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April 30, 2014

Beijing Taking Hands-Off Approach To Solar Recovery

by Doug Young

China sent an important message to the struggling solar panel sector last week when one of the country’s major manufacturers was forced to turn to global capital markets to raise new funds, hinting that it couldn’t receive the money from state-backed domestic sources. The move sparked a sell-off for New York-listed shares of Yingli Green Energy (NYSE: YGE), as its request for funds met with a frosty response on Wall Street.

The fact that Yingli had to seek funding from commercial-oriented western investors indicates Beijing is taking a hands-off approach to financing for this important but embattled industry as it tries to emerge from a 3 year slump. Chinese leaders should continue to send similar signals not only for the solar sector but also other key industries, in a broader effort to wean them from state support and create sustainable companies that can become global leaders.

Yingli hasn’t posted a profit for more than 2 years, and reported a net loss of $128 million in its most recent reporting quarter. The company and most of its peers have been losing money since 2011, when the industry tumbled into the red due to overcapacity.

The downturn caused many firms to go bankrupt, with former giants Suntech (OTC: STPFQ) and LDK Solar (OTC: LDKSY) as the 2 most prominent examples in China. In the meantime, the financial position of surviving players like Yingli remains weak as prices finally start to rebound. To shore up its position, Yingli turned to Wall Street last week to raise a relatively modest $83 million through the issue of new American Depositary Shares (ADSs) in New York where its stock is currently traded.

The company ultimately sold the shares for $3.50 each, or more than 20 percent below its stock price when it first announced the plan. (company announcement) The need for such a big discount reflected ongoing investor concern about both Yingli and broader prospects for the solar sector’s recovery. Announcement of the discount sparked a sell-off in Yingli’s shares, which tumbled 18 percent in the 3 trading days after the plan was first announced, wiping out around $100 million in shareholder value.

Yingli’s decision to tap western markets for its fund raising followed two similar earlier developments that showed Beijing was taking a more hands-off approach to the solar panel sector in the uphill climb from its downturn.

The first of those came in February, when Canadian Solar (Nasdaq: CSIQ) announced plans to issue new stock and bonds to raise $200 million. That announcement sparked a smaller 8 percent sell-off in Canadian Solar’s shares as investors also greeted the plan with limited enthusiasm, even though the company is one of the few to recently return to profitability.

The second sign of Beijing’s laissez faire approach came last month when mid-sized panel maker Chaori Solar (shenzhen: 002506) missed an interest payment on some of it domestic bonds, becoming the first default on such domestic corporate debt in modern Chinese history. Many viewed that move as a sign that China was preparing to allow similar defaults on corporate debt, and abandon its past practice of sending in state-run entities to rescue such companies.

In all 3 cases, it would have been quite easy for Beijing or local governments to come to the assistance of Canadian Solar, Chaori and Yingli. Officials could have provided critical assistance in a number of ways, such as ordering local state-run banks to make low-interest loans or calling on other state-run entities to provide funding.

But in each instance, the government has shown a determination to let market forces dictate developments, even if that meant wiping out millions of dollars in investor value or shaking the domestic corporate bond market by signaling the potential for more defaults. Such actions may cause some pain in the short term for companies, their investors and local economies, but will help to create a profitable, sector that can be commercially viable over the longer term.

Beijing should extend this market-oriented approach to other sectors that are also struggling with overcapacity, such as steel and aluminum, which would help to build commercially viable industries over the longer term. In place of direct financing, it could gradually introduce less aggressive, more western-style incentives like tax breaks to foster growth in sectors it wants to develop.

Such an approach will inevitably create some pain for the affected sectors, forcing plant closures and lost investment dollars. But over the long run it will put China’s economy on a sounder footing to ensure healthy sustainable growth.

Bottom line: Yingli’s move to raise capital in New York signals Beijing will take a laissez faire approach to the solar sector as it claws its way back to health.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.

April 29, 2014

Kandi: The World's Greatest Non-Candy Company

Ed. Note: This article was first published as an instablog by 'Illuminati Investments' on Seeking Alpha, and was intended as an April Fool's joke post.  I found it very funny.  Kandi advocates may not.

Wouldn't it be nice to invest in the best business in the world? Now, I don't want to hyperbolize, but I believe I have uncovered the greatest investment opportunity in the history of the universe. This perfect company goes by the sweet name of Kandi Technologies (KNDI). Now, I know what you're probably thinking: "Mmm, candy..."

If this is the case, you're either A) Homer Simpson, or B) Hungry. Why are you still reading this? Go fix yourself a snack or grab some actual candy, because it's going to take a while to describe just how incredible this company is.

Are you back? Good. Anyway, contrary to what you were probably thinking when on your candy break, the company Kandi is actually a manufacturer of Electric Vehicles in China. Now, wait just a minute, you ask out loud, causing your spouse, dog, or coworkers to look at you like a crazy person, "Isn't China irredeemably corrupt?"

The answer, of course, is yes. But it's only their politicians. Oh, and some of their CEOs. So basically it's exactly the same as here in the good old US of A, except slightly less socialist. The main difference is that they have a much larger population than us, the US. Wikipedia, the main source of information for lazy writers like yours truly, estimates that they have over 1.3 billion people. That's billion, with a B. Or whatever letter of the alphabet that "billion" starts with in Chinese.

But, no matter how you ignorantly translate it, this is a fairly large addressable market. If every man, woman, and child in China were to buy an electric vehicle, this could help solve global warming, assuming it is not a myth. An affordable electric vehicle, that is, not global warming, which is clearly a scientific theory, like Intelligent Design. All of these (except ID, which, unlike here, their backward education system doesn't allow them to teach) Kandi can help solve, perhaps mainly by causing a bit of a traffic jam, as many urban Chinese are not used to driving, especially the aforementioned children.

But, no matter, Kandi has a solution to this problem as well, which will probably allow them to gain considerable market share in China, as well as in other progressive countries like California. This is a revolutionary CarShare program, where the vehicles are sold not directly to consumers, but rather to cities, which will then rent them out of high tech garages to make them more accessible to the masses. Especially the aforementioned children, who will probably be the only ones capable of operating such an advanced technological system. Now, if you'll excuse me for a sec, I have to go ask my 6 year old nephew to show me how to cut and paste an image of the car sharing garage into this article...


Ah, there we go. Wait a minute, buddy, how do I make it larger? I can't read it without my glasses! Come back here! Ah, never mind, it'll have to do, with the added benefit that the image of the car in the photo is now shown at actual size. What, you were expecting some big honking road hog like we drive here in the States to compensate for our physical and fiscal insecurity?

No, the Kandi electric vehicle is perfectly sized for the Chinese market. Not because the people there are small, that would be presumptuous to presume, as well as possibly racist even though perhaps factually true. Except for Yao Ming, obviously, he probably wouldn't even be able to stand up in the garage, much less fit into the actual car.

But anyway, to arrive at my point in a roundabout way, street smart pun intended, the space saving design of both the garage and car is perfect for China's crowded cities, where space is at a premium. Also, fresh air is at a premium as well, with smog approaching pea soup thickness in some cities. Or to use a more appropriate culinary analogy, egg drop soup thickness. Or egg drop soup with peas thickness, although I hate when restaurants ruin perfectly good egg drop soup with vegetables!

Regardless, air/soup quality is a major problem that Kandi's product can help solve. Well, not the soup problem, as the electric motor on these cars is not quite powerful enough to run a blender at a high enough speed to get the right consistency in a soup. But it does power these cars at speeds up to 30 mph, which is even faster when translated into kilometers per hour, or whatever unit of time the Chinese use. I believe it is the yuan, since after all, time is money in any language.

So, assuming the exchange rate stays constant, you can cruise along in your Kandi EV at up to 48 km/yuan, which may or may not be the speed limit in China, but I'm too lazy to even bother looking it up on wikipedia. But won't driving at such a high speed drain the battery, leading to performance anxiety? Did I say performance anxiety? Sorry, Freudian slip, I meant range anxiety. Range anxiety, of course, is the fear that your battery might not have the juice to go all night long. Or day, if you're driving in the daytime, which come to think of it is probably much more likely and less of a double pun-tendre.

But, having beaten around the bush long enough before reaching my climactic point (I've found the trick is to think about baseball), I will now reveal that Kandi's solution to this problem is a battery exchange system, shown as follows:

This QBEX system, short for Quick Battery Exchange Xstem, quickly and easily swaps out a flaccid battery for a fully charged one, like electric Viagra. If this system looks familiar, it's probably because Tesla (TSLA) blatantly ripped it off for their own battery swap system. This is no surprise, given Elon Musk's history of stealing great ideas, for as everyone knows the Winklevoss twins really invented the Model S. But I wouldn't trust Tesla's Supercharger, a grandiosely named but clearly cheap knockoff product, since have you ever tried generic versions of Viagra? No, of course not, me neither. It was a rhetorical question, what are you implying?

However, even though Kandi has had to put up with the corporate espionage of lesser electric vehicle manufacturers, they have managed to keep research and development spending in check. In fact, since completely overhauling their product lineup from their legacy ATV and go-cart business to become a global electric vehicle powerhouse, they have only spent several million dollars per year on R&D. Contrast this with the irresponsible wasting of several hundred million taxpayer dollars per year, which Tesla has dumped into boondoggles like R&D with not much to show for it, other than the greatest car of all time.

But this is nothing compared to what Kandi has been able to achieve, not only an impressive lineup of small appliances/vehicles, but also all the impressive infrastructure to support them like smart parking garages and battery exchange systems. To imagine that Kandi has developed all this on a mere hundredth of the R&D spending, fills my mind with wonder until it strains the credulity of my tiny brain. But of course this can be easily explained when you consider that unlike me, Kandi's founder and CEO, Xiaoming Hu, is a certified genius. Yes, he literally has a certificate, as you apparently can get any sort of official document drawn up in China for the right price.

But, all kidding aside, which would have made this article quite a bit shorter and probably saved some eInk and eIQ points, the man must be brilliant to have built such an incredible company with so many innovative products on such low R&D spending. Apparently he retained some patents from his illustrious career as a government scientist, which he donated to Kandi pro-bono, which is Latin for "in exchange for a majority stake". These decades old patents laid the foundation for Kandi's impressive lineup of EVs, which may be why most of them look somewhat like a Yugo from the early '90s.

But say what you will about aesthetic styling, Hu was ahead of his time. You might say he was first, well ahead of when Tesla got into the game. Hu was first, and with his design, the battery responds with power in a second. I'm not sure even Tesla can match that acceleration, and I can't even name the third place finisher in this contest. So to recap: Hu's on first. Watts are second. I Don't Know's in third.

So in conclusion, Kandi Technologies has developed a cutting edge product for a huge market at a very low cost, which is the holy grail of business. And you can buy a share of this company and own 100% of Continental Development Limited, which owns 100% of Zhejiang Kandi Vehicles, which owns 30% of Jinhua Three Parties New Energy Vehicle Services Company and 50% of Zhejiang Kandi Electric Vehicles, which owns 100% of Kandi Electric Vehicles and 19% of Zhejiang ZouZhongYou Electric Vehicle Service, where Zhejiang Kandi Vehicles owns 100% of Yongkang Scrou Electric, 90% of Kandi Electric Vehicles and 50% of Jinhua Kandi New Energy Vehicles, which also owns 10% of Kandi Electric Vehicles.

Obviously, this labyrinthine corporate structure is for the benefit of shareholders, to get around Chinese ownership laws, allow them to more easily form lucrative joint ventures, and/or to save on taxes, or something similar that sounds good in SEC filings, when they actually bother to disclose relevant things like that in them.

But hey, that's just a minor issue when you own the greatest company in the world. I'm sure their impending massive profits will eventually find their way back into your pocket. After all, you're certainly not a fool for reading this story today and wanting to buy the stock, so the joke's on those who merely laugh at this article and miss out on these April showers of profits.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

April 27, 2014

BYD Runs On Government Support

Doug Young 

byd logoI gave quite a bit of attention a few days ago to US electric vehicle (EV) sensation Tesla (Nasdaq: TSLA), so it’s only fair that I follow up by writing about China’s homegrown EV superstar BYD (OTC: BYDDF; HKEx: 1211; Shenzhen: 002594), which has just released quarterly results that look quite disappointing. The only things that look slightly encouraging in this latest report are the fact that billionaire investor Warren Buffett continues to hold onto his 10 percent stake in the company, which he bought in 2008, and that BYD remains profitable. But even the profits are due to strong support from Beijing, under its program to encourage clean-energy vehicle development.

If I had to describe BYD’s recent performance in a single thought, I would say that this company is quite good at setting up pilot programs for its EVs but has difficulty translating those programs into big business. Over the last 3 years, BYD has announced a steady string of such pilot programs in a wide range of markets, from Western Europe to the US and Latin America, as well as in its home China market. But with only a few rare exceptions, we have yet to see any of these programs turn into the large orders that BYD will need to make its EV program viable over the longer term.

All that said, let’s look more closely at BYD’s latest quarterly results that show its profit largely evaporated in the first 3 months of the year. The company reported a first-quarter net profit of about 12 million yuan, or just about $2 million, which was down 90 percent from a year earlier. (company announcement) That’s quite a tiny figure for a company whose revenue totaled nearly 12 billion yuan for the quarter, which also was down by a more modest 9 percent.

BYD reported it received 98 million yuan in government grants during the quarter, meaning it almost certainly would have lost money without that support. Obviously we can’t directly subtract this amount from its total profit, but I do think it’s fair to say the company would have reported a loss of 50 million yuan or more without this government assistance.

BYD’s Hong Kong-traded shares fell 2.8 percent before the report came out, though they regained some of that ground in the latest trading session on Friday. The stock has actually rallied quite a bit over the last year and a half, more than tripling since October 2012 on enthusiasm over the EV program. But I suspect this latest disappointing result could force investors to realize the company’s electric dreams aren’t materializing as hoped, and could mark the beginning of a broader sell-off that could see the stock fall by a third or more over the next few months.

BYD is in the difficult position of waiting for its EV business to start bearing fruit, as its older battery and traditional gas-powered car businesses show signs of aging. BYD has previously said it will leave the gas-powered car business altogether by 2015, as it sees the future in electric vehicles. In a bid to shore up its cash position, the company announced a major plan a year ago to raise up to $500 million by issuing new shares. (previous post)

I’ve mostly written enthusiastically about BYD each time it announced a new EV pilot program, as such programs are a necessary first step for customers to test out the technology before placing bigger orders. But the fact that we’re seeing few major orders being placed up to 3 years later probably means that many of these pilot programs weren’t as smooth as BYD had hoped and perhaps the buyers didn’t like the technology. That certainly doesn’t bode well for the company’s future, meaning BYD could be dependent on government assistance to support its bottom line for the rest of this year and quite possibly into 2015.

Bottom line: BYD’s latest results show its EV sales aren’t accelerating as quickly as planned, and it will remain dependent on government subsidies to support its bottom line for the rest of this year.

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

April 26, 2014

Unlocking Solar Energy's Value as an Asset Class

James Montgomery

2014 is predicted to be a breakout year for solar financing, as the industry eagerly pursues finance innovations. Many of these methods aren't really new to other industries, but they are potentially game-changing when applied in the solar industry.

Not all options are ready to step into the spotlight, though. Master limited partnerships (MLP) and real estate investment trusts (REIT) promise more attractive tax treatment than securitizations or yieldcos, but they require some heavy lifting and difficult decisions at the highest levels: MLPs need an act of Congress even for an infinitesimal language tweak to remove a legislative exclusion to solar and wind, while REITs involve a touchy reclassification of assets from the IRS that could have broader and undesirable tax consequences. Yet another model gaining traction is a more institutionalized version of crowdfunding, led by Mosaic (technically they call it "crowdsourcing"), but crowdfunding is awaiting more clarity from the Securities and Exchange Commission about what rules must apply.

And so, while patiently waiting for Paleozoic movement out of Washington, the industry is turning its attention and anticipation toward ushering in two other new financing models: securitizations (converting an asset into something that is tradable, i.e., a security) and “yieldcos" (publicly traded companies created specifically around energy operating assets to produce cash flow and income). Their build-up actually began last year: in the fall SolarCity (SCTY) finally launched the first securitization of distributed-generation solar energy assets, with a pledge to do more and significantly larger ones in the coming quarters, and throughout 2013 several companies (NRG, Pattern, Transalta, Hannon Armstrong) spun off yieldcos with varying levels of renewable energy assets in their portfolios.  These were NRG Yield (NYLD), Pattern Energy Group (PEGI), TransAlta Renewables (RNW.TO), and Hannon Armstrong Sustainable Infrastructure (HASI).

Just weeks into 2014 we're already seeing an uptick in activity. While the industry awaits SolarCity's next securitization move, in the meantime the company has acquired Common Assets, which had been building up a Web-based platform for managing financial products (most especially renewable energy investments) for individual and institutional investors; the first SolarCity-backed products are expected to start rolling out by this summer. We're also hearing rumors of up to half a dozen other securitization deals working through the pipeline, referencing unidentified large players with long histories of building out projects — some names frequently invoked as potentially fitting those criteria include familiar residential-solar companies such as Vivint, Sunrun, Sungevity, and several others.

On the yieldco front, in mid-February SunEdison announced plans for its own "yieldco" IPO aimed at unlocking more value within its solar energy assets. Pricing wasn't announced at press time, but earlier reports suggested it could generate a $300 million payday. SunPower also recently has been talking about doing a yieldco in a 2015 timeframe, likely to feature its 135-MW Quinto project and possibly its 120-MW Henrietta project. Others reportedly eyeing the yieldco model include Canadian Solar, Jinko Solar, and First Solar.

What Capital Markets Can Do For Solar Companies

What's coming together to bring these two financial innovations into the arena right now? Put simply, it's the confluence of plunging PV prices and blistering installation growth which are achieving a scale and maturity that outstrips the capacity of traditional tax-equity sources -- but it also means they can now entertain large-scale financial instruments, explains Joshua M. Pearce, Associate Professor at the Michigan Technological University's Open Sustainability Technology Lab, who recently published a study of solar securitizations. Look at it from a macro level: even conservative growth estimates for U.S. solar energy capacity additions point to 20 GW coming online by the time the investment tax credit (ITC) is planned to run out in 2017, notes NREL energy analyst Travis Lowder, author of another recent report. At an average of $3/W that's $60 billion in assets, of which a third or even half could generate securitizable cash streams for solar developers. Spin that equation around: a single $100 million securitization deal could support 72 MW of residential solar assets, 100 MW of small commercial solar, or 133 MW of larger commercial/industrial projects.

Number of PV Systems (by Market Sector) Potentially Financeable Through a Single Securitization Transaction. Credit: NREL

What does that mean for individual companies? 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 could find ways to lower its cost of capital, apply various underwriting assumptions, and factor in residual value in power purchase agreements. That's a startling 2.6x increase in potential value creation that SunEdison thinks it can unlock, by choosing to hang onto its projects vs. simply selling them off. In its mid-February quarterly financial update the company revealed more value-creation calculations: it captured an additional $158 million during 4Q13 through those retained assets, with a resulting metric of "retained value per watt" at $2.02/W. By applying most of the 127-MW on its balance sheet with an estimated $257 million in "retained value" to its proposed yieldco, the company says, it now has sufficient scale to unlock the true value of those solar assets.

The ability to lower the cost of capital deserves extra emphasis. SolarCity's securitization last fall had a 4.8 percent yield, only slightly higher than a 30-year fixed mortgage and with twice the payout on current 10-year treasury bonds, which is great for investors — but for the company it represented roughly half the cost of capital vs. what can be obtained currently for distributed solar PV financing, noted Rocky Mountain Institute's James Mandel.

"This trend is transformative for the solar industry" because of how it can unlock so much more value and generate more 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."

Securitization vs. Yieldco: The Good, Bad, And Unknown

Both securitization and yieldcos increase access to lower-cost financing by pooling solar assets into an investment vehicle, separating the more reassuring elements of them (payments from operating energy assets under a power contract) from the riskier ones (project development). Both of them promise returns, though yieldcos come as dividends that vary with the company's performance while securitizations are fixed-income meaning investors get locked-in payments for a set period. And most importantly to the solar industry, they offer a lower cost-of-capital compared to the usual funding sources: debt, tax equity, and sponsor equity.

Generalized solar securitization transaction. Credit: NREL

One key difference: yieldcos own both the energy producing assets and the contracts, which means they can monetize federal investment tax credits. An equity owner can't use power-purchase agreements to create a securitization and also take the tax benefits. The real challenge, says Yuri Horwitz, CEO of boutique financial services firm Sol Systems, will be building a yieldco that has income-producing assets that create tax liability, coupled with solar projects that have tax benefits. NRG's yieldco last year did that, and he thinks they have a leg up because of it. Moreover, yieldcos will go out into the market to compete aggressively with other options such as specialty financing that offer similar returns. The hope is that as yieldcos mature and more operating assets are added in their competitiveness will improve.

Defining what assets are best securitized and best spun out into yieldcos exposes a gap that neither properly addresses. Larger projects are good candidates for yieldcos; securitizations typically involve residential solar assets. (An exception: MidAmerican used debt securities/project bonds for its 550-MW Topaz solar farm, as did NextEra (NEE) for its two 20-MW St. Clair solar projects in Canada.) In between is the commercial/industrial segment which presents a more complicated financing challenge. "[Securitizations and yieldcos] don't really work in the center," Horwitz said. A different class of securitizations, "collateralized loan obligations," are more applicable to the commercial sector where less diversity in assets means more risk in making ensuring offtakers' credit-worthiness, suggests NREL's Lowder.

Something else that successful securitizations and yieldcos have in common: the more scale and diversity the better. But that's also a limiting factor: not everyone can pool a wide distributed portfolio of solar assets to mitigate risk, or a smaller portfolio of larger ones. And the more diverse it is, the harder it is to evaluate them as a whole, value them, and get underwritten.  By definition, they require someone who can offer up a large pool of assets as de-risked and diversified as possible, and backed by a brand-name sponsor, pointed out Tim Short, VP of investment management at Capital Dynamics. "There's plenty in the wings that will never make it," he said. "There's not a whole lot of people to bring all the ingredients together."

One other factor to account for in any solar-backed financial models is the externality of policy changes. While investors appreciate the value in a solar offtake contract, but they need to factor in potential risk of any retroactive policy changes, such as is on the table in the net metering debates raging in several states. If net metering policies end up being reduced or even repealed, "solar contracts may default and reducing predicted income streams," Pearce said. "Ensuring policy stability and communicating that stability to investors will be key to the on-going attractiveness of solar assets."

The Need to Standardize

What will be critically important as more of these financing innovations emerge, and more solar companies try to take advantage of their promise, is pinpointing ways to standardize how the process works, in specific areas and as a whole. "The number-one priority is standardization, especially moving forward with vastly more distributed-generation assets coming online, said Haresh Patel, CEO of Mercatus. That's the glue that will hold these offerings together with both developers and investors — and it needs to be embedded in developers' DNA from the very beginning, so their solar assets can be evaluated and bundled repeatedly and reliably. 

Addressing the databasing of solar asset performance metrics are NREL and SunSpec with their open-source OSPARC database. One "Gordian knot" issue: who owns the data and are they willing to share it? That pathway of data ownership can get muddled because not all issuers outright own their systems, and it gets worse by adding a tax equity layer. Figuring out that chain of data ownership protection and security is hugely important., notes Mike Mendelsohn, senior financial analyst at NREL. That's part of OSPARC: anonymizing and rolling up data into a friendly fashion so it's easy for solar companies to present to investors, and for them to digest. "We need to build confidence that those issues are adhered to," he said.

Startup kWh Analytics is similarly targeting aggregation and benchmarking of information about solar asset performance, which is crucial because it tells institutional investors about the soundness of the collateral (the system and the leasee). What are individual PV panels and inverters doing compared with other options; are the customers with FICO scores in the 650-700 range paying off their bills? Developers also want to know how their chosen systems are performing comparatively — and increasingly so with the emergence of these new investment vehicles, where the developer retains those assets as a financing tool.

Mercatus, meanwhile, wants to address the whole package, assessing everything from system components to permitting. "What entities look for is consistency for which they can reduce risk," said Haresh Patel, CEO of Mercatus, which is tackling that problem with its own platform: quickly process and synthesize projects' data so they can be more easily pooled for investors -- and in the same language project after project, especially as new assets come into the pool. Establishing a mechanism to organize this on a repeatable basis is "the biggest friction point," he said.

Project summary view inside Mercatus' 2.0 “Golden Gate" platform. Credit: Mercatus

Standardizing offtake contracts "is the best place to start as this problem impacts every step in the process," Pearce suggested. "Uniform contracts facilitate comparison, reducing asset evaluation costs and promotes pooling.  They also simplify data collection and analysis. Uniform contracts will better facilitate data collection and analysis, asset comparisons and pooling, all of which means reducing costs. 

As part of SolarCity's securitization last fall, Standard & Poors (which rated it BBB+) revealed some interesting background info about the assets being offered, including an impressively high FICO score for residential system owners (and strong mostly investment-grade ratings for the nonresidential ones). There is no solar version of FICO scores, which took decades to become the standard for credit ratings and lending. Addressing this particular pain point is the truSolar Working Group, formed a year ago by 15 solar companies and organizations, trying to develop uniform standards similar to a credit score for measuring the risks associated with financing solar projects, explained Billy Parish, founder/president of Mosaic and a truSolar founding member.

"Standardization will happen much sooner than people think," Patel said. "Standards drive velocity." He invoked the efforts of the DoE-NREL multi-year project Solar Access to Public Capital (SAPC), which folds in well over a hundred organizations with activities from standardized PPAs to installation techniques, "mock pools" of solar assets to rating agencies, and collecting performance data.at involving groups with touchpoints all along the solar energy chain from panel suppliers to banks.

Message to the Masses

As solar companies come around to how much extra value they can unlock, part of that process is coming up with new metrics to calculate that value potential, such as "net present value per watt" or "retained value per watt," and then educating investors who might persistently adhere to the traditional metrics like earnings per share. Issuers including SolarCity and SunEdison and the investment banks go out and do their part with investor roadshows, but also out in the field helping educate about solar asset-backed investments is SAPC is out pounding the pavement too, engaging both sell-side investment banks and buy-side capital market managers to get everyone more comfortable with how these vehicles will work.

"We are now in a positive feedback loop," said Michigan's Pearce. "By successfully accessing lower-cost capital, the solar industry can fund high rates of growth in the future, continuing the current momentum of eliminating antiquated and polluting conventional electricity suppliers."

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.

April 25, 2014

Tribulations of a Meter Reader

by Debra Fiakas CFA

Last week Badger Meter (BMI:  NYSE) joined a building fraternity:  companies reporting strong year-over-year sales growth, but delivering weaker than expected earnings.  However, the Badger Meter actually increased earnings by a greater magnitude than it grew sales.  The Company reported $83.5 million in net sales, representing 16.3% growth over the same quarter last year.  Net income grew by 59.3% year-over-year to $4.6 million or $0.32 per share.  As impressive as these results appear to be, the consensus had been for earnings per share of $0.41.  The stock declined sharply as investor registered their displeasure with the short-fall.

Badger Meter supplies flow measurement and control technologies products to industrial, commercial and utility customers around the world.  The company is so much more than a simple meter reader supplier.  Anybody who has a system through which fluids flow can benefit from Badger’s wide range of flow control and metering products.  The company is included in our Mothers of Invention Index of developers of energy efficiency and conservation technologies.  The alternative energy and water industries are key beneficiaries of Badger’s products.

Like its peers in the water metering industry the Badger Meter struggled during the recent recession, but has managed to recover.  In 2013, the Company reported record sales of $334 million, on which it earned $24.6 million in net income.  Importantly, operations generated $34.8 million in cash.  That represents a sales-to-cash conversion rate of 10.4% that helps support future growth and dividends for shareholders.

BMI has been a part of the Crystal Equity Research coverage universe for some months.  In our view, the sell-off of the stock was unjustified given the Company’s actual performance.  However, it is also the responsibility of management to provide sufficient guidance to publishing analysts so as to avoid egregiously high expectations.

A new and clearly bearish sentiment began building in the shares several days before the earnings announcement.  Most likely this bearish sentiment is company-specific and beyond the weakness observed in the broader U.S. equity market in recent weeks.  A review of recent trading patterns in BMI reveals a so-called “double bottom breakdown” that occurred the week of April 14th.  This chart pattern portends future weakness in the stock and investors should be concerned that stock could fall even further.

Earlier this week we warned our research subscribers that although we were maintaining our Hold rating on BMI shares, even though the stock has declined into the a range in our trading guide where we would be whipping up new positions.  Indeed, the stock appears to be oversold at the current price level.  However, we noted that it would be a more prudent trading strategy to wait for  some recovery in upward momentum before adding to positions.  Unfortunately, our analysis suggests investors might have to wait a bit.  One very helpful indicator is Moving Average Convergence/Divergence (MACD), which at this time suggests the stock could continue its march southward for several more trading sessions.

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.

April 24, 2014

Tesla CEO Makes Smooth Drive Into China

Doug Young

Tesla Logo
Tesla cruises into China

I have to give my congratulations to new energy car maker Tesla (Nasdaq: TSLA) for creating the kind of buzz and excitement this week that only names like Apple (Nasdaq: AAPL) and smartphone sensation Xiaomi have typically been able to muster. In the last 2 days, the company and its charismatic founder Elon Musk were all over the Chinese headlines as Tesla delivered its first electric vehicles (EVs) in China on the sidelines of the nation’s biggest annual auto show happening this week in Beijing. Musk seems to have done interviews with nearly all of the major publications I regularly read, leading me to wonder if the man ever sleeps.

But all joking aside, Tesla really has done an incredible job of launching its first vehicle sales in China. I honestly haven’t seen this kind of media frenzy and hype surrounding a product launch for at least a year or two, back when Apple was still at the height of coolness in China. Tesla has also made all the right moves in terms of associations, getting its name connected with a number of big-name companies, projects and people as Musk hinted his company could consider building a plant in China.

All this buzz comes after a rocky start in China for the company, following a tussle with a trademark squatter and some initially difficulties getting its first shop set up in Beijing. What’s more, the company is at a slight disadvantage to domestic rivals like BYD (HKEx: 1211; Shenzhen: 002594; OTC:BYDDF) and Chery because its cars don’t quality for the generous subsidies being offered by Beijing to jump-start electric car sales. And yet despite all that, Tesla has managed to generate lots of buzz these last few months and has set an aggressive target of selling as many as 8,000 cars in China this year.

It officially delivered the first of those this week, as it handed over the keys to 8 of its Model S electric cars to an A-list of high-profile buyers that included the president of the Lifan soccer team and the founder of Autohome (NYSE: ATHM), the nation’s leading car information website. (English article)

Musk has also managed to get his company’s name associated with a number of major Chinese companies as he tries to send the message that Tesla will support clean energy as it helps to build the necessary charging infrastructure to support EV development. According to the various reports, Tesla’s list of potential corporate partners runs the range from Sinopec (HKEx: 386; Shanghai: 600028), one of China’s top oil refiners; to State Grid, operator of China’s national electric grid; to JA Solar (Nasdaq: JASO), one of the nation’s leading makers of solar panels.

Tesla discussed its potential local partnerships as it also revealed it is preparing to spend hundreds of millions of dollars to help to build charging stations to make electric vehicles practical in China. (English article) But perhaps most tantalizing to officials in Beijing was Musk’s hints that he could consider building an EV manufacturing plant in China, which could become the company’s biggest global market as soon as next year.

Clearly Musk has done his homework and is hitting on all the right notes in China to create a well-oiled campaign as he enters the market. Of course it also doesn’t hurt that Tesla has a very good product to sell, and that it has cultivated an image as a very environmentally friendly status symbol in this very status-conscious country. If it continues to play its cards right, which looks likely, the company could stand a very strong chance of selling at least 4,000 or 5,000 cars this year in China, making it one of the company’s top global markets.

Bottom line: Tesla’s China launch, accompanied by a well-crafted publicity blitz, could help the company sell up to 5,000 cars in the market this year.

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

April 21, 2014

Don't Bet Against SolarCity

By Jeff Siegel


SolarCity truck It wasn't an April Fool's Day gag when I said it was time to buy SolarCity Corp. (NASDAQ: SCTY) at the beginning of the month.

After a brief standstill, the company's battery-backed solar projects have begun to move forward again.

The State of California Public Utilities Commission has added an important item to its May 15 agenda that will make a huge difference for SolarCity. Utility companies may finally be blocked from imposing big fees on battery-backed solar systems.

For more than a year, California's largest utilities companies demanded that battery-solar systems undergo costly and time-consuming inspections to prevent them from “laundering” power they pulled off the grid.

Non-battery solar systems were not a concern for the utility companies, because that energy could be unquestionably verified as solar in origin as it was fed back into the grid. Battery systems did not provide an equal degree of certainty.

Each new battery-backed PV user had to submit an application to connect to the grid that cost $800 and required additional meters and hardware that cost as much as $3,700. Only a dozen of SolarCity's customers completed the application and approval process out of the more than 500 customers who had signed up.

In March, SolarCity had had enough. It halted its applications for interconnections to Southern California Edison, Pacific Gas and Electric, and San Diego Gas and Electric.

Now, the Public Utilities Commission seeks to exempt battery solar installations from these huge fees, so these customers can get their systems. SolarCity has resumed filing applications.

The Threat to Utilities

Energy companies expressed concern that solar batteries could store power from the grid rather than from solar panels, and feed it back into the grid for net metering billing reductions.

Net metering is a system that allows residential solar users to send their unused solar energy back into the grid and roll their traditional electric bills backwards. With this type of system in place, people can install solar panels on their home and not really rely on them to power anything except the grid.

Since solar batteries allow customers to store the power they generate, this means they can save their energy to use on themselves and not even have to participate in net metering if they don't want to.

It essentially rearranges residential power priorities into a pyramid with solar on the top, solar battery as the backup, and traditional grid as the backup to the backup.

Solar battery systems, therefore, threaten to slash customer reliance upon local power monopolies.

SolarCity, however, isn't positioning itself as a threat. It wants to work with the power companies.

In a blog posting entitled “Put Battery Storage in the Hands of Grid Operators,” SolarCity Co-founder and CTO Peter Rive said:
“While cutting the cord enables one household to be 100% renewable and self-sufficient, it limits what these technologies can do. In short, the grid is a network, and where there are networks, there are network effects. When batteries are optimized across the grid, they can direct clean solar electricity where (and when) it is needed most, lowering costs for utilities and for all ratepayers. This is true of homeowners’ behind-the-meter storage units, and it’s also true of larger commercial and utility-scale units.”

Despite SolarCity's apparent goodwill toward power companies, the threat this technology poses to power companies is still strong.

All in the Family

SolarCity was co-founded by brothers Peter and Lyndon Rive, and they have a very important cousin: Elon Musk, CEO of Tesla Motors (NASDAQ: TSLA).

Together, the family is pushing for a battery-powered future.

In the automotive sector, batteries mean drivers do not have to rely upon costly gasoline to get around, and in the residential power sector, it means users don't have to rely upon energy monopolies.

The combined effect of two battery-crazy companies in different sectors is a massive economy of scale.

Tesla's so-called “gigafactory” is going to produce enough lithium-ion batteries at such a high volume that prices will drop. Both Tesla and SolarCity will reap the rewards.

The Gigafactory is not expected to be built until early 2017, and production ramping will not begin until 2020. It may be a long way off, but think of what can be done in the meantime.

SolarCity has only existed for eight years, and it has grown in explosions. In the third quarter of 2013, it grabbed a 32 percent share of the solar installation market, and it expected to grow its number of installations by more than 80 percent in 2014. This means it could deploy upwards of 525 Megawatts of photovoltaic cells this year alone.


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

April 18, 2014

Cosan: Brazillian Sweetheart

by Debra Fiakas CFA

The first thing we think about Brazil in the context of alternative energy is sugar cane and ethanol.

In the last growing season Brazil producer 596 million tons of sugar cane, a feat that secured Brazil’s position as the largest sugar cane grower in the world.  About 55% of the crop was used to producer ethanol and the balance ended up as sugar.  Brazil’s sugar cane industry association has predicted that despite a severe drought, the 2014-2015 growing season will be even more productive with expected sugar cane production in the range 632 million tons to 636 million tons.  About 40% of Brazil’s sugar cane is produced by a highly populated group of independent farmers. 

Investors are perhaps more interested in the processors.  The three largest processors in Brazil include Cosan Ltd (NYSE:CZZ), Sao Martinho and Acucar Guarani.

Like many of the other sugar cane processors Cosan is integrated backward in to sugar cane growing and as well as forward into ethanol production.  Cosan controls the world’s largest sugar cane processor Raizen, SA in a partnership with Royal Dutch Shell.  Riazen has a capacity to crush as much as 65 tons annually, but only reached 62 million tons in the 2013-2014 growing season.  That represents approximately 10% of Brazil’s sugar cane crushing capacity.  The company earned $4.5 billion in sales in the last twelve months, representing 15.7% growth over the prior year.   Cosan earned a 3.2% net profit during the year.
Raizen is expected to benefit from government support for ethanol production.  The Brazilian national development bank recently announced major financing package for the construction of Raizen’s cellulosic ethanol project in Sao Paulo state.  The plant is apparently designed to rely on Iogen’s cellulosic ethanol technology and is estimated to require US$90 million for construction.  Raizen management has bragged that within ten years it will have as many as eight plants producing advanced ethanol.  Already the company has pledged to invests US$7 billion to increasing sugar cane crushing capacity by 50% or 100 billion tons. 

Cosan trades on the NYSE under the symbol CZZ and has been on a long-term downward journey since the beginning of last year.  That has left the stock trading at 11.4 times forward earnings.  Before investors jump to buy these seemingly cheap shares, it is well to look at the long-term and short-term character of the stock’s trading.  The stock has been attempting something of a seasonal recovery over the past month as the company has just released its financial results for the year ending March 2014, which coincides with the last growing season.  The upward trend appears to be proceeding with some strength, but it might be prudent to wait for the stock to take a bit of a breather before loading up for a long position.
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.

April 17, 2014

New Yingli Fund Evokes Shades Of Suntech

Doug Young

I wrote earlier this week about troublesome signs for the solar panel sector’s fledgling recovery after a revenue warning from Trina (NYSE: TSL), and now we’re seeing another worrisome signal with news that Yingli (NYSE: YGE) is launching a new fund to build solar power plants. This kind of scheme looks eerily similar to one that kicked off the downfall of former industry leader Suntech (NYSE: STPFQ), though there are also a few differences. Still, Yingli’s latest move signals that the industry may not have learned its lesson from the Suntech debacle.

Yingli’s decision to launch this new scheme also suggests that the hoped-for explosion of new solar plant construction in China isn’t coming as quickly as many had hoped, forcing panel makers to bridge the gap by helping to finance and build new projects. Most major players have used this kind of process before, building new plants using their own resources for eventual sale to long-term buyers.

But in most of those cases, probable buyers were already in place before plant construction began. This new plan by Yingli seems to depart from that model, and looks like it will involve the speculative construction of new solar plants first, and then identification of potential buyers later.

All that said, let’s look more closely at Yingli’s new scheme that has it teaming up with Chinese private equity firm Shanghai Sailing Capital to launch a renewable energy fund. (company announcement) The fund will initially have 1 billion yuan ($160 million) in capital, with Yingli holding a majority 51 percent and Sailing holding the remainder. Yingli will provide its roughly $80 million contribution in installments rather than immediately, reflecting the difficulty it faces in raising even this kind of modest amount of cash.

Not surprisingly, the fund will mostly build solar power plants in China using panels supplied by Yingli. If any industry watchers are getting a sense of deja vu after reading all this, it’s because the now-bankrupt Suntech did something quite similar back when it was still an industry leader.

In that instance, Suntech set up the Global Solar Fund (GSF), which became a major building of solar power plants, mostly in Italy. Like Yingli, Suntech was the controlling shareholder in GSF, and the fund used Suntech-supplied panels for most of its projects. That arrangement allowed Suntech to post billions of dollars in sales, even though others would later argue it was effectively selling its panels to itself.

Solar historians will know that Suntech ultimately had to publicly discuss its cozy relationship with GSF when the partnership soured over a financial issue. That disclosure, which came at the height of the solar sector’s recent downturn, set Suntech on a downward spiral that ultimately ended with its bankruptcy declaration last year and its current liquidation.

So, what, if anything, is different with this current Yingli scheme? From what I can see, the biggest difference is that the Yingli fund is far smaller than GSF, meaning its financial impact on Yingli’s sales could be much more limited. The other big difference is that Yingli’s fund is based in China, which has embarked on an aggressive plan to build new solar plants under a directive from Beijing.

That means that the new Yingli solar fund could find plenty of potential buyers for its plants in the form of state-run companies eager to help Beijing meet its ambitious solar plant construction goals. It’s probably still too early to get too worried about this new plan from Yingli, and we’ll have to see how it develops. But if I were an investor, I would certainly keep a watchful eye on this fund, which has the potential to create major headaches for the company down the road.

Bottom line: A new Yingli-invested fund to build solar power plants in China looks like a risky bet that could ultimately undermine the company if no buyers emerge for newly constructed plants.

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.

April 15, 2014

Trina Warning Foreshadows Solar Gloom

Doug Young


After watching their shares and prospects soar over the past year, solar stocks are suddenly hitting a cloudy patch as investors anxiously wait for most companies to return to the profit column following a 2 year sector downturn. That wait may have just gotten a lot longer, following a warning from Trina (NYSE: TSL) that it will fall far short of its previous sales forecasts for the just-ended first quarter.

Trina blames the problem on short-term factors, as it and other Chinese panel makers work to finalize an agreement to avoid the European Union’s previous threat of anti-dumping tariffs. But hidden in the optimism from Trina and its Chinese peers is the fact that the new agreement is likely to have many of the same effects as the original punitive tariffs. That means most of these Chinese companies will suddenly face resurgent new competition from western rivals in Europe once a deal is reached.

According to its newly issued warning, Trina said it now expects to report it shipped 540-570 megawatts worth of panels in the first quarter that just ended on March 31. (company announcement) That figure is down sharply — about 20 percent to be precise — from the 670-700 megawatts worth of panels that it previously forecast just 6 weeks ago. Trina blames the shortfall on failure to finalize an agreement with the EU, after the 2 sides last year reached a landmark deal that would see the Chinese panel makers voluntarily raise their prices to offset the effect of unfair subsidies from their home government. (previous post)

Most solar shares have rallied strongly over the last year over hopes that a 2 year sector downturn was in the past. But the stocks have given back a big chunk of those gains in the past month, in a needed correction as investors realize a turnaround may be slower in coming than many had hoped.

Trina shares dropped 3.8 percent after its warning, and are down nearly 40 percent since early March. Other panel makers are down by similar amounts, with Yingli (NYSE: YGE) down 42 percent over the same period, including a 6.5 percent drop after Trina’s warning. Even superstar Canadian Solar (NASD:CSIQ), one of the only major panel makers to return to profitability, has lost 34 percent since early March, including a 6.3 percent drop after Trina’s warning.

Some might argue that the current sell-off may be nearing an end, since a 40 percent correction is certainly quite large. But many optimists in the crowd are failing to realize that the new EU agreement will have virtually the same effect as punitive tariffs, since it will force Trina and its peers to raise their prices to levels similar to those from their US and European rivals. That means all the Chinese manufacturers will face stiff new competition under the new agreement in Europe, which has traditionally been their biggest market.

Meantime, the companies could also soon face similar competition in the US, which last year imposed its own anti-dumping tariffs to protest China’s unfair state support for the industry through policies like cheap loans and preferential taxes. The US is currently working to plug a loophole in its earlier decision that allowed the Chinese panel makers to avoid many of the extra tariffs. When that happens, the Chinese companies will also face renewed competition in that market. (previous post)

Two bright spots for the Chinese manufacturers will be their own home market and also Japan, where the governments and private companies have launched ambitious programs to rapidly build up solar power capacity. But those developments won’t be enough to offset the big obstacles in the US and Europe, meaning that Chinese solar panel makers are likely to see both their sales and stocks come under pressure for the rest of the year.

Bottom line: Trina’s sales warning hints at new obstacles for Chinese solar panel makers in the key EU market, putting pressure on their sales and shares for the rest of this year.

aDoug 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.

April 12, 2014

Canadian Tax Withholding In IRAs (Poll)

The Canada-US Income Tax Convention provides for the withholding of a 15% or 25% income tax on dividends and interest on dividends payed on Canadian Securities to US residents.  (This includes many of my favorite green income stocks.)  Most people can qualify for the reduced rate by filling out the NR301 Canadian tax form.  Others, such as charitable organizations and retirement accounts qualify for an exemption.

Many custodians don’t get this right, and recovering improperly withheld payments is considerable work, when it’s possible at all.  Canada requires one form NR7-R form per security and per dividend payment, plus supporting documentation.

The long and the short of it is, if you’re going to invest in income producing Canadian securities through your IRA, it’s very important to pick the right custodian.

I plan to write a much more in-depth article on this next month, but since I only have direct experience with this at two custodians (E*Trade (NASD:ETFC) and Charles Schwab (NYSE:SCHW)), I’d like to get readers’ experiences with other custodians so I can give a comprehensive guide as to which custodians handle this most effectively.

If you own dividend paying Canadian stocks in a US retirement account, please take my survey, or leave a comment.

I don’t want to prejudice the survey by relating my experiences yet, but here are some stocks for which I know that some custodians withhold tax:


Survey Link

This article was first published on the author's Forbes.com blog, Green Stocks on April 1st

April 10, 2014

Investors Push The Hydrogenics Reset Button

by Debra Fiakas CFA

Last week shares of Hydrogenics Corp. (HYGS:  Nasdaq) took a steep dip down.  Earlier in the week the company filed a shelf registration statement to raise up to $100 million in new capital over the next two years.  Then before the last day of trading began the company issued new guidance for the year 2014, suggesting weaker sales in the first quarter than previously expected but reaffirming expectations for the full year.

The statement replaced an earlier shelf registration statement for a $25 million capital raise.    The filing came as no surprise to investors, but the significant increase in the potential capital raise may have given a few some pause. What seems to have thrown a wrench in the chart is the disappointment over the first quarter sales guidance.

Hydrogenics has been developing fuel cell technologies.  The company’s expertise is in water electrolysis, a technology for making hydrogen from water.  Hydrogenics earns much of its revenue providing on-site industrial gas generation services, principally hydrogen.  The company also knows proton exchange membranes and produces fuel cells for energy storage solutions.  The company has managed to increase sales each year, but is still operating at a loss.  In the most recent twelve months Hydrogenics reported $42.4 million in total sales, but suffered a loss of $6.1 million.

It is understandable why shareholders might be sensitive to any whiff of a weak top-line.  However, in my view, the 10.6% sell-off on Friday following the new guidance announcement was an overreaction.  An investment in a developmental stage company should not hinge on the shift of revenue from one quarter to another unless there are implications that market potential has weakened or customers have been lost.  Management did suggest that realization of backlog will be mostly in the second half of the year.  Such announcements are often followed by additional delays.  However, management also provides encouragement that there its business pipeline is building, providing further support for sticking to its guidance for$50 million in total sales for the year and the possibility of finally reaching breakeven.

The stock has been reset, perhaps appropriately if profitability is not yet within the company’s grasp.  Yet Hydrogenics has made progress, establishing a credible foothold in its markets.  Even if you are skeptical about Hydrogenics’ guidance for 2014, the sell-off in HYGS might seem enticing to investors who are bullish on the company in the long-term.  Unfortunately, a review of recent trading patterns suggest there is now pronounced bearish sentiment has now been registered in the stock that might take some time to play out.  It might be better to wait for all selling to take its course before rebuilding positions.

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.

April 09, 2014

SolarCity's Second Solar Lease-Backed Bond Closes Thursday

SolarCity is on the road with a $70.2m, 8yr, BBB+ rooftop solar leases securitization; closes Thursday

SCTY residential solar.pngSean Kidney

US company SolarCity (NASD:SCTY) has priced a solar bond backed by cash flows from a pool of 6,596 mainly residential solar panel systems and power purchase agreements in California, Arizona, and Colorado. Expected bond figure is $70.2 million, but the bond doesn’t close until Thursday this week. Interest rate is 4.59%. Credit Suisse is structurer and sole bookrunner.

This is SolarCity’s second solar securitization in six months. Their previous (ground-breaking) bond was for $54.4 million with an interest rate of 4.8% – but 13 year tenor.

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

April 08, 2014

It's Time to Buy SolarCity

By Jeff Siegel

Well, it was a record-breaking day for Texas last week.

On March 26, at 8:48 p.m., nearly 30% of the Lone Star State's electricity was generated by wind.

Most came from West Texas, and there wasn't a single issue regarding integration.

Despite the common refrain of “the grid can't handle all this intermittent power,” Texans had no problem turning on the lights with all those extra wind-powered electrons.

Of course, for those of you who rely on actual data instead of empty rhetoric, this should come as no surprise. In fact, a new study just published by PJM Interconnection indicates that large amounts of integrated solar and wind won't just be safe for the grid — they also won't cause energy prices to rise.

The 30% Solution

PJM Interconnection is a regional transmission organization that serves 13 states and the District of Columbia. It’s actually the biggest wholesale electricity market in the world, serving about 60 million people with nearly 60,000 miles of transmission lines across its service area.

So yes, any time we get new data analysis from PJM, we take it very seriously.

According to PJM, wind and solar could generate about 30% of all electricity for its territory by 2026 without any significant issues. This would be the equivalent of about 113,000 megawatts of installed wind and solar resources, powering 23.5 million homes annually.

Now, the entire report is about the size of a small novel, so I'll just break down a few of the key findings that analyst John Moore recently shared with Greentech Media.

Based on estimates of 30% penetration, we can see the following benefits:

  • Lower average energy prices across PJM's footprint because wind and solar would avoid $15.6 billion coal and natural gas fuel costs.
  • Very little additional power (only 1,500 megawatts) needed to support the minute-to-minute variability of the renewable power.
  • No additional operating reserves (spinning) needed for backup power.

Moore goes on to write:

“Getting all of this additional clean energy will require more transmission lines, which PJM’s study estimated would cost $8 billion. That is still far less the $15.6 billion in energy savings. But even that’s probably an exaggeration, since PJM’s study looked only at renewable energy expansion inside PJM. It didn’t consider, for example, the savings from importing some of the wind power from the Dakotas, Minnesota, Iowa, or other parts of the wind-rich Midwest and Great Plains. When you factor in those possibilities, the total transmission cost of achieving the 30 percent renewables integration could be lower than PJM’s predictions.

It’s clear that the grid can handle high levels of renewable power without compromising reliability. Of course, we already know this because the Midwest and Texas grids have seen wind energy constitute a significant portion of the power on the grid at a given time. The PJM study affirms that the grid can handle much higher power levels. It also provides a stepping stone to evaluating the impacts and savings of even more renewable power on the grid...”

Of course, folks still need to put this stuff into perspective.

Yes, the continued integration of renewable energy is a lock, but that doesn’t mean it’s going to send fossil fuels packing. In fact, natural gas will continue to provide the lion’s share of our power generation for decades to come. That being said, it's indicators like the one PJM just provided that further validate our long-term bullish stance on alternative energy.

The question is, if you're looking to take advantage of this continued integration of renewables, where can you get the most bang for your buck?

Sizing Solar

Based on PJM's report, here's how the breakdown looks for its territory:

Although wind makes up a sizable piece of the pie, there are few pure plays in this space. I do like Pattern Energy Group (NASDAQ: PEGI). I actually recommended it back in October when it was trading for $23. Here's how it's performed so far...

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

I particularly like the 4.5% dividend on this one, too.

However, looking at the chart, you can see solar's offering the biggest growth opportunity. And there are a number of ways to play this...

Personally, since the solar space absolutely crushed it last year, I'm getting a bit pickier about which solar stocks to own in 2014. But a couple of weeks ago, one solar stock in particular got hammered. And it didn't take long for me to buy a few cheap shares on the dip.

On March 19, SolarCity (NASDAQ: SCTY) took it on the chin after the company reported earnings and investors saw that guidance had fallen below expectations. The stock fell hard, and it is now oversold.

As of April 7th, you can pick up shares of SCTY for less than $55 a share.

The way I see it, this is a $75 stock that's offering a huge discount to bargain hunters. Even Goldman is maintaining its $85 price target, and Deutsche Bank is holding its $90 price target.

Bottom line: An overreaction to lowered guidance opened up an excellent buying opportunity.

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

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.

April 07, 2014

Ascent Solar: Grounded

By Brandon Qureshi

Recently, Ascent Solar Technologies (ASTI:  Nasdaq) , a publicly traded solar power company, received an additional $5.0 million from institutional investor Ironridge Technology, thereby completing a $10 million Series B Preferred Stock investment.  AST, based in Thornton, Colorado, has emerged as a leader in the development of flexible, thin, high-performance solar panels.

In order to examine AST within an industrial context, a profile of the solar power industry is necessary: According to sources such as Time and E&E Publishing, the industry has experienced record levels of popularity in the United States in the last few years. Indeed, a report published by the Solar Energy Industries Association and partner GTM Research demonstrates that the industry has grown by a whopping 41 percent in 2013 alone, citing record levels of installations in the utility sector. Moreover, solar electric installations continue to increase in value – from $8.6 billion in 2011 to $11.5 billion in 2012 to $13.7 billion in 2013.

What has driven this industrial surge? The report names decreasing prices spurred by technological advancements in the field of solar energy: the average price of a solar panel has declined by 60 percent in the past three years, and the national average photovoltaic installed system price declined by 15 percent in 2013 alone.

With this in mind, what role does AST play in the development of the solar power industry? AST uses substrate materials in its creation of photovoltaic modules, which causes them to be exceptionally flexible, thin, and affordable. These modules can then be implemented in the manufacture of traditional solar panels, building materials, and consumer electronics. Thus, AST is one of several solar power companies that, by decreasing the price of solar energy products, have contributed to their increasing availability, consumption, and production.

How does AST plan to use Ironridge Technology Co.’s investment? It seems that the funds will go largely to marketing efforts: aside from the proceeds that will be used to finance ongoing operations, the funds will be used to develop the Enerplex brand. Enerplex of one of AST’s projects, which involves the implementation of AST’s solar panel technology into everyday appliances including phone cases, chargers, and battery packs.

What does the future hold for the solar power industry? It’s hard to say. There is the obvious: the United States solar industry has experienced unprecedented growth in recent years and is currently the second-largest source of new electricity generating capacity in the nation; but is the situation really so simple? Every year, tax breaks for renewable energy expire – these expirations are bound to adversely impact the industry. The cost of solar power is hardly certain: because a significant portion of the diminishing costs of solar panel manufacture is due to imports from China – which installed of 12 gigawatts of solar capacity in 2013 alone – experts fear an upcoming “trade war” characterized by taxes and rising prices.  Clearly, the future of the solar power industry is no safe bet – or at least not as safe as current conditions suggest.

Is AST a reliable investment opportunity? There can be no doubt of the strength of the company’s product – indeed, its unique CIGS technology has been listed among the top inventions of 2010 and 2011 by both Time and R&D Magazines. Moreover, in the month since Ironridge Technology’s investment, investors have enjoyed a 13.85 percent return on their investments. Within a larger time frame, though, this positive return rate is misleadingly optimistic: since 2008, return rates have plummeted by almost 90 percent, and have barely changed between 2013 and 2014. Despite the obvious innovation of AST’s technology, the company itself doesn’t seem to be going anywhere fast – especially when one considers the uncertain future of the solar power industry.
Brandon Qureshi is a student at Columbia University, majoring in economics. He has a particular interest in alternative energy topics and has devoted some of his recent academic projects to the economics of new energy sources. 

This article first appeared on
Crystal Equity Research's Small Cap Strategist web log.

Neither the author, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein.

April 06, 2014

Orion Energy Systems: Right Industry, Right Time

by Debra Fiakas CFA

March 31st marked the end of fiscal year 2014 for Orion Energy Systems (OESX: Nasdaq), a provider of energy-saving lighting systems.  The half dozen or so analysts who follow the company on a regular basis think the company will be able to report about the same level of sales as the same quarter last year, but will actually suffer a penny loss instead of making a profit as they did last year.  If they are right it will be a setback for Orion, which higher sales this year than last and has so far had a small profit. 

Orion Energy Systems - Exterior Lighting

That Orion’s prospects are improving should be no surprise.  The benefits of efficiency measures to reduce energy costs are just recently beginning to gain respectability.  The Consortium for Energy Efficiency (CEE) reports that in 2012 alone efficiency programs sponsored by electric utilities in the U.S. saved enough power to serve over 12 million homes for one year  -  126 TWh.  The data was enough to help CEE analysts to conclude that energy efficiency is the most important source of clean, cheap energy because utilities do not need to generate as much power if their customers require less electricity.  A reported from the Natural Resources Defense Council says energy efficiency has outperformed all other energy resources combined, including the various fossil fuels and nuclear power.

The elevation of energy efficiency on par with energy sources should support higher valuation multiples for energy efficiency solution providers, especially those that have honed a profitable operating structure.  Orion has managed to maintain its gross profit margin over 30% although its profits have slipped from a peak of 33.7% in 2011.  Orion has also struggled to keep revenue on a consistent upward march.  Sales in the twelve months ending December 2013, were $98.2 million, back up to the company’s record revenue level of $100.6 million recorded in 2012.

However, analysts expect only $98.3 million in the fiscal year .  It is not until next year that the consensus reflects a decisive acceleration in sales activity  -  the kind that generates profits.  The consensus estimate for fiscal year 2015 that begins today is $0.12 in earning per share on $108.8 million in total sales.

Comparisons of Orion’s earnings in the coming quarters should be favorable.  That could keep the stock on an upward trajectory similar to the ramp that can be seen in the OESX historic stock price chart.  A review of trading patterns during the last two months suggests that the stock is may be poised to take a bit of a breather in the near term.  That would provide an interesting opportunity to take a long position in a company that has established a foothold in the right industry at the right time.   

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.

April 05, 2014

Record-Breaking $9bn Green Bonds Issued in Q1

Bridget Boulle

It’s been another ground breaking quarter for green bonds – the biggest yet with just under USD9bn issued ($8.997bn). It seems our initial estimate of $20bn for the year will be met much sooner than we thought so we’ve revised it to $40bn (there are no rules).

There have been new issuers, new currencies, new underwriters, new areas of issuance and, for the first time, a green bonds index. All good things, here is a summary…

The development banks led the way for the quarter but not by too much: development banks = USD4.9bn while corporates = USD4.03bn (it may seem quite a big gap but the first corporate bond was only issued in Nov 2013 while the Development bank market has been going since 2007).


  • New development bank: Canadian Export Development Bank
  • Four new corporate issuers: Toyota, Unilever, SCA, TD Bank
  • Transport sector green securities: Toyota with an ABS linked to electric and hybrid vehicles
  • New currencies: GBP, CHF
  • Green Bond Index released by Solactive (a Climate Bonds Partner). It includes mostly labelled issuance as well as some project bonds.

Top 5 issuers for the quarter

  • EIB = $2.9bn
  • Toyota = $1.75bn
  • World Bank = $1.3bn
  • Unibail-Rodamco = $1bn
  • TD Bank = $452bn

EIB has continued to prove its worth as the hero development bank by being by far the largest issuer, almost double Toyota. They issued six times (some taps of existing bonds) in 5 currencies – CHF, EUR, ZAR, GBP and SEK.


Demand has been very strong particularly with new issuers:

  • Canadian Export Development Bank: $500m orders on $300m bond in 15 min
  • Unibail Rodamco: 3.4x oversubscribed
  • Toyota: upsized from $1.25 to $1.75
  • Unilever: 3x oversubscribed
  • SCA: 50% oversubscribed
———  Bridget Boulle is Program Manager at the Climate Bonds Initiative, an "investor-focused" not-for-profit promoting long-term debt models to fund a rapid, global transition to a low-carbon economy. Bridget has worked in sustainable investment for 6 years, most recently at Henderson Global Investors in the SRI team. 

April 04, 2014

Ocean Power Technologies Riding The Waves

by Debra Fiakas CFA

Shares of Ocean Power Technologies (OPTT:  Nasdaq) have traded off over the past two weeks, after setting a new 52-week high in early March 2013.  Investors had bid the stock up in the weeks before the fiscal third quarter earnings announcement, but those gains almost have been erased.  The new negative trend has put OPTT on our list of small-cap energy stocks sinking into oversold territory. 
Is the sell-off a chance to pick up shares of this ocean power developer at a bargain?  A better question might be what was in that earnings report that spooked investors into shedding the stock.

Ocean Power is trying to develop ocean power technologies.  The company’s PowerBuoy system is an ocean-going rig that is configured to capture and convert wave energy into electricity.  Ocean Power has managed to set up several demonstration projects around the world, supported by government grants and development contracts.    Ocean Power also has a contract with Mitsui Engineering for a deployment near the coast of Japan.

Still Ocean Power has to come up with matching funds.  In January 2014. the company raised $6.3 million through the sale of common stock.  The company needs the cash to support operations, which used $10.7 million in cash over the twelve months ending January 2014.  There is now $17.4 million in cash on the balance sheet, it appears the company has enough financial muscle to last about a year and a half.

Perhaps investors were looking for some evidence that Ocean Power would be able to reduce its cash burn.  However, the quarter results revealed management is still grappling with the nitty gritty of getting its projects off the ground and into the ocean.  Permitting and financing matters have delayed its projects in Oregon and Spain.  Consequently, reported revenue in the third fiscal quarter was significantly lower than expectations.  There is no hope for reduced cash burn when management reveals one delay after another.

Thus, after hitting a new high price, it should not be a surprise that OPTT shares weakened.  It might be a bit premature to begin buying at the current price near $3.50.  A review of historic trading patterns suggests there is a line of price support at near the $3.40 price level.  Should the stock test and fall through this level, it is quite possible the stock could fall considerably further, perhaps even to the $2.50 price level.

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.

April 03, 2014

Strong Returns Continue for Alternative Energy Mutual Funds and ETFs

By Harris Roen

Alternative Energy Mutual Fund Returns

Alternative energy mutual funds have posted extremely strong returns across the board. Gains have shown a wide breadth, with all MFs up for the last 12-month and 3-month periods. In the past year, all funds are up double digits.

A new fund has been added to our tracking system, Calvert Green Bond A (CGAFX). This fund started trading in November 2013, and is the first green open end bond fund designed for retail investors. CGAFX focuses at least 80% of its assets on “…opportunities related to climate change and other environmental issues.”

Credit ratings for holdings in CGAFX are solid overall. Almost 70% are invested in either cash, U.S. Treasuries, or A rated bonds or better…


Alternative Energy ETF Returns

ETF_20140321There are a wide range in returns for ETFs this month. On average the group is looking very strong, as returns and other measures have been improving.

The two purest solar funds, Guggenheim Solar (TAN) and Market Vectors Solar Energy ETF (KWT), show the strongest returns. Both have more than doubled in the past in the past year, and both are up by about a third in the past three months.

The two mining funds in this group, Global X Lithium ETF (LIT) and Market Vectors Rare Earth/Str Metals (REMX), are the poorest performers. REMX is down 23% for the year, and LIT is basically flat…



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.

April 02, 2014

LDK Melts Down, Solar Default Signs Grow

Doug Young 

One of China’s 2 major meltdowns in the solar panel sector has taken a big step forward with word that trading in shares of LDK Solar (NYSE: LDK) has been suspended and the de-listing process formally begun as the company liquidates. Meantime, word of a missed interest payment by a building materials maker is sending the latest signal that China will let more companies in ailing sectors default on their debt rather than pay off their creditors. That’s an important signal for the solar sector, which relies heavily on such debt to finance its operations and where many smaller players are in danger of similar defaults.

Let’s start this solar summary with LDK, which together with former solar superstar Suntech (OTC: STPFQ) is in the process of liquidating amid a broader sector clean-up. But whereas Suntech has been liquidating under the supervision of a bankruptcy judge, LDK has chosen the stranger route of winding down without such protection. Perhaps that’s not too surprising since China is quite new at bankruptcy reorganizations, though it has created a strange process where LDK has been quietly talking with its creditors and selling off assets in a process that’s not too transparent.

The company gave an update last week on talks with its bondholders and an interim financing agreement (company announcement), and has just provided a further update on the imminent de-listing of its stock. (company announcement) According to the announcement, trading in shares of LDK has been formally suspended — something that should have happened long ago. LDK also said the New York Stock Exchange has begun a process of de-listing the company’s shares.

Suntech’s shares were de-listed from the New York Stock Exchange months ago and now trade over the counter, following the company’s bankruptcy declaration about a year ago. Such a de-listing didn’t happen for LDK because it never formally declared bankruptcy, which is why the stock exchange itself is finally taking an action that should have happened months ago.

According to its latest announcements, LDK is still talking with bond owners about terms for paying off its debt, offering 20 cents for every $1 of investment. The process still looks like it may take a while to complete, but I expect LDK to disappear as an independent company by the end of this year.

Meantime, let’s look at the other major news that sends the latest signal that more solar companies could soon default on their debt payments. That would accelerate a process that saw 1 company default on a bond interest payment last month and another move in a similar direction. The latest reports say that closely held building materials maker Xuzhou Zhongsen failed to make a 180 million yuan ($29 million) payment on some high-yield bonds that was due on March 28. (English article)

That particular story is related to the real estate sector, which is gearing up for its own much-needed correction following a housing bubble that has seen property prices soar to ridiculous levels over the last decade. But the more important message is that Beijing will let ailing companies default on their debt, and make investors more responsible for losses when they buy risky bonds. That would mark a sharp shift from the past, when government entities would almost always come to the rescue of state-run companies that were in danger of defaulting on their debt.

Last month saw a major milestone when mid-sized solar panel maker Chaori Solar missed a bond interest payment, becoming the first such corporate bond default in modern Chinese history. Not long after, trading in shares of Baoding Tianwei (Shanghai: 600550) was suspended as it too flirted with a debt default. (prevoious post) This latest default by Xuzhou Zhongsen shows that the flow of defaults is likely to pick up in the months ahead, hitting many mid-sized and smaller solar players and hurting the ability of larger players to raise new funds.

Bottom line: LDK’s liquidation is likely to be complete by year-end, while the latest market signals indicate more smaller solar companies will default on their debt in the months ahead.

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.

April 01, 2014

Ten Clean Energy Stocks For 2014: Patience Rewarded

Tom Konrad CFA

For both the stock market and the weather, March was more lion than lamb.  My broad market benchmark fell 2.2% to end up 1.5% for the quarter.  Volatile clean energy stocks were down 4%, to end the quarter up 15.7%.  My annual Ten Clean Energy Stocks model portfolio is designed to avoid much of the sector's notorious volatility, and fell only 0.6%, ending the quarter with a 3.9% total return. 

In dollar terms, the first six (income oriented) picks returned an average of 3% in March and 9% for the quarter, while the last four (growth oriented) picks fell 8% in March and 4% for the quarter.  The two speculative picks gained 21% in March and 17% for the quarter.  Local currency returns were slightly higher due to the weak Canadian dollar so far this year.

Two of the companies in the portfolio, Capstone Infrastructure Corp (TSX:CSE. OTC:MCQPF) and Primary Energy Recycling Corp (TSX:PRI, OTC:PENGF), announced long-awaited contracts, as did speculative pick Finavera Wind Energy (TSX-V:FVR, OTC:FNVRF) which is not included in the model portfolio due to its speculative nature.  Offsetting the gains from these announcements were disappointing earnings and forward guidance from Ameresco, Inc. (NASD:AMRC).

I discuss Ameresco's setback and other companies' progress after the performance chart.  10 for 14 Apr.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: $14.04. 12/26/2013 Price: $13.85.   Annual Yield: 6.3%.  Low Target: $13.  High Target: $16. 
YTD Total US$ Return: 1.4%

Sustainable Infrastructure REIT Hannon Armstrong rallied strongly for the first three weeks of March, only to fall back as quickly at the end of the month, all without any news.  Eventually investors are going to recognize that HASI is a stable income stock which can be left in the back of a portfolio to gather dust and dividends.  Until that time, the volatility is giving late-comers a chance to acquire this income stock at a very attractive price.

2. PFB Corporation (TSX:PFB, OTC:PFBOF).
Current Price: C$5.60. 12/26/2013 Price: C$4.85.   Annual Yield: 4.5%.  Low Target: C$4.  High Target: C$6.
YTD Total C$ Return: 16.7%. 
YTD Total US$ Return: 12.9%

Green Building company PFB did not report any news of significance during March.

3. Capstone Infrastructure Corp (TSX:CSE. OTC:MCQPF).
Current Price:
C$3.84. 12/26/2013 Price: C$4.05. Annual Yield: 7.4%.  Low Target: C$3.  High Target: C$5.  
YTD Total C$ Return: 18.3%
.  YTD Total US$ Return: 14.4%

Independent power producer Capstone announced the long-awaited contract for its Cardinal co-generation facility with the Ontario Power Authority (OPA).   I discussed my expectation for this contract in detail last November in Capstone Infrastructure: The Bad News Is Priced In.  The actual contract seems to fall somewhere between my low estimate (the "Bad News") of the title and my "Expected" estimate. 

The crucial variable will be the plant's capacity factor (the percentage of time it is running and producing power), which will in turn depend on electricity and natural gas market conditions.  A fixed payment will cover Cardinal's fixed operating costs and return of capital, while the plant will operate whenever the spread between electricity prices and natural gas prices is sufficient for it to operate profitably.  Cardinal's relative efficiency will allow it to operate more frequently than other natural gas turbines, and its capacity factor is likely to increase as Ontario's Nuclear refurbishment program periodically takes much of that capacity off the market.

While there are clearly many moving parts, management is confident enough about the long term profitability of the new contract to maintain the current C$0.075 quarterly dividend. This will next be paid at the end of April to shareholders of record on March 31st.

4. Primary Energy Recycling Corp (TSX:PRI, OTC:PENGF).
Current Price: C$5.44. 
12/26/2013 Price: C$4.93.  Annual Yield: 5.5%.  Low Target: C$4.  High Target: C$7. 
YTD Total C$ Return: 18.4%
.  YTD Total US$ Return: 14.4%

Waste heat recovery firm Primary Energy also announced a long awaited contract for its Cokenergy energy recycling plant.  There was not much doubt that this contract would be extended, and so the stock would not have moved much, except that that management also raised the quarterly dividend to US$0.08 from $0.06.  The next dividend payment is planned for May.

On an ongoing basis, this new dividend will amount to approximately 45% to 55% of distributable income, and so there may be room for further dividend increases after the end of Primary Energy's current investment program to refurbish the Cokenergy plant and increase its efficiency to take advantage of incentives in the new contract.

5. Accell Group (Amsterdam:ACCEL, OTC:ACGPF).
Current Price:
€14.86. 12/26/2013 Price: €13.59.  Annual Yield: 3.7%.  Low Target: 11.5.  High Target: €18.
YTD Total 
Return: 9.3% .  YTD Total US$ Return: 9.5% 

There was no significant news for bicycle manufacturer and distributor Accell Group.

6. New Flyer Industries (TSX:NFI, OTC:NFYEF).
Current Price: C$11.33. 
12/26/2013 Price: C$10.57.  Annual Yield: 5.2%.  Low Target: C$8.  High Target: C$16. 
YTD Total C$ Return: 8.1%
.  YTD Total US$ Return: 4.5%.

Leading transit bus manufacturer New Flyer announced its annual results on March 19th. Last quarter earnings were very strong, but first quarter 2014 earnings will be very weak due to some contracts signed during the extremely weak bus market in the couple of years after the financial crisis.  Going forward, management feels the current bidding environment is "normalizing" and they have been able to raise their prices in some cases. 

Overall, the company  seems to be setting the stage for long term growth, as they consolidate their acquisitions and roll out new products, such as their recently developed mid-sized ("MiDi") bus for private shuttle fleets. Several insiders made significant purchases of stock following the annual report, reconfirming my view that short term weakness is providing a buying opportunity before what I expect to be strong performance in the coming few years.

7. Ameresco, Inc. (NASD:AMRC).
Current Price: $7.67
12/26/2013 Price: $9.64.   Annual Yield: N/A.  Low Target: $8.  High Target: $16. 
YTD Total US$ Return: -20.4%.

Energy performance contracting firm Ameresco announced its annual results on March 13th.  Ameresco had disappointing Q4 earnings due to a low margin mix.  More importantly, management's outlook for 2014 does not anticipate improvement this year.  They may be being cautious, but after two years of saying that a turn around in the performance contracting climate is just around the corner, it's no surprise the stock sold off sharply on the weakened outlook.

Even if investors have been losing faith in the company, founder, Chairman, CEO, and largest shareholder George Sakelleris bought 246,000 shares of stock between $7.50 and $8 following the earnings announcement, demonstrating he still has faith in the firm's long term prospects.

8. Power REIT (NYSE:PW).
Current Price: $9.09
12/26/2013 Price: $8.42Annual Yield: N/A.  Low Target: $7.  High Target: $20.
YTD Total US$ Return: 8.0%

Solar and rail real estate investment trust Power REIT successfully listed its series A preferred shares (NYSE:PW-PA.) The funds will be used to fund the equity portion of an acquisition of land under a solar farm which was announced in January.

9. MiX Telematics Limited (NASD:MIXT).
Current Price: $10.73.
12/26/2013 Price: $12.17Annual Yield: N/A.  Low Target: $8.  High Target: $25.
YTD Total US$ Return: -11.8%

Global provider of software as a service fleet and mobile asset management, MiX Telematics, continued to fall along with other emerging market stocks.  I continue to feel the decline is unwarranted due to the global nature of MiX's revenues.  Declines in the South African Rand help the company more than hurting it because they reduce expenses much more than revenue.

10. Alterra Power Corp. (TSX:AXY, OTC:MGMXF).
Current Price: C$0.31
  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: 10.7% .  YTD Total US$ Return: 7.0%.

Renewable energy developer and operator Alterra Power announced 2013 annual results.  There were few surprises.  Going forward, the company will be focusing its development efforts on a recently acquired Texas wind farm rather than its British Colombia hydropower projects, where BC Hydro has been working to reduce its commitment to new power projects rather than bring projects on line.

Two Speculative Penny Stocks for 2014

Speculative Apr.png

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: -18.8% .  YTD Total US$ Return: -21.5%.

Geothermal power developer Ram completed the remediation of its San Jacinto-Tizate project on January 22nd, and stated it would to complete a plant capacity test in March.  We're still awaiting the results of that test, and the stock has been selling off because of the delay.

Finavera Wind Energy (TSX-V:FVR, OTC:FNVRF). 
Current Price: C$0.12   12/26/2013 Price: C$0.075.   Annual Yield: N/A.  Low Target: C$0.20.  High Target: C$0.60.
YTD Total C$ Return: 60% .  YTD Total US$ Return: 54.7%.

Wind project developer Finavera announced the execution of agreements with BC Hydro to transfer the Electricity Purchase Agreement for its Meikle Wind Energy Project to Pattern Energy Group (NASD:PEGI.)  This was excellent news for Finavera's long-suffering investors, not the least because the project had been re-designed to accommodate 184 MW of wind turbines, a configuration which will ensure the largest possible payment from Pattern. 

I looked into the details of this deal here, estimating that the company was worth between C$0.21 and C$0.40 a share, most likely somewhere in the lower half of that range.

Final Thoughts

I'm disappointed that Ameresco's investors will likely need yet more patience before we see significant signs of life return to the company's stock.  However, Primary Energy, Capstone Infrastructure, and Finavera Wind Energy all showed this month that long patience is sometimes rewarded. 


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.

« March 2014 | Main | May 2014 »

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