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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-venture will benefit from the know-how and customer access of TOTAL, which operates in more than 130 countries and is aiming to become a key supplier in renewable fuels,” Boisseau added.

“The formation of this joint venture, anticipated by our streamlined collaboration agreement signed last year, paves the way for us to initiate our fuels commercialization efforts globally, building on Amyris experience with renewable diesel in Brazil and the growing demand for lower-emission jet fuels worldwide,” said John Melo, President & CEO of Amyris, Inc. “TOTAL has been a strategic partner for Amyris for the last three years and a model of how global companies can leverage our inspired science to deliver sustainable solutions for a growing world,” Melo added.

Background to the JV

In July 2012, the Company and Total entered into a series of agreements to establish a framework for forming a joint venture to produce and commercialize farnesene-based and farnesane-based diesel and jet fuels and to provide the Company with convertible debt financing for research and development relating to the JV Products, including a Master Framework Agreement, a second amendment to the Technology License, Development, Research and Collaboration Agreement, Securities Purchase Agreement and Registration Rights Agreement.

The interim JV

The July 2012 Agreements contemplated that the Parties would form an interim joint venture entity in advance of the completion of the R&D Program to provide Total with (i) certainty that the Parties’ joint venture would receive the proposed intellectual property licenses from the Company and (ii) an option for Total to purchase the Company’s interest in the interim joint venture in the event the Company were to experience a financial hardship prior to the formation of the production and commercialization joint venture. Consequently, the Parties incorporated JVCO on November 29, 2013.

The Parties have agreed that JVCO’s purpose is limited to executing the License Agreement and maintaining such licenses under it — until one of three outcomes occurs.

They are:

1. Go. Total elects to go forward with either the full (diesel and jet fuel) JVCO commercialization program or the jet fuel component of the JV commercialization program.
2. No-Go. Total elects to not continue its participation in the R&D Program and the JV.
3. Buy-out. Total exercises any of its rights to buy out the Company’s interest in the JV.

Timing on the go / no-go

A final decision from Total on whether to proceed with commercialization is generally due no later than early 2017.

Following a Go Decision, the Articles and Shareholders’ Agreement would be amended and restated to be consistent with the shareholders’ agreement contemplated by the July 2012 Agreements.

The Bottom Line

There are two way to look at this interim JV — a bundle of sudden excitement at Total about the technology as it burns through milestones — or, Total seeing enough investment to date and promise going forward to bottle up the technology rights inside a JV, should Amyris be sold, founder, or otherwise be diverted from carrying on with its obligations under the original 2012 agreement. Looks to the Digest like the latter. Which is good news for all parties.

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 13, 2013

Canadian Solar Caps 2013 With Mega-Deals

Doug Young

Santa Hat
Canadian Solar "caps" 2013 with big solar deals

The year 2013 will go down as a major turning point for China’s solar panel makers, with some names emerging as new sector leaders after a prolonged downturn while others quietly disappeared. The latter category saw former leader Suntech (OTC: STPFQ) go bankrupt and LDK (NYSE: LDK) quietly sell off many of its assets, while the former category has seen Canadian Solar (Nasdaq: CSIQ) and Shunfeng (HKEx: 1165) emerge as names to watch in the future. Canadian Solar in particular has been coming back strong in the second half of this year with a steady stream of good news, including its latest mega-deal to sell panels in China.

Sensing the end of a nearly 3-year-old downturn is finally in sight, investors have sharply bid up shares of many healthier solar panel makers this year. Canadian Solar’s shares have posted some of the biggest gains, rising from about $3 at the beginning of the year to their current $28. For anyone too lazy to do the math, that means anyone smart enough to buy the shares in January would have received a 9-fold return on their investment. The rally has helped Canadian Solar shares to regain most of the value they previously held at their peak in 2010 when bullishness towards the solar panel sector was at its height.

All that said, let’s take a look at Canadian Solar’s latest mega-deal, which will see it sell 100 megawatts worth of modules to Chinese power plant developer Zhenfa New Energy to build 3 new plants in Gansu province and one in Inner Mongolia. (company announcement) Normally I don’t write about individual deals, since companies frequently make such announcements. But in this case the size of the deal is quite large, especially when one considers the amount is more than a fifth of Canadian Solar’s total sales for its latest reporting quarter.

This deal also caught my attention because it followed another 100 megawatt deal for the company announced last month with 3 Gorges New Energy, a company associated with the massive 3 Gorges Dam project in interior China. Canadian Solar also announced another big China deal in November to sell 32 megawatts of modules to China Perfect Machinery Industry Corp. That means in the last 2 months alone, Canadian Solar has signed deals for 232 megawatts of modules in China.

Canadian Solar LogoIndustry followers will note that this series of deals comes as China embarks on an ambitious campaign to build up its solar power generating capacity. Despite producing more than half of the world’s solar panels, China historically wasn’t a strong buyer of those panels. But that has rapidly changed in the last year, as Beijing has steadily raised its targets for an ambitious plan to build new solar plants throughout the country.

In the latest adjustment to its plans, reports last month said Beijing aims to have 12 gigawatts of solar power capacity installed by the end of next year, up from a previous goal of 10 gigawatts. (previous post) It plans to triple that figure to 35 gigawatts by the end of 2015. That means that if Beijing really follows its plan, these orders we’re seeing now from Canadian Solar should be just the beginning of an ordering frenzy likely to accelerate in 2014.

I fully expect such a buying binge to materialize, as state-owned power plant builders and other local entities will be anxious to carry out Beijing’s plan. That should be great news for the panel makers, and should help propel most back to profitability next year. The binge could be more problematic for China’s grid operator as it tries to connect all these new facilities to the national grid. But that’s a problem for Beijing and not the panel makers.

Bottom line: A recent series of mega deals for Canadian Solar augers a buying binge in 2014 by solar plant builders, as they rush to fulfill Beijing’s ambitious solar energy targets.

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 10, 2013

Holiday Shopping Deal On Ram Power Shares

Tom Konrad CFA
Ram Power’s San Jacinto-Tizate plant

Holders of Ram Power Corp. (TSX:RPG, OTC:RAMPF) on November 26 (the “record date”) will be receiving valuable coupons as the result of the company’s rights offering, announced November 18th. Just in time for the holidays, these coupons, or “rights” can be used to buy additional shares of Ram Power for 8¢ Canadian per share any time before  5pm on December 23rd. (Disclosure: I am long Ram Power stock.)

Holiday shoppers looking for more traditional gifts will be able to raise a little cash by selling the rights on the Toronto Stock Exchange, where they are listed as RPG.RT.  Since they began trading on November 25th, they’ve traded between ½¢ and 1¢.  Shareholders will have received one right for every  share of Ram they owned; each 4.5 rights allows the purchase of one share of Ram at 8¢. 

Why The Bargain

The reason for the extreme couponing at Ram Power is the company needs cash.  While its main project, San Jacinto-Tizate in Nicaragua, is currently operating at reduced capacity while its contractors are working on a remediation project expected to bring its production up to somewhere between 59MW and 63MW of net electricity output.  The remediation is expected to be complete in mid December, with results from testing in mid January, after which Ram will be eligible to receive distributions from the project.

The low 59MW production estimate will easily be enough to keep Ram from having to default on its project loans (they need at least 55MW,) but as long as the net output is below 65MW,  $2.95 million of Ram’s Project equity must remain in a maintenance reserve account, and maintenance contributions will be increased by $0.2 million per quarter for every MW of capacity below 65 MW (net.)  Ram will be eligible to receive distributions if there are available funds from power sales after the reserve increases and the original Project distribution requirements are met.

Without any other operating projects, Ram did not have the cash to meet an upcoming corporate debt payment at the end of December.  Unfortunately the offering was delayed until a few days after Ram’s third quarter earnings announcement.  When a company needs money quickly, they usually have to raise it on very unfavorable terms to existing shareholders, and that prospect led the stock to sell off between the quarterly earnings report and the rights announcement.

As it was, a rights offering of this sort is about as shareholder-friendly a way as possible to raise needed cash.  Instead of outside investors buying the stock at a discount and immediately dumping it on the market, existing shareholders are given the opportunity.  As I mentioned before, if they are not willing or able to come up with the additional cash, they can still monetize the opportunity by selling their rights in Toronto.

A Guaranteed Successful Offering

Two provisions of the rights offering ensure that the company will be able to raise the full C$5.3 million targeted by the deal  First, holders of rights will be able to exercise an “additional subscription” privilege on a pro-rata basis to buy shares which would have been available under any rights which are not exercised.  Ram has also arranged for standby purchase agreements with Dundee Securities, Newberry Holdings International Ltd. and Exploration Capital Partners to purchase any shares which are available but not issued subject to the rights offering.  The fact that these large, sophisticated investors, including Ram’s investment bank and an affiliate of one of its largest investors are willing to backstop the deal is one more piece of evidence that it’s a good deal for investors to participate.

Company for Sale
Ram Power Logo

Because it looks unlikely that the remediation program at San Jacinto-Tizate will increase capacity enough to allow Ram to resume distributions and fund its ongoing overhead and corporate debt payments going forward, Ram has is also “Exploring strategic options,” which is management speak for “the company is for sale, all or in part.”  In addition to making the December interest payment, the funds from the offering should be sufficient for Ram to complete its remediation project and find a bidder for the whole company, or just San Jacinto-Tizate and its other projects.

With about C$50 million of Earnings before interest, tax, and depreciation (EBITDA) increasing with inflation, Ram would be worth about C$600 million if trading at the same (12x) multiple as mature power power producers on the TSX.  That number includes no value to its development projects.   Ram will of course not receive a 12x multiple, but a 7x to 9x multiple, such as discussed in the recent earnings call does not seem out of line.  Adjusted for  liabilities and the dilution from the rights offering, a 7x multiple would result in a value for Ram at 24¢ a share.  The 9x multiple would result in a value of 51¢ a share.  Note that Ram’s high debt makes this number very sensitive to the selling price, and a sale at 6x EBITDA would leave only 10¢ per share for equity holders.

A buyer would probably be able to achieve some cost savings by no longer running Ram as a stand-alone business. Reducing management and listing costs could amount to as much as $3.5 million annually, or another penny a share at the 7x EBITDA multiple.

Because it looks unlikely that the remediation program at San Jacinto-Tizate will increase capacity enough to allow Ram to resume distributions and fund its ongoing overhead and corporate debt payments going forward, Ram has is also “Exploring strategic options,” which is management speak for “the company is for sale, all or in part.”  In addition to making the December interest payment, the funds from the offering should be sufficient for Ram to complete its remediation project and find a bidder for the whole company, or just San Jacinto-Tizate and its other projects.

With about C$50 million of Earnings before interest, tax, and depreciation (EBITDA) increasing with inflation, Ram would be worth about C$600 million if trading at the same (12x) multiple as mature power power producers on the TSX.  That number includes no value to its development projects.   Ram will of course not receive a 12x multiple, but a 7x to 9x multiple, such as discussed in the recent earnings call does not seem out of line.  Adjusted for  liabilities and the dilution from the rights offering, a 7x multiple would result in a value for Ram at 24¢ a share.  The 9x multiple would result in a value of 51¢ a share.  Note that Ram’s high debt makes this number very sensitive to the selling price, and a sale at 6x EBITDA would leave only 10¢ per share for equity holders.

A buyer would probably be able to achieve some cost savings by no longer running Ram as a stand-alone business. Reducing management and listing costs could amount to as much as $3.5 million annually, or another penny a share at the 7x EBITDA multiple.

In addition to the advantage of simply buying the shares at 8¢, there are also significant benefits from the optionality inherent in the rights.  For example, a Canadian shareholder not planning to participate in the offering can still take advantage of this opportunity to maintain his or her position.   Rather than selling the rights, he or she could sell 1/4.5 (or 2/9) of his or her shares (as long as they sell for more than 8¢), and then buy them back by participating in the offering in three weeks.  This reduces the risk of loss in the event the stock declines, while maintaining the full benefit of any increase in the share price.


The Ram Power rights offering is the most shareholder-friendly way possible for this company to raise needed cash.  Since Ram has also put itself up for sale, and is worth between 25¢ and 50¢ per share, investors who are able should participate in the rights offering and the additional subscription privilege, unless the stock falls below 8¢ before December 23rd.  If it does fall that far, they should buy the stock instead.

This article was first published on Forbes.com on November 30th.

Disclosure: Long RPG.

Lead Image: Ram Power’s San Jacinto-Tizate plant

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 09, 2013

Ten Clean Energy Stocks for 2013: Lessons Learned

Tom Konrad CFA

As we come into the final stretch of 2013, my annual model portfolio of Ten Clean Energy Stocks for 2013 looks certain to break its five year winning streak of beating its industry benchmark.  As of December 6th, the model portfolio's total return has been  19.0%, compared to a sunny 56.1% for my benchmark, the Powershares Wilderhill Clean Energy (PBW).  The broad market, as represented by the Russell 2000, also resoundingly beat my model portfolio, and is up 37.5%.  My six alternative picks fared even worse than my top ten.

The consolation of a bad year is the chance to look at my mistakes and see what I can learn from them.  There were three reasons for my under performance.  First, 2013 was a year led by popular, "story" stocks which appeal to the imagination.  Second, solar stocks had a blistering comeback after being massively oversold at the end of 2012.  Finally, I repeated a mistake from prior years and stuck with two clean energy developers, thinking that the market would recognize the value of their assets. 

Story Stocks

The big stories of 2013 were Elon Musk's Tesla Motors (NASD:TSLA) and Solar City (NASD:SCTY), up 306% and 350% respectively.  As a value-focused contrarian investor, I've long known that there will be many years when story stocks outperform, but they also have a tendency to fall rapidly from their peaks.  Tesla has already fallen 30% from its peak over the last two months.  A contrarian eschews such spectacular gains in order to avoid the rapid declines that come to such story stocks on the slightest bit of bad news. 

Even if 2014 were to be another year led by other story stocks, I would not consider that reason to abandon my contrarian strategy.  Missing the rapid rise of stock you don't own is not a loss, although it may feel like it to people who focus overmuch on the headlines.  If holding a contrarian investing stance were emotionally easy, everyone would be doing it.

Time to Reconsider Solar?

I also made a conscious decision to avoid solar in 2013, even though I suspected the sector might be over-sold and could rebound.  I toyed with the idea of including a few solar stocks in the 2013 list, but in the end decided not to for the simple reason that I would not know which stocks to pick.  I've been avoiding solar stocks for many years, because I believed that the competitive structure of the market leads to commodity pricing and temporary capacity gluts, making it unsuitable for the long term investor.  Since I wrote the two articles linked in the previous sentence in March 2010, the two solar ETFs TAN and KWT have fallen 50% and 60%, respectively, despite their 129% and 98% gains so far this year. 

My concerns about the solar industry's competitive structure have kept me away from solar stocks for so long that, even if I had been certain (and I wasn't) that the industry was about to turn a corner at the end of 2012, I would not know which solar stocks to pick.

With solar stocks trading for roughly double their prices of a year ago, my feeling is that the rally has mostly run its course.  Finding undervalued solar stocks will be much more difficult than it was a year ago, and I'm no better equipped for the job.  In short, the solar stock rally has not made me reconsider investing in the solar manufacturers.  Investing in solar installations is another matter.  While there are not currently any stocks focused on investing in solar infrastructure, I expect that a least one will go public before the end of 2014.  For now, there are a number of interesting infrastructure plays which include solar as part of their renewable generation portfolios.

Clean Energy Developers

Unlike my avoidance solar and story stocks, I view choice of renewable energy developers for these portfolios to be a mistake.  The mistake was that I did not make as good a decision as I should have given the information available at the time.  It would have been a mistake even if the stocks had gone up, although I probably would not have noticed it.

First, I underestimated the risks faced by tiny companies owning just a few projects.  Two suffered because of setbacks at particular projects.  Finavera Wind Energy (TSX-V:FVR / OTC:FNVRF) found that two of the projects it had hoped to sell to Pattern Renewable Energy (NASD:PEGI) turned out to be un-permitable.  In addition, the process of selling the other two is taking longer than expected, and interest charges are eroding the company's value.  Ram Power (TSX:RPG / OTC:RAMPF) also has a project setback, and is currently in the process of a costly remediation project at its main geothermal plant in Nicargua to bring power production back up to a point where the can again receive distributions from the project.

A third developer, US Geothermal (NYSE:HTM, TSX:GTH) managed to avoid any setbacks, while more diversified Alterra Power (TSX:AXY, OTC:MGMXF) has had relatively minor project delays.  Nevertheless, the former has only appreciated slightly, while Alterra has drifted lower over the course of the year.  I think this behavior is a sign of growing disenchantment with the sector, especially when the returns from other clean energy stocks have provided much more exciting opportunities.

The lesson I draw from this is to stay away from undiversified and unprofitable project developers.  The market is slow to reward success, such as that at US Geothermal, but swift to punish failure.  It is possible to make significant, rapid gains from a buy-out, as I and readers did when Brookfield Renewable Energy Partners (NYSE:BEP) bought Western Wind Energy at the start of the year.  But such returns are highly uncertain.  The Western Wind sale came very close to not going through, and was at a price I felt was well below Western Wind's true value

In the future, I plan to stay away from undiversified and unprofitable renewable energy developers.  Yes, they often trade at significant discounts to the value of their assets, but such companies are fragile and the constant flow of expenses means that time is not on the side of the investor. 

Individual Stocks 

The chart and discussion below show individual stock performance.  I will focus on the alternative picks, since I neglected them in the last update.

10 for 13 Dec.png

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

Finavera reported their third quarter results.  Highlights were the on-time submission of the Miekle wind project for  up to 187 MW.  This means that Pattern and Finavera are still hoping that permitting and wind regime will allow the most lucrative "Super-Miekle" option, discussed here.  On the downside the financial close of the Cloosh wind farm was delayed "caused by changes to the project financing logistics between the majority partners, and more specifically a shift from balance sheet financing to non-recourse project financing." An additional delay was caused by an Irish lawsuit filed by one of the project's lenders.  From my reading of the most recent ruling and discussions with Finavera's CEO, the substance of this lawsuit concerns who gets paid when, not the amounts owed.  Hence the delay's effect on Finavera's final valuation should be limited to interest.

Alterra Power (TSX:AXY, OTC:MGMXF)

Diversified renewable energy developer Alterra Power Corp announced the sale of its 10% stake in a 50MW solar project acquired earlier this year.  Alterra CEO John Carson justified the sale by saying "This transaction provides immediate positive returns to our shareholders," but I doubt the profits were significant given the quick turnaround.  Rather, I think his comment that "our primary development focus is placing the Jimmie Creek Hydro and Shannon Wind projects into construction" describes the real reason.  Small solar projects were likely proving a distraction and a drain on tight liquidity.

I think Alterra's recent joint venture in Italy, where its Italian partner will be able to earn a controlling 55% stake in its Italian geothermal and solar projects, and Alterra's termination of its solar joint venture with Greenbriar in Puerto Rico both support my theory that management decided it needed to focus on these two large development projects.

Six Alternative Clean Energy Stocks

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

Leading mass transit bus manufacturer New Flyer has been drifting lower after a $0.50 lowering of the company's price target from C$12.50 to C$12 by CIBC.  I suspect analysts there were disappointed that the company did not announce an increase of their production rate in the third quarter despite strong backlog growth.  I think this recent decline represents an improved buying opportunity given New Flyer's recent acquisitions in the North American aftermarket parts business.  I believe these acquisitions will provide a steady stream of income and widening profit margins going forward.

LSB Industries (NYSE:LXU)

LSB missed analysts' third quarter earnings expectations on what I believe were delays in insurance payments.  I thought the sell-off unjustified and added to my position as the stock dipped below $30.

Maxwell Technologies (NASD:MXWL)

Ultracapacitor maker Maxwell Technologies has been drifting slowly lower since there has been no renewal of Chinese hybrid bus subsidies.  I'm increasingly convinced that the plug-in-hybrid bus subsidies announced in September will be all there is, and Maxwell is unlikely to match its former hybrid bus revenues in the plug-in hybrid market.

US Geothermal (NYSE:HTM, TSX:GTH)

Geothermal power developer US Geothermal sold off after filing an S-3 shelf registration to potentially sell additional shares on November 29th.   I think shareholders may over-reacted in this case because November 29th happened to be the day after Thanksgiving, and so it appeared that the company was trying to sneak the filing in when investors were out shopping.  While such filings can often be a signal of impending shareholder dilution, in this case the filing simply replaced an existing filing which would have expired on December 1st.  The seemingly clandestine Black Friday timing is fully explained by the fact that November 29th was the last business day in November.

Ram Power Group (TSX:RPG, OTC RAMPF)

Geothermal developer Ram Power filed a Rights Offering to raise funds from existing shareholders, which I discussed in detail here.  One additional detail concerns the "additional subscription" privilege included in the rights.  This allows rights-holders to offer buy shares allocated to un-exercised rights.  The press release stated that such shares would be allocated on a "pro-rata" basis, but did not specify if they were pro-rata by the number of rights held, by the number of shares held, or the number of shares the rights holder asked for.  I called Ram's investor relations contact, who could not answer the question but referred me to the transfer agent.  It turns out that additional shares will be allocated pro-rata based on the number of shares requested.  Hence, even a holder of a single right would be able to participate in the offering in a meaningful way by requesting a large number of shares under the additional subscription option.


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 07, 2013

Can ZBB Grab a Piece of the Energy Storage Pie?

by Debra Fiakas CFAZBB logo

There are a lot of different technologies in the energy storage space.  ZBB Energy (ZBB:  NYSE) has staked its future on zinc bromide.  Batteries using zinc-bromide consist of a zinc negative electrode and a bromine positive electrode with a porous separator in between them.  Unlike conventional batteries, these electrodes do not take part in the reactions but merely serve as substrates for the energy reactions.  Thus there is no loss of performance from repeated cycling causing electrode material deterioration.  The zinc-bromine battery can provide two to three times the energy density of lead/acid batteries.

Excellent energy density and long life make zinc-bromide batteries particularly attractive as storage for wind or solar power generation systems.  ZBB has taken its batteries to a higher level, configuring its batteries in to power plant systems.

ZBB has developed a clutch of energy storage and power control products.  Besides its energy storage devices, the company provides controller technology for hybrid motor vehicles systems.  A number of markets are ZBB’s sights:  micro-grids, commercial building back-up power, power solutions in remote locations, electric vehicles charging are just a few applications.

The company generated $7.0 million in sales in the last twelve months.  Admittedly, that is a small number.  However, recent sales have ramped dramatically over the past three years, suggesting ZBB is gaining traction in the market place.  Losses are still deep  -  net loss in the last twelve months was $11.6 million.  Building market share should cover those losses in time.

The problem is that ZBB might not have enough cash on its balance sheet to support the company to the point that sales cover expenses.  The company used $6.5 million in cash for operations over the last twelve months, but only has $3.1 million in cash on its balance sheet.  That bit of cash comes from a bridge financing the company completed in late September 2013.  If operations continue to use cash at the same pace, it is likely that half of that money will be gone before the year is over.

With cash resources stretched thin, it is not surprising that the stock is trading near a 52-week low.  On the plus size the nominal price near $0.60 means a long position in ZBB has a price tag more like an option.  The energy storage market is just developing and it appears ZBB Energy has a chance to grab a piece of the pie.
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 06, 2013

How Did These 7 Green Money Managers Do in 2013?

Tom Konrad CFA

Outlook 2013 photo via BigStock

Last December, I asked my panel of managers of green funds and portfolios to predict the major trends of 2013, and pick their top stock for the year to come.  I wrote a series of articles based on their responses, which I’ll reference below.

I plan to ask them the same questions this year, but first I will check on how they’ve done so far.

The Managers

Not everyone on my panel responded to all the questions, but here are the ones who did:

  • Jeff Cianci is Chief Investment Officer at equity investment fund Green Science Partners.
  • Sam Healey is a portfolio manager at Lamassu Capital.
  • 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. He also authors the blog “Green Alpha’s Next Economy.”
  • Jan Schalkwijk, CFA is a portfolio manager with a focus on Green Economy investment strategies at JPS Global Investments in Portland, OR.
  • Rafael Coven is Managing Director at the Cleantech Group, and manager of the Cleantech index (^CTIUS) which underlies the Powershares Cleantech ETF (NYSE:PZD.)
  • 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.
  • Dr. Rob Wilder is Index Committee Chair for WilderHill Clean Energy Index (ECO), the first to capture and track this sector.   ECO underlies the PowerShares WilderHill Clean Energy ETF (NYSE:PBW.)


Here’s how their predictions turned out:

2013 seems to have been an inflection point, with large gains led by Tesla Motors (NASD:TSLA) and solar stocks reversing several bad years.  Four of my managers polled: Wilder, Jabusch,  Schalkwijk, and Coven get kudos for saying 2013 could mark a new era for clean energy, but none of them pinpointed the nature of the change.  Wilder thought conservatives might start embracing renewable energy, while Schalkwijk, and Coven thought investors would start paying more attention to companies with strong fundamentals.  Jabusch was closest to the mark when he said the green economy might be closer to mainstream acceptance, although he thought acceptance of climate change would be the driver for this change.  Solar City (NASD:SCTY) is bringing solar into the mainstream, and Tesla Motors’ (NASD:TSLA) cars are at least the object of mainstream desires, even if they are still out of reach.

LED stocks did exceptionally well, but not better than cleantech stocks in general.  Picks with significant exposure to LEDs were Universal Display Corp. (NASD:OLED, formerly PANL, up 41%),  Cree (NASD:CREE, up 63%), and Veeco Instruments (NASD:VECO, up 8%.)  Again, three managers (CianciSchalkwijk, and Coven) should get credit for highlighting a successful sector, but I still have to reserve the highest marks, since other cleantech sectors did much better.

Three managers had thoughts on Smart Grid company EnerNOC (NASD:ENOC).  The stock did well, up 48%,  so I have to give credit to Healey and Jabusch, who praised it.  Coven, on the other hand, gets dinged because he thought the stronger entry of utility companies into the smart grid space (which did not happen) would either “severely hurt ENOC or push it to be acquired by an Electric Utility or services company.”

Solar Stocks shone most brightly in 2013, with solar indexes more than doubling since last December, but no one seems to have seen it coming.  The best call was from solar specialist Kravetz, who expected solar stocks to have their “first profitable year” after four years of losses.  Jabusch and Coven correctly predicted consolidation in the solar industry, but did not express an opinion on the direction of solar stocks.

Other Trends: Coven made a few predictions which did not make it into any of my articles, but that was no fault of his own, they just did not fit the themes in others’ predictions.  He thought a strong move towards Natural Gas Vehicles would help NASD:CLNE, NASD:FSYS, and NASD:WPRT, but these three were flat for the year.  He also called for the reductions in Solar PV subsidies in Northern States. This happening where I live in New York, and the addition of a net metering charge in Arizona is also a move in that direction. He accurately predicted continued acquisitions by conglomerates,  poor performance of Japanese cleantech companies, increased focused on grid security, and predicted consolidation in the wind industry.  Overall, I’d say his other predictions were pretty good.

Stock Picks

Below, I’ve put together a chart of the performance of each manager's “top pick.”

Benchmarking managers

Several did not limit themselves to one stock as I’d asked.  Jabusch picked four stocks, Coven listed many of which I selected the six that he seemed to recommend most highly, and Healy picked two.  For these managers, I’ve included yellow bars with the average return of the stocks they picked.  Dr. Wilder takes his role as the manager of a passive index seriously, and does not pick stocks.  Since Jabusch has a mutual fund which went public in March, and Coven and Wilder each manage the indexes behind the ETFs PZD and PBW, respectively, I’ve included the performance of these funds as red bars.

Finally, the last three columns (“Avg.”) show composite portfolio formed from these picks.  The blue bar is the result of equally weighting the 14 stock picks (hence giving more weight to managers who picked more stocks) for a 49%.  If instead the portfolio is equally weighted by manager, the return is a higher 54% shown in yellow.  This boost results from the relatively higher weight given to Amtech Systems’ (NASD:ASYS) 160% return.  Finally, a portfolio composed of NEXTX, PZD, and PBW weighted equally, would have returned 46% (red bar), at least if the NEXTX investment had been kept in cash until that fund went public in March.

As is fitting in a year that solar stocks performed so well, the best stock pick was solar supplier Amtech Systems (NASD:ASYS).  It was picked by solar specialist Shawn Kravetz.  Of  the others, only JAbush chose a solar stock, First Solar (NASD:FSLR), as one of his four picks.

Both Coven and Jabusch outperformed their own funds.  This might tempt us to conclude that they could do better by focusing more on their top picks.   However, Jabush’s NEXTX became public in March, and given the strong performance of cleantech stocks at the start of the year, it probably would have been up another 10% to 15% if it had been around for the full year.  After adjusting for that, the difference between the performance of their top picks and the funds they manage is probably too small to reach any conclusion.

Awarding Grades

Predicting the stock market and picking the best stocks is always hard.  For those managers who stuck to the rules and picked only one stock, it was even harder, since company events can often overwhelm the trends.

It’s also hard to compare these managers against each other, but of the seven, Shawn Kravetz deserves praise for having, by far, the best stock pick.  Rob Wilder also did well, by being true to his calling as an index manager, and riding that index to strong returns in a year when none of these prognosticators foresaw the incredible rise of solar stocks.  Finally, I think Garvin Jabusch needs to be singled out both for the strong performance of his mutual fund in the seven months it’s been public, and and for picking four stocks that did better than any other manager’s in my panel besides Kravetz’s single pick.  He also recently commented to me that his favorite pick among the four became First Solar (NASD:FSLR) when, a day later, JP Morgan picked it as their one “stock to avoid” for 2013.  It’s up 85% since then.

As for the others, returns ranging from 8% to 41% would not have been anything to complain about in a normal year, and they had some good insights into the sector.  As a green money manager myself, I’d say I also fall in to this group: Our returns have been decent, but nothing like those of solar stocks or sector indexes like Rob Wilder’s.

In any case, one (or three) years’ returns are not enough to judge a manager’s skill.  How will green stocks and these managers do in 2014?  I plan to ask them soon, so check back in December.

This article was first published on the author's Forbes.com blog, Green Stocks on November 26th.

December 04, 2013

Your Solar Panels Aren't Facing the Wrong Way

Tom Konrad CFA

Dilemma Compass photo via Bigstock

Contrary to some confused bloggers, solar panels produce the most electricity over the course of a year when pointed south, not west.

A recent report from the Pecan Street Research Institute started a chain of articles with increasingly inaccurate conclusions.

The lemmings at QuartzGizmodo, and Grist, followed each other off the cliff of delusion saying that homeowners could produce more power by pointing their solar panels west, rather than south.  (UPDATE: Now even USA Today is jumping off.)  The title of an article “Are Solar Panels Facing the Wrong Direction?” on Greentech Media seems to have started the lemmings rushing cliff-ward, even though the article itself got the facts right.

It simply ain’t so.  The study found that the average house in a sample of 14 houses with west-facing solar arrays produced more electricity than the average of 24 houses with south facing arrays in Austin, Texas during the three months from June 1 to August 31st, 2013.

The study (which I obtained from Pecan Street) specifically says “Over the course of a full year, a south-facing orientation produces more total energy than other orientations.”   In addition, Brewster McCracken, the president and CEO of Pecan Street, told me that he did not expect that the finding that the west facing arrays produced more energy even during that three month period was statistically significant, given the small sample size.

pecan street net grid impact.pngPoint It West

That said, the study concluded that there were significant benefits to pointing solar panels west.  While the highest annual electricity production will be produced with south facing panels, west-facing arrays are much better at reducing peak loads in climates with air-conditioning driven peak demand, such as Austin.

According to the study, a equal sized west facing system would have produced 49% more electricity during the peak demand hours of the summer months than a south facing system.  Only 58% of electricity from south facing systems was used in the home, with 42 percent being sent back to the utility grid.  Fully 75% of electricity from west facing systems was used in the home, with only 25% sent back to the grid (see charts.)

Because they help more to reduce peak load, and put less strain on electricity distribution systems, west-facing PV systems may have more value to the grid than do south-facing systems, despite producing less total energy over the course of a year.


More solar arrays should be pointed west, but not because they produce more power that way.  They should be pointed west because, in many cases, the power they produce is more valuable.  Utilities and governments should structure their incentives accordingly.

McCracken told me that some of the utilities in his area don’t even offer incentives for west facing solar arrays because “they don’t produce enough energy.”  Those utilities are just as confused as the media lemmings who think you get more energy by pointing solar panels west.

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

December 02, 2013

Solar Christmas: Coal for LDK, JV for Trina

Doug Young 

Warren Christmas.jpg
Photo by Tom Konrad

I thought I’d get into the Christmas spirit in this first work day after Thanksgiving in the US, so let’s take a look at what solar panel makers LDK (NYSE: LDK) and Trina (NYSE: TSL) are getting in their holiday stockings with the latest company news reports. It seems the struggling LDK won’t be getting much, with word that a Chinese court has added further delays to a case where it is owed $40 million in a business dispute with rival Canadian Solar (Nasdaq: CSIQ). The news looks a bit better for Trina, whose Christmas stocking is filled with another smaller solar company that it is acquiring as the industry consolidates.

Let’s start with LDK, which I previously said is in real danger of being forced into bankruptcy next week when a deadline will come for it to reach agreement with bondholders who are waiting for an interest payment that was due in August. (previous post) Now Canadian Solar has announced that a court has agreed to a new hearing in a dispute between itself and LDK that was ruled in LDK’s favor last year. (company announcement)

The dispute centers on Canadian Solar’s termination of an agreement to buy materials from LDK after the industry entered its current downturn. An arbitrator ruled a year ago that Canadian Solar owed LDK about 250 million yuan ($40 million) as a result of the contract termination. A court in Canadian Solar’s home province of Jiangsu refused LDK’s request to force Canadian Solar to pay the award in May, but now a higher court is ordering that case be re-heard.

It’s hard to comment too definitively in this matter without knowing more detail; but at least some level of local politics seems to be involved in this case. Chinese courts often favor companies in their home areas, reflecting the high degree of politic influence in China’s judiciary. Thus I wouldn’t be surprised if the court’s May decision to refuse to enforce the $40 million award for LDK came after Canadian Solar applied pressure on the judicial system through its local political connections. So perhaps this latest decision by a higher court represents a slightly positive development for LDK.

But whatever the case, the most obvious outcome in all this is that LDK won’t be getting its $40 million anytime soon, if it ever gets it at all. That’s quite a negative piece of news, as LDK was probably hoping to collect the funds sooner rather than later to help it through its financial difficulties. LDK shares didn’t react much to the news in light trade after Thanksgiving, but I suspect the stock could come under pressure as people return to work this week.

Meantime, let’s take a quick look at the news from Trina, which has announced it is forming a joint venture with smaller player Yabang Group. (company announcement) The joint venture’s main production assets will consist of Changzhou NESL Solartech, a Yabang unit that makes solar modules. Trina will hold 51 percent of the venture, which has a modest investment of $45 million and production capacity of 500 megawatts of solar modules.

Anyone reading between the lines will see that this is simply a case of Trina buying out Yabang’s assets, as part of a much needed broader industry consolidation. PC maker Lenovo (HKEx: 992) formed a similar joint venture with Japan’s NEC (Tokyo: 6701) in 2011, allowing the former to take over the latter’s PC assets. The news looks positive for Trina, indicating it will become one of the main consolidators in the ongoing overhaul of China’s solar panel sector. Look for more similar deals in 2014, as the sector slowly rebounds and the strongest players return to profitability after 2 years of losses.

Bottom line: LDK won’t be able to collect $40 million owed by Canadian Solar for at least 6 months, while Trina’s new joint venture indicates it will be a consolidator in the China’s solar sector overhaul.

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.

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