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January 31, 2014

LSB Industries And Activist Fund Position Themselves For Board Election

Tom Konrad CFA
Disclosure: I am short LXU $30 puts – an effective long position.

LSB logoWhen four non-independent board members of a company resign shortly after that company receives a letter from an activist hedge fund seeking changes to the board, we can be forgiven for thinking that the fund is getting what it wants.  That’s not what seems to be happening at chemicals and climate control conglomerate  LSB Industries, Inc. (NYSE:LXU). Disclosure: I am short LXU $30 puts – an effective long position.

On December 30th, hedge fund Engine Capital, LP. published an open letter to LSB’s board, requesting the appointment of new, independent board members with industry expertise, and that several current directors resign to make room, and possibly to decrease the size of the board, which it considers large for a company this size.

If the company did not promptly achieve “significant progress,” the Engine Capital stated that it was “fully prepared  to nominate five directors by the January 23, 2014, deadline.”

Three, Not Five

That’s where the resignations come in.  In conjunction with the resignations, the board amended the company’s bylaws to “reduce the maximum number of members of the Board of Directors from 14 to 10 directors.”  Rather than opening up the vacated board seats for independent directors, the positions were eliminated.  Now, only three board seats will be up for election in 2014, down from five, and only two (down from four) will be available in 2015.

The percentage of board seats currently available fell only slightly, from 36% to 33%, due to the smaller board but that statistic does not reflect the true impact of the board’s moves.  While the resigning directors were non-independent as the SEC defines the term, few have the qualities which would lead us to expect that they will act independently of the Golsen family, which includes Jack Golsen, the company’s Chairman and CEO, and Barry Golsen, the company’s President, COO, and a continuing board member.  Jack Golsen’s current board term expires in 2016, while Barry Golsen’s expires in 2015.  Of the other continuing board members, most are over 60 years old, and most have served on the board with the Golsens for over 20 years, with many having served since 1969 or 1971.

The fact remains that the board will be able to claim that if the remaining three directors are nominated for re-election, they will be “independent” under SEC rules.  They are Mr. Robert Henry, Donald W. Munson, and Ronald V. Perry.  Mr Henry was appointed to the Board in 2013.  He is the President and CEO of Oklahoma City University, and fills a vacancy left by the resignation of a previous director (now deceased) due to ill health.  (Note: A previous version of this story incorrectly identified the previous director, Bernard Ille, as the probable nominee.)  Mr. Perry is a 63 year old travel executive, and is also a relatively fresh face on the board, having served only two terms starting in 2007.

Mr. Munson is 81 years old, and first become a director in 1997.  Munson was singled out in Engine Capital’s letter as the only director with relevant climate-control industry experience, although even this is not recent.  He was an executive at Lennox (NYSE:LII) and Trane, a division of Ingersoll-Rand (NYSE:IR), but he retired 22 years ago.

While it seems unlikely that that these three directors bring significant value or independent thinking to LSB’s board, they still qualify as “independent” under New York Stock Exchange rules.  This is likely to make them somewhat harder to defeat in proxy voting than the resigning directors: Steven Golsen and Tony Shelby are both employees of the company, and so clearly not independent even by NYSE rules.  Steven Golsen is the COO of the Company’s climate control business, while Mr. Shelby is the company’s CFO.  Not only are they not independent, but, as employees, the board has access to their knowledge and expertise whenever it chooses to ask for it.

No Real Change 

One of Engine Capital’s critiques of management was over-promising and under-delivering when it comes to fixing operational problems.  It gave the example of LSB’s Pryor facility,  and quoted management saying:

“We expect to resume production [of the Pryor facility] during early in March. It takes a few days for warming up the catalyst when we start production,” and “…but as far as Pryor is concerned, they are all hooked up and ready to go, they are warming up the catalyst now.” Despite these comments, the Pryor facility was not started up until late April. In October 2013, the Pryor facility again was taken offline. The Company disclosed the issue only the following month during the 2013 Q3 earning call on November 6, 2013. During that call, management stated, “We expect to have the facility back in operation during November.” On December 3, 2013, management issued a press release stating that the plant was now anticipated to start up in December. It is now December 30, 2013, and shareholders have still not heard about the Pryor facility resuming production.

In the company’s response to the letter, the company noted that it had resumed production at Pryor, but that resumption turned out to be premature, and the unit was taken down again on January 8th.

I made two attempts to contact Engine Capital’s managing partner, Arnaud Ajdler, for comment, but have not yet received a response, possibly because of the Martin Luther King holiday.

LSB's Response

Shortly after the above was written, LSB published an open letter to shareholders countering the arguments of Engine Capital’s December 30th letter.  It argued two main points:

  1. The board had already considered the proposals outlined by Engine Capital with its advisers, and found them less likely to benefit shareholders than the plan in place.  
  2. The 19% ownership stake (including convertible preferred stock) of the board and management closely aligned their interests with shareholders.

Few shareholders have the resources or expertise to evaluate which plan is more likely to produce more value for shareholders, and planning company strategy is the board’s job.  With three board positions likely to be contested at LSB’s annual general meeting, the relevant question for share holders is: Which candidates are most able to set company strategy and oversee management to protect our interests?

Board or Just Bored?

The current directors do not seem to have the qualities which would lead them to act independently.  The board Chairman and company CEO are the same person, Jack Golsen.  He has served in these capacities since he founded the company in 1969.  The combination of Board Chair and CEO roles is always questionable, as the role of the board is to oversee and provide strategic guidance to management, led by the CEO.  It takes incredible objectivity to oversee oneself effectively.

When a Chairman/CEO is also a company’s founder and has led the firm for 45 years, I find it hard to see how he could muster this objectivity.   The fact that other members of his family also hold so many leadership roles in the company would make the task of emotional separation even more difficult.

A strong and independent board can potentially provide objectivity if it is lacking in a founder/Chairman/CEO.  Unfortunately this does not seem to describe the current board or the three members up for election this year.  They are Ronald V. Perry, Robert Henry, and Donald W. Munson.  Mr. Perry is 63 and the head of a travel firm.  Mr. Munson is an 81 year old retired executive from Lennox, and Mr. Henry is the 60 year old president and CEO of Oklahoma City University (OCU).

Mr. Henry was appointed to the board in November 14th, 2013 to fill a vacancy left by the resignation due to ill health of an 86 year old former director who had served since 1971.

From Mr. Henry’s biography, he seems to be a leading member of Oklahoma City society, and he likely moves in the same circles as the Golsens, who are donors to OCU.  As a former Attorney General of Oklahoma and US Appeals court judge, he seems likely to be able to exercise independent judgement despite any personal relationship with the Golsens and their charitable donations to his employer.   Nevertheless, his appointment begs the question as to why the board did not appoint someone who had both industry expertise and independence?

Given the timing of the appointment, it seems likely that Engine Capital was already in discussions with LSB at the time.  The fund highlighted the lack of board industry expertise in its letter.

With this track record, even after the resignation of four non-independent directors, it’s difficult to imagine board providing useful perspective or objective oversight of management.

Alignment of Interests

Lack expertise or objective oversight might not be a problem if the Golsen family’s 19% ownership stake aligned their interests with shareholders’, as the company’s letter claims.  But the family also has an interest in their salaries, which totaled $2.7 million for Jack, Barry, and Steven Golsen in 2012.

More importantly, the incentives for owners of preferred stock and common stock are not the same.  All of the company’s preferred stock is owned or controlled by members of the Golsen family, which, unlike the common stock, pays a dividend.  As part of the same SEC filing announcing the board resignations, the company declared $300,000 in preferred dividends payable to the Golsen family.  Common shareholders have never received a dividend.

The fact that preferred stock is entitled to dividends before common stock (that’s what makes it “preferred”) means that owners of preferred stock have more protection from poor company performance.  They also have a Preferred Share Rights Plan which could allow the Golsen family to acquire a large number of common shares at no cost in the event of a takeover attempt.  This Plan seems only to protect preferred rights holders from loss of control, not to align their interests with common shareholders.


With the resignation of four non-independent directors and reduction in the size of LSB’s board, the company has managed to appear to be making a step towards reform while making it harder for the activist fund to gain influence.  Gaining influence in a tightly controlled family firm is never easy.  It looks like the task  just got significantly harder for Engine Capital in its quest to unlock shareholder value at LSB.

LSB’s board claims that it has evaluated Engine Capital’s suggestions and found them wanting.  It also claims that its members are independent of the Golsen family, and that the family’s interests are aligned with common shareholders.

As outside shareholders, we do not have the information, and likely lack the expertise to set the firm’s strategy.  That is why we hire the board to oversee management and provide or hire expertise to set strategy and oversee management.  The board, as it currently stands, does not seem to have the independence to go against the wishes of the Golsen family, or the expertise to know when it should do so.

I would feel more comfortable that the board was making the right decisions if its members seemed independent and had relevant expertise. I’m hoping Engine Capital’s nominees will be better on both counts.

This article was first published in two parts on the author's Forbes.com blog, Green Stocks on January 21st.

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.

January 30, 2014

The Proof in Ceres' Pudding

by Debra Fiakas CFA

Cereslgo[1].jpgJudging by stock prices, investors have decided Ceres, Inc. (CERE:  Nasdaq) is the favorite horse in the cellulosic ethanol race  -  at least among those that have publicly traded stocks.  Ceres develops and sells sorghum, switch grass and miscanthus seeds to feedstock growers that supply cellulosic ethanol mills. The stock is selling for a buck and change, which is far more impressive that the stocks of most companies that could be included in the “cellulosic biofuel” sector.

Ceres announced fiscal second quarter 2014 results at the beginning of this month.  The company cited sorghum plantings this season for forty-nine customers in Brazil.  That sounds impressive, but most of the plantings are for sampling and testing so that mills can evaluate potential yield.  It is not like Ceres has not been testing its sorghum.  The company used a grant from the Department of Energy to test various plant traits.  Ceres has done so well with its plant trait development it was able to get a U.S. patent for a sorghum-derived gene promoter.

Ceres reported $4.0 million in total sales over the last twelve months.  Profits are still on management’s wish list.  The company is still using cash to support operations  -  $5.7 million in the November 2013 quarter.  The good news is that the cash burn rate has been brought down to from a run rate near $28 million in fiscal year 2013 to $23 million per year.   Management has undertaken some cost cutting measures that appear to be yielding results.

The proof is always in the pudding.  For Ceres the pudding is in forty-nine sorghum field trials in Brazil.  Orders from any one of those Brazil mills is a solid endorsement for Ceres and provides a compelling support for the value of the company’s new patent.
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.

January 29, 2014

EBODF Owns Over $22 Per Share Of Solar Developer Goldpoly,Trades Under $7

by Shawn Kravetz

In ten years of solar investing, we have never encountered an opportunity as obscure and potentially lucrative as Renewable Energy Trade Board Corporation (OTCPK:EBODF).  Disclosure: I am long EBODF.

Before walking through the long thesis, we must caution potential investors that EBODF "went dark" with the SEC in March 2013. However, we have conducted rigorous due diligence on the ground in Asia and through the Hong Kong Stock Exchange filings of Goldpoly New Energy Holdings (0686.HK) - EBODF's sister company sharing the same parent/leading shareholder - China Merchants New Energy Group (part of massive Chinese State-Owned-Enterprise China Merchants Group). Further reinforcing our view, EBODF engaged in several publicly disclosed transactions in December 2013 (http://tinyurl.com/q5z58lp and http://tinyurl.com/klrjtg8). Given its tremendous unappreciated value and recent activities, we suspect EBODF will not remain "dark" for much longer.

So what excites us about an anonymous, tiny solar company?

  • Simply stated, EBODF owns a sizeable stake in its sister company Goldpoly New Energy Holdings - the premier, Chinese solar independent power producer (IPP) listed in Hong Kong with a $1.3B market capitalization
  • Those shares of 686 HK alone are worth ~4.0X EBODF's current market capitalization or ~$22 per share
  • While we believe that several other intriguing catalysts/options could drive EBODF to even greater heights, we believe that the 686 HK position alone holds tremendous value not reflected in EBODF's share price.

Goldpoly (0686.HK)

US investors covet exposure to downstream solar economics as evidenced by oversubscribed capital raises from US-listed, downstream solar companies in the past few months:

  1. Jinko Solar (JKS) just raised ~$260M in January 2014 by marketing the deal as a means to gain exposure to Chinese downstream projects
  2. SunEdison (SUNE) raised $1.2B through 2 convertible bonds in December 2013 to finance 2014 downstream solar plans
  3. SolarCity (SCTY) raised ~$400M in October 2013 to finance its rapidly growing downstream business

While US investors have flocked to companies offering exposure to downstream solar projects, they likely have gazed right past the best positioned downstream solar opportunity, Goldpoly. We believe that owning EBODF offers a massively discounted method to invest in Goldpoly shares.

Goldpoly is the leading solar power plant investor and operator in China and one of the largest in the world

  • Whereas SolarCity manages ~460 megawatts (MW) of solar projects, Goldpoly operates ~530 megawatts of grid-connected solar projects in China
  • In addition, Goldpoly has ensured years of future growth having harvested a robust 7 gigawatts (GW) project pipeline through strategic alliances with powerful state-owned enterprises like State Grid Corporation (controls China's electric network) and China Guodian (massive Chinese power company) as well as major solar players like GCL (3800.HK), Yingli (YGE), and Zhongli Talesun Solar (002309 CH)
  • Unlike its US-listed peers, Goldpoly enjoys strong sponsorship from its leading shareholder and state-owned enterprise China Merchants Group
  • Despite an operating portfolio and pipeline that every US-listed solar company would envy coupled with a unique platform and strategic alliances, Goldpoly trades a steep discount to its US-listed peers
  • While downstream solar models differ from company to company, we think a simple comparison between Goldpoly and its US-listed peers reveals this discrepancy:

686 HK Valuation.png

686 HK Portfolio.png

We believe this discount will evaporate as Goldpoly continues to deliver on its lucrative pipeline and is recognized as the leading global, solar downstream player. However, rather than wait for that discount to fade, we prefer to exploit this arbitrage opportunity and express our view on Goldpoly through EBODF today.

EBODF Stake in Goldpoly (686 HK)

  • EBODF acquired its stake in Goldpoly through a series of transactions involving the sale of various assets in exchange for 686 HK shares back in May and November 2012
  • As a result of these transactions, EBODF beneficially owns ~42.2M shares of Goldpoly and another ~160M underlying shares from an in-the-money convertible bond
    • EBODF also may have received another 23M shares of Goldpoly in consideration for some other asset sales, but Goldpoly's most recent filings cannot verify these incremental shares
      • As such, we do not include these 23M shares worth ~40-50% of EBODF's current market cap in our valuation of EBODF
    • Details of the transactions available here (pages 17-18)
  • Interestingly, EBODF acquired another 1M shares on the open market on December 9, 2013 - EBODF's first acquisition of Goldpoly shares since 2012
  • To further buttress our view, Goldpoly's Hong Kong Stock Exchange filings and further validated that EBODF still retains their Goldpoly stake via a November 2013 proxy statement (pages 34-35)

686 HK Ownership Structure_11.2013 Proxy.png 686 HK Ownership Structure EBODF Footnote_11.2013

Confident that EBODF still owns a major stake in Goldpoly, we value that stake at nearly $50M or ~$22 per share. This valuation EXCLUDES the incremental but unverifiable 23M shares of Goldpoly noted above which are worth ~$2.25 per share.

EBODF Valuation of 686 HK Stake.png

Since EBODF has not filed a balance sheet since the June 30, 2012 period, we EXCLUDE the $5/share in net cash & equivalents reported for that period. For conservatism, we ascribe no value to the non-Goldpoly net assets which totaled $2.64 per share as of last filing. However, including these items leads to a valuation closer to $30 per share for EBODF.

Free Options/Catalysts

Our diligence also suggests that EBODF may be pursuing a truly unique downstream solar strategy to complement 686 HK which entails:

  1. Acquiring distressed and underperforming Chinese solar projects and re-selling the rehabilitated assets (likely to 686 HK on a right of first refusal basis)
  2. Brokering solar project transactions - connecting buyers and sellers for a fee
  3. Arranging financing/structuring such as sale-leasebacks and collateralized loans for solar projects

Finally, we hypothesize that the leading shareholder of 686 HK and EBODF, China Merchants New Energy Group, may be taking notice of US investors' insatiable appetite for downstream solar exposure as noted above and could seek to capitalize through its US-listed entity - EBODF. In December 2013, EBODF co-invested in a sizeable solar project with 686 HK, and while we admit no special insight on this topic, we find the timing peculiar given the capital market activities by other downstream players. We speculate that China Merchants could transform EBODF into a US-listed version of HK-listed Goldpoly thereby unleashing the first US-listed, Chinese solar yield vehicle offering US investors' exposure to downstream solar economics in China.

We ascribe no value to either option above; however, should either of these scenarios materialize, we believe EBODF is worth many multiples of the 686 HK stake.


With a $22-$30 per share of conservative intrinsic value plus the free option of a potential first mover, US-listed solar yield generating vehicle, we believe EBODF will quickly emerge from the dark.

Shawn Kravetz 2013 crop.jpg Shawn W. Kravetz is President of Esplanade Capital LLC, a Boston-based investment management company.   Esplanade Capital manages two private investment partnerships.   Esplanade Capital Partners I LLC, launched in 2000, is focused on a handful of sectors, including: retail, consumer products, casino gaming, business services, education, and solar power.   Esplanade Capital Electron Partners LP, launched in 2009, intends to be the world’s premier private investment fund dedicated to public securities in solar energy and those sectors impacted by its emergence.  

January 28, 2014

Tesla Could Sell 8,000 EVs in China in 2014

Doug Young

Tesla Logo
Tesla sets ambitious China targets

US electric car maker Tesla (Nasdaq: TSLA) is setting some tough goals for itself during its first year in China, aiming to take advantage of government incentives and its high-end brand image to quickly take a big share of the market. I did a little math based on the company’s latest remarks, and its ambitious target for this year would represent around three-quarters of all electric vehicles sold in China in 2012. If it really can meet the new target, I suspect the company’s biggest strength will be its position as a luxury brand, since most people who buy EVs in China will probably do so more for the snob factor than due to any incentives from Beijing or desire to save the environment.

Tesla was in the China headlines late last year and again in January due to a trademark dispute after a local company registered the Chinese version of its name. (previous post) But Tesla’s China chief said the dispute has been resolved, which should pave the way for it to offer its cars under both its Chinese and English names. (English article) The trademark squatter had reportedly wanted up to $30 million for the Chinese name, though Tesla declined to give any terms of the settlement.

With that distraction behind it, Tesla’s new China chief has laid out a roadmap that would have China contributing one-third of the company’s sales growth this year. Tesla sold about 24,000 cars last year and aims to double the figure this year, presumably meaning this year’s growth should also be about 24,000 cars. If China contributes a third of that, then the company would have to sell about 8,000 cars in the market this year. It would do that by opening about a dozen sales outlets in China during the year, including its recently-opened flagship store in Beijing.

That looks like quite a tall order for a market where all electric car sales totaled just 11,375 vehicles in 2012, and the number was on track to reach that level again in 2013. Tesla’s cars aren’t cheap either. The company has announced its EVs will sell for 734,000 yuan ($121,300) each in China, or about 50 percent higher than what they sell for in the US. That price tag is considerably higher than most models currently in the market, which come mostly from domestic names like BYD (HKEx: 1211; Shenzhen: 002594; OTC:BYDDY), Chery and BAIC.

Beijing last year announced new incentives to try and sell more electric cars, giving buyers around $10,000 in subsidies for each car. But price is just one of the obstacles preventing such cars from gaining traction in the market. Other big factors have been the availability of charging stations, and reliability due to the inexperience of Chinese car makers. Beijing has set out a goal of having 500,000 EVs and hybrid vehicles on its roads by 2015, and 5 million by 2020. Much of that could come from pilot programs by local governments, which have better resources to build up taxi and bus fleets comprised of electric, hybrid and other clean energy vehicles.

So, why do I think that Tesla may actually meet its ambitious sales target in China this year? If we take a look at all the major obstacles I mentioned, none of them really applies to Tesla. The company’s cars already enjoy a reputation for good quality and reliability, and anyone who can afford one can probably find ways to charge it without too much difficulty. Perhaps most important is the snob factor that I mentioned at the outset. Newly rich Chinese are always looking for ways to show off their wealth, and buying a trendy and prestigious Tesla could be just the way to achieve that goal. In that light, Tesla’s goal of selling 8,000 EVs in China this year doesn’t really look so impossible.

Bottom line: Tesla could stand a good chance of meeting its goal of selling 8,000 EVs in China this year, drawing on its reliable products and high-end image among brand-conscious Chinese.

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.

January 27, 2014

US-China Solar Wars Enter Second Round

Doug Young

Trade War
Trade War. photo via Bigstock

Just days after China finalized anti-dumping tariffs on US makers of polysilicon, the main ingredient used to make solar panels, the US has announced it is opening a new anti-dumping investigation into solar panels imported from China. The close timing of this latest round of developments in a solar trade dispute between the US and China may look worrisome on the surface, especially if they had come a year ago. But in this case the solar signals seem less confrontational to me, as both Washington and Beijing finally realize the sector is too important for the world’s energy security to jeopardize with more trade wars.

All that said, it’s still important to look at these 2 latest solar signs and what they might mean. To quickly recap, the dispute began about 2 years ago when the US accused China of providing unfair state support to its solar panel makers, and ultimately imposed anti-dumping duties on Chinese-made products last year. China retaliated by opening its own anti-dumping investigation into US-manufactured polysilicon, the main ingredient used to make solar panels. All of this was happening as the sector underwent a major downturn that is only now beginning to ease.

Against that backdrop, China announced this week it would impose punitive anti-dumping tarrifs against US-manufactured polysilicon, finalizing an earlier decision and bringing its investigation to close. (English article) The duties were rather high, ranging from 53 to 57 percent, and will undoubtedly price many US makers out of the market. But the move was largely expected and didn’t contain any major surprises, after the US levied its tariffs on Chinese-made panels last year.

Meantime, a newly announced investigation by the US seeks to close a loophole in the first round of anti-dumping tariffs imposed last year. That loophole allowed Chinese companies to avoid the US tariffs if other countries supplied them with solar cells, the central component used to make finished solar panels. The US arm of German panel maker SolarWorld (SRWRF) said earlier this month it was petitioning Washington to close the loophole (previous post), and now the US Department of Commerce and International Trade Commission (ITC) have said they are launching a new investigation. (English article)

The ITC will announce its findings by February 14. If it determines that the Chinese companies are still receiving unfair state report, the Commerce Department could issue preliminary decisions on the matter in March and June this year. A new round of tariffs would deal a blow not only to the Chinese manufacturers, but also to Taiwanese companies that have become one of the main suppliers of solar cells being used in the finished Chinese panels to avoid US tariffs.

So, why am I cautiously hopeful that this latest investigation won’t be as contentious as previous ones? Most importantly, I have to believe that the ITC and Department of Commerce knew about this loophole when they made their initial decision last year. Thus they must have felt at the time that panels made with cells from Taiwan and other countries weren’t receiving unfair support from Beijing.

Secondarily, I also believe that Washington may be tiring of this current trade war with Beijing, especially as both sides realize the importance of solar power to their future energy security. China has recently embarked on its own major campaign to build up its solar power sector, and the US has been trying to boost solar power now for several years. A continuation of this trade dispute won’t benefit either side, and would probably hurt the chances of western solar panel makers to win big contracts in the Chinese solar build-up. Accordingly, I’m cautiously hopeful that the ITC will return a negative finding next month in this latest investigation, which would send a positive signal that Washington wants to quietly end this ongoing solar spat.

Bottom line: A negative finding by the US in its latest anti-dumping investigation into Chinese solar panels would help to bring its clash with Beijing to a close and promote development of the important sector.

Doug Young has lived and worked in China for 15 years, much of that as a journalist for Reuters writing about Chinese companies. He currently lives in Shanghai where he teaches financial journalism at Fudan University. He writes daily on his blog, Young´s China Business Blog, commenting on the latest developments at Chinese companies listed in the US, China and Hong Kong. He is also author of a new book about the media in China, The Party Line: How The Media Dictates Public Opinion in Modern China.

January 26, 2014

Are Air Source Heat Pumps A Threat To Geothermal Heat Pump Suppliers?

Tom Konrad CFA

heat exchangers.jpg Last year, geothermal heat pump (GHP) manufacturers introduced new heat pumps with break-through efficiency based on variable-speed compressor technology.  These manufacturers include Waterfurnace Renewable Energy  (TSX:WFI, OTC:WFIFF) and ClimateMaster, a division of LSB Industries (NYSE:LXU).

Air Source and Ground Source

Variable speed compressor technology was not restricted to geothermal heat pumps (also known as ground source heat pumps or geoexchange): It had first found its way into what are often considered ground source’s poor cousins: air source heat pumps (ASHP).

Both types of heat pumps use a refrigeration cycle to draw heat from the outside in winter to heat a building, and pull heat from the inside to cool it in summer.  GHPs use large loops of buried tubing to exchange heat with the ground, while ASHPs use an above-ground fan and heat exchanger assembly similar to the evaporator on a traditional whole house air conditioner (see photo.)

Heating performance of a variable speed air-source heat pump (in this case Mitsubishi hyper-heat) compared to traditional models. Source: Mitsubishi

Before the advent of variable speed compressor technology, air source heat pumps were only suitable in mild climates because heating performance fell off rapidly at temperatures below 40°F (see chart), while the near constant temperature of the earth allowed GHPs to operate efficiently in any climate.  Now, the most efficient ASHP models only begin to lose significant heating efficiency at 25°F and still maintain significant heating capacity at 0°F, a change which has made them practical in most of the United States.

With variable speed technology, these units are now suitable for heating climates where the temperature occasionally falls below 0°F, although they may require some form of back up heat.  The improved technology has meanwhile made the efficiency of the best air source heat pumps equivalent to that of many GHPs, especially when used in less extreme climates.   Although even the best ASHPs are still much less efficient than the best GHPs, the cost savings from dispensing with the ground loop and (in some cases) air ducts mean that ASHPs are an economic option in many cases where GHPs or conventional heating were previously the only viable options.

Air Source Heat Pumps In Practice

In a recent article, Marc Rosenbaum, director of engineering at South Mountain Company on Martha’s Vineyard in Massachusetts, says that nearly every building he has worked on for the last several years has used ASHPs almost exclusively.

There are caveats, of course.  Rosenbaum works exclusively on very high performance, super-insulated buildings.  He also teaches a course on designing net-zero energy buildings.  And even with super-insulation, he uses other heat sources in larger buildings.

I’m in the process of my own retrofit of a 1930 farmhouse which I bought two years ago.   I’ve spray-foamed the basement and attic as well as improved the overall building envelope with air sealing, and expect to continue to make envelope improvements going forward.  I was able to have four Mitsubishi ASHPs installed in the most important rooms without having to give up interior space for ducting.   This cost me about $12,000 after utility and tax rebates and is saving me about $1,000 to $2,000 in annual energy costs.  A comparable GHP system would have saved me $2,000 to $3,000 annually, but would have cost about $30,000 after utility and tax rebates.  The extra $1,000 annual savings did not seem to me to justify the extra $20,000 in cost, given that I expect to sell in less than ten years, and both systems significantly boosted the home’s value by adding air conditioning.

Alternative Energy Specialist Scott Lankhorst of Advanced Radiant Design in Stone Ridge, New York, says that he does not see ASHPs and GHPs as direct competitors.  GHPs are “typically only installed on homes of a minimum square footage, with multiple rooms that need direct heat delivery.”  This agrees with Rosenbaum’s finding that “Compact superinsulated homes in [many] climates… can often be heated with a single zone unit… in the main space. As long as the doors to other rooms remain open, the temperatures in those rooms will usually be within 2°F of the [main space].”

Air Source Heat Pump Suppliers 

Total Connect Comfort app
The Honeywell smartphone app for controlling my four Mitsubishi ASHPs and oil-fired boiler.

Lankhorst says that the most efficient air source units are from Mitsubishi (OTC:MSBHY) and Fujitsu .  The latter are easier to install, but the Mitsubishi systems can work with a Honeywell (NYSE:HON) wireless programmable thermostat.  This can be accessed via the web or mobile devices, which is useful in a building with multiple units.  After discovering the limited programability of the factory controller for my Mitsubishi units, I installed the Honeywell thermostats in addition to a thermostat for my boiler which I now control them all through the same interface.


While variable speed air source heat pumps can be competitive with geothermal heat pumps in retrofit situations and smaller, better insulated buildings and less extreme climates, GHPs remain the most efficient way to heat and cool a building.

If super-insulated, small buildings ever become the standard way to build a home, geothermal heat pump manufacturers such as Waterfurnace and LSB may have something to fear from air source heat pumps.  Fortunately for GHP manufacturers, but unfortunately for the rest of us, that day is still a long way off.


This article was first published on the author's Green Stocks blog on Forbes.com on January 14th.

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.

January 25, 2014

SolarCity's Brilliant Marketing Plan

By Jeff Siegel


SolarCity truck Well here's a sweet marketing plan. . .

In an effort to get to homeowners before they actually buy their homes, SolarCity is working with homebuilders in Oregon to offer solar to potential buyers.

Essentially, SolarCity (NASDAQ:SCTY) will be giving future homeowners the opportunity to save on their energy bills from day one without paying a single penny more for their homes. Brilliant!

SolarCity reps commented on the new plan, stating. . .

Solar power delivers distinct benefits for homebuilders and homebuyers. While many upgrades and additions to homes such as granite countertops can greatly increase the purchase price of a home, SolarCity’s solar power options can allow homeowners to start saving money on energy costs immediately without increasing their purchase price. SolarCity allows the homebuyer to install solar panels for free, and pay less for solar electricity than they pay for utility bills.

For homebuilders, solar options represent an enticing (and eco-friendly) way to attract potential buyers to their new communities and homes. In fact, about 92 percent of Americans think that the United States should develop and use more solar energy. SolarCity’s solar power options do not increase construction costs for the homebuilder.

SCTY has sold off a bit since that recent upgrade from Deutsche Bank. Fortunately, I picked up more shares before that announcement. If the stock sells off further, falling below $69, I may grab additional shares.

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


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

January 24, 2014

Why SolarCity is the New Solar King

And Why I Just Got Back Into This Stock

By Jeff Siegel


I'm not sure how many people realize it just yet, but something very big happened last year in the world of solar.

A small start-up called Mosaic came onto the scene offering New York and California residents the opportunity to invest in solar projects. These investments offered a 4.5% annual return, net of servicing fees, with terms of about nine years.

This is basically a crowdfunding opportunity for those looking to invest in small solar projects.

It's a pretty simple model, actually.

You see, Mosaic connects investors to solar projects that need financing. The projects generate revenue by selling the power to the customer, and that revenue is used to pay back investors — with interest.

The company has been very successful since its launch, and it often sells out its offerings within days.

Overall, the model is very attractive, as it marries the demand for solar with the funding necessary to meet that demand — although with Mosaic, the operation is still quite small.

Still, after discovering the Mosaic model, I knew it wouldn't be long before a similar model was adopted by a much larger operation — one with deeper pockets and the type of management that's known for turning pipe dreams into profitable realities...

Premature Calculations

These days, the name Elon Musk is synonymous with Tesla (NASDAQ: TSLA).

As co-founder and CEO of the electric car darling of Wall Street, Musk completely changed the entire landscape of electric car opportunities, showing the world that a new revolution in vehicle design was not only here but was very, very profitable.

As a result, anything Musk attaches his name to tends to garner a lot of attention. In fact, I would argue it's one of the reasons SolarCity (NASDAQ: SCTY) got so much love following its IPO back in December of 2012.

That company is actually run by Musk's cousin, and Musk himself serves as Chairman.

Now, I actually invested in this company shortly after it went public, and I did quite well. In fact, it was one of my most profitable picks in 2013.

However, not wanting to risk the impressive gains I had realized in such a short amount of time, I sold my shares and pocketed my winnings.

I acted too soon!

A Major Coup

Last week, SolarCity announced it's going to launch a new, web-based investment platform through which it will allow individual investors and organizations of all sizes to participate directly in solar investments that have previously only been available to financial institutions.

The project is similar to what Mosaic does; however, unlike Mosaic, the investments won't be tied to specific projects.

Now as I mentioned, Mosaic has been incredibly successful since it first debuted, raising nearly $6 million on less than 20 projects made available to the public. The yields on these investments range from 4.4% to more than 6%. That's pretty good, although I suspect SolarCity may be able to up the ante.

Here's the bottom line...

SolarCity is going to be the first major solar financing company to offer both solar financing deals to individuals and the opportunity for individual investors to get a piece of this action. With solar installations continuing to boom across the nation, this is a unique opportunity for investors and an incredibly profitable one for SolarCity.

As it is, the company has no problem raising money. In fact, a few years ago, after the company lost its federal loan guarantee, Bank of America swooped in almost instantly with $350 million so the company could complete a 300-megawatt deal it inked with the U.S. military. Since then, it has raised ridiculous amounts of capital with some pretty decent terms.

Now, add what I believe will be an avalanche of capital from individuals who want to invest in clean energy or simply want to make a less-risky investment in solar. At the end of the day, SolarCity is going to be able to raise hundreds of millions of dollars with excellent terms, all while expanding its customer reach beyond those who want to slap solar panels on their roofs.

I'm telling you right now, what SolarCity has just done is a major coup. It will go down as one of the most disruptive events to ever shake the solar market. And I'm definitely going to be a part of it.

Although I collected my winnings from SolarCity last year, I bought more after the announcement last week. There's just no way I'm sitting on the sidelines while it goes through the process of becoming what I believe will be one day prove to be one of the most profitable companies in the United States.

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


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

January 23, 2014

Renewable Energy Group Acquires LS9

Jim Lane

A stunner at NBB. Renewable Energy Group (REGI) deploys its balance sheet — and takes aim at renewable chemicals — as it acquires the storied LS9.

In Iowa, Renewable Energy Group (REGI) announced it has acquired LS9 for a purchase price of up to $61.5 million, consisting of up front and earnout payments, in stock and cash. Most of the LS9 team, including the entire R&D leadership group, will join the newly named REG Life Sciences, LLC, which will operate out of LS9’s headquarters in South San Francisco, CA.

Under the terms of the agreement between REG and LS9, REG paid $15.3 million in cash and issued 2.2 million shares of REG common stock (valued at approximately $24.7 million based on a trading average for REG stock) at closing. In addition, REG may pay up to $21.5 million in cash and/or shares of REG common stock consideration for achievement of certain milestones over the next five years related to the development and commercialization of products from LS9’s technology.

The technology

LS9’s proprietary technologies harness the efficiency of the fatty acid metabolic pathway of microorganisms and are expected to make a wide range of renewable chemicals for large, diverse markets such as detergents and personal care, as well as renewable fuels. LS9’s technology platform can utilize diverse feedstocks including conventional corn and cane sugars, low-cost crude glycerin from biodiesel production, and cellulosic sugars. LS9 is a cornerstone investment for REG Life Sciences, which also plans to develop adjacent and complementary fermentation technologies.

All about LS9 here in our 5-Minute Guide to their technology and story.

Follows the Syntroleum acquisition

Last month, REG announced that it would acquire substantially all of the assets of Syntroleum Corporation (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.

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.”

Restarting in Iowa and Texas

In October, REG was primping up its core biodiesel business in Iowa when it held a ribbon cutting ceremony to formally open their recently acquired biodiesel refinery in Mason City and announced it has begun a $20 million project to upgrade the plant to a multi-feedstock facility. REG completed the acquisition of the former Soy Energy, LLC refinery on July 31, 2013. REG immediately began efforts to repair and re-start the plant and began producing biodiesel on October 1.

And back in July, REG re-opened the former North Texas Bio Energy plant it bought in November. The waste cooking oil and fats biodiesel plant in Western Bowie County can produce 15 million gallons of biodiesel annually.

Reaction from REG and Khosla

“This acquisition is a major step in realizing REG’s strategy to expand into the production of renewable chemicals and other products,” said Daniel J. Oh, Renewable Energy Group President and CEO. “The industrial biotechnology platform and robust patent portfolio LS9 has been building will now be combined with REG’s proven production and commercialization capabilities to accelerate the commercial introduction of renewable chemicals to meet increasing customer demand for sustainable products.”

“LS9 is a leader in developing technology for the next generation of chemicals and fuels to be produced from renewable feedstocks rather than petroleum,” said Vinod Khosla, founding partner of Khosla Ventures, an investor in LS9. “REG’s proven capabilities, track record for execution, and access to lower cost feedstock make it an ideal partner to commercialize LS9’s technology.”

What’s it all mean?

Two takeaways.

1. LS9′s investors bail with a so-so deal. Keep in mind, LS9 raised $75 million in its four public funding rounds. $5M in 2006′s Series A, $15M in a 2007 Series B, $25M in a 2009 Series C that brought in Chevron in addition to Flagship, Khosla and Lightspeed, and $30M in a 2010 Series D that added BlackRock. Not to mention sweeteners given to insiders, and the founder’s stock.

But there’s upside in the REG shares — if the shares double — and LS9′s team hit their milestones — the investors may recoup their investment and more.

2. Renewable diesel and chemicals. That’s what’s hot and that’s where REG is pointing its long-term strategy, as a complement to biodiesel, as it charts its path forward and also puts its strong balance sheet to work.

Is this more about renewable diesel or chemicals? We think the latter, short-term. The Syntroleum acquisition creates the short-term capacity for renewable diesel – LS9′s strengths lie also in areas such as surfactant alcohols — and other designer molecules. And we see REG having the market heft to take this to scale when the technical readiness is there.

The feedstock problem

As with biodiesel, LS9′s technology bumps up against a feedstock problem — it requires reasonably pure sugars, for now. Although Jay Keasling’s lab has done work to expand LS9′s capabilities to waste biomass.

Jim Lane  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.

January 21, 2014

NY Working Hard to Catch Up with CA’s Energy Storage Requirements

Bill Radvak

Battery storage is gaining more and more traction in the distributed energy resources community.  Last fall, California passed the first statewide energy storage directive in the United States. Issued by the California Public Utilities Commission (CPUC), the mandate requires all investor-owned utilities in the state including Southern California Edison, Pacific Gas & Electric and San Diego Gas & Electric, to jointly purchase “1325 megawatts of energy storage” by 2020.

“The proposed targets increase between 30% and 55% every two years, creating economic incentives for multiple players with various technologies to enter the market reports Energy Storage North America in a press release:
  • Utilities will be allowed to employ energy storage for a variety of functions, such as capacity, ancillary services, and peak shaving, which in turn will provide real-world data for further market expansion.
  • Utilities may own some energy storage systems, and will procure at least 50% from independent developers across all segments of the grid via existing procurement processes or “all-source” solicitations starting in 2014.”

California’s PUC is clearly progressive and groundbreaking and sets the stage for other states to emulate.  Next up at the plate as a hot, receptive market for energy storage in North America is New York.   Bill Acker, Executive Director of the New York Battery and Energy Storage Technology Consortium is positioning New York State as a global leader in energy storage technology, including applications in grid storage, transportation and power electronics.

Last summer, Governor Andrew M. Cuomo announced a $23 million public-private investment in the creation of a battery storage test and commercialization center in partnership with NY-BEST which moved state-of-the-art energy storage testing capabilities from Pennsylvania to a facility at the Eastman Business Park in Rochester, New York.  A few months later, the Governor’s office announced that the NOHMs Technologies is locating its pilot nanoscale battery materials manufacturing facility in Rochester and received $1.5 million in funding from the Governor’s Regional Economic Development Councils initiative. 

“The key to powering our economic growth is expanding our energy infrastructure,” said Governor Cuomo at his 2012 State of the State Address.  “We can build a new energy system across our entire State.”  Cuomo spearheaded the New York Energy Highway Blueprint which includes initiatives to modernize New York’s statewide energy system.

In his State of the State speech in Albany this month, the Governor and Vice President Biden championed community based microgrid solutions as part of his “Reimagining New York for a New Reality” initiative which is a $17 billion strategy that will transform the state’s energy supply, infrastructure, emergency management, etc., to protect people from future extreme weather. “Our plan completely transforms the way we build and protect our infrastructure, safeguard our energy supply, prepare our citizens and first responders, and provide fuel and electricity,” said Governor Cuomo. Cuomo’s mandate to launch new projects across the state that both create green jobs and protect New York's natural environment is a critical economic reform in this year’s budget.

 “Community grids protect people, businesses and infrastructure from the devastation of extreme weather and from extended power outages, as were experienced following Superstorm Sandy, Hurricane Irene and Tropical Storm Lee," said Jim Gallagher, Executive Director, New York State Smart Grid Consortium.

In December 2013, the U.S. Department of Energy released a Grid Energy Storage report which examined the challenges and solutions for energy storage technology development and widespread installation.  Ensuring safety and cost sensitive pricing were key issues addressed in this report.  This report clearly signals to me that the U.S. government clearly wants to create a substantial energy storage marketplace and is laying the groundwork to make this a reality.

Bill Radvak_Feb 2012 ABOUT THE AUTHOR:

Bill Radvak is President & CEO of American Vanadium Corp. (TSX-V:AVC, OTC:AVCVF), which is developing America’s only domestic source of vanadium electrolyte.

January 17, 2014

Google's Renewed Cleantech Investment Binge

James Montgomery

google earthday06
Google Doodle for Earth Day 2006
This week the Internet giant Google revealed that in December it invested $75 million in Pattern Energy's (NASD:PEGI) 182-MW Panhandle 2 wind farm in Carson County, Texas, northeast of Amarillo, expected to be operational by the end of this year. Pattern will hold an 80 percent stake in the project, whose owners also include Google and two institutional tax equity investors, with Morgan Stanley providing construction and equity bridge loans and a letter of credit.

Google certainly has displayed a healthy appetite for Texas Panhandle wind energy. Last fall it committed to purchase all the output from EDF Renewable Energy's 240-MW Happy Hereford wind farm southwest of Amarillo. A year ago it plunked down $200 million in EDF's 161-MW Spinning Spur Wind Project in Oldham County, Texas, also west of Amarillo, which went operational in late 2012. (Note that EDF is taking over Spinning Spur III from Cielo Wind Power, in case Google is eyeing more investments for power circa 2015.)

This new deal adds yet another renewable energy feather to Google's cap, spanning projects and procurements from Texas to Finland. To date the company has committed more than a billion dollars in 15 renewable energy projects totaling more than 2 GW of electricity annually. That's enough to power all public elementary schools in New York, Oregon, and Wyoming, or 500,000 US homes, the company points out. Last year the Internet giant purchased over 727,000 MWh of renewable energy via long-term contracts, covering 22 percent of its total electricity consumption.

"We believe that corporations can be an important new source of capital for the renewable energy sector," writes Kojo Ako-Asare, Google's senior manager for corporate finance, in a blog post announcing the investment.

That's a neat segue to our next Google news item. While the company continues to lunch on renewable energy deals, this week it swallowed its biggest meal yet: $3.2 billion for Nest Labs, maker of the Nest smart thermostat and a newer line of smoke/CO2 alarms. (Sorry, anyone who predicted Nest as one of the most anticipated 2014 IPO offerings.) Here's a bit of sunshine for other cleantech investors: the deal means Nest's early VC investors are exiting with 15-20× multiples, including a $400 million payday for Kleiner Perkins Caufield & Byers.

Google has had an investment say in Nest since 2011, and the firm "has the business resources, global scale and platform reach to accelerate Nest growth across hardware, software and services," writes Fadell in a blog post. "Google will help us fully realize our vision of the conscious home and allow us to change the world faster than we ever could if we continued to go it alone. We've had great momentum, but this is a rocket ship." An Apple-watching news site explores why Google, not Apple, is buying Nest: ultimately managing data about home usage is more in line with Google's business, while smaller hardware plays like chips has become Apple's pursuit. And Google's cash warchest gives it the freedom and wherewithal to take big shots like this.

The deal is the latest showcase in a $17 billion two-year push out of its core Web search and advertising platform and into hardware and software. It also underscores the increased competition between Google and Apple: the two already were at odds over smartphone platforms (iOS vs. Android), and nearly a third of Nest's 300 employees are Apple expats, including founder Tony Fadell who helped design the iPod. (One report suggests there's been even more direct competition and recruitment.)

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.

January 16, 2014

Google Buying Pattern Energy Wind Farm

By Jeff Siegel

google earthday06 Google announced yesterday that it has ponied up $75 million for a wind farm in Carson County, TX. In it's lock box of wind farm assets, this is number 15 for the Internet giant.

Patterson Energy Group (NASDAQ:PEGI), one of my top picks for 2014, is developing the project, which provides enough juice to power 56,000 homes.

As I wrote last year, Pattern Energy Group is an independent power company that owns and operates eight wind power projects in Canada, the United States, and Chile. Total owned capacity is just over one gigawatt.

Each wind project the company owns is contracted to sell nearly all of its output on a long-term, fixed-price power purchase agreement. Pattern also has two new projects in development. One is in Chile, a 115-megawatt project expected to start commercial operations in April 2014. The contract for this one runs through 2034. And the second project soon to go online is in Ontario. This one is a 270-megawatt project with a power purchase agreement locked in through 2034.

Overall, the weighted average remaining on contract life is about 19 years.

Management is quite conservative, and risks are minimal, as this is not a turbine manufacturer, but rather a developer operating primarily in wind-friendly regions.

Even with dirt-cheap natural gas, demand for wind — in the right places — remains strong.

Net profit for the first six months of 2013 grew from $6.44 million one year prior to $29.14 million, while revenue rose 62% to $102.54 million. Pattern has about $2 billion in assets and about $1.4 billion in liabilities. And for income-oriented investors, the company expects to offer a yield of approximately 6% [Ed. note: based on its $22 IPO price.]

For the 12 months ending December 31, 2014, management expects to generate $55.4 million for distribution and $217.7 adjusted EBITDA.

All in all, I actually like Pattern based on historical data and management’s ability to keep growth steady, but not overly risky. Whether or not that will be enough in today’s market is still questionable.

Broader market action and, of course, any potential loss of government support in Canada, the U.S., and/or Chile could chip away at this thing pretty quick. Even though power purchase agreements are already locked in, the market doesn’t typically distinguish these types of things when it comes to renewable energy. This isn’t necessarily a criticism, but rather a reality that investors should not ignore.

As well, while I love the target dividend of 6.25% [Ed Note: $1.25 at $20, the midpoint of the planned IPO range], I don’t know how much room that leaves for growth...

In any event, this deal should definitely draw some positive attention for PEGI.

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


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

January 14, 2014

Alternative Energy Stocks In 2013: Winners And Losers

By Harris Roen

Alternative energy stocks had an epic year in 2013. The widely watched Ardour Global Alternative Energy Index Composite (AGIGL) was up 53% in 2013. That’s double the 26% return for the S&P 500. In fact, 2013 marked the largest annual return for the AGIGL since 2007. In January 2013, I predicted that “…low interest rates and plenty of corporate cash will be a strong driver of stocks in 2013, including the growth industries within alternative energy.” That forecast turned out to be true and then some.

This report drills down into the data to better understand what happened to alternative energy stocks in 2013, and considers where cleantech investments may go in 2014.

Alternative Energy Stock Returns for 2013


For all of the +/-250 alternative energy companies that the Roen Financial Report tracks, stocks were up an average of 59% in 2013. The highest returning stocks did exceptionally well, with the top ten companies averaging a gain of 414% for the year! More than half of the top ten gaining stocks are in solar.

Canadian Solar Inc. (CSIQ) was by far the largest gainer, up almost 800% in 2013. This solar cell and module company has been rebuilding its capacity over the past year, with choppy but growing sales. It also posted its first profitable quarter since 2010. Though Canadian Solar is technically based in Ontario, all of its manufacturing facilities are in China.

Of the bottom ten stocks, the worst performer was Ecotality (ECTYQ), which went bankrupt in September. Three other of the lowest performers were delisted to the pink sheets.

Half of bottom ten returns are in different business segments of the fuel alternatives industry. One is a biofuel company, BioFuel Energy Corp (BIOF), a former ethanol producer that has been selling plants and reducing its workforce. Chilean-based Sociedad Quimica y Minera (ADR) (SQM), the world’s largest producer of lithium for batteries, suffered from massive insider selling back in August. Cereplast Inc (CERP) is a very volatile startup with flagging sales. CERP develops bio-based resins as a renewable substitute for petroleum-based plastics.


Comparing returns of the various alternative energy industries confirms that solar was the best performer in 2013. The average return for the 67 solar stocks that the Roen Financial Report tracks was an impressive 81%. Solar investing has taken off for several reasons, rising impressively from its oversold lows in August 2012.

Energy efficiency stocks were the next best performers on average, up 60%. The market likes a business that can reduce a client’s fossil fuel consumption, curtail pollution and save money. When executed well, this business model is low hanging fruit in the alternative energy world.


When looking at returns globally, Asia was by far the most profitable region for alternative energy stocks. Though North America and Europe also had respectable returns on average, the Asian region was lifted mightily by Chinese solar stocks.


The above chart shows average alternative energy stock returns by size. Smaller companies did better overall, with a sweet-spot in the mid-cap companies. We define mid-cap as companies with annual sales between $1 billion and $10 billion.


Stocks that were the most volatile had the best returns in 2013. This is not surprising, since in a robustly up market year, volatile stocks will swing way above the averages. Conversely, stocks with the lowest volatility had lower average returns.


This next chart shows how stocks did when looking at sales compared to the same quarter last year. The graph clearly illustrates that the stocks with the highest sales growth had the best performance on average. Lowest sales growth companies had smaller average returns by a huge margin compared to the highest sales growth stocks.

What to Look For in 2014

The economy is setting up 2014 to be another good year for the stock market. Profits remain adequate, interest rates are low, and most importantly, the U.S. housing market continues to improve. Additionally, price momentum in the stock market is very good, so I expect additional money that retail investors have been keeping on the sidelines to flow in. I doubt growth will match that of 2013, however, since prices and valuations are not as depressed as they were a year ago. This means that even if a company continues to have a good year, comparisons to previous years data will look less impressive.

Since 2014 should be a year of steady growth, larger cap stocks that are lower on the speculative level will likely be the best performers. It is often the case that in the maturing stages of a bull market, large cap stocks do better. If the stock market falls dramatically, I would expect the more volatile stocks to experience accelerated losses, but I do not believe this will be the case in 2014.

Energy efficiency should continue to be a high returning industry for the reasons mentioned above. A. O. Smith Corp. (AOS), the Milwaukee-based water heating company, is one of my favorite picks in this industry.

Solar should also continue to be strong, especially for the upstream companies involved in installation. The two strongest choices here are SunPower Corp (SPWR) and the much ballyhooed SolarCity Corp. (SCTY). Of the two I think the stock price of SCTY has gotten ahead of itself, so SPWR may be the better choice at current prices.

Picking the right stocks will remain important in 2014, so investors are urged research alternative energy stocks carefully to ensure the best returns.


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

About the author

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

January 13, 2014

60 Minutes Reply: Cleantech Rocks

On Sunday, January 5, 60 Minutes aired a piece on the cleantech space. In the days that followed, I have had interesting conversations with clients about what was broadcast to 7.4 million viewers.[1] Those discussions reinforced my belief that 60 minutes missed the mark and inspired me to write this blog on why cleantech is essential, massive, vibrant, and desired.

Cleantech is essential.

We recently took fifteen clients to China on our annual tour, and the Beijing Air Quality index (AQI) of PM2.5 read above 200 on multiple days. The average AQI in Los Angeles, California, through 2009 was 19[2]. As CBS News has reported, the health and economic implications of severe pollution are significant. Kids with asthma flood hospitals. Flights are canceled. Schools are closed. Concerts are postponed. People wear masks and stay indoors.

The cause for China’s dirty air is not a mystery. The country’s coal-fired power generation, rapid industrial growth, and significant increase in vehicles all contribute to poor air quality. The costs are not trivial: The Beijing Municipal Bureau of Environmental Protection has estimated it will cost China $817 billion to clean its air, and $163 billion for Beijing alone to do so.[4]

It’s just not air; let’s consider water. Only half the water sources in Chinese cities are safe to drink. Seventy percent of the groundwater in the north China plain is unfit for human contact.[5]

While air and water quality in the US are better than in China, we too have been impacted by a changing climate. Hurricane Sandy caused $50 billion worth of damage, and Katrina caused $128 billion (in equivalent dollars); and we can’t place a value on the loss of lives.[6] California just experienced its driest year on record.

By 2030, nearly 4 billion people will live in emerging market cities.[8] Over time, their consumption patterns will approach wasteful American practices. The world’s natural resources simply cannot support this consumption without significant changes to how we produce and use energy, water, transportation, food and products. In other words, the world needs cleantech.

What is cleantech? Cleantech represents new technological and business model innovations that empower us to use natural resources more productively and responsibly, to do more with less: less energy, less water, less waste, less land. Cleantech includes solar, wind, biofuels, energy efficiency, smart grid, energy storage and fuel cells, transportation, agriculture, advanced materials, water, and waste solutions.

The world needs cleantech.

Cleantech is massive.

Cleantech products and services are disrupting massive global industries. In 2014 alone, the US is projected to spend about $1.3 trillion on energy.[9] As costs of clean technology have declined, adoption is increasing rapidly. Let’s look at solar photovoltaic (PV) as an example: Since the beginning of 2011, the average price of a solar panel has declined by 60%[10]. As we look further back in time, the declines are more impressive. The price of PV cells has dropped from $76.67 per watt in 1977 to $0.74 per watt in 2013.[11] This has led to a significant increase in PV deployments. PV installations in the US have grown approximately 50% per year from 2011 to 2013.[12] In 2012, renewable energy sources (biomass, geothermal, solar, water, wind) represented half of all new capacity in the US.[13] Towards the end of 2013, BrightSource Energy’s Ivanpah Unit 1 connected to the grid.

rocks - 3b

Photo: BrightSource Energy

Demand-side markets are also very large and growing significantly. In the US alone, we consume approximately 70 quadrillion BTUs of energy per year across transportation, industrial, residential, and commercial applications.[14] US buildings alone consume about 33.5 quads annually, representing over $420 billion in annual spend.[15] Cleantech solutions are making buildings smarter and more energy efficient.

The global lighting market is approximately $100 billion[16]. While the overall market is growing modestly (~5% per year) the market for LEDs is growing rapidly. Prices for LEDs have similarly come down significantly over the past few years – prices have declined at ~15% per year. Cree (and other manufacturers) are now offering sub $10 prices for 40-watt equivalent LED light bulbs.[17] This allows for improved payback for customers and results in rapid adoption of LEDs across many lighting sectors.

These are massive markets.

Cleantech is vibrant.

If you watched the 60 Minutes piece, you might think all cleantech companies have failed. This is not true. Yes, companies have failed, but all emerging markets are volatile. Let’s remember that 75% of all startups fail.[18] Over time, more than 600 US automobile companies have failed.[19]

In addition to the highly publicized failures, we (via our i3 data platform) have also tracked many successes. Tesla is perhaps the best example of a company that has achieved great commercial success and is being rewarded for this in the financial markets. The company was founded in 2003, went public in 2010 and today trades with an $18 billion market capitalization. Let’s compare this with the value of an established car company: Peugeot was founded in 1810 and produced its first automobile in 1889. The company currently trades at a market capitalization of $3 billion, one-sixth of Tesla’s value. The Model S was named the Motor Trend Car of the Year, and Elon Musk was recently named Fortune’s Business Person of the Year.

Is Tesla the only cleantech public market success story? No, not at all. In 2013, we tracked 14 cleantech IPOs including Marrone Bio Innovations (MBII), Silver Spring (SSNI), Control4 (CTRL), BioAmber (BIOA), and Evogene (EVGN). These IPOs and other cleantech public companies have performed exceedingly well. We recently analyzed the 2013 performance of stocks within the Russell 3,000 diversified index and were pleased to discover that Revolution Lighting Technologies (RVLT), SunEdison (SUNE), Solar City (SCTY), and Tesla (TSLA) were among the very top performing stocks in the index:

rocks - 4

Source: i3, Google


What about cleantech venture capital (VC)? While some VCs have indeed lost money in cleantech, other VCs are getting good returns. DBL Investors invested in both Tesla and SolarCity. Generation Investment Management invested in Nest and SolarCity. I don’t have insight into their specific returns but believe their funds will perform very well. EnerTech, Westly Group, Braemar, and BDC all recently raised new funds. In 2013, our i3 market intelligence platform tracked $6.8 billion dollars of investment across 18 sectors of resource innovation. We tracked a 38% quarterly increase in funds invested from Q3 2013 ($1.5 billion) to Q4 2013 ($2.1 billion).[20]

Cleantech financing is broader than venture capital. Investment firms are investing in cleantech via debt, project finance, and public securities. There has been much discussion and progress towards using traditional energy and financial vehicles such as Master Limited Partnerships (MLPs) and securitization to finance cleantech. While certain vehicles have yet to be applied to cleantech, financial companies are already investing heavily in cleantech. Goldman Sachs recently invested $500 million into a SolarCity lease-financing agreement that will help the company deploy about 110 megawatts of solar.[21] Goldman also pledged to invest $40B into cleantech over 10 years.[22]

Did the government lose some money in cleantech? Yes, it did. However, from a portfolio perspective, the losses (less than 3%[23] of the aggregate) are far smaller than they were portrayed on 60 Minutes. The DOE has also done many positive things. The ATVM Government loan guarantee program (derided in 60 Minutes) provided $5.9 billion to Ford Motor Company in 2009, $465 million to Tesla (which repaid 9 years early), and $1.5 billion to Nissan NA. [24] Via ARPA-E, the DOE has stimulated innovation in important ways with relatively modest amounts of money.[25] Governments are investing in cleantech in a number of other constructive ways not mentioned on the program. For example, the US Military is deploying cleantech to achieve greater energy security and flexibility. Cities all over the world are racing each other to use cleantech solutions to address traffic, pollution, and resource challenges.

While I find most attempts to count jobs created from specific government programs confusing, readers might be surprised to learn that the solar industry currently employs more workers than the coal industry. In 2012, the solar industry employed 119,000, and the industry is growing rapidly. In 2012, the coal industry employed 89,800, and the industry is contracting.[26] [27]

When we consider the critique we witnessed one week ago, it’s important to reflect on the role government has played in other industries. The government provided significant support to conventional energy industries via policy, direct investment, and allowing for exploration on federal lands. As DBL Investors reported, California’s nuclear energy industry has received four times more federal support than the state’s solar builders.[28]

Big corporates are actively investing in cleantech to drive growth and competitive advantage, differentiation and to further their sustainability goals. As noted in our recent report, “Partnering with Corporates,” energy companies have been among the leading investors. The chart below shows the most active corporate investors between the third quarter of 2011 and the second quarter of 2013. Over that period, GE, ConocoPhillips, Total, and BP all ranked highly with more than 10 deals. Shell recently launched a new venture fund, Shell Technology Ventures. And it’s good that the oil and gas majors are innovating.

Corporate Investors in Cleantech:

Cleantech rocks - 5


Big IT companies (Google, Apple, Microsoft, Facebook) are purchasing clean energy in impressive quantities. Facebook’s new Iowa data center will be fully powered by wind power.[29] Facebook worked closely with MidAmerican Energy to secure land and develop a 138 MW wind farm adjacent to the data center. Apple’s new North Carolina data centers are powered by custom built solar and fuel cell farms.[30] Google has invested over $1 billion in cleantech through power purchasing contracts and also via equity and debt investments. Microsoft is actively exploring powering its data centers with fuel cells in a disruptive, decentralized architecture. eBay has partnered with Bloom to use fuel cells as the primary power source for its Utah data center.[31] Why are these internet companies driving hard into cleantech? We believe the youth of their employees and end-customers and their values are one critical factor.

The levels and types of activity in this market are inspiring.

Cleantech is desired.

Every survey I have read confirms that people (especially young people) want cleantech. For example, in its most recent annual National Solar Survey, the SEIA found that nine out of ten Americans (92%) think that the United States should use solar.[32]

More importantly, when companies (or people) develop awesome products, people want to buy them. For example, Nest Labs has built a learning thermostat that people all over the world want to install in their homes. Their thermostat consistently results in 20% energy savings, but I suspect it’s their phenomenal design and ease-of-use that’s really driving adoption. Nest is a young company – launched in 2011 – yet has grown tremendously and is now selling ~50,000 thermostats per month. Impressively, there is evidence that people have been “smuggling” Nest thermostats outside of the US before the company was officially shipping to those countries.[33]

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Photo: Heather Matheson, Cleantech Group

Homeowners want solar on their roofs. Drivers want Tesla cars.

I believe that as consumers engage with great products and services that have a positive impact on the planet, they will want more. Or less. In some cases, cleantech solutions are allowing consumers (and businesses) to own fewer resources. AirBNB is increasing the efficiency of our housing stock by allowing people to rent out their homes when they are not there. i3 tracks 113 car, taxi, or ride sharing/renting companies. We recently hosted Zipcar at one of our events, and participants were eagerly boasting how they had abandoned their cars. They were proudly showing each other their ZipCar cards.

rocks - 7b

Photo: Millen B. Paschich, Cleantech Group

This consumer pull reminds me of the role consumer choice has had in disrupting other industries. For example, the cell phone industry was not particularly exciting back in 1983, despite the launch of the DynaTAC. As cell phones penetrated the work place, they were very much part of a company’s IT system. Companies selected which employees would be eligible for a cell phone and which devices it would support. Then an interesting thing happened: employees started to care about their phones. They started lobbying their IT departments for iPhones. The top-down decision making process was no longer tenable. Employees insisted on choice. Why couldn’t their IT departments just figure out how to support whatever smart phone they wanted to own? As you probably know, this led to the decline of Blackberry (current market cap of $4.5 billion) and the rise of Apple (current market cap of $480 billion[34]).

This is what happens when industries get disrupted. It’s not just cell phones. How many people are still reading paper-based newspapers?

Before I sign off, I want to thank 60 Minutes. Last week’s program sparked many interesting discussions. It forced me and my colleagues in the industry to step back and reflect on our work. While I disagree with the way 60 Minutes characterized the story as being over (I believe we are in the early innings of cleantech), I did appreciate the emphasis on China’s impressive role in scaling cleantech. I also loved the reminder that progress will depend on bold actions by entrepreneurs like Pin Ni who are embracing capitalism and cleantech.

If you liked this piece, please pass it along.

Thank you and remember: People desire cleantech. It is essential, massive, and vibrant.


Sheeraz Haji

CEO, Cleantech Group

[1] http://tvbythenumbers.zap2it.com/2014/01/07/sunday-final-ratings-family-guy-60-minutes-the-simpsons-bobs-burgers-the-best-of-jimmy-fallon-betrayal-adjusted-down/227214/

[2] http://www.usa.com/los-angeles-ca-air-quality.htm

[3] http://www.cbsnews.com/news/china-air-pollution-season-kicks-off-with-a-cough-and-a-wheeze-as-coal-plants-turn-on-for-the-winter/

[4] http://world.time.com/2013/09/25/the-cost-of-cleaning-chinas-filthy-air-about-817-billion-one-official-says/

[5] http://www.economist.com/news/china/21587813-northern-china-running-out-water-governments-remedies-are-potentially-disastrous-all

[6] http://www.huffingtonpost.com/2013/02/12/hurricane-sandy-second-costliest_n_2669686.html

[7] http://www.cbsnews.com/pictures/hurricane-sandy-slams-northeast/74/

[8] http://www.bcg.com/expertise_impact/Capabilities/Strategy/PublicationDetails.aspx?id=tcm:12-60476

[9] http://www.eia.gov/totalenergy/

[10] http://www.seia.org/

[11] http://cleantechnica.com/2013/05/24/solar-powers-massive-price-drop-graph/

[12] http://www.seia.org/research-resources/solar-industry-data

[13] http://www.renewableenergyworld.com/rea/news/article/2013/01/renewable-energy-provides-half-of-all-new-us-electrical-generating-capacity-in-2012

[14] https://www.llnl.gov/news/newsreleases/2013/Jul/images/28228_flowcharthighres.png

[15] http://buildingsdatabook.eren.doe.gov/TableView.aspx?table=1.1.3

[16] http://www.mckinsey.com/~/media/mckinsey/dotcom/client_service/automotive%20and%20assembly/lighting_the_way_perspectives_on_global_lighting_market_2012.ashx

[17] http://www.greentechmedia.com/articles/read/10-LED-Price-War-Heats-Up-The-Lighting-Market

[18] http://online.wsj.com/news/articles/SB10000872396390443720204578004980476429190

[19] http://en.wikipedia.org/wiki/Category:Defunct_motor_vehicle_manufacturers_of_the_United_States

[20] http://research.cleantech.com/front_page

[21] http://research.cleantech.com/company/solar-city/transactions

[22] http://www.goldmansachs.com/our-thinking/focus-on/clean-technology-and-renewables/park/index.html

[23] https://lpo.energy.gov/our-projects/

[24] https://lpo.energy.gov/

[25] http://arpa-e.energy.gov/?q=arpa-e-site-page/view-programs

[26] http://www.eia.gov/coal/annual/

[27] http://www.mnn.com/earth-matters/energy/stories/america-now-has-more-solar-energy-workers-than-coal-miners

[28] http://www.dblinvestors.com/2013/08/report-nuclear-received-4-times-more-subsidies-than-solar-in-ca/

[29] http://www.wired.com/wiredenterprise/2013/11/facebook-iowa-wind/

[30] http://www.apple.com/environment/renewable-energy/

[31] http://www.forbes.com/sites/heatherclancy/2013/10/02/new-ebay-data-center-runs-almost-entirely-on-bloom-fuel-cells/

[32] http://www.seia.org/research-resources/america-votes-solar-national-solar-survey-2012

[33] http://www.slideshare.net/MarioAugustineAvila/nest-lab-presentation20130306

[34] http://finance.yahoo.com/q?s=aapl&ql



January 12, 2014

The Pros Pick 14 Cleantech Stocks for 2014

Tom Konrad CFA

bigstock-green 2014.jpg 
Over the last few weeks, I’ve brought you articles about the top Cleantech stock picks for 2014 from my panel of Cleantech money manager.  This article puts them all in one place.  Disclosure: I am long MIXT, ACCEL, SBS, and HASI.

Originally, there were twelve picks.  Then, a mis-communication with Rafael Coven, Managing Director at the Cleantech Group, and manager of the index which underlies the Powershares Cleantech ETF (NYSE:PZD) had me listing two more stocks he likes.  Through a happy coincidence, that brings the total picks to 14 stocks for 2014.

Here they are, with links to the articles where I wrote about them:

Company name (with link to article) Ticker Manager Business
First Solar NASD:FSLR Garvin Jabush
Green Alpha Advisors
Solar Manufacturer
SolarCity NASD:SCTY Solar Installer
Digi International NASD: DGII Internet of Things
MiX Telematics NYSE:MIXT Rafael Coven
The Cleantech Group
Fleet Management
Opus Group Stockholm:OPUS Pollution control
Control4 NASD:CTRL Smart Home
Trimble Navigation NASD:TRMB Coven(the other picks) Global positioning
Kurita Water JP:6370 Water utility
Accell Group Amsterdam:ACCEL Jan Schalkwijk
JPS Global Investments

Companhia de Saneamento Basico do Estado de Sao Paolo NYSE:SBS Water utility
Alter NRG Corp TSX:NRG Waste-to-energy
Renewable Energy Trade Board OTC:EBODF Shawn Kravetz
Esplanade Capital LLC
Holding Co. (solar)
Meyer Burger Swiss:MBTN Solar equipment
Hannon Armstrong Sustainable Infr. NYSE:HASI Finance

It’s worth mentioning that several of these stocks have advanced significantly since my panel recommended them on December 12th.

Most notably, Renewable Energy Trade Board (OTC:EBODF) has shot up 210%, most likely as a result of my article.  The stock is extremely illiquid, and any added demand can move it a long way.  I suspect that, despite Kravetz’ warning that it is “It is tiny and thinly traded,” readers have not been buying with caution.  Yes, the company is still well below his low valuation estimate of $12, but it does not take much to send a stock this thinly traded up or down an incredible amount.  If you’re interested in this company, I strongly suggest you wait a month or two until interest caused by these articles has died down, and then buy cautiously, using limit orders.

Below is a chart showing how all the picks and publicly traded funds managed by these experts have performed since December 12th.  I’ve also included The Powershares Wilderhill Clean Energy ETF (NYSE:PBW), which tracks the Wilderhill Clean Energy Index managed by Dr. Robert Wilder.  Dr. Wilder  is on my panel but did not give me any picks because, as an indexer, he thinks it’s inappropriate for him to try and pick winners.

14 pros January.png

While EBODF was probably boosted by my article, Coven’s picks Opus Group and  MiX Telematics may have gotten a boost when he added them to The Cleantech Index, which he manages, on December 26th.  This means that PZD, the ETF which tracks the index, needs to buy them.


Part of the reason I asked my panel to pick their stocks  in December is to use their ideas myself.  This year, I included Mix Telematics from Coven, and included it in my seventh annual list of Ten Clean Energy Stocks for 2014.  Also included are Kravetz’s Hannon Armstrong and Schalkwijk’s Accell Group.  Accell is a holding of the hedge fund I co-manage with Schalkwijk.

As for Hannon Armstrong, I’ve been writing about it since its IPO in May, but the timing seems to be favoring Krazetz, since it’s gained $1.50 in the two weeks between when he and I picked it.  But I shouldn’t complain: Kravetz had the top pick of anyone on my panel last year, and this year he picked my largest single holding.

I’m looking forward to 2014.

An erlier version of this article was first published on the author's Forbes.com blog, Green Stocks on January 2nd.

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.

January 11, 2014

CarCharging Off to the Races?

by Debra Fiakas CFA

CarCharging Group, Inc. (CCGI:  OTC) producers electric car charging stations.  It partners with property owners such as shopping malls or parking garages to operating the charging stations and collect fees from electric car owners.  At the end of September 2013, the last time the company reported financial results. CarCharging had eighty-seven strategic partnerships with a gaggle of private and public entities such as Walgreens, Icon Parking, the City of Miami Beach, and the Pennsylvania Department of Environmental Protection.    A mobile app helps car owners find locations by city or zip code.

CarCharging has reported a total of $502,833 in revenue since its inception in September 2009, of which $194,210 was in the most recently reported twelve months.  While the company earns a gross profit on its sales  -  29.4% average over the past five years and 30.4% in the most recent twelve months.  Unfortunately, compensation for its employees looms large on the CarCharging income statement, leaving a net loss of $20.3 million in the last twelve months.   Since inception the reported net loss was $37.6 million. 

Since much of the company’s compensation and general and administrative costs have been paid using common stock and options, cash earnings look a bit more encouraging.  Operations have used a net $7.4 million in cash since inception, of which $1.5 million was used in the twelve months ending September 2013.

Even though it appears management is making some headway in penetrating the car market and has made progress in getting the cash burn under control, it does not mean CarCharging is off to the races.  The company has a bit of debt already and has precious little cash on its balance sheet.  CarCharging become public through a reverse merger and has not had the benefit of developing strong relationships with institutional investors such as venture capital, private equity or managed funds.  It has yet to attract research coverage by a sell side analyst.

The lack of strong sponsorship in the capital markets is a drawback for a company that needs expansion capital.  At a dollar and two bits, CCGI shares trade more like an option on the company’s business model than as a multiple of future earnings.  The stock has been somewhat volatile, falling to a low of $0.71 in late October and from a high of $2.00 at the beginning of August 2013.  

CarCharging appears to have gained some momentum in the electric car market.  In December the company announced progress in its joint initiative with Nissan, installing charging stations for Nissan’s Leaf at a marquee shopping center in Palo Alto, California.  The mall serves families living in Silicon Valley.  The company has also partnered with Standard Parking at a commercial facility on Constitution Avenue in Washington DC very near the U.S. Capital and the White House.  While it is not likely the President is very worried about charging locations, making a good impression on Congressional decision makers and their staff has to be helpful.

There is more change on the road ahead for CarCharging.  In October 2013, it won the bid for Ecototality’s Blink car charging network.  This the second time in as many years that CarCharging has scooped up the assets of a defunct electric vehicle charging service provider.  It also acquired the assets of 350Green after that charging operation failed.  CarCharging reportedly paid $3.3 million for the Ecototality assets, including over 12,000 installed electric vehicle charging stations, a number of 110 DC Fast charging stations and the Blink network.  The deal dramatically expands CarCharging’s footprint, but also complicates the company’s financial profile.

Expect more acquisitions in the future  -  and more financial complications.  In 2013, CarCharging also acquired Beam Charging, an independent car charging serve that caters to parking garages in the New York Metro area.  So far the company has kept the Beam branding.  In the future it seems plausible that CarCharging will continue rolling up small, independent service providers that are pioneering electric car charging services.  There could be efficiencies in uniting them under one brand and marketing campaign. 

Consequently, an investment in CarCharging will require some work by investors beyond simply reading the headlines and checking earnings (or loss) per share.  Then it will be a matter of how much risk an investor is willing to assume in an unproven business model.
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.

January 09, 2014

Solar Trends in 2014 and Beyond

Benefits, Barriers, and Chances

Paula Mints

Time is the primary difference between a fad and a trend. Fads are fleeting. Trends develop over time altering behavior in some relatively permanent fashion. The adverb relatively is used as permanence has become, over time, far less permanent. Fads ebb and flow more quickly than trends. The best way to tell the difference, unfortunately, is in hindsight.

For example, the European feed-in tariff (FIT) model is responsible for jump starting the utility scale (or multi-megawatt) application for solar technologies.  The initial highly profitable FITs attracted investors who, forever in pursuit of the holy grail of safe investments, encouraged demand and supply side solar participants to build ever larger installations.  Initially, many long time solar participants believed that demand for multi-megawatt installations (particularly for PV) would reach a peak and decline, likely along with the profitable FITs. Instead this trend appears to be here to stay – for better or worse, or, for profit or not-so-profitable.  Another example, turnkey equipment sales, appears to have been a fad that faded away relatively quickly – that is, in solar years.  Just as dog years are longer than human years and often used as a metaphor for the slow passing of time, solar years are also longer than human years.  To gauge the length of a solar year observe announcements and the accompanying timeline creep from announcement, re-announcement and fruition. 

Turn the page to see five potential trends and the likelihood of continuation or cessation:

Potential Trend 1: Merchant systems:  These systems may or may not be multi-megawatt and are sold without a PPA or tender and potentially without an incentive.

Why this may not become a trend:  The high upfront cost of installation, no matter how low component prices go, is a roadblock to many potential system buyers.  Moreover, in many countries it is illegal to set up an independent utility from which electricity is sold.  For merchant systems to become a trend, laws would have to change and/or deep pocket customers must be found and cultivated. 

Why this may become a trend:  Utilities understand the efficiency of owning the means of production. Once they become more comfortable with solar in terms of the variability of its resource it will make sense to control it because of a) its free fuel b) low maintenance c) positive PR afforded the utility and d) return of control over profit.  Mining concerns are often remote and require reliable power; solar is a long-term investment that when combined with storage (yes too expensive still) or another power source (hybrid) offers a long-term answer to energy requirements.  Finally, should laws change the lure of becoming an independent utility; though this is in-and-of-itself probably a fad should encourage system ownership.

Benefits of this trend: Solar (PV, CSP, CPV) is ideal for this potential trend as once installed it is low maintenance (though not zero maintenance), reliable and works well as part of a hybrid installation. 

Odds of this becomming a full-fledged trend: 40% this potential trend will get a lot of press in 2014, but to become a true trend (something that brings with it relatively permanent change) more than announcements are needed. The laws of some countries will need to change and the initial gold rush atmosphere (which will bring with it saviors and shysters) must subside. The likely timeframe for development of this trend is five years, but ten years to mature.

Potential Trend 2: Residential Lease Model:  Removes the onus of educating energy consumers about owning the means of production and encourages more rapid adoption of PV.

Why this may not become a trend:  Currently a U.S. phenomenon, there is no standardization of lease vehicles, little understanding of solar among energy consumers, not everyone owns his or her roof. Its also possible that even when potential solar lessees do own a roof that is young enough in its lifetime to support solar that they will find that once the math is done, a low interest loan that supports buying the system outright makes better economic sense. Other drawbacks include what happens should the lessee want the system removed, or sells the house, or abandons the house.  Should there be expensive and well publicized roadblocks to system removal this potential trend would end.

Why this may become a trend:  Particularly in the U.S., independence (from practically any interference in anything) is a closely held value.  Many energy consumers would like to control energy costs but cannot afford to buy a PV system, plus, the lure of free solar (a promise in many ads for solar leases) is compelling to many.  The lease concept is familiar, even though many may find the details confusing.  Finally, the concept of owning the means of electricity production has proven stubbornly difficult to get across or to encourage excitement about – the solar lease hops over the need to educate and still may lead to more residential PV system ownership. 

Benefits of this trend: More solar is the obvious benefit of the solar lease. The assumption is that seeing more solar in neighborhoods will encourage people to explore owning or leasing a system.  There is also the potential of expanding this trend to apartment complexes, wherein (similar to the merchant system) the apartment house owner would sell electricity from the solar installation to apartment dwellers (a group is pursuing this model in France). 

Odds of this becomming a full-fledged trend: 67% for better or worse and love it or hate it, the solar lease trend is likely real and will hopefully mature into a vehicle with costs (including escalation) that more closely resemble the true costs of owning a solar system.  Escalation charges based on assumed utility rate increases need to be rethought.  

Potential Trend 3: Community solar, solar gardens or group-owned solar:  Call it whatever you like, typically this model allows people to buy shares in solar installations that serve the community.  The installations can be ground-mounted or on roofs on or near community centers or schools and also on reclaimed land (among other areas). 

Why this may not become a trend:  The initial installation remains costly and community buy-in must be encouraged in order for this to make economic sense. That is, enough people need to buy shares and agree to whatever the terms are or the cost would likely appear prohibitive even though the benefits such as cleaner air and controlled costs in the long term are clear.  

 Why this may become a trend:  The off-grid solar community has much to teach the grid-connected solar community in terms of educating populations, gaining enthusiastic buy-in and finally deployment of a concept that is decades old.  In the developing world this concept is not a trend, it is established.  Communities with group owned installations are enthusiastic about being a part of an energy generating asset, their participation in ameliorating climate change as well as the educational aspects. 

Benefits of this trend: Educating the community about solar technologies, climate change and energy independence is one of the most significant benefits of this trend.  Participation in community solar projects and plans also encourages utilities (in the U.S. there is slowly growing utility participation in this model) and energy consumers to work more closely together as well as share ideas and, well, energy.   

Odds of this becomming a full-fledged trend: 63% this trend is building slowly in the U.S. and the model can be co-opted by other countries and regions around the world.  Studying village grid (micro grid) models in the developing world would offer insight as to how community members learn to work together towards the success of these installations.

Potential Trend 4: Storage:  Storage technology is, on its own, not a trend (its R&D is decades old), nor is it necessarily crucial to future grid connected solar deployment. Interest in storage technology for grid-connected deployment is currently high, but interest alone does not a trend make. Storage is crucial for successful off-grid solar deployment and is mature in this regard through the use of lead acid battery technology. 

Why this may not become a trend:  Storage is expensive and its value, essentially independence from the utility grid, has not been established. The true costs of storage are currently obscured, that is, current prices do not reflect costs.  Unfortunately, it may not be possible to increase the price to one that provides enough cushion in the margin for quality control, R&D and profit.  As with other technologies, unfortunately, many may enter with potentially viable technologies and many may fail because they could not price product appropriately.  Finally, disconnecting from the grid and becoming self-sufficient requires a willingness to conserve, which is rarely popular.

Why this may become a trend:  Utilities are showing concern about the growing size of residential and small to medium commercial installations that are sized to cover 100% of the energy needs of the building and its inhabitants. This cuts into utility profits. The only way for utilities to control this is to a) own more solar installations (the means of production) and sell the electricity from these utility-owned assets; b) develop utility solar lease models for their rate payers where the utility installs solar on the roof and charges the roof owner a set rate; and finally c) charge a monthly fee for grid access as back up, among other reasons.

Benefits of this trend: Self consumption and the use of solar encourage a more pragmatic attitude towards energy also encouraging conservation. Storage could allow for true energy independence from escalating energy costs.

Odds of this becomming a full-fledged trend: 31% Storage is still too expensive and a sudden miraculous technological breakthrough is unlikely.  Instead, options that do not reflect the true cost and thus teach nothing about the true value of the technology are currently being deployed.  This potential trend likely needs ten years and a lot of investment to begin approaching viability. 

Potential Trend 5: Solar Deployment in Latin America:  Solar technologies are not new to the countries in Latin America. Deployment of off-grid applications in the region is well established.  Tender bidding is the preferred vehicle for large commercial installations and there is potential among mining concerns for merchant system sales.  

Why this may not become a trend:  High import duties in many countries, unstable economies, significant reserves of oil, potential reserves of natural gas (fracking), unwelcoming topographies and low tenders are a few of the risks in the region that indicate the hoped for level of deployment may not come to pass.

Why this may become a trend:  The need for reliable energy generating options is strong among the countries in this region and though affordability is not strong, there are entities willing to invest in merchant installations (mining concerns) as well as almost monthly tenders for energy generation in the countries of Central America, South America and the Caribbean.  Deployment has begun on a fraction of the multi-gigawatts of potential. 

Benefits of this trend: As solar deployment increases and should it begin to tiptoe near the promised multi-gigawatt level, this region is likely to invest in domestic manufacturing, which hopefully would mean cell technology development as well as module assembly. Given the high cost of Greenfield manufacturing, module assembly appears more likely.  Nonetheless, the construction (demand) sector would provide necessary jobs and the supply (cell, thin film and module assemble) would provide necessary jobs. Deployment of reliable, clean solar energy technologies could be a stabilizing factor of future energy costs. 

Odds of this becomming a full-fledged trend: 44% Though deployment has begun and queues of solar projects in many countries are long, taxes are high and actual deployment is moving at a snail’s pace. A regional economic shock could derail many projects. Tenders are, in most cases, too low to support profitable installations. The highest likelihood is that deployment will continue resulting in a percentage of the expected gigawatts but certainly above past levels of annual installations.

Paula Mints is founder of SPV Market Research, a global solar market research practice: All Solar All of the Time.
This article was originally published on RenewableEnergyWorld.com, and is republished with permission.

January 08, 2014

Two More Mega Solar Deals In China

Doug Young 

Renesola logoMore bright signs are emerging in the solar panel sector with word of 2 major new tie-ups, one involving ReneSola (NYSE: SOL) in Japan and the other Yingli (NYSE: YGE) in China. In the first, ReneSola has signed a massive deal to sell panels to a Japanese solar power plant developer. The latter case looks similar, with Yingli in its own deal for a major joint venture to co-develop new solar power plants with one of China’s top nuclear power companies.

The deals point to the huge potential from the China and Japan markets for solar panel makers in the next 2 years. Up until now, neither market has been a major player for the sector, with the lion’s share of sales going to the US and Europe. But that is starting to change, following Beijing’s roll-out of an aggressive plan to build up its solar power generation capacity and Japan’s efforts to diversify its power generation base after the Fukushima nuclear disaster of 2011. The rise of the Chinese and Japanese markets is a welcome development for China’s solar panel makers, who are seeing their access limited to US and European markets due to allegations of unfair state-subsidies from Beijing.

Let’s start with ReneSola, whose tie-up will see it supply panels for up to 420 megawatts of generating capacity for more than 10 new power plants in Japan. (company announcement) ReneSola didn’t give the Japanese developer’s name, but said it will construct the plants over the next 2 years. The amount is quite sizable for a company like ReneSola, whose panel shipments totaled 851 megawatts in its latest reporting quarter. It’s also one of the largest single deals I’ve seen in 3 years of writing about the sector. ReneSola shares didn’t move too much on the news, though it’s worth noting they are up 22 percent since the start of the year.

The case was different for Yingli, whose shares jumped 8 percent after it announced a new joint venture with China National Nuclear Corp. (company announcement) Following that rally, Yingli’s shares are up a hefty 40 percent in just the first week of 2014, a year that promises to see most of the sector’s major surviving players finally return to profitability after 2 years of losses during a prolonged downturn.

Under its tie-up, Yingli will form the joint venture with China Rich Energy Corp, a subsidiary of China National Nuclear. The deal will see Yingli supply panels for 500 megawatts of new generating capacity, with at least 200 megawatts of that to come from sites supplied by China National Nuclear Corp. No time frame was given for the supply deal, though presumably most deliveries will occur over the next 2 years as state-owned plant operators race to meet Beijing’s ambitious goal of 35 gigawatts of capacity by the end of next year.

Yingli logoAnnouncement of its new tie-up comes less than a week after Yingli announced another joint venture with Datong Coal Mining Group for new solar plant construction. (previous post) I commented that the tie-up looked smart because Datong is one of China’s top coal producers and thus has experience in the energy sector. Equally important, Datong also has strong cash flow to pay for new plant construction.

Yingli’s latest joint venture follows a similar trend, though I suspect that China National Nuclear Corp has far less cash flow and thus could run into potential financing problems as construction accelerates. The new ReneSola plan looks more solid, even though it’s slightly strange that it didn’t include the name of its partner in the tie-up announcement. Despite those potential issues, investors are clearly growing bullish on the sector after 2 years of bearishness, and I expect we could see some more upside in the stocks during the first half of this year.

Bottom line: New solar plant construction tie-ups by ReneSola and Yingli point to a boom in demand from Japan and China in 2014, providing potential upside for solar panel maker stocks.

Doug Young has lived and worked in China for 15 years, much of that as a journalist for Reuters writing about Chinese companies. He currently lives in Shanghai where he teaches financial journalism at Fudan University. He writes daily on his blog, Young´s China Business Blog, commenting on the latest developments at Chinese companies listed in the US, China and Hong Kong. He is also author of a new book about the media in China, The Party Line: How The Media Dictates Public Opinion in Modern China.

January 07, 2014

The Other Electric Car Company

by Debra Fiakas CFAKandi logo
If you are putting together a list of 2013 phenomena, you can put Tesla Motors (TSLA:  Nasdaq) and its Model S electric car near the top.  The stock bounced off a low of $32.11 in early January last year and nearly went into orbit.  TSLA share closed the year 2013 at $150.43, representing a return of 368% from the 52-week low.  Impressive! 

The market pundits cannot seem to get enough of Tesla and its founder/CEO Elon Musk.  Yet Tesla is not the only electric car producer that has met with some success with consumers. 

China’s Kandi Technologies Group, Inc. (KNDI:  Nasdaq) produces small, low-speed electric vehicles for off-road and campus use as well as all-electric and gas-electric hybrids for street transportation.  Kandi’s best selling product, the Go-Kart, accounts for about one-third of unit sales, but contributes close to 60% of total revenue.  All together Kandi sold just over 137,000 units in the last twelve months.  About 85% of Kandi’s vehicles are sold at home in China, but even so some of those domestic sales are to distributors which end up bringing the vehicles to the U.S. market.
Anyone who reads this column more than just a few times, knows I put a high priority on cash flow performance.  Measuring how much of sales is converted to cash helps separate companies with real financial strength from those that rely on financial fluff in the media to drive shareholder value.

In the most recently reported twelve months Kandi converted 34% of sales to operating cash flow.  Granted much of that cash flow was contributed by a short-term loan from a joint venture partner.  That said, Kandi’s three-year average cash flow generation was 14% as a percentage of sales.  If the loan from the joint venture partner is excluded, then the cash conversion ratio was 5%.

Tesla on the other hand is a significantly larger company, earning $1.7 billion in total sales in the most recently reported twelve months.  During this period the company reported positive cash flow for the first time in its history, managing a cash conversion ratio of 5%.

Kandi may be a more consistent producer of operating cash flow, but size and proximity to investors in the U.S. market has helped give TSLA a far higher valuation.  TSLA trades at 10.8 times sales while KNDI commands a multiple of 7.2 times sales.  In terms of cash flow, investors are paying 20.5 times CFO for KNDI, but are willing to advance a whopping 200 times Tesla’s cash flow to get a stake in the Model S producer.

As a China-based operation Kandi Technologies may have a credibility problem with investors.  Too many of the China companies that have registered as public companies in the U.S. have turned out misleading or even false financial reports.  However, there is much to be said about having access to Chinese consumers who are increasingly affluent and keenly interested in novel transportation options.  What is more Kandi is a very innovative car manufacturer.

Consumers in Hangzhou, China – a cozy little city of 8.7 million people  -  will soon be able to step up to a Kandi automated garage, insert a card, and drive away in a Kandi electric car.  The driver will get up to 75 miles for the equivalent of $3.25 an hour.  The car can be dropped up at another Kandi rental site, much like the bicycle-sharing program that has become popular in the U.S.  This is different that the car sharing scheme of Zipcar that works more like a car rental.

Kandi has also come up with a solution for the problem of recharging batteries with a battery ‘swapping’ option.  Consumers who opt for a long-term lease instead of car-sharing can drive up for a convenient battery swap.  This is particularly important for Chinese drivers who might not have the ability to plug in an electric car at home or work.  Tesla may have the caught the attention of U.S. investors with its sleek electric sports cars and sophisticated publicity campaign.  However, Kandi Technologies is a contender in its own market with rental options that make sense for its customers.

Just like shares of Tesla, KNDI followed a pretty steep trajectory in 2013. By the end of 2013, the stock had delivered 250% growth from its 52-week low in late January 2013.  With the Hangzhou project coming on line in the coming months, it seems the company should be able to deliver earnings in a similar trajectory.
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.

January 05, 2014

The Pros Pick Two (Correction:Four) Offbeat Cleantech Stocks for 2014

Tom Konrad CFA

bigstock-green 2014.jpg
Green 2014 image via BigStock
Among the dozen stocks picked by my panel of professional green money managers for 2014, most followed three themes: Solar stocks, IT stocks, and income stocks.  Two didn’t, and they are included here.

This Cash-Rich Water Company Could Produce a Big Dividend

The first is a Japanese water utility, picked by Rafael Coven, the Managing Director at the Cleantech Group, and manager of the Cleantech index (^CTIUS) which underlies the Powershares Cleantech ETF (NYSE:PZD.)

Coven likes Kurita Water Industries Ltd. (Japan:6370, OTC:KTWIF)  which “On restructuring it has a ton of cash” and generates a lot of cash despite zero growth. He calls Kurita “Terribly managed and a great candidate for takeover, breakup, dividend, or LBO,” although that “Doesn’t happen easily in Japan.”

Kurita is like Companhia de Saneamento Basico do Estado de Sao Paolo (NYSE:SBS; Disclosure: I am long SBS.) picked by Jan Schalkwijk CFA, a portfolio manager with a focus on Green Economy investment strategies at JPS Global Investments, in that it is a water utility, but the forward dividend yield is only 2%, so I don’t see it as an income stock like SBS.  

Investors betting on Kurita should be prepared to wait, as is Coven: he took pains to point out that he looks for stocks that should perform well over a longer time horizon than just one year.

Note: After this article was first published, Coven left a comment saying,

I may have overplayed my interest to Tom in Kurita as a speculative play.

While Kurita is a candidate ripe for breakup or a takeover (likely hostile), those are not attributes relevant to its inclusion in The Cleantech Index.  In fact, this week, we announced that Kurita is being dropped from The Index.

Cleantech Index companies must pass 18 quantitative and qualitative screens for inclusion including industry leadership, organic growth, management quality, intellectual property, etc.  In contrast, it's become increasingly apparent over the past few years, that Kurita's deteriorating performance has had less to do with Japan's economic malaise than with poor management, Kurita's entrenched "utility culture", lack of attention to shareholder interests, and failure to innovate.  As testament to this, Kurita has demonstrated only negligible success in the Asia's booming market for clean water.

Buying stocks on the expectation of a takeover/or pro-shareholder action/pressure is a questionable investment premise even in shareholder friendly countries.  However, I would caution investors even more from such a strategy in a country where activist shareholders and hostile takeovers are rare, and shareholder interests of lesser importance.  It may be a very long wait and the underlying business can deteriorate in the interim.

The "water" sector has been a sexy investment theme for a quite a while, but  few water companies ever consistently deliver returns above their cost of capital.  Even Siemens has thrown in the towel on this business.  There are very, very few good water companies, period.

I'd rather place my bet on a diverse portfolio of companies that are the leaders in their fields and demonstrate the ability to grow organically and generate sustained profit growth - especially if they have a global megatrend behind them that's likely to last for decades.

After I followed up on his seeming change of heart, it turns out we had miscommunicated about his picks.  He had initially given me four, and when I asked him to pare it down to three, he misunderstood, and gave me three different ones.  His "real" three picks are:

  1. MiX Telematics (NASD:MIXT)
  2. Control4 (CTRL) and
  3. Opus Group (Stockholm:OPUS, OTC:OPPXF)

This Waste Gasification Company’s Luck Has Changed

The other offbeat pick was from Schalkwijk. He likes Alter NRG Corp. (TSX:NRG, OTC:ANRGF), which he calls his “dark horse.”(The green hedge fund I co-manage with Schalkwijk is long Alter NRG.)

Jan says,

This Canadian waste-to-energy company had been a disappointment for years. Though its Westinghouse plasma gasification technology held great promise, large projects failed to materialize and the company lacked focus as it also tried to be a developer in the fragmented geothermal heating sector.

Recently, the company’s luck has changed: It won a big contract for a gasification plant in England from Air Products, a new CEO was brought in and Roman Abramovich (Russian billionaire and owner of Chelsea Football Club) made a strategic investment in the company. Subsequently, the company has won a 2nd big order from Air Products and various licensing deals.


One of my other panelists, Sam Healy, a portfolio manager at Lamassu Capital, chose not to make any picks at all this year because he feels most stocks are simply too expensive.  In expensive stock markets, it often makes sense to look for value in offbeat themes.  That, and the increased diversification, are good reasons for cleantech investors to give Alter NRG and Kurita their consideration.

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

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.

January 04, 2014

China Solar Tariffs Round II, Yingli's Smart JV

Doug Young 

The new year has just begun, and already we’re getting signals that 2014 will be full of new twists and surprises for the solar panel sector as it struggles to emerge from its downturn dating back nearly 3 years. A clash involving Chinese panel makers accused by western rivals of receiving unfair state support looks set to enter a new phase, based on an announcement of new action in the US by SolarWorld (Frankfurt: SWV, OTC: SRWRF), the German panel maker that has led the charge against the Chinese companies. Yingli logoMeantime, a separate new joint venture announcement from Yingli Green Energy (NYSE: YGE) looks smart, and reflects the new reality that China will become a major driver of solar plant construction in 2014.

The solar sector’s prolonged downturn is the result of massive oversupply, following a build-up in China that has the nation now producing more than half of the world’s solar panels. That build-up has led to resentment from western panel makers, who say the Chinese build-up was largely the result of unfair state support via incentives ranging from tax breaks to cheap bank loans. Both the US and European Union conducted probes into the matter, and the US imposed punitive tariffs against the Chinese manufacturers last year after determining the claims were true.

Now SolarWorld, which made the original complaint in the US, is saying it will file a new complaint with the US International Trade Commission (ITC) to close a loophole that has allowed many Chinese panel makers to avoid the punitive tariffs. (company announcement) The loophole allows Chinese-made modules to avoid the tariffs if they contain solar cells made in countries outside China. Solar cells are the key component used to make modules, which are the finished product used to generate solar power.

This particular loophole was widely discussed when the US first announced its tariffs last year, and many of China’s solar panel makers said they would be able to avoid the punishment by using solar cells manufactured offshore. I find it difficult to believe the US was unaware of this loophole when it announced the original sanctions, since it was so widely discussed at the time. Accordingly, I doubt SolarWorld’s new complaint will result in any new action by the ITC. Still, the issue is likely to make headlines during the year, and there’s a small chance we could see some new punitive tariffs to close the loophole.

Moving on, Yingli’s newly announced joint venture with Datong Coal Mine Group is much less controversial and looks like a smart business model as China gets set to embark on an ambitious construction program to build solar power plants with 35 gigawatts of capacity by 2015. We’ve already seen a number of major new projects announced recently by other panel makers, including Trina (NYSE: TSL) and ReneSola (NYSE: SOL).

But unlike most of the previous tie-ups that involve partners with little or no experience in the energy sector, this new venture looks a bit smarter because Datong is China’s third largest coal producer and thus should have quite a bit of experience in the sector. (company announcement) Equally important, Datong’s status as a company with a real business means it should have a strong cash flow to pay for new projects. That contrasts with many other new project developers, which look mostly like special entities set up by state-run organizations to execute Beijing’s ambitious solar construction program.

For all those reasons, this new tie-up looks like a smart move that could serve as a template for other panel makers to follow. I’ve previously said there’s a real danger that many of these new projects could run into difficulties because plant developers may lack financial resources and operating expertise needed to succeed. But on the surface at least, this new Yingli partnership looks like it should have a good chance of success and could lead to a major new source of reliable business for Yingli.

Bottom line: A new anti-dumping complaint by SolarWorld in the US is unlikely to succeed, while Yingli’s new joint venture looks like a smart template for new solar plant construction in China.

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.

January 03, 2014

Alternative Energy Mutual Fund and ETF Year End Update

By Harris Roen

Alternative energy investing was very profitable in 2013. This article reviews how green mutual funds and ETFs performed in 2013, what stocks were most favored by these funds, and forecasts where funds should go in 2014 and beyond.

Alternative Energy Fund Returns

2013 has been the year of the comeback for alternative energy mutual funds and ETFs. As of close last week, green mutual funds are up 37% on average. Without exception, not one of the 13 mutual funds ended down for the year. ETFs did even better on average, up 43%, with 14 out of 17 funds posting gains for the year.

Alt E Mutual funds 2013

Contrast this with last year, when alternative energy mutual funds were up less than 10% for the year, with 2 out of 8 mutual funds closing down. Alternative energy ETFs fared even worse, down 3% in 2012. Half of the ETFs closed down in the red.

Alt E ETF 2013 Returns

2013 returns were best for funds heavily invested in solar stocks, including Firsthand Alternative Energy (ALTEX), Guggenheim Solar (TAN), Market Vectors Solar Energy ETF (KWT) and First Trust NASDAQ® Clean Edge® Green Energy Index Fund (QCLN). Many of the solar stocks in these funds were at or near their lows at the end of 2012, so their annual returns look very good. Still, the majority of those solar stocks are far below levels they were trading at several years ago. So for example, ALTEX is back up to where it was trading at in August 2011, but has far to go to reach its highs made 5 years ago.

Mutual Fund and ETF Stock Holdings

It is instructive to take a close look at the most popular securities that alternative mutual funds and ETFs are invested in. Of the green investments that the Roen Financial Report tracks, the most widely held by alternative energy mutual funds and ETFs is Johnson Controls (JCI). According to Morningstar®, JCI is owned by 13 green funds, making it a component of over 40% of all alternative energy mutual funds and ETFs. This blue-chip company is heavy into the building efficiency and power solution business, with the goal of having clients save on their energy bills while reducing their carbon footprint. For example, JCI helps clients achieve green building certification (such as LEED®) through demand-response systems and other efficiency measures. Though we feel JCI is above fair value in its current trading range in the low 50s, this is a solid company that professional fund investors consider a relatively safe and profitable green investment.

The other most widely held stocks are Itron (ITRI), SunPower (SPWR), Cree (CREE), SunEdison (SUNE), First Solar (FSLR) and SolarCity (SCTY). Of these, FSLR is the most heavily weighted stock by a wide margin. In other words, the quantity of FSLR stock that these funds hold makes up the highest percentage of any other single stock. In this case, FSLR makes up over 2% of all the combined portfolios of all 30alternative energy mutual funds and ETFs. The next highest weighted stock is SUNE at 1.7%. The rest of the stocks are around 1% or lower.

Annual sales for FSLR continue to climb, and earnings for this Arizona-based thin-cell solar company came in very strong for the most recent quarter. FSLR is a moneymaking pure-play company in the alternative energy investment world.

Looking Forward

We believe the recovery of alternative energy companies will continue into 2014. Alternative energy continues to enjoy a robustly growing share of the energy market, and there is little indication that his will change over the long-term. We project that these mutual funds and ETFs will maintain double-digit gains on average in 2014.

Another factor to consider is that when people continue to discover the price momentum green investments have seen in 2013, more and more investors will want to get into in these upward moving funds. On the down side, this type of momentum investing will likely cause much continued volatility in the alternative energy sector. The patient investor, however, is likely to be well rewarded by being in a high-quality alternative energy mutual fund or ETF.


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

About the author

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

January 02, 2014

Corn Ethanol On The Chopping Block: Can Green Plains Escape?

by Debra Fiakas CFA

Legislation introduced in the U.S. Senate has put corn-based ethanol fuel on the chopping block.  The bill’s title says it all – Corn Ethanol Mandate Elimination Act of 2013.  Put into place in 2005, the Renewable Fuel Standard required refiners and blenders to use 16.6 billion gallons of renewable fuel in 2013, of which approximately 13 billion gallons will be met through ethanol made from corn. 

Support for the legislation is coming from all quarters.  It is not surprising that poultry, dairy and beef people would think this is a good idea, since corn-ethanol producers have driven up the price of corn-based feeds.  Likewise the oil and gas industry is an expected supporter.  It is surprising to find environmental and outdoor recreation groups calling for the demise of corn ethanol.

Widespread support means the legislation is more likely than not to pass, so it seems like a good time to check on the stocks of public corn ethanol producers.  One would expect the stocks to trade down on the news.  The thing is the stocks prices of most of the corn ethanol producers were already deeply depressed even before the current legislation was in the planning stage.  That might have something to do with the fact that conventional as well as cellulosic ethanol producers alike have largely failed to reach profitability.

The exception is Green Plains Renewable Energy, Inc. (GPRE:  Nasdaq) .  During the twelve months ending September 2013, the company reported $3.2 billion in revenue from the sale of ethanol, corn oil, distillers gains and other livestock feed additives.  Green Plains turned those sales into $127.9 million in operating cash flow.  A cash conversation rate of 4% might not seem very high, but in the ethanol industry where most companies are losing money it is impressive.  No other public ethanol producer can boast such success.   What is more Green Plains has a history of profitability and positive cash flow generation.

At the time the mandate elimination bill was introduced GPRE was trading at 11.1 times trailing earnings.  The unfriendly vibe from Washington DC should have driven the stock down.  However, two weeks later it is trading higher at 12.5 times those same earnings.  In the intervening time Standard & Poor announced it was adding GPRE to the S&P Small-cap 600 Index.  Portfolio managers using the S&P 600 Index were required to immediately step into the market and buy shares of GRPE to bring portfolios in-line with the revised index.

The gap higher in trading last week was just a head fake.  GPRE is not a stock that is ultimately headed to new highs.  At least that is my view.   The corn-ethanol mandate is likely to occupy discussion in the press for a number of weeks and possibly months.  The discussion will not bode well for valuation of even a highly successful corn-ethanol producer.

A few facts regarding the ownership of GPRE might help in anticipating how the stock might behave.  First, the majority of GPRE shares are held in managed accounts rather than by individual investors.  Professional managers tend to be a bit less susceptible to unfounded rumor, but once a sell decision is made it can involve sizeable volume. Second, note that 27% of the float in GPRE had already sold short.  The recent gap higher in price might have washed a few out, but short sellers are likely to circle even closer around GPRE in the weeks ahead.

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.

January 01, 2014

The Pros Pick Four Solar Stocks For 2014

Tom Konrad CFA

bigstock-green 2014.jpg
Green 2014 image via BigStock

With the average solar stock having doubled in 2013, it’s much harder to find bargains in the solar industry than it was a year ago.  But two of the professional green money managers think there is still value to be found.  When I asked them for their top three green stock picks for 2014, they came back with two solar picks each.  You can also read about my panel’s green income stock picks and green information technology picks the earlier articles in this series.

Shawn Kravetz 2013.jpg

Shawn Kravetz is the solar expert on my panel.  He 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, he had the top pick of all my panelists, Amtech Systems (NASD:ASYS), which was up 160%.

This year, Kravetz says “Finding extreme values is challenging” but he still was able to find two that he considers “quite compelling.”

His first pick is Meyer Burger (Swiss:MBTN), a “Leading solar equipment manufacturer whose business has finally troughed.”

Kravetz thinks the company’s business is about to make a “substantial turn” for the better, but the stock has hardly advanced despite the large increase in price for other solar stocks.  Even after a strong 2013, Kravetz says “Global solar installations will likely grow 20% in 2014.  With demand finally nearing an equilibrium with cost efficient supply, this will drive leading players to modernize and expand.  The hangover of the solar nuclear winter and a poorly timed acquisition of competitor Roth & Rau is ending, leaving Meyer Burger extremely well positioned for 2014.”

His second pick, Renewable Energy Trade Board Corporation (OTC:EBODF) is not for the faint at heart.  He calls it the “Highest risk but highest reward of our three picks.” (The third pick was Hannon Armstrong Sustainable Infrastructure (NYSE:HASI), see here.)

The risks with EBODF are liquidity and lack of information.  Kravetz says,

It is tiny and thinly traded.  They have not reported financials recently.  With those caveats, it is actually quite a simple sum of the parts story that is likely worth nearly 5x its current stock price, if not more.  Their value stems from cash on their balance sheet and a substantial stake in a major solar project developer Goldpoly New Energy Holdings Limited (HK:686).  We believe EBODF is potentially worth at least $12.00 per share.

The other manager to pick solar stocks was Garvin Jabusch.  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. Green Alpha Advisors and I are currently putting the final touches on a fossil-free equity income strategy for separately managed accounts, which I believe will be an excellent complement to the growth-focused green strategies which are currently available.

Jabusch’s two solar picks were both strong performers in 2013, so they took me by surprise.  He says,

It might seem a little crazy, but I like First Solar, Inc. (NASD:FSLR) again in 2014.

2013 saw several developments that have laid the groundwork for accelerating medium and long term growth. By partnering with General Electric (NYSE:GE) (which had been FSLR’s only serious competitor in the thin film PV space) FSLR acquired both GE’s portfolio of thin film patents and its manufacturing capabilities. Moreover, FSLR gained access to GE’s sales channels and distribution capabilities via the deal.

Effectively, FSLR has realized a near monopoly on large-scale thin film (CdTe) PV. First Solar will also capture market share because it has very competitive costs, as low as $0.49 per watt of installed capacity, which could make it the clear leader for the utility-scale market. That might be part of the reason FSLR has a large backlog of approximately 2.2 times 2013 revenues. So the growth story is certainly still there.

On the value side, as I write this, FSLR is trading at just 3.8 times cash on the balance sheet, and the latest pullback in share price has brought the company back down to near its book value. Thus, if FSLR merely appreciates to eight times cash or to double book value, the stock could have a 100% year in 2014 on that basis alone.

Beyond 2014, FSLR looks like a good holding for the long-term. Critics will note that guidance for 2014 EPS is less than that for 2013, but this misses the long term advantage point that revenues though not EPS are expected to grow next year, and that the decline in EPS reflects additional investments back into the firm in multiple areas. This is the right approach for a firm in one of the fastest growing industries in the world, particularly if that firm, as is the case with FSLR, is carrying very little debt.

His second pick is also a well-known name: SolarCity Corporation (NASD:SCTY).  He does not consider it a “solar” pick- rather a power producer or distributed utility, since it makes its money from  power generation and electricity sales.  I agree with him that SolarCity is in a fundamentally different business than First Solar and Meyer Burger, and occupies a different place in the value chain, but I include it here because I expect most of my readers would consider it a solar stock.

Jabush has written extensively about SolarCity in his blog, and he highlights this sample:

SCTY seemed brilliant to us: not truly a solar company, but an electricity utility installing both distributed and centralized power generation capacity that, once installed, will earn ratepayer checks indefinitely with very little additional capex required on the part of the company. Think about that: what if you could build a huge coal burning plant and sell the electricity for 20 or more years, get the income from that, but never have to pay for the coal, only need a fraction of the workforce, and not have to worry about GHG or toxic emissions? The thing would just sit there and print money. SCTY is all of that, plus, they’re not exposed to the additional risks inherent in the panel manufacturing business – they just buy the best value panels they can from their preferred manufacturers. Every installation SCTY completes is a 20+ year revenue stream. So, they’re installing as fast as they can, forgoing profits now for much larger profits later. Honestly, we were a bit shocked when they IPO’d at only $8/share. And if you’re worried about their negative EPS today, don’t be; every dollar they spend installing now is going to result in a decades-long income stream. If they wanted to show positive EPS now, today, they could, simply by slowing expansion and collecting the revenue from their existing installments. But they know that’s not the way forward, and so do we.

The new piece about SolarCity is that they have managed to securitize debt financing of new solar power projects. Their new bonds are moving project financing forward, and give credibility to both SCTY and the industry. Wall St. has embraced the debt, giving the new bonds a BBB+ rating, meaning SCTY’s cost of capital can be relatively low. This innovation also means there are good new sources of income for sustainability-oriented investors and managers.

The only material risk we foresee for SCTY is the political backlash (primarily in the U.S.) caused by their success at stealing market share from traditional utilities and fossil fuels companies. Sen. Jeff Sessions’ attempts to discredit the company is one example. But his overreach in comparing SolarCity to Solyndra reveal a profound failure to understand either firm’s business model, the industry, or the energy markets in general.

He also highlights some specific risks for SolarCity in 2014.  He worries that the trends he sees may not be recognized by the markets before the end of next year.  SolarCity is “investing every dollar it can into growing market share for future profitability, it will not earn positive EPS any time soon.”  He feels the markets’ focus on positive and growing earnings per share may prevent investors from appreciating the company’s long term value.  That said, he does not know when the market will come to appreciate this value, so he thinks it’s better to buy now and hold rather than chance missing the share price breakout he expects.


Long time readers know I tend to avoid solar because I prefer sectors which get less attention and where it is easier for me to gain an informational advantage.

Keeping in mind that I’m not a solar expert, I find the arguments for Meyer Burger, Renewable Energy Trade Board, and First Solar much more convincing than that for SolarCity.  Call me old fashioned, but I’m one of those investors who likes positive earnings or a substantial discount to a company’s net assets.  I would not bet against any of these stocks, but I have to wonder if SolarCity’s break-out year was 2013.  After all, it has risen to seven times its IPO price in the last year, and over 4 times since the start of 2013.

On the other hand, Jabusch’s mutual fund (NEXTX) is up 43% from its launch in March, and I’m not the solar expert.  The final arbiter will be the market, and I’m personally hoping all these stocks are up.  If solar stocks turn in another repeat of 2013, it will be because the solar industry has once again surprised the skeptics.  That would definitely be a good thing.

This article was first published on the author's Forbes.com blog, Green Stocks on December 20th.

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

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