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December 31, 2013

Two Mega-Deals Illustrate China's Massive Solar Building Plans

Doug Young


A couple of year-end announcements from solar majors Trina (NYSE: TSL) and ReneSola (NYSE: SOL) are pointing to a coming flood of new orders for the entire solar panel sector next year, fueled by huge new demand from their home China market. I fully expect we’ll see a steady stream of similar announcements throughout next year and even into 2015, providing a flow of good news for rebounding solar stocks after a 3-year sector downturn. But amid the bright news, potential downside lurks in the risk that payments for some of these mega-orders could be slow to come, as many solar plant operators are big state-owned entities that may lack the funds and skills to pay for and operate all of their ambitious new projects.

I certainly don’t want to throw too much cold water on this nascent rebound for China’s solar panel makers, who along with their global peers have suffered through a prolonged downturn dating back to early 2011 due to massive overcapacity. Much of the older, less efficient capacity has now been shut down through a series of facility closures and bankruptcies, putting most remaining players on track to return to profitability in 2014. Aiding the rebound is an extremely aggressive build-up plan by Beijing to have 35 gigawatts of installed solar power generating capacity by 2015, compared with virtually nothing just 2 years ago. (previous post)

Achieving such a grand target will be tough, but big state-run companies are showing they will embark on a major new building spree to help Beijing reach the goal. As part of that, Trina announced has just signed a new framework agreement to build 1 gigawatt of generating capacity through a new tie-up in the far western Xinjiang area. (company announcement) Investors cheered the news, bidding up Trina’s shares by more around 7 percent in early trade after the announcement.

The tie-up will see Trina team team with the local government in the Turpan region in a series of projects over a 4 year period starting from next year. The first 2 phases are designed to have 300 megawatts of capacity and be connected to China’s national grid by the end of 2014. In a noteworthy disclaimer, Trina says that each new phase of the project will require approval from local governments and China’s national grid operator before work can begin.

Meantime, ReneSola has announced its own similar deal involving 3 solar plants also in western China, with a more modest capacity of 60 megawatts. (company announcement) Under the deal, ReneSola is building the plants and will sell them upon completion to the longer-term owner, a company based in eastern Jiangsu province. ReneSola stock also got a nice boost from the news, rising nearly 5 percent in early New York trading.

Such “build-and-transfer” arrangements are becoming relatively common, and Canadian Solar (Nasdaq: CSIQ) has become particularly adept at the business model. The new projects for Trina and ReneSola follow Canadian Solar’s own announcement of 3 separate China-based deals over the last 2 months, which will see it supply solar modules with total capacity of 232 megawatts. (previous post)

While all this news certainly looks good, one big cloud looming on the horizon is the element of payments for all these projects. Big state-owned companies are famous for rushing to comply with Beijing’s wishes, even when such firms may lack the financial resources and other expertise for such projects. One of my sources has told me some panel makers have already begun building projects for such clients, even though they have yet to receive any payments. I do expect that most panel makers will get paid for their goods eventually. But I also suspect that many problems will emerge as this building spree runs into a wide range of issues, resulting in delays and even the scrapping of some less well-conceived projects midway through construction.

Bottom line: New deals from Trina and ReneSola mark the start of a massive building spree for new solar plants in China, though some new projects could run into delays and financing problems.

Related posts:

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.

December 29, 2013

Ten Clean Energy Stocks For 2014

And Two Speculative Clean Energy Penny Stocks for 2014

Tom Konrad CFA

My annual model clean energy portfolio.

I've been creating model portfolios of clean energy stocks since 2008.  At first, it was just a list, but in 2009 I started tracking it as a model portfolio for a small stockmarket investor.  With the exception of last year, clean energy stocks have had fairly miserable returns, as measured by my sector benchmark, specified at the start of each year.  I've been using the Powershares Wilderhill Clean Energy ETF (PBW) for all but the first couple years.  I plan to continue using PBW going forward, since it is the most widely held sector ETF, and so is a good measure of how the average clean energy investor might do over the course of the year.

As you can see from the chart below, 2013 was the first year that my model portfolio did not beat its benchmark... and also the first year that benchmark returned more than 12%.  The last year PBW returned 60% was 2007, the year before I started publishing these portfolios.

annual returns 2008-13.png

The chart also shows trailing three and five year annualized returns.  All of the three year returns are negative for both the benchmark and a little less so for my model portfolios.  Among the five year returns, only that of the model portfolios from 2009 to 2013 is even slightly positive at an average annual return of 3% per year.

2013 in Review

10 for 13 final.png

Despite a 25% return in 2013, I was disappointed my model portfolio has not matched the benchmark's stellar returns.  While the portfolio included two stocks which more than doubled, the portfolio's returns were significantly reduced by the inclusion of Lime Energy (NASD:LIME) and Finavera Wind Energy (TSX-V:FVR, OTC:FNVRF).  These two, along with the worst-performing alternate pick, Ram Power (TSX:RPG, OTC:RAMPF) all suffered from specific business setbacks which had large negative impacts on their stock because of their small size and lack of internal sources of funds.  As I wrote earlier this month, I plan to avoid such companies in this list going forward.

The portfolio was also held back by accounting problems at Maxwell Technologies (NASD:MXWL.)  While I warned readers to sell Maxwell on my Forbes blog at only a 2% loss at the start of March, I manage the model portfolio as a buy-and hold investor would, and only switched Maxwell out at the start of April, when it was down 39%, replacing it with Ameresco (NASD:AMRC.)  Both stocks subsequently recovered, but the delayed swap was a drag on portfolio performance.  Had I swapped the two stocks on March 13th, the day after publishing my article on Maxwell, the Maxwell/Ameresco combination would have gained 17% rather than falling 19%, and the portfolio as a whole would have risen 29% rather than 25%.

Ten Clean Energy Stocks for 2014

My list for 2014 contains a large number of hold-overs from the 2013 list which did not participate in the general rise of clean energy stocks  despite strong business prospect.  This year, I will present my picks in rough order of risk, from the rather safe income stocks to a couple deep value stocks.   I will also include two price targets, a low target for reflecting what I would expect to happen in a worst-case scenario, and a high target, if everything goes as planned.  I expect well over half of these stocks will fall between the low and the high targets at the end of 2014.

1. Hannon Armstrong Sustainable Infrastructure (NYSE:HASI).
Current Price: $13.85.  Annual Yield: 6.4%.  Low Target: $13.  High Target: $16. 
I've written extensively about sustainable infrastructure REIT Hannon Armstrong since its IPO in the spring of 2013.  Despite its recent run-up on the news of its $0.22 quarterly dividend, I expect the current yield and expected further dividend increases in 2014 will keep the stock from falling, and will likely drive more appreciation. 

2. PFB Corporation (TSX:PFB, OTC:PFBOF).
Current Price: C$4.85.  Annual Yield: 4.9%.  Low Target: C$4.  High Target: C$6.
Green Builder PFB returns to the list after 2013, when it paid C$1.24 in dividends, but gave back almost as much in share price.  This stock is fairly illiquid, so it's best to only buy or sell using limit orders.  In addition to its dividend payout, the company has been actively repurchasing stock since the start of December.

3. Capstone Infrastructure Corp (TSX:CSE. OTC:MCQPF).
Current Price: C$3.55. 
Annual Yield: 8.5%.  Low Target: C$3.  High Target: C$5.  
Capstone is a Canadian power producer which is currently selling at a discount because of extended negotiations with the Ontario Power Authority over the renewable of the electricity purchase contract for its largest facility, a gas co-generation plant in cardinal, Ontario.  The new contract is unlikely to be favorable to Capstone, but the stock market already seems to be pricing in a significant dividend cut, so even a "not horrible" contract could cause the stock to rebound.  If not, the current C$0.075 quarterly dividend should offset most of the losses in even the most pessimistic case.

4. Primary Energy Recycling Corp (TSX:PRI, OTC:PENGF).
Current Price: C$4.93. 
Annual Yield: 4.1%.  Low Target: C$4.  High Target: C$7. 
Primary Energy owns five cogeneration projects recycling waste heat from steel facilities on Lake Michigan in Northern Indiana.  They are currently finalizing a new contract at one of their plants.  When that contract is finalized, they will have the ability to raise debt financing backed by the facility which could then be invested in expanding the business.  One other potential upside is the possible sale of the company.  According to a research note from John McIlveen at Jacob Securities, "A group of five investors collectively holding 55% of PRI have taken board seats including chairman which leads us to believe the company may be in play once the events become reality."

5. Accell Group (Amsterdam:ACCEL, OTC:ACGPF).
Current Price: €13.59. 
Annual Yield: 5.5%.  Low Target: 11.5.  High Target: €18.
International bicycle manufacturer returns for another year after a modest 11% total return in 2013.  Despite its growing e-bike business, Accell has been held back by a slow market in Europe, but cost savings from the integration of Raleigh and recent restructuring this year should pay off in 2014.

6. New Flyer Industries (TSX:NFI, OTC:NFYEF).
Current Price:
C$10.57.  Annual Yield: 5.1%.  Low Target: C$8.  High Target: C$16. 
Leading North American bus manufacturer New Flyer was relegated to an alternative pick last year because I felt it was not as attractively valued as the stocks which made my top ten.  Had I known about their soon-to-be-announced partnership and investment from Brazilian bus manufacturer Marco Polo SA and their subsequent acquisition of the parts businesses of two other bus manufacturers, I would have put it in the list, and then been surprised by the solid-but-unexciting 18% total return.  Perhaps investors will recognize New Flyer's increased dominance of the recovering North American bus industry this year.

7. Ameresco, Inc. (NASD:AMRC).
Current Price: $9.64
Annual Yield: N/A.  Low Target: $8.  High Target: $16. 
Energy service contractor Ameresco is also back on the list after a year in the alternative pick wilderness in 2013.  The delays in finalizing contracts which have brought the stock down for the last two years continue, but such delays cannot continue indefinitely.  Many of Ameresco's customers come to it because they need to replace equipment at its end of life. Ameresco offers such clients new, energy-efficient equipment at no up-front cost, paid for out of energy savings.  No matter how uncertain budgeting is among the government and institutional entities Ameresco serves, there is a limit to how long the replacement of aging equipment can be delayed.  Navigant predicts that the energy service business will grow 8% next year and reach $8.3 billion by the end of the decade from $4.9 billion this year.  Insiders were buying the stock in November.

8. Power REIT (NYSE:PW).
Current Price: $8.42
Annual Yield: N/A.  Low Target: $7.  High Target: $20.
Rail and solar REIT cut its dividend to $0 in 2013 to fund its ongoing civil action in its attempt to foreclose on its lessee Norfolk Southern Corporation (NYSE:NSC) and sub-lessee Wheeling & Lake Erie Railway (WLE).  While the lease provides that the lessees are responsible for Power REIT's legal costs defending its interest in its property, the lessees have failed to pay those costs.  Their recovery in addition to that of significant indebtedness on the part of NSC and WLE are a significant part the dispute, and will depend on the judge's eventual ruling as well as any appeals and negotiations between the parties.

In the meantime, Power REIT  has made progress diversifying itself into solar. The civil action continues to cast a shadow on the company's ability to borrow from banks to finance its expansion into solar, so Power REIT is working on selling 7.75% preferred stock instead. 

Resolution of the litigation contains significant potential upside in addition to removing significant ongoing expenses.  In the case of a loss, the company should be able to write off approximately $17 million in indebtedness owed by the lessees for significant tax advantages.  In the case of a win for Power REIT, the benefits could easily exceed the company's entire market capitalization.  Any settlement will likely fall somewhere in between.

9. MiX Telematics Limited (NASD:MIXT).
Current Price: $12.17
Annual Yield: N/A.  Low Target: $8.  High Target: $25.
I found out about global fleet management provider MiX Telematics from Rafael Coven when I asked him for his top picks for 2014.  Coven is manager of the Cleantech index (^CTIUS) which underlies the Powershares Cleantech ETF (NYSE:PZD.)  MiX provides vehicle and fleet management solutions delivered as software as a service to customers in 112 countries. The company's customers benefit from increased safety, efficiency and security. 

MiX falls firmly into the peak oil investing theme which I call Smart Transportation.  It reduces oil use through improving driving and route efficiency at minimal up-front cost. Since it is often difficult to get customers interested in a product simply because of the cost savings from efficiency, the safety and security benefits are likely to drive the adoption of MiX's solutions much more quickly than those of other energy efficiency companies which rely on cost savings as the sole incentive.

10. Alterra Power Corp. (TSX:AXY, OTC:MGMXF).
Current Price: C$0.28
Annual Yield: N/A.  Low Target: C$0.20.  High Target: C$0.60.
Unlike Ram and Finavera, Alterra Power is a renewable energy developer with a diversified portfolio of operating plants as well as development projects.  When outside investment is difficult or expensive to come by, as it is today, the company has the option of pursuing joint ventures or selling stakes in some projects to fund development of others.  It has been pursuing both these strategies recently, with the most recent  deal being the partial sale of its interest in its Dokie wind farm for C$29 million.  That interest amounts to only 3% to 5% of its power production, revenues, or EBITDA, depending on which metric is used, but the sale amounts to a cash infusion of 6 cents a share, or 20% of the current stock price.

As that transaction shows, Alterra is massively undervalued based solely on the potential sale price of its operating assets. With cash in hand and no need to return to capital markets to fund operations or development projects, this value is unlikely to be lost through dilution or operating expenses, as we saw with Ram Power and Lime Energy this year.  Alterra's CEO, John Carson, bought C$10,000 worth of stock on the public market for C$0.30 at the end of October.

Two Speculative Penny Stocks for 2014

Although I plan to drop Ram and Finavera from the list this year, I feel their current low prices make them interesting (if still risky) speculative stocks, and so I will continue to write about them along with the main list in my near-monthly updates.  As of the close on December 27th, Ram Power was C$0.08, and Finavera was C$0.075.  Either could go to zero over the course of 2014, or they could rise to over 20 cents if Ram succeeds in finding a buyer or Finavera finalizes the sale of its Canadian wind farms to Pattern Energy Group (NASD:PEGI.)


Given the current high valuations of the broad market as a whole and many clean energy stocks in particular, I seriously doubt 2014 will bring a repeat the stellar performance of clean energy stocks in 2013.  I would be pleasantly surprised if my model portfolio were to return its more modest 25% this year.  That said, the large proportion of income and value stocks in the portfolio should give downside protection in a bear market, while affording the opportunity of decent returns if the economy continues its current modest pace of recovery. 

If we have another blow-out year like 2013, expect this model portfolio to underperform again, but expect it to outperform if markets post modest returns or end the year down.


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.

December 28, 2013

The Pros Pick Three Green IT Stocks For 2014

Tom Konrad CFA

bigstock-green 2014.jpg
Green 2014 image via BigStock
Being green is not all about wind turbines and solar panels.  In fact, it’s usually greener to be smarter about using what we have than to replace it with something new, no matter how green.

My panel of professional green money managers understands this.  When I asked them each for their top three green stock picks for 2014, there were as many picks focused on smarter resource use as there were solar stocks.

I recently gave you their three green income stocks here, and I’ll write about their three solar picks in a future article.  Here are three companies that help us use resources more efficiently by applying information technology to better target the resources we have already.

Garvin Jabusch of Green Alpha Advisors

Garvin Jabusch is cofounder and chief investment officer of Green Alpha ® Advisors, and is co-manager of the Shelton Green Alpha  Fund (NEXTX), and the Sierra Club Green Alpha Portfolio.   His “smart” pick for 2014 is Digi International (NASD:DGII).

He says,

Digi is an interesting firm in the machine-to-machine (M2M) Internet space, and, as a smaller firm at only $300 million in market cap, I feel like it’s a little below the mainstream radar, and has yet to have its growth prospects (including takeover potential) be fully appreciated. The growth potential of M2M communications itself is appreciated though, with estimates that up to seven billion devices will be connected to the Internet by the end of next year, and that this “Internet of things” has realistic potential to transform most economic sectors by adding real-time efficiencies to almost any operation. In this sense, that we as a society can thus squeeze ever more economic output out of fewer economic inputs, M2M technology is also a key, innovative, driver of sustainability. M2M is beginning to bring efficiency gains to dozens of applications including connected cars, smart energy metering, building automation and smart cities, microgrid infrastructure, energy transmission efficiency, security, traffic management, inventory management, food production and many more. Looking forward, additional applications of M2M technology may encompass nearly every aspect of a modern economy. That macroeconomic picture is compelling.

Almost limitless applications means great growth potential. We’ve been aware of the potential of M2M for a while now, but this is the first year we’ve become confident enough to start expecting more robust growth as the underlying technology becomes more mainstream and ultimately indispensable. The two main drivers are the rise of cloud computing and the gains in both coverage and speed of the mobile internet, both cell network and satellite enabled.

On the value side, DGII is trading at slightly under three times cash and at (or just below) its book value. With no debt and EPS positive and guided to grow 61% in 2014 and 36% in 2015, DGII looks like a good intersection of growth and value.

Rafael Coven of The Cleantech Group

Rafael Coven is Managing Director at the Cleantech Group, and manager of the Cleantech index (^CTIUS) which underlies the Powershares Cleantech ETF (NYSE:PZD.)  Coven picked two companies that use information technology to make our economy smarter and more efficient, but he did not have much to say about them.  HE told me that he had to be careful about what he says in the lead up to rebalancing the Cleantech Index on December 24th.

His picks are Trimble Navigation Ltd. (NASD:TRMB) and MiX Telematics Limited (NYSE:MIXT and JSE:MIX).

MiX describes itself as “a leading global provider of fleet and mobile asset management solutions delivered as software as a service to customers in 112 countries. The company’s products and services provide enterprise fleets, small fleets and consumers with solutions for safety, efficiency and security.”  The company is green in that the information collected from vehicles helps drivers reduce fuel use, as well as increasing safety.  While it’s obviously green to save fuel, avoiding traffic accidents may be even greener, since the damage requires resources which we’d rather use elsewhere.

Trimble describes itself as “a leading provider of advanced location-based solutions that maximize productivity and enhance profitability. The Company integrates its positioning expertise in GPS, laser, optical and inertial technologies with application software, wireless communications, and services to provide complete commercial solutions.” Trimble serves agriculture, engineering and construction, transportation, and wireless communication industries.  By using location based technologies, all of these industries (and many others) can deliver material more precisely, reducing both waste and mistakes.  Trimble just announced the acquisition of a private agricultural information firm C3, which will allow the company to integrate more detailed and precise soil data into the solutions it provides to farmers and related industries.


Of all the picks I got from my panel, these three are the ones I’m most interested in adding to my own portfolio.  Reducing waste has long been a central theme of my own green stock portfolios, and these companies seem to be trading at fairly reasonable multiples of earnings.

Don’t be surprised if one or two appear in my own annual list of ten picks for 2014.

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

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.

December 27, 2013

The Pros Pick Three Green Income Stocks For 2014

Tom Konrad CFA

bigstock-green 2014.jpg
Green 2014 image via BigStock
Disclosure: I am long ACCEL, SBS, and HASI

For the second year in a row, I’ve asked my panel of green money managers for their top green stock picks for 2014.  You can see how their 2013 picks did here.

This year, I asked them for three picks each.  This is the first of a series of articles discussing those picks.

Green Income Stocks

Green investing began to mature in 2013, with a number of income-oriented green investments becoming available to retail investors.  Until recently, it had been impossible to build a diversified portfolio of clean energy stocks suitable for an income investor.  That is now changing, and I’m working with Green Alpha Advisors to launch a fossil-fuel free equity-income strategy for separately managed accounts, potentially followed by a mutual fund using the same strategy if there is sufficient demand.

As investors become aware of this new type of green investing, and especially as income funds focusing on the sector are launched, I expect valuations to rise, so the next couple years are likely to be an opportune time to invest in the best green income stocks.  You can be sure there will be several green income stocks in my annual list of “Ten Clean Energy Stocks for 2014″ which will be published around New Year’s on AltEnergyStocks.com. For now, here are the three income picks from my panelists.

Jan Schalkwijk CFA is a portfolio manager with a focus on Green Economy investment strategies at JPS Global Investments in Portland, OR.  I co-manage his JPS Green Economy Fund.  Schalkwijk had two green income picks this year.   Here’s what he has to say about them:

Accell Group NV  (Amsterdam:ACCEL, OTC:ACGPF) is a bicycle company located in The Netherlands. It is reasonably cheap at 12.4x earnings and paying a 4.7% dividend. What has kept a lid on Accell is the seemingly perpetual European economic malaise, unfavorable weather conditions during the bike buying seasons in the last couple of years, and lack of analyst enthusiasm. In my view, Europe is likely to follow in the footsteps of our slowly improving economic recovery, which should bode well for European stocks and consumer spending. Additionally, Accell is well positioned for the continued electrification of the bike in northern Europe.

Companhia de Saneamento Basico do Estado de Sao Paolo (NYSE:SBS), is a mouthful, but also a very interesting water utility and waste water treatment company in Brazil. It had been on a tear until early 2013, when the regulated water rate increase disappointed the market. There is a good chance that come February/March, the company will get a more favorable rate reassessment. Meanwhile the stock is trading at 7.7x earnings, pays a 4.6% dividend, and might have a chance to ride the wave of investor interest that is likely the accompany the Brazilian World Cup in 2014 and Olympics in 2016.

Shawn Kravetz 2013.jpg

Shawn Kravetz is President of Esplanade Capital LLC, a Boston based investment management company one of whose funds is focused on solar and companies impacted by the emergence of solar.  Last year, his top pick last year was Amtech Systems (NASD:ASYS.)  It’s up 137% in the 12 months since he picked it. His income pick this year is Hannon Armstrong Sustainable Infrastructure, (NYSE:HASI) one of the new income investments I mentioned above that IPOed in 2013.

HASI is a “broken” IPO, meaning that it has been trading almost exclusively below its issue price of $12.50, but it has touched $12.50 several times over the last few days.  Kravetz says that HASI

Provides and arranges secured and generally senior debt and equity financing for sustainable infrastructure projects (e.g., clean energy generation and energy efficiency).  Established as a REIT pre-IPO, this 32 year-old firm is headed by veteran management team.  We see them ramping to a $1.17 annualized dividend early in 2014, nearly a 10% dividend at today’s stock price.  At a peer multiple, the stock should command a price of at least $17, implying at least 40% upside.


Will Kravetz have the top pick in 2014 as well as this year?  It’s quite possible, but I hope it’s not with Hannon Armstrong.  Although I personally own all three of these stocks, it’s not because I expect 100%+ gains, but because they have the potential for appreciation, but are much safer than the growth stocks which dominate the available green investments.

If any of these three picks is the top pick for 2014, it will be because other green stocks will have had terrible year, and these advanced in a flight to safety.

Broad market valuations are high, so there is a real risk of a broad market decline in 2014, and this would probably affect green stocks as well.  Even without a broad market decline, it would be unreasonable to expect another spectacular year like 2013 for green stocks.  Nevertheless, there are still a large number of green stocks that did not participate in this year’s rally and remain great values.

My panel of managers have picked fifteen of their favorites.  You can read about the other twelve in my next few articles.

This article was first published on the author's Forbes.com blog, Green Stocks on December 17th.

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.

December 26, 2013

When Will Solar Microinverters Reach Commercial Scale?

James Montgomery

Back in mid-August, Vine Fresh Produce in Ontario unveiled a 2.3-MW solar rooftop array on its greenhouse, the largest commercial rooftop project under the province's feed-in tariff (FIT). This system notably incorporates a technology that's been more familiar in the U.S. residential solar market: microinverters. (The devices, made in Enphase Energy's [ENPH] Ontario plant, helped the project qualify for that FIT.) Weeks ago Enphase followed that up with another large-sized project using microinverters, 3.1-MW of distributed solar across 125 buildings for the San Diego Unified School District.

Vine Fresh solar

Vine Fresh Produce’s 2.3-MW (2-MW AC) solar project in Ontario, Canada. Credit: Enphase.

Those announcements were meant as stakes in the ground. "We've proven [microinverter technology] in residential, we're proving ourselves in small commercial... but our ambitions are much bigger than that," said Raghu Belur, Enphase co-founder and VP of products and strategic initiatives. "We're seeing people deploy [microinverters] in significantly larger systems."

The technology is rapidly gaining traction, according to Cormac Gilligan, IHS senior PV market analyst. Microinverter shipments will reach 580 MW this year, with sales topping $283 million, and average global prices sinking 16 percent to $0.49/Watt, he projects. By 2017 he sees shipments soaring to 2.1 GW with revenues of about $700 million, and expansion beyond the U.S. into several regional markets, especially those in early stages of development that might be more open to newer technologies: Australia, France, the U.K., Switzerland, and even Hawaii. Japan's big residential solar market is especially attractive, but poses certification challenges and strong domestic competition.

But as those two Enphase projects illustrate, there's another growth area for microinverters that's emerging alongside regional expansion — up into commercial-sized rooftop solar installations. The same reasons residential customers like microinverters apply to small-scale commercial projects as well: offset partial shading, more precise monitoring at the individual module level, provide a more holistic readout of what the system is producing, and improve safety because they typically use a lot lower voltage. Just nine percent of microinverter shipments in 2012 were to commercial-scale use, noted Gilligan — but he sees those surging to nearly a third of shipments by 2017.

Who’s Making Microinverters

The microinverter space is getting crowded (see table below), if not yet a model of parity. Enphase continues to dominate with more than half of the sector's revenues in 2012, four million units cumulatively shipped and four product generations. "We are a high-tech company that happens to be in the solar sector," Belur explained. Compared with what he called the "big iron, big copper guys" who are now broadening their inverter portfolios with microinverters, "we're all about semiconductors, communications, and software." The company designs its own chips for its microinverters, and outsources manufacturing to Flextronics.

SMA got its entry into the game with the 2009 acquisition of Dutch firm OKE. "In the residential market it became clear to us that customers were interested in the microinverter architecture," said Bates Marshall, VP of SMA America's medium-power solutions group. SMA also sells the string inverters that have gained favor over big centralized inverters, so SMA's simply broadening its portfolio. With the emergence of the U.S. solar end-market, SMA is more willing to push some R&D and product development over here; "we get to drive the bus to a greater extent," he said. SMA recently started shipping microinverters to the U.S. from its German inventories, but a production line is now being qualified at the company's Denver facility.

Similarly to SMA, Power-One (recently bought by ABB) aims to supply whatever type of power conversion capability customers need, noted Chavonne Yee, Power-One's director of product management for North America. So far demand for microinverters has come in the U.S. residential market, offering high granularity and maximum power point tracking (MPPT), but she sees most of the commercial-scale demand switching from traditional central inverters to three-phase string inverters, not microinverters.

Module supplier ReneSola sells a standalone microinverter, touting the typical features with some higher (208-240) voltage options for small light commercial, but at a 15-20 percent lower price point, explained Brian Armentrout, marketing director for ReneSola America. "We are seeing some demand" in small light commercial applications ranging from 50-kW up to 500-kW at which points there's "the breaking point where string inverters make more sense."  Down the road the company wants to take the end-around route of integrating microinverters directly onto panels; its gen-2 microinverter should be available in the spring of 2014. Armentrout projects ReneSola will be "in the top three" next year for microinverter sales, while simultaneously aiming high for the top spot in module shipments.

Others are looking to integrate microinverters directly into the modules. SolarBridge has worked closely with SunPower and BenQ to design its microinverters to eliminate several components that typically fail, notably the electrolytic capacitors and opto-isolators, explained Craig Lawrence, VP of marketing. They also minimize other typical costs such as cabling, grounding wires and even tailoring the microinverter for a specific module type to optimize the microinverter's firmware, he explained. He sees the trend to bring microinverters into the commercial-scale environment, particularly with SolarBridge's more recent second-generation microinverters in the past year or so.

Microinverters vs. String Inverters 

In general, installers are making a choice between microinverters and string inverters, comparing functionalities and costs. Both sides make a case for reliability: microinverters use fewer components and represent lower cost when something does fail; string inverter vendors point out microinverters have only been on the market for a few years and can't make substantial claims about reliability. IHS's Gilligan noted the sheer number of microinverter devices in the field potentially requiring repair/replacement could be daunting.

UCSD solar installation

Solar panels on a building for the San Diego Unified School District. Credit: Enphase.

SolarBridge's Lawrence argues in favor of microinverters on an operations & maintenance basis. Central inverters account for half of an operations & maintenance budget and it's the single highest failure component in a solar PV system; that's why there's been a shift from those to string inverters on commercial-scale solar. "All the reasons you'd do that, are the exact same reasons to go from string inverters to microinverters," he said. "You want as much redundancy and granularity as you can possibly get, to maximize your rooftop utilization and simplify your O&M." Factoring in replacement costs, labor savings in not having work with high-voltage DC, "for most of our customers that alone is enough to justify the additional [price] premium." With a microinverter you'll know when (and which) one panel is underperforming, and it might be tolerable to just leave it alone; on a string inverter you might not know where the problem is while you lose power over the entire string, he pointed out.

Scott Wiater, president of installer Standard Solar, acknowledges that microinverter technologies and reliability have improved over the past couple of years, but he's not convinced this is an argument in their favor vs. string inverters. "I have concerns over the long term," he said. "If you truly believe you're going to get 25 years out of a microinverter with no maintenance, that might hold true, but we haven't had that experience." In fact he advises that any residential or commercial system should plan to replace whatever inverter it uses at least once over a 20-year lifetime. 

Commercial-Scale Adoption: Yes or No?

microinverter industry playersTalking with both inverter vendors and solar installers, the choice of microinverters vs. string inverters for commercial solar settings is making some initial inroads into light commercial applications, but might not be quite ready to move up in scale at that commercial level.

"For projects under 50kW, we have found that microinverters can be positive for the project LCOE on an 'all-in' basis," explained Jeremy Jones, CTO of SoCore Energy, an early adopter of microinverters, including commercial solar projects into the hundreds of kilowatts in size. In general the technology's "high granularity of real time data is very useful in the ongoing asset management," and SoCore's projects with microinverters "have consistently outperformed our other string inverter and central inverter sites." The technology stacks up favorably to central and string inverters (especially for three-phase 208-volt systems) in terms of added costs, he said: warranty extensions, third-party monitoring, and other balance-of-systems costs. Microinverters' performance and low-cost warranties also benefit longer-term finance deals, he added.

However, above 50kW "we have had a harder time making microinverters 'pencil' on typical projects," Jones added. Until costs come down, those larger-sized projects where microinverters can make sense tend to be unique cases where there's a higher value per kilowatt-hour (higher electric rates or SREC values), or sites that can maximize kWh per kW due to high balance-of-systems costs, such as parking canopies, he explained.

SMA's Marshall is "bullish on the commercial market, that's where the volume will be" for inverters in general, but he doesn't see it as a big boon for microinverters because of what he calculates as a 25-30 cents/Watt cost delta from residential string inverters. In the residential space there are ways to knock prices down to mitigate that difference, but in the commercial space that gap is too big for the average buyer, he said. "As a mainstream option? We don't see it today." Microinverters may have a play for "some unique projects" such as campuses or municipalities spanning multiple buildings, but the big growth in commercial solar will be in large retailers, "big flat open roofs, and big flat structures like carports," he said, and there a three-phase inverter "blows the door off in terms of raw economics." 

SolarBridge's Lawrence is "seeing a lot of activity" in smaller commercial settings (100-kw or less), tallying to 15-20 percent of the company's product installations. But while the company is bidding into projects ranging up to 1-MW, it's "harder to make the case above 250-kW," he acknowledged; "those don't pencil out for us right now."

"Anything below around 1 megawatt, we are shifting from a central to more of a string inverter, but we're certainly not going to the microinverter level yet -- nor do we think we will anytime soon," said Standard Solar's Wiater. "The economics behind the projects and having it pencil out, microinverters just can't compete with string or central inverters on a larger scale." While microinverters can help on some rooftop applications where shading might be an issue (close to elevator shafts, vents, HVAC units), a more tightly-designed system with an efficient string inverter "can have a much better return for the customer," he said.

Jeff Jankiewicz, project/logistics manager at Renewable Energy Corporation in Maryland, "definitely considers" microinverters as part of a system design; "we like the performance and efficiency they provide." But for his company it's really only for residential and small commercial projects; the largest they've done is a 20-kW system out in Maryland's horse country. Any bigger than that and it's a case-by-case comparison, specifically looking at shading and energy conversion.

Microinverters and the Grid: The Solar Industry’s Next Battle

Everyone we talked with about microinverters agreed on one thing, however: there's a trend coming that will incorporate more advanced grid management capabilities, such as reactive power and low-voltage ride-throughs, to give utilities more control and the ability to reach in and curtail availability to support grid reliability. California's Rule 21 proceedings is the first such example, seeking to mandate control functions in distributed generators. Those grid-management capabilities are already coming and "very, very soon," Lawrence urged, pointing to new requirements being codified in Australia and the U.S. probably following within a year or so.

SMA Solar Technology [S92.DE] is becoming very vocal about this topic. Its microinverter architecture incorporates a multigate feature with wired Ethernet that allows for a single point of interface into the array, which he emphasized is important for modern grid codes and providing grid management services, Marshall emphasized. Power-One's [PWER] Yee, ReneSola's [SOL] Armentrout, and SolarBridge's Lawrence echoed the concern over regulations and requirements coming down the road that will necessitate microinverters becoming more grid-friendly. They also questioned whether all microinverter architectures are suited for such site-level controls -- specifically market-leading Enphase, which they said is limited in its architecture and topology.

Enphase's Belur responds strongly to this debate. "We 100 percent support the need for advanced grid functions, and we are absolutely capable of providing those," he replied, calling those criticisms an "oversimplification of the problem." Enphase, he said, is "the most proactive company" pushing for those grid-management requirements — but is seeking to do it judiciously through standards bodies and with proper certification and testing bodies, "and you cannot ignore the policy on top of that," he said. "It needs to be done; let's do it properly," he said.

Integration of energy storage, which also recently got a California state mandate, is another looming question as it relates to inverters. Standard Solar's Wiater thinks that's a bigger challenge for inverter functionality than grid-friendly controls, to more directly address the issue of buffering solar energy's intermittency. Some inverters are being designed to interact with energy storage, he noted, but he questions how that would work for a microinverter because it "defeats the purpose" to switch from DC to AC on a roof, then convert back to DC again. Power-One's Yee, meanwhile, sees more distributed solar combined with battery storage as a tipping point in favor of multi-port string inverters being a more cost-effective approach.

Wiater agrees that grid management features are coming, and that the bigger inverter technologies have been out in front of some of these requirements, e.g. to curtail output. On the installer side, SoCore's Jones isn't seeing customers or utilities push strongly for such capabilities yet, but "spec'ing these features in now will allow us to future proof our designs and open up possible future revenue streams."

This issue might have bigger ramifications than just competitiveness between inverter suppliers. Once distributed solar generation gets enough penetration into the grid, utilities will say they can't support it without stronger control capabilities, Lawrence warned. That's likely going to be hashed out as a negotiation between the solar industry and utilities and implemented via codes and standards applicable to everyone, and the industry needs to get out in front of that resolution, he pointed out. "The solar industry is going to have to participate, or utilities will have a good case why they can limit the penetration of solar PV," he said. He cited discussions with a large U.S. solar developer who listed these smart-grid control capabilities as one of their top-four priorities for the coming year: "They believe it's coming," he confirmed. Getting the solar industry working together to help these speed these capabilities along "will help head off utility objections to more and more solar."

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

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

December 24, 2013

Christmas Climate Bond From Hannon Armstrong

Sean Kidneyhannon armstrong logo

Out Monday: a very interesting bond from US listed sustainable infrastructure investor, Hannon Armstrong Sustainable Infrastructure (NYSE:HASI): a $100 million asset-backed securitization of cash flows from over 100 individual wind, solar and energy efficiency installations, all with investment grade obligors. They’re calling them “Sustainable Yield Bonds”; Climate Bonds for us. Coupon is 2.79%. This first bond was privately placed - but they’re planning lots more.

Hannon Armstrong have taken the high ground on emissions and built in quantitative annual reporting of greenhouse gas emission reductions, measured in metric tons per $1,000 of par value. The assets underlying the bond are “estimated to reduce annual … emissions by 0.61 metric tons per $1,000 bond”. The company says the annual estimated 61,036 metric tons carbon savings are ”the equivalent of taking approximately 12,700 cars off the road”. Investors will get emissions reporting data project by project, although individual projects won’t be named ”for competitive reasons”.

We like the blended portfolio approach – that’s how we’re going to get to scale in the fragmented climate investments market – with emissions reduction reporting giving us comfort on the building energy efficiency portions.

Being asset-backed means it’s real, extra, money being raised against the cash flows, freeing up capital for Hannon Armstrong to move on to the next crop of projects. That’s the ideal role for bonds in the capital pipeline.

Great work from Hannon Armstrong.

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

December 23, 2013

The Other Cellulosic Fuel

by Debra Fiakas CFA

In an article posted in November I incorrectly named the product of Kior, Inc. (KIOR:  Nasdaq) as cellulosic ‘ethanol’.  Kior does indeed use cellulosic biomass -  wood chips to be exact  -  but the company’s catalytic pyrolysis technology turns out crude oil that can be further refined into gasoline or diesel.  Ethanol, on the other hand, is the product of a fermentation process. 

There is nothing new about catalytic pyrolysis  -  superheating in a container with no oxygen.  Oil refiners have been fracturing large, complex hydrocarbons using heat and catalysts for a long time.  However, sending biomass through this process is quite different than breaking down crude oil.  Hydrocarbons like crude oil are made up of hydrogen and carbon.  When wood chips, for example, are processed, the end result is pyrolysis oil and a lot of char. 

The pyrolysis oil holds oxygen.  Here is where Kior’s proprietary catalyst comes into play.  By infusing the biomass with a catalyst, the oxygen components of the pyrolysis oil can be upgraded to something closer to a hydrocarbon.

Kior management has been careful to characterize its frequent delays and setbacks as unrelated to its catalyst technology.  However, just the word char should provide investors with a clue as to how there might have been problems in perfecting the process.  Char is messy.  Likely there has been unexpected wear and tear on the equipment and perhaps the catalyst has become unexpectedly contaminated with ash.

Kior is not the only company to pursue this technology.  Ensyn Corporation has been working on its technology to use heat to thermally crack carbon-based feedstock.  Ensyn calls it the Rapid Thermal Process or RTP.  Ensyn makes use of heated sand to trigger the cracking of the feedstock into gases and vapors.  Ensyn has reached commercial production at its Renfrew RTP Facility in Ontario, Canada.  The facility can process up to 150 tons of dry material per day.  The company plans another plant of similar size in cooperation with an Italian partner.  An even larger plant is in the engineering stage in Malaysia.

Ensyn benefits from a partnership with Honeywell’s (HON:  NYSE) UOP Division.  The two have formed a joint venture called Envergent Technologies.  Ensyn has several other partnerships and strategic affiliations aimed at penetrating the market with its renewable fuels.  The company claims over 65 million liters of its RTP renewable fuels have been used as commercial heating fuel by industrial customers.

Unlike Kior, which must report its progress every three months to the public, Ensyn enjoys the cloak of privacy.  Its failures, if it has experienced any, are kept in the family.  Kior has lost more than one-third its value in the six weeks since my article in November.  The company’s chief financial officer resigned unexpectedly in early December, leaving shareholders wondering if some sort financial time bomb is ticking away at Kior.  Its technology may be proven, but its business model has yet to pass muster. 
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.

December 22, 2013

Twelve Hydrogen And Fuel Cell Stocks

Tom Konrad CFA


While many people think first about hydrogen when they think of fuel cells, fuel cells are not limited to hydrogen.  They are a set of related technologies, many of which can generate electricity from a number of hydrocarbon fuels rather than hydrogen.  I limited my recent post on the rapid rise of hydrogen stocks to just US-listed companies involved in the production and use of hydrogen, leaving out foreign stocks and other fuel cell technologies for brevity.

In my research for that article, however, I came across fully ten publicly traded companies involved with either hydrogen or other types of fuel cells.  Here they are, along with descriptions of the technologies drawn from the Department of Energy and company websites.

PEM Fuel Cells

The most common type of fuel cell, and the one most people think if first, is the Polymer Electrolyte Membrane or Proton-Exchange Membrane (PEM) fuel cell.  These cells run on hydrogen at fairly low temperatures around  80°C (176°F).  They have the advantage of quick start-up and good durability because of the low temperature operation.  Unfortunately, they require an expensive noble metal catalyst, usually platinum, which is particularly sensitive to impurities in the hydrogen fuel.

PEM fuel cells are primarily used for fuel cells in vehicles, but have also been used in stationary applications.  The most developed market is materials handling (i.e. forklifts used in warehouses.)  Their lack of harmful tailpipe emissions makes them suitable for indoor use, while quick fueling and longer run time make them more suitable for heavy duty cycles than similar electric vehicles.

PEM fuel cells for transportation are typically 60% efficient, although the less expensive versions typically used for stationary applications are only about 35% efficient.

Companies producing PEM fuel cells include Ballard Power (NASD:BLDP), Plug Power (NASD:PLUG), and Proton Power Systems (LSE:PPS), and ITM Power (LSE:ITM).  Ballard and Plug Power are commercial stage companies, although neither is expected to achieve profitability soon.  Ballard produces PEM fuel cells for a wide variety of markets ranging in size from 1.5kw up to 500 kW.  Plug Power has a range of fuel cell modules designed to fit in the battery compartment of existing materials handling equipment.

Proton Power is a demonstration stage company with a focus on hybrid electric-fuel cell drive trains for larger vehicles such as delivery trucks, buses.

Electrolyzers, Fueling, and Storage

Since pure hydrogen does not occur naturally, the hydrogen economy cannot run on fuel cells alone.  A number of companies are tackling the creation of hydrogen (usually by electrolysis, or using electricity to split water in to hydrogen and oxygen), as well as fueling and storage.

Hydrogenics (NASD:HYGS) is a commercial stage company that develops and sells electrolyzers for hydrogen generation.  This is often integrated with hydrogen storage and PEM fuel cells, as well as hydrogen fueling stations.  It sells into both stationary power and vehicular markets.  ITM Power (LSE:ITM) sells commercial electrolyzers for hydrogen generation in hydrogen fueling stations, for industrial use, or injection into natural gas pipelines.  Quantum Fuel Systems Technologies Worldwide (NASD:QTWW) sells a number of alternative fuel vehicle drive-trains and parts including hydrogen fuel tanks, but most of its current sales come from natural gas vehicles.

One oddball company brought to my attention by a reader is HyperSolar, Inc (OTC:HYSR).  Hypersolar is a very early stage developer of a solar powered system to directly use solar power to produce hydrogen from water.  While cutting out the extra step of converting sunlight to electricity with photovoltaics before using electrolysis to split hydrogen from water may sound attractive, the company is at an extremely early development stage and does not have sufficient funding to advance its technology.  It’s also not clear if the technology is more efficient at converting sunlight to hydrogen than the combination of photovoltaics and electrolyzers would be, or what the capital costs are.   I can’t imagine any scenario where a long term stock market investor could make a profit on HyperSolar.

Fuel Cell Energy (NASD:FCEL), discussed below, is currently developing a fuel cell that can generate hydrogen as well as electricity from various hydrocarbon feedstocks.

Alkaline Fuel Cells

Alkaline Fuel Cells (AFCs) have a solution of potassium hydroxide in water as an electrolyte which allows the precious metal catalyst of PEM fuel cells to be replaced by a variety of non-precious metals.  AFCs are one of the most efficient types of fuel cell, and have demonstrated efficiency near 60% in space applications. Unfortunately, AFCs are very sensitive to exposure to carbon dioxide and require both the hydrogen and oxygen used by the cell to be purified beforehand, which is a very costly process.

AFC Energy (LSE:AFC) is a developer of alkaline fuel cells for use converting waste hydrogen from industrial processes into useful electricity.  This seems like an interesting niche market and may prove profitable if AFC’s fuel cells prove sufficiently durable.

Molten Carbonate Fuel Cells

Molten Carbonate fuel cells (MCFCs) use a high temperature salt mixture suspended in an inert ceramic matrix as an electrolyte.  The 650°C (roughly 1,200°F) at which they operate allows non-precious metals to be used as catalysts on both the anode and cathode, leading to significant cost reductions.

MCFCs are typically 45% to 50% efficient at converting fuel to electricity, but that efficiency can be increased significantly by capturing the high quality waste heat and using it to drive a turbine or in other combined heat and power (CHP) applications, where they can have efficiency as high as 85%.

The greatest advantage of MCFC’s is that they do not require an external reformer.  They can internally convert a wide range of hydrocarbons including natural gas, biogas, and propane into hydrogen for power generation.  Unlike PEMs and AFCs, they are also not vulnerable to “poisoning” by carbon monoxide or carbon dioxide.

The main downside of MCFCs is durability.   Their high operating temperatures and corrosive electrolytes can degrade components relatively rapidly.

The main public company commercializing MCFCs is Fuel Cell Energy (NASD:FCEL.)  It sells its fuel cells mostly into stationary power markets for distributed generation and CHP.  The company has sold hundreds of megawatts of its Direct FuelCell® power plants  and has a strong financial backer in Korean power producer POSCO Energy.

Ceramic/Solid Oxide Fuel Cells

Solid Oxide Fuel Cells (SOFCs) use a solid ceramic as the electrolyte.  They operate at even higher temperatures than MCFCs (approximately 1,000°C  or 1,830°F) which, as in MCFCs, allows the use of non-precious metals as catalysts and for internal reforming of fuel into hydrogen, both of which reduce costs.  SOFCs are extremely fuel-flexible.  Like MCFCs, they are not vulnerable to carbon monoxide or carbon dioxide, but they are also able to tolerate much higher concentrations of sulfur.  This flexibility allows SOFCs to use fuels made from coal, as well as cleaner hydrocarbons.
The very high operating temperatures can impair durability, and also require thermal shielding to retain heat and protect workers.  Newer, lower temperature variants which operate below 800°C for greater durability have been developed at the cost of lower power output. .

Two public companies commercializing SOFCs are Ceres Power (LSE:CWR and OTC:CPWHF) and Ceramic Fuel Cells (ASX:CFU and LSE:CFU).  Ceramic Fuel Cells markets small scale SOFC based combined heat and power units to commercial customers in Europe.  Its fuel cells have industry leading electrical efficiency of up to 60%, and the overall efficiency of the CHP units is naturally much higher. Ceres Power has developed a lower temperature SOFC which operates at 500 – 600°C, allowing the use of stainless steel components which increase durability and allow for quicker start times than other SOFCs.  Ceres is currently targeting South Korean and Japanese markets where it hopes to sell its CHP units to replace residential boilers to produce both heat and majority of a home’s electricity.


None of these companies is yet profitable, and their products are not yet cost effective except in niche markets or with significant subsidies.  That said, several have strong financial backers and have been growing revenues significantly over the last couple years.

Events such as Hurricane Sandy and Japan’s Fukushima nuclear disaster have increased public interest in the resilience of the electric grid.  With its small scale and low emissions, fuel cell technology is well suited to increasing local resilience with distributed installations.  Fuel cells’ high efficiency can also make them economical in countries dependent on expensive imported liquefied natural gas.

If these trends persist, or if fuel cell vehicles become more than a way for automakers to comply with environmental standards, some of these companies are likely to become profitable in just a few more years.  I personally would not bet on hydrogen outside of niche markets, but I think distributed combined heat and power with carbonate and solid oxide fuel cells has real potential.

Disclosure: No positions.

This article was first published on Forbes.com on December 11th.

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.

December 21, 2013

Tesla: What's In A Chinese Name?

Doug Young

How do you say
Tesla Logo
in Chinese?

This week had US electric car maker Tesla (Nasdaq: TSLA) officially driving into China despite its failure to resolve a trademark dispute, meaning it has no official Chinese name as it enters the market.

All of the world’s top car makers now manufacture in China. But that’s a very expensive business, and other companies have been chasing more niche-oriented spaces in the market. Online car information provider Autohome (NYSE: ATHM) is one of those, and successfully sold investors on its growth story with a highly successful IPO in New York last week. (previous post)

Now we’re getting word that another niche player, high-profile US electric car maker Telsa, has formally started selling its popular vehicles in China, even though it’s still involved in a trademark dispute that has left it without a formal Chinese name. (English article) Tesla is hoping to make its own strong debut in China by capitalizing on its sleek designs and generous incentives from Beijing to promote green energy vehicles. Its formal launch had been highly anticipated, and the company has already been taking pre-orders for several months.

The trademark squatter that registered Tesla’s Chinese name reportedly wants $30 million for the rights, quite a large amount for a company of Tesla’s size. Accordingly, the company has decided to go ahead and start selling cars in China simply using its English name without a Chinese translation for now. (English article) The company formally opened a showroom in Beijing this week to start selling its popular Model S sedans and has a website as well, though neither has its Chinese name.

If I were advising the company, I would tell it to simply choose a new Chinese name or perhaps even skip a Chinese name altogether, and leave the squatter with a worthless trademark. After all, Tesla is still new to the China market and there isn’t much consumer awareness of its previous Chinese name, which is pronounced like te-se-la. That would teach those squatters a lesson!

Bottom line: Tesla should choose a new Chinese name to avoid dealing with a trademark squatter.

 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.

December 20, 2013

Sweetwater and Pacific Ethanol Strike Supply Deal

Jim Lane

In New York, Sweetwater Energy and Pacific Ethanol (PEIX) announced a project to supply customized industrial sugars for the production of cellulosic ethanol. The agreement supports the construction of a cellulosic biorefinery, contingent upon Sweetwater Energy obtaining the necessary financing and permits, at the Pacific Ethanol Stockton facility capable of producing up to 3.6 million gallons of cellulosic ethanol annually.

Pacific Ethanol operates and manages four ethanol production facilities, which have a combined annual production capacity of 200 million gallons in Boardman, Oregon, Burley, Idaho and Stockton, California, and one idled facility is located in Madera, California.

Sweetwater Energy will use its patented, decentralized process to convert locally available cellulosic material, such as crop residues, energy crops, and wood waste into a sugar solution, which Pacific Ethanol will ferment into cellulosic ethanol at its Stockton, CA refinery.

Fifth major deal of 2013 for Sweetwater

The deal is the fifth major deal announce by Sweetwater in 2013. In addition to Pacific Ethanol, the company announced similarly-structured agreements with Colorado-based Front Range Energy and Ace Ethanol, both in January. More about those, here.

In March, the company announced a $250 million, 15-year pact to provide Naturally Scientific with customized industrial sugars, in a transaction valued at $250 million.

In October, Naturally Scientific and Sweetwater announced a project to produce sugar from waste carbon dioxide. The new technology converts carbon dioxide taken directly from the emissions of industries such as ethanol refineries, natural gas power plants and many others, into usable sugars — and expands Sweetwater’s sugar-production reach beyond biomass-based, second-generation feedstocks into third-generation feedstocks.

Adding the ability to create sugar from carbon dioxide means Sweetwater can supply biomass- based sugar to an ethanol refinery, for example, and then also capture the carbon dioxide that’s a byproduct of the ethanol production to create emission-based sugars, which can be turned into oils, biodiesel, or other products.

Reaction from the partnersPacific Ethanol logo

Neil Koehler, CEO of Pacific Ethanol, stated, “An important part of our long-term strategy is to take advantage of the flexibility of our plant infrastructure to process alternate feedstocks such as sugar, corn and other grains, and now sugars produced from cellulosic material. The Sweetwater platform furthers our initiative in producing next-generation fuels such as cellulosic ethanol while providing additional flexibility in sourcing, reducing feedstock costs and enhancing plant operating margins.”

“We are very pleased to work with Pacific Ethanol on this project,” says Arunas Chesonis, Chairman and CEO of Sweetwater Energy. “We are going to start by supplying up to 6 percent of Pacific Ethanol Stockton’s feedstock requirements and, as our partnership grows we will evaluate increasing the amount.”

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.

December 19, 2013

REG Enters Renewable Diesel With Syntroleum Purchase

Jim Lane

In Oklahoma, and Iowa, Renewable Energy Group (REG; NASD:REGI) announced that it would acquire substantially all of the assets of Syntroleum Corporation (NASD:SYNM), and assume substantially all of the material liabilities of Syntroleum, for 3,796,000 shares of REG common stock worth $40.08 million at today’s market close.

The purchase price subject to reduction in the event that the aggregate market value of the REG common stock to be issued would exceed $49 million or if the cash transferred to REG is less than $3.2 million).

“This will help us grow our advanced biofuel business, enhance our intellectual property portfolio, expand our geographic footprint and launch REG into new customer segments.”” said REG CEO Daniel Oh.

Syntroleum has pioneered Fischer-Tropsch gas-to-liquids and renewable diesel fuel technologies, has 101 patents issued or pending, and owns a 50% interest in Dynamic Fuels, LLC, a 75-million gallon renewable diesel production facility in Geismar, Louisiana.

”Syntroleum and its 50%-owned subsidiary Dynamic Fuels represent an attractive entry path for REG into renewable diesel,” Oh continued. “They have invested substantial resources in their Bio-Synfining technology, which enables the economical conversion of lipid-based biomass into diesel and jet fuel. Their technology and products complement our core biodiesel business.”

Syntroleum’s Board of Directors unanimously approved the asset purchase agreement and recommends that Syntroleum stockholders vote in favor of the transactions contemplated by the asset purchase agreement at a special meeting of stockholders to be convened for that purpose.

“Today’s announcement marks the culmination of our comprehensive process to review Syntroleum’s strategic alternatives to enhance shareholder value,” said Syntroleum President and CEO, Gary Roth. “We are confident that REG’s multi-feedstock business model and the combination of our strong management teams is the best path forward for Syntroleum.”

Syntroleum’s Board of Directors also has approved a plan of dissolution for Syntroleum pursuant to which Syntroleum will be liquidated and dissolved, in accordance with Delaware law, following consummation of the asset sale and subject to stockholder approval of the plan of dissolution at the special meeting.

The asset sale is expected to close in the first quarter of 2014, subject to satisfaction or waiver of the closing conditions.

More on the story.

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.

December 18, 2013

Hydrogen Stocks More Than Double In 2013: Why The Pros Missed The Ride

Tom Konrad CFA

Hydrogen Photo via BigStock

If you hadn’t noticed that hydrogen stocks are up an average of 131% so far this year, you’re not alone.

Both hydrogen fuel cell stocks and hydrogen fuel systems stocks are up strongly.  Plug Power (NASD:PLUG), a maker of hydrogen fuel cell systems for off-road vehicles is up 122% year to date.  Ballard Power Systems, Inc. (NASD:BLDP), which makes hydrogen fuel systems for a wide variety of applications is up 133% so far this year, and 149% from its mid-December 2012 low.  Hydrogenics Corporation (NASD:HYGS) makes hydrogen fuel cells, electrolysis, and storage solutions for stationary and portable power, and is up 122% year to date and 127% from its low a year ago.

Quantum Fuel Systems Technologies Worldwide Inc. (NASD:QTWW) has risen 146% this year and is up 261% from its low in April.  Quantum provides fuel systems and drivetrain components for natural gas and electric vehicles as well as hydrogen fuel cell vehicles, so its rise probably has more to do with recent natural gas contract wins, but, with or without Quantum, the sector’s rise has been impressive.

H2 Stocks.png

Fuel Cell Vehicle Announcements 

If I had to explain the rise, my best guess would be the recent string of announcements of fuel cell vehicles from major auto manufacturers.

But a lack of fueling stations means that fuel cell vehicles are unlikely to even rival electric vehicles when it comes to sales for many years to come.  If hydrogen stocks are rising on hopes for futures sales of fuel cell vehicles, that rise will become a decent if those sales fail to emerge.

Why The Pros Don’t Like Hydrogen

Small investors have been the main buyers.  While institutional holders such as mutual funds have been buying, they have only been doing so in a small way.  During the third quarter, net institutional ownership increased from 15% to 16% of Ballard, from 3.4% to 3.8% of Plug Power, 5.7% to 6.3% of Hydrogenics and 2.3% to 2.8% of Quantum, according to Nasdaq data.  The changes amount to less than a single day’s trading in all four stocks.  Meanwhile, insiders have stayed entirely on the sidelines.

I recently asked my panel of green money managers if they’d been paying attention to hydrogen stocks, and those who responded gave a resounding “no.”  Their dislike of hydrogen stems from skepticism around the economics of the technology.

As Garvin Jabusch, co-manager of the Shelton Green Alpha  Fund (NEXTX) told me, “I’ve yet to be convinced… that there is a way to eke a profitable business model out of the space” because of the energy-intensive processes required to create hydrogen.  He thinks the recent roll out of fuel cell vehicles by Toyota, Honda, and Hyundai have a lot more to do with meeting California’s requirements for a minimum number of zero emission models than it does with expectations of selling a large number of cars.

Jan Schalkwijk, a portfolio manager with a focus on Green Economy investment strategies in Portland Oregon notes that recent history has taught us “ it does not pay to be too early” in green investing.  Although hydrogen technology is not new, but he thinks “its widespread adoption is not  in the cards” any time soon.

Rafael Coven, who manages the index (^CTIUS) which underlies the Powershares Cleantech ETF (NYSE:PZD), has always avoided hydrogen stocks and is “a LOT richer for it (i.e. not poor.)”  He says “Fuel cells require very, very deep pockets and a long path to profitability.  Big corporations have burned/burn through hundreds of millions of dollars in R&D and still have no profits on the horizon in this field.”

FCI chart
Wilderhill Fuel Cell Index. Source: The Wilder Foundation. Disclaimer: This material was for Internal Research only and was absolutely not an investable Index, nor presented for those purposes.
Hindenburg Stocks 

The last time hydrogen stocks caught investors’ attention was in the early 2000s.  Large automakers were launching fuel cell cars, just as they are now.  In another parallel to today, the launches at the time were due to promotion by the Bush administration and for compliance with emissions regulations in California.

Dr. Rob Wilder, who manages the index (^ECO) behind the PowerShares WilderHill Clean Energy ETF (NYSE:PBW) kindly allowed me to use the chart to the right of the Wilder-Hill Fuel Cell index, which his foundation maintained for internal research purposes from 2000 to 2007.  He notes that Ballard Power was included in the fuel cell index as well as ^ECO, which it remains in today.

As you can see from the chart, fuel cell stocks spiked rapidly, but then fell almost as quickly and never recovered.

Note that not all fuel cell stocks are hydrogen stocks.  Ballard, Plug, and Hydrogenics make hydrogen fuel cells, while companies like Fuel Cell Energy (NASD:FCEL) make carbonate or solid oxide fuel cells which run at much higher temperatures on natural gas (methane) and other hydrocarbons.  The high operating temperature of such fuel cells makes them excellent for stationary combined heat and power operations, but generally unsuitable for vehicular or portable markets.

It is worth noting that Fuel Cell Energy is developing a version of its fuel cells which can produce hydrogen as well as electricity.  If they can commercialize it and the economics work, this may become a viable way to expand the hydrogen fueling infrastructure.


Are the current buyers of hydrogen stocks headed for another wild ride to nowhere, like fuel cell investors in 2001? Or, has long disappointment made the pros too cynical, and likely to miss out on an explosive opportunity?

For myself, I’m going to be watching hydrogen stocks rise from a safe distance.  I agree with my panel that the lack of fueling infrastructure and the energy and expense involved in creating hydrogen are likely to continue to consign hydrogen fuel cells to small niche markets for years to come.

I would not be at all surprised if hydrogen stocks double again from here, but I’ll expect that rise, if it comes, to be followed by a Hindenburg-like explosion rather than a smooth ride to investing profits.  If there are any survivors, it will be players focused on profitable niches, like Plug Power.

Disclosure: No Positions.

This article was first published on Forbes.com on December 5th.

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.

December 17, 2013

Axion Power: Improving on the Conventional

by Debra Fiakas CFA

While the rest of the battery industry is trying to perfect new technologies, Axion Power International (AXPW:  OTC/QB) has been working on a fix for conventional lead acid batteries.   Low cost made the lead acid batteries popular even from the early days when a French scientist first introduced the configuration in the mid 1800s.  Lead-acid technologies represent about half of batteries made today. 

Unfortunately, lead-acid batteries have low energy-to-weight and volume.  Storage times are limited.  They also have corrosion problems.  The active materials in lead-acid batteries change physical form during charge and discharge.  This results in growth and distortion of the electrodes, as well as the shedding of electrode into the electrolyte.  Consequently, lead-acid batteries require significant maintenance and have a relatively short useful life.

Axion has by-passed some of these problems by replacing the negative electrode in the conventional lead-acid battery with a supercapacitor made of activated carbon.  Unlike the conventional battery, this carbon negative electrode undergoes not chemical reaction.  The result is a reduction in corrosion on the positive electrode and longer battery life.

The company has had some success in the market with its battery solution that is branded the SuperCube, but the company has yet to achieve profitability.  Sales in the most recently reported twelve months were $10.2 million.  This compares to $9.7 million in the year 2012 and represents 4.1% year-over-year growth.  However, the net loss was $8.8 million and Axion used $6.8 million in cash to support operations.  That is a concern since the company only had $1.1 million in cash on its balance sheet at the end of September 2013.

The company has other financial resources.  Axion completed a financing earlier this year, raising $10 million through a convertible note issue.  The offering was sold privately and provided for periodic withdrawals from a control account.  At the end of September 2013, approximately $5.4 million remained in the control account.

The company appointed a new chief financial officer in October.  Most likely his is focused on how to make the company limited cash resources last as long as possible.   One big plus for the company is a new order for its SuperCube battery valued at $320,000.  The SuperCube battery will be installed next to a solar panel system for storage and frequency regulation.  The company gets a down payment with the solar project order, which should help supplement Axion’s own working capital.  A few more orders like that and Axion’s financial picture should improve substantially.

Axion is priced below a dollar and for some may represent to much risk.  The terms of that convertible note also provided for a variable conversion rate.  Such terms typically invite a bit of manipulation to push the stock price lower so as to lock in more favorable conversion rates.  It will take some time for the company to work through this convertible note issue.  Expect continued share price repression for some time to come.     
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.

December 16, 2013

Total and Amyris Take Another Step Down The Aisle Towards Commercial Biofuels

Jim Lane amyris logo

Total elects to bottle up the IP and protect itself against Amyris “hardship” as it advances towards commercializing key biofuels.

In California and France, Amyris (AMRS) and Total announced the formation of Total Amyris BioSolutions B.V., a 50-50 joint venture that now holds exclusive rights and a license under Amyris’s intellectual property to produce and market renewable diesel and jet fuel from Amyris’s renewable farnesene. Amyris also plans to initiate sales of renewable jet fuel in Brazil once it achieves ASTM validation.

“The joint-venture Total Amyris Biosolutions is a first step towards the commercialization of our renewable diesel and jet fuels. We are in the phase of scaling-up the industrial process and we expect to start commercialization within the next few years, once our joint research and development goals are met,” said Philippe Boisseau, President, Marketing & Services and New Energies, and a member of TOTAL’s Executive Committee. “As far as commercialization is concerned, the new joint-vent