is still far too expensive for mass markets, it doesn’t lend itself to use in some computer-chip circuitry and scientists are still trying to find better ways to turn it into usable form. “Graphene is a complicated technology to deliver,” says Quentin Tannock, chairman of Cambridge Intellectual Property, a U.K. research firm. “The race to find value is more of a marathon than a sprint.”

One factor holding graphene back is cost. Some U.S. vendors are selling a layer of graphene on copper foil for about $60 a square inch. “It needs to be around one dollar per square inch for high-end electronic applications such as fast transistors, and for less than 10 cents per square inch for touch-screen displays,” estimates Kenneth Teo, a director at the Cambridge unit of Germany’s Aixtron SE  (NASD:AIXG) that makes machines to produce graphene.

Top Stocks

While Morris mentioned three companies he thought might be researching graphene, he was cautious not to predict any near-term measurable benefits.  With all of us expecting commercialization timeliness of at least three years, it’s premature to start picking stock market winners.  Jabush likens it to investing in biotech in the early 1990s, saying that it makes more sense to hold a basket of the most promising companies, especially those hedged by not having graphene as their entire business.

He said his basket might “include Aixatron (NASD:AIXG; also makes deposition and other equipment used in making PV and LED), Samsung (OTC:SSNLF; has many other well-known businesses, many of which may directly benefit from graphene integration), and Graftech International (NYSE:GTI; legacy graphite and coke-needle business now focusing more on patenting graphene IP, and production of the material).  We’re long AIXG and GTI, and may initiate an SSNLF position.  Note: I’m also long GTI.

Proceed with Caution

Graphene is undeniably exciting, and has the potential to transforms a number to cleantech industries.  The timeline for that transformation, however, is likely to be slower than investors bidding up graphene-related stocks today.  The only reason I own Graftech, mentioned above, is because I think it is undervalued on the basis of its existing businesses: manufacturing graphite electrodes for energy efficient electric arc furnaces, and its existing Engineered Solutions business which sells a variety of graphite based solutions to a range of cleantech businesses.

Jabush is more optimistic, and thinks “careful investments in the best graphene producers and even more careful selection of companies making early efforts at application of the material have outstanding long term growth potential.”

Note the double use of the word “careful.”

This article was first published on the author's Forbes.com blog, Green Stocks on September 18th.

Disclosure: Long GTI

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.

September 26, 2013

Finavera Wind Energy: Slow Progress

Tom Konrad CFA

Finavera Logo Without a press release since June, and the stock price in the doldrums, investors have been looking for updates on Finavera Wind Energy (TSXV:FVR, OTC:FNVRF.  Disclosure: I own this stock.)  In fact, there has been an update: Finavera’s second quarter interim report, filed on August 28th on SEDAR, but without a press release or news articles, many investors seem to have missed it.

Despite the lack of updates, progress continues behind the scenes, although Jason Bak, Finavera’s CEO is yet not able to say much about the ongoing initiatives.  On Friday, he told me, “I’m keen to get more news out to shareholders, towards the end of September or early October may be appropriate.”  Until then, we’ll have to make due with what we can glean from the interim report.

Selling wind projects to Pattern

The timeline for the sale of Finavera’s Canadian wind projects to Pattern has slipped slightly, although progress continues.  According the the interim report, “Closing of the Pattern Transaction is now dependent upon the receipt of various required consents and regulatory approvals; performance of the Company’s covenants and obligations under the PSA Agreement; assuming no Material Adverse Changes and other standard closing conditions.”

In particular,

  • Finavera expects to receive between C$11.7 and C$18.7 million, net of loan repayments, depending on the final project sizes (see below.)  It anticipates between C$3 million and C$5 million in additional development costs to bring the projects to financial close, the first $2 million of which will be paid by Pattern.  The Q2 MD&A was not clear if the C$3-C$5 million was in addition to the the amount covered by Pattern, or inclusive of it, but I have confirmed with the company that the latter is the case, and the expected development costs payable by Finavera range between C$1 and C$3 million.  Finavera has internally budgeted $2.7 million (at the upper end of the range) for these development costs.
  • The company has received shareholder approval and consent from the Toronto Venture Exchange.
  • There has been some delay submitting the Meikle project for environmental review.  When I last spoke to Bak, he expected this in July, he now says it will be submitted in mid September.
  • Finavera has been collecting wind data on which the final project sizes and payments will depend.  Bak tells me a decision on project size is “imminent.”
  • The company is in the process of obtaining preliminary assent from BC Hydro for the transfer of the Power Purchase agreement to Pattern.  According to the interim report, “Such preliminary consent is expected imminently” as of August 28th.  Bak was not able to give me any further information about the timing.
  • Financial close of the transaction is “expected mid-2014 to early 2015.”  This was previously expected in the second half of 2014.

Cloosh Valley Wind Farm

This 105 MW estimated capacity wind farm is still anticipated to close on project financing in late 2013.  At that point, Finavera expects to receive €7.14 million (C$9.79 million.)  It is considering options for its remaining 10% stake in the farm.

Use of proceeds from the Pattern transaction

Data in C$ million, except for shares (millions) and per share data.


Item Worst Case Expected Best Case
Pattern Proceeds $20.9 $22.7 $27.9
Future Development costs ($3) ($2.7) ($1)
Cloosh Payment $9.8 $9.8 $9.8
Sale of 10% Cloosh Stake $3 $3 $4
8/28/13 Net Liabilities ($23.9) ($23.9) ($23.9)
Totals $6.8 $8.9 $16.8
Diluted shares 39.6 39.6 39.6
C$ per share $0.17 $0.22 $0.42
Data in C$ millions except shares (million) and per share data. Sources: Finavera Q2 2013 MD&A, Jason Bak interviews.

After repaying all its obligations after the close of the Cloosh and Pattern transactions, Finavera should have between C$6.8 million and C$16.8 million in cash on hand, or between 17 and 42 cents per share (see table.)  This is less than my previous estimates.  Ongoing development costs have risen from my previous estimates.  My most recent estimates are shown in the table to the right.

Finavera plans to give shareholders a say in the use of these proceeds, and the company is currently working on the terms of a future development deal to present to shareholders.  When the terms of this deal are finalized, it will be presented to shareholders.  An alternative use of the funds will be  to simply return it to shareholders.


With timelines slowly slipping, costs inching up, and an earlier revision to the deal with Pattern which greatly reduced the potential payoff, I’m very disappointed.  Other shareholders are, too, which is why the stock is currently trading at C$0.15, and has traded as low as C$0.13 recently.

With only a 50% expected gain left after another year which could produce yet more timeline slippage, I’m not in a rush to buy more, although the potential gains are easily enough to keep me around at this price.

This article was first published on the author's Forbes.com blog, Green Stocks on September 16th.

Disclosue: Long FVR

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.

September 25, 2013

KiOR's Hard Yards of Commercialization

Jim Lane

Businessman leaping
Businessman leaping photo via BigStock

“The first cut is the deepest” goes the old saw — no more so than in first commercial, first-of-kind advanced biofuels projects – especially when they are undertaken by newly-public companies under extraordinary scrutiny.

In short, the KiOR (KIOR) story. And, as allegations fly, we look at the data on the ground and find that things are not always as they seem.

Earlier this year, Phil New, the always interesting CEO of BP Biofuels, gave a rather extraordinary address in which he suggested that the extraordinary days of technological innovation were behind the advanced biofuels revolution, and what lay ahead were the “hard yards” of commercialization — primarily, the pursuit of operational excellence.

New’s speech came to mind this week as KiOR has been struggling with a certain amount of panic on the part of biofuels observers and investors — who had handed out an extraordinary punishment to the stock this summer when the company missed (substantially, and suddenly) a 300,000-500,000 gallon production forecast for the second quarter.

Though Raymond James energy analyst Pavel Molchanov observed that the company was roughly 4-5 months behind its production ramp-up schedule and that “we can think of plenty of liquefied natural gas (LNG) plants and offshore oilfields that had delays much worse than this.”” — nevertheless, the stock dropped by well above 50%, and the plunge in equity has alarmed shareholders, made future financings more difficult, and in general spooked the advanced biofuels sector, which has frankly been on tenterhooks anyway give the delays and difficulties seen at Gevo, Amyris, Range Fuels and the like.

The Seeking Alpha controversy

A online discussion on the KiOR situation, at the popular investor site SeekingAlpha.com, attracted the following extraordinary post.

The SeekingAlpha update itself was relatively benign, noting “KiOR +1.7% premarket after providing Columbus facility update…As of Aug. 31, Columbus has shipped ~199K gallons of fuel YTD, with about half (~99K gal.) shipped in July and August, and the company expects to continue shipping fuel produced in July and August during September…In July and August, Columbus produced ~172K gallons of fuel, bringing YTD production to 357.5K gal. through Aug. 31.”

The response from a SeekingAlpha.com reader, Mark Henry, writing in the comment box, set alight a wave of web traffic with a series of stunning allegations.

Henry writes:

I worked on the maintenance, and these numbers have to be incorrect. During July and August the plant was on a shutdown and never ran anywhere near capacity. They have 2 systems (a train and B train) B train never ran the whole time. They had a PR stunt and had a tanker come in for the video…the tanker was empty coming in and it was EMPTY going out. The plant was buying few logs during the shutdown and the log yard was only about half full. They did start chipping logs near the end of august and began producing fuel, but on my last day the last tank that the product goes through before going to the tank farm was discovered to be full of tar like substance that should not be there at this stage of production. Also the plant manager has his wife working there making a 6 figure income and she does nothing. If you want to find out how much they know about the production ask them how many BTU’s of energy does it take to produce a BTU of product. They don’t know, so without government money this plant will lose money so take your money and RUN!”

KiOr logo

The Allegations

Let’s parse this into separate allegations.

1. During July and August the plant was on a shutdown and never ran anywhere near capacity.

2. “They had a PR stunt and had a tanker come in for the video…the tanker was empty coming in and it was EMPTY going out.”

3. The last tank that the product goes through before going to the tank farm was discovered to be full of tar like substance that should not be there at this stage of production.

4. Also the plant manager has his wife working there making a 6 figure income and she does nothing.

5. A provocative bu unspecific allegation relating to the BTUs.

The skinny

So, let’s go through them one by one.

We did confirm that, indeed, Mark Henry was onsite this summer working for one of the KiOR’s contractors. But, what about these allegations? Particularly the saga of the empty truck.

1. Spiking the numbers? On the production side, KiOR observes:

“The BFCC (our core technology) produces oil; we then move that to the hydrotreater which produces our fuel. Or, we can hold the oil in on-site storage and process into fuel at a later date. The BFCC and the hydrotreater are capable of running separately from each other and often do particularly during our on-going start-up phase.

Ironically, we issued the September 19 release to help external stakeholders have more of our data and not create confusion. Since the EPA reports shipments and not production, we wanted it to be clear that KiOR had in fact been producing even though the EPA report would not reflect activity.

“So, for the September 19 release (copy attached), we used detail contained in our production/shipment that is part of our normal business recordkeeping. In the release, we focused on total fuel production which is what we base our guidance on, and includes all three of our products – gasoline, diesel and fuel oil.

This is different than what EPA reports on a monthly basis through EMTS for two reasons: first, the reports do not reflect any of KiOR’s fuel oil shipments, as that product is not a RIN generating product under RFS2 (although we do sell it to customers); and second, EPA reports volumes and RINs generated in their EMTS, which for us at KiOR does not occur until the product is actually shipped from the facility, even if it is in our product tanks ready for shipment.

“We said that Columbus produced 172,398 gallons of fuels in July and August. In his note, mhenry stated that “during July and August the plant was on a shutdown and never ran anywhere near capacity.” I think part of the erroneous information revolves around the fact that this individual, in his role as contractor, may not have an understanding of the independent operations in various parts of the facility, and, as such, has assumed (incorrectly) that if any part of the facility is not in operations, then fuel cannot be produced. As I mentioned above, the BFCC does not have to run for us to produce our fuel, but it had to run at some point to produce the oil which we processed in the hydrotreater. So, the plant was producing fuel at the volumes reflected in the press release – period.

“With respect to shipments, through the end of August, we had shipped 199,071 gallons of fuel; that compares to the 141,569 reflected in the EPA report for D3’s and D7’s for the year. We are fairly certain that all or most of those D3’s and D7’s are from KiOR and the main difference can be attributed to the fact that we also shipped un-RINable fuel oil which would not appear in the EPA report.”

The Digest adds: Some of the confusion may clear up shortly, with the EPA’s new heating oil rule released today.

The new definition of heating oil adds a category to include all fuel oils that are used to generate heat to warm buildings or other facilities where people live, work, recreate, or conduct other activities. All fuels previously included in the original definition of heating oil continue to be included in the expanded definition. Fuel oils in the new category of the expanded definition that are used to generate process heat, power, or other functions are not approved for RIN generation.

Mike McAdams, president of the Advanced Biofuels Association, said:

“The Advanced Biofuels Association applauds EPA for expanding the definition of heating oil to include renewable fuel oil used to warm buildings or other facilities where people live, work or recreate. This newly expanded definition will help sustain growing renewable fuel production, particularly of advanced or cellulosic biofuels, in the heating oil market. This rule will allow actual gallons of advanced and cellulosic heating oil to be delivered this year to the market. The change also underscores EPA’s continued leadership administering the Renewable Fuel Standard (RFS) program.”

2. The video shoot. According to KiOR, “the video shoot was not a “stunt” but merely an opportunity to obtain b-roll footage of the plant. Obviously, we had to pay to bring a truck in for the day to be able to show the fueling section of the plant, but this was the safest route to take for these purposes. We had a local firm do the video for us on July 30, and there wasn’t anyone else on the grounds besides employees and contractors.

A note to readers: b-roll, that’s the generic kind of footage that is routinely provided to television stations to assist them in their news coverage. Virtually every major company in the world has a hopper full of b-roll.

3. The “tar-like substance”. We regard this — at this stage — as a indicative of normal start-up processes and particularly before steady-state operations are achieved. Let’s all keep in mind that this is a first-in-kind facility — even a mature facility might have excessive heavy oils during the start-up year. One to keep a sharp eye on, though – those incidents are supposed to fade away in time.

4. There’s the allegation about the padded payroll. True enough, according to KiOR, the “plant manager’s wife does indeed work for KiOR, but she works in a corporate function and reports to Pasadena. This individual is the Director of Health, Safety & Environment and Quality, and has also been leading our Continuous Improvement process. I can assure you that with a degree in Chemical Engineering, and leadership roles in plant management, quality management and business program management that she came highly qualified to the role and she is a real asset to KiOR.”

A further note to readers: the need for a “baseline level of staffing consisting of process engineering, monitoring staff, testing personnel, health safety and environmental personnel” is routinely disclosed and discussed in KiOR’s 10-Q SEC forms.

5. The BTUs allegation. Here in Digestville, we’d generally steer readers away from a focus on energy returns and focus on economic returns. Why? First of all, fuels need to compete on economics. Few would pay more for a gallon of fuel because it is more energy-efficient. At the same time, we make a distinction between useful energy and useless energy. For example, using flared natural gas is an attractive option in terms of the economics, if you can capture it. A process could have a low energy return but have a positive and attractive economic return because of the problem of — and opportunities with — residues or feedstocks that have low value in their natural state.

The bottom line

It’s always important — with early-stage companies — to put informal crowd-sourced commentary from well-meaning (or perhgaps not) amateur reporters into context. Take for example the b-roll footage. It’s like alleging that United Airlines doesn’t carry passengers because they shoot some generic take-off- and landing footage using a plane not carrying any passengers.

At the same time, it’s important to keep a close eye on all early-stage companies — particularly those who have gone public and are raising equity from investors with less access to the kind of data — and the means to understand it — that sophisticated early-stage investors like venture capitalists generally have.

So, it’s probably a good thing that all these questions and allegations arise, so that we all have an opportunity to get a little more “in the weeds” of start-up operations that, in looking at pilot and lab-level operations, we generally do.

As Phil New cautions, these are the hard yards. And with those, along come the Monday Morning Quarterbacks who seem to have all the answers.

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.

September 24, 2013

KiOR Shows Its Gallons

KiOR Shows Its Gallons

Jim Lane


Landmark cellulosic drop-in biofuels producer releases update on early-stage production: is the increasing gallonage enough to silence the critics?

Today, we head to the Chapel of Hard Data, and get closer to the music.

Nobody walks slower, in public, than at a wedding or a funeral. In the case of KiOR (KIOR), the critics and supporters have been shouting loud as the company makes its slow, public march up the aisle towards steady-state operations.

Most observers, sitting in the pews, have been unsure as to whether to be tossing rice in celebration, or breaking into a chorus of “Nearer My God To Thee”.

So it was highly welcome when the company this week provided an update on the operations at its Columbus, Mississippi, facility in response to the volumes and Renewable Identification Numbers, or RINs, listed in the EPA Moderated Transaction Systems monthly report issued on September 18, 2013.

In July and August, the Columbus facility produced 172,398 gallons of fuel, bringing the 2013 production total from the facility to 357,532 gallons through August 31, 2013. Approximately 83% of production was in the form of gasoline and diesel, with the remaining production as fuel oil. Production from Columbus during July and August exceeded total second quarter production by nearly 40,000 gallons.

As of August 31, 2013, Columbus has shipped 199,071 gallons of fuel since the beginning of 2013, about half of which (99,175 gallons) were shipped in July and August. The Company expects to continue shipping fuel produced in July and August during the month of September.

Reaction from KiOR

“KiOR’s Columbus facility continues to make strides toward steady state operations,” said Fred Cannon, President and CEO. “With the BFCC section of the Columbus facility currently producing additional oil, we believe that we are well-positioned to build on the progress made during July and August and to produce additional volumes of cellulosic fuel for American vehicles consistent with our most recent guidance.”

Analyst commentary

Lats month. Raymond James energy analyst Pavel Molchanov posted a thoughtful commentary on KiOR’s progress towards regular commercial operations.

Key thought: “We can think of plenty of liquefied natural gas (LNG) plants and offshore oilfields that had delays much worse than this.”

The Molchanov thesis

KiOR’s Columbus plant is North America’s first-ever cellulosic biofuel plant to achieve commercial-scale production. Large energy infrastructure projects always go through a ramp-up process, and of course Columbus uses a novel technology with its own unique set of operational growing pains. Yes, Columbus is behind schedule (by 4-5 months) relative to where management had originally expected to be at this point, hence the cut in 2013 guidance (from 3-5 million gallons to 1-2 million gallons). But this does not imply any structural flaws in the underlying technology, and 4-5 months is hardly a crisis in the grand scheme of things.

“Following last week’s 37% sell-off – an excessive, momentum-driven reaction to previously disclosed information – we are reiterating our Outperform rating on shares of KiOR. Our fundamental thesis is intact, the business model remains valid, and we think that investors open to early-stage stories should look at the current entry point (29% of our DCF estimate) as a buying opportunity. This, of course, has always been a risky stock – hence our Venture Risk suitability rating – but in that context, our stance remains positive.

“Amid a sharp market pullback,” Molchanov continued, “KiOR shares had a particularly rough week, falling 37% to an all-time low. (The small float, 21% of shares outstanding, inherently exacerbates the share price impact of any selling.) In the absence of incremental news flow, this was simply the continuation of the sell-off from August 8 and 9, when KiOR (1) reported below-guidance 2Q shipments and lowered guidance for the rest of the year, (2) raised future production cost estimates, and (3) filed a 10-Q with a going concern statement.”

KiOR vs petroleum

In the company’s August 8 announcement, KiOR signaled that it was increasing its production cost target for its proposed Natchez facility from $1.80/gal to $2.25-2.48/gal.

It’s a substantial increase, but let’s compare that to the price of the incumbent fossil-based gasoline — currently pricing at $2.97 (gasoline) and $3.08 (diesel).

Now, let’s review.

1. Priced below the incumbent, without subsidies.
2. Uses cellulosic, non-food feedstocks.
3. Drop-in fuel with no blend wall issues.
3. A here-today technology, producing fuel now and at increasing gallonages.

Would that the world had a few more of these.

The bad news

One lesson that KiOR would have benefited from is the studying the Amyris (AMRS) and Gevo (GEVO) examples of the pain that comes when missing production forecasts made as a public company.

We’ll not comment on any legal jeopardy that comes from disappointed shareholders filing class-action suits on a “we’ve been had” basis – as better experts on the protections offered in “safe harbor” statements will have a better view.

But, clearly, KiOR had expectations of producing 300-500,000 gallons in Q2 and 3-5 million gallons in Q3. This week’s announcement is consistent with a 300,000 – 500,000 gallon production in Q3 — so, a full quarter behind. The September production numbers may well be key, in terms of the company hitting 1-2 million gallons for the year.

Let’s look at this in terms of the plant’s stated capacity – 11 million gallons, or 900,000 gallons per month. Clearly, the company is producing something like 10% of its stated capacity right now.

What we don’t know is – why? Three possibilities.

1. KiOR is fundamentally far behind in terms of the technology’s production rate. Somethiing that would strike at the hearty of the business model.

2. The company is not running the technology full-time, possibly not even close — for technical reasons That could simply be a ramp-up problem — or related to issues in non-core technology. Or could be a fundamental issue that is being addressed — and would be a risk element.

3. The company is not running the technology full-time, possibly not even close — for cash reasons. When cash is short, and when production is not yet profitable at this smaller-scale facility, why make and ship money-losing gallons? Why not focus on rate and yield, and go for volume at the full-scale facility planned for Natchez?

Seen in perspective

As Molchanov says “4-5 months is hardly a crisis in the grand scheme of things.”

It’s no surprise that the enemies of biofuels are delighted to spread bad news of KiOR’s delays — with the implication that cellulosic fuels are fantasy fuels. Ensuring even more difficulty in other technologies obtaining first-of-kind commercil plant financing – causing further unexpected delays, and further shortfalls compared to cellulosic fuels mandates and expectations.

In short, a self-reinforcing phenomenon.

For now, we await the September production figures — or the corresponding RIN numbers from the plant. Should production fall below 100,000 gallons — could be a long haul towards full commercial success for KiOR, and its cash-raising opportunities are limited, given the tanked stock price.

Should production hit between 100,000-150,000 gallons — good incremental progress, though far from full-scale operations. North of 200,000 — would be a good sign that KiOR is on its way.

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.

September 23, 2013

China Boosts Solar With Construction Ban

Doug Young

China halts
construction of new solar manufacturing plants

Beijing took an important step towards rejuvenating the global solar panel sector last week when it announced new steps that will strictly limit new plant construction. This kind of government-led approach is a good short-term solution, as it will halt the introduction of new supply, which in turn will allow prices to stabilize after more than 2 years of steep declines caused by massive overcapacity.

But over the longer term, China needs to address the problem at its root by changing the mindset of state-owned enterprises that own many smaller plants which contributed to the current crisis. It can do that by teaching them to make their decisions based on commercial factors and not simply in blind response to government objectives.

The rapid build-up of China’s solar panel-making sector is a typical pattern seen in China during the reform era, when government objectives often lead to massive build-ups in areas targeted for growth. Previous cycles have seen the addition of massive new capacity in a wide range of sectors, ranging from steel to cars, televisions and microchips.

Such build-ups often end with big-scale closures due to major excess capacity, wreaking havoc on not only Chinese but also global markets and resulting in billions of dollars in lost investment.

The solar sector was one such typical case, taking off after Beijing provided incentives such as cheap loans and favorable tax policies. As a result, Chinese solar panel makers came to dominate the sector over the last 5 years, overtaking western rivals to currently control up to 80 percent of the world market.

At the height of the boom, China boasted some 400 companies engaged in various aspects of panel production, as the nation’s capacity rose 10-fold over the last 5 years, according to various estimates. That rapid build-up caused prices to plunge by more than half since the downturn began in 2011, including a 20 percent decline in the last year alone.

Many western firms became insolvent in the crisis, and former Chinese leader Suntech (NYSE: STP) joined the group earlier this year when it was forced into bankruptcy. While the big names have grabbed headlines, many more smaller firms have also left the market, with one executive estimating the number of Chinese players has now fallen to 150 from the former 400.

To set the sector on a longer-term track for sustainable growth, the Ministry of Industry and Information Technology (MIIT) late last week published rules that will halt any new construction based on current technologies. (English article) This kind of restriction would never be necessary in market-oriented countries, since no company would ever enter a field where the fundamentals were still quite weak.

But in China such commercial factors are often a secondary to politics, with state-owned enterprises often building new factories with little or no chance for success in response to government priorities and directives. Beijing should be commended for issuing its latest order, which will halt new factory construction and allow the sector to finally stabilize. But over the longer term, the central government needs to teach these state-owned enterprises to only join government programs when doing so makes commercial sense, and to leave political factors out of their decisions.

Bottom line: China’s ban on new solar panel plant construction is a good first step to rejuvinating the sector, and should be followed by a re-education campaign for state-run plant owners.

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.

September 22, 2013

Capstone Infrastructure: Green Income At A Cardinal Discount

Tom Konrad CFA


Capstone Infrastructure Corp.'s Gas Cogeneration facility in Cardinal, Ontario.

Capstone Infrastructure Corporation (TSX:CSE, OTC:MCQPF. Disclosure: I own this stock) is an international operator and developer of green infrastructure assets and utilities which is currently selling at a significant discount to most comparable firms.  I recently ran a comparison of six similar Canada-listed firms, and Capstone seemed much cheaper on several measures.

The Discount

The following chart compares five renewable energy and green infrastructure firms with most of their operations in Canada: Capstone, Algonquin Power and Utilities (TSX:AQN, OTC:AQUNF), Brookfield Renewable Energy Partners (NYSE:BEP), Northland Power (TSX:NPI, OTC:NPIFF), and Innergex Renewable Energy (TSX:INE, OTC:INGXF).  (I own all these stocks.)

CA income.png

As you can see from the chart, Capstone has not only the highest dividend yield, but also scores better on factors which reflect on its ability to maintain that dividend.  In particular, Capstone has much higher revenue and income relative to its market capitalization than the other companies.

That said, neither revenue nor income is a very good measure of a company’s ability to maintain its dividend for this sort of infrastructure company.  Revenue is not a good indicator of the ability to maintain a dividend when a company has too much  debt or preferred equity, or the business is not profitable.  As you can see from the chart to the right, Capstone’s common equity is in line with or stronger than the other firms in the comparison.

For capital-heavy infrastructure firms, income may understate the ability of a firm to pay dividends because of large non-cash depreciation and amortization charges.  Two of the firms compared (Algonquin Power and Infrastructure  and Brookfield Renewable Energy Partners) actually had negative income over the previous twelve months.  Most such firms publish a measure of Adjusted Funds From Operations (AFFO) to give investors insight into their ability to pay dividends.  Unfortunately, these measures are not defined by standard accounting rules, and so they can be problematic to compare across firms.

Rather than use published AFFO numbers, I chose instead to adjust for amortization and depreciation directly to get EBDA (Earnings Before Depreciation and Amortization), by adding them back in to income.  This has some of its own problems, in that it involves double counting the tax deductions on depreciation and amortization and it leaves out some other potentially relevant adjustments, but at least it is comparable between firms.  The yellow bars in the first chart (titled “Green Canadian Infrastructure Firms”) confirm that Capstone’s EBDA is also in-line with the other firms in the comparison.

Given Capstone’s high dividend and apparent ability to continue paying that dividend based on these accounting measures, I have to conclude the firm is trading at a discount.


Since Capstone seems to be trading at a discount to similar firms, it’s quite reasonable to ask why.  A quick review of management’s most recent discussion and analysis in its quarterly and annual filings makes the answer clear: Capstone’s largest asset, the 156 MW Cardinal gas cogeneration plant in Ontario (pictured in the lead photo) has an expiring Power Purchase Agreement.  This agreement covers the sale of the generated electricity to the Ontario Electricity Financial Corporation, and it expires in 2014.  The steam and compressed air generated by Cardinal is sold at contracted rates to an Ingredion (NYSE:INGR) Canada Inc. (formerly Casco Inc.) facility, one of the largest corn refining facilities in Canada, located adjacent to the Cardinal plant.  The agreements with Ingredion expire in 2016.

Capstone has been in discussions with the Ontario Power Authority over a new contract, but have not yet reached an agreement “that recognizes Cardinal’s value and its industrial, economic, social and community importance.”

Shareholder concern over the lack of a new contract has clearly been hurting the stock price.  Management is clearly aware of this, and says “Securing a new contract for Cardinal [is] our top priority for 2013.”

In 2012, electricity sales from Cardinal amounted to approximately 31% of revenue.  However, Capstone is in the process of buying Renewable Energy Developers (TSX:RDZ, OTC:STWPF).  After the merger, Cardinal’s share of revenue should drop below 29% for the combined entity, and will be even lower going forward, because RDZ brings with it a development pipeline which should increase Capstones future growth.

Is it really that bad?

With the market for 29% of Capstone’s revenue up in the air, it makes sense for Capstone to be trading at a discount relative to its peers.  But how much of a discount?

  • Based on its dividend yield of 7.8%, Capstone is trading at a 21% discount compared to similar firms, which pay on average 6.2%.  So investors are pricing in a 21% decrease in Capstone’s ability to pay dividends, which equates a 72% reduction in Cardinal’s profitability.
  • Based on Revenue, Capstone could lose all sales from Cardinal and still be trading at a lower multiple of sales than the comparable firms.
  • Based on a price to book ratio (P/B) of 0.7, it should be able to write off the entire value of Cardinal and still have Capstone trade in the P/B range of its peers (1.3 to 2.1, with an average of 1.6,) even if it accounts for up to two-thirds of Capstone’s equity.
  • Based on reported AFFO, Capstone’s dividend payout ratio was only 50% of AFFO in the first six months of 2013, while the company targets a long term payout ratio of 70% to 80% of AFFO.  Hence, AFFO could fall by one third and Capstone would be able to maintain its dividend while meeting its target payout ratio.

While the market of electricity in Ontario is not growing rapidly, economic factors make me believe that Cardinal should be able to operate at a profit even without a PPA.  In particular, growing demand in connecting regions (Manitoba, Quebec, New York, Michigan, and Minnesota) should provide a floor for electricity prices.  As long as  natural gas prices remain low, Cardinal should be able to sell its power at attractive prices, especially since some of its costs will be covered by sales of heat and compressed air to Ingredion.  Finally, with most of Ontario’s power coming from inflexible baseload nuclear and coal plants, the increasing penetration of renewables under Ontario’s Feed in Tariff makes Cardinal’s flexible gas cogeneration an increasingly valuable part of Ontario’s generation mix.

In any case, Capstone’s discussions with the Ontario Power Authority are more about “plans to reconfigure and expand the facility, rather than on extending the existing power purchase agreement (PPA)” according to the most recent quarterly report.  The negotiations in Ontario seem as likely to provide an upside opportunity as to reduce the firm’s future prospects.


With the uncertainty around the renewal of the Cardinal PPA, Capstone is trading at a substantial discount to its peers.  But that uncertainty has both upside and downside, while the market seems to be pricing in only a catastrophic downside.  With a 7.8% yield based on a C$0.30 dividend which was already reduced (in June 2012) to reflect the uncertainty around the PPA negotiations, Capstone should be very attractive to income investors.

If the results of the negotiations are unfavorable, Capstone should be able to maintain its current dividend.  If they can continue business as usual or achieve a framework which allows them to invest in and expand Cardinal, there is substantial scope for dividend increases going forward.

In either scenario, the increased certainty and constant or increasing dividend should lead to stock price appreciation on top of an attractive dividend over the next couple of years.  If the PPA is renewed on terms which allow the dividend to be maintained at C$0.30, and the yield falls to the 6.15% average of Capstone’s peers, then Capstones stock price would have to rise to C$4.88, 30% higher than the current C$3.76.

This article was first published on the author's Forbes.com blog, Green Stocks on Sepetmber 11th.

Disclosue: Long CSE, AQN,NPI,BEP,INE,RDZ

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.

September 20, 2013

How to Read a Sustainability Report: Five Tips

Five tips to help you make sense of the next sustainability report you read

reading green reports.jpg
Reading Sustainability Reports photo via BigStock
By Marc Gunther. This article was first published on Ensia.com.

Corporate sustainability reports have been around since … well, it’s hard to say.  The first report may have been published by “companies in the chemical industry with serious image problems” in the 1980s, or by Ben & Jerry’s in 1989 or Shell in 1997. No matter — since then, more than 10,000 companies have published more than 50,000 reports, according to CorporateRegister.com, which maintains a searchable database of reports.

But who really reads them? As a reporter who covers business and sustainability, I do. Maybe you do, too — as an employee, investor, researcher or activist.

Here, then, are five tips to help you make sense of the next report that lands on your desk or arrives via email. They were developed with help from Steve Lydenberg of Domini Social Investments — the principal author of How to Read a Corporate Social Responsibility Report, an excellent 2010 study from the Boston College Center for Corporate Citizenship — and Bill Baue, a consultant and leader of the Sustainability Context Group, an organization working to improve corporate reporting.

1. Pay attention to what’s in the report — and what’s left out. Lots of companies fill their sustainability reports with anecdotes, but these are often off point. Chevron’s 2012 corporate responsibility report says a Chevron executive in Angola is part of “a team that protects endangered turtles that come ashore to breed, dig sandy nests and lay their eggs on the beaches at Chevron’s Malongo oil production facilities.” And we learn that the company has partnered with the Wildlife Conservation Society to “introduce passive acoustic monitoring in the south Atlantic Ocean to assess humpback whale breeding activity” as it explores for oil.

That’s nice, but environmentalists will want to understand what the giant oil company (2012 revenues: $234 billion) is doing about climate change, if anything. Figuring that out from the report is hard, if not impossible. Chevron reports that its 2012 emissions from operations were 56.3 million metric tons of CO2 equivalent, down by about 3.5 million metric tons from 2011, and below its goal of 60.5 million metric tons. That sounds like progress. But you have to read the footnotes to learn that the decline was largely caused by the sale of one refinery in Alaska and “decreased production” from a second refinery in Richmond, Calif., where an August 2012 fire sent thousands of people to hospitals and later led Chevron to pay $2 million in fines and restitution.

What’s more, emissions from operations account for only part of Chevron’s impact. The company’s report says, “combustion of our products resulted in emissions of approximately 364 million metric tons of CO2 in 2012, approximately 8 percent less than the 396 million metric tons emitted in 2011.” Why the decline? Is the fact that people are burning less gas and oil good for the planet but bad for Chevron? The report doesn’t explain.

A good sustainability report should focus on those company activities that have the greatest impact.More importantly, is Chevron trying to move away from fossil fuels and develop cleaner forms of energy? It doesn’t seem to be, since the word “renewable” appears nowhere in the body of the report.

2. Follow the (big) money. A good sustainability report should focus on those company activities that have the greatest impact. So, for example, what matters most in the financial services industry is not paper consumption, LEED-certified work spaces or direct greenhouse gas emissions, but lending and investment practices. Citi’s most recent report says it opened 23 LEED-certified branches in 2012 — a data point that is hard to put into context (since the report doesn’t say how many branches the company operates) and not very meaningful, in any event. What we want to know about Wall Street is how the big banks are taking environmental issues into account in their lending and investments. “No other industry has as much ability to affect the environmental and social practices of other industries as financial services does,” says Lydenberg.

Bank of America tackles the big question better than most. In its report, BofA says it has committed $70 billion over 16 years to “address global climate change and demands on natural resources,” and it describes the goal as “the largest among our peers.” That’s helpful. The bank also tallies where the first $21 billion of its climate-friendly financing has gone. To its credit, BofA also tries to explain why it does business with the coal industry in the face of criticism from environmental groups. “If large financial institutions were to unilaterally discontinue financing the coal industry, it would have negative consequences for the U.S. and global economies,” the BofA report says. The bank also notes, helpfully, that it supports government policies to tax or regulate carbon emissions.

Like most banks, however, BofA doesn’t provide an accounting of its loans to or investments in fossil fuel companies. (According to the Rainforest Action Network, BofA finances Coal India, one of the world’s biggest coal mining companies, which has displaced forest communities and destroyed critical tiger habitat.) How do Bank of America’s investments in fossil fuels, which aggravate climate change, compare to the $70 billion it has pledged to finance, in part, climate solutions? Is the bank making the climate crisis better or worse? Good luck finding out.

You can be confident that most companies present their data in the most favorable light.

Sustainability via BigStock

3. Think about context.  When trying to understand a company’s impact on climate or energy usage or water, a single number or two won’t help. You’ll need to look at absolute numbers (how much energy did the company use, in total), normalized numbers (adjusting for acquisitions or divestitures), and numbers that reflect energy or water intensity (how much was used per unit of product or dollar of revenues). These numbers only become meaningful when they are accompanied by year-over-year comparisons, or when set against previous goals. You can be confident that most companies present their data in the most favorable light.

The concept of context-based sustainability is designed, in part, to cut through obfuscations and generate meaningful sustainability goals and targets. The idea is elegant: Companies should measure their impacts against science-based sustainability thresholds and resource limits. Is Coca-Cola only using its fair share of the water supply in India? What should Ford’s carbon reduction target be? These aren’t easy questions, but Baue and Mark McElroy of the Center for Sustainable Organizations — leading advocates of context-based sustainability — say answers can be found. Companies, for example, could for reporting purposes be allocated a share of greenhouse gas emissions based on their contributions to gross national product; they would then set emissions reduction targets that are deep enough to meet global climate goals, and report on their progress against those targets.

Several companies are experimenting with context-based sustainability, including the Vermont dairy company Cabot Creamery Cooperative, EMC and Mars. BT (British Telecom) has developed a methodology to determine its share of GHG emissions, as has the California software company Autodesk, which makes its tool, called C-FACT (Corporate Finance Approach to Climate-Stabilizing Targets), available for free.

4. Read more than one report at a time.  How many glasses of water does it take to brew a gallon of beer? I have no idea either, so reading that New Belgium, a Colorado brewing company, wants to reduce its water use per barrel to 3.5 to 1 by 2015 doesn’t tell me much. In 2011, the ratio was 4.22 to 1.

New Belgium has a well-deserved reputation for sustainability but when it comes to water, the brewer lags behind its bigger competitors. MillerCoors’ latest sustainability report says it achieved an average water-to-beer ratio of 3.82 to 1 across its major breweries, while the world’s biggest beer company, Anheuser-Busch InBev, does even better, reporting a water-to-beer production ratio of 3.5 to 1.

Good sustainability reporting, above all, needs to be credible.Reading the Coca-Cola and PepsiCo reports side by side is more enlightening than reading one at a time. The same with UPS and FedEx. But be aware that peer-to-peer comparisons are inexact. New Belgium explains that a practice called “dry hopping” has increased the water intensity in the brewing process. A bottle of Fat Tire is not the same as a Bud or a Coors Light, as any beer drinker knows.

5. Look for all the news that’s fit to print.  Good sustainability reporting, above all, needs to be credible. It’s not easy to decide whether to trust what a company is telling us, but one sign is whether companies deliver the bad news along with the good. In the Chevron report, the refinery fire in Richmond, as well as a fire on an offshore oil-drilling rig near Nigeria, get only a passing mention. “These incidents do not reflect the expectations we have of ourselves,” the report says. We should hope not.

By contrast, Gap has been more willing than most companies to air its dirty linen (pun intended). The company has been forthcoming about what it calls “the severity of worker safety issues in Bangladesh” since 2010. When it comes to the environment, the company is clear about where it will exert its influence — over its supply chain and its own operations — and where it will leave the problems for others to solve.

At the end of the day, the most important thing to know about corporate sustainability reports may be that they almost inevitably raise more questions than they answer. A report cannot, by itself, be relied upon to explain a company’s environmental impact. It’s a useful starting point, at best.

Marc Gunther writer for Fortune, GreenBiz and Sustainable Business Forum co-chair, Fortune Brainstorm Green 2012 and a blogger at www.marcgunther.com.  His book, Suck It Up: How capturing carbon from the air can help solve the climate crisis, has been published as an Amazon Kindle Single. You can buy it here for $1.99.

September 18, 2013

Solar Stocks Will Continue to Outperform But Remain Volatile

By Harris Roen

The market is starting to notice that solar investing has been extremely profitable in 2013. As of the middle of September, the average solar stock is up over 50% in the past year, and over 15% in three months (that’s over 60% annualized!).solar returns

These returns are taken from a broad list of about 60 publically traded companies in the solar industry (see chart above). Though all are involved in solar, solar may not be the primary business of many of these companies. For example, Panasonic (PCRFY) produces photovoltaics, but it is only a small part of the company’s much larger consumer product focus.

To get a better sense of what is occurring in the mainstay of solar stocks, 16 companies whose primary business is solar were analyzed. In order to weed out the most speculative players, only companies with over $50 million in annual sales were included.

soalr returns 20130918
As can be seen in the chart above, these pure play solar stocks have performed spectacularly. On average they are up 164% for the year, and 41% for the past three months (SolarCity (SCTY) has only been trading since December 2012, so annual gains are shown from that time). JinkoSolar (JKS), SunPower (SPWR) and Canadian Solar Inc. (CSIQ) have by far outperformed the rest. STR Holdings (STRI), a Connecticut-based company that provides encapsulants used in the production of solar panels, is the one down stock in the group.

By comparison, the S&P 500 is up 16% over the same annual period, and gained only 3% in the past three months. The tech heavy NASDAQ did a bit better, up 18% for the year and 8% in three months. These returns still pale in comparison to solar.

Why the outsized solar stock gains? The chart below shows net income for the top three solar stock performers, and the average for all solar pure play stocks. Clearly, net income improved markedly over the past four quarters. The three companies had extremely negative earnings at the end of 2012, but all have rebounded nicely, with JKS and SPWR solidly in positive territory. When all solar companies are graphed, as shown by the blue line, it clearly shows that the carnage in the solar started to correct itself in late 2012.

net income

This next chart gets a bit complicated, but is instructive in telling the story of recent solar gains. The chart below shows earnings per share (EPS) estimates for solar companies for the next three years. These are the consensus assessments, averaging projections from firms who cover these companies. The dark blue shows estimates for fiscal year 2014, the medium blue FY 2015, and the light blue FY 2016.

eps est

The company with the most consistent, and most promising earnings estimates, is First Solar (FSLR). EPS are projected to remain high for FSLR over the next three years. CSIQ shows the greatest improvement, much of the reason why the forward-looking stock market has generated huge gains for this China-based solar cell and module company.

Even the companies that have negative earnings show marked improvement in their EPS projections. While some of these may be good long-term investments, companies projected to have negative consensus earnings three years out look quite speculative.

Overall, I believe solar as a sector will continue to outperform in the medium to long term. Positive developments include:

The sector will probably remain volatile, though, due to the following limitations:

I believe the best strategy moving forward is to vary investments through the sector in as many ways as possible. The mix should be done through a range of company sizes, locations, technologies employed and the like. Diversified investors who are in solar for the long haul will should benefit greatly from their patience.


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

About the author

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

September 16, 2013

Five Pioneers Mining the Sun for Income

by Jared Wiedmeyer

For the past few years, solar industry stakeholders have imagined a future where the general public has the ability to invest in pure-play renewable energy real estate investment trusts (REITs) that finance and construct both utility-scale and distributed photovoltaic (PV) projects in the United States. While these stakeholders wait for this reality to come to fruition, existing REITs already have several options to own or develop solar projects that still allow them to comply with the IRS's asset and income tests.  This past May, Chadbourne & Park's Kelly Kogan and Scott Bank moderated a roundtable with representatives from several REITs who discussed the options available to REITs to invest in PV systems [1]. I've summarized these options here and provided some additional background information on how these strategies comply with existing IRS regulations.

Option 1 — Utilize a taxable REIT subsidiary (TRS) to own PV projects

A TRS is a subsidiary of an existing REIT that provides services (anything in addition to customary real estate services) to the REIT's tenants without jeopardizing its status as a REIT [2]. Unlike its parent REIT, a TRS pays corporate income tax because the income derived from these services is not considered "good" income by the IRS. Generally speaking, good income is income derived in some way from real property [3]. According to Will Teichman from Kimco Realty, a REIT can utilize its TRS to develop, secure financing for, and own rooftop PV systems [1]. The TRS can pass the benefits from the ITC or 1603 cash grant to the project's investors. The TRS can also sell the power generated to the building's tenants, and it can manage all aspects of the project, including systems operations, customer billing, and securing contracts for the sale of solar renewable energy certificates. The TRS must pay taxes on this income, but it can potentially distribute some of its after-tax income to the REIT in the form of a dividend.

  • Example: Kimco Realty (KIM) owns and operates 874 neighborhood and community shopping centers in 44 states with 128 million ft2 of rooftop space [4].
  • Results: Kimco's TRS has developed and assumed ownership of 3 MW of PV projects, mostly located in New Jersey.

Option 2 — Utilize a TRS to develop and construct PV projects

A REIT can utilize a TRS to develop and construct PV projects, but instead of owning the project after construction, the TRS can sell its ownership interest to an investor or utility. Electricity generated by the project is retained by the utility or is sold to an offtaker under the conditions of a long-term power purchase agreement (PPA). In this case, the TRS only acts as a construction contractor, and the parent REIT collects rent for leasing the rooftop space to the project owner, which is considered good income by the IRS [1].

  • Example: Prologis (PLD) — One of the largest industrial REITs in the world, Prologis owns and operates industrial warehouses and distribution centers around the world with 550 million square feet of rooftop space [5].
  • Results: Prologis hosts about 100 MW of solar that its TRS developed and sold. These systems are mostly located in southern California, but it has also developed systems in Europe and Japan [1].

Option 3 — Lease space to solar developers and project owners

In this case, a REIT owns rooftop space or land but does not form a TRS to construct or develop the PV project. Instead, the REIT will lease the rooftop or land to a PV project developer, which will pay the REIT monthly rent. This rental income is considered good income by the IRS [1].

  • Example: Power REIT (PW) is an infrastructure REIT whose primary asset is its ownership of the land under the Pittsburgh and West Virginia Railroad.
  • Results: PW has recently expanded its scope to owning and renting land under PV projects and has purchased the land under a 5.7-MW PV facility in Massachusetts and rented it to the project owner. The company has also entered into a term sheet to acquire 100 acres of land in California that will host 20 MW of PV projects currently in development [6].

Option 4 — Implement a diversified approach to sustainability/energy efficiency/renewable energy financing

In this case, a mortgage REIT utilizes a diversified approach to "green" investing but focuses most of its efforts on lending for energy efficiency (EE) investments and other building structural improvements, such as efficient HVAC systems. These improvements are permanently affixed to buildings and integrated into its systems so they are classified as good assets, and any interest income on loans secured by these systems is considered good income by the IRS [7]. When such a REIT builds up a large enough portfolio of these EE assets, it can choose to diversify its lending practices into other sectors that may not qualify as good assets or good income—such as utility-scale renewable energy projects—as long as the characteristics of these loans do not exceed the IRS's asset and income tests, which are discussed on REIT.com [8].

  • Example: Hannon Armstrong Infrastructure Capital (HASI) is a project finance firm with more than 30 years of experience in EE and renewable energy finance with $1.6 billion of assets under management.
  • Results: HASI raised over $150 million in an April initial public offering and plans to invest in additional EE and renewable energy projects. The company holds many EE-related assets on its balance sheet, allowing it to make a significant amount of loans to renewable energy projects and still meet the asset and income test thresholds [9].

Option 5 (potential) — Form a Canadian income trust

Instead of pursuing a private-letter ruling to classify renewable energy as "real property," or conforming to existing U.S. limitations, a company could choose to form a Canadian income trust. This entity is a pass-through entity, similar to a REIT, and it trades on the Canadian stock exchange. Unlike IRS regulations, Canadian tax laws do not prohibit the types of assets this company can own, but the trust's property cannot be used to conduct business in Canada [1]. This stipulation makes such a trust a potential option for owning PV projects in the United States. At the time of this writing, this option was actively being pursued, but to my knowledge there is not yet a Canadian income trust specializing in renewable energy projects on the Canadian stock exchange.

  • Example: CleanREIT is an early-stage REIT engaged with investment bankers whose goal is to issue an initial public offering on the Canadian stock exchange.
  • Results: To be determined, but it should be noted that non-Canadian investors face an additional 15% tax to repatriate any dividend income they receive [10].

Table 1 below presents some selected market characteristics of the companies discussed earlier. As you can see, the types of REITs actively investing in PV projects vary widely, suggesting that investing in PV is more dependent on a REIT's corporate mission rather than its organizational structure. For example, Prologis is a large-cap REIT with $45 billion of assets under management, while PW is a small-cap REIT with only $10 million of assets under management, yet both have made significant investments in PV projects.

Table 1 — REITs Investing in Solar: Facts & Figures
Name Share Price 9/16/13 52-week range Market Cap Total AUM Gross Leasable Area Location MW of PV Developed
Sector Focus Renewable Energy Investment Vehicle
Kimco (KIM) 20.65 18.11-25.09 $9.13 billion $8.46billion 131.3 million ft2 North and South America 3 MW
Retail and shopping centers TRS develops, owns, and operates PV system
Prologis (PLD)
37.59 32.31 - 45.52 $18.74 billion $45 billion 554 million ft2 Global 100 MW
Industrial warehouses and distribution centers TRS develops and constructs project, but sells project to third party once operational and collects rooftop rent payments from new owner
Power REIT (PW)
8.36 6.98-11.41 $14.01 million $12.3 million 2.35 million ft2 (4.36 million ft2 pending) United States 25.7 MW
Railroads, renewable energy projects Owns land under PV project
Hannon Armstrong Infrastructure Capital (HASI) 11.85 9.15 – 12.51 $187.11 million $1.6 billion N/A (mortgage REIT) United States N/A
EE, renewable energy, sustainable infrastructure Provides loan syndication services for renewable energy projects, lends to building owners that construct renewable energy systems that are integrated into the buildings they own
  • CleanREIT's IPO is currently in the planning stages, and no market data is available for the company.
  • All stock price information gathered from Yahoo! Finance on September 16, 2013.

Despite the many obstacles standing in the way of pure-play solar REITs, the REIT pioneers discussed here have found ways to work within the existing IRS rules to develop a significant amount of PV projects. Each company offers a unique way to mine good income from the sun, and the efforts of each REIT have worked to bring more clarification as to what the future of solar REITs could look like.

Jared Wiedmeyer is a Research Program Participant with the National Renewable Energy Lab’s Project Finance Team. His work at NREL includes studies in geothermal permitting and its effects on levelized cost of energy, community solar finance, and capital markets-based risk management strategies for renewable energy projects. Jared holds a B.S. in Cartography and Geographic Information Systems from the University of Wisconsin, and an MBA in Finance from the Leeds School of Business at the University of Colorado at Boulder.

This article wasfirst published on NREL's Renewable Energy Project Finance blog, and is reprinted with permission.


[1] Bank, S.; Kogan, K. (June 2013). "How REITs Are Already Investing in Renewables." Project Finance NewsWire. New York, NY: Chadbourne & Parke LLP. Accessed August 12, 2013: http://www.chadbourne.com/files/Publication/6f0ba428-858a-471b-83af-ab16441780ba/Presentation/PublicationAttachment/99648285-ef43-4ec7-8593-b64ab8e9d8a6/pfn_june13.pdf.

[2] Matheson, T. (2001). "Taxable REIT Subsidiaries: Analysis of the First Year's Returns, Tax Year 2001."Internal Revenue Service. Accessed August 12, 2013: http://www.irs.gov/pub/irs-soi/01reit.pdf.

[3] REIT.com. (2013). "The Basics of REITs."Accessed June 19,2013: http://www.reit.com/REIT101/REITFAQs/BasicsOfREITs.aspx.

[4] Kimco Realty. (August 2013). "Current Investor Presentation." Accessed August 12, 2013:

[5] Prologis. (2012). 2012 Annual Report. Accessed August 12, 2013: http://ar2012.prologisweb.com/prologis_2012_annualreport.pdf.

[6] Power REIT. (2013). "Power REIT Securities and Exchange Commission Form 10-Q." Accessed August 12, 2013: http://filings.irdirect.net/data/1532619/000153261913000029/firstquarter201310-qfinal.pdf.

[7] Kogan, K. (2013). "Is the IRS Considering Solar REITs?" Renewable Energy World.  Accessed June 18, 2013: http://www.renewableenergyworld.com/rea/news/article/2013/06/is-the-irs-considering-solar-reits.

[8] REIT.com. (2013). "Forming a Real Estate Investment Trust." Accessed June 19, 2013: http://www.reit.com/REIT101/FormingaREIT.aspx.

[9] Hannon Armstrong. (2013). "Investor Relations Presentation: June 2013." Accessed August 12, 2013: http://investors.hannonarmstrong.com/presentations.aspx?iid=4376922.

[10] Investopedia. (2009). "An Introduction to Canadian Income Trusts." Accessed June 18, 2013: http://www.investopedia.com/articles/stocks/08/canadian-income-trust-royalty-trust-canroys.asp.

September 11, 2013

Coupled Solar and Energy Storage Market to Grow

David Appleyard

The symbiotic match between the solar and energy storage sectors shows significant market promise and could see the sector yielding a US $2.8 billion market over the next five years,

Combined market for intergrated solar and storage

Assessing the emerging market for combined solar and energy storage, Lux Research analysts found that residential applications dominate through 2018. As lithium-ion (Li-ion) batteries and overall storage arrays fall in price, residential systems will gain the most, growing to 382 MW in 2018, the report suggests. Meanwhile, the light commercial segment will increase to 220 MW although heavy commercial/industrial systems will lag, growing only to 73.3 MW.

The off-grid market enjoys higher profit margins, but the much larger market for grid-tied systems means they dominate the solar and energy storage market. Grid-tied solar installations will comprise 675 MW, or nearly 95 percent of the combined 711 MW market, while off-grid applications including telecom power claim the remaining 5 percent, the report, ‘Batteries Included: Guarging Near-Term Prospect for Solar/Energy Storage Systems’, states.

Dominated by grid installations, this market segment will be a boon to energy storage producers but have only a modest impact on the solar market, Lux Research says.

“Developers are pushing packaged solar and storage systems in order to stand out as value-adding leaders, but not all benefit equally,” said Steven Minnihan, Lux Research Senior Analyst and a co-author of the report.

He added: “Residential energy storage will see a boost [in] adoption due to solar, but the addition of storage will barely move the needle for solar players, driving a paltry 1 percent increase in global PV sales.”

Considering geographical differences, Lux consider Japan as the worldwide market leader. Hit by high electricity prices and seeking alternative energy after the nuclear woes, Japan will install 381 MW of solar coupled with storage by 2018, leading all other markets by a wide margin, the analysis suggests. Germany will come in second at 94 MW, while the U.S. will be third at 75 MW.

In addition, Lux argues that policies may dramatically increase the market for energy storage technologies. This year, Germany set aside $67 million to subsidize solar-tied energy storage and the U.S. Senate introduced a program that could fund $7.5 billion worth of new storage projects, or about 7.5 GWh of capacity, the analysis notes.

Image: The combined maket for integrated solar and storage, via Lux Research
This article was first published at Renewable Energy World, and is reprinted with permission.

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

September 09, 2013

Residential Solar in the Ontario microFIT Project: Three Families' Experiences

Michael Smele

Solar Home with sunflower photo via Bigstock
The Ontario microFIT program was launched in 2009 as part of Ontario’s provincial government’s efforts to increase the production of renewable energy. The program provides participants with the opportunity to develop a “micro” renewable electricity generation project on their privately owned property that uses solar photovoltaic (PV), wind, waterpower, or bioenergy (biogas, biomass, landfill gas). I have asked three families who navigated the process of microFIT solar installations to share their experience by answering some questions.

Industry has seized the opportunity to capitalize on the revenue generated by the fixed return of twenty year contracts with the government’s power regulator. Individuals have also participated although the hurdle of coming up with thirty to forty thousand for purchase and finding the right service provider for the components and installation has created some unique challenges and opportunities.

The efforts put forth by individual investors in these projects have a story all their own. Those who have had success utilized several methods with varying degrees of difficulty. The questions posed to the three Ontario families who used solar installations to participate in the MicroFIT program were as follows:

1) What attracted you to the Ontario microFIT program?

Family 1: Our initial interest was environmental and quickly turned to see if it there was a reasonable profitability and if the math/projections would prove true.

Family 2: It started years ago with alternative energy awareness. When the MicroFIT program started a friend had participated and our interest was piqued. Then the project itself caught our attention and we became quite excited about the potential.

Family 3: To save the environment – any financial considerations were secondary. If the project were revenue neutral I would have still moved ahead.

2) What was your capital investment for the project? What was your expected payback period of the investment? Did your actual payback period match your expected payback?

Family 1: Thirty Three Thousand however it is notable that the provincial taxes are rebated within the first year. Our expected payback period was five to six years however with the adjusted annualized distributions from the power authority – it will be well below the five year mark.

Family 2: Forty Thousand. The expected payback period is six to seven years. We believe we are on track to meet that timeline.

Family 3: Thirty Three Thousand. From my calculations, the expected payback period is going to be seven years however with the directional placement of the panels and the winter months it may take between seven to eight years to recoup our initial outlay.

3) How did you finance the project?

Family 1: A personal line of credit that carries at a very low interest rate as it is secured against the property on which the MicroFIT project is operating on. The interest charged on the capital that was borrowed to invest is a tax write off as well.

Family 2: We cashed in some non-registered liquid assets to finance our project.

Family 3: We secured a home equity line of credit.

4) Are there any cautions to be made aware of or advice/tips to make the process smoother?

Family 1: In hindsight – the greatest concern would be to make sure you are comfortable with the service provider whether a full service company that provides the components and installation or otherwise. Another tip would be to ensure if you are completing a rooftop installation – that you consider the quality and duration of the roofing that will lie under the panels as the cost to replace doubles with a remounting of the system already installed.

Family 2: My best advice is to beware of the misinformation that is being shared. I have heard some tall tales from not being able to get insurance on your home to the fire department not being able to service the home in an emergency. Doing your own homework and getting a lot of questions answered will make the process much smoother.

Family 3: I would have to say that involvement in every aspect of the project is key. Work with your service provider/installer to ensure that they are completing the work to your satisfaction. Also, gathering as much information as possible beforehand was very helpful so as to understand what will happen once you commit to your project.

5) Would you suggest this method to others looking at this avenue and why?

Family 1: Yes, I am an advocate and have suggested the program to neighbor and family. The benefits are many fold from gaining a positive revenue stream, the tax write offs, to getting paid as an energy producer. I like to think of it like have the income of a tenant that doesn’t exist.

Family 2: Absolutely, this is a great investment in your home, your future, and your finances.

Family 3: Yes, we have a responsibility to those who will come after us to ensure that there is a healthy environment and everyone should be doing their part to help out.


As the Ontario MicroFIT program evolves over time, what will remain the same is that there are those who are committed to making a contribution to the future health of the planet by becoming part of the answer to our energy needs. From profitability to being a good steward of the planet – these families have clearly shown that there are many great reasons to investigate and participate in initiatives that will lead to a better future for everyone.

Michael Smele is an Ontario resident who provides finance and mortgage options for those looking to participate in the MicroFIT program. You can find him at Mortgage Truth.

September 08, 2013

Which Chinese Solar Companies Will Survive The Coming Shakeout?

Tildy Bayar

Lux Research’s report, The Great Shakeout: China’s Path to a Rational Solar Industry, outlines the challenges Chinese solar companies will face during the anticipated consolidation, and suggests likely strategies for survival and success in a post-shakeout solar market. While many smaller companies will go under, the nation’s top-tier companies will survive and thrive in an eventual balanced global solar landscape, the report predicts.

Policy Measures

China’s government will continue to support its solar sector, upping its domestic capacity target in order to boost local demand and reduce its dependence on foreign markets. But Zhun Ma, Lux Research analyst and the report’s lead author, said the government’s plan to install 35 GW of new solar capacity by 2015 is the upper limit rather than a fixed target. “The 35 GW target is what the government wants to achieve, but it may not be compulsory,” he said. “If the government wants to reach this target, then in the following three years each year’s installation should be about 10 GW, and this is really too high. So the most likely conservative target will be about 25-30 GW.”

In addition to boosting domestic demand, the government is also taking steps to reduce overcapacity by setting module efficiency standards; below-standard solar products will not be able to secure bank loans or government support, thus eliminating a large amount of current capacity. And the government aims to expand the range of solar technologies on the domestic market, currently dominated by crystalline silicon (c-Si), by promoting technology innovation and boosting the growth of thin-film technologies such as cadmium telluride (CdTe) and copper indium gallium selenide (CIGs).

Survival Strategies

New technologies throughout the value chain like metal wrap-through, selective emitters, fluid bed reactors and diamond wire saws will be adopted in newly built Chinese facilities, the report predicted.

“Because the government is promoting and supporting technology innovation,” Ma said, “Chinese manufacturers are actively looking for innovative technologies, not only from local research projects but also from PV technology developers globally.” This represents an opportunity for global technology developers, who can license their technology to Chinese companies.

Since Tier One Chinese companies have already built strong research collaborations with local and foreign research organisations, they can leverage these existing networks to further improve technologies and production processes, Ma said, “but relatively small companies are also interested in innovative technology development outside China.” For a smaller company, winning government support through technology innovation may be crucial to survival.

According to Ma, the likelihood of survival and success differs depending on the scale of the company. Most Tier One companies will survive and thrive, he said, while more than 90 percent of Tier Three companies will go under. Around 40-50 percent of Tier Two companies with several MW of capacity and innovative technologies can potentially survive, he said, depending on their sector. “Only 45 leading Chinese solar manufacturers are still manufacturing; all the rest are already quitting the market,” he said.

Expansion will be an important strategy, Ma said, with two key approaches to making a solar company viable in the new landscape: either building new capacity or acquiring a Tier Two company with advanced technology. And the government is encouraging Tier One companies to acquire or merge with Tier Twos in an effort to spread solar development more evenly across the country. “In Jiangsu province most players are Tier One,” he said, “while in Jiashan province only Renesola is Tier One; the others are Tier Three.” Spreading development more evenly will benefit the realisation of the domestic target.

Distributed solar, which is projected to gain a 30 percent share of the Chinese solar market in the next two to three years, will present opportunities for smaller solar companies. Because energy consumption on China’s east coast is much higher than in the west, said Ma, but there is less free land in the east, the best solution for east-coast China is distributed solar systems, while utility-scale solar farms will dominate in the west.

“The manufacturing side of the solar value chain will still be dominated by large companies,” he said, “but system developers can be small and medium-sized.” The current profit margin for engineering, procurement and construction (EPC) firms is around 10 percent higher than for upstream manufacturing, the report noted, projecting that the majority of Chinese companies will grow their project development business.

Another survival strategy will be expansion into new foreign markets. In the coming years, Chinese companies will become major players in the Southeast Asian and African solar markets — Southeast Asia because of its proximity to China, and African nations because of their good bilateral relationships with the Chinese government, Ma said. Chinese manufacturers will continue to export solar products to Europe, but as its quota for Chinese products is now limited  to 7 GW per year these companies will maintain rather than grow their market share in the region, he said.

New Investment

Ma predicts that new investment in the Chinese market will be a mix of local and foreign. Companies that aren't doing well but have advanced technology are selling themselves at very low prices, meaning local investors "can acquire solar assets at fire sale prices,” he said, while foreign investors aiming at China’s huge solar market are required to partner with local companies, either through taking shares or direct acquisition, “a good market penetration approach,” Ma said. The report predicts that foreign heavyweights such as First Solar (FSLR), GE (GE) and Sunpower (SPWR) will find local partners in order to target the Chinese market.

The ability of foreign companies to penetrate the Chinese market also depends on sector. “There is no space for foreign companies to engage in the Chinese market” in the module arena, Ma said, due to China’s strength in the sector, while for balance of system (BOS) suppliers such as inverters, back sheet materials and silver metallisation, he said Chinese companies “cannot supply products with good quality, so in these areas there are some opportunities for foreign companies” — but they will need to collaborate with the right local partners, as domestic material and BOS suppliers have home market advantages such as low cost logistics.  

Foreign solar companies who collaborate with Chinese manufacturers can also gain advantages in markets outside China, Ma said, since Chinese manufacturers are considering moving some facilities outside the country in order to beat the new EU and U.S. import duties. Outside China, he said, global materials giants have the advantage. He pointed to Canadian Solar’s (CSIQ) manufacturing plant in Canada and Trina (TSL) and Yingli’s (YGE) plans to build plants in Europe. “Only these big companies have sufficient capital and ability” to expand in this way, he said.

Tildy Bayar is Associate Editor of Renewable Energy World magazine.
This article was first published on RenewableEnergyWorld.com, and is reprinted with permission.

September 05, 2013

NextEra Energy: the Real Attraction

by Debra Fiakas CFA

One member of the NuStart Energy consortium of nuclear power developers is Florida Power & Light or FPL Group, a subsidiary of NextEra Energy (NEE: NYSE).  The group had its sights on getting a nuclear power plant construction and operating license from the Nuclear Regulatory Commission (NRC).  The company operates the third largest nuclear power generation fleet in the U.S. composed of eight nuclear reactors at five plant sites.  The fleet is far flung, ranging from Florida to New Hampshire and Wisconsin and West to Iowa.

FPL is working on an expansion of its Turkey Point facility in Florida.  The plan is to construct two additional nuclear reactors  -  Units 6 and 7  -  using Westinghouse’s pressurized-water design called the Applied Passive 1000.  A combined construction and operation license application (COL) is pending before the NRC.  FPL took public comments at meetings held in July this year as one step toward certification of the project.

Together the company claims these the two added units would have the capacity to produce 2,200 megawatts  -  enough to serve 750,000 homes.  Furthermore at least $78 billion in fuel costs could be saved by sourcing this power requirement from nuclear instead of fossil fuel.

Turkey Point
Turkey Point Nuclear Facility
  In early August 2013, Duke Energy (DUK:  NYSE) announced the indefinite postponement of two planned reactors at its facility in Levy County, Florida.  Duke knuckled under after its license application was delayed.  A more pressing issue is economic.  Construction costs keep mounting and cost recovery schemes may not get approval from Florida regulators.  Duke’s action does not bode well for FPL, which submitted its application for the Turkey Point expansion back in 2009, when economic circumstances are entirely different than today.

The issue before regulators and the public is whether plans and designs made over five years ago should be altered or scrapped outright because substitute power sources have experience a favorable change in economy.  Hydraulic fracturing or ‘fracking’ has rendered natural gas newly competitive for electricity generation.  It is not entirely certain that these favorable economics will continue unchanged in the future.  The practice of fracking has been brought into question by environmentalists and land owners.  Regulatory action to restrict the use of fracking would lead to a change in economic circumstances for the natural gas industry.  This would cast nuclear reactor plans in an entirely different light  -  even with unanticipated cost increases. 

Investors do not appear much troubled by the nuclear worries of FPL or its parent company NextEra Energy.  The stock is trading at 19.7 times trailing earnings, well near the company’s five-year high price/earnings ratio.  Of course, diversified utilities as a group are trading near the five-year high average P/E.  This could be in part due to shrinking profits as costs continue to mount even as sales have been weakened by the slow economic recovery.  Earnings fall, P/E measures rise.

NEE is trading at 15.2 times the 2014 consensus earnings estimate, suggesting investors are not taking little away from the stock.  However, two dozen or so analysts who follow NEE have projected only 6% growth over the next five years.  The comparison of multiple with growth rates suggests traders are paying way too much for NEE.  A forward dividend yield of 3.2% may the real attraction to NEE.

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

Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein.  SUNE is included in the Solar Group of Crystal Equity Research’s The Atomics Index, composed of companies using the atom to create alternative energy sources.

September 04, 2013

Insiders Are Buying These Five Canadian Cleantech Stocks

TSX Logo

Tom Konrad CFA

In the US insider trades are easily found on the SEC website, stock exchange websites, and financial aggregation sites.  No so in Canada.  A search for insider trades for a Toronto-listed stock on Google will turn up all the financial aggregation websites, but they don’t have any data.

The TSX has more clean technology listings than any other exchange worldwide, many of which are truly international.  I follow several, so I was thrilled when I came across CanadianInsider, where anyone can peruse recent insider trades for Canadian listed companies.

Of the 14 Canadian clean technology companies I own, here are the ones that have seen recent insider buying.

Company: New Flyer Industries Inc.

Canadian Ticker: TSX:NFI


Business: The largest manufacturer of heavy-duty transit buses in North America.

Who’s Buying: 

  • President and CEO Paul Soubry bought 14,400 shares at C$10.80 and C$10.64 on August 20th and June 25th
  • Board Member Wayne McLeod bought 3,200 shares at C$11.25 on August 14th
  • Executive Vice President Wayne Joseph bought 9688 shares at C$11.25, C$10,90, and C$10.75 on August 13, June 28th and June 26th.
  • Major Shareholder Coliseum Capital Management, LLC bought over 42,600 shares during the last two weeks of August at prices from  C$10.76 to C$10.80.

Company: Ram Power Corp.

Canadian Ticker: TSX:RPG


Business: Geothermal Power developer and operator with main projects in Nicaragua and the US.

Who’s Buying: Director Alistair Sinclair bought 1,100,000 shares at C$0.15 on June 18th.


Company: Alterra Power Corp.

Canadian Ticker: TSX:AXY


Business: Renewable Energy Developer and operator with a diversified portfolio of geothermal, run of river hydropower, wind and solar assets on three continents.

Who’s Buying: Executive Chairman and founder Ross Beaty bought 37.6 million shares at prices between C$0.29 and C$0.32 in April and June.  He has hinted that he might buy the entire company if the stock price does not recover.


Companies: Renewable Energy Developers (ReD) and Capstone Infrastructure Corp. 

Canadian Tickers: TSX: RDZ and TSX:CSE


Business: Canadian Renewable Energy and Clean infrastructure developer and operator Capstone is in the process acquiring smaller ReD in an all-share deal.  Each ReD share will be worth 0.26 Capstone share.

Who’s Buying: Director of both firms Uwe Roper bought 39,000 shares of RDZ at C$0.99 on July 31st, and 25,000 shares of Capstone at C$3.85 on July 13th.

Company: Innergex Renewable Energy, Inc.

Canadian Ticker: TSX:INE


Business: Canadian power producer Innergex owns 23 run-of-river hydro plants, 5 wind farms, and one solar farm.

Who’s Buying:

  • CFO and SVP Jean Perron bought 2,000 shares at C$8.89 on June 25th.
  • President and CEO Michel Letellier bought 3,000 shares at C$8.95-9.20 in June.
  • Director Richard Laflamme bought 1,000 shares at C$8.85 on August 13th.
  • Corporate Secretary and director of legal affairs Nathalie Théberge bought 500 shares at C$9.64 on June 6th.
  • Director John Hanna bought 5,000 preferred shares at C$18.75-18.80 on July 16th and 18th.


Insiders can be as bad at timing the market as anyone, but insider buying can be a useful indicator that the people in charge of the company think it’s undervalued.

Few insiders need to buy their own stock to get exposure to the company:  Share and option grants are standard in most compensation packages.  When you see insiders buying shares in the open market in addition to these grants, it’s often a good time to consider buying yourself.

Disclosure: I own all these stocks.

This article was first published on the author's Forbes.com blog, Green Stocks on August 23rd.

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.

September 03, 2013

Suntech Reorganizes While Sector Stabilizes

Doug Young

Several solar panel companies are in the headlines once again, led by an news that bankrupt former superstar Suntech (NYSE: STP) is nearing a reorganization that will cost its stockholders most of their money. While that may sound bad, I personally don’t have much sympathy for anyone who continued to hold Suntech stock after the company started experiencing major problems about a year ago. Meantime, the news is a bit more positive for rivals Yingli (NYSE: YGE) and Renesola (NYSE: SOL), which both reported narrowing losses as outlook for the sector continues to improve with stabilizing and even rising prices for solar panels.

Let’s start off with Suntech, as that’s the most salient of the latest news, involving a former solar pioneer whose rapid fall ended with its bankruptcy back in March. Suntech’s latest developments could be quite good, as it will most likely lead to the emergence of a smaller, more focused company. Its new leadership will also most likely consist of a more professional management team that doesn’t include its founder Shi Zhengrong, a former engineer who in many ways was responsible for some of the financial shenanigans that got the company into trouble.

Suntech’s latest update on its ongoing reorganization doesn’t contain too many specifics, except to say that it is nearing a reorganization agreement with a group of its major creditors. That deal will see the creditor group, which includes private equity firms Clearwater Capital and Spinnaker Capital, get equity in the newly reorganized company in exchange for their debt. (company announcement) The deal would also see “significant dilution” for Suntech’s existing shareholders, which is quite expected.

The announcement makes no mention of separate recent media reports that say Suntech was auctioning off major parts of its core operations to raise cash, with Yingli and Trina (NYSE: TSL) both cited as interested bidders. (previous post) My guess is that we’ll see a major asset sale to another solar company, and then the remaining Suntech assets will probably be folded into a new, significantly smaller company with a market value in the $200-$400 million range. I would expect Suntech’s current shareholders to get a maximum of 10 percent of the reorganized company, meaning their shares could sink another 80 percent or more from their current levels by the time a deal is finalized.

From Suntech, let’s move quickly to Yingli and Renesola, which have both posted relatively straightforward results that show stabilizing revenues and narrowing losses. Investors were most encouraged by the Renesola results, bidding up the company’s shares by more than 8 percent after the figures came out. Yingli shares also rose, but by a more modest 2.4 percent after it announced its results.

Renesola said it expects both revenue and margins to stay stable in the next few months. (company announcement) It forecast third-quarter revenue in the $360-$380 million range, roughly in line with its second quarter revenue of $377 million. It also forecast third-quarter gross margins in the 7-9 percent range, again in line with its second quarter figure of 7.3 percent. Investors must also have been encouraged by a second-quarter loss that narrowed to $21 million, 40 percent smaller than the $35 million loss a year earlier.

Yingli didn’t give any third-quarter outlook, but its second-quarter results also showed similar trends. Its loss for the quarter narrowed sharply to $52 million from $92 million a year earlier, while revenue grew about 10 percent to $550 million. Neither company looks set to return to the profit column by the end of this year, even though rival Canadian Solar (Nasdaq: CSIQ) has said it’s on track to return to profitability for all of 2013. (previous post) Look for more steady improvement from everyone in the second half of 2013, even as company finances remain tenuous due to the massive losses incurred by everyone over the last 2 years.

Bottom line: Suntech will soon announce a reorganization that will largely wipe out existing shareholders, while other solar players should see stability for the rest of this year.

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.

September 02, 2013

Ten Clean Energy Stocks for 2013: Summer

Tom Konrad CFA

It's been a busy summer for me and my Ten Clean Energy Stocks for 2013 model portfolio.  While I delayed my monthly update, the companies in the model portfolio have been very busy reporting (and restating) earnings.  Overall, the portfolio was flat for July and August, with 1.2% of dividends offsetting a 1.1% decline in stock prices.  This put it further behind my benchmarks, the iShares Russell 2000 Index (IWM) for the broad market, and the Powershares Wilderhill Clean Energy Index (PBW) for clean energy stocks.  These each notched up 2% over the last two months.  For the year to August 30th, my model portfolio is up 10.6%, compared to 22.5% and 37.9% for IWM and PBW, respectively.
10 for 13 Aug.png

Significant Events

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

Lime Energy (NASD:LIME)

After over a year, Lime Energy finally is current with its reporting requirements (details here.)  The company is now leaner and more focused on its best business, running utility efficiency programs for small to medium sized utilities.  Unfortunately, capital is scarce and the company needs to bulk up in order to meet Nasdaq's minimum shareholder equity requirements for continued listing.  I expect the company to try to attract a strategic investor in a secondary share offering, or potentially be bought out by a larger firm which offers services to the utility sector, such as EnerNOC (NASD:ENER)

July/Aug USD Return
TSX:WFI Waterfurnace Renewable Energy
NASD:LIME Lime Energy
TSX:PFB PFB Corporation
NASD:AMRC Ameresco, Inc. -5%
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 20%
NYSE:HTM US Geothermal
TSX:RPG Ram Power Group

Zoltek Companies (NASD:ZOLT)

Zoltek stock has risen all year on the possibility of a takeover or large cash infusion by a group of shareholders led by the Quinpario Group (more here.)  That possibility is looking even more likely now that Quinpario raised $172.5 million in the IPO of blank-check firm Quinpario Acquisition Corp. (NASD:QPACU).  Zoltek is not the only possible target acquisition target, but the additional cash and share currency will give its Chairman Jeffry Quinn more room to negotiate a mutually attractive offer with Zoltek's board.

Kandi Technologies (NASD:KNDI)

Kandi Technologies continues to make progress.  The city of Hangzhou launched its public EV sharing system using Kandi's mini-EVs, and constructed the first Kandi EV vertical parking garage.  Meanwhile Kandi has been growing its legacy ATV business and expanding gross margins.

Investors, however, have been unimpressed.  Their disinterest arises mainly from a capital raise in late June which the company's management had been saying it would not do just a couple weeks before.  Mr. Xiaoming Hu, Chairman and Chief Executive Officer of Kandi Technologies, said, "Given the challenging capital market environment, Kandi was proud to raise $26.4 million through a registered direct placement at the end of June. This will allow us to accelerate our market penetration in various EV projects and different regional markets."

Investors seem to have paid more attention to a Seeking Alpha article by Richard Pearson How U.S. Investors Got Punk'd By Kandi and perhaps my own doubts about Kandi's management's dedication to shareholders, than to Mr. Hu.  The the stock fell 16% over the two months. despite the progress of the business.

Although I sold much of my holdings in June because of my unease with management, I bought some of them back in the recently now that the capital raise is out of the way. While I still don't consider Kandi a long term hold, I think the good news should keep flowing for the rest of the year, and likely give me a profit on this recent trading position.


Power REIT has slowly slid over the last two months, although the news has been generally good.  Investors did not seem to like it's recent solar deal, possibly because of the structure of the bridge loans used to fund it by the company's CEO, David Lesser.  The interest rate on this loan has a step-up after six months, which investment managers I have spoken to generally feel is higher than an insider should be charging his own firm.

Lesser, in his defense, says that he has better uses for his money, and he would much rather be buying PW stock (which he has been doing on a daily basis in recent weeks), and so he needs compensation for tying his money up if the firm is unable to secure bank financing quickly.  Although Power REIT recently re-financed a similar bridge loan with bank debt, the process took six months.   I personally would like to see better bridge financing for such deals in the future. Lesser is talking with multiple asset managers who might be willing to provide bridge financing on more attractive terms, but the parties I've spoken to say the discussions are not yet very advanced.

Such concerns may not dominate investors' minds for long, because on August 29th, the judge in the civil action granted Power REIT's motion to supplement its counterclaims against Norfolk Southern (NYSE:NSC) and Wheeling & Lake Erie Railway (WLE).  These additional claims relate to 23,000 pages of documents belatedly provided to Power REIT by WLE, under the terms of the lease.  The inclusion of these claims increase the potential damages which Power REIT might be awarded to approximately $14 per PW share, not including any interest and penalties.  If even a low interest rate were applied to the amounts potentially owed to Power REIT, that $14 could easily double or quadruple given the long term nature of claims.

A copy of the decision is available here.

While the investments in solar farms are why I first became interested in Power REIT more than a year ago, such deals will not dominate returns for PW investors until the civil suit with NSC and WLE is resolved.  PW's case seems strong to me, and even a loss could bring the company some benefits in terms of significant tax deductions.  With all parties now working on motions for summary judgement, I would expect a ruling in early 2014, if not sooner.

US Geothermal (NYSE:HTM)

US Geothermal rose as investors realized that the company is now profitable.  In their second quarter earnings release, management gave guidance which leads me to believe earnings would be in the 1 to 2 cent range for 2013, and approximately 3 cents in 2014.  But more important than earnings is the free cash flow generated by HTM's projects.  With income-oriented clean energy companies such as Brookfield Renewable Energy Partners (NYSE:BEP) currently trading below 6% yields, Aram Fuchs, general partner at hedge fund Fertilemind Capital tells me that he thinks US Geothermal's stake in its Neal Hot Springs project alone is worth more than the company's entire capitalization, if it were sold to such a player.

US Geothermal's management has no plans to sell, however, and said as much in response to a question from Fuchs in their conference call.  With little potential for such instant gains, and more maintenance downtime than investors expected in the second quarter left HTM with only a 14% gain after the conference call.   It had previously been up as much as 72%.


With only four months left in they year, it looks like my portfolio will fail to beat its clean energy benchmark for the first year since I started publishing the list.  I still have high hopes for significant advances in Ameresco (NASD:AMRC), Alterra Power (TSX:AXY, OTC:MGMXF), and Finavera (TSXV:FVR, OTC:FNVRF), but some of those gains may be delayed until 2014, and these three would have double on average over the next four months to close the wide gap that has opened between my ten picks and PBW.

It could happen, but I'm not holding my breath.  In any case, I'll find it easy to console myself now that I see clean energy stocks finally getting the kind of attention from investors that they deserve.


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.

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