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September 29, 2014

Casella Back In The Dumps, But Ready To Pick Up?

by Debra Fiakas CFA

Casella Plants Flag in Waste-to-Energy

The solid waste collection and disposal industry has been transformed by the building enthusiasm for waste recycling.  Founded in 1975, Casella Waste Systems (CWST:  Nasdaq) has been around to experience a lot of change and has been quick to get on the bandwagon.  The company is a self-described recycler and resource manager as well as a solid waste collector.

Granted the company is still heavily focused on its conventional solid waste business.  Casella management has outlined a four-point plan to grow the company and increase profits.  Top on their ‘to do’ list is to find incremental landfill capacity.  They are also trying to create new efficiencies at each of the company’s thirty-five solid waste collection operations.  That is just the usually blocking and tackling tactics of an incumbent solid waste handler.

Casella[1].jpgHowever, Casella has become much more than an ‘old school’ garbage hauler.  Some years back, Casella added metals recovery and plastics recycling to its menu of services, at the same time establishing a new revenue stream from the sale of recovered materials.    The company operates sixteen recycling facilities in its home region in the northeastern U.S.   Additionally, Casella operates nine landfills, four of which have been outfitted with methane gas recovery facilities.  The company actually produces 25 megawatts of power for local users.

Casella has also stepped into the organics-to-energy business.  Operating as Casella Organics, the company has established an anaerobic co-digester at a dairy farm in Massachusetts.  The plant co-digests dairy manure and food residuals from nearby sources.

A little over a year ago in April 2013, I wrote about Casella’s financial performance here.  Although operating cash flows have been at times ample, the company has had trouble delivering profits to its bottom line.  At the time I did not have a great deal of confidence in the stock to deliver returns in the near-term.  The stock actually took off a few months later, rising by as much as 50% after management provided guidance for sales growth in a range of 2.1% to 4.3% in the fiscal year ending April 2014.  Earnings before interest, taxes, depreciation and amortization (EBITDA) were guided in a range of $91.0 million to $95.0 million.

Alas, the stock lost all of its gains as the year progressed.  Casella was able to make good on its plans to grow revenue.  Sales in the fiscal year ending April 2014, were 9.3% higher than the previous year.  However, the company stubbed its collective Big Toe on profitability.  EBITDA was reported as $86.4 million, well below the guided range.  Since EBITDA is a critical factor in CWST valuation, disappointment increased with each passing quarter.

CWST is now trading near its 52-week low.  A review of historic trading patterns suggests the stock is oversold.  There has been a very strong bearish trend building in CWST since June, after the company reported fiscal year 2014 financial results.  It seems implausible that the stock could decline from its present level just under $4.00 per share.  Then again, shareholder equity has been eroded to a deficit and long-term debt levels have been rising.  Coupled with persistent net losses and shrinking profit margins, the weakened balance sheet does not provide a great deal of encouragement for investors who might be tempted take advantage of the cheap price for CWST.
That said, we note that the stock has been at the current price level four times in the last five years, rising each time by an average of 75%.  The company has a well established customer base and has been able to convert 11% of its sales dollar to operating cash.  If an investor has confidence in Casella’s regional stronghold in waste collection and hauling as well as the new flag the company has planted in the waste-to-energy business, then it is time to take a long position in CWST wait patiently.

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.

September 28, 2014

SolarCity or Vivint Solar?

By Jeff Siegel

In as soon as five years, you could be living right next door to a power plant.

Actually, even closer. The power plant could be operating from right inside your home.

I'm serious. Take a look...


This is a backup battery system installed in a home that's powered by domestically generated electrons, courtesy of the biggest nuclear reactor known to humans: the sun.

And according to super genius Elon Musk, within five to 10 years, every set of solar panels installed by SolarCity (NASDAQ: SCTY) will come with a battery pack.

Nighttime Solar

Musk's cousin and SolarCity CEO Lyndon Rive recently spoke at a private meeting in New York, where he announced that due to the economies of scale that will soon come from Tesla's (NASDAQ: TSLA) new battery manufacturing complex, SolarCity's solar power systems, with the new battery system installed, will be able to produce energy cheaper than the local utility company.

This means powering your home with solar day and night, and at a price lower than what your utility charges.

That's a pretty bold claim, but it's one I wouldn't sleep on. Musk and his ilk are not the type to fall short, nor are they the type of folks you should bet against.

The truth is, beyond the battery system, SolarCity is taking the appropriate steps to drastically slash the cost of solar altogether.

A few months ago, I told you about the company's acquisition of solar manufacturer Silevo. This deal will allow the company to lock in a steady supply of low-cost, high-efficiency panels that'll enable it to stay competitive against a rise in new U.S. start-ups as well as low-cost producers from China.

Then, just last week, the company unveiled a new solar mounting product called ZS Peak. It basically allows installers to install systems on flat roofs in half the time it takes today. And according to company reps, this new product can increase generation capacity on flat-roof buildings by 20% to 50% per building.

This technology now makes it possible for far more businesses, schools, and other organizations to install solar power on their buildings and immediately pay less for solar electricity than they pay for utility power. It will also help the company expand its reach into the commercial solar market.

The Best Part

Now here's the best part...

SolarCity has been getting knocked down a few pegs over the past week or so. Some believe the new Vivint Solar IPO, which is a competitor to SCTY, is luring SCTY investors away with a cheaper share price.

But while I'm also looking forward to picking up a few shares of Vivint, this isn't a reliable comparison. If anything, I would caution investors against picking one over the other and instead recommend maintaining positions in both — especially now that SolarCity fell below the $60 mark. That's a bargain compared to Deutsche Bank's $90 price target and Credit Suisse' $97 price target.

Point is, there's plenty of room for more than one company to grow and profit. And there's no reason you can't ride both.

Full Disclosure: I currently own shares of SCTY.

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

Jeff Siegel Signature

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

September 27, 2014

Covanta: The Big Player In Waste-to-Energy

by Debra Fiakas CFA

Covanta Holding Corp. (CVA:  NYSE) is among the largest waste-to-energy developers and producers in the U.S.  The company couples waste collection services for local government and industry with power generation for local municipal or commercial customers.  Covanta’s waste handling and ‘mass-burn’ process also allows for metal recovery and sales.  The company operates forty-six waste-to-energy facilities mostly in North America supported by eighteen waste transfer stations and four ash landfills. 

Covanta is a big player in the waste-to-energy industry, but what kind of yield does it's stock offer investors?

Covanta’s management team knows the pain of failure as well as the pride of success.  A decade ago Covanta was struggling to emerge from bankruptcy, but in the most recently reported twelve months the company reported a net profit of $47.0 million on $1.7 billion in total sales.  Granted Covanta is highly leveraged, carrying $2.3 billion in debt on its balance sheet that generates a 265.0 debt-to-equity ratio.  However, the debt-laden balance sheet is supported by strong cash flow generation.  Covanta turned 21.6% of sales in the last twelve month period into operating cash flow.  That helped bring cash on the balance sheet to $175 million at the end of June 2014.  Additionally, a new cost saving program initiated in June 2014, is expected to bring an incremental $30 million to the profit line.

One of the reasons Covanta has been able to crank up cash flow generation is by offering a mix of business models for its municipal partners.  Most of its projects follow a design-build-operate model wherein Covanta gets paid for waste collection and then shares in revenue from the sales of power.  Covanta is even gets guarantees of minimum waste streams by its municipal partner.  Alternatively, Covanta assumes ownership of the waste-to-energy plant and keeps all power revenue for itself.   

Besides the municipal waste-to-energy model Covanta has interests in seven wood-fired generation facilities in California and Maine.  The company also has partial interests in two hydroelectric power plants in Washington and is the owner/operator of a landfill gas to energy plant in Massachusetts.

The Company projects its portfolio of power plants could generate 6.5 megawatt hours of electricity in 2014.  The waste-to-energy group represents 88% of the total.

Earnings, Growth and Yield

As mentioned above the portfolio generates fairly strong cash flows that can be used reinvested or used for debt-pay down.  Covanta recently announced an increase in its dividend to $1.00 per year.  At the current stock price near $21.00 that dividend represents a yield of 4.8%.  Even with this payout to common stockholders, analysts watching the company are expecting about 13% earnings growth over the next five years.

Investors looking at Covanta’s cash flows and dividend yield might be impressed until they look at the stock’s price/earnings ratio of 35.8 times projected 2015 earnings.  The ‘PEG’ or price-earnings to growth ratio is 2.75 ($21.50/$0.60).  The stock looks just ‘flat out expensive.’ 

In my view, the fundamental analysis should not stop there.  Since the stock pays a good dividend, the current yield should be considered.  The ratio of price-earnings to growth-plus-yield or ‘PEGY’ is a bit more palatable at 2.01 [35.8/(13 + 4.8)].  Even this is not a full analysis of the investment picture for Covanta.  CVA shares represent a well-season security with deep trading volumes, strong institutional ownership and low price volatility.  So I argue that the PEGY ratio should be adjusted for risk as measured by beta, which for CVA is a relatively low 0.32.  On a risk adjusted basis the price-earnings to growth-plus-yield ratio or ‘PERGY’ is 0.64 (2.01 x 0.32)  -  well below the 1.00 maximum  for this popular benchmark.


This is no argument for investors to run to their computers and place buy orders for CVA.  A review of historic trading patterns in CVA suggests the stock is over-bought in the near-term.  The trend for CVA shares has been decidedly bullish since early May 2014, when the stock formed a particularly bullish trading pattern called a ‘double top breakout’ by stock chartists using point and figure analysis.  The chart suggests the stock has developed sufficient momentum to rise to the $39.00 price level.  That is a price that is not being bandied about by any of the fundamental analysts who watch CVA and have published price targets.  The highest published price target is $26.00 and the mean target is $24.00.

At the mean price target, fundamental analysts suggest there is 14% upside in the stock.  Technical analysis says there is room for 86% upside.  There is probably good reason to take note of both views.

Negative news could likely trigger a retreat in the stock price, but there is a noticeable level of support at the $20.50 price level.  Of course, an extreme set back could send the stock back to retrace levels in the price gap between $19.25 and $19.75, which was formed in early June 2014, after the company announced its cost saving plan and dividends increase.
The cost savings does not appear to have been registered analysts’ estimates for 2015 as the consensus estimate for next year has not budged for over four months.  If the cost saving program is at all successful, it  is more likely than not that Covanta could meet or beat expectations for earnings in the coming quarters.  Short interest in CVA is near 13.7 million shares or about 14% of the float.   Under current present trading volumes, it would take at least twelve days to liquidate short interests in CVA.  Strong fundamental news from Covanta could send traders with short positions looking for an exit point and, that could push the stock price higher.

With mixed signals coming from fundamental analysis and technical analysis, investors would be well advised to watch both earnings and the stock chart in taking any position in CVA.

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.

September 26, 2014

Big Money Looking For Green Investments

Sean Kidney

Climate Finance session at UN Summit is electric.  Insurers go wild with promises; investors plead for green investments; Jim Kim almost breaks out in song about green bonds.

It's the day after the UN Climate Summit party in New York. Yes I do feel as if I'm hungover; but it was a gas. If you're one of those who worry about the world, there is something magical in being inside the totemic General Assembly, with it's embodiment of one world idealism.

Ban Ki Moon's audacious Summit convening (that's really the only power we allow him) made for a really useful event: it bought out marchers around the world to ask their governments for action; and it extracted some useful new commitments, such as:

  • Germany and France each announced $1bn for the Green Climate Fund.
  • China said it will reduce carbon emissions (per unit of GDP) by 45% by 2020 compared with 2005 levels.​
  • The International Development Finance Club (IDFC) announced that it's on track to increase direct climate financing to $100bn a year by the end of 2015.

But above all there was an awful lot of talk about green bonds (and no, it wasn't just me being noisy). UN Secretary-General Ban Ki Moon talked about the opportunities of green bonds in his speech, World Bank President Jim Yong Kim spoke about scaling up - in fact he spoke rhapsodically on the topic - and the CEOs of Credit Agricole and Bank of America waxed lyrical on their application. And that was just the start of it.

Best of all, the Summit elicited some pretty cool commitments from institutional investors, those folks who now own half the planet on our behalfs (after all, we're the pension fund or insurance beneficiaries). We got:

  • A new Portfolio Decarbonization Coalition (PDC) made up of coalition of institutional investors, coordinated by our friends at CDP. They committed to decarbonizing $100bn of their investments by end 2015 and to measure and disclose the carbon footprint of $500 billion in investments. In fact spokesperson Mats Anderson, the CEO of Swedish pension fund AP4, said his fund would fully decabornize by 2020.
  • Three big pension funds announced they would grow their investments in low-carbon assets to more than $31 billion by 2020.
  • The media statement we put out yesterday listed more, like Barclay's new $1bn green bonds fund, ACTIAM's promise to have invested $1bn in green bonds by end 2015, and Zurich Insurance Group's $2bn commitment.

​Then the two insurance industry associations, ICMIF and the IIS, representing the majority of insurance companies globally, put out a humdinger. This is an industry that manages a third of the world’s investment capital - approximately $30 trillion. That gets attention. But only $42 billion can be called climate related investment (what have they been doing!). So they announced they would double the industry investment in climate investments to $84 billion by end of 2015. That's good.

Then they went further and announced then would multiply current investment in climate investments by 10 times by 2020 = $420 billion. A that point I was in love - that's a big kicker for climate change related investments. Of course the majority of their investments are in the form of bonds - which will mean increased demand for climate bonds and green bonds. Yes, that's increased demand in the already hot market.

But wait, there's more! Then, Angelien Kemna, CEO of the $400bn+ APG Asset Management came on, representing a coalition of investors with $24 trillion of assets under management - coordinated by the the Global Investor Council on Climate Change, the Principles for Responsible Investment and UNEP Finance Initiative. She effectively said "we stand ready to invest; please get us some deals" and called on policymakers to take action that supports greater investments in clean energy and climate solutions. That was also the theme of the Investor Statement we published yesterday.

So there's the theme. "The capital is ready, bring on the investments to be made! And green bonds."

——— 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. 

September 25, 2014

RDX: Waste Water-to-Energy

by Debra Fiakas CFA

Last week RDX Technologies, Inc. (RGDEF:  OTCQX or RDX: TSXV) announced an agreement to supply renewable diesel to the Tyson Farms’ Temperanceville Facility in Virginia.  The Energy Division of RDX sells three grades of methyl ester fuels that can be used in boilers and small generators.  RDX did not disclose the value or size of the Tyson Farms contract.  However, the contract apparently is for one year with a second year option.

RDX operates renewable fuel plants in Missouri and California.  Waste streams are aggregated at the two plants by truck and processed using technology developed by RDX CEO Dennis Danzik and his colleague Vincent Meli.  The company describes its process as ‘water mining’ wherein contaminants are separated from the water with electrochemical and photochemical techniques.  Waste polymers from the water have energy value and are converted to methyl ester fuels.

Selling fuel is not the only way RDX Technologies plans to generate revenue.  The company also wants to franchise its technology and sell water treatment equipment to aspiring fuel producers.  Called the RDX BlueDot system, the company recently announced a contract with Pontus Energy, LLC. to set up sixteen franchise locations in Ohio, Michigan and Kentucky. The contract was valued at $19.2 million

The company recently signed the Environmental Engineering and Science Department of Stanford University to use the RDX BlueDot system for further development of water treatment solutions.  RDX management expects the Stanford deployment to support subsequent franchising efforts in commercial markets where water treatment is an important or even more important than renewable fuel sources.

In the twelve months ending June 2014, RDX Technologies reported a loss of $10.0 million on sales of $36.7 million in sales.  That seems like a dangerous loss, but cash used to support operations was a significantly smaller amount $176,620.  The company has approximately $4.9 million on its balance sheet, which should support operations for a while longer if cash usage is kept under control.

The wisdom of a distributed power generation solution appears to be catching on and local communities are anxious to find smart ways to upgrade waste.  Of course, water is in short supply everywhere.  Technologies to clean up water are becoming even more critical.

RDX Technologies is still a developing company, but some of the technological risks appear to have been eliminated with the first commercial deployments.  There does appear to be a fair amount of execution risk left, but the stock is still worth watching for all investors interested in a stake in the waste-to-energy market.

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.

September 24, 2014

Signs Of Trouble For Chinese Solar Stocks

Doug Young

Regular readers will know I’m a bit bearish lately on the solar panel manufacturing sector, largely because I believe its recent rebound is being fueled as much by hype as real business after a prolonged downturn. A new report on some of the sector’s so called “growth engines”, coupled with a separate report on a dispute at one of the top surviving players, are adding fuel to my skepticism that the sector’s recent sharp rebound isn’t really happening. At the very least, the recent reports indicate the rebound isn’t nearly as strong as many are claiming, and solar panel makers and their shares could soon be set for far slower growth than many were hoping for.

A number of factors are behind this looming slowdown, most notably financial bottlenecks and related issues in China and other emerging markets that the Chinese panel makers hope will fuel their rebound. They’re being forced to rely on such markets after the US and EU imposed tariffs and took other punitive measures against the Chinese manufacturers for receiving unfair state support from Beijing.

Let’s start off our solar round-up with the worrisome report on Shunfeng Photovoltaic (HKEx: 1165), which emerged as a player to watch last year when it won the bidding to buy most of the assets of bankrupt former solar pioneer Suntech. The new media report is saying that a 500 million yuan ($81 million), 130 megawatt solar farm being built with panels from Shunfeng in China’s interior Ningxia province has run into trouble. (Chinese article)

The report is quite detailed about the issue, but apparently the dispute is purely financial and involves Shunfeng’s failure to pay funds that it promised to help to build the plant. I wrote about this kind of self-financing issue just last week, which has seen most of China’s major solar panel makers partner with other companies to build new power plants, and then provide some or all of the money for such construction. The solar panel makers win new business by selling their panels to such projects, but then end up with big risk if they can’t sell the plants to long-term owners on completion. (previous post)

Shareholders got a bit spooked by the report, with Shunfeng’s shares droping 8 percent after the news came out. The stock was on a steady upward trajectory after the Suntech deal was announced last year, but have now lost about a third of their value since peaking in late May. The decline follows a roughly similar trend for many other solar panel stocks, which have seen bumpy trading this year after a surge in 2013 over optimism for their rebound.

Meantime, another new report on the wider industry trends also hints that the current rebound may be overly optimistic. That report begins with upbeat numbers showing that shipments from China’s major solar panel makers jumped 26 percent in the second quarter of this year, reaching 5.2 gigwatts of capacity, according to data tracking firm NPD Solarbuzz. (English article) But then the same report goes on to cite a range of factors for the rise, many of which don’t look too encouraging.

One of those is the rise in demand from China, which I’ve already explained looks troublesome due to the self-financed nature of many new projects. The report also cites a surge in shipments to the US, as many panel makers raced to beat a new round of punitive tariffs set to take effect. Lastly the report also credits the jump to growing shipments to emerging markets, many of which include financing and protectionist obstacles similar to the ones I’ve already discussed. On the whole, I can’t find any causes for optimism in either of these 2 new reports, and suspect we’ll see the panel makers’ sales and share prices start to come under growing pressure over the next 1-2 years.

Bottom line: A new financing squabble involving Shunfeng and a report on factors fueling a solar panel rebound point to slowing growth for the sector, which will put pressure on both sales and stock prices.

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.

September 22, 2014

5 Clean Energy Yieldcos Flying Under The Radar

by Tom Konrad CFA

The launch last year of NRG Energy's YieldCo, NRG Yield (NYSE:NYLD), and the subsequent near-doubling of its price, set off a feeding frenzy on Wall Street. 

YieldCos are companies which own clean energy assets and use the reliable cash flows from those assets to pay dividends to investors. Investors like YieldCos because many offer yields well above that available from most other stocks, including the fossil fuel-based master limited partnerships, upon which many YieldCos are modeled. Developers of clean energy projects find YieldCos attractive because the stock market provides capital for clean energy projects at a much lower cost than they have historically been able to obtain.

Since its listing, NRG Yield has been joined in U.S. markets by Hannon Armstrong Sustainable Infrastructure (NYSE:HASI), Brookfield Renewable Energy (NYSE:BEP), Pattern Energy Group (NASD:PEGI), NextEra Energy Partners (NYSE:NEP), and TerraForm Power (NASD:TERP). In Canada, YieldCo TransAlta Renewables (TSX:RNW) joined a number of established clean energy producers like Innergex Renewable Energy (TSX:INE), Capstone Infrastructure Corp (TSX:CSE) and Brookfield and Patten, which are listed in both New York and Toronto.

The flood has not stopped there. Analysts are now habitually asking large solar companies and other clean energy developers if they are considering forming a YieldCo. SunPower (NASD:SPWR) has been retaining more of its own solar farms in preparation for a possible YieldCo launch in 2015 or 2016. First Solar (NASD:FSLR), German developer PNE Wind, and Sempra Energy (NYSE:SRE) are all contemplating launching YieldCos as a home for some of their power generation assets. 

Not all of these projects will come to fruition. First Solar's management has commented that they can benefit from the YieldCo phenomenon without going to the trouble and expense of listing by selling assets to existing YieldCos.

Although not every clean energy developer needs to form its own YieldCo, U.S. investors cannot seem to get enough of the IPOs and secondary offerings. This can be seen in the low yields of U.S.-listed YieldCos, since yields fall as investor buying causes the stocks to rise. Most U.S.-listed YieldCos have annual dividend yields below 4 percent, while Canadian-listed YieldCos offer yields in the 5 percent to 6 percent range.

Because the cash flows from clean energy projects are still well above the amount YieldCos need to pay to attract investors, many project developers and aggregators of clean energy assets are currently working to develop their own YieldCos, sometimes at a much smaller scale than the ones listed above. Below are five that have come to my attention, listed in order of approximate invested capital.

Securities laws mean most only take investments from accredited (i.e., rich) investors, but recent changes in securities laws are allowing some to relax that requirement.

Joule Energy Reduction Assets (ERA)

Joule ERA is a private equity fund investing in energy efficiency and demand response assets; anything that saves energy is fair game. After management expenses, the ERA fund offers a very attractive 11 percent to 14 percent target yield, the first 6 percent of which is secured with reserve funds, and the balance comes from less reliable sources of yield. That said, even the base 6 percent yield makes the Joule ERA fund competitive with the most attractive publicly traded YieldCos, and the 5 percent to 8 percent upside above that seems like excellent compensation for the liquidity of a private equity fund. 

Mike Gordon, Joule ERA's fund manager, told me that ERA has significant opportunities for additional investments, so they are raising money from accredited investors and institutions. Unfortunately for most readers of this article, they have a $1 million minimum investment. Although Gordon says this minimum is flexible, it seems unlikely that Joule ERA would accept an investment in even the low-six-figure range.

You can find a presentation about the fund here. Note that the returns mentioned in that presentation are higher (8 percent secured yield plus 7 percent to 10 percent additional yield) than the ones outlined above. This is because they are presented before Joule's management fees, and the numbers above are net of fees.

Grid Essence

Grid Essence is an independent power producer which owns 38.2 megawatts of operating solar farms in the United Kingdom and is currently developing another 21 megawatts. The company has been financing its development with a combination of bank debt from Deutsche Bank and convertible bonds, which it has been selling to accredited investors. The company is working on listing stock on the Toronto Stock Exchange, which it expects before the end of the year. At that point, the bonds will convert to common stock at a discount. The company's target distribution after listing is 7 percent.

Because the offering is ongoing, the company was unwilling to answer questions at this time. If they did, their lawyers were concerned this article might be interpreted as a public solicitation by securities regulators. Other companies were willing to talk to me, but none of these have to deal with both U.S. and Canadian regulators.


Greenbacker Group is a management company that has organized a YieldCo, Greenbacker Renewable Energy Company (GREC), to fund, own and operate a wide variety of renewable, energy efficiency and sustainability projects. 

Greenbacker's senior managing director initially agreed to talk to more about the details of the fund, but was not able to get to my questions in time for publication because of work on a prospectus supplement. I expect the supplement was necessitated by Greenbacker's acquisition of a solar portfolio on September 2.

According to the company's website and prospectus, GREC is a publicly registered but non-traded limited liability corporation that allows individual investors to participate for as little as $2,000. Although the YieldCo is able to offer its shares to non-accredited investors under the JOBS Act, it does not plan to take advantage of the JOBS Act's reduced reporting requirements. The fund targets a high level of current income, currently 6 percent per annum, payable monthly.

Greenbacker intends to provide investors with an exit by either selling assets, listing the company on an exchange, or merging with another company in exchange for cash or publicly traded shares within five years. Investors also may redeem up to 5 percent of outstanding shares annually at the fund's net asset value minus some associated fees.

Power REIT Preferred Series A

Power REIT (NYSE:PW) is a tiny infrastructure REIT with a legacy asset in rail. The company has been diversifying into the real estate underlying renewable energy farms for the last two years. The small size ($1M to $2M) of its investments, along with uncertainty due to an ongoing civil case, has meant that financing for these investments was harder to come by than originally anticipated, so the company turned to a YieldCo-like structure of issuing preferred stock with a 7.75 percent coupon, now listed as PW.PA on the New York stock exchange. The offering size was $4.3 million.

While the yield of 7.75 percent is much more attractive than all other listed alternatives I am aware of, Power REIT's legal situation adds significant uncertainty to the mix. I have written extensively about both Power REIT and its preferred shares elsewhere, and I believe that the upsides from the civil action far outweigh the possible downsides. But investors should make sure they are familiar with the situation before investing.

Juhl Renewable Assets

Pink-sheet-listed Juhl Energy (OTCBB:JUHL) is a wind and solar developer focused on community and behind-the-meter corporate projects. Its subsidiary, Juhl Renewable Assets (JRA), has been selling unlisted preferred stock with a 9 percent coupon to finance (alongside bank debt) the acquisition of community wind projects. Juhl plans to list both the JRA Preferred and Juhl common stock on the NYSE MKT exchange “as soon as possible,” which could be before the end of 2014.

The JRA Preferred offering is open to accredited investors with a modest $25,000 minimum investment. To date, the company has raised $4 million and hopes to offer additional tranches in the future at a rate of $30 million per year to fund future investments. JRA owns a handful of small wind projects with capacities of between 1 megawatt and 11 megawatts, including the recent purchase of two operating 1.62-megawatt, single-turbine wind projects for $4 million.

If the listing is successful, I would expect JRA Preferred stock to appreciate, since its closest comparable, Power REIT Preferred, has been trading at par with a lower coupon.

The Outlook for YieldCos

YieldCos are already transforming the clean energy development landscape by providing a new, low-cost source of capital. The flip side of this low cost of capital is unimpressive yields on the best-known U.S.-listed YieldCos. But the underlying economics of clean energy development still allow a wide variety of players -- listed, unlisted and in the process of planning IPOs -- to offer yields in the high single digits and beyond to investors who are willing to venture into the corners of U.S. exchanges (Power REIT Preferred) or to Canadian exchanges. 

Accredited investors have a wide variety of potential high-yield investments to choose from, some of which are likely to be listed on exchanges in a matter of months, which will likely provide them with significant capital appreciation in addition to the underlying yield. The five listed above are not an exclusive list. Securities laws limiting advertising of unlisted securities mean that most such companies operate quietly, far from the public eye.

While the wealthiest and best-informed investors may be able to make the most profits from this transition of clean energy project financing from private hands to the public markets, in the end, everyone will benefit. YieldCos provide lower-cost capital which allows quicker and wider deployment of the technology we need to slow the growth of the harmful greenhouse gases which are already causing climate change.

Disclosure: Tom Konrad and/or his clients have long positions in JUHL, HASI, BEP, PEGI, RNW, INE, CSE, PW, PW.PA, and Grid Essence, and short positions in NRG Yield.

This article was first published on GreenTech Media, and is republished with permission.

September 20, 2014

Chinese Solar Development Funds: Recipe For Disaster?

Doug Young

Canadian Solar Logo

Canadian Solar (Nasdaq: CSIQ) has joined a growing field of Chinese solar panel makers entering the risky business of speculative development in China, with its launch of a new locally-based fund for solar power construction. The move follows the establishment of self-financed vehicles for similar speculative construction by rivals Trina (NYSE: TSL), Yingli (NYSE: YGE) and wind power equipment maker Ming Yang (NYSE: MY), as they try to create more demand for their products.
Under such a strategy, solar panel makers typically provide some or all of the money for new plant construction, and then sell their panels to the project. They later recoup their money by selling off the plants upon completion to long-term institutional buyers.

Such a model often works well in the west, where power station developers are very familiar with their industries and know they can easily sell completed projects to a sophisticated long-term institutional buyers that understand the business. But such speculative development could be much riskier in China, where most solar panel makers have limited experience with plant construction, and few experienced institutional buyers can step in to own and operate such facilities over the long term.

That mix could become a recipe for disaster over the longer term, potentially leaving solar panel makers with huge debt if they can’t find buyers for projects that may have design flaws and other logistical problems. Accordingly, Beijing should take steps to cool such speculative construction, or at least offer guarantees and guidelines that could lower the risk.

Canadian Solar made headlines last week when it announced it would launch a new solar power investment fund with Sichuan Development Investment Management. (company announcement) The fund would have 5 billion yuan ($810 million) in investment, making it one of the largest to date to focus on solar power development in China under Beijing’s ambitious plans to clean up the nation’s air.

Canadian Solar and Sichuan Development would each contribute equal, unspecified amounts to the new fund, with the remainder coming from other investors. That means Canadian Solar could probably expect to provide at least $200 million and possibly more, equaling more than a quarter of its current cash reserves.

Canadian Solar’s plan follows a similar move by rival Yingli, which in April announced its own new fund in partnership with local partner Shanghai Sailing Capital. (previous post) That fund had an initial target of 1 billion yuan, a more modest figure than the Canadian Solar plan but still sizable for a company like Yingli that had just $150 million in cash reserves at the end of June.

Trina also embarked on a similar plan earlier this month when it announced a partnership with 3 local partners to build the largest solar power plant in southwestern Yunnan province, with a massive capacity of 300 megawatts. (previous post) Under that deal, Trina is providing 90 percent of the project’s financing, again stretching its own limited cash resources. Wind power equipment maker Ming Yang also joined the speculative development team in June, when it announced its own plans to build and co-finance a massive 300 megawatt wind farm project in eastern Jiangsu province. (previous post)

This kind of short-term self-financing for new projects works well under healthy economic conditions in mature markets. It has served Canadian Solar well in Canada, where the company frequently finances and builds new plants using its own solar panels, and then sells the projects after completion to local institutional buyers who understand the business and the returns they will get.

But such speculative development proved ruinous 2 years ago for former industry pioneer Suntech, which launched its own such fund for speculative development in Europe. Conflicts involving that fund set off a downward spiral that ultimately led to Suntech’s bankruptcy last year.

Beijing is eager to foster more clean power generation under its plans for building 35 gigawatts of capacity by the end of next year, in its bid to clean up the country’s air and support the development of companies like Trina, Yingli and Canadian Solar. Thus it’s likely to support the establishment of these new funds, and perhaps even provide them with some money.

But central policymakers also need to take steps to ensure these speculative new projects are economically viable and can find long-term buyers once they are complete. Failure to do so could spark a new crisis for the sector if these projects turn out to be lemons and can’t find long-term buyers, creating new financial woes for manufacturers just as they start to recover from the recent downturn.

Bottom line: Beijing should step in to offer guidelines or guarantees to ensure a new generation of solar farms being built by panel makers are economically viable and can find long term buyers upon completion.

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.

September 19, 2014

One Solar Installation, Five Stocks

Tom Konrad CFA
2014-09-08 08.56.59.jpg

Invest In What You Know

"Invest in what you know" is an old stock market adage.  The idea is that, if you have some personal knowledge of the real economy, you can use that to make better investments. 

How useful this adage is depends on how you apply it.  If you know more about a stock market sector than other investors because of "what you know," it's possible to make better investments because you may be better at spotting future trends.  If, on the other hand, you feel you know a sector because you buy its products, you may get caught up in a herd mentality and end up buying a company (along with a bunch of its other customers) just when the popularity of its products peaks along with its stock price.

I'm a recent customer of the solar industry.  Last week, my solar installer flipped the switch on my new solar PV system, and my meter started spinning backwards.  Like many new solar owners, I'm a bit obsessed the system.  Here, I'm channeling that obsession into an article about the companies that supplied parts of the system, and what we can learn about their prospects.

The System

Solar systems are far from uniform, and vary significantly depending on energy usage, location, available space, and local incentives.  My system is a little larger than average, at 6.6kW. I have a fairly high load because last year I installed air source heat pumps to supplement my oil-fired boiler.  My 2 person, 2000 square foot house in New York's Hudson River Valley uses an average of 13 kWh a day outside the heating season, but and another 10-20 kWh a day during the four month heating season, for an average annual usage of 21 kWh/day.

According to my calculations using PVWatts, my 6.6kW system should produce just about that much in an average year, but my solar installer used more conservative numbers, and expects it to produce about 20kWh a day.  Below is a monthly production and usage chart based on my calculations.

Solar Production and Usage.png

Because my usage is highest in the winter, and my production is highest in the summer, I will be relying on net metering rules to "bank" kWh produced from April to October to be used for heating from November to March.  My utility requires that this kWh bank be trued up once a year, which I will set in March or April.  I've shown the true-up here in March, where I'm "billed for" negative kWh (i.e. paid by the utility.) 

This "banking" is actually to the utility's advantage because, not only do they effectively get an interest-free loan of electricity for an average of 6 months, but New York electricity prices tend to be a little higher in the summer than in winter.  Since 2005, only 2014 had a higher peak winter price than the previous summer peak.  Last year's exceptionally high winter prices were caused by locally high natural gas prices, in turn fueled by the polar vortex.  The utility also benefits from daily production swings: solar production is highest when hourly prices are highest in New York.

Although the utility receives significant benefits from my solar system, it is also a good deal for me, mostly due to Federal and State incentives. If I assume electricity price increases completely offset system maintenance costs (I expect them to more than pay for any maintenance), my expected internal rate of return over 30 years will be 9.7% (or 8.3% over 20 years.)  The payback of my initial investment will take about 9 years. Without subsidies, the 30 year return would have been a paltry 1.9%, with a 22 year payback.

I expect that many New York solar systems have even better returns than mine, because I made a number of decisions which raised cost without increasing electric production.  First, I wanted to reserve part of my roof for a future solar hot water system, so I chose somewhat more expensive monocrystalline panels in order to make the most of the roof space I was willing to use.  Second, I decided to go with SMA TL-US strong inverters rather than microinverters because TL-US inverters can provide some back-up power when the grid goes down.  Third, I had to do some upgrades to the frame of my garage and attic of my old (1930) house to support the extra weight of the panels.  Finally, I wanted an awning to protect a third floor balcony from rain, and so I had my installer project the edge of the panels past the edge of the roof to serve this function, making the installation more difficult.

The Stocks

I don't follow any of these stocks closely, so I decided to ask my panel of professional green money managers. 

SMA SB 3800TL-US-22 and SB 3000TL-US-22 Inverters

SMA Solar Technology (S92.DE, SMTGF)

My inverters were from SMA Solar Technology AG (S92.DE, SMTGF), a Sunny Boy 3000TL-US-22 and a Sunny Boy 3800TL-US-22. These cost about $0.50/W and account for about 13% of the total system cost.

There was some real disagreement about SMA.  Shawn Kravetz manages a solar focused hedge fund at Esplanade Capital LLC in Boston, so I pay attention to his thoughts on solar related stocks.  He notes that SMA Solar Technology's string inverters have been losing market share to suppliers of micro-inverters and optimizers. 

These competing technologies make better use of the power produced when power production from panels is not uniform, such as when the panels are partially shaded.  Fortunately for me, I have very little shading, and living in a rural area, I wanted to be prepared for long-term power outages.  To the right, you will see an image of me testing the inverter's ability to power my furnace on a cloudy day (it was raining at the time.)  The furnace draws 340W, which is about 8% of the rated capacity of the larger of my two solar arrays. I expect that I should have enough power to run the furnace for an hour or two even on cloudy winter days, as long as I keep them clear of snow.SMA TL-US Power backup

Frank Morris, the former portfolio manager of the Global Ecological mutual fund (EPENX) describes the technology as a dramatic innovation:
With the flip of the switch, SMA's TL-US inverter will send up to 15A of 110V power to your home outlet even during a power outage.  This feature is unique to the SMA TL-US line of inverters.

When there is a power outage, a solar roof with SMA TL-US line of inverters can provide electricity to your home, independent of the grid.  During hurricane Sandy, millions lost electricity-and the thousands of solar roofs in Sandy's wake were useless: most inverters lose function when the grid is down.  The SMA TL-US line of inverters represent a dramatic innovation for the world solar market.  The convergence of resilient distributed affordable solar electricity generation, affordable electricity storage, and breakthroughs like the SMA TL-US line of inverters, should have a dramatic effect on the global utility industry.

Thomas Moser, CFP® of High Impact Investments® in Tucson, Arizona likes SMA most of the companies listed from a buying viewpoint, also because of its applications to backup power.  He says, "Energy storage will be needed as individuals and companies look to disconnect from utilities.  The level of concern regarding energy backup systems in case of total utility shutdown will rise, especially with worldwide threats capable of shutting down the grid.  SMA's R&D is well ahead of the curve on energy storage."  That said, he sees many more attractive clean energy buying opportunities right now, and says SMA's stock price would need to decline from the current €22 and change to around €15 before he'd buy it.

2014-09-05 13.12.11.jpgLG Electronics (066570.KS) 

My panels are 22 LG 300W Mono X® NeON Modules.  These are fairly high-end modules using 60 monocrystalline silicon cells with a total module efficiency of 18.3%.  The panels can be bought retail for approximately $1.50/W, and account for approximately 40% of the total system cost.  LG Electronics is a listed Korean conglomerate with symbol 066570 on the Korea SE. 

LG is a large conglomerate.  My experts did not feel that its solar segment was a large enough part of its overall business to make an investment case.  That's not to say they don't know anything about the company: Kravetz knew mine were from LG's MonoX® line just from of the power rating. 

DSC05294.JPG Schneider Electric SE (SU.F, SBGSF)

Schneider Electric SE (SU.F,SBGSF.) supplied five Square D brand Solar DC disconnects and a circuit breaker box for combining the current from the two inverters.   I'm guessing these amount to between 10¢ and 30¢ per Watt, or about 5% of the total system cost.

Schneider makes a number of clean energy related products, but the experts I consulted were not familiar with the company or did not think clean energy is a significant enough part of its business to make an investment case.

ABB Group Ltd. (ABB)

ABB meter

My installer included an analogue "dumb" meter from ABB Group (ABB) to keep track of total system output (the SMA inverters each keep track of their own energy production.) The system also required 200 to 300 feet of conduit and electrical boxes from Carlon, a brand owned by ABB. These components likely cost between 10¢ and 15¢ per Watt, or about 3% of the total system cost.

Although ABB is another conglomerate, it has enough cleantech to get the attention of my panel. Jan Schalkwijk, CFA® of JPS Global Investments in Portland, OR says,

ABB touches on renewables and energy efficiency in various ways, with offerings such as solar inverters, HVDC [high voltage direct current] links that connect renewables power sources to the grid (ABB has installed 13 of the 14 HVDC projects commissioned worldwide to date), offshore wind power projects, and high efficiency motors, among other power products. In the most recent quarter, orders were up 13% year-over-year, half of which came from a HVDC ink project in Canada to connect renewable power sources to the North American grid. Another large project in progress is the 900MW DolWin2 offshore wind converter platform that will be installed in the German North Sea. Recently the company has faced industry headwinds related to offshore wind in Europe, unprofitable EPC projects [engineering, procurement, & construction, i.e. projects for which ABB was primarily responsible for construction] for solar (which it is discontinuing), and contracts that did not have equitable risk sharing with partners. The company is aware of these issues and is changing its strategy to de-risk and improve profitability of the Power Systems business. With a dividend yield of 3.6% vs 3% for the peer group, a strong competitive position, and a relative valuation 5-10% below peers (averaging relative P/E, EV/EBITDA, P/B, EV/Sales, P/CF) ABB looks like a decent bet. Risks include unfavorable currency movements (Swiss Franc), further trouble in offshore wind, and failure to deliver on strategic refocus of the Power Systems business.

Jim Hansen at Ravenna Capital Management in Seattle, Washington also owns ABB, and "will be buying again if the price drops." Moser is more skeptical, and comments that its recently announced $4 billion stock buyback looks like "putting a fresh coat of paint on an old truck."

Itron reversing smartmeter Itron, Inc. (ITRI)

Although not directly involved in the project, my utility replaced my meter with a new I-210+c SmartMeter from Itron, Inc. (ITRI) to support net metering.  I don't know what this cost the utility, but it was probably not significant as a percentage of system cost, likely only a few pennies per watt.

Itron makes a full range of electric meters, and was more popular with clean energy investors when residential smart grid was a greater focus of attention than it is today.  Hansen has owned it in the past, but does not currently.  Moser says the stock does not interest him because its stock performance is "as lumpy as its sales."

Installer, Balance of System

The remaining approximately 40% or $1.60/W of the system cost was overhead, labor, equipment rental, permitting, and components such as racking (Unirac). wiring, and flashings (QuickMount) which are made by privately held companies.  My installer is a local privately held company, Solar Generation.


If you have a strong opinion about the advantages of microinverters vs. string inverters, or think that the growing interest in grid resilience may allow SMA to reverse some of its recent losses, there will likely be stock market profits to be made by betting on one of these trends, but I don't have the confidence to put my own money on one or the other.  While my own strong preference is the added resilience, companies selling solar leases or power purchase agreements are only paid for producing energy, not for the resilience SMA's products bring.  But the recent trend away from leases and towards other forms of solar financing may allow more homeowners to opt for resilience over maximizing production, as I did.

Of the others, only ABB is in my own portfolio, as it has been for years.  Like Schalkwijk, I like the valuation, dividend stream and solid position in many aspects of the electric grid.

Even ABB's dividend stream does not come close to matching the income stream (in the form of lower electricity bills) of my solar system itself.  Sometimes an industry's products are far better investments than the industry itself. For me, the lesson of this whole exercise is that companies which invest in solar installations are likely to be better investments than the companies that provide the parts.

Disclosure: Long ABB.

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.

September 18, 2014

Future Fuel's Enticing Earnings

by Debra Fiakas CFA

Who doesn’t like a bargain?  FutureFuel Corporation (FF:  NYSE) is trading near $13.15 per share, below nine times net earnings.  Yet, the enticing earnings multiple might be only part of the story.

The stock has gapped down in price twice in the last six months, trailing off after each leg down.  The stock now appears oversold.

Based in Missouri, FutureFuel produces biodiesel and biobased speciality chemical products.  In the twelve months ending June 2014, the company reported $396.9 million in sales, providing $53.5 million in net income or $1.52 per share.  The company converted 9% of sales to operating cash.   That might seem impressive, but what has investors in a funk is that sales are shrinking.  In the June 2014 quarter the company reported a weak $68.0 million in total sales, compared to $106.0 million in the same quarter in the prior year.

Thus FutureFuel probably is not the bargain that the low earnings multiple suggests.  A review of recent trading patterns suggests the stock has so much negative sentiment that it could trade as low as $5.00.

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.

September 17, 2014

Cellulosic Feedstock: The Gap Between Switchgrass And High Yield Corn

Jim Lane 

As the first wave of cellulosic biorefineries launch — is there really enough affordable feedstock for the next wave? Can growers make enough money to justify the switch…and risk?

For several years, the questions that have perplexed actors in the advanced bioeconomy have revolved around policy stability and the effectiveness of the new technology: can new advanced fuels be affordably produced and will there be a market for them?

Years ago, these were the same questions that were asked about petroleum. Today, when people talk about petroleum and long-term availability (when they choose not to focus on carbon or on energy security issues), it all relates back to feedstock cost and availability. $80 oil (good), $120 oil (bad), $200 oil (aprés moi, le deluge).

It’s not all that different with the first advanced biorefineries — being built by in this first wave by the technology developers like Beta Renewables, DuPont, Abengoa and Poet-DSM. With the first locations they have chosen — in places like Crescentino, Italy; Nevada, IA; Hugoton, KS and Emmetsburg, IA — the feedstock supply and economics look good. Grower relations look excellent.

According to Deputy Under-Secretary for Science and Energy Dr. Michael Knotek, “we need 1000 of these”. And, true, one thousand of the POET-DSM-sized facilities would generate 20 billion gallons of cellulosic biofuels, and cover the spread between production today and Renewable Fuel Standard targets for 2022. That’s a lot of feedstock. IS there enough?



The DOE has assessed feedstock availability in The Billion Ton Study and Son of Billion Ton — bottom line conclusion, not much to worry about in terms of land availability, as a billion tons would cover 1000 biorefineries three times over, or more.

So, why are we even talking about it? Little secret in Billion Ton — the authors found 328 million tons of feedstock currently available. 767 million dry tons (in the baseline scenario) come from “potential resources” by 2030. And that “potential resource” drops to 46 million dry tons by 2017, if the price is $50 per ton — and POET is targeting closer to $50 than $60.

Whoops. So let’s look closer at the data.

Stover economics.

According to DuPont’s analysis, stover economics look pretty good for growers in and around their Nevada, Iowa project. Bottom line, growers can realize $36 per acre in increased profit by removing 2 tons per acre of corn stover. The increased cost of fertilizer replacement is more than offset by yield gains and stover income. And the yield gains have been confirmed in 93% of field trials.




Here’s the catch, though. Nevada, Iowa is among the most feedstock-replete areas of the country, when it comes to corn stover. What about the rest of the country?

Some data to consider:

1. National corn yields are 5% lower, at 171 bushels per acre (projected for this year by USDA)

2. 80% of farmland is in corn-soy rotation rather than continuous corn, according to USDA.

3. Roughly one-third of farmers practice no-till techniques, according to USDA.

Going back to the DuPont data, let’s note.

1. Without no-till, stover yields drop by 1.1 tons per acre for continuous corn, and 1.2 tons for corn-soy rotation.

2. Without continuous corn, stover yields drop by 1.2 tons per acre for no-till, and drop to zero with tilling.

So, let’s re-do that last DuPont chart, to show how this maps out against the nation’s supply of corn stover. The average is 0.379 tons per acre.


The stover income would fall from $36 per acre to $6.82 per acre, for the average acre.

Energy Crop economics

Let’s look at a leading energy crop candidate, switchgrass, which Genera Energy described as “likely the most studied biomass crop in the US and is one that Genera has had success with as a sustainable and economical feedstock”

In an article published this summer at extension.org, authors Susan Harlow and Richard Perrin suggested that switchgrass may well produce animal feed instead of a biofuels feedstock.

Rationale? A production cost of $65 per ton in the Upper Midwest based on yields of 3.5 tons per acre— including a $200 per acre establishment cost. More importantly, the authors point out that “refineries…will have to pay at least its value as livestock feed, which is expected to be about $95 per ton of DM (equivalent to $83 per ton of 15%-moisture hay).”

And establishment opportunities may be limited, for the authors note that “marginal cropland that can produce corn at yields higher than 60 to 70 bushels per acre, corn is likely to be more profitable [than switchgrass].”

The Bottom Line

Stover economics work well in selected areas like Iowa — but it’s far from universal. Roughly 6 million acres have the optimal economics (7 percent of 93 million acres) — enough for 25 biorefineries of the current standard size, or about 500 million gallons. And that’s assuming that all of the optimized growers are within 30 miles of one of these biorefineries. As it happens, areas with high corn yields such as the Midwest have lagging rates of no-till farming, according to USDA.

Where corn yields drop below 70 bushels per acre, switchgrass economics are fine, says Genera. For high-yielding land using continuous corn, and no-till — stover pick-up looks great. But there’s a lot of acreage in the middle where corn is going to continue to be the crop of coice, but stover is less likely to work.

For the rest, it is going to be about producing energy crops — and we are looking at several years to establish those at sufficient scale to support a biorefinery.

All of which suggests that building out cellulosic biofuels is going to be a lengthy process, stretching well into the 2020s if these numbers hold up.

Jim Lane is editor and publisher of Biofuels Digest where this article was originally published. Biofuels Digest is the most widely read  Biofuels daily read by 14,000+ organizations. Subscribe here.

September 16, 2014

SolarCity Product Can Increase Generation On Flat Roofs Up To 50%

By Jeff Siegel

scty934While solar bears and short-mongers celebrated the 8% dip in SolarCity (NASDAQ:SCTY) yesterday, opportunists are sniffing around for another buying opportunity. Especially those who didn't take my advice to load up after the stock fell below $50 back in March. What a bargain that was!

In any event, SCTY took it on the chin yesterday, and I suspect there will continue to be some ebbs and flows in the near-term. Long-term, however, SCTY remains a solid play on the growth of solar in the United States.

It's also worth noting that SCTY has just unveiled a new solar mounting product called ZS Peak. It basically allows installers to install systems on flat roofs in half the time it takes today. And according to reps from SolarCity, this new product can increase generation capacity on flat roof buildings by 20 to 50 percent per building.

ZS Peak makes it possible for far more businesses, schools and other organizations to install solar power on their buildings and immediately pay less for solar electricity than they pay for utility power, and will significantly expand the addressable market for commercial solar.

It's this kind of innovation that continues to put SolarCity ahead of the curve, and it's also one of the reasons I remain bullish on the stock.

My very conservative price target on SCTY for 2014 is $75. Other price targets include the following:

  • Goldman Sachs: $85
  • Deutsche Bank: $90
  • Credit Suisse: $97

Full Disclosure: I currently own shares of SCTY.

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.

September 15, 2014

Three Stock Alerts: CREG, EFOI, OPTT

By Harris Roen

Three volatile alternative energy stocks release earnings reports. Two of the stocks jump, one drops.

China Recycling Energy Corp (CREG)
More Info
Latest earnings report for China Recycling Energy Corp shows a huge jump in revenues and net income. Insider selling, however, has led to stock losses. CREG is down 75% from where it was trading just this March. Seeking Alpha
Energy Focus, Inc (EFOI)

Profits jump for Energy Focus Inc, up over 50% from the previous quarter. EPS losses collapse to near zero, and next quarter guidance is positive. EFOI has gained 24% in two days on very large volume. Reuters
Ocean Power Technologies, Inc (OPTT)

Ocean Power Technologies more than triples revenues from the previous quarter and year-over-year. Net income drops, but quarterly EPS losses narrow. OPTT popped up 15% Friday, but is still down for the year and almost 80% below its highs of 2010. CNN Money


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.

September 13, 2014

Sketches of DuPont's Cellulosic Ethanol Project in Nevada, Iowa

Jim Lane 

It towers above the surrounding Iowa countryside like the Launch Assembly Building lords it over Cape Canaveral — it’s the new DuPont (DD) cellulosic ethanol project, on the outskirts of the town of Nevada.

Functional yet inspiring, imposing yet accessible — when it opens before year end 2014 it is sure to be a monumental addition to the cellulosic biofuels landscape.

Last week we wrote:
“There are strategic reasons to develop this new industrial bioscience business in central Iowa — not just the “we’d love to have you, wages are low, cost of living’s cheap, and no unions” factors that are of genuine appeal to companies — but pertain to Mumbai and Shenyang, too.

That’s not to say that there’s no competition for Nevada. There’s corn stover a-plenty in the Midwest — and many towns and industrial parks rail spurs, power, water, skilled labor and local growers. Blair (NE), Eddyville, Fort Dodge, Clinton, Hugoton (NE), just to name a few.

But once built, they’ll stay, so long as the economics of the product stay sound, And the more infrastructure you build, the more that is there for the next business to tap into. So — these little Metropoli have every reason to hope for growth — and for higher-skill, higher-wage positions to continue to appear, and not to disappear.”

Biomass intake

The biomass intake system — still with a few construction workers in view — that will accept the corn stover and crush it down to a relatively fine powder — there’s some chopping involved, and some hammering, to get the desired consistency for the enzymatic hydrolysis.

Biomass Silo

This unit above looks like the first stage of the Saturn V rocket, but it’s really almost a silo — holding biomass after intake. After this unit, it will proceed left to the core hydrolysis technology where proprietary enzymes will separate out the C5 and C6 sugars

Fermentation and hydrolysis units

The units above include the large hydrolysis unit to the rear, and the fermentation units — three of them, in the front. It’s bacterial fermentation, so that’s a change of pace from the more-traditional yeast.

fermentation, hydrolysis, storage

Here, you see most of the same technology — and some storage, from a different angle, but you also note there’s still a lively construction crew on site, pushing the project towards completion. That’s Fagen — so well known during the first-generation of ethanol construction.


Distillation comes last, where the ethanol is separated from the “beer”.


Here. you can see the official bird of cellulosic biofuels — the crane — spotted all over Iowa and spreading into Kansas of late.

Jim Lane is editor and publisher of Biofuels Digest where this article was originally published. Biofuels Digest is the most widely read  Biofuels daily read by 14,000+ organizations. Subscribe here.

September 11, 2014

The Ginsu Knife of Biofuel Litgation: Butamax vs Gevo

Jim Lane 

It’s like the selling of Ginsu knives, the legal dispute between these two companies. No matter how much you hear….but wait, there’s more!

This week, we heard from Butamax that the District Court of Delaware has issued an order scheduling two further rounds of patent infringement actions pending between Butamax and Gevo (GEVO) for resolution.

The next phase of litigation, involving three Butamax patents asserted against Gevo, will begin in September 2014 with the discovery process and trial is scheduled for August 2015. Thereafter the remaining cases, involving three other Butamax patents asserted against Gevo, will recommence later in 2015 with trial scheduled for as early as April 2016.

The news is not all that new — these two rounds of litigation have been long discussed in the Digest and have been on the books — if not on the exact calendar — for a year or more.

Some of the scheduling has to do with the status of litigation that was originally expected to go froward this summer — the first phase. These suits were postponed based on their similarity to an upcoming Supreme Court case.

Bottom line, the Supremes will hear this fall, rule next spring (we expect) — and then phase two and phase three litigation is scheduled for summer 2015 and summer 2016.

According to Butamax, “Butamax continues to assert a total of eight patents against Gevo. Meanwhile, all of the cases involving patents asserted by Gevo against Butamax have either been ruled in Butamax’s favor or dismissed.”

Worth reminding readers that we have reported that almost all of the cases were dismissed on application by Gevo, which is waiting to sue until Butamax is in production and therefore creating actual harm.

Gevo’s final case against Butamax was dismissed by the Court in August 2014, following an Action Closing Prosecution from the Patent Office rejecting all claims.

Butamax also requested Patent Office re-examination or inter partes review of a total of 15 Gevo patents, of which 14 are ongoing and 1 has concluded in Butamax’s favor. Gevo requested re-examination of four Butamax patents, all of which are ongoing.

Jim Lane is editor and publisher of Biofuels Digest where this article was originally published. Biofuels Digest is the most widely read  Biofuels daily read by 14,000+ organizations. Subscribe here.

September 10, 2014

Divesting: Last One Out Loses

Tom Konrad CFA

Anew report written by Nathaniel Bullard at Bloomberg New Energy Finance highlights the difficulties large institutional investors would have divesting from fossil fuels. What it does not specifically discuss is that these difficulties could lead to large financial losses for investors who see the difficulty of divesting as a reason to delay.

Just as we can't easily fill up our cars with solar power instead of gasoline, the report points out that there is no asset class that can directly substitute for oil and gas in large institutional portfolios.

A person with a short commute can simply ditch gasoline for renewable fuel by riding a bike, and small investors can easily divest from fossil fuels without sacrificing growth or yield by using small capitalization stocks and yield cos.

The relatively high yield of oil and gas stocks is the most difficult to replicate, even at its level of 2.41%, which the report describes as “not enormous.” According to the report, the only sector with a higher average yield is REITs (at 4.55%). REITs have a total market capitalization of less than a third of oil and gas stocks, so it would be impossible for more than a fraction of large investors to replace their oil and gas holdings with REITs.

The Instructive Case of Coal

In contrast to oil and gas, the report makes the point that because the market capitalization of coal companies is much smaller, divesting from coal alone is much easier than divesting from oil and gas. The report states that “Coal equities are less than 5% the total value of oil and gas equities, and have already trended down nearly 50% in the past five years... as a result, divesting from coal would be much easier then divesting from oil and gas.”

The report's author Nathaniel Bullard, told me in an interview that divesting from coal would have been more difficult just three years ago. He says, “US coal has had clear indicators of future change in place for a while. … Some coal equities have lost 90% of their value since 2011... This much diminished size means that... the same number of shares will represent a much smaller portion of an investor's overall portfolio relative to 2011.”

Hold High, Sell Low?

To put it more bluntly, investors who have already lost their shirts in coal stocks will have a much easier time selling their much-diminished holdings today than they would have when coal stocks were at their peak. Ironically, it's easier to sell low and buy high than vice-versa, especially for investors who manage large pools of money.

It does not take a multi-million dollar salary to know that waiting until your stocks have fallen by half before you sell is a suboptimal investment strategy. Despite past “clear indicators of future change” and lower estimates of future coal demand due to air pollution regulations in the coal industry, institutions like Stanford are only now beginning to divest from the sector. Most have not yet budged.

Are Oil and Gas Next?

The report begins with a quote from an executive who describes the divestment movement as “one of the fastest-moving debates I think I've seen in my 30 years in the markets”. If this fast-moving debate leads to fast-moving divestment, the sheer size of institutional oil and gas holdings would lead to a scale of the selling that could easily drive down prices of oil and gas stocks as fast as coal stocks have fallen over the past few years.

The divestment movement was only in its infancy when coal stocks peaked in 2011, so divestment has been only a minor contributor to their decline. Bullard attributes most of the decline to fundamental factors, such as low gas prices and (to a limited extent) wind power in the US, and concerns about air pollution in China.

That said, the long term fundamentals of oil and gas are not favorable. Industry costs are rising as producers shift towards unconventional sources such as tar sands and tight oil and gas which are extracted with relatively expensive techniques such as hydraulic fracturing (“fracking”). Meanwhile, high fuel prices are beginning to reduce average driving distances in mature markets such as the US and Europe while the declining costs of efficiency technologies such as hybrid and electric vehicles further lower demand. In the fastest growing vehicle fuel market, China, air pollution concerns have led the government to aggressively promote “new energy” vehicles, particularly hybrids and EVs.

Natural gas faces increasingly inexpensive competition in electricity markets from wind and solar generation. That, combined with technologies such as storage, smart grid, demand response, and better transmission which make it easier and cheaper for these variable sources to supply a larger portion of electricity demand with less reliance on dispatchable generation such as natural gas, hydropower, and biomass-fired electricity.

The fundamentals of all fossil fuels will be further undermined if the world ever makes a concerted effort to rein in carbon emissions. At the moment, the prospects for large scale regulatory moves seem dim, but at some point the increasing costs in terms of falling crop yields, widespread and severe heat waves and droughts, ocean acidification and the like will lead to political action. At this point it will almost certainly be too late to avoid significant economic and human costs from climate change, but that does not mean that it will not help us avoid even greater damage. And the longer we delay taking substantive actions to curb greenhouse gas emissions, the more draconian those actions will have to be. Drastic moves to curb carbon emissions will have even more drastic effects on the fundamentals of fossil fuel industries.


In part because it is so hard for large investors to exit fossil fuels, it is unlikely that a majority of such investors will move to divest before they have lost a large portion of their current holdings to price declines driven by the fundamental factors outlined above and selling from more motivated investors.

Some of the factors listed above, such as concerted political action to curb carbon emissions, may take a long time to be felt. Other factors, such as the declining cost of renewable energy and efficiency technologies and the increasing costs of fossil fuels are moving energy markets today.

When these factors will begin to hurt oil and gas stocks is unclear, but the coal industry shows that, although divesting is hard, it does not pay to wait too long.

This is where the analogy to replacing fossil fuels in your commute by buying an electric car breaks down. With electric cars, the more people own them, the easier and cheaper they will be to use: growth in charging infrastructure will rise with the adoption of plug-in vehicles, while higher volumes should help bring down their initial cost.

In contrast, it pays to be first rather than last when divesting from fossil fuels. While it is possible to be too early, at some point the worsening fundamentals of fossil fuel industries and/or a large scale divestment movement will undermine the value of all fossil fuel stocks. Those who divest sooner will have much more money to invest elsewhere than those who delay because divesting is just too hard.

Fortunately, small investors have it easy. Divesting, for once, is a place where the small investor has the advantage on Wall Street.

This article was first published on Renewable Energy World, and is republished with permission.

September 07, 2014

Ten Clean Energy Stocks For 2014: September Update and Thoughts on the Finavera Deal

Tom Konrad CFA

Clean energy stocks and the market in general rebounded strongly in August.  My broad market benchmark of small cap stocks, IWM,  rose 4.5%, returning to positive territory up 1.7% for the year. My clean energy benchmark PBW also jumped back into the black with an 11.1% gain for the month and 10.8% for the year to date.  The less volatile defensive stocks in my 10 Clean Energy Stocks for 2014 model portfolio rose 1.9%.  For the year to date, the model portfolio is up 6.2%.

(Note that the monthly numbers are for August 5th to September 4th, and the YTD numbers are from December 26th to September 4th.  I use numbers as of when I have time to write, rather than strict month-end in order to make these updates up to date as possible.)

10 for 14 - September.png

Individual Stock Notes

(Current prices as of August 5th, 2014.  The "High Target" and "Low Target" represent my December predictions of the ranges within which these stocks would end the year, barring extraordinary events.)

1. Hannon Armstrong Sustainable Infrastructure (NYSE:HASI).
12/26/2013 Price: $13.85.     Low Target: $13.  High Target: $16.  Annualized Dividend: $0.88.
Current Price: $14.31.  YTD Total US$ Return: 6.5

As expected, Sustainable Infrastructure REIT Hannon Armstrong's second quarter report was generally positive, beating analysts' estimates by a penny.  Earnings in Q3 should be significantly higher as recent large investments were only producing income for part of the second quarter.  The stock has recovered from the lows which had me adding to my position at the start of last month, as discussed in the last update.

2. PFB Corporation (TSX:PFB, OTC:PFBOF).
12/26/2013 Price: C$4.85.   Low Target: C$4.  High Target: C$6. 
Annualized Dividend: C$0.24.
Current Price: C$4.50. YTD Total C$ Return: -3.5%.  YTD Total US$ Return: -5.0%

Green building company PFB has recovered a little from recent lows. The company's largest shareholder continues to purchase its stock on the public market.  PFB paid its normal C$0.06 quarterly dividend.

3. Capstone Infrastructure Corp (TSX:CSE. OTC:MCQPF)

12/26/2013 Price: C$4.44.   Low Target: C$3.  High Target: C$5.  
Annualized Dividend: C$0.30.
Current Price: C$4.38.  YTD Total C$ Return: 31.8%.  YTD Total US$ Return: 29.7%

Independent power producer Capstone Infrastructure held steady throughout the month, without significant news.  Analysts at Scotia Bank raise their price target slightly from C$4 to C$4.50, but did not change their "market perform" rating on the stock.

4. Primary Energy Recycling Corp (TSX:PRI, OTC:PENGF).
12/26/2013 Price: C$4.93.   Low Target: C$4.  High Target: C$7. 
Annualized Dividend: US$0.28. 
Current Price: C$6.00.  YTD Total C$ Return: 24.4% .  YTD Total US$ Return: 22.3%

Waste heat recovery firm Primary Energy announced a regular quarterly dividend of 7¢ US to holders of record on August 15th. but there was no other significant news.  The gain shown here was mostly a big jump at the close today (Aug 5th.) It might just be a blip (the stock is thinly traded), or there may be trading based on rumors of some real news about to be announced.

Update: The jump seems to be due to the immanent acquisition of Primary Energy by Fortistar.  The Wall Street Journal reported that a deal was "near" shortly after the close.

5. Accell Group (Amsterdam:ACC [formerly ACCEL], OTC:ACGPF).
12/26/2013 Price: €13.59.  Annual Dividend €0.55 Low Target: 11.5.  High Target: €18.
Current Price: €13.75. YTD Total  Return: 5.2% .  YTD Total US$ Return: -0.8% 

Bicycle manufacturer and distributor Accell Group fell 4% during the month, mostly due to a 3% decline in the value of the Euro.  On the business side, the company bought Spanish bike parts and accessories Comet.  I think this acquisition is good for Accell's business since it strengthens the company's distribution network in Southern Europe. 

The press release was also encouraging in that "Comet’s annual normalised operating result as a percentage of profit is slightly higher than the historical average (6%) of Accell Group... The acquisition will make an immediate contribution to Accell Group’s earnings per share."  In other words, the acquisition should be good for per share earnings, even before any synergies are realized.

6. New Flyer Industries (TSX:NFI, OTC:NFYEF).
12/26/2013 Price: C$10.57.  Low Target: C$8.  High Target: C$16. 
Annualized Dividend: C$0.585.
Current Price: C$13.68.  YTD Total C$ Return: 33.1% .  YTD Total US$ Return: 31.0%.

Leading transit bus manufacturer New Flyer announced second quarter results on August 5th. Deliveries, revenues, and earnings were all up strongly over the same quarter last year.  Investors and analysts liked what they heard, with the stock advancing over 7% for the month.  Canaccord Genuity raised their price target and upgraded the stock to "Buy" from "Hold", and CIBC raised their price target as well.   

7. Ameresco, Inc. (NASD:AMRC).
12/26/2013 Price: $9.64Low Target: $8.  High Target: $16.  No Dividend.
Current Price: $8.12  YTD Total US$ Return: -15.8%.

The stock of energy performance contracting firm Ameresco continues its recovery from previous lows after the much less negative comments from management I discussed last month.

The company also bought UK energy service provider Energyexcel LLP, which fits its long term strategy of small acquisitions which broaden its geographic reach or skill set.  Insiders continue to buy the stock on the open market.

8. Power REIT (NYSE:PW).
12/26/2013 Price: $8.42Low Target: $7.  High Target: $20.  Dividend currently suspended.
Current Price: $9.15 YTD Total US$ Return: 8.7%

Solar and rail real estate investment trust Power REIT filed its second quarter report, which remains dominated by the legal costs of its civil case against the lessees of its railway property, Norfolk Southern (NYSE:NSC) and Wheeling & Lake Erie Railway.  A court transcript from July and the most recent litigation update offer some hope that the end of the litigation is in sight.  The parties are now working on their motions for summary judgement, on which the court will likely rule in early 2015.  The summary judgement might bring resolution, but, if not, the case is expected to go to trial in February next year.  Any resolution, even one in favor of the lessees, is likely to be good news for Power REIT's shareholders.

9. MiX Telematics Limited (NASD:MIXT).
12/26/2013 Price: $12.17Low Target: $8.  High Target: $25.
No Dividend.
Current Price: $9.41. YTD Total ZAR Return: -19.9%. YTD Total US$ Return: -22.7%

Global provider of software as a service fleet and mobile asset management, MiX Telematics reported second quarter results.  As has been the case in recent quarters, the company has been making rapid progress selling its bundled, software-as-a-service (SaaS) offering.  When SaaS sales replace equipment sales, as they did this quarter, it reduces short term earnings, but increases long term revenue streams, so this earnings report was moderately good news, despite the fact that quarterly earnings missed analysts' estimates.

10. Alterra Power Corp. (TSX:AXY, OTC:MGMXF).
12/26/2013 Price: C$0.28. Low Target: C$0.20.  High Target: C$0.60. No Dividend.
Current Price: C$0.32   YTD Total C$ Return: 12.5% .  YTD Total US$ Return: 10.7%.

Renewable energy developer and operator Alterra Power closed on a C$110 million loan from AMP Capital to finance construction at its Jimmie Creek run-of-river hydro and Shannon Wind projects.

Two Speculative Clean Energy Penny Stocks for 2014

Ram Power Corp (TSX:RPG, OTC:RAMPF)
12/26/2013 Price: C$0.08.  Low Target: C$0.00.  High Target: C$0.22. No Dividend.
Current Price: C$0.02   YTD Total C$ Return: -75% .  YTD Total US$ Return: -75.5%
Terminal US$ Return -57% (when I said to sell on June 3rd.)

Geothermal power developer Ram Power's stock remains in the dumps at $0.02.  The decision to take our losses in June continues to look like a good one.

Finavera Wind Energy (TSX-V:FVR, OTC:FNVRF). 
12/26/2013 Price: C$0.075.  Low Target: C$0.00.  High Target: C$0.22. No Dividend.
Current Price: C$0.14   YTD Total C$ Return: 86.7% .  YTD Total US$ Return: 83.7%.

Wind project developer Finavera got a nice lift when it gave some details of its long-promised plan for its business going forward.  It signed an agreement, pending shareholder approval, to purchase San Diego, CA based solar installation marketer Solar Alliance of America (SAoA) for C$4 million in cash and C$2 million in stock.  The stock portion of the deal will be priced at the higher of C$0.21 or the 20 day weighted average price of Finavera stock following closing of the deal.

Shareholders have been promised a vote to either go ahead with this deal or to wind up the company and distribute what I estimate to be approximately 12 to 14 Canadian cents per share after paying off and renegotiation of its liabilities and receiving the final payment for its Cloosh wind farm from SSE. 

Long time readers will know that solar is the one clean energy sector that I stay away from, mainly because it gets so much attention from other investors and analysts.  That's one reason I find this deal impossible to value, the other being that we have no information on SAoA's profitability, only its revenues.  Finavera CEO Jason Bak has told me he hopes to release more information about the deal before the Annual Meeting on September 15th, but that date is rapidly approaching.

Although I find the deal impossible to value, I find it encouraging that the stock portion of the deal was priced at C$0.21 or above, and I know that other investors are both much more knowledgeable and enthusiastic about solar installation than I am.  Hence, I expect the deal will increase Finavera's stock price over time.  Barring any surprises ahead of the annual meeting, I will probably vote for the deal, but then look to exit the stock as Finavera begins to present itself to investors as a residential solar pure play, and the stock appreciates accordingly.


The only big news this month was in speculative pick Finavera, and I still feel as if I do not have enough information its plans to purchase Solar Alliance of America.  That said, I expect the move into residential solar will be good for the stock price, and its nice to see gains in Finavera easily covering the losses incurred in the first half in my other speculative pick, Ram Power.

The main portfolio continues to perform as designed, advancing modestly but with much less volatility than most clean energy stocks.

Disclosure: Long HASI, PFB, CSE, ACC, NFI, PRI, AMRC, MIXT, PW, AXY, FVR.  

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.

September 05, 2014

Capital Pacific Bank: Free Market Alternative with a Conscience

Not A Bankster

By Jeff Siegel

In the long, slow recovery from the 2008 financial collapse, the banking industry has increasingly been regarded as a buglight for the untrustworthy.

The Libor (London Interbank Offered Rate) scandal brought banking corruption to the front of the news, and showed the world a huge ethical hole that had burned through the middle of major banks.

In a 2012 essay entitled “Is Banking Unusually Corrupt, and If So, Why?” Financial analyst, Circuit Court judge and University of Chicago Law School Lecturer Richard A. Posner laid out the reasons why the system might foster unethical behavior.

"The complexity of modern finance, the greed and gullibility of individual financial consumers, and the difficulty that so many ordinary people have in understanding credit facilitate financial fraud, and financial sharp practices that fall short of fraud, enabling financial fraudsters to skirt criminal sanctions,” Posner said.

The public embraced a depression-era term to show its feelings of distrust and disgust.


A portmanteau of “bankers” and “gangsters,” the term was first used in 1933, but embraced anew when people saw what had become of their assets. Trust in banks sank.

Seventy-eight percent (78%) of people surveyed in the Consumer Banking Insights Study believed big banks were fully to blame for the financial crisis of 2008 and the subsequent recession. Thirty one percent (31%) of those people said they didn't trust big banks with their money even though they were already customers of one.

Smaller banks and credit unions started to become more attractive to disaffected customers as a result, and America's credit unions recently passed 100 million members, according to the Credit Union National Association (CUNA).

“[It's] the unique structure - not-for-profit, member-owned cooperative - of credit unions that gives them the ability to offer better rates and member-focused service,” CUNA said in a statement in August.

Beyond local banks and credit unions, Americans looking to bank differently have yet another option: the B Corp Bank.

A bank with a philosophy

Benefit Corporations and Certified B Corps are companies that are committed to responsibility beyond providing shareholder value. They have to uphold certain environmental standards, labor standards, and tax standards; and are bound to provide something more than just profit.

We recently took a look at B Corps and liked what we saw.

With more than 1,000 corporations submiting to B Corp certification, a select group of banks has begun to gravitate toward the philosophy, too. Earlier this summer, the sixth bank attained Certified B Corp status.

It's a public company, too.

Portland, Oregon's Capital Pacific Bank (OTCBB:CPBO) was founded in 2003 as a local bank to serve the needs of local businesses. In the intervening decade, it has grown into a full-scale financial institution that also has a mission of sustainability and community involvement.

B Labs has given CPB a score of 98 out of 200 on the B Corp certification scale. The lowest score allowed to keep certification is an 80, so it is closer to the low end of the scale than the high. However, it's only been certified for a couple of months, so its score can improve with each monthly review. It's also on par with the Business Development Bank of Canada, another Certified B Corp bank.

At the end of 2013, CPB had $239 million in total assets, and net income of $1.8 million, or $0.69 per share, the highest annual earnings in the company's history. It had double digit growth in both deposits and loans, and an 8.8% return on equity for the year. It closed out the year with a book value per common share of $8.36.

“Many banks are dealing with sluggish loan growth due to lackluster demand, low-interest rates, and increasing regulatory and compliance costs,” Mark Stevenson, CEO and President of Capital Pacific Bancop wrote in the company's annual report to shareholders. “Unlike many of our peers, we’ve been successful in achieving growth in our loans, deposits and net interest income in spite of these headwinds, and our profits have grown to record levels, putting us among the top performing banks in the Pacific Northwest.”

It's also worth noting that Capital Pacific Bank has only one single physical location. This was chosen to diminish its footprint and streamline its operations, and it shows that CPB is in tune with broader trends.

Branch closures in the U.S. hit its all-time highest level in 2013, with 1,487 branch locations closing over the course of 2013. This is the most significant decline ever recorded by SNL Financial, a financial market analysis firm.

Since the crisis of 2008, banks have increased their efforts in mobile and online banking services to cut any overlap in service. If a customer can deposit his checks and manage his finances online, he would have no reason to go to his local branch and waste several hours of his precious time.

Time is money, after all.

So Capital Pacific bank is keeping it small and local, while adhering to more stringent regulations outlined by B Labs. It's a new kind of bank for a post-crash economy.  And from a free market perspective, I like seeing this kind of alternative.


Jeff Siegel

Full Disclosure: I currently own shares of SCTY.

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

September 04, 2014

Trina Thrives On Solar Financing

Doug Young


Investors were applauding a new announcement by Trina Solar (NYSE: TSL), after it announced a deal that would see it help to finance and build a massive solar power farm in southwest Yunnan province. The deal should indeed help Trina generate big sales for the near-term, as it involves construction of a farm with huge capacity of 300 megawatts of power. But I’m just a bit wary of this kind of development, which will also see Trina pay most of the bills to build the facility.

This kind of creative financing, which sees solar panel makers take big stakes in plant developers and then sell their own panels to the projects, is good when many sophisticated long-term buyers are available to purchase those finished plants upon completion. But China is hardly such a market, and it’s far from clear that anyone will be ready to purchase this massive new solar farm from a Trina-controlled entity once construction is complete.

According to Trina’s new announcement, the company is taking a 90 percent stake in Yunnan Metallurgical New Energy Co, which will build the new plant in the southwestern Chinese province. (company announcement) Three local partners will hold the remaining 10 percent in the company, whose farm will become the biggest solar power generating facility in Yunnan province.

No financial terms were given, which is slightly unusual as this investment is likely to be quite costly. To put things in perspective, the 300 megawatts in new panel orders Trina is likely to get from the deal are equivalent to nearly a third of the panels it shipped in its most recent reporting quarter, when it generated $519 million in revenue.

Thus if panel prices remain relatively constant, this new plant could generate some $171 million in sales for Trina over the construction period, most likely the next 1-2 years. That means Trina’s investment in the developer should total nearly $200 million, again invested over the next couple of years. That’s not a small sum for solar panel makers like Trina that are still struggling under big debt burdens following a prolonged downturn for their industry.

Despite that risk, investors cheered the news and bid up Trina shares by 5.6 percent after the announcement. It’s probably worth noting that even at their latest closing price of $13.23, Trina’s shares are still nearly 30 percent below their peak reached back in March when solar shares were soaring on hopes for a rapid sector recovery. Since then those hopes have been tempered by new punitive anti-dumping tariffs on Chinese solar panels exported to the US, and signs that the EU could take similar steps.

All that said, let’s return to the main point, which is that this kind of self-financed plant construction is a risky proposition. This kind of model got former industry pioneer Suntech into big trouble, and ultimately set off a chain of events that led to the company’s bankruptcy. Rival Canadian Solar (Nasdaq: CSIQ) has used the model to build smaller plants in Canada, and Yingli (NYSE: YGE) earlier this year set up a similar $160 million fund to build solar plants in China.

Canadian Solar’s model has worked in part because most of the plants it has built are in Canada, where big institutional investors exist to buy such plants after their completion. China is still largely an untested market in that regard, and it’s quite clear that many local state-run enterprises are participating in these new projects to help Beijing meet its ambitious targets to build up the country’s solar power.

Perhaps this new farm is well-designed and a strong long-term buyer will recognize that fact and purchase it after its completion, providing big profits for Trina. But it’s equally possible the plant will run into unforeseen problems, which could easily leave Trina with headaches as it figures out what to do with the massive facility.

Bottom line: Trina could be left holding a big pile of problematic debt if its plan to build a massive new solar plant in southwest China runs into difficulties or fails to find a long-term buyer.

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.

September 01, 2014

Tesla's China Strategy Charges Up At Unicom Outlets

Doug Young

Tesla Logo
Tesla plugs in
with Unicom

Despite disappointing progress in China’s plan to put hundreds of thousands of new energy vehicles on its roads by next year, American electric car maker Tesla (Nasdaq: TSLA)has made remarkable progress despite its late arrival to the market. The company has won its strong initial results though a smart combination of savvy marketing and initiatives to encourage building of necessary infrastructure to support its buyers.

The latest of those initiatives saw Tesla last week announce a partnership with Unicom (HKEx: 762; NYSE: CHU), China’s second largest mobile carrier, to install charging stations at hundreds of Unicom outlets nationwide. (English article) As a result of these and other efforts, Tesla has been the lone player so far to succeed in China’s broader consumer market, an area that will be critical to achieving Beijing’s goals.

Other Chinese aspirants like BYD (HKEx: 1211; Shenzhen: 002594; OTC:BYDDF), SAIC (Shanghai: 600104) and Geely (HKEx: 175) would be wise to follow this example, allocating big funds to forge partnerships and create similar marketing campaigns to convince Chinese consumers that electric vehicles (EVs) are not only good for the environment, but also fun to drive.

Beijing has been pushing hard to put more new energy vehicles on its roads, in a bid to clean up the nation’s air and develop new technologies. Yet despite generous subsidies and other incentives, the nation currently only has about 78,000 such vehicles on the road – far less than the 500,000 that Beijing had originally targeted by 2015.

A big portion of those are buses and taxis purchased by local governments and other state-owned enterprises, whose decisions that are often motivated as much by politics as by economics.

What’s really needed to jump-start sales is development of the consumer market. Just last week, Beijing announced yet another round of incentives to attract consumer buyers, saying it would stop levying sales tax on 17 new energy car models. (English article) The move complements existing direct subsidies that are already available to buyers of such vehicles. But consumers remain wary, not only because of high prices but also over image issues and lack of supporting infrastructure.

Tesla’s success story goes back to the vision of its founder, Elon Musk, who realized that special marketing and other efforts would be needed to get consumers to accept EVs. He realized such cars are seen as experimental technology that often comes with problems, and that consumers would worry about lack of necessary infrastructure like charging stations and maintenance facilities.

The company proceeded to tackle the problem by targeting the high end of the market, selling cars with a starting price of $70,000. Targeting such wealthy consumers allowed the company to use the most advanced and reliable technology, and also to market itself as an elite brand.

That strategy has worked very well in status-conscious China, where Tesla only began taking orders last year and made its first high-profile delivery in April at an event that coincided with the nation’s biggest auto show. During that time, the company had embarked on a slick campaign highlighting its state-of-the-art technology, combined with a trendy angle that appealed to people wanting to become the first to own the latest cool and expensive gadget.

As a result, a number of China’s high-profile elite were among the first to sign up as buyers when Tesla delivered its first EVs, including the owner of the Lifan soccer team and the founder of Autohome, China’s biggest online car website. Musk further boosted his company’s profile by holding high-profile events where he personally delivered the first batch of cars to their new buyers, creating buzz through a slick campaign that was widely followed by domestic media.

Since then the company has worked hard to maintain its momentum and build up its order book, with an aim of selling thousands of cars in its first year. In its latest initiative, Tesla announced the new Unicom partnership last week to make charging its cars more convenient. Under that deal, Tesla and Unicom will build charging posts at 400 Unicom outlets in 120 cities, as part of Tesla’s broader commitment to spend hundreds of millions of dollars on such stations in China.

This kind of high-profile announcement, combined with its previous savvy marketing campaign, is helping Tesla to succeed despite an arrival to China that’s already several years behind more aggressive domestic names. Some of those names, including BYD and Geely, should think hard about investing big money not only in product development, but also in high-profile marketing and infrastructure campaigns if they hope to find success in the broader consumer market.

Bottom line: Chinese new energy car makers need to invest more money in marketing and infrastructure to copy the success of Tesla in the market.

  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.

« August 2014 | Main | October 2014 »

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