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February 27, 2014

Why SunPower (SPWR) is a Solid Bet on Solar

By Jeff Siegel

I've been singing the praises of SolarCity (NASDAQ: SCTY) since the company first went public.

Even as renewable energy bears attacked anything with the word "solar" in the name, I stuck to my guns. And I'm glad I did.

Here's a quick look at how SCTY has performed since its debut:


Of course, at this point, SCTY is an easy ride. Even if the company's next earnings disappoint, the long view remains solid. So when the company delayed earnings this week, I didn't lose any sleep.

The fact is, those who took my advice and jumped in early can weather any potentially negative news along the way. We're just that far ahead of the curve.

For those who didn't, there's still plenty of opportunity in the solar space.

This is a Very Big Deal

It was one of the first major solar players to capitalize on the solar bull market back in 2006.

Launching from an IPO price of $28.00 to $164.00 in just two years, many thought SunPower Corporation (NASDAQ: SPWR) couldn't be stopped. That is, until the market imploded in 2008.

By 2009, SPWR was trading between $25 and $30 a share. And over the next four years, it sunk even further, hitting a low of $3.71.

Of course, it was around late 2012 or early 2013 when we saw the global solar market begin to pick up speed. And while SPWR isn't trading anywhere close to its all-time high of $164.00, had you picked some up at the start of 2013, you would've more than quadrupled your money! That's no joke.

Now here's the interesting thing about SunPower...

Many initially wrote the company off, as it couldn't compete on price with the Chinese. But upon a closer look, you would see that today, the price gap isn't as wide as it once was. In fact, last week, the company announced it had been able to reduce manufacturing costs by 20% last year. That came on the heels of a 25% reduction in balance-of-system costs in 2012.

On the surface, this may not seem like a huge deal. But it is. You see, with this 20% reduction comes the realization that margins are finally competitive.

As Giles Parkinson from RenewEconomy recently wrote, "...the company can lift its margins from slightly negative to nearly 20 percent and deliver a solid return to shareholders. Further cost cuts means it will either improve its margins, and therefore its returns to shareholders, or be able to meet price drops in the consumer space if another surge in capacity emerges."

I agree 100% with that statement and remain bullish on SPWR going forward, with a price target of $38.

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.

February 26, 2014

The 10 Hottest Trends in Algae

Jim Lane 

Algae has been touted as the ultimate platform for fuels, chemicals, nutraceuticals, proteins — even cancer therapies.
There’s been a rate of progress that would impress any devotee of Moore’s Law — and a series of wacky claims that would impress any devotee of P.T. Barnun.

So, what are the real trends?

We’ve traveled several years now since the “Summer of Algae” when it seemed like half the venture capitalists in life sciences were forming algae ventures, or thinking about them. Since then — a cluster of research projects and proto-companies have been tackling the real-world challenges of yield, harvesting, dewatering and application development.

Below are the Top 10 Trends that should be commanding your attention.

1. Big Oil, L’il algae


This past week, algae observers were startled to learn that Reliance Industrial Investments, the Indian oil holding company, placed a $2.4M purchase order for Algae.Tec algae production technology as a follow-up to an initial investment of A$1.5M by Reliance, with additional investments of AU$1.2 million over the next 2 years. The purchase order for Algae.Tec modules will be supplied and completed over approximately the next nine months. The Algae.Tec solution is less than one tenth the land footprint of pond growth options, while its enclosed module system is designed to deliver the highest yield of algae per hectare, and solves the problem of food-producing land being turned over for biofuel production.

Overall, it’s Reliance’s third algae investment. A Credit Suisse report on the company, (see page eight of the report, downloadable here), revealed last year that Reliance has invested a total of $116 million (Rs6.2 billion). $93.5 million (Rs5.0 billion) in Algenol and 22.5 million (Rs1.2 billion) in Aurora Algae.

But there’s more algae activity stirring in the world of Big Oil. In November, Sapphire Energy and Phillips 66 announced a strategic joint development agreement to work together to collect and analyze data from co-processing of algae and conventional crude oil into fuels, and to complete fuel certifications to ready Sapphire Energy’s renewable crude oil for wide-scale oil refining.

Under the agreement the companies will expand Sapphire Energy’s current testing programs to further validate that Green Crude can be refined in traditional refineries and meet all of the Environmental Protection Agency’s (EPA) certification requirements under the Clean Air Act. This includes determining the optimal operating conditions for processing algae crude oil into American Society for Testing and Materials-certified diesel, gasoline and jet fuel. Once the study is finished, the companies will work together to complete the EPA certification process to register a new fuel product entering the market. Sapphire Energy is now producing crude oil daily from algae biomass cultivated and harvested at the company’s Green Crude Farm, located in Columbus, N.M.

Meanwhile, let’s not forget the Synthetic Genomics-ExxonMobil relationship, which debuted in spectacular fashion with a $500M initial spending target in 2009. Last year, SGI announced a new co-funded research agreement with ExxonMobil to develop algae biofuels. The new agreement is a basic science research program that focuses on developing algal strains with significantly improved production characteristics by employing synthetic genomic science and technology. Financial details of the agreement were not disclosed. Last year, ExxonMobil CEO Rex Tillerson told PBS, “We’ve come to understand some limits of that technology, or limits as we understand it today, which doesn’t mean it’s limited forever. The venture is “probably further” than 25 years away from successfully developing fuels.”

The last public update on ExxonMobil’s algae efforts was here.

2. Making Mo’ Better


Algae is renowned for its production potential — after all, the mass can double in as little as 24 hours — meaning that it could dwarf the productivity of terrestrial plants. But translating potential into industrail scale “business as usual” hasn’t been a joyride.

Hence it was big news when, last March, Algenol confirmed that the company had exceeded production rates of 9,000 gallons of ethanol per acre per year — and company CEO Paul Woods said that ” I fully expect our talented scientific team to achieve sustained production rates above 10,000 by the end of this year.” Just last September, in the opening plenary session at the Algae Biomass Summit, Woods revealed that the company, at its 4-acre, outdoor Process Development Unit in Lee County, Florida, had achieved continuous production of ethanol at the 7,000 gallon per acre level.

It was a substantial increase over the company’s original target of 6,000 gpa, and were achieved in outdoor operation under normal operating conditions. With the news, Woods confirmed that the company, after completing major construction activities at their integrated pilot scale biorefinery in 2012, has fully shifted focus to demonstrating the commercial viability of Direct to Ethanol technology at its pilot facility and identifying sites for commercial projects to begin in 2014.

3. Scale

Now, Solazyme (SZYM) doesn’t like to think of itself as an algae company any more than Budwesier wants to be known as a yeast company — both prefer to define themselves by their products rather than around the details of their fermentation technology. Nevertheless, Solazyme does use algae fermentation — and they have been getting to massive scale.

Last month, the company announced that commercial operations have commenced at both Archer Daniels Midland Company’s (ADM) Clinton, Iowa facility, and the downstream companion facility operated by American Natural Products in Galva, Iowa. Volumes shipped to Brazil are being utilized for market development activity in advance of the opening of the Solazyme Bunge Renewable Oils Moema facility. As stated previously, production at the ADM and ANP facilities is expected to ramp to a nameplate capacity of 20,000 MT/yr within 12-18 months, with targeted potential expansion to 100,000 MT/yr in subsequent years.


The company noted, in a release, that “truckloads of product are now shipping from the Iowa operations for use in applications including lubricants, metalworking and home and personal care. These shipments are being made pursuant to multiple supply agreements as well as spot purchases, and include reorders.” Highlighting the flexibility of Solazyme’s technology platform, Solazyme, ADM and ANP have successfully manufactured three distinct and unique tailored oil products at the facilities, and products are currently being sold and distributed in both the U.S. and Brazil.

The Clinton news is a follow-through from the news in December 2012 that Solazyme has announced the completion of multiple initial fermentations in 500,000 liter fermenters at ADM’s Clinton, Iowa facility — about four times the scale of the vessels in Solazyme’s own Peoria, IL facility. That set of runs broke through the ferment wall: namely that, hitherto, no next-generation producer had successfully achieved linear scale-up in 500,000 liter (or larger) fermenters. It’s simply impossible for fermentation-based technologies to affordably produce fuels and chemicals in small fermentation tanks — its way too much capex, too much opex to produce, say, 10,000 liters at a time.

Also at scale in fermentation? DSM and Alltech.

3. Bring on the Apps

“We’re like the iPhone,” said Heliae CEO Dan Simon, “and companies like Triton are bringing forward the apps”. We may well see companies like Heliae selling licenses for its production technology to customers who in turn license and introduce apps, to generate fuels, chemicals, nutraceuticals, as well as complex proteins, enzymes, and other biologics that are cost-effective and have immediate applications in agricultural, pharmaceutical, and other retail markets.

Progress with the “iPhone” is becoming pretty clear, with Heliae booking $4.2M in sales already in 2014 for their raceway-based algae growing technology, after recently completing a $13 million demonstration plant. Although the company has equipment on site to develop fuels from the algae, and the company has previously turned algae into jet fuel on site, Heliae is focusing on the growing side of the equation. The company brought in more than $1 million in revenue last year.


So, what are the hot apps?

Proteins. Almost 10 years ago, out of Dr. Steve Mayfield’s lab at Scripps and later at the University of California at San Diego, a series of discoveries made it possible, for the first time, that algae could be used a platform for synthetic biology and genetic innovation — just as yeast and e.coli had been used for years. Now,tThere are subtle and microscopic reasons why algae could be a platform to rival e.coli — some related to superior folding (proteins that don’t fold properly are generally inactive, or can become toxic or change their function). Mayfield’s technology ultimately led to the formation of Rincon Pharmaceuticals in 2004 to pursue commercialization. Sapphire ultimately acquired, and pursued proteins as a side project.

By 2010, Mayfield was reporting in Plant Biotechnology Journal that seven diverse human therapeutic proteins could be produced in Chlamydomonas reinhardtii, a green alga used widely in biology laboratories as a genetic model organism, with a 60 cents-per-gram protein production costs. Even then, that was “about the same cost estimates for the least expensive protein expression systems presently available, and considerably cheaper than mammalian cell culture,” Mayfield and his team reported at the time.

With expected improvements in the ability to express proteins in algae, “and the continued reduction in algal biomass cost associated with the large scale efforts to use algae for biofuel production, we anticipate at least a ten-fold reduction in the costs over the next few years, which should make algal protein production the least expensive platform available.”

Ultimately, some of the old Rincon IP was spun out of Sapphire and back to Mayfield and Pyle, who then founded Triton last fall. Triton’s platform is known as PhycoLogix, and uses algae to produce compounds that other organisms cannot, that can be safely consumed without modification, and can be cultivated at large scale inexpensively. Heliae ibvested $5M late last year.

Nutraceuticals. In September, Algaeon announced the signing of a multi-year, multi-million dollar supply agreement with Valensa International to provide high value “condition specific” nutraceuticals to the marketplace. Algaeon, in cooperation with Valensa, is using its extensive knowledge of algae production to bring a new level of efficiency and quality for algae-based ingredient supply to the nutraceutical market. Algaeon will develop manufacturing processes and technology while Valensa will produce finished form condition specific products that will be sold to marketers with recognized brands.

DHA. This is the secret ingredient in Fish Oil or Omega-3s sold at your pharmacy for its health benefit. In late 2011, Sofiprotéol, the industrial and financial arm of the French plant oils and proteins sector, established a JV with Fermentalg to “industrialize, produce and market oils from microalgae that are rich in oils from the Omega 3 family (EPA-DHA)” — with a goal of assuring “the development of its patented process until the early scale-up phases of its technology.” Sofiprotéol is providing the bulk of financing. In early 2013, it was training its focus on “omega-3 fatty acids, coloring agents, antioxidants and biopolymers, etc” according to an interview in Algae Industry Magazine. A signature Series C capital raise in Q3 of this year — which netted $16M and attracted existing investors ACE Management, Demeter Partners, Emertec Gestion, and Picoty Algo plus new investors IRDI and Viveris — was in support of a focus on “industrial scale up and commercialization” of its microalgae production for use in “animal feed, biofuels, cosmetics, food, health, and specialty chemicals.”

Also hovering around the DHA scene is Alltech. Their major move into microalgae dates to the acquisition of a former Martek Bioscience plant in Winchester, Kentucky. The plant, which contains 1.26 million liters of fermentation capacity on a 17-acre campus, had been originally built as a yeast production plant, then produced vitamin B2 for Coors, and ultimately was acquired by Martek, before Alltech bought the plant for $14 million. Alltech has publicly discussed a $200 million investment in transforming the plant into heterotrophic algae production facility in Winchester, Kentucky — with a focus on production of DHA. The renovated plant opened in April 2011. Right now, the plant can produce 20 tons of algae per 11-day campaign — a capacity of roughly 1800 tons per year at current productivity. 1800 tons of algae would have a theoretical maximum, at this stage, of a theoretical maximum of 176 tons of DHA production.

Hybrid platforms. Last year, Cellana announced the launch of its ReNew brand and ReNew Omega-3 line of algae-based products. The ReNew brand was developed to meet the growing demand for more sustainable Omega-3 human health products, animal nutrition products, and biofuel feedstocks. The ReNew portfolio is comprised of four main product categories: ReNew Omega-3, including both ReNew Omega-3 products includes ReNewEPA and ReNewDHA, ReNew Feed as a nutritional product for the animal feed market; ReNew Fuel as an algae-based biocrude, particularly for jet fuels for commercial and military aircraft; and ReNew Algae, available in bulk for customers to apply their own extraction technologies and develop customized solutions within these application areas. The ReNew product line is derived from Cellana’s scalable, sustainable, and patented ALDUO algae production technology. Cellana’s six-acre Kona Demonstration Facility on Hawaii’s Big Island has produced more than nine tons of algal biomass for commercial testing. At this time, Cellana is raising money for a commercial-scale facility.

Another company with multiple product lines is Aurora Algae. Aurora burst onto the scene in June 2008 with the announcement that it had raised $20 million in series A financing from Oak Investment Partners, Noventi and Gabriel Venture Partners. The company completed an 18-month pilot in early 2009 and said that it has more than doubled the productivity of its selected strains. By August 2013 Aurora said it was looking to move its planned commercial-scale project algae project to Geraldton, Australia where it already has a test project. It has stated that it needs to expand from 6-acre system to 250 acres to be commercially successful.

The company’s key technology – an optimized strain of salt-water algae that is lighter in color than wild-type algae—allows deeper penetration of sunlight, thereby extending the zone for algae reproduction and increasing yield. That’s the Aurora secret sauce: to outcompete, as a form of crop protection, simply to grow too fast for predators and competitors to get a foothold. The four product lines are: A2 Omega-3—a family of Omega-3 oils aimed at the nutraceutical and pharmaceutical markets. The first offering in this family, A2 EPA Pure will make the benefits of EPA available to a broader market since it is derived from an allergen-free, vegetarian source. Plus, A2 Feed—a family of protein-rich algal grains for the animal and aquaculture markets; A2 Fuel—a family of biomass and biodiesel applications; and A2 Protein—a family of protein-rich powder products for the food and beverage industry.

4. No more venting money, er, I mean CO2.

Then there’s the flue stack — which you might as well call the Money Stack, becasue of all the money that is vented every time a company vents CO2. One of the most interesting plays in algae to use it as a means of monetizing CO2 ‚— turning it from a headache into an opportunity.


BioProcess Algae is helping Green Plains Renewable Energy to scale up its CO2-based algae experiment into a commercial-scale add-on facility. What started out as a lab test that grew and grew until it reached 400 ft-long greenhouses has led to Omega-3 production as well as high value pellets and feed selling from $1,500 to $10,000 a ton, compared to $200 a ton for corn. Omega-3 activity? The company in 2012 announced a commercial supply agreement for EPA-rich Omega-3 oils with KD-Pharma for use in concentrated EPA products for nutritional and/or pharmaceutical applications.

5. Extremophiles

New algae — or rather, undiscovered or otherwise under-appreciated algae — well, algae companies and research organizations have their scouts traveling even more obscure paths than a major league baseball scout.

One of the hottest areas for development — extremophiles. Organisms that love unusual heat or pressure conditions that make them very robust in algae growth systems (for example, algae that can tolerate hot temperatures can out-compete other swimmers in the pond). So, consider this: scientists are researching the production of oil-producing algae, as well the feasibility of commercial-scale biofuel production based on microbes discovered in Yellowstone National Park.

Part of a multi-institutional project funded by a grant through the Sustainable Energy Pathways program at the National Science Foundation, it is one of many algal biofuel research projects at MSU. The project, which also includes the University of North Carolina and the University of Toledo, is part of a federal effort to tackle some of the fundamental problems in developing enough biofuels fuels to provide up to 50 percent of the nation’s transportation fuel. The U.S. Department of Energy funding the project.

6. The Pyromaniax

Hitherto, most algae systems have relied on extraction. That is, grow the algae, dewatering, then extract the valuable oils or proteins. But a number of ventures, such as Sapphire Energy and Algenol, are looking to pyrolylze the whole algae or algae residues.

In Washington state, engineers have created a continuous chemical process that produces useful crude oil minutes after they pour in harvested algae. The research by engineers at the Department of Energy’s Pacific Northwest National Laboratory was reported recently in the journal Algal Research. In the PNNL process, a slurry of wet algae is pumped into the front end of a chemical reactor. Once the system is up and running, out comes crude oil in less than an hour, along with water and a byproduct stream of material containing phosphorus that can be recycled to grow more algae.

With additional conventional refining, the crude algae oil is converted into aviation fuel, gasoline or diesel fuel. And the waste water is processed further, yielding burnable gas and substances like potassium and nitrogen, which, along with the cleansed water, can also be recycled to grow more algae. The system runs at around 350 degrees Celsius (662 degrees Fahrenheit) at a pressure of around 3,000 PSI, combining processes known as hydrothermal liquefaction and catalytic hydrothermal gasification. Cautionary note? The PNNL system runs continuously, processing about 1.5 liters of algae slurry in the research reactor per hour. So, it’s pre-pilot. And it is not going to be cheap to build out, at scale, a system that requires 350 degrees and 3000 PSI.

Along those lines, Sapphire and Linde announced last year that they will expand their partnership to commercialize a new industrial scale conversion technology needed to upgrade algae biomass into crude oil. Together, the companies will refine the hydrothermal treatment process developed and operated today by Sapphire Energy at pilot-scale. In addition, they will jointly license and market the technology into an expanded list of industries, including algae, municipal solid waste, and farm waste, in order to upgrade other biomass sources into energy. The agreement spans a minimum of five years through the development of Sapphire Energy’s first commercial scale, algae-to-energy production facility.

7. One word. Plastics.

What about new materials? Plastics have been promising. In December, the Institute for Plastic Technology in Valencia profiled its EU program looking into various materials that can be produced from algae to create adhesives, paints and dyes using a technology developed by Alicante-based Biofuel Systems. The 42-month research program includes 13 different companies. The first stage of the project will be to identify fast-growing algae to later be processed.

8. Scrubbers

Then, there is algae’s abilities not only as a product, but as a platform for scrubbing wastewater — which has been a use for algae for years. But recently, algae’s abilities to scrub out highly toxic materials has been put to the test.


Last month in Japan, a research group led by Yoshihiro Shiraiwa of the University of Tsukuba identified seventeen microalgae,aquatic plants and algae that are able to efficiently remove radioactive cesium, iodine and strontium from the environment were identified. The research was conducted to deal with the The findings add to existing bioremedial options which could help to decrease radiopollution in the Fukushima area.Such measures are of utmost importance, because a large quantity of radioactivity has been released. The researchers noted that further studies are needed on the mass cultivation and efficient coagulation and sedimentation of these algal strains before their findings can be put into practice.

Plus, there are tools to keep the algae ponds free of pests, predators, competitiors and the like. Along those lines, in November OriginOil announced that academic testing has verified its new Algae Screen growth optimizer effectively controls bacteria and microscopic predators in commercial algaeproduction, helping to promote high rates of cultivation of the most valuable species. “Initial test results saw a dramatic drop in contaminant load while the culture still maintained target cell integrity,” said Dr. Matt L. Julius of the Department of Biological Sciences at St. Cloud State University in Minnesota. “This is one technology that will change the industry once it is fully validated.”

9. Kelp is On the Way

What about macroalgae, also known as kelp? In California, researchers from Bio Architecture Lab published in the journal Nature an alginate monomer transporter they discovered that will help to significantly boost the efficiency of cellulosic ethanol production from brown macroalgaes. Using fermentation, the researchers were able to achieve 83% theoretical yield from the sugars.

Several years ago, BAL and Norway’s Statoil announced a wide-ranging strategic partnership for the production of renewable, sustainable and low cost ethanol derived from macroalgae grown off the coast of Norway. Statoil will fund BAL’s research and development (R&D) and demonstration projects, and if successful, will also fund the commercialization of BAL’s technology in Norway and elsewhere in Europe. During the initial phase of the partnership, BAL is responsible for developing the technology and process to convert Norwegian seaweed into ethanol. Statoil is responsible for developing and managing the seaweed aquafarming operations, with consultation from BAL, which already has established aquafarming operations in Chile. Upon the successful achievement of key milestones, Statoil and BAL would develop a demonstration scale facility in Norway.

10. Building the better mousetrap algae.

Final trend? Bulding a better algae through genetic enhancement. That work has been mostly undertaken by Sapphire, which has been engaged in some brute force biology to get the industry going.

In late 2012, for example, Sapphire Energy and Institute for Systems Biology announced a strategic partnership to significantly increase oil yield and improving resistance to crop predators and environmental factors in order to further the advancement of commercialized algae biofuel production. “Sapphire is dealing with one of the most complicated problems known to humans: how to make fuel from a renewable resource,” said Nitin Baliga, director of Integrative Biology at ISB. ”Together, we have complementary expertise that will allow us to understand, reverse engineer and rationally alter the gene networks for fuel production in algae.”

But the effort continues elsewhere. Last November in Tennessee, researchers at Vanderbilt University have found that when the biological clocks of cyanobacteria were stopped in their daylight setting, the amount of several biomolecules that they were genetically altered to produce increased by as much as 700 percent when grown in constant light. “We have shown that manipulating cyanobacteria’s clock genes can increase its production of commercially valuable biomolecules,” said Carl Johnson, Stevenson Professor of Biological Sciences at Vanderbilt University.

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.

February 24, 2014

Solar Conquistador

by Debra Fiakas CFA

320px-PS20andPS10[1].jpg In the last post on Brightsource Energy and its Ivanpah solar thermal power plant in California, I offered no investment opportunity.  Brightsource’s colossal configuration of mirrors and boilers in the Mojave desert is not the first solar thermal power plant using the tower configuration.  The solar subsidiary of Spain’s power generator and transmission leader Abengoa S.A.(ABGB:  Nasdaq) was first to market with a commercial solar thermal tower power plant near Seville.

Since construction first started in 2004, Abengoa Solar has brought a series of solar thermal projects into operation.  The company has five solar thermal projects in Spain.  Abengoa partnered with Hassi-R’mel to build and operate an integrated solar combined-cycle plant in Algeria with a power output of 20 megawatts from a parabolic mirror and another 130 megawatts generated from fossil fuel.  Abengoa is in partnership Total, SA and Masdar in the operation of a 100 megawatt solar thermal power plant near Abu Dhabi.  In 2013, Abengoa went operational with a 280 megawatt installation near Gila Bend, Arizona in the U.S.  The Gila Bend plant relies on the largest parabolic trough in the world.

While NRG Energy may has some reticence about further solar thermal power investment, Abengoa is still moving full steam ahead.  The company has 150 megawatts under construction at two sites in South Africa.  At the beginning of this year the company announced plans to develop a 110 megawatt solar thermal power plant in Chile.  What is even more interesting is that Abengoa already building a 280 megawatt solar thermal power plant near Barstow, California just a few miles down Interstate 15 from the Ivanpah solar thermal power plant being operated by NRG Energy and Brightsource. 

Abengoa shares trade on the Nasdaq Global Select Market, making it enticingly easy to access this excellent Spanish company.  The stock appears dear considering reported earnings.  Yet the company earns a 7.3% operating profit and converts 11.7% of sales to operating cash flow.  Brightsource’s partner in Ivanpah and another operating utility, NRG Energy, earns about the same operating profit but only turns 8.7% of sales to cash.

Brightsource Energy plugged its Ivanpah plant into the electrical grid with some trepidation as the public questioned the economic viability of the plant.  Abengoa appears more confident in its designs and processes.  The corporate tone provides a clue for investors.

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.

Image: Abengoa's PS20 and PS10 in Andalusia, Spain . Photo by Koza1983.

February 21, 2014

SunEdison Launches Yieldco; Trend Will Be Transformative For Solar

James Montgomery
Sunedison Logo.png
SunEdison proposes Yieldco IPO

The proposed initial public offering (IPO) of common stock for a new yieldco vehicle, with terms yet to be determined, was announced hours before the company's quarterly and year-ending financials. Reports over the past couple of months have suggested a SunEdison (SUNE) yieldco could generate a $300 million payday. Later this month (Feb. 24) the company will hold its Capital Markets Day with a more extensive analysis of its business strategies, and surely this will be a big topic of conversation.

Here's why SunEdison and the rest of the industry is so keen to pursue new finance options. Back in its 3Q13 financial results SunEdison calculated its current business model of building and selling solar projects yields about $0.74/Watt -- but those assets' true value could jump as high as $1.97/W if the company can find ways to enumerate and apply various methods: lower the cost of capital, apply various underwriting assumptions, and factor in residual value in power purchase agreements. That's a startling 2.6× increase in potential value creation that SunEdison thinks it can unlock, and creating a yieldco structure to attract interest from the broader investor community is a big part of the answer.

In its 4Q results SunEdison puts more numbers to that value-creation equation: in the fourth quarter it captured an additional $158 million by retaining projects vs. simply selling them off. And by applying most of the 127-MW on its balance sheet with an estimated $257 million in "retained value" to this yieldco, the company says it has sufficient scale to unlock the true value of those solar assets.

In the past year several yieldcos have come to the forefront. Last summer NRG Energy launched NRG Yield (NYLD) with a 1.3-GW portfolio of energy generation assets, though fewer than half of them were renewables (solar and wind); earlier this month NRG Yield proposed to raise another $300 million. Pattern Energy (PEGI) issued its IPO in the fall backed by a number of wind farms. Other recent yieldco examples include Brookfield Renewable Energy Partners (BEP) and Hannon Armstrong (HASI).

More directly from the solar sector, SunPower (SPWR) recently talked about doing a yieldco maybe in late 2015, likely to feature its 135-MW Quinto project and possibly its 120-MW Henrietta project. Others eyeing the yieldco model reportedly include Canadian Solar (CSIQ), Jinko Solar (JKS), and First Solar (FSLR).

"This trend is transformative for the solar industry" because of how it can unlock so much more value and thus returns, explained Patrick Jobin, Clean Technology Equity Research analyst with Credit Suisse. (Disclosure: SunEdison is one of his top picks specifically for that reason.) "We're probably in the first or second inning of the public capital markets appreciating what this does for the industry."

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.

February 20, 2014

Power REIT's Preferred Stock Offering: A Hedge That Pays 7.75%

Tom Konrad CFA

Disclosure: I am long PW, and have subscribed to the offering of preferred shares.

Several smart money managers I know are excited by the heads-I-win, tails-I-win big opportunity offered by Power REIT’s (NYSE:PW) attempt to foreclose on its railroad lease with Norfolk Southern Corporation (NYSE:NSC) and Wheeling and Lake Erie Railway (WLE).  I know this because I’m one of them, and I’ve talked to others about it.  Others aren’t quite so sure.  Despite the fairly obvious merits of its case, as a tiny company, Power REIT is massively outgunned when it comes to fancy lawyers.  NSC, for one, does not seem at all concerned about its prospects: The civil action has not even made it into the company’s disclosure of legal risks in its annual report in either of the last two years.

Now there’s a way to hedge that risk.

The Offering

This article is not about the legal opportunities.  See the links above and the company’s most recent litigation update to learn about those.  It is about an overlooked opportunity in Power REIT’s ongoing Preferred Stock offering.

Why do I say this opportunity is overlooked?  Because, until I asked Power REIT’s CEO David Lesser about it yesterday, he had not even thought about it himself.  Nor is it mentioned in the offering documents or presentation.

This is the opportunity: If Power REIT loses the civil action, the value of the preferred should increase.

Preferred stock is usually a hybrid between the characteristics of equity (common stock) and debt (bonds.)  This preferred offering is closer to the debt end of the range.  The upside for investors is collecting the 7.75% dividend payments, since the preferred can be redeemed at any time after 2018 at par.  Like bond interest, preferred dividends are much more secure than dividends on common stock.  With a “cumulative” preferred issue like this one, preferred dividends are not lost  if the company is temporarily unable to pay.  They will accrue until the company is able to resume dividend payments.  All accrued and current dividends on the preferred must be paid before the company pays any common dividends.

The company intends to pay preferred dividends currently.  If it were to suspend preferred dividends at some time in the future, those accrued dividends would have to be paid as soon it started making a profit.  That’s because 90% of REIT profits must be paid out to shareholders in order to maintain REIT status, and preferred dividends (both current and accrued) must be paid before common dividends.

While Power REIT is not currently profitable, this is due to the legal expenses from fighting a civil action against two much larger companies.  One reason Power REIT can pay its preferred dividends despite these legal expenses is because its law firm has agreed to accept payment only when the company is able to pay.  (Few law firms would accept such terms, but Lesser’s wife is a partner at this particular firm.  While the related party transaction has caused some prospective investors to pause, the extended payment terms and the firm’s willingness to allow Lesser to do much of the work which would normally have been done by paralegals would not be available from a firm without this relationship.  I also understand that a certain about of uncompensated legal advice arrives in the form of pillow-talk.)

If PW loses, preferred dividends will become tax-free.

All of that explanation was a prequel to why the preferred is an excellent hedge for the risk that Power REIT might lose the civil action.  A “loss” in the civil action would basically mean WLE and NSC get everything they want: a return to the status quo.

  1. PW could not foreclose on the railway lease, and rent would remain at $915,000 annually.
  2. NSC and WLE  indebtedness of at least $16.6 million (plus accumulated interest) under the lease would not be due.
  3. NCS and WLE would not have to pay PW’s legal expenses.

A win, of course, could see the opposite result on all these accounts, which could mean a cash infusion larger than the current market value of the company.  That is why common investors are excited.

Preferred investors, on the other hand, only get the upside in the payment of their 7.75% dividend.  This dividend will be more secure if PW wins on any of the above counts.  If PW loses, however, the dividend will be a tax free return of capital.  That is because PW will be able to write off the $16.6 million indebtedness mentioned in item 2, off-setting PW’s next $16.6 million of profits for tax purposes.  If the company were to resume its former $0.10 per share dividend on the common, and the full preferred offering is subscribed, that $16.6 million would be enough to turn all those dividends into a tax-free return of capital for the next 32 years.


If PW loses its civil case on every count, it should be able to continue paying its preferred dividends, but those dividends will become a tax-free return of capital.  While PW’s common stock may decline without the prospects of a big pay-off, the value of the preferred should increase given the new, tax-free status.  If PW wins, the payment of the dividends will be backed by cash, which should also help the value of the preferred by reducing risk.

Hence, PW’s preferred stock (NYSE:PW-PRA) should be a perfect hedge for any legal risk embodied in the common stock (NYSE:PW.)

The 7.75% annual dividend is nice, too.

This article was first published on the author's Forbes.com blog, Green Stocks on February 7th.

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.

February 19, 2014

Mirrors in the Mojave

by Debra Fiakas CFA

Last week the Ivanpah solar thermal power plant in California went operational last week.  Ivanpah is a marvel.  Located in the Mojave Desert, the power plant generators are driven by steam like any other.  However, at Ivanpah the steam is created by acres of large mirrors that reflect and concentrate the desert sunlight onto water-filled boilers.  The boilers tower 150 feet above the mirrors that are spread across 3,500 acres. 

Ivanpah scale has required the cooperation of a number of players.  Brightsource Energy is running the show with the power plant owner NRG Energy (NRG:  NYSE).  Google (GOOG:  Nasdaq) is a ‘relatively’ silent third owner that sent a ‘relatively’ impressive check for $168 million.  It is has taken big players like NRG and Google to get Ivanpah up and running.  The project has run up a tab close to $2.2 billion.

Ivanpah Solar Power Facility during construction, Dec 2012, photo by Craig Dietrich

Brightsource has backing from France’s Alstom S.A. and a gaggle of big name venture capital firms such as VantagePoint Capital Partners.  Interestingly, oil and gas players also have their hand in solar thermal project through their venture arms Chevron Technology Partners and BP Ventures.  Brightsource and its two partners have amped up their own investment in the Ivanpah project with a $1.6 billion loan guaranteed by the U.S. Department of Energy.

The verdict is still out on the economic viability of Ivanpah.  Much has changed over the five years the project has been in development and construction.  Power produced from cheap natural gas is casting a long shadow across alternative energy sources of all stripes.  Ivanpah’s three generating units have the capacity to produce 400 megawatts.  That means it is cost $5,500,000 per megawatt to build Ivanpah.  Thus the projects staggering cost puts the plant at a disadvantage compared to natural gas fired power plants or even nuclear projects.  A natural gas power plant costs around $1,000,000 per megawatt and a nuclear power plant costs a bit more at $1,100,000 per megawatt. Ed. note: the price of a nuclear plant seems low; the EIA puts a new nuclear plant cost at $5,530,000 per MW. The other prices are in-line]

Last week Brightsource Energy’s management put on a happy face for the Ivanpah debut.  They are certain once the project has proven out the phone will be ringing with parties interested in thermal solar power.  Just the same, we know NRG Energy is right in the thick of things at Ivanpah and yet has put a moratorium on additional solar thermal power investments.

In my view, there is no investment to be made here.  Shares of Google and NRG Energy reflect their principle businesses and not the Ivanpah project.  Brightsource Energy is a private company.  Even if it were to raise new capital, few of us would get a seat at the table with venture capital firms like VantagePoint.  However, it is worthwhile watching how this thermal solar plant plays out.  It will take a variety of power sources to replace fossil fuel.  Which ones have sustainability is yet to be proven.

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.

February 18, 2014

Trina Drives Consolidation As Solar Trade War Flares Up

Doug Young 

As if the solar trade war between the US and China wasn’t bad enough, tensions just got worse with a preliminary ruling in Washington aimed at closing a loophole to a previous ruling imposing anti-dumping tariffs on Chinese solar panels. I’ll admit I was a bit surprised by the preliminary ruling just announced by the US International Trade Commission (ITC), as I’d previously predicted this latest action in the Sino-US solar trade dispute would quickly fizzle. Meantime, industry consolidation is continuing in China, where more than half the world’s solar panels are currently made, with word that Trina (NYSE: TSL) is buying a controlling stake in another smaller rival.

I said above that the ITC’s latest move surprised me a bit, but what certainly hasn’t surprised me has been China’s defiant protest at this latest development. I obviously don’t know what’s happening behind the scenes, but at least on the surface it appears that Beijing has done little or nothing to try and address western concerns underlying this 2-year-old trade war. Those concerns center on allegations by the US and Europe that China unfairly supports its solar panel makers by providing a wide range of government subsidies ranging from low-interest bank loans to cheap land for building new factories.

Rather than try to find a solution that would satisfy these western governments, Beijing is embarking on its own building spree for new power plants that could raise further complaints of unfair government support. Meantime, this new purchase by Trina should be a welcome development, but could also raise new tensions since the company is probably paying little or nothing for its controlling stake in Hubei Hongyan, which itself is most likely a state-run enterprise.

All that said, let’s take a look at the latest development in Washington that saw the ITC make a preliminary determination that Chinese-made solar panels that use Taiwanese components may violate fair trade principles. (English article) That determination means the case can go forward, and a final ruling could come later this year. Washington last year imposed punitive tariffs on Chinese-made solar panels after the ITC determined that Chinese producers received unfair government support. But China-made products using key components from Taiwan were exempted from the ruling — a loophole that the US arm of German producer SolarWorld (OTC: SRWRF) is now trying to close.

SolarWorld was predictably pleased at the initial ruling (company statement), but others were less thrilled. A group representing US installers of solar panels, the Coalition for Affordable Solar Energy, said that closing the loophole would drive up prices for everyone, since China produces so much of the world’s supply. Beijing has yet to formally react to this latest development, but late last month called on Washington to stop the probe and said it has “serious concerns.”

Meantime in the day’s other solar news, Trina has announced it will acquire 51 percent of solar panel maker Hubei Hongyan from its parent, Shenzhen S.C. New Energy Technology. (company announcement) No financial terms were given, which means that Trina is probably paying very little for the stake, or possibly even getting it for free. That wouldn’t come as a huge surprise, since the company has relatively modest manufacturing capacity of 50 megawatts per year, and is probably losing lots of money.

I’ve had a look at Shenzhen S.C.’s website, and there’s no indication of whether it’s a state-owned company. But I would be willing to bet it is, though its parent is probably making the sale out of commercial pressure rather than pressure from Beijing. Still, a foreign buyer almost certainly would never have been considered for this sale, and Beijing in general has shown no signs of encouraging a more open and commercial-oriented approach for the market. Until that changes, look for tensions to continue to simmer, slowing development of this important sector that will be critical for the world’s future energy security.

Bottom line: A new preliminary ruling from the US will boost tensions between Beijing in a long-running trade dispute over solar panels, benefiting nobody.

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.

February 12, 2014

Lessons From Tesla: Building An Ethanol Market

Jim Lane 

E85 ethanol? Been stuck with low sales for years – with producers pointing to “no market access”.  Yet, Tesla was faced with “no market access” — and built its own market. What lessons can be learned?

Last week, Tesla Motors (NASD:TSLA) announced the completion of its transcontinental US Supercharger Corridor, a network of stations that enable Model S owners to (somewhat) rapidly recharge their Teslas on a cross-country drove. And intrepid Tesla blgger Hamish McKenzie relayed the news last week that two Tesla Model S sedans completed a 76-hour coast-to-coast all-electric crossing.

The news follows closely on the announce from last October that Tesla had completed its West Coast Supercharger Corridor, a network of stations between San Diego, California and Vancouver, British Columbia.

Tesla Superchargers are substantially more powerful than any other charging technology — providing half a charge in as little as 20 minutes via Superchargers that are strategically placed along major highways connecting city centers.

How much do you pay for a recharge? A dollar per KW, 20 cents, a dime, a nickel?

Actually, Tesla gives you the power for free.

In terms of alternative fuels technology, you have to salute their achievement. They’ve taken a long-mentioned problem with all-electrics — the absence of rapid recharging stations that shuts down the effective range of the vehicles — and turned it in to a product advantage.

Turning to E85 ethanol’s market access woes

Turning to liquid alternative fuels such as E85 ethanol — it goes without saying that the Renewable Fuel Standard would be intact if the ethanol industry had been so intrepid and built a network of E85 stations that addressed that fuels’ challenges as adroitly as Tesla addressed theirs.

It is a different challenge, of course. It’s not about extending range, since there are already 3,000 stations in place — nor about repaid fill-up, since E85 fills up rapidly. The issue with E85 is cost. 85-cent E85 gets them lining up around the corner. $3.00 E85 is a non-starter that has been failing ever since it was brought to the market.

In the case of Tesla, they correctly concluded that oil companies were not going to build a network for them — thereby handing a new market Government funds are sometimes available, but grants are unreliable in size and scope. Your friend at the state or national capital might just be as likely to build something you don”t really need, at a cost you can’t afford. Consider, for example, the $1 million per outlet that California is spending on building a hydrogen fueling station network.

According to the Digesterati, who provided some figures on the subject this week, there are now more than 15 million flex-fuel cars built in the US, with 5 million new vehicles on the street just last year. Detroit has done a good job.

Now, the world does not need blender pumps, it needs low-cost fuels — low enough to induce people to make a switch. Which is to say, more than a 50-cent discount to conventional fuels. In fact it needs an 85-cent discount – available every day.

Who’s going to provide that? Ethanol producers, via their own network. One corridor of, say, 20 stations coast-to-coast, saving drivers 85 cents per gallon and providing a lesser, but still notable, reduction in cost per mile. Backed by meaningful promotion.

That’s the kind of publicity that drives market awareness, market acceptance. Makes a flex-fuel vehicle something worth having, something worth understanding. Sure, early adopters care about carbon, but the mass market cares about price and performance

Consider the math this way.

If just half of the 15 million drivers with flex fuel cars chose E85 just half the time, that would equate to roughly 2.25 billion gallons of additional demand per year. The Renewable Fuel Standard would not have any problems based on blend wall, today.

Demand begins with acceptance, acceptance begins with experience, experience begins with incentive.

If every ethanol producer contributed one penny per produced gallon at an E85 development fund, that would represent enough cash to outfit 125 stations with a blender pump and 200 gallons per day of discounted fuel, for one year. With plenty left over for promotions like 85-cent per gallon fuel-ups on special days, or at special locations.

That’s would equate to an average range distance of 150 miles between E85 stations, which is to say that you could drive just about anywhere in the US on discounted fuel.

That’s a market solution to the blend wall problem that costs the taxpayer nothing, and does not require a separate mandate, incentive, tariff, subsidy, grant or tax credit.

Here’s the data on those 15 million flex-fuel vehicles.

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.

February 11, 2014

Rentech: Pulp, Pellets and Fertilizer

by Debra Fiakas CFA

Rentech-Logo197x90[1].pngA shareholder group has taken aim at alternative energy and fertilizer producer Rentech, Inc. (RTK:  Nasdaq), offering a slate of nominees for the next election of directors.  They claim Rentech management is overpaid and doing a very poor job of executing on the company’s strategic plans.  The nominees were a focus of discussion in the last post.  Now we will take a closer look at Rentech’s operations.

The majority of Rentech’s revenue is generated from the sale of fertilizer products from the Company’s plants in Dubuque, Iowa and Pasadena, California.  Rentech earns a 47.6% operating profit margin at its Dubuque ammonia plant, but its ammonium sulfate plant in Pasadena operates at a loss.  Indeed, in the first nine months of 2013, Pasadena lost $38.5 million on $110 million in sales.  The Pasadena operation was a part of the Agrifos acquisition in November 2012.  Things have not gone smoothly since low-cost ammonium supplies from China have put downward pressure on prices.  What is more a wet planting season reduced demand in North America.

Approximately 13% of sales are generated by one of Rentech’s recent acquisitions.  Fulghum Fibres, which was bought in May 2013.  Fulghum processes wood fibers and sells wood chips and bark to the pulp and paper industry.  The group generated an 8.0% operating profit margin in the first nine months of 2013.

Rentech is developing additional interests in wood pellets, which it has named the Atikokan and Wawa Projects.  The company came by both projects through acquisitions in May and June 2013.  The company expects to produce 125,000 metric tons of wood pellets annually at Atikokan and another 360,000 metric tons at Wawa, Ontario, Canada.  Neither plants are producing revenue, and so turned up a $4.2 million operating loss in the first nine months of 2013.

Although Rentech is no longer producing biofuel, the company owns a fistful of energy technologies such as gasification methods for biofuel production.  The company earns the odd license or consulting fee  -  $300,000 in the first nine months of 2013.  That is unfortunately not enough to cover the costs of research and development.  The operating loss reported so far in 2013 is $5.0 million.

There are no big success stories in Rentech’s various operations.  The company has used a fair bit of cash for acquisitions  -  $65.6 million in the first nine months of 2013.  Rentech has also sunk some money in building out the Atikokan and Wawa facilities among other projects.  Capital spending climbed to $60.5 million so far in 2013.  There is another $120 million in construction projects lined up for 2014, most of which is for expansion and upgrades at the Dubuque fertilizer plant.  There is $180.4 million in cash in the bank and another $4.6 million in assets up for sale that can be used to pay the bills. 

If nothing else these few paragraphs should alert investors to a busy, complicated business model at Rentech.  Concede that point to the shareholder group criticizing Rentech leadership.  Keeping the ship on an even keel takes some management skills.  Perhaps that is why management has demanded the sort of paychecks at that shareholder group has labeled excessive.   

Figuring out if the current stock priced near $1.80 per share is a bargain, requires quite a bit of figuring  -  asset values, future cash flow potential. Alternatively, investors can simply use their better judgment and wait until the shareholder meeting is concluded and see who is still standing after shareholders vote on director nominees.

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.

February 10, 2014

End Draws Near for Suntech

Doug Young 

Sunset looms for Suntech. Photo by Tom Konrad

The month of February could mark the final sunset for solar panel maker Suntech (OTC: STPFQ), with 2 major events on the calendar that look like the swansong for this former solar energy pioneer. If the ending does indeed come, it would be almost a year after Suntech first was forced into bankruptcy in a Chinese court in its home city of Wuxi, kicking off a contentious process that saw many of its top executives and board members leave and rival Shunfeng Photovoltaic (HKEx: 1165) purchase most of its China-based assets. One of the biggest remaining questions will be how much, if anything, holders of the company’s stock get for their shares.

Suntech announced the first important date on its calendar last month, when it said it would hold a creditors meeting on February 12, or next Wednesday, in the Caymen Islands where it is technically based. (company announcement) Items on the agenda for that meeting include election of a liquidation committee, hinting that a final plan was finally near.

A newer hint that the end was finally coming came over the just-ended Lunar New Year holiday, when Suntech announced it had reached a settlement with a group of creditors trying to force it into bankruptcy in a New York court. (company announcement) Under that settlement, the creditors agreed to temporarily halt their bid if Suntech could provide a liquidation plan agreeable to everyone by February 21.

That agreement hints that the creditors behind the New York petition have gotten a look at terms they are likely to get under the final liquidation plan, and are satisfied with what they’ve seen. That means we could potentially see a final plan announced at the February 12 meeting, which could be followed by a vote and finalization of the plan by February 21. If the plan is approved, which looks increasingly likely, Suntech could cease to exist as an independent entity by the end of this month and its shares could finally be de-listed from the over-the-counter market.

The question of how much those shares will be worth is still a big one, as reflected by a 22 percent drop in Suntech shares to 40 cents during the last trading session, valuing the company at about $72 million. Before the sell-off, the company’s shares had been relatively stable since December, trading in the 50-60 cent range. That sudden volatility probably represents shareholders’ realization that the end is drawing near, prompting some to sell at any price while they can still get money for their stock.

One research house told me as recently as early January that Suntech should be valued at around $130 million based on the latest price of its debt at that time. The price of the debt has probably dropped sharply since then, resulting in the current market value. I suspect the share price could creep down further still as we approach the February 12 meeting, though I don’t have enough information to make an educated guess about where it will finally bottom out.

When the end comes, Suntech will formally become the biggest victim of a painful period of restructuring for the solar energy sector. The company was one of the first to tap a boom in solar energy plant construction, but its heavy debt caused it to collapse when the sector got hit by oversupply after a massive build-up of new capacity in China. The company’s formal departure signifies an end to this painful chapter in the sector’s brief history, though we’re still likely to see 1 or 2 other major failures before the consolidation is finally complete.

Bottom line: Suntech could formally be dissolved by the end of this month, and its shares are likely to creep downward before final terms of its liquidation are announced in the next 1-2 weeks.

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.

February 09, 2014

Solar Micro FiT 3.0 as an Investment

Brian Kennelly

I am asked this question over and over again and I can answer quite emphatically, YES! Most think I answer that way because I’m a nut about renewable energy and sustainability and my business also sells solar arrays. These are valid points but I still maintain that the OPA FiT program is one of the best, secure and environmentally friendly investments you will ever make!

Most people that know me probably are not aware that I was educated and began my career in finance and accounting. A very satisfying time, but alas my entrepreneurial urges got the better of me and I left the profession many years ago. The background and experience in that field have served me well over the years by keeping my various business interests on a stable financial track. It has certainly helped these past five years as we have grown our renewable energy business throughout the ups and downs of the Ontario solar marketplace.

Now, I am also able to draw on my financial background as I help to demonstrate to our clients the financial benefits of green energy technology. In this article I will hopefully clearly demonstrate to the reader the financial benefits of investing in a solar array. I will focus specifically on the Ontario Feed-In-Tariff (FiT or Micro FiT) and how an investment in solar panels outperforms any fixed income investment available today. I don’t presume to be an expert on investments so I encourage you to do your own investigations – and I challenge you to come up with a different conclusion.

First lets quickly go over the FiT program for those that are unfamiliar with it. In Ontario, the Ontario Power Authority (OPA) will sign a twenty-year contract to buy electricity from renewable energy systems (wind, solar, biogas and hydro) installed by you. The rates for each kWh sold vary by type and size of system and can be found on the OPA web site. For this article we will focus on a solar roof mounted system at 10 kW’s in size. For this type of system, under the new FiT 3.0 rules, the OPA will pay you $0.396 per kWh. Two years ago the rate was $0.802 per kWh. Unfortunately, this rate was too good to be true and could not last, but if you were one of the lucky ones to get a contract at that rate and then waited until PV prices dropped then you did quite well. So, is it too late? Absolutely not! The cost of a solar array back then was about 3 times what it cost today so the program is still very attractive, which we will demonstrate for you here.

micro fit

Now lets consider a typical 10kW solar array, roof mounted with a southern exposure. In today’s market you would pay about $30,000 for this system, installed. Factors affecting pricing include type of inverter (micro or string), roof type (metal, slate, asphalt), access to roof (steep or low pitch) and location, but $30k is a good estimate. When I am working with a client I usually present a range of estimated annual energy production numbers for the array based on several estimating tools including Homer and PVWatts. I also refer back to our installed projects that have monitoring and reporting capabilities in order to provide a fairly conservative production and revenue projection for anyone contemplating this investment. For this example, and under the new FiT3.0 rules on array and inverter sizing, I would conservatively estimate that for each installed kW, the system would generate 1,289 kWh’s per annum/ installed kW or 12,890 kWh’s for a 10 kW array.

At a rate of $0.396 per kWh, that would result in an annual payment of $5,104 from the OPA. Now, there are costs involved that need to be taken into consideration as well as the fact that the panels will degrade slightly over the 20-year contract, but these are minor adjustments. For arguments sake, I’m going to use a 20-year average of $4,620 in net revenue (before income taxes). You will note that I am not including HST in any of the calculations. If you do decide to invest in a solar array under the FiT program I highly recommend you speak with your accountant about the various tax strategies but it is beneficial to voluntarily set yourself up under the HST program and claim back the HST on the initial investment and remit the HST on the payments from the program.

Using my trusty HP12C financial calculator (that I’ve used for the past 30 years), or a PVOA table, you can easily calculate that the rate of return on this investment is greater than 14%. Now compare that to a similar investment with a 20-year locked in rate, with a quasi Government credit rating and you would be hard pressed to find anything paying close to 4 or 5% on your money. Some arguments I have heard are that the Government will renege on the contracts (massive law suits, many, many angry voters, therefore very unlikely) or that the energy production and revenue are dependent on the amount of sun. Well, if in some crazy world the OPA does void contracts, your array still has value in its ability to offset your homes energy consumption, and given rate increases over the next 20 years, this is still a better than breakeven scenario. Solar irradiance data (sun intensity) has been reliably predicting the amount of sun for a given area for over 40 years so the production estimates used will hold true. Now if the sun does stop shining, we all have more important things to worry about than our investments!

Absent from this calculation is any consideration for the useful life of your array. Realistically, your array will provide 30 – 35 years of energy so after the contract is up with the OPA, you can easily have your local electrician reconfigure the wiring so that the solar energy is consumed by your house first, and any extra will turn the meter backwards saving you on your electrical bill. Its called Net Metering.

In conclusion, the FiT program here in Ontario is one of the best investments of its type (fixed income) and should be seriously considered by anyone with a roof and available investment capital living in Ontario. It is also a great way to invest in the future of our planet, as every kW generated by your solar array is one less kW generated by a fossil fuel source. We think that’s important and that’s why we do what we do. If anyone is interested in the financial aspect of such an investment we have copies of a very comprehensive spreadsheet that takes into account taxes, insurance and borrowing costs to name a few and we would be happy to forward a copy to you to do your own comparative analysis. Just send a note to info@daisyenergy.ca.

Brian Kennelly is the President and owner of Daisy Energy, a renewable energy systems provider located in Hamilton, ON. Daisy Energy installed one of the first renewable energy FiT projects for a local school board in 2009 and has been helping clients embrace renewable energy ever since.

February 08, 2014

Biofuels Companies Rev Up While Oilcos Sputter

Jim Lane 

What’s going on – aren’t biofuels supposed to be dead, and fracking changing everything forever in oil & gas?

Yet, tough times for growth at the public oil companies, while bellwether renewable fuel equities are on the rise.

Why aren’t results tracking the hype?

It’s earnings season — time to look away from the pundits, the fans, and the Las Vegas oddsmakers — and look squarely at who made how much, where, when and why. And time to draw some conclusions and look ahead towards the 2014 calendar year.

Neste Oil (NEF.F)

Renewable diesel owner/operator

2013 in review

Overall, a strong year at Neste.

Comparable operating profit totaled EUR 604 million (2012: EUR 355 million), a 70% increase in comparable operating profit, while net cash from operations totaled EUR 839 million (2012: EUR 468 million). The fourth quarter more than held up its end with a Q4 profit of EUR 164 million (Q4/2012: EUR 77 million). Return on capital was 11.8% (2012: 5.0%) and earnings per share were EUR 1.92 (2012: EUR 0.70).

CEO Matti Lievonen commented: “This was the first full year of operations at Renewable Fuels with all plants running at full capacity. The business succeeded in increasing its sales and customer base, particularly in the US, and opened up a new market in Australia. Margins were very strong, both in Europe and North America, during the summer, but declined towards the end of the year. The use of waste- and residue-based feedstock was successfully expanded to 52% of total renewable inputs. Renewable Fuels recorded a full-year comparable operating profit of EUR 273 million compared to a loss of EUR 56 million in 2012.

The 2014 outlook

In the global economy, volatility is expected to continue. Diesel is projected to be the strongest part of the barrel, and gasoline margins are expected to improve seasonally during the spring and summer. While demand for premium-quality base oils is continuing to grow, base oil margins are likely to remain under pressure due to overcapacity.

Vegetable oil price differentials are expected to vary, depending on crop outlooks, weather phenomena, and variations in demand for different feedstocks, but no fundamental changes in the drivers influencing feedstock price differentials are expected. Price differentials between vegetable oils are likely to widen from the current narrow levels during the year 2014 in both Europe and North America.

Uncertainties regarding political decision-making in the US are likely to be reflected in the renewable fuel markets. Examples of pending decisions include the volume targets for biomass-based diesel and renewal of the Blender’s Tax Credit, which both impact the US market. The reintroduction of a US Blender’s Tax Credit for biofuels would impact the result positively. Weakening of the euro against the US dollar would also have a positive impact on the result. Overall, the company is forecasting a full-year comparable operating profit of EUR 500 million in 2014.

Novozymes (NVZMY)

Integrated supplier for renewable fuels fermentation technologies.

2013 in review

Also a good year at Novozymes. All financial targets were met or exceeded for 2013 following a good fourth quarter. Organic sales growth was 7% (5% DKK, 8% LCY), EBIT grew by 6% and net profit by 9%, and the EBIT margin increased by 0.3 percentage point to 24.7% compared with 2012.

Peder Holk Nielsen, President and CEO of Novozymes, comments: “Today we close the books on an eventful 2013 for Novozymes. We delivered a good finish to the year and ended at the high end of our guided ranges for sales growth and above that for earnings. We also signed a number of landmark agreements within Biomass Conversion and BioAgriculture that will enable Novozymes to change the world together with its customers. The outlook for 2014 is positive. We expect that our diversified growth platform will enable us to deliver good sales and EBIT growth. We also expect that The BioAg Alliance will receive the final green light from regulators soon, so we can hit the ground running on developing novel, game-changing BioAg solutions for farmers worldwide.”

The 2014 outlook

2014 is expected to show a continuation of trends seen in 2013. As a result, the outlook for 2014 is positive with good underlying sales and EBIT growth. The outlook includes the expected financial impact from The BioAg Alliance with Monsanto. The BioAg Alliance does not affect the outlook for organic sales growth, but is expected to have a negative impact on sales growth in LCY and DKK of up to one percentage point. The BioAg Alliance is expected to have a positive impact on the EBIT margin of between a half and a full percentage point. All in all, including The BioAg Alliance, Novozymes expects organic and LCY sales growth of 6-9%, sales growth in DKK of 4-7%, EBIT growth of 6-9% and an EBIT margin of 25-26%.

The longer-term for Novozymes

Novozymes is projecting that it will sell enzymes to at least 15 plants by 2017 with a ramp-up in 2015-16. This will include Beta and non-Beta projects.
Another projection is that Beta Renewables will have 15-25 new facilities contracted in 2015-17 (Novozymes made this forecast in 2012, and has not changed it.) Contracted doesn’t mean that the facilities will be complete , and buying enzymes at that time — but, ultimately, sales from those 15-25 projects are expected to be 1B DKK.

Novozymes is also projecting that “The biofuel market in the U.S. moves toward E15” — but Novozymes spokesman Johan Melchior put those expectations into context earlier this week. “At the time of launching those targets (one year ago), E15 appeared to be the way to increase the ethanol consumption in the US. Today, it is a little more opaque as to what could drive ethanol consumption higher. It could be E85, or it could still be E15.

Generally, growth in Novozymes’ corn ethanol business in the U.S. is not predicated on a growing ethanol production. We have launched a series of new technologies to this industry, which is generating a lot of growth today. We have innovation in the pipeline to secure growth in the future. Of course, underlying ethanol volume growth is preferred, but it is not a requirement for growth.

In the context of the company’s overall financial targets, it is also important to remember that U.S. corn ethanol currently only accounts for 14% of our business. This is of course significant, but it remains a smaller part of Novozymes’ business.

The Ethanol sector: Green Plains Renewable Energy, Pacific Ethanol, Aemetis

Let’s look at the ethanol companies, which have been on a complete tear, with an average share price gain of 54.53% in the past three months.

Pacific Ethanol (PEIX)
11/6/13 closing price $3.82
2/6/14 closing price $6.67
Gain: 74.6%

Pacific Ethanol announced this week it will implement yield-enhancing technology at its Magic Valley, Idaho plant. The company chose ICM Inc.’s Selective Milling Technology as a component in its process to increase corn oil production and boost ethanol yields by increasing available starch for conversion.

Neil Koehler, the company’s president and CEO, stated: “We are committed to increasing our product yields, diversifying our revenue streams and improving profitability. We began commercial corn oil production with an ICM-designed system at our Magic Valley plant in mid-2013. SMT complements these operations by increasing both corn oil and ethanol yields and positions our Magic Valley plant for the potential future production of advanced biofuels that builds upon the SMT platform.”

Last month, the company announced it has retired in full its $14.0 million senior convertible notes.

Green Plains Renewable Energy (GPRE)
Closing price 11/6/13: $15.77
Closing price 2/6/14: $23.50
Gain: 49.0%

In Nebraska, Green Plains Renewable Energy announced 4Q net income of $25.5 million compared to net income of $6.7 million for the same period in 2012. Revenues were $712.9 million for Q4 2013 compared to $883.7 million for Q4 2012.

Net income for the full year was $43.4 million, or $1.26 per diluted share, compared to $11.8 million, or $0.39 per diluted share for the same period in 2012. Revenues were $3.0 billion for the full year of 2013 compared to $3.5 billion for the same period in 2012.

“Green Plains generated operating income of $51 million in the fourth quarter and a company record of $108 million for the full year of 2013,” stated Todd Becker, President and Chief Executive Officer. “We have invested in our assets and employees which, we believe, will continue to drive our financial results in the future.” During the fourth quarter, Green Plains’ ethanol production segment produced approximately 209.6 million gallons of ethanol, or approximately 100 percent of its daily average production capacity.

Aemetis (AMTX)
Closing price 11/7/13: $0.20
Closing price 2/6/14: $0.28
Gain: 40.0%

Aemetis announced this week that its 50 million gallon per year capacity biodiesel and refined glycerin production facility in Kakinada, India has been upgraded to produce high-quality distilled biodiesel. The Aemetis plant was built in 2008 using advanced technology to produce biodiesel and refined glycerin using large volumes of lower-cost, non-food by-products from the edible oil industry as feedstock to supply the biofuel, pharmaceutical, and industrial markets.

The Aemetis plant is the only distilled biodiesel producer in India and is one of the only plants in Asia capable of producing large supplies of biodiesel that meet the rigorous European Union (ISCC) standards. During 2013, approximately $20 million of biodiesel was produced by the Aemetis plant in India and delivered to customers in Europe.

What’s driving the results?

These are good years, with strong outlooks for two businesses very much at different ends of the biofuels spectrum — one an enzyme supplier for fermentation technologies associated primarily with ethanol, the other an owner/operator of thermocatalytic refining capacity associated primarily with drop-in renewable diesel. Both have significant operations outside of renewable fuels, but are aggressive in terms of their ambitions in this sector, and realizing substantial results herein.

Reinforcing that there’s very good money to be made in renewable fuels — which may trouble some who fondly remember the days when it was more about a movement than an industry, and small biodiesel co-ops and ethanol co-ops were the order of the day.

But investment chases dollars — and stability — capital being a coward as well as greedy. Growth flows from growth. It demonstrates that the sector is not for the faint of heart — neither Novozymes nor Neste has had a series of free passes handed to them in building up their respective businesses (at one point, one crazy environmental group named Neste the worst company on earth, owing to their use of palm oil) — but the sector is definitely capable of generating the kinds of cash flows that even a hard-hearted, carbon-skeptic Wall Street financier would take an interest in.

Over at the integrated oil companies

Bad fourth quarter and a so-so year at ExxonMobil, Shell, Chevron and BP.

Shell reported a 71% drop in Q4 profits. Exploration costs, production drops and a weak refining & marketing environment were all to blame. Shell’s been backing out of projects — its ethane cracker in Louisiana, and it’s dropping out at Eagle Ford after acquiring 100,000 acres in 2010. Production dropped 4.7% compared to Q4 2012.

Chevron reported a production drop of 3.5% with revenue down 3.6% and earnings down 18,3 percent compared to 2012. Like Shell, they have dumped their oil shale project.

ExxonMobil. Earnings dropped 24% YoY, and costs rose 7%. Q4 was a little better, down 13% over Q4 2012. Production dropped 1.8% compared to Q4 2012. Both exploration & production and the refining & marketing businesses were down — profits dropped by half in the downstream.

BP. Profits are down 28% compared to Q4 2012, and 23.4% for the full year compared to 2012

The bottom line

For investors

Short-term. The Biofuels Digest Index, up 1.2% in the past year. Ethanol equities up 54%. A basket of Chevron, BP, Shell and ExxonMobil, down 1.9% in the same period. Neither looks all that great given the big run-up in the S&P 500, but certainly there’s a delta between the two that’s worth some thinking. Especially given that the BDI was somewhat dragged down by the weak performance of BP and Shell, two components of the Index.

Mid-term. Here’s the bad news on fracking. Polish reserve estimates were cut by 85% after drilling began, and operations in Romania were challenging given environmental opposition. On renewables: we recently projected 6B+ gallon in new advanced biofuels projects scheduled to be online by 2019. That’s just over 400,000 barrels per day — just enough to provide some pause for thought for the mid-term investor.

Long-term. If you are thinking long-ish term in the energy space, the production declines, fracking challenges, and the cancellations with respect to oil shale (kerogen oil) tend to confirm that the world is looking at $100+ production costs in terms of the marginal fields that will be needed to keep up with the IEA’s forecast for sharp increases in energy demand through 2035. Clearly, the space is ripe for another technology breakthrough either in fossil oil or renewable yields.

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.

February 07, 2014

As Goes January? What the Pullback in Green Mutual Funds Means

By Harris Roen

Alternative energy mutual funds and ETFs have pulled back from some of the fantastic gains seen in 2013. There is a saying in the investment world that “as goes January, so goes the year.” Is it time to bail on this sector, or on stocks in general? Perhaps, but wise long-term alternative energy investors should avoid rash steps at this juncture.

Alternative Energy Fund Returns


Mutual Funds are down about 4% on average year-to-date, and are basically flat for the past three months. Despite this, alternative energy mutual funds are up 22.7% in the past year, and not a single fund is trading in the red.

By far the best performer in the past 12 months is Firsthand Alternative Energy (ALTEX), up 75% for the year. Most of the stocks the fund holds are in the high-flying solar sector, including SolarCity Corp (SCTY), SunPower Corporation (SPWR) and GT Advanced Technologies Inc (GTAT).

etf_20140205.jpg Exchange Traded Funds are only down 0.9% on average. If the outlier iPath Global Carbon ETN (GRN) is removed, however, then ETFs are down more like 1.6%. On the other hand, the 17 alternative energy ETFs posted a strong showing in the past year, up 34% on average. Not surprisingly, two solar ETFs have had the best one-year returns—Guggenheim Solar (TAN) and Market Vectors Solar Energy ETF (KWT).

The lowest performing funds on an annual basis are Global X Lithium ETF (LIT) and Market Vectors Rare Earth/Strategic Metals (REMX). These two funds reflect the dip in basic materials markets, which mostly reside in developing countries. Investors have soured on emerging markets of late, betting on lower growth in China. The logic goes that since China is the world’s manufacturer, and thus the largest market for these materials, a slump in China will cause a large economic drag for this sector.

Where We See Opportunity

One fund where we see opportunity is Allianz RCM Global Water (AWTAX), which has risen to a Rank 1. This environmental services fund has decent returns at relatively low risk. Its stock fundamentals are strong, and it has moderate management fees. AWTAX is trading fairly low relative to its annual price range, so this looks like a good entry point.

iPath Global Carbon ETN (GRN), which tracks the Barclays Global Carbon Index, has finally had a lift. Gains started occurring in April of 2013, then accelerated just after the new year. This reflects the fact that beleaguered carbon markets have been digging themselves out of a bottom. Despite these developments, it may be years before a viable carbon market reemerges.

As Goes January?

So let’s take a closer look at that saying “as goes January, so goes the year.” True, the S&P 500 is down over 5% for the year so far, which is spooking investors. A quick look at the facts, though, makes me think there is less reason to worry about than the slogan implies.

Looking at historical data for the S&P 500 back to 1950, there is a very high correlation of market direction for the month of January and the rest of the year. 70% of the time, if the market was up in January then it was up for that year, or if it was down in January it was down for the year. Of the 45 years that there was a correlation, however, 32 of them were in an up market, and only 13 had a down correlation. So the trend is much truer for an up January than a down January. Even more interesting, though, is that when the S&P 500 was down in January, it finished trading up for the year 16 times. In other words, a down January predicted an up year more times that it predicted a down year. Though past behavior does not always foretell the future, I would not be too worried about stock market losses in January predicting a down year for 2014.


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.

February 06, 2014

Rentech: Do We Want The Sharpest Pencil?

by Debra Fiakas CFA

Rentech-Logo197x90[1].pngLast month a shareholder group led by two of Rentech’s largest shareholders sent a letter to the biofuel developer’s board of directors.   Rentech, Inc. (RTK:  Nasdaq)) is adrift, the group claims.  The alternative energy business has failed.  The fertilizer plant is a bust and the wood pellet project is never going to deliver adequate return on invested capital.  What is more management is paid too much for the size of Rentech’s operations.  The group wants its own slate of nominees in the proxy for director positions.

Rentech leadership responded to the letter with a polite promise to consider the qualifications of the nominees.  The company’s annual meeting is expected later this year.

So let’s take a look at the four nominees ourselves.  All four have lengthy lists of prior experience in venture capital and private equity.  The have been board members of this company and that company.  However, only one of the four, Larry Holley, has any operating experience, including a stint at a fertilizer production plant.  He is also the only one of the four that has an engineering background.

Investment bankers and venture capitalists make excellent board members.  They know how to read the financial statements.  They are skilled at calculations of profitability and returns on investment.  They look good sitting around the board room in suits.  Unfortunately, financiers can quickly figure out the odds on someone else’s innovation, but little vision of their own.  We could expect this group of nominees to tell us a great deal about how little merit there is in Rentech’s present game plan, but not much more.

Shareholders can also expect this group of nominees to find a number of very clever ways to direct Rentech resources to the two firms leading this concerned shareholder group  -  Engaged Capital and Lone Star Value Management.  Activist shareholder groups typically have little reticence in accepting consulting fees, director compensation and other creative compensation arrangements to the benefit of their expertise.

Cash usually shouts loudest when it comes to telling a company’s story.  In the most recently reported twelve months Rentech converted 6.9% of its sales to cash, generating $26.8 million in operating cash flow.  That is below average for a fertilizer operations, but mighty impressive for a company developing alternative energy technologies.

Rentech leadership may need to sharpen its collective pencil to refine its strategic plan, not to mention do a better job of executing on its various projects.  However, in my opinion, the slate of new directors offered by these ‘concerned shareholders’ does not appear qualified to sharpen, refine or otherwise execute on much more than their own special interests.

Next post we will look more closely at Rentech operations  -  pulp, pellets and fertilizer.

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.

February 05, 2014

Renewable Energy Finance Outlook for 2014: Where Will the Cash Flow?

By all accounts, more money will be invested into renewables in 2014 than was invested in 2013. Our experts lay out where, why, when and how.

Jennifer Runyon

The world of renewable energy finance is vast: encompassing everything from venture capital funding for innovative start-ups, to research and development (R&D) and manufacturing expansion spending, to project finance and all the way through to investing in clean energy companies on the stock market. Because of that, for the general public, predicting where money will flow over the course of the next year is a shot in the dark at best. But there are finance experts who spend their lives tracking where the money is and where it isn’t and here we offer you their expert opinions on renewable energy cash flow in 2014.

Funding Innovation: Venture Capital Dollars No Longer Available

Renewable energy finance experts describe the early days of clean tech venture capital (VC) investment as being one fraught with “exuberance” and “frothiness.”  Investors were eager to fund what they believed would be the next big thing and clean tech aka green energy aka renewable energy was where the action was.  Dallas Kachan of boutique cleantech research and advisory firm Kachan and Company points to biofuels as a technology that received billions of dollars of investment capital in 2007 and 2008 and now has very little to show for it. Not a good result for an early-stage investor.

Kachan said that in 2014 VCs will be funding what he called “capital efficient plays,” for example, “energy efficiency or efficiency in general…so-called cleanweb investments,” he said.  Cleanweb refers to the intersection of IT and sensors and big data, i.e. products and services that drive efficiency in homes by using the cloud (think nest thermostats) or drive efficiency in workflow or access to capital such as crowdfunding.  “There has been an emphasis on capital efficient initiatives as opposed to 2007 and 2008 and the massive billions of dollars that we saw go into biofuels, for instance,” he explained.

(Image, right: Global Total Investments in Clean Energy (2004-2012). Credit: Bloomberg New Energy Finance)

VC investment in renewable energy has been trending down for the past two years in fact and it will continue to do so in 2014 and beyond, said Kachan. “We predict that in 2014, we will continue to see companies having a harder and harder time raising venture capital,” he said, “but that’s not necessarily a bad thing.” 

Kachan, a seasoned cleantech investment advisor, believes that 2014 may actually be the year that renewable energy expectations and deliveries begin to match.  In other words, the technology is mature enough that investors understand what it is capable of providing and invest accordingly.  In addition, major corporations are getting into renewable energy. “The largest companies in the world are taking a more active, aggressive role than ever in wanting to profit from clean energy,” said Kachan who explained that renewable energy and clean tech are still following the same trajectories of those technologies that came before them. “This is representative of the overall lifecycle of the maturation of the clean tech space,” he said.  “If you look at other technology revolutions in the past where venture capital played a dominant role in the early days, sources of capital diversify over time,” he explained. 

“That is clearly underway in cleantech,” he concluded and we need not worry about it. “It’s important to remember that this doesn’t mean the sky is falling, it just means that we are following the same trends, the same waves that happened in other industries.”

Project Finance: Utility-Scale Wind and Solar Still Grabbing the Lion’s Share

With five solid years of installed capacity growth coupled with steady cost reductions, it’s no surprise that renewable energy finance experts agree that large-scale wind and solar projects will receive the biggest portion of renewable energy dollars in 2014.

“Utility scale solar, mainly photovoltaic solar, and utility-scale wind will continue to be active in their growth in particular outside of the U.S.,” said Adam Umanoff, partner with Akin Gump law firm. Lynn Tabernacki, managing director of renewable and clean energy at Overseas Private Investment Corp. (OPIC) agreed.  “In 2014, solar and wind will remain the mainstay of renewable energy investments because of sustained cost reductions for plant construction using these technologies,” she said.

Umanoff pointed to the Middle East as a region that is looking to tap renewable energy as an electricity source in the coming years. He said that Middle Eastern countries would like to dramatically reduce the amount of oil they use a fuel source for electricity generation so that they can garner more profits from selling their oil on the open market.  “That’s what we’ve seen in the past year,” he said, mentioning, “the Saudis came out with a huge 5-GW plus mandate for solar.” Umanoff believes that CSP plus storage will play a role in building up that supply of renewable energy capacity.

Large energy end-users are also becoming more interested in renewable energy, said Umanoff. He said that the industry is active in Latin America. “In Chile, we’ve got very high power prices, relatively unreliable supply, and yet active commercial activity,” he said. And the same goes for Africa, “especially around the mining industry. There we are seeing both wind and solar looking very attractive,” he explained.

Tabernacki agreed and pointed to an uptick in public/private partnerships in developing nations as helping give rise to more renewable energy projects. “From the public side for example, the Power Africa Initiative has marshaled U.S. government trade and development resources for the specific purpose of energy development in six pilot countries in Africa,” she said.  Specifically those countries are Kenya, Liberia, Ethiopia, Nigeria, Ghana, and Tanzania. Tabernacki also sees these types of partnerships in Asia. “There is a similar program directed to South-East Asia under the US-Asia Clean Energy Partnership,” she explained. 

“Mobilization of grant funding, technical assistance, transaction advisory services, and project financing from these public sources is expected translate into an increase in renewable energy investments in these regions next year,” Tabernacki concluded.

Umanoff summed it up nicely, “as you go around the world: Latin America, parts of Asia, the Middle East are very attractive markets for renewable energy growth [in 2014].”

In the U.S., the story might be slightly different. Umanoff predicted explosive growth in the distributed solar industry as more customers see the financial benefits of putting solar panels on their roofs or in ground-mounted arrays close to their commercial facilities. He also pointed to incidents in the past where large industrial power users were without power for extended periods as drivers for renewable energy adoption, particularly in the form of micro-grids. “Industrial consumers who, on the heels of hurricane sandy were out of power for 4-5 days, they take a look,” he said.

In addition, in 2014, expect to see more solar installation companies tap into the burgeoning innovations in how to offer their customers low-cost financing options or attractive leasing models to help offset the cost of going solar.  (More on financial innovations in the section below.)

The U.S. wind market will flourish in 2014 as companies work steadily to complete construction on projects they began in late 2013 (wind project developers had to start construction by the end of 2013 in order to take advantage of the Production Tax Credit (PTC)).  But since the PTC officially expired in 2013, don’t expect to hear about too many new wind power projects being commissioned in 2014 and beyond. Umanoff predicted that the U.S. will install upwards of 9 GW of wind power in 2014 and even more in 2015 as companies build out their planned projects.

Most experts agree that other renewable energy technologies will hold steady in 2014.  Geothermal will continue to make progress in areas with good resourced such as the Philippines.  “Large hydro continues to be very attractive but mainly in developing economies and new markets,” said Umanoff.  “It’s very, very hard to permit a large hydropower facility in a mature, industrial democracy,” he said.  Biofuels and biomass projects will make headway as well but in terms of gaining marketshare, the winners will be wind and solar. 

Optimism Dominates the Investment Space

While investors will give many concrete reasons that they chose to invest in a technology, project or a company, one very important reason often overlooked and difficult to quantify is consumer sentiment.  In others words, investors usually have positive or negative feelings about technologies, industries or companies and invest accordingly, whether they are aware of their emotional assessment of it or not. 

Navigant consulting has been examining consumer attitudes towards clean energy since 2009 and published its latest report “Energy and Environment Consumer Survey” in December 2013.  The report is a summary of a survey conducted among 1,084 U.S. adults based on a “nationally representative and demographically balanced sample.”  The survey asked for consumer attitudes towards 10 clean energy topics and the results are shown in the chart below.

Overall consumer sentiment toward solar and wind energy was up significantly in 2013 over 2012, indicating that in general, U.S. residents feel positive about clean energy.  And when investors are looking for investment opportunities, it follows that they put their money into technologies, products, services and companies that they feel good about.

Perhaps that’s why all of the finance experts that we spoke to for this article said they were “optimistic” about the 2014 outlook for renewable energy finance.

“I remain optimistic that renewable energy investments will continue to gain ground in 2014,” said OPIC’s Tabernacki.  “I think, without question, more money will be invested into renewable energy in 2014 than was in 2013,” said Akin Gump’s Umanoff.  “I’m more optimistic than ever about the health of the clean-tech space,” stated Dallas Kachan. “I think that overall, we’re going to have a really good year,” said Tom Konrad, a private money manager who writes about clean energy investing.

Konrad believes that 2014 will be a great year for renewable energy finance, he said.  He said that we saw the beginning of it in 2013 with the securitization of a bond by Solar City and pointed to Hannon Armstrong’s securitization of an energy efficiency bond in late December 2013 as another indicator that renewable energy financing is on track to take off in 2014. 

“I think that we will see a few publicly traded ‘yield cos’ (yield companies) in solar listed in 2014,” he said.  A yield co is a publicly traded company that is oriented towards income as opposed to growth.  This type of investment opportunity is a major switch, said Konrad.  “Any stock you have ever written about pretty much has been a growth stock,” he explained.  “Tesla (TSLA) is a growth stock.  People buy Tesla because they think the company is going to keep on gaining market share,” he clarified.

“Now there are some new income stocks that came public last year: Hannon Armstrong (HASI), Pattern Energy Holdings (PEGI), NRG Yield (NYLD) and Brookfield Renewable Energy (BEP), so there are four, I would say, renewable energy income stocks on U.S. exchanges.”

Further, Konrad expects to see at least one renewable energy income mutual fund unveiled in 2014 “because there are lots of things to put into it,” he said.

It makes perfect sense.  Once renewable energy assets are operating efficiently, they generate payback for their investors.  Now that the technology has matured enough to gain the trust of some of the more reticent, risk-averse investors like corporations and banks, expect to see lower cost of capital for projects and greater interest in renewable energy stocks, bonds and mutual funds.

Other newer financial innovations will expand in 2014, said Dallas Kachan, pointing specifically to crowdfunding.  “When the equity-based crowdfunding systems start taking hold, that really stands a chance of unlocking large sums of hitherto unavailable capital for the whole cleantech space,” he said.  Solar Mosaic, for example, which launched in officially in August of 2011 gained a lot of visibility in 2013.  The company allows individuals to invest in solar projects and offers attractive returns to investors.

Kachan expects to see more innovative funding opportunities like Mosaic in 2014. “You will also see new systems, new initiatives targeted at the space, many of which, for the first time offer investors the chance to make money at making small investments in projects or innovation,” he said.  Kachan cautions that he has some reservations about the long-term viability of equity-based crowdfunding – he worries what will happen when investors lose money, which undoubtedly will occur at some point. “I think it’s not going to take too many of those squeezes, those so-called down-rounds, and the requirements for pro rata investment.  These things are going to potentially bite investors and it might turn off people from equity-based crowdfunding,” he explained.  But nonetheless, he’s certain that we will see lots more in the financial innovation space in 2014.  “That said, some people will make some money in doing this [equity-based crowdfunding]  and that will encourage others to start doing this.”

Konrad agrees that financial innovation in renewable energy is probably going to be THE story of 2014. Ever the mathematician, Konrad guesses that about 60-75 percent of renewable energy investment will be driven by financial innovation, with the remainder being driven by policy, which he also feels will be favorable, at least on the state level, in 2014.

“I see 2014 as the year that renewable energy finance comes of age,” said Konrad. 

This article is part of th Renewable Energy World January/February Annual Outlook Issue for 2014, which will be published on February 10, 2014. The issue includes our Global Directory of Suppliers.  If you are not already a subscriber, why not subscribe now?

Jennifer Runyon is chief editor of RenewableEnergyWorld.com and Renewable Energy World magazine, coordinating, writing and/or editing columns, features, news stories and blogs for the publications. She also serves as conference chair of Renewable Energy World Conference and Expo, North America. She holds a Master's Degree in English Education from Boston University and a BA in English from the University of Virginia.

This article was originally published on RenewableEnergyWorld.com, and is republished with permission. 

February 04, 2014

Ten Clean Energy Stocks For 2014: February Update

Tom Konrad CFA

The stock market has had a rough five weeks since I introduced my annual Ten Clean Energy Stocks model portfolio on December 27th.  My broad market benchmark (the iShares Russell 2000 index) is down 5.6% for the period.  Clean energy stocks fared better, with the Powershares WilderHill Clean Energy ETF (NYSE:PBW) down only 0.5% as I write.  My model portfolio of ten clean energy stocks is up 0.9% in local currency terms, but the weak Canadian dollar (down 3.5%) and Euro (down 1.5%) turned this into a US dollar decline of 1.0%.

In general the more speculative stocks performed better, but with much greater variation. The first six income stocks lost an average of 2% in US dollar terms, with a standard deviation of 3%. The next four growth stocks were flat on average, with a standard deviation of 8%.  The two extra "speculative" picks performed speculatively, with one up 35%, and the other down 22%, for an average of 7%. 

January has been fairly quiet for individual stocks in the portfolios, but where there has been significant news, I note it below.
10 for 14 feb.png

Individual Stock Notes

(Current prices as of February 3rd, 2014.  The "High Target" and "Low Target" represent the ranges within which I predicted these stocks would end the year, although I expect a minority will stray beyond these bands due to unanticipated events.)

1. Hannon Armstrong Sustainable Infrastructure (NYSE:HASI).
Current Price: $13.00. 12/26/2013 Price: $13.85.  YTD Total US$ Return: Annual Yield: 6.4%.  Low Target: $13.  High Target: $16. 

Sustainable Infrastructure REIT Hannon Armstrong fell back to the low end of the range between my high and low targets after a quick run-up based in its big dividend increase in December.  The only slightly negative news was an SEC filing in which the company stated that it had agreed to amend the terms of a portfolio loan to geothermal developer EnergySource LLC.  The balance of the loan amounts to $11.8 million or 74¢ a share.  If the loan were in default and there were no chance of recovering any of its value, a 74¢ decline would be justified.  That's far from the case; a decline of around 5¢ a share seems more appropriate than the 85¢ decline we've seen.  Hence, I have to attribute the vast majority of the pull-back to profit taking, and consider $13 an excellent entry point for anyone who does not already own the stock.

2. PFB Corporation (TSX:PFB, OTC:PFBOF).
Current Price: C$5.12. 12/26/2013 Price: C$4.85.   Annual Yield: 4.9%.  Low Target: C$4.  High Target: C$6.
YTD Total C$ Return: 5.6%. 
YTD Total US$ Return:1.9%

Green Building company PFB declared its regular 6¢ quarterly dividend to shareholders of record on February 14th.  The company also continues to repurchase its own stock.  It bought back 5,700 shares over the period.  A board member and large shareholder, Edward Kernaghan, also bought 3,800 shares on the open market.

3. Capstone Infrastructure Corp (TSX:CSE. OTC:MCQPF).
Current Price:
C$3.55. 12/26/2013 Price: C$3.55. Annual Yield: 8.5%.  Low Target: C$3.  High Target: C$5.  
YTD Total C$ Return: 1.1%
.  YTD Total US$ Return: -2.4%

Capstone paid its regular quarterly dividend of C$0.075 on January 31st.

4. Primary Energy Recycling Corp (TSX:PRI, OTC:PENGF).
Current Price: C$5.00. 
12/26/2013 Price: C$4.93.  Annual Yield: 4.1%.  Low Target: C$4.  High Target: C$7. 
YTD Total C$ Return: 1.4%
.  YTD Total US$ Return: -2.1%

I interviewed Primary Energy's CEO and wrote an in-depth article, which you can find here.  I've also been adding to my position.

5. Accell Group (Amsterdam:ACCEL, OTC:ACGPF).
Current Price:
€13.61. 12/26/2013 Price: €13.59.  Annual Yield: 5.5%.  Low Target: 11.5.  High Target: €18.
YTD Total 
Return: 0.1% .  YTD Total US$ Return: -1.5% 

Bicycle manufacturer and distributor Accell continues to rationalize its European operations.  The company sold Hercules, one of its four German brands.  Accell has owned Hercules for the last 20 years and will book a €3 million (€0.12) profit on the transaction.

6. New Flyer Industries (TSX:NFI, OTC:NFYEF).
Current Price: C$11.04. 
12/26/2013 Price: C$10.57.  Annual Yield: 5.1%.  Low Target: C$8.  High Target: C$16. 
YTD Total C$ Return: 4.4%
.  YTD Total US$ Return: 0.8%.

Cannaccord Genuity upgraded bus manufacturer New Flyer to a "Buy," most likely in response to strong deliveries in the fourth quarter.  The company reiterated a warning that 2014 margins would be weak due to expected deliveries on bus contracts signed during the very competitive pricing market of the financial crisis.  

New Flyer also received a $375,000 grant to work with a local community college to train employees at its St. Cloud Minnesota facility to build its new mid-size ("Midi") buses.  The company also paid its normal C$0.04875 monthly dividend.

7. Ameresco, Inc. (NASD:AMRC).
Current Price:
12/26/2013 Price: $9.64.   Annual Yield: N/A.  Low Target: $8.  High Target: $16. 
YTD Total US$ Return: -2.5%.

Energy performance contracting firm Ameresco started the year strong, but has since fallen back, seemingly in sympathy with the broader market decline.  From the steady stream of contract announcements, it seems to me like the company's pace of business may be picking up a little, but since the size of contracts varies widely, I'm far from confident about this.

Ameresco also announced a new tool using wireless sensing technology to allow a building's controls to learn occupant behaviors and adapt energy use accordingly.  A pilot test in a commercial office building produced 18% energy savings.  I speculate that it might be possible to apply this tool to buildings under both future and existing performance contracts, which should improve their profitability to Ameresco and/or allow them to be offered to clients at more competitive prices.

8. Power REIT (NYSE:PW).
Current Price:
12/26/2013 $9.34 Price: $8.42Annual Yield: N/A.  Low Target: $7.  High Target: $20.
YTD Total US$ Return: 10.9%

Power REIT was up strongly at the start of the month and had since held on to its gains.  The company's CEO, David Lesser, tells me that he thinks much of the gains have been due to his efforts getting the company's story out there in conjunction with the offering of 7.75% Cumulative Preferred stock.  The proceeds from this offering will be used to provide the equity portion of the company's most recent solar land purchase, as well as another potential acquisition, if that deal is executed successfully.  The company is seeking bank financing for the balance of the second deal and the refinancing of the bridge loans on the earlier deal.

Current shareholders and non-accredited investors are eligible to participate in the Preferred stock offering, which should appeal to income investors.  While cash dividends on the preferred will not be paid until the civil action with Norfolk Southern (NSC) and Wheeling and Lake Erie (WLE) is resolved, the rent payable under NSC and WLE's interpretation of the lease should be sufficient to both pay off Power REIT's legal bills and allow the company to catch up with the cumulative preferred dividends.

9. MiX Telematics Limited (NASD:MIXT).
Current Price: $11.16.
12/26/2013 Price: $12.17Annual Yield: N/A.  Low Target: $8.  High Target: $25.
YTD Total US$ Return: -8.8%

A South Africa based global provider of software as a service fleet and mobile asset management, MiX Telematics initially rose but then sold off in the last couple weeks along with the general emerging market decline.   There was no significant news, but I thought this report from MiX on when and why drivers speed was interesting.

Like Primary Energy, I was planning on writing an in-depth article on MiX based on a CEO interview, but the company preferred to delay an interview until after its third quarter conference call coming on February 6th.  I expect to write that article later this month.

10. Alterra Power Corp. (TSX:AXY, OTC:MGMXF).
Current Price: C$0.29
  12/26/2013 Price: C$0.28.   Annual Yield: N/A.  Low Target: C$0.20.  High Target: C$0.60.
YTD Total C$ Return: 1.8% .  YTD Total US$ Return: -1.8%.

Renewable energy developer and operator Alterra Power expanded its joint venture with Philippine geothermal power developer Energy Development Corp. to the rest of its Peruvian geothermal projects.  This is in line with Alterra's recent strategy of focusing on core projects and either disposing of other assets or developing them with funds from joint venture partners, as is the case here.

Two Speculative Penny Stocks for 2014

Ram Power Corp (TSX:RPG, OTC:RAMPF)
Current Price: C$0.065   12/26/2013 Price: C$0.08.   Annual Yield: N/A.  Low Target: C$0.20.  High Target: C$0.60.
YTD Total C$ Return: -18% .  YTD Total US$ Return: -22%.

Geothermal power developer Ram completed the remediation of its San Jacinto-Tizate project on January 22nd, although the company did not provide any indication of how successful the remediation was.  Management reiterated that the drilling is expected to increase output by 9 to 14 MW.  The results of a plant capacity test are expected in March.

Finavera Wind Energy (TSX-V:FVR, OTC:FNVRF). 
Current Price: C$0.105   12/26/2013 Price: C$0.08.   Annual Yield: N/A.  Low Target: C$0.20.  High Target: C$0.60.
YTD Total C$ Return: 40% .  YTD Total US$ Return: 35%.

There was no news for wind project developer Finavera, and the increase seems most likely to be a low-volume recovery from a share price depressed by tax loss selling at the end of 2013.

Final Thoughts

My picks and clean energy in general have mostly held up will during the sell off so far this year.  The income stocks at the start of the list should hold up well in a market sell off, while many of the riskier stocks later in the list are more likely to be driven by company events than broad market moves.  The exceptions are Ameresco and MiX, which will probably continue to follow broader market trends, hopefully with an upward bias.


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.

February 03, 2014

The Muscle Car Of Energy Efficiency

Tom Konrad CFA
Disclosure: I am long TSX:PRI / PENGF.

The poster child of energy efficiency has long been changing a light bulb.  First, it was swapping out an incandescent for a compact fluorescent, now the swap is to an LED.  Changing a light bulb is a small step that anyone can take, and it’s so cost effective that it can pay for itself in months if the bulb is used frequently.

This is a good example of household energy efficiency measures: a small action requiring a limited investment that anyone can take that pays back quickly.

But efficiency does not have to be small scale and simple.  Efficiency can also be an industrial scale engineering project.  At any scale, however, it tends to be profitable, often very profitable.

CHP and Waste Heat Recovery 

Combined Heat and Power (CHP) is just such an industrial-scale energy efficiency opportunity.  CHP, also called cogeneration, involves capturing the waste heat from a power plant and delivering it to an industrial or other customer.  A related technology, Waste Heat Recovery, involves capturing waste heat from an industrial process and either using it to generate power, or for some other process.

combined heat and power-DOE.png

Image source: Energy.gov

CHP has been around for over a century.  I once toured the 40MW cogeneration plant at the Miller-Coors brewery in Golden, Colorado, which has been operating since 1976.  The waste heat from the power plant is used as process heat for the brewery, and some even goes to heat the nearby Colorado School of Mines campus.  That tour happily ended in the tasting room, which is where I developed a taste for Blue Moon and got the phrase “CHP is the muscle car of energy efficiency” stuck in my head.

CHP accounts for approximately 8% of current installed US generating capacity, and President Obama is seeking to increase that by half again by 2020.

Primary Energy Recycling

I expect Primary Energy Recycling (TSX:PRI, OTC:PENGF) to be part of the coming expansion of the US CHP fleet.  Primary Energy operates four recycled energy projects and one CHP project at ArcelorMittal (NYSE:MT) and US Steel facilities in Northern Indiana.   These facilities collectively avoid 1,850,000 tons (or 24 kg per share) of CO2 per year  according to EPA data.  Although the company’s customers are concentrated in the steel industry, the facilities they serve are among the most efficient and profitable facilities worldwide, giving Primary Energy significant protection from a steel industry downturn.

The company has 30 years of experience operating and improving these and other CHP facilities.    It previously had as many as 14 such plants, but many were sold when much of the company’s debt came due in 2009 in the midst of the financial crisis.  This was only one of several challenges the company has faced in recent years.  Others were the changes in Canadian tax law which effectively removed the tax benefits of the income trust tax structure, and the recontracting of all but one of their five facilities.  The contract for the final facility (Cokenergy) has been extended several times as the details of a long term contract are worked out.

In an interview, Primary Energy’s CEO John Prunkl explained to me that there is virtually no risk that this contract will not be extended.  It is part of a three-way agreement between ArcelorMittal, SunCoke, and Primary Energy.  The first two finalized their contract in October, and that part of the deal represents 90% of the economic impact for ArcelorMittal.  Primary Energy’s piece is the other 10%.  Analysts John McIlveen at Jacob Securities Inc. and Jeremy Mersereau at National Bank are also both confident the contract will be renewed.

The contract is expected to be similar to the existing contract, but is likely to contain a variable component which will allow Primary Energy to profitably invest to improve the energy efficiency of the facility, as they have at their other facilities.  In 2012, they completed an upgrade at their Portside facility which improved its efficiency from 70% to 90%.  Primary Energy has already begun the upgrades to Cokenergy to improve its efficiency.


The recontacting of the Cokenergy facility will also allow the company to borrow against its cash flows and invest in expanding its business without issuing new equity. They are currently evaluating a number of opportunities, but Mr. Prunkl emphasized to me that they would be emphasizing care in project selection rather than speed of execution.  The types of opportunities they are looking for are with industrial customers, located within the customers’ facilities.  They welcome complex projects where they can efficiently convert hard-to work with fuels into power and heat for their customers.  They expect to be able to achieve a risk-adjusted internal rate of return in excess of 12%.

The Stock

Primary Energy Recycling’s stock trades in Toronto with the ticker PRI, and over the counter in the US as PENGF.  It pays a US$0.05 quarterly dividend, which amounts to 4.5% at the recent price of C$5.00 / US$4.49.  The company has low debt, with only $41 million compared to a $223 million market cap, which is why it should be able to grow both its business and the dividend without issuing new equity.  I expect the stock price will increase somewhat when the Cokenergy contract is finalized, and more when definitive plans for expanding the business are announced.  While a finalized contract is likely soon, plans for business expansion will take longer.  Mr. Punkl did not want to make any promises regarding timing.  He said, “We’re going to work hard to avoid negative surprises on our investment plans after the Coke Energy deal.  We’re more concerned with making sure the investment will be the right one for us. ”

One downside is that the stock is very illiquid, with an average volume of only 6 thousand shares traded daily, and the average has been closer to two thousand since the start of the year.  Hence, it should only be bought with limit orders or very small market orders to avoid paying over the odds.  I hope a few readers already got a chance to buy after reading my Ten Clean Energy Stocks for 2014.


Primary Energy Recycling is an independent power producer using the greenest form of fuel imaginable: waste heat.  It has a rock solid balance sheet, a healthy dividend, and four long term contracts with solid industrial partners.  With its fifth and final contract soon to be finalized, Primary Energy is on the cusp of several years of growth.

CEO John Prunkl says, “We’re pretty excited, but it does require patience.”  I think investors should be (patiently) excited, too.

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

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

February 02, 2014

Solazyme: Now, Express Yourself in the oils you choose.

Jim Lane solazyme logo

In an on-time arrival, Solazyme starts up at 500,000 liter scale in Clinton, Iowa. 

In California, Solazyme (SZYM) announced that commercial operations have commenced at both Archer Daniels Midland Company’s (ADM) Clinton, Iowa facility, and the downstream companion facility operated by American Natural Products in Galva, Iowa.

Highlighting the flexibility of Solazyme’s technology platform, Solazyme, ADM and ANP have successfully manufactured three distinct and unique tailored oil products at the facilities, and products are currently being sold and distributed in both the U.S. and Brazil.

Volumes shipped to Brazil are being utilized for market development activity in advance of the opening of the Solazyme Bunge (BG) Renewable Oils Moema facility. As stated previously, production at the ADM and ANP facilities is expected to ramp to a nameplate capacity of 20,000 MT/yr within 12-18 months, with targeted potential expansion to 100,000 MT/yr in subsequent years.

The company noted, in a release, that “truckloads of product are now shipping from the Iowa operations for use in applications including lubricants, metalworking and home and personal care. These shipments are being made pursuant to multiple supply agreements as well as spot purchases, and include reorders.”

Analyst reaction: The Bull perspective

Rob Stone and James Medvedeff at Cowen & Company write: “SZYM hit a major milestone with the first commercial volume deliveries from the Clinton, IA ADM plant and ANP downstream facility in Galva. Three different products are being sold via multiple supply agreements, spot purchases and reorders. Startup problems have hampered many peers, so this news should be a significant trigger. The Moema, Brazil plant is also expected to start this quarter.

“Applications for the three tailored oil products already shipping include lubricants, metalworking, and home and personal care. Moema Startup and More Customer/Product News Could Also Be Triggers

“[At Moema, Brazil] Startup was pushed out from the original Q4:13 target to make enhancements that will enable faster switching between food and industrial oils, more automation, and environmental controls to permit earlier work with new strains. Getting the second large-scale facility on-line this quarter should be another big trigger.”

Raymond James analyst Pavel Molchanov adds: “Positive cash flow is realistic in 2015. While the ramp-up of production will certainly not be linear – as is always the case in industrial biotech – we anticipate utilization rising to 50% in 4Q14. This translates into a four-fold increase in total revenue from 3Q13 to year-end 2014, with product sales jumping by an even larger amount (7x). To be clear, Solazyme can get to positive cash flow at the corporate level (in 2015) even before full utilization at either Clinton or Moema.”

Analyst reaction: The Bear perspective

Piper Jaffray’s Mike Ritzenthaler noted: “We maintain our Underweight rating and $4 price target on shares of SZYM following last night’s press release that both Clinton and Galva are producing commercial oil shipments. The market is clearly much more enthusiastic than we are about the news. Investors, it would seem, believe that operations have been totally de-risked now that commercial shipments have started. We do not share that opinion, however, and our continued caution is rooted in history and practical experience, our lack of comfort with the company’s stated production economics, and the dilutive nature of Clinton production to shareholders based on the tolling arrangement with ADM and associated stock payments. The fact that SZYM is a story stock is not lost on us, but even with lower estimates, perfection is priced in.”

The ADM agreement

In November 2012, Solazyme and ADM signed a series of strategic collaboration, manufacturing and market development agreements for production at the Clinton, Iowa plant. At the time, the companies said that Solazyme would initially target the production of 20,000 metric tons of oil in 2014, with an aim to increase production to 100,000 metric tons in subsequent years. Commercial production was expected to begin in early 2014, the companies said at the time — a prediction which proved right on the mark.

ADM’s wet mill, which is adjacent to the fermentation plant, is initially providing dextrose for the fermentation; and steam and power is being delivered from ADM’s cogeneration facility that is partially fired with renewable biomass.

Scale of operations

Back in December 2012, Solazyme completed multiple initial fermentations at the Clinton plant, conducted in approximately 500,000-liter vessels, or about four times the scale of the vessels in Solazyme’s Peoria facility. The scale achieved at ADM’s Clinton facility is comparable to the fermentation equipment currently under construction at the Solazyme Bunge Renewable Oils facility in Brazil.

The Bunge facility, initially expected to commence operations in Q4 2013, slid its scheduled start-up to Q1 2014, prompting some volatility in Solazyme’s stock late last year.

Nike vs Ford

If you’re under 30, or follow shoes — you are probably familiar with NIKEiD – allowing you to “personalize your performance, fine-tune your fit, and represent your style”. You get “your shoes, your style, made exactly the way you want to match your performance and style demands. You can “fine-tune your traction” as well as customize the look and feel.

It’s part of what drives Nike — footwear tailored to your needs, whether you choose from one of their hundreds of off-the-rak styles or go all-in on a NIKEiD tailored shoe.

At the other end of the spectrum was Henry Ford’s Model T, of which is was said “you can have it in any color you like, as long as that color is black.”

To date, the business of oils has been more on the Model T type — what’s in the barrel or plant is what’s in the barrel or plant. Generations of chemists and engineers have learned to work with the properties of given animal, plant or fossil oils. But here comes Solazyme with a “tailored oil” approach. Applications abound.

Reaction from Solazyme

“This is a critical milestone for Solazyme’s large scale commercial manufacturing capabilities. The Solazyme, ADM and ANP teams have done an excellent job bringing up commercial operations at the Iowa facilities with Solazyme’s TailoredTM oil production technology. We have already successfully produced three TailoredTM oil products at scale and have begun selling these products into the North American marketplace,” said Jonathan Wolfson, Solazyme’s CEO.

“Consistent with our stated plans, we are focused initially on ensuring consistent and reliable operations as we build customer trust. While we acknowledge that it is still early days, we look forward to the opportunity to expand our production volume and the slate of oil products available.”

The Bottom Line

As Cowen’s analysts note, “Startup problems have hampered many peers, so this news should be a significant trigger.” All eyes will now be on Moema. If that goes forward as well or better: well, as we opined a few years back in the case of Solayzyme: They Might Be Giants.

  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.

February 01, 2014

Dyadic: Congenial Customer Relations

by Debra Fiakas CFADyadic Logo

A continuous quest to find companies that can turn sales into profits has turned up an unlikely font of cash.  Dyadic International (DYAI:  OTC/PK) is a developer of industrial enzymes.    Back in the day the company sold enzymes to the rag trade to create those fancy jeans with the stone washed look.  More recently Dyadic has worked with Abengoa (ABGB: NASD) and Codexis (CDXS : NASD) in support of their renewable fuel processes.

Dyadic uses the fungus Myceliopthora thermophila in a fungal expression system for gene discovery, expression and the production of enzymes and proteins.  Dyadic ferments the fungus, called C1 for short, at commercial scale to speed up time to new product introduction and reduce cost.  The company has been successful in getting its innovations protected with a series of U.S. patents  -  an important shield in the somewhat crowded industrial enzyme playing field.  The most recent patent award came in November 2013 for a method to use novel combinations of enzymes to convert lignocellulosic biomass into fermentable sugars.

Yet, let’s get to the cash flow news.  In the twelve months ending September 2013 the company claims to have earned $15.7 million in sales from customers, largely to sales of enzymes to animal feed producers.  The company declared a net loss in the annual period but claims to have squeezed $5.7 million in operating cash flow out of $15.7 million in total sales.

The thing is, Dyadic’s financial news is unverified.  The company issues press releases and submits reports to OTC Markets where its stock price is quoted.  However, it files no reports with the Securities and Exchange Commission and does not have its books audited.

Investors have to treat Dyadic as a private company, conducting the sort of intense scrutiny needed to dig into information held close to the vest.  Even though the OTC Markets calls for financial reports from quoted companies that are in a style and format reminiscent of SEC reports, it would be ill advised to assume that preparation of reports to OTC Markets are as vigorous.  One plus for Dyadic is an audit of its annual report by a recognized regional auditor.

Dyadic and its founder/CEO Mark Emalfarb have a colorful history.  It is worthwhile to check out the story as a means to get perspective on Dyadic’s present reporting and trading circumstances.  It involves a Hong Kong subsidiary, allegations of accounting improprieties, quite a lot of finger pointing and numerous lawsuits.  The dust appears to have settled on most of it and the company has moved on to new product introductions and customer relationships.  Still Dyadic has still not resumed filing reports with the SEC and that leaves DYAI quotation on the OTC Pink service.

Approximately 27,000 DYAI shares trade each day.  The recent $0.08 spread between the bid and ask prices is surprisingly narrow for an OTC quoted security.  It is a company with some blemishes.  What is more, a position in DYAI could be one of the more time consuming in your portfolio, given the level of due diligence required to manage the risk. 

Yet recent developments suggest there could be more sales and cash flow in Dyadic’s future.  Dyadic is to have received a $1.0 million milestone payment from BASF related to research work and licensing in the December 2013 quarter.  A long-time relationships with Abengoa is about to enter commercial stage as that company’s cellulosic ethanol plant in Kansas goes into volume production in 2014.  Royalty payments should follow.  Dyadic is brewing up its second target protein for Sanofi that will ultimately end up in pre-clinical tests.  As long as Dyadic management can keep its customer relationships congenial, it prospects are certainly looking up.

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 2014 | Main | March 2014 »

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