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January 30, 2015

Terraform Power Issues $800m High Yield Green Bond

by the Climate Bonds Team

This week the yieldco TerraForm Power (TERP) issued a huge high-yield green bond; seeing more high-yield bonds is a sign that the green bond market is continuing to mature. In addition to TerraForm, more green bonds from repeat issuers OPIC, World Bank, IFC and Credit Agricole have been announced and will be closing in the coming weeks. For today, let’s dig deeper into the latest green high-yield offering.

The US-based renewable energy company TerraForm Power Operating has issued US$800m of senior unsecured green bonds (debentures), making it the largest green bond of 2015 so far. TerraForm Power Operating is a subsidiary of TerraForm Power Inc, a yieldco, spun out from the renewable energy developer SunEdison (SUNE), meaning its fully focused on operating renewable energy assets.

The bond has 8-year tenor and fixed coupon of 5.875%. The bond issuance is sub-investment (junk) grade, with Moody’s rating the offering as B1 and S&P rating as BB-. The lead underwriters were Barclays Capital, Bank of America Merril Lynch, Citi, Goldman Sachs, Macquarie Securities and Morgan Stanley.

Terraform will use the proceeds in part for the acquisition of wind and solar power generation assets from First Wind. Proceeds will also service existing debt used to purchase or develop other renewable energy projects. The acquisition from First Wind will make the asset base 2/3 solar and 1/3 wind, totalling 1503MW - mainly located in the US, but also in Canada, Chile and the UK.

TerraForm provides a good level of transparency as a yieldco disclosing asset level information on their existing portfolio and the First Wind acquisition on their website. It would be good to see a commitment to report on use of proceeds of the bond, though investors can take comfort in knowing that all TerraForms assets are renewable energy.

Great to see that pure play renewable energy companies decide to add the green bond label on to their issuances. The larger investment universe provided by the green label is beneficial both for discovery and liquidity in the market. The potential for pure plays to label their bonds as green is still massively untapped: we estimated in June last year that the total outstanding bond issuances for climate solutions stands at US$502.6bn - a magnitude of difference from the labelled green market. So, here’s a challenge for the pure plays out there - get on labelling your bonds as green.

——— The Climate Bonds Team includes Sean Kidney, Tess Olsen-Rong, Beate Sonerud, and Justine Leigh-Bell. 
 The Climate Bonds Initiative is an "investor-focused" not-for-profit promoting long-term debt models to fund a rapid, global transition to a low-carbon economy. 

January 29, 2015

Gevo Raises Money After Win At Supreme Court

Jim Lane
gevo logo

Following just one day after a big win in the Supreme Court and a corporate update last week, Gevo (GEVO) announced that it intends to offer and sell, subject to market and other conditions, common stock units.

Each common stock unit will consist of one share of common stock, Series A warrants to purchase a certain number of shares of common stock and Series B warrants to purchase a certain number of shares of common stock. The units are to be sold by Gevo subject to market and other conditions in an underwritten public offering.


Gevo announced this morning (Jan 29) that it has priced the public offering. The Series A warrants will have an exercise price of $0.27 per share, and the Series B warrants will have an exercise price of $0.20 per share, be exercisable from the date of original issuance and will expire on August 3, 2015.

The gross proceeds to Gevo from this offering are expected to be approximately $6.6 million not including any future proceeds from the exercise of the warrants.

How much runway?

Not much. Although Gevo slashed costs in the past few weeks, and reduced the average monthly corporate-wide EBITDA burn rate to $1.50-1.75 million in 2015 — this offering buys Gevo roughly 4 months of extra runway for its efforts — and came at a cruel cost to current investors. The Gevo share price dropped after the pricing (morning of Jan 29) to $0.14 in early trading.

More detail on the offering

Gevo currently intends to use the net proceeds from the offering, excluding any future proceeds from the exercise of the warrants, to fund working capital, potential capital optimizations at its Luverne, MN facility and for other general corporate purposes.

In connection with the offering, Cowen and Company, LLC is acting as sole manager.

A shelf registration statement relating to the shares of common stock and warrants to be issued in the proposed offering was filed with the Securities and Exchange Commission (SEC) and is effective. This press release does not constitute an offer to sell, or the solicitation of an offer to buy, these securities, nor will there be any sale of these securities in any state or other jurisdiction in which such offer, solicitation or sale is not permitted.

A preliminary prospectus supplement and accompanying prospectus describing the terms of the proposed offering will be filed with the SEC.

Here’s a link to the Gevo IR site with the SCOTUS win, the corporate update and the filing.

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.

Supreme Court Sides With Gevo In Patent Dispute

Jim Lane

gevo logoIn Washington, the U.S. Supreme Court ruled in Gevo’s (NASD: GEVO) favor and overturned an earlier Federal Circuit Court of Appeals ruling on the interpretation of key patent claims.

On April 11, 2013, the Delaware District Court (District Court) entered a final judgment of non-infringement in Gevo’s favor following the acknowledgment by Butamax Advanced Biofuels LLC (Butamax) that Gevo does not infringe Butamax’s asserted patents under the District Court’s construction of a key claim term in Butamax’s Patent Nos. 7,851,188 and 7,993,889.

At the time, Butamax appealed Gevo’s victory, and a US Court of Appeals in February 2014 vacated the District Court’s prior rulings, and ordered the District Court to reconsider issues related to infringement and invalidity.

In turn, Gevo asked the Supreme Court to vacate the Appeals Court’s de novo nterpretation of a disputed claim term. Today, the Supreme Court granted Gevo’s petition and vacated the decision of the Appeals Court.

According to Gevo:

“The result is that Gevo’s victory in the Delaware District Court is reinstated, and that the case has been remanded back to the Appeals Court for consideration in light of the new standard of appellate review that was decided in the Teva Pharmaceuticals USA, Inc., v. Sandoz, Inc. (Teva) case last week.”

The Teva case

In Teva, the Supreme Court ruled 7-2 that the Appeals Court must apply a more stringent “clear error” standard of review, rather than a “de novo” standard of review. In Gevo’s case, the Appeals Court must now apply the “clear error” standard of review and cannot set aside the Delaware District Court’s (District Court) findings of fact in Gevo’s favor (including interpretation of patent claims) unless they were clearly erroneous.

And you might wonder, what has this to do with the advanced bioeconomy and, in particular, the world of fuels and chemicals.

Turns out, a lot, particularly in the ongoing dispute between Gevo and DuPont over intellectual property used to convert sugars into isobutanol, a higher-density alcohol fuel that has immense promise in circumventing the “blend wall” that bedevils renewable fuels deployment. Not to mention isobutanol’s potential as a chemical blendstock.

Here’s the essence of the case. Teva holds a bunch of patens, which it sued Sandoz over, claiming infrigement. It won a judgement in District Court, but lost in the Court of Appeals when the appellate judges threw out some key elements relating to Teva’s case and the patent claim construction and conducted it’s own “de novo” review, leading it to side with Sandoz.

Now, claim construction is a matter of law and is subject to appelate review — but what about certain key elements that underlie a claim construction? Are they a matter of law and subject to higher review — or are they facts which are tried in a lower court (either by judge or jury), not subject to review?

One of the most perplexing questions has been the reasonableness of a patent claim — would someone skilled in the art understand the claim as written? Is that a fact, not subject to apelate review once found by the lower court or jury — or is that a matter of law.

Well, the Supreme Court has ruled now. Those underlying elements — they are facts. Not subject to de novo review by a Court of Appeal. Meaning that biotech companies, once they have faced their jury or judge on those facts, doesn’t have to worry that a Court of Appeal might conduct a top-to-bottom wholly new review and perhaps, without the benefit of expert witnesses, go another way.

The Supreme Court’s decision effectively reinstates Gevo’s victory at the District Court where a final judgment of non-infringement was entered in Gevo’s favor following the acknowledgment by Butamax Advanced Biofuels LLC (Butamax) that Gevo does not infringe Butamax’s Patent Nos. 7,851,188 and 7,993,889.

The Gevo-DuPont dispute

Gevo and Butamax fell into the Teva orbit last February, when the U.S. Court of Appeals, in a patent case involving Butamax’s Patent Nos. 7,851,188 (‘188 Patent) and 7,993,889 (‘889 Patent). The appeals court offered a new interpretation of a disputed claim term.

Gevo writes, “On remand, two issues remain to be determined: 1) whether the patents are valid; and 2) whether Gevo infringes them under the new claim interpretation. The claims of the two Butamax patents at issue are currently under reexamination at the United States Patent and Trademark Office (USPTO), which has declared them unpatentable. Gevo believes that it does not infringe any valid claims, and at this time maintains freedom to produce and sell isobutanol worldwide and into all markets. “

In a filing for Supreme Court review, Gevo wrote:

“Indefiniteness calls into question additional considerations of whether a claim is ‘insolubly ambiguous, Here the dispute is plainly and cleanly an issue only of the proper construction of the disputed term.”

It comes down to whether an enzyme known as KARI is dependent on a co-enzyme. If yes, then Gevo is in the clear. If not, then it could be found in violation of a Butamax patent. The District Court ruled yes, the Court of Appeals ruled no. Gevo said the Court of Appeals should not have conducted such a broad de novo review.

“In this case, the district court conducted a painstaking claim construction, carefully reviewing voluminous evidence and testimony presented by the parties, including detailed expert declarations, and held multiple days of hearings. The Federal Circuit gave no deference to those findings when it reviewed the district court’s construction de novo, and issued a new construction that changed the outcome of the case.”

More on the story

The Supreme Court’s docket for the case can be found here.

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

January 28, 2015

Gevo: Isobutanol Lottery Ticket

by Debra Fiakas CFA

gevo logoThe last time renewable chemicals developer Gevo (GEVO:  Nasdaq) was featured in this forum in August 2014, the stock was looking quite oversold around $0.50 per share. The stock had recently taken a tumble after management sold 30 million shares of the company’s common stock at $0.60 a share at the end of July 2014.  The plan was to use the $19 million in new capital to upgrade a production plant in Minnesota to better produce renewable isobutanol along with ethanol fuel. 

Isobutanol is a popular solvent used widely in industrial applications.  It is most commonly produced from by-products of refined crude oil and users are keen to get their hands on renewable sources to reduce their carbon footprints.   At the time Gevo out raising capital the company was aiming to get to a goal of one million gallons in annual isobutanol production by the end of 2014, and then ramping to three million gallons in annual production in 2015. The plant in Minnesota had already been producing eighteen million gallons of ethanol each year.

Today GEVO appears even more oversold, having slipped to $0.29 per share. Directly after the common stock sales, the company raised another $26.1 million through the sale of a note to single creditor.  By the end of September 2014, only $14.0 million in cash remained.  If Gevo continued using cash to support operations and capital spending at the same rate it had been spending in the first nine months of the year, I estimate they used another $11.0 million in cash by the end of December 2014.

If I am correct in my back of the envelope bank account balance, things cannot be very comfortable at Gevo.  The company is still not selling either its ethanol fuel or isobutanol in bulk despite new customer relationships such as Brenntag Canada, which is buying Gevo’s renewable isobutanol for use in a range of solvents and specialty chemicals.  There are apparently no minimum purchase commitments and the company was tight lipped about order quantities except to say the orders can be filled with ‘truckloads’ of isobutanol.

Last week Gevo management issued a press release detailing its plans to improve cash flow at the company.  There will be a headcount reduction by 40%.  That will eventually save some hard cash in the coming quarters.  Gevo’s CEO is taking 25% of his pay in stock rather than cash, a move which in the end is probably more symbolic than anything.

Of course, the press release is also embroidered with the usual Gevo-style promises of new technologies to use ethanol for various end-products.  As part of the plan to save in operations, the company is planning to shift to ethanol-only production in all four of the fermenters in its Laverne, Minnesota plant.  Here is apparently where the new technologies figure into the picture.  The company claims to have already filed patent applications to cover new technologies for the use of ethanol as feed stock for hydrocarbons, renewable hydrogen and other chemical intermediates.  Gevo appears poised to capitalize on the dearth of renewable hydrogen for fuel cells and renewable polyprolylene for packaging and automotive components.

The CFO claims they can bring the monthly use of cash for operations down to $1.5 million to $1.8 million, compared to $2.8 million in 2014.  This figure of $2.8 million per month in cash usage in 2014, differs from my calculation of $3.6 million in cash usage noted in the paragraph above because I was using cash flow from operations in the first nine months of 2014 as my gauge of how much cash the company was spending each month to keep the doors open.

When Gevo was out raising new capital in the summer of 2014, management had promised to achieve breakeven by the end of the year.  That goal may not have been realized.  However in the recent company update, management lays claim to having reached its production goal for isobutanol of 75,000 gallons per month.  Now that seems to be a bit short of the one million annual product capacity as that implies 83,333 gallons per month.  Most investors will probably not quibble over the 8,000 gallon shortfall if the company could produce more sales – even sales by the truckload!

GEVO still looks more like a lottery ticket than a stock as we noted in our last article on the company.  What is worse, the balance sheet now looks stressed.  The company has let a number of people go and along with them they have probably lost some important process knowledge that at times can be even more vital for a company than its patented technologies.

Debra Fiakas is the Managing Director of
Crystal Equity Research, an alternative research resource on small capitalization companies in selected industries.

Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein.

January 27, 2015

Leveraging Finance and Charity To Make Affordable Housing Greener

by Tom Konrad CFA

Many people still think of green technologies as costly. But cost is never the main barrier to efficiency measures, which often can boast internal financial returns far higher than even risky junk bonds.  The barriers against energy efficiency and legion, but cheif among them are the small size of the investments and split incentives, where the person making the investment is not the same person who reaps the rewards.

A Colorado based NGO, the International Center for Appropriate and Sustainable Technology (ICAST), recently launched a charity-finance hybrid to overcome this problem of split incentives.

The hybrid includes a charity and crowdfunding platform, Project Sunlight, as well as a new community development financial institution, the Triple Bottom-Line (TBL) Fund. By combining donations and social-impact investments, ICAST hopes to increase the pool of low-interest money available to fund these retrofits.

The idea of making affordable housing energy efficient is an alluring one. After all, more efficient apartments not only save tenants money, but also can improve their health, safety and comfort. At the same time, landlords benefit from higher property values, lower turnover, higher occupancy and tenants’ better ability to pay rent. And, of course, everyone benefits from reduced greenhouse gas emissions.

MC-Empire Dairy-Lighting-Jan2012 (12).jpg
Ravi Malhotra (left) and ICAST staff discuss energy efficiency options with the owner of an affordable housing complex.

Many energy-efficiency upgrades also pay for themselves in energy savings over the long run: ICAST’s retrofits generally pay off in seven or eight years, with some improvements, such as lighting, paying back in as little as two years.

But it’s hard to find many low-income rental building owners willing to pay the upfront costs. Many low-income apartments suffer from a classic split-incentive problem: the landlord pays for the building upgrades, but the tenants receive most of the benefits.

It takes low-interest loans to entice landlords, and ICAST’s ability to do these projects is limited by the supply of investment funds available at low interest rates. It’s Economics 101, says Ravi Malhotra, executive director of ICAST: “The number of owners we can sign up at 4% is much smaller than the number of owners we can sign up at 2%.”

For ICAST, the magic number interest rate is around 3%. “We can find as many projects as we have capacity to do as long as we can offer owners funds below 4%,” Malhotra adds.

A financing conundrum

The catch is that ICAST needs both a loan loss reserve and money to fund its operations. Together, these cost about 2.5% per year.

A quick check of the math shows that won’t work: if ICAST gets money at 3% and loans it out at “below 4%”, there wouldn’t be enough room to both run ICAST and fund the reserve.

In other commercial settings, a host of government programs and utility incentives exist to bridge the gap, but the unique nature of commercial property for residential use leaves most low-income housing to fall through the cracks.

Only a handful of US utilities offer rebates for low-income housing, Malhotra says. Some government programs have historically supported weatherization upgrades for affordable housing, at least, but these funds – which have only served about 5% of market demand over the last 30 yeaars – are decreasing.

Leveraging investments with charity

The solution, according to Malhotra, is to sell loans that are essentially subsidized by charity instead of by government. Donations to Project Sunlight will pay for a loan loss reserve and ICAST’s operating expenses. This will enable accredited investors backing the TBL Fund to earn an annual return of 3% over five years.

Although 3% interest is a fairly low rate, Malhotra thinks many investors will be interested because of the outsized social impact, so long as the money is safe.

And there’s some evidence investors would consider these loans to be safe. Over the last eight years – including during the 2008 housing crisis – ICAST has completed more than $10m worth of commercial multifamily housing upgrades without any defaults. Current “green” loans have default rates of less than 0.5%, according to the TBL website.

Additional safety comes from the 5% loan loss reserve, in addition to a 20% loan loss reserve provided by the state of Colorado for projects in that state. The underwriting process includes screening applicants against risky borrowers, as well as due diligence aimed at preventing upgrades that do not provide real benefits.

Is the investor appetite there?

Even before its official launch, the TBL Fund is already catching the attention of some impact investors. By the end of 2014, it had garnered $500,000 in loan funding from investors, and Project Sunlight had received $44,000 in charitable donations.

It remains to be seen if other investors will step up – and if Project Sunlight will receive enough donations to match the demand for investment in the TBL Fund. Malhotra thinks ICAST will need 10% of its funds to come in the form of donations to be able to offer the 3% return rate for the rest.

One idea would be to ask investors if they would be willing to donate 10% of their investment to the charity. No individual has yet both invested and made a donation but, Malhotra says, “All we can do is ask.”

Tom Konrad is a freelance writer and portfolio manager specializing in clean energy and income investments.

An earlier version of this article was first published on The Guardian, and is republished with permission. Further reprints require permission from The Guardian.

January 26, 2015

Making Hydrogen From Ethanol

by Debra Fiakas CFA

Cars powered by fuel cells or batteries are only as clean as the electricity used to produce the power source.  Proponents of hydrogen fuel cells argue that fuel cells have an edge over batteries, because hydrogen can ultimately be made cleaner with innovations in hydrogen production. 

Steam reforming of natural gas is the most common source of hydrogen and for the most part it is still the most cost-effective process for large-scale production of hydrogen.  Since ethanol is a renewable resource, the steam reforming of ethanol has been proposed by some as a promising alternative to reforming a fossil fuel like natural gas.  Until recently steam reforming ethanol for hydrogen was a topic discussed only in scientific papers.  Most have dismissed this alternative for renewable hydrogen as not commercially viable.

In November 2014, a group of researchers in Singapore at the A*Star Institute of Chemical and Engineering Sciences disclosed an important breakthrough in hydrogen production through steam reforming of ethanol.  They have developed a novel rhodium catalyst that enables hydrogen production with low temperatures and without producing a harmful carbon monoxide by-product.  The rhodium is iron-promoted and the iron oxide converts the carbon monoxide to carbon dioxide and hydrogen. 

A*Star is trying to develop an on-board hydrogen generator to fuel cell electric vehicles or FCEVs.  Engineers there are confident their catalyst innovation is the key to a low-cost, commercially viable device.  The catalyst has prove quite stable in testing and appears to have a long active life.  If these characteristics hold up under further testing, it suggests a very cost effective process with infrequent exchanges or downtime for the onboard device for catalyst regeneration.

There is no investment opportunity as yet in steam reforming of ethanol to produce hydrogen.  However, with wider availability of FCEVs there is bound to be increasing interest in more efficient hydrogen sources for automotive applications.  A*Star seems have made a good start in giving hydrogen a make-over.

Debra Fiakas is the Managing Director of
Crystal Equity Research, an alternative research resource on small capitalization companies in selected industries.

Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein.

January 23, 2015

Honda Natural Gas Civic Sales Sputter

By Jeff Siegel

natgacarI learned today that sales of Honda's natural gas Civic tanked 65% in 2014.

I didn't even know they were still trying to sell those things!

I actually remember a few years ago, attending a car show and talking to a Honda rep who was pushing this thing. I didn't have the heart to tell him he was barking up the wrong tree when he tried to sell me on all the benefits.

What benefits?

Inferior fuel economy, a clunky ride, and no infrastructure?

Sure, there was the special fueling unit that could be installed in my garage for a few grand. But I'd be surprised if more than a few dozen folks bit on that one.

It's not that I have a problem with natural gas-powered vehicles. I just think they're better suited for truck and bus fleets, where fleet operators can house their own infrastructure. Certainly Clean Energy Fuels Corp. (NASDAQ: CLNE) has benefited quite well from the growth in this space.

But for personal vehicles, I think the hopes and dreams of the natural gas powered car are coming to an end. Especially now, with electric vehicles continuing to shock and awe even the most skeptical consumers.

You need to look no further than the success of Tesla Motors (NADAQ: TSLA) or the very impressive sales figures on the Nissan LEAF. Not to mention, GM's (NYSE: GM) getting ready to roll out what it believes will be a $30,000 electric car with an all-electric range of 200 miles.

On performance, design, range and infrastructure availability, natural gas cars just can't compete with electric vehicles. And they definitely can't compete with gas-powered cars. Honda would be wise to just put this thing out of its misery and take its electric car plans out of the compliance car slow lane.


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

January 22, 2015

Five Solar Stocks To Own In 2015

By Jeff Siegel

This past Saturday afternoon, Rick Diaz locked in another customer.

A former roofing contractor, Rick is now a sales rep and installation manager for a small roofing and solar company in Maryland. He tells me most people he talks to about solar have pretty much already made up their minds before he even walks in the door:

The investment works out for young couples who are going to be in these homes for more than ten years. But most seem more concerned about the environment than the return on investment. Either way, it's a win-win. Selling solar is probably the easiest thing I've ever done.

Diaz is part of a burgeoning workforce that has grown tremendously over the past few years. In fact, solar industry jobs are growing at 20 times the national rate.

jobcircleAccording to new census data, solar industry employment has grown by 86% over the past five years. In 2014, the solar industry represented 1.3% of all jobs created in the U.S., and today, the industry employs about 174,000 Americans.

As an interesting side note, there are now twice as many solar jobs as coal jobs.

Of course, this shouldn't come as a surprise. After all, coal loses more and more market share every day due to regulatory hurdles and dirt-cheap natural gas.

As well, while coal continues to battle a progressively hostile market, the solar industry continues to benefit immensely from the solar investment tax credit — although that tax credit is expected to expire in two years.

SolarCity (NASDAQ: SCTY) CEO Lyndon Rive has actually gone on record saying that the industry is expecting a slowdown in 2017 after the solar ITC is set to expire.

It's hard to say whether or not the ITC will be extended. Plenty of politicians in Washington have been talking a good game about cutting these types of subsidies for renewable energy.

However, there are also plenty of politicians that now rely on the solar industry to provide jobs in their respective states.

Regardless, just the threat of losing the ITC has been enough to light a fire under the industry. And this is why we're going to see a huge rush on solar development in 2015.

The window of tax credit opportunity could soon close for good — and every solar developer in the U.S. is gearing up for a very busy year.

Scraps at the Table

A few years back, we saw something similar with the wind energy industry.

With the threat of an end to its federal tax incentives, the industry grew at a tremendously rapid pace. Companies like GE (NYSE: GE), Siemens, and Vestas Wind Systems (OTCBB: VWDRY) were booming with orders, and developers raced to get their projects started before the tax credits expired.

It was definitely a great time to be a wind energy investor.

Of course, after the industry lost its federal support, wind turbine orders plummeted, and new developments began to slow.

Today, the wind energy industry is still left begging for scraps at the subsidy table, and that continues to hinder growth. However, the industry did stabilize a bit last year, and we are starting to see more interest in wind developments again, mostly due to new financing models and the rise of the yieldco.

In any event, there's little doubt that the solar ITC has helped the solar industry grow so rapidly. And just the possibility of the ITC expiring should be enough to get every energy investor off the sidelines and into the game.

Over the next two years, the industry's going to be on fire — and solar investors should do quite well.

Spectacular Growth

Now, some folks still believe that the collapsing of oil prices will hurt the solar industry. As I've written in the past, the only connection between oil prices and solar is psychological.

Oil is used primarily as a transportation fuel, while solar is used for electricity generation. In fact, with lower oil prices, solar manufacturers and installers actually benefit from cheaper input costs.

Although some continue to diffuse this oil-solar connection myth, solar companies are capitalizing on these low oil prices and expanding rapidly.

SolarCity, Vivint Solar (NYSE: VSLR), SunEdison (NYSE: SUNE), First Solar (NASDAQ: FSLR), and SunPower (NASDAQ: SPWR) are all taking full advantage of these low oil prices. Mark my words: These five companies will deliver some pretty spectacular growth over the next two years.

Invest accordingly.

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


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

January 20, 2015

How Green Is Your Mutual Fund?

By Harris Roen

Not all alternative energy mutual funds are created equal. In a recent interview with the Wall Street Journal, a reporter asked me which alternative energy mutual funds were the most focused on renewables, noting that many mutual funds hold non-energy related companies such as Apple, PepsiCo and Google. The answer to this question is not as straight forward as one might think. This article sorts out which mutual funds are truly invested in the dynamic and growing green energy sector, and which ones are more peripheral.

Greener Than Thou–Revealing How Much a Mutual Fund is Focused on Alternative Energy

alt focus funds
Despite the desire of many investors to keep their portfolios clean of polluting investments, there is no perfectly pure alternative energy mutual fund. There is, however, a wide range of how focused the different green mutual funds are on alternative energy. Finding out which mutual funds have the highest concentration of alternative energy investments takes a multipronged approach.

First, the Roen Financial Report scrutinizes the prospectus of each fund to see if its principles align with alternative energy investment goals. Second, for each company that the mutual fund holds, the annual report and financial filings are thoroughly examined to determine exactly how much of a company’s operations are related to the various green sectors that the Roen Financial Report covers – energy efficiency, environmental*, fuel alternatives, smart grid, solar and wind.

Sometimes it is easy to tell whether a mutual fund holds stocks that are in one or more of the alternative energy sectors, but in other cases it is not so obvious. Clearly, pure play companies like First Solar, Inc (FSLR), Renewable Energy Group Inc (REGI) and SolarCity Corp (SCTY) are stocks that alternative energy investors are seeking. There are other companies, though, that have alternative energy products and services as part of their business model, but those operations are not the company’s bread-and-butter.

For example, Johnson Controls (JCI) is a large industrial conglomerate that has two business units which address alternative energy themes —building efficiency and renewable power solutions. I estimate that alternative energy accounts for perhaps half of JCI’s revenues. Interestingly, shares of JCI are owned by 8 out of 12 alternative energy mutual funds, more than any other single company.

Another example of a company with partial alternative energy operations is Valmont Industries (VMI). Valmont manufactures support towers for wind turbines, anemometers, power line transmission, mass transit poles, lighting and related structures. This company cannot be ignored—its contribution is critical to the infrastructure needed to support utility-scale solar, wind and smart grid projects that will continue to be built over the coming decades. However, my analysis attributes an estimated 15% of Valmont’s current earnings are a result of alternative energy projects.

Google is another company that blurs into alternative energy, though it is obviously not its main business. Google realizes that it is basically an electricity-based service—no electricity, no Google. Because of this, Google has made a significant commitment to moving toward a more clean and sustainable electric supply. Google has moved on this in no small way, having invested in over $1.5 billion in wind and solar projects.

In order to simplify the analysis of how much of a company’s business relates to alternative energy, only the stocks needed to reach at least 50% of a fund’s weighted holdings were included (or at a minimum, the fund’s top 10 holdings).

Also, two mutual funds that the Roen Financial Report tracks were left out of the rating system, Allianz RCM Global Water A (AWTAX) and Calvert Green Bond A (CGAFX). AWATX invests in stocks and securities engaged in water-related activities, a sector related to green energy but with more of an environmental focus. Calvert Green Bond is another good choice for green investors, but is a different kind of animal than a stock fund, so it is hard to make an apples-to-apples comparison. Its prospectus states that investments include:

…securities of companies that develop or provide products or services that address environmental solutions and/or support efforts to reduce their own environmental footprint; bonds that support environmental projects; structured securities that are collateralized by assets supporting environmental themes; and securities that, in the opinion of the Fund’s Advisor, have no more than a negligible direct environmental impact, which may include securities issued by the U.S. government or its agencies, and U.S. government-sponsored entities.”

The Greenest Alternative Energy Mutual Funds

Three funds clearly top the list of having the greatest alternative energy focus: Firsthand Alternative Energy (ALTEX), New Alternatives (NALFX) and Guinness Atkinson Alternative Energy (GAAEX). These funds have a high concentration of alternative energy investments, and strongly focused investment principles

Firsthand Alternative Energy (ALTEX)

Five of Firsthand Alternative Energy’s top 10 weighted holdings are pure play companies such as First Solar (FSLR), Sun Power (SPWR) and Solar City (SCTY). Firsthand Alternative Energy is very specific in their prospectus, stating that they:

…invest at least 80% of the Fund’s assets in alternative energy and alternative energy technology companies, both U.S. and international. Alternative energy currently includes energy generated through solar, hydrogen, wind, geothermal, hydroelectric, tidal, biofuel, and biomass. Alternative energy technologies currently include, but are not limited to, technologies that enable energies to be tapped, stored, or transported, such as fuel cells; services or technologies that conserve or enable more efficient utilization of energy; and technologies that help minimize harmful emissions from existing energy sources, such as helping reduce carbon emissions.”

It is important to note that ALTEX is the smallest of all alternative energy funds that the Roen Financial Report tracks, and we give this fund a low overall investment rank

New Alternatives (NALFX)

New Alternatives Fund also has a very good concentration of alternative energy investments. The top six of its holdings are 100% pure play alternative energy companies. Additionally, the top 50% of its weighted portfolio is estimated to be over 75% involved in alternative energy. The investment objective of the fund is not the strongest of all alternative energy funds, but it is very specific:

At least 25% of the Fund’s total assets will be invested in equity securities of companies in the alternative energy industry. ‘Alternative Energy’ means the production and conservation of energy in a manner that reduces pollution and harm to the environment, particularly when compared to conventional coal, oil or nuclear energy… The Advisor also considers the perceived prospects for the company and its industry, with concern for economic, political and social conditions at the time. In addition the Advisor considers its expectations for the investment based on, among other things, the company’s technological and management strength.”

Guinness Atkinson Alternative Energy (GAAEX)

GAAEX has a very strong concentration of alternative energy companies in its portfolio. When looking at the top two-thirds of its holdings, about 90% of those investments are involved in green energy production. Guinness Atkinson Alternative Energy also has one of the tightest investment principles guiding the fund:

The Alternative Energy Fund invests at least 80% of its net assets in equity securities of alternative energy companies (both U.S. and non-U.S.). Alternative energy companies include, but are not limited to companies that generate power through solar, wind, hydroelectric, tidal wave, geothermal, biomass or biofuels and the various companies that provide the equipment and technologies that enable these sources to be tapped, used, stored or transported, including companies that create, facilitate or improve technologies that conserve or enable more efficient use of energy.”

Mutual Funds With a Lesser Alternative Energy Focus

Funds that the Roen Financial Report rate as having the least alternative energy stocks are Gabelli SRI Green AAA (SRIGX), Portfolio 21 R (PORTX) and Green Century Balanced Fund (GCBLX).


Prior to last year, Gabelli SRI AAA had more of an alternative energy focus (its previous name was The Gabelli SRI Green Fund), but is now a social screened fund. It does, however, include some alternative energy holdings, such as JCI and VMI. Its investment objectives show that SRIGX has more of an exclusionary screen than a proactive green energy focus:

Pursuant to the guidelines, the Fund will not invest in the top 50 defense/weapons contractors or in companies that derive more than 5% of their revenues from the following areas: tobacco, alcohol, gaming, defense/weapons production, and companies involved in the manufacture of abortion related products.”

Portfolio 21 R (PORTX)

PORTX is an environmentally focused fund, which also has a broader social charge. Fewer than expected of its holdings, though, have an alternative energy focus. Only about one-third of its portfolio comprises companies that have a hand in alternative energy sectors. Its prospectus states that:

The Advisor believes that the best long-term investments are found in companies with above-average financial characteristics and growth potential that also excel at managing environmental risks and opportunities and societal impact… The Advisor considers a company’s position on various factors such as ecological limits, environmental stewardship, environmental strategies, stance on human rights and equality, societal impact as well as its corporate governance practices.”

Green Century Balanced Fund (GCBLX)

Green Century Balanced is a mutual fund that invests in environmentally responsible and sustainable companies, and those not directly in the fossil fuel business. Even though its prospectus is very specific about including companies that have environmental goods and services, very few of the top weighted stocks in its portfolio work in green energy. Instead, many of its top holdings are in technology, health care and financial services. Despite this fact, GCBLX does have a detailed and relevant investment objective:

The Fund invests primarily in the stocks and bonds of environmentally responsible and sustainable U.S. companies…whose primary business involves the provision of an environmentally sound good or service, such as appropriate technology for sustainable agriculture, renewable energy, energy efficiency, water treatment and conservation, air pollution control, pollution prevention, recycling technologies, or other effective remedies for existing environmental problems. The Fund also invests in companies whose primary business is not solving environmental problems but which conduct their business in an environmentally responsible manner. Such companies are evaluated on a range of criteria that includes, but is not necessarily limited to, an assessment of each company’s: Environmental performance indicators such as its consumption of natural resources, energy usage, greenhouse gas emissions, toxic emissions, use of toxic chemicals, and solid waste generation; Pollution prevention programs and supply chain environmental policies; Compliance with environmental laws and regulations and its potential environmental liabilities; Environmental management infrastructure and governance procedures; Public reporting on an annual basis of its environmental performance… The Balanced Fund does not intend to invest in companies engaged in the extraction, exploration, production, manufacturing or refining of fossil fuels…”


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

About the author

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

January 16, 2015

Hyster-Yale's Fuel Cell Deal

by Debra Fiakas CFA

Near the close of 2014, Nuvera Fuel Cells was acquired by NACCO, an operating company of Hyster-Yale Materials Handling, Inc. (HY:  NYSE).  Nuvera sells a proprietary fuel cell stack under the brand name Orion for industrial mobility, automotive and aerospace applications.  The company also sells its PowerTap Hydrogen Station for on-site hydrogen generation (see image below).  The purchase price was not disclosed and Hyster-Yale has not provided guidance on how the deal will impact its sales and earnings in 2015. 
Nuvera PowerCell
Apparently, Nuvera’s sales and earnings are not material to Hyster-Yale in the greater scheme of things.  Hyster-Yale reported $2.8 billion in total sales in the twelve months ending September 2014, providing $109.1 million in net income or $6.59 per share.  The company’s operations generated $105.3 million in cash during the same period.

As an investment opportunity Hyster-Yale has a mixed profile.  The stock currently trades at 0.41 times sales and 10.5 times trailing earnings.  Those multiples look very interesting given that Hyster-Yale has achieved a 24.6% return on equity.   A forward dividend yield of 1.6% puts icing on the cake.  However, one of the few sell-side firms that follow HY recently downgraded the stock from speculative buy to neutral.

A closer look at a few technical indicators should give investors some help.  Money has been flowing out of HY for several months and the stock is beginning to look oversold according to both the relative strength index and commodity channel index.  Hence the depressed stock price and nominal price multiples to sales and earnings. Contrarian investors might find those circumstances perfect for an entrance to a bull case scenario in the stock.  The stock has a beta of 0.80, suggesting it would be among the least volatile stocks in a contrarian’s portfolio during the wait for the stock to pass through the current down cycle.

While fascinating for contrarian investors, those who want to take a position in the fuel cell industry may find HY less than appealing.  Hyster-Yale has invested in another quiver for its portfolio of products aimed industrial customers.  The company is one of the main suppliers of lift trucks in the U.S. and has a sizable market share worldwide.  Adding the hydrogen fuel cell products to its line helps keep Hyster-Yale at the leading edge of technologies in materials handling.  Although investors might never see the details, we would expect the new parent to jump start sales of Nuvera’s fuel cells stacks and power station by loading the new products into its worldwide sales network.

Hyster-Yale does not have the glamour of Alibaba (BABA:  Nasdaq), the supply chain company from China that made a big splash on the U.S. equity market in 2014.  However, the need for efficiency in materials handling for all the suppliers and manufacturers that participate in Alibaba’s network makes Hyster-Yale’s lift trucks an important link in the supply chain.  Thus, Hyster-Yale provides an interesting vehicle to invest in the transformation of the world supply chain to alternative energy technologies.

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. Nuvera Fuel Cells is included in the Fuel Cell Group of Crystal Equity Research’s Mothers of Invention Index of innovative alternative energy developers.

January 15, 2015

Toyota Opens The Fuel Cell Kimono

by Debra Fiakas CFA

Last week Toyota Motor Corporation (TM:  NYSE) announced its intention to share its patented fuel cell technology with other automotive manufacturers.    Engineers from competing auto manufacturers can get a look at Toyota’s fuel cell designs up through 2020.  Toyota has taken a page from Tesla Motors (TSLA:  Nasdaq), which made its electric vehicle battery designs available to the public last year. 

Since the car business is intensely competitive, automotive manufacturers are typically quite circumspect about their innovations.  However, producers of cars powered by alternative energy sources are faced with a unique problem  -  the need to develop scale in the power supply chain.  By encouraging battery and fuel cell adoption by other car manufacturers as well as innovation in power supplies, Tesla and Toyota hope to foster an expansion of the power distribution network.  Readily available power supplies should give consumers greater confidence to adopt the new cars. 

Toyota is prepared to share over 5,000 patents with other automakers without royalty arrangements.  The patents cover fuel cells composed of membrane electrode assemblies positioned between separators.  These fuel cells are ‘stacked’ one against another to achieve the desired voltage.  Toyota’s patents cover the membrane composition, separator materials, and the stacking methods among other materials, designs and processes.  The company has also developed a unique boost converter to increase the voltage and thereby reduce the number of required fuel cells.  A drive battery, motor/generator combination and power control unit complete the system.  Toyota has also patented the three-layer design of its hydrogen tanks used to store the required hydrogen on the vehicle.  There should be a great deal to learn from pouring over the patents.

Tesla has had mixed results from its technology sharing.  So far it does not appear that any automotive manufacturer has adopted Tesla’s battery-powered drive train designs.   After only one year it might be a bit too early to suggest Tesla’s policy is a failure.  Perhaps Toyota’s gesture will not be any better received.   Honda, Hyundai and Volkswagen already have fuel cell designs.  Still, it would be beneficial if innovators in battery charging or battery swap schemes used the designs to plan an entrance to the market.     

Toyota recently introduced the Mirai passenger car at automotive trade shows as one of the first commercial vehicles in history to be powered by hydrogen fuel cells.    Reportedly the first production run for the car is only around 10,000 cars.  Most of these first units are expected to be put on the market at dealerships in California where there are at least some sources for hydrogen fuel.  To move to larger, more economic production runs, Toyota needs entrepreneurs to see the bigger picture and invest in hydrogen filling stations or at make such services available to petrol stations already in place.

Tesla Motors was apparently been the inspiration for Toyota’s magnanimous gift of fuel cell information to the public.  Surprisingly, Tesla’s celebrity CEO Elon Musk has been dismissive of fuel cell technology, referring to ‘fool’ cells.  This is not the first time Toyota has been the butt of jokes about its cars.  Two decades ago there were many naysayers when Toyota introduced the Prius as the first gas-electric hybrid passenger car.  Toyota is now selling two dozen different hybrid passenger car models and sold about 6.1 million hybrid cars in 2013.

It is doubtful Toyota would open the kimono so wide if its engineers were not highly confident in their fuel cell innovation.  Likely this confidence is supported by their experience with hybrid car technologies.  I believe the appearance of the Mirai in our midst will have the same catalytic impact on consumer choice and business strategies as did the Prius.  Cars driving down the road with hydrogen fuel cells could earn this technology much respect, Elon Musk’s comments notwithstanding.

Debra Fiakas is the Managing Director of
Crystal Equity Research, an alternative research resource on small capitalization companies in selected industries.

Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein.

January 14, 2015

$37B 2014 Green Bond Issuance Triples Market

by Tess Olsen-Rong

Following a landmark green bond growth year in 2013, the labelled green bond market has once again experienced a year of incredible growth in 2014: by year-end there had been $36.6bn of green bonds issued by 73 different issuers – that’s more than a tripling of the market! The final figure was boosted by a late flurry of green municipal bonds.

This exponential growth takes the total amount of green bonds outstanding to $53.2bn by the end of 2014.

So, what happened to cause this tripling of issuance? Well, corporate and municipal bond issuers joined the green party - big time - while development banks continued to be the backbone of green bond issuance. Let’s go through them each in a bit more detail.

Development banks continue to dominate green bond issuance, led by the EIB

True to form the big development banks still account for the majority of issuance with 44% ($16bn) of total green bond issuance in 2014. This is split amongst new green bond issuers and the veterans (EIB, EBRD, World Bank and IFC).

New entrants to the market were mainly national development banks that had been waiting in the wings for the right moment to issue a green bond. These include banks such as Germany’s KfW, France’s AFD and Netherland’s NWB Bank.

In addition to new issuers, we saw a diversification in product types with the World Bank issuing a series of retail investor focused green bonds, as well green bonds across 6 different currencies. EIB continued to be a prolific issuer of green bonds (although they call them Climate Awareness bonds) and ended the year on top of the issuer table, across all issuer types, with $5.6bn green bonds issued in 2014.

Overall top 10 green bond issuers of the year (by amount issued in USD):

First green asset-backed securities brought to market by Toyota

A new type of green bonds also came to the market; Toyota (TM) kicked the year off with a bang with a $1.75bn green asset-backed bond in Q1. This bond showcased how proceeds from a bond backed by car leases and loans can be earmarked for future green vehicles.

Green corporate bond issuance was the biggest catalyst for the market explosion

Green corporate “earmarked” bonds helped create depth in the green market. Not only did the corporates bring scale, accounting for $12bn issuance, but they also offered a range of currencies -both great for liquidity in the market.

The largest corporate deal of the year was GDF Suez’s $3.4bn green bond (split into a EUR 1.2bn and EUR 1.3bn tranches) with proceeds going towards renewable energy and energy efficiency projects.

As the corporate green bond market matured, we also saw a move down the ratings with NRG Yield (NYLD) (rated Bb1 by Moodys) and Abengoa's (ABGB) Greenfield SA subsidiary (rated B by S&P) bringing high yield green bonds to the market in Q3.

Banks leveraged their green loan portfolios to ramp up green bond issuance to US$1.2bn

For example, Credit Agricole CIB used their green loan book to back $478m green retail bonds for Japanese investors over the year. This is great, as banks play a crucial role in the capital pipeline by providing loans and project financing to green issuers and projects.

After a successful inaugural bond, NRW, the German regional bank, chose to get a second opinion on its next offering, which proved its green credentials. NAB (National Australia Bank) took it a step further with its inaugural green bond having certification against the Climate Bond Standard.

US municipal green bonds drove the muni market share of green bond issuance to 12%

Green city bonds became popular mid-year with issuances from the Swedish City of Gothenburg and South Africa’s City of Johannesburg. Gothenburg was a trailblazing green city issuer with repeated green issues through the year, while Jo’burg was the first to show how green bonds can work for emerging market issuers.

We also had other types of municipal issuers: In the first two quarters of 2014, Ile de France brought EUR 850m ($1.3bn) of green bonds to market. But it was first in the second half of 2014 when the green municipal market really started to heat up with Ontario and 11 different US States bringing a wide range of green bonds to market.

Ending the year on a high

Not to be missed: A bunch of unlabelled project and ABS bonds funding green assets

Now, Bloomberg New Energy Finance’s 2014 green bond total is $38bn but it includes unlabelled ABS or project bonds. If we include CBI’s list of project bonds, which total $2.5bn in 2014, to our green labelled figure we make it $39bn! Amazingly close to our $40bn prediction for 2014.

This difference in the end total is likely to be around how we carve up the numbers. CBI uses the Bloomberg announcement date for inclusion in the 2014 figures.

Here are the top 5 unlabelled project and ABS bonds with proceeds for green from 2014:

So, that’s 2014 done...on to 2015! This year we are expecting the same level of market growth in order to get $100bn green bond issuance by December 31st 2015. Let’s get started then!

Notes on the figures:

  • Currency exchange rates are taken from the last price on the date of issuance.
  • Some issuances fall on the cusp of the year in which case we use the announcement date as recorded on Bloomberg to determine its quarter.
  • Additional taps of bonds are included dependent on tap announcement date
  • $36.6bn is the labelled green bond total – this means that the issuer has self-labelled the bond as green in a public statement or bond document.

——— Tess Olsen-Rong is a market analyst at the Climate Bonds Initiative, an "investor-focused" not-for-profit promoting long-term debt models to fund a rapid, global transition to a low-carbon economy. Sean Kidney and Beate Sonerud also contributed to this post. 

January 13, 2015

A Flurry Of Green Muni Bonds

by Tess Olsen-Rong

Green municipal bonds are set to take off in 2015 after a flurry of issuances in the latter half of 2014. With interest rates at an all time low, this is the time to finance the vast backlog of infrastructure upgrades and developments needed – and to green that infrastructure. This, according to the Financial Times, is especially so in the US.

With green muni growth has come a growing diversity in the use of proceeds. Some green municipal bonds are using proceeds for projects where the green credentials are more complex to analyse than say a wind or solar plant. Recent bonds have used proceeds for heat recovery from natural gas generation, biomass power plants, car parks and clean water. Things are getting complicated.

Jefferson County NY $20.1m biomass-to-energy – this really needs feedstock certification

Let’s start with a renewable energy green muni bond issued by Jefferson County in the State of New York. Proceeds from the $20.1m bond will go to a 60 MW capacity biomass power plant. The plant was coal-fired until 2013 when it was converted by ReEnergy Black River LLC. Biomass, like almost all green categories, is not automatically a green project. Unsustainable sourcing of biomass can lead to deforestation and therefore have a negative effect on carbon emissions. Fortunately Jefferson County “primarily burn sustainably harvested biomass residues and other waste fuels” – great! But investors should be looking for accreditation from a suitable feedstock standard to confirm that the issuers’ definition of “sustainably harvested” really does fit the bill. In this case the majority is derived wood with the remaining 20% recovered wood (i.e. chippings).

Another area of concern with biomass is the air pollution generated in the burning process. Jefferson address this in part by committing to reporting on the annual air emissions (and water use) of the plant. Watch out for the public consultation for the Climate Bonds Bioenergy Standard in February that will address these issues.

Mass State College $91.4 … mostly sort of pale green … but a car parking station? Really?

Green munis in Massachusetts were coming thick and fast in 2014 with bonds from Massachusetts state and MIT. Not wanting to miss out on the fun, Massachusetts State College Buildings (MSCB) joined the club with an inaugural $91.4m green bond. The bond is split across multiple tranches with tenor ranging from 2 to 20 years and a credit rating of AA from S&P.

Proceeds will go to the renovation of a campus center, and construction of: a science building, a residential hall, a design-media center and a car park. We have previously discussed the need for green property standard; here the buildings will be Silver LEED rated – a good start.

However, this is the first time we have seen a green bond used for an indoor car park,based on energy efficiency measures. This threw us a bit, especially as LEED certification does not apply for car park structures. The (new) car park will achieve bronze level “Green Garage Certification” under a scheme run by the Green Parking Council — we’ve tried to find out what that actually means and are still in the dark. Of course, if the whole parking station was an electric car charging station ….

Hartford County in Connecticut goes for green (water) bonds

Next, water. Florida’s East Central, Spokane and Connecticut all issued green water municipal bonds in the last quarter of 2014. Hartford County in Connecticut also joined the ranks with a $140m bond across 24 tranches with tenor ranging between 1-23 years and AA/Aa2 rating (SP/Moodys).

Proceeds from the bond will go to stormwater projects, pipe repair and replacement, and waste water (pollution) control. Now these are pretty standard project types when it comes to the water bonds we have seen so far. Adaptation to climate change requires water infrastructure to be ready to deal with, for example, bigger surges of stormwater. The treatment of waste water, when there is no energy, is not necessarily green because of the environmental footprint it creates. This is why a thorough second opinion on the green credentials of a water bond is essential. However this is currently missing from the green muni market; Spokane did lead the way with a second opinion; but its review did not cover the green credentials of the bond, only adherence to Green Bond Principles.

In 2015 we need to see a green review for water that takes all these topics into account to provide investors with an insightful analysis of the topics.

Utah power $21.39m – not sure about the gas aspect

Finally, Utah Associated Municipal Power System’s (UAMPS) $21.39m green bond was issued across 20 tranches in November 2014. Tenor ranged from 3 to 20 years across the tranches and achieved an A- rating from S&P.

Alarm bells started ringing when we saw natural gas in the offering document. But our fears were somewhat alleviated because proceeds are not going to gas; instead the bond is funding a project to recycle excess heat energy created by the gas turbine. Once completed the heat recovery power plant will generate up to 7.5 MW and has the potential to remove 737,000 tonnes of CO2 (when replacing gas-fired power generation) over its 30 year life.

When taken in isolation (from the gas turbine) it can be described as a “green” project – but its entire process is dependent on gas, where the jury is still well and truly out about what you could call “green”. The project could be compared to a refurbishment or energy efficiency project in a gas power plant which would elongate the life of the gas generator. Hmm ... not quite convinced on the green credentials of this one yet, although we do appreciate there’s a complex argument about gas as a transition investment in some countries – but that needs careful analysis as it doesn't always stack up.

(He amusingly quotes a banker: “The markets are very like sheep – if one sees a rival doing something they immediately look at it and think should we do the same.” That BTW is one of the rationales for promoting a green bonds market.)

——— Tess Olsen-Rong ia an analyst at the Climate Bonds Initiative, an "investor-focused" not-for-profit promoting long-term debt models to fund a rapid, global transition to a low-carbon economy. Sean Kidney and Beate Sonerud also contributed to this post. 

January 12, 2015

Fuel Cells: Know Your Market

by Debra Fiakas CFA

The New Year got off to a rocky start for Ballard Power Systems (BLDP:  Nasdaq), a developer of fuel cell technologies and systems.  The company ran into some trouble with its strategy to penetrate the China market through a partner.  No one should be surprised by Ballard’s difficulties.  Fuel cell technology has been under development for more than two decades.  Frankly, technology is not the problem  -  at least any more.  Early on developers were beset by numerous challenges, not the least of which was the problem of getting fuel cells to work properly at low temperatures.  However, scientists have found solutions and the fuel cells on the market today can start cold at temperatures as low as -30 degrees Celsius.  Fuel cell designs today are durable and costs have been reduced dramatically.

According to Grand View Research, fuel cell shipments are still unimpressive at just over 50,000 units in 2013, the last year for which reliable data is available.   The majority of fuel cells sold are of the PEMFC or proton exchange fuel cells.  Most of the fuel cells sold in 2013 were put into service in North America.  Many, including myself, have pointed to the introduction of cars powered by fuel cells as a turning point for the technology.  Both Toyota and Hyundai have shown fuel cell cars at major auto trade shows in recent months and expect to begin selling these models in 2015.

Grand View Research predicts that fuel cell installed capacity will reach 665 megawatts by 2020, representing 23% compound annual growth over the next six years.  That is much more impressive.  To get there though the major players in the fuel cell market, Ballard included, will need to make some major changes in their strategies and tactics to penetrate the market.  Apparently, fuel cells are different enough from incumbent power sources that a fuel cell system is not a ‘plug and play’ option.

Thus in considering any fuel cell company, it will be imperative that investors look very closely at market penetration strategies.  Fuel cell applications fall generally into three categories:  transportation, stationary and portable.  Will the company address all three segments or attempt specialization?  How developed is the marketing and sales program?  Is the leadership experienced in the sector or related power sectors?  What partners have been lined up to aid with system design and integration?

We have already observed that Ballard Power has fallen short in the China, a market that is far less developed that North America.  In the next posts we look more closely at the marketing strategies of each of the major fuel cell suppliers.   

Debra Fiakas is the Managing Director of
Crystal Equity Research, an alternative research resource on small capitalization companies in selected industries.

Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein.

January 09, 2015

Sol-Wind: New Yieldco With A Tax Twist

By Tim Conneally

The pool of public solar yieldcos keeps growing.

Just before the Christmas holiday, Sol-Wind Renewable Power LP filed for a $100 million initial public offering with the Securities and Exchange Commission. This will be the eighth Yieldco to debut since 2013, and the stock will trade on the NYSE under the symbol SLWD.

But there's something different about this one.

Sol-Wind is a yieldco that utilizes a Master Limited Partnership (MLP) structure, so it will be taxed differently from the other Yieldcos.

Generally speaking, a Yieldco is similar to MLPs by nature, but the taxation rules are very different.

The offering from Sol-Wind merits a closer look.

What it is, Why it's different

Sol-Wind is a New York-based company that has only existed for a year. It has already booked $15 million in PPAs across the U.S., Puerto Rico, and Canada. It has a portfolio of 184.6 MW of generating capacity which is made up of 131 discrete solar assets and 16 wind assets.

According to the IPO prospectus, Sol-Wind intends to put the proceeds of the IPO toward acquiring more assets. The document states:

“We are focused on acquiring assets from middle-market developers, which is an area where we see particularly compelling opportunities. We define "middle-market developers" as those developers who typically, in the case of solar assets, develop projects of between 100 kW and 5 MW in nameplate capacity and, in the case of wind assets, between 1 MW and 10 MW in nameplate capacity.”

It seems pretty straightforward, but Sol-Wind is attempting to structure itself in such a way so that it can receive the tax benefit of an MLP instead of a typical yieldco.

A regulation known as I.R.C. § 7704 allows certain publicly-traded master limited partnerships to be taxed as partnerships instead of corporations, and Sol-Wind has the ability to meet that exemption.

It's a tricky arrangement that's often used by private equity and hedge funds to avoid taxation. A blocker corporation is set up to absorb the 35% corporate tax that would otherwise be applied to the partnership's assets. However, the corporation makes nothing, and any income made by the MLP is taxed only at shareholder level.

Why is this structure necessary?

“By statute, MLPs have only been available to investors in energy portfolios for oil, natural gas, coal extraction, and pipeline projects. These projects get access to capital at a lower cost and are more liquid than traditional financing approaches to energy projects, making them highly effective at attracting private investment,” Senator Chris Coons (D-DE) says on his website. “Investors in renewable energy projects, however, have been explicitly prevented from forming MLPs, starving a growing portion of America's domestic energy sector of the capital it needs to build and grow.”

Currently under federal law, qualified sources of income for tax-free partnerships include: interest, dividends, rents, capital asset sales, real estate, and natural resources (including oil/gas/petroleum, coal, timber, etc).

Several bills known as the MLP Parity Act (MLPPA) were submitted to congress in 2012 and 2013, seeking to amend the tax code for publicly traded partnerships to treat all income from renewable and alternative fuels as “qualifying income”.

Unfortunately, senate bills and house resolutions known as the MLP Parity act all died in committee.

Tim Conneally is an analyst at Energy and Capital, where this article was first published.

January 07, 2015

5 Minute Guide to BioAmber

Jim Lane

A quick overview of BioAmber (BIOA)

Company description

From the company’s 2013 S-1: “Our proprietary technology platform combines industrial biotechnology, an innovative purification process and chemical catalysis to convert renewable feedstocks into chemicals that are cost-competitive replacements for petroleum-derived chemicals. The development of our current organism was originally funded by the DOE in the late 1990s, was further developed and scaled up, and optimized at the large-scale manufacturing facility in France.

“We manufacture our bio-succinic acid in a facility using a commercial scale 350,000 liter fermenter in Pomacle, France…We have produced 487,000 pounds, or 221 metric tons, of bio-succinic acid at this facility…We believe we can produce bio-succinic acid that is cost-competitive with succinic acid produced from oil priced as low as $35 per barrel, based on management’s estimates of production costs at our planned facility in Sarnia, Ontario and an assumed corn price of $6.50 per bushel.

“We have secured funding to construct the initial phase of our next global-scale facility in Sarnia, Ontario and we intend to build and operate two additional facilities, one located in Thailand and the other located in either the United States or Brazil.


30 Hottest Companies in Biobased Chemicals & Materials: #9, 2014-15

The Situation

Last May, we wrote: “What is exactly so special about a company making roughly 65 million pounds of a little-known renewable chemical, with a historically tiny global market? After all, that is roughly equivalent, by tonnage, to a 10 million gallon first-gen biofuels plant — the kind that generally closes down these days because of a lack of economies of scale.

There are three reasons that we are looking carefully at BioAmber.

First, as former DOE Biomass Program Manager Paul Bryan opined at ABLC last year: “Focus on the right products first.” Bryan keyed in on biosuccinic in his ABLC presentation, highlighting the opportunities and advantages relating to the utilizing the oxygen in biomass.

Second, BioAmber is avowedly pursuing a strategy based in careful aggregation of strategic partners that bring investment and offtake as well as financing relationships, while building further applications for their molecules in work with R&D partners that could be expected to translate into commercial partners down the line. Which is to say, starting with an economically and environmentally advantaged molecule and then working in partnership with downstream customers to establish markets for that molecule.

Third, the process is cost-competitive with $35 oil.

Bottom line: It’s very different than the conventional biobased fuels strategy, which has been to set mandates to create market certainty, and use that to create a favorable financing environment, and encourage engagement with incumbents.

Top Milestones for 2012‐14

1. In December 2014, BioAmber announced it had signed an exclusive supply agreement for bio-based succinic acid with Oleon. Under the terms of the 5-year contract, which runs from 2014 to the end of 2018, BioAmber Sarnia, a joint venture with Mitsui & Co., will supply Oleon with bio-based succinic acid for the development and production of succinate lubricants.

2. In July, BioAmber priced a 2.8M share offering at $12.00 per share, and raised $33.6M. The company granted the underwriters in the offering a 30-day option to purchase up to an additional 420,000 shares of its common stock. Net proceeds, after underwriting discounts and commissions and other estimated fees and expenses payable by BioAmber were approximately $31.1 million.

3. In July 2014, the company announced a 210,000 ton per year take-or-pay contract for bio-based succinic acid with Vinmar International.Under the terms of the 15-year agreement, Vinmar has committed to purchase and BioAmber Sarnia has committed to sell 10,000 tons of succinic acid per year from the 30,000 ton per year capacity plant that is currently under construction in Sarnia, Canada.

It was just last week that the company announced a 210,000 ton per year take-or-pay contract for bio-based succinic acid with Vinmar International.Under the terms of the 15-year agreement, Vinmar has committed to purchase and BioAmber Sarnia has committed to sell 10,000 tons of succinic acid per year from the 30,000 ton per year capacity plant that is currently under construction in Sarnia, Canada.

4. In May 2014, BioAmber announced a contract to supply a minimum of 80% of PTTMCC Biochem’s total bio-succinic acid needs until the end of 2017. PTTMCC Biochem is a joint venture established by Mitsubishi Chemical and PTT, Thailand’s largest oil and gas company, to produce and sell polybutylene succinate (PBS), a biodegradable plastic made from succinic acid and 1,4 butanediol (BDO). The JV partners are building a PBS plant in Map Ta Phut, Rayong, Thailand that will have an annual production capacity of 20,000 tons, and is expected to be operational in the first half of 2015. The PBS plant in Thailand will consume approximately 14,000 tons of succinic acid per year at full capacity — under the new agreement, BioAmber could supply a minimum of 11,200 tons of bioisuccinic acid if that PBS plant operates at full capacity. BioAmber plans to supply PTTMCC from its 30,000 ton per year plant under construction in Sarnia, Canada.

5. In May 2013, BioAmber announced the pricing of its initial public offering of 8 million units consisting of one share of common stock and one warrant to purchase half of one share of common stock at $10 per unit, before underwriting discounts and commissions.

6. In September 2012, Inolex launched a new range of 100% natural and sustainable emollients, using bio-based succinic acid from BioAmber. The market for personal care esters is valued at over $500 million. The new succinate emollients are highly-versatile because of their sensory properties and outstanding ability to disperse pigments. These fluids can be used in skin care, hair care, color and antiperspirant products to provide shine and a light fast-drying emolliency. These emollients are suitable as alternatives to silicone fluids for improving skin-feel, as well as enhancing shine and texture in hair care products. In natural formulations, they can be used to reduce the greasiness of natural oils.

7. In February 2012, NatureWorks and BioAmber, announced the creation of their AmberWorks joint venture to bring new performance bio-based polymer compositions to market. NatureWorks brings to the joint venture a global commercial presence, established customer relationships, developed applications across a breadth of industries and deep experience in commercializing new-to-the-world polymers. BioAmber owns PLA/PBS compounding intellectual property and applies award-winning biotechnology and chemical processing to produce renewable chemicals.

8. In February 2012, BioAmber raised $30 million in its Series C round of financing with $20 million invested in November by Naxos Capital, Sofinnova Partners, Mitsui & Co. Ltd. and the Cliffton Group, and a second tranche of $10 million on February 6th, 2012 closed with specialty chemicals company LANXESS. BioAmber and LANXESS are jointly developing phthalate-free plasticizers and expect to begin sampling succinic-based plasticizers in 2012.

Major Milestone Goals for 2015-17

1. Moving beyond succinic. The market for succinic acid itself is relatively small. The key to BioAmber (and other developers, like Myriant) is finding a market for biosuccinic as a “drop-in” replacement for other, incumbent petroleum-based chemicals, addressing what BioAmber termed “a more than $30 billion market opportunity.” That claim is yet to be proved — and the hard yards of commercialization lay ahead for the company to develop novel markets at scale.

“We intend to convert bio-succinic acid to bio-BDO and THF, which are large volume chemical intermediates that are used to produce polyesters, plastics, spandex and other products.

“We intend to use our bio-succinic acid in the production of PBS, which enables this polymer family to be partially renewable, and modified PBS, or mPBS, which provides these products with higher heat distortion temperature and improved strength.

2. New commercial plant. “We have begun early works on the site in Sarnia including hooking up to the water and sewer system under Vidal Street,” says the company’s Executive Vice-President Mike Hartmann. “The $80 million project is being constructed at the LANXESS Bio-Industrial Park in Sarnia.

The site is located in a large petrochemical hub with existing infrastructure that facilitates access to utilities and certain raw materials and finished product shipment, including steam, electricity, hydrogen, water treatment and carbon dioxide,” the Sustainable Chemistry Alliance newsletter reported. The plant was expected to open in 2014. The company also intends to build a second North American plant by 2017,

Business Model:

“For future facilities, the company writes, “we expect to enter into agreements with partners on terms similar to those in our agreement with Mitsui and we intend to partially finance these facilities with debt. We expect to use available cash and the proceeds of this offering to fund our initial facilities, as well as our commercial expansion and product development efforts. For additional future facilities, we currently expect to fund the construction of these facilities using internal cash flow and project financing.”

Competitive Edge:

1. Cost-competitive, renewable chemical alternatives that offer equal or better performance.

2.. Using less feedstock per ton of output than most other sugar-based processes for biochemicals other than succinic acid.

3. Significantly lower greenhouse gas emissions than the processes used to manufacture petroleum-based products by sequestering carbon dioxide in the process of producing bio-succinic acid.

More about the company

The latest corporate presentation is here.

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

January 06, 2015

Ballard Terminates Azure Hydrogen Licenses; Can It Find A Better China Partner?

by Debra Fiakas CFA

Before the open of the first trading day of 2015, fuel cell developer Ballard Power Systems (BLDP:  Nasdaq) announced the termination of technology licenses to Azure Hydrogen, which was to have been Ballard’s introduction to the China market. The license agreements covered the sale of Ballard’s bus power module and telecom backup power system.  Ballard has charged Azure with breaching the agreements and the two companies have apparently not been able to come to alternative terms. 

Azure had made sales in the China and not all of the equipment had been paid.  Termination of the relationship casts some doubt on outstanding accounts receivable totaling $4.5 million.  Apparently the skepticism was sufficient to cause Ballard’s accountants to write off the full $4.5 million. 

While waiting to see that bit of bad news in the year-end financial report, investors can mull over the other consequence of the divorce from Azure  -  reduced revenue expectations.  Management reduced guidance for the December 2014 quarter by $3.0 million, but deferred a discussion of the impact on 2015 until late February when they were already planning to provide guidance for the upcoming year.

Most likely this is a temporary hiccup.  There are plenty of other players in China that would be capable of penetrating that market with fuel cells for both transportation and stationary applications.  Ballard should have plenty of options to forge another relationship.  What will be challenging is finding a credit worthy counterpart.  Ballard had required a $1 million upfront payment from Azure at the signing of the first license agreement in May 2013.  Shareholders might have thought that would have been sufficient to secure Azure’s business integrity.

Some investors might think the bad news provides an opportunity to accumulate shares of Ballard at an economical price.  BLDP gapped down in the first hour of trading following the announcement, giving up some of the gains the stock had made in the previous week.  The stock had been on a steady decline over the past several months, but the supply seemed to have been turned off with the expiration of tax-loss sales opportunities.

Ballard has managed to build revenue up to $70.4 million in the most recently reported twelve months.  The consensus among the half dozen analysts who have published estimates for Ballard is suggests the company was expected to report $73.4 million for the year.  With the termination of the Azure relationship and the elimination of that business in the fourth quarter, it appears the company is poised to report about $70 million in sales for the year.  That would suggest flat results compared to the prior year, but Ballard also has the write-off of the uncollectible accounts receivable.  Thus 2014 could be a down year in terms of sales.

Investors can expect a significant net loss in the year.  The trailing twelve month loss was $13 million through the end of September 2014.  The consensus estimates suggest few if anyone expects the company to breakeven anytime soon.  Ballard has a $32.7 million cash hoard to tide the company over.  At the present cash usage rate Ballard has about two years to ‘fire it’s engines’.  That might offer some encouragement to value investors who see the recent dip in price to pick up shares.

The implications of the license agreement termination came on a day most investors were likely taking the day off for an extended recovery from the New Year celebrations.  It is likely that there will be further reaction registered in the stock price with the rest of investors return from holiday merry making.  Then the year-end 2014 report at the end of February could evoke even further reaction as investors can see the bad news in numbers.

Ballard stubbed its toe in the final days in 2014 and waited until the first day of the New Year to give investors the good news.  Putting out the press release one day after New Year’s Day is not likely to shield Ballard from the harsh realities of the equity market.  Even more compelling buying opportunities might be ahead.

Debra Fiakas is the Managing Director of
Crystal Equity Research, an alternative research resource on small capitalization companies in selected industries.

Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein.

January 05, 2015

Alternative Energy Funds: 2014 Review

By Harris Roen

Mutual Funds (MFs)

Falling fossil fuel prices have hampered 2014 returns for alternative energy mutual funds. Returns are slightly down on average for the past three-month, with a third of funds showing losses. Monthly gains fared worse, with only 2 out of 14 funds in the black. One-year returns are flat on average, and range from a high of 8.3% for Gabelli SRI Green AAA (SRIGX), to a low of -14.3% for Guinness Atkinson Alternative Energy (GAAEX)…

  Alternative Energy Mutual Fund Returns

Exchange Traded Funds (ETFs)

Alternative energy ETFs had a wide range of returns for 2014, but ended mostly down. Only 3 out of 17 ETFs showed gains, with the average ETF falling -5.7%. If the two outliers are removed, the outsized returns of iPath Global Carbon ETN (GRN) and severe drop of First Trust ISE-Revere Natural Gas Index Fund (FCG), alternative energy ETFs averaged down -7.3% for the year…

Alternative Energy ETF Returns


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

About the author

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

January 04, 2015

Ten Clean Energy Stocks: Past Performance And Predictions For 2015

Tom Konrad CFA

The last two months have not been kind to clean energy stocks.  Most commentators attribute the weakness to declining oil prices and the Republicans' strong showing in the midterm elections.  Whatever the cause, my 10 Clean Energy Stocks for 2014 model portfolio was dragged into a loss for the year where it had previously looked to return a small gain.  A large part of the decline was in the dollar's strength.  Measured in local currency, the average stock was flat, but the 8% decline in the Canadian dollar, 12% decline in the Euro, and 11% decline in the South African rand combined to pull the portfolio down 4.5% in dollar terms.

My benchmark Powershares Wilderhill Clean Energy Index (PBW) also suffered, ending the year down 14.5%, even though the the broader market of small cap stocks gained 5.4% for the year (as measured by the Russell 2000 index ETF, IWM.)

Long Term Track Record

Clean energy stocks are notoriously volatile.  While the broad market long ago recovered from its late 2008/early 2009 lows, my benchmark Clean Energy ETF never has, mainly due to a terrible decline in 2011, while the broad market fell only a little, followed by a further decline in 2012 while the broad market advanced.  Two or three blow-out years like 2013 would be needed to erase these huge losses.

Because of these risks, I have become increasingly conservative picking the ten clean energy stocks in my list.  I focus on stocks with positive earnings, and often dividend paying companies which appear undervalued.  While this caution kept the model portfolio from fully participating in the 60% upside achieved by my benchmark in 2013, it served readers well in 2010, 2012, and 2014, when the model portfolio produced an average gain of 3% to the average loss of 12% of the benchmark.  I would say I was not cautious enough with my picks in 2009 or 2011, although the model portfolio did beat its benchmark in both of of those years.

In the six years since 2009, the model portfolio has returned cumulative total return of 10%, which is quite unimpressive if not considered against the benchmark's cumulative annual loss of 43%.  You can find more details in the chart below.

long term returns 2014.png


The chart below shows detailed performance for the 10 stocks in the 2014 model portfolio.  Most of the year it looked like the portfolio would produce a modest gain, but the strong US dollar and a change in market sentiment which led to rapid declines in many clean energy stocks turned this into a 4% loss.  Two growth stocks, Ameresco (NASD:AMRC) and MiX Telematics (NASD:MIXT) were particularly hard hit, despite the lack of negative news.  This mirrored the sharp decline of the benchmark Clean Energy ETF PBW, which contains a large number of growth stocks.  See the chart below for details.

performance chart

I discuss the stocks which are also in the 2015 list, Hannon Armstrong Sustainable Infrastructure (NYSE:HASI), Capstone Infrastructure Corp (TSX:CSE. OTC:MCQPF),  Accell Group (Amsterdam: ACCEL, OTC:ACGPF), New Flyer Industries (TSX:NFI, OTC:NFYEF), Ameresco, Inc. (NASD:AMRC), Power REIT (NYSE:PW), and MiX Telematics Limited (NASD:MIXT) in the article Ten Clean Energy Stocks for 2015, which was published on January first.

The companies I dropped from the list,  PFB Corporation (TSX:PFB, OTC:PFBOF),  Primary Energy Recycling Corp (TSX:PRI, OTC:PENGF), and Alterra Power Corp. (TSX:AXY, OTC:MGMXF) are discussed here, along with the reasons why.  Mostly, they were dropped because the recent declines in clean energy stocks created new attractive opportunities, not because I no longer consider them attractive.  All remain in my portfolio, except for Primary Energy, which was bought out.

2015 Predictions

A year ago, I predicted clean energy stock returns would be modest to down, with my selections providing some protection from the downside risks.  The portfolio delivered, although not as well as I would have liked.  2015 is looking a lot more like 2013, when I said, "The abundance of great values among clean energy stocks this year bodes well for the performance of my annual model portfolio in 2013."  The 25% return for that portfolio was good, and the performance of the sector as a whole was stellar.

As in 2013, we enter 2015 with an abundance of clean energy stocks at attractive valuations.  Even though the year will not be without risk, I find myself optimistic for clean energy stocks.

Low oil prices are likely to be an economic stimulus as long as they last, and could continue to reduce interest in clean energy.  If the oil price remains low, this will be a drag on transportation related clean energy stocks (New Flyer, MiX Telematics, Accell Group, and FutureFuel Corp (NYSE:FF) in the 2015 list), but an oil price recovery could produce a strong tailwind.  Other clean energy stocks also seem to be strongly influenced by oil prices, even though there is little or no economic connection between them.  If we have not yet seen the lows for oil prices, I expect we will see them soon.  This should help both my picks and clean energy stocks in general.

Even with today's attractive valuations, a broad market decline or continued low oil prices could block a rebound.  But low clean energy stock prices today mean that the stage is set for the type of rebound we saw in 2013.  Even if that rebound does not materialize, the conservative nature of this portfolio makes another down year very unlikely.


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

January 03, 2015

Electic Vehicle Subsidies May Clear A Lane In Chinese Traffic Jam

Bottom line: Traditional car makers will suffer from weak sales growth and plunging margins in China in 2015 and into 2016, while EV makers will start the new year slow but could see improvement by the end of 2015.

A flurry of headlines this week are sending ominous signals for the car industry in the year ahead, with both traditional and new energy vehicle makers likely to face an uphill road as China’s economy slows. The problem could be compounded as big new capacity comes online from many major automakers that have invested billions of dollars on expansion over the last 3 years. Other headwinds could come as major cities take steps to ease traffic congestion, with the southern boomtown of Shenzhen becoming the latest to implement a new program to control the number of cars on the road.

Things were already looking tough for the new energy vehicle industry, following recent reports of slower-than-expected sales for electric vehicles (EVs) from domestic leader BYD (HKEx: 1211; Shenzhen: 002594; OTC:BYDDF) and US high-flyer Tesla (Nasdaq: TSLA). (previous post) Most of the sector’s problems owe to wariness among Chinese consumers, who worry about the lack of infrastructure to support the new energy vehicle industry.

Sensing the lack of progress, Beijing is now signaling that government incentives for people who buy so-called “green” vehicles will be extended to 2020. (English article) The incentives were originally set to expire at the end of 2015, so this latest move could reassure some people who are still waiting to see whether infrastructure will improve. Such improvement is likely to come around the middle of next year, when many recent infrastructure initiatives start come on stream, helping sales of these new-technology vehicles to gain some momentum by the end of the year.

But improvement for EVs won’t come as much consolation to makers of traditional cars, which are probably looking at a much longer downturn that will put a chill on sales for 2015 and into 2016. In the latest signal of that accelerating slowdown, Toyota (Tokyo: 7203) has just said that it’s likely to miss its target of selling more than 1.1 million cars in China this year. (English article)

Toyota cited a faster-than-expected acceleration in the slowdown for China’s auto market for its latest forecast, and said growth next year will also be sluggish. China’s car market zoomed in the years after the global economic crisis on government buying incentives as part of a broader economic stimulus package. But it slowed sharply this year as China’s broader economy undergoes a major adjustment, and forecasters are now predicting relatively anemic sales gains in the 5-10 percent range for next year.

In another sign of headwinds the industry is facing, another media report is detailing complaints that many car dealers are making about aggressive sales targets set for them by the big automakers. (English article) The bottom line is that many dealers have ordered more cars than they can sell in order to please the car manufacturers, and as a result now have large inventories of unsold vehicles in their showrooms. That means they’re likely to sharply slow their new orders in 2015 as they sell off existing inventory, putting a further damper on car shipments from manufacturers.

As all these storm clouds build, another report is detailing one more of the industry’s problems in the form of looming overcapacity. That particular report says Korean automaker Hyundai (Seoul: 005380) is planning a major expansion of its Chinese capacity with plans for 2 new factories. (English article) Hyundai is the latest company joining a trend that has seen most of the world’s top car makers announce multibillion-dollar expansions of their China operations over the last 3 years.

Just how bad the automakers will suffer next year won’t become clear until the spring, as business returns to more normal levels after the Chinese New Year period. But I do expect that profit margins and sales growth will drop sharply for most major traditional car makers. New energy car makers will also suffer in the first half of they year, though their prospects could pick up towards the end of 2015.

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

January 01, 2015

Ten Clean Energy Stocks For 2015

Tom Konrad CFA

2015 marks my seventh annual list of ten clean energy stocks.  An equal weighted portfolio of the ten stocks in each year's list has outperformed my industry benchmark every year except 2013.  2014 was no exception, but it was a bittersweet victory in that the model portfolio was slightly down while the benchmark lost considerably more in a very challenging year for clean energy stocks.

I will publish a wrap-up article for the 2014 list in the next couple days, but I wanted to get the 2015 list out on New Year's day. 

Again this year, I will be providing a high and low target for each stock.  These are the range within which I expect the stocks to end the year.  In 2014, three of the picks violated the downside targets, and none violated the upside targets.  I've also included annual dividends and yield, and Beta, a measure of market risk for US stocks.  Low Beta stocks generally perform better than high Beta stocks in market downturns; the market average Beta is 1.

Finally, I include a discussion of insider sentiment: company insiders buying or selling the stock.  Since company insiders usually receive stock as part of their compensation, insider sales are generally more common than insider purchases.  Hence insider buying is almost always a good sign, and I consider it particularly important in the small capitalization stocks I favor.  These stocks are more likely to be mispriced than larger, more widely followed stocks for which there is much more information available to investors.  Company insiders are the ones most likely to see such mispricing.  Since insider trading information is much easier to find for US stocks than foreign stocks, I include links to my sources of information for insider trading.

Income Stocks

1. Hannon Armstrong Sustainable Infrastructure (NYSE:HASI).
Current Price: $14.23.  Annual Dividend: $1.04 (7.3%).  Beta: 0.81.  Low Target: $13.50.  High Target: $17. 
Insider Sentiment: Mildly Positive. One insider is selling but three are buying; sale was an automatic sale which is unlikely to be a response to market conditions.
Why it's green: All financed projects reduce greenhouse gas emissions.

Hannon Armstrong is a Real Estate Investment Trust and investment bank specializing in financing sustainable infrastructure.  I consider it a peer of the yieldcos (companies that invest in clean energy infrastructure and use the cash flows to pay a high dividend yield to shareholders, but HASI trades at a substantial discount to most yieldcos because other investors seem to compare it more closely to mortgage REITs.  However, Hannon Armstrong's investments are very different from those of other mortgage REITs.

In 2014, management delivered on it promise to increase the dividend by 12-15%, something they expect to do again in 2014.  In 2014, the stock increased only 3.2% for a 9.9% total return for the year.  With the dividend yield now even higher than it was a year ago and more dividend increases likely, I expect even better results in 2015.

2. General Cable Corp. (NYSE:BGC)
Current Price: $14.90.  Annual Dividend: $0.72 (4.8%).  Beta: 1.54.  Low Target: $10.  High Target: $30. 
Insider Sentiment: Mildly Positive. No trades in last 3 months, but insiders are not selling incentive awards. One officer was buying at much higher prices ($21+) in August.
Why it's Green: The geographically dispersed nature of renewable energy resources means they require more wire/connections. Improving the interconnection of our grid also allows utilities to use existing generation more efficiently.

General Cable Corp. is a leading international manufacturer for electrical and fiber optic cable.  In 2014, the company disappointed investors because of weak demand for electricity infrastructure, especially in Europe.  The company is undertaking a restructuring to focus on its core markets in the Americas and Europe.  The company is also searching for a new CEO and expanding its board to include more members with operational experience. 

With the company trading near book value with healthy cash per share and in the process of selling its Asia Pacific operations, only a reduction in uncertainty should be needed to bring investors back to the stock.

3. Capstone Infrastructure Corp (TSX:CSE. OTC:MCQPF).
Current Price: C$3.20. 
Annual Dividend C$0.30 (9.4%).  Low Target: C$3.  High Target: C$5.  
Insider Sentiment:  Strongly Positive; 200,150 shares bought by 8 insiders over 3 months. Only sale was of preferred stock by an insider also buying common.
Why it's green: Capstone's energy division sells electricity and heat from gas cogeneration, wind, solar, and hydropower.  I consider its utilities climate-neutral.

Capstone was included in the 2014 list because I expected the worst possible result in its negotiations with the Ontario Power Authority over the future of its Cardinal gas cogeneration plant had already been priced in. That thesis initially paid off, with the stock rising significantly during the first half of the year.  Unfortunately, Britain's water regulator OfWat issued a final determination for rates at its Bristol Water subsidiary which fell considerably short of what the utility had proposed and vetted with consultants.  Bristol Water is considering appealing the ruling, but will operate under the determination beginning April 1st until at least August 2015, when the final appeal (if it takes place) will be resolved.

A previous appeal by Bristol water in 2010 resulted in a "significantly improved" business plan from the utility's perspective.

Even without an appeal, Capstone's management is confident that they can maintain the current C$0.075 quarterly dividend and increase funds from operations enough to bring that dividend back into line with its 80% target payout ratio by 2017.  I expect the stock to appreciate when investors regain confidence that the dividend and very attractive 9.4% current annual yield is safe.  Company insiders seem to share my confidence, with eight of them buying over half a million dollars worth of stock in the week since December 23rd, after a conference call discussing the OfWat ruling and management's outlook for 2015.

4. TransAlta Renewables Inc. (TSX:RNW, OTC:TRSWF)
Current Price: C$11.48.  Annual Dividend: C$0.77 (6.7%).   Low Target: C$10.  High Target: C$15. 
Insider Sentiment: Positive. One recent purchase, no selling.
Why it's green: All financed projects reduce greenhouse gas emissions.

TransAlta Renewables is the yieldco created by TransAlta Corporation (NYSE:TAC),Canada's largest Independent Power Producer with facilities in the Canada, the US, and Australia.  TAC is the sponsor majority owner of TransAlta Renewables and has stated that it intends to retain a majority stake because the dividend cash flows help it maintain its credit rating.

I believe that TransAlta Renewables trades at a discount to most other yieldcos because it is not listed in the US, and because it has not provided clear guidance regarding future dividend growth through the drop-down of additional renewable facilities.

I do not consider the lack of guidance a serious problem because the market seems to be overvaluing dividend growth compared to the current dividend.  Since yieldcos return most of their cash to shareholders, they can only increase their dividends by issuing stock or raising debt to buy new facilities.  While many yieldcos have a "Right of First Offer" (ROFO) on the renewable facilities developed/owned by their sponsor companies, these ROFOs do not confer the right to buy these facilities at below market prices.  This competitive market means that no yieldco will be able to acquire new renewable facilities at prices substantially below the others, and so their cash flow and dividend per invested dollar will be capped.  Hence, the current 10-15% annual growth in dividends that investors expect from yieldcos can continue only as long as investors are willing to provide yieldcos with cheap capital by accepting the low 3-4% dividends currently on offer from many yieldcos.  When the music stops, all yieldcos will be revalued based on more reasonable future dividend growth.  This should have little effect on today's high yield yieldcos (such as TransAlta, Capstone, and Hannon Armstrong) but could cause the stock prices of yieldcos with high expected dividend growth (NYLD, NEP, and TERP, for instance) to fall substantially.

5. New Flyer Industries (TSX:NFI, OTC:NFYEF).
Current Price:
C$13.48.  Annual Dividend: C$0.585 (4.3%)  Low Target: C$10.  High Target: C$20. 
Insider Sentiment:  Positive.  81,000 shares bought by a 10% owner and no selling over last 3 months.
Why it's green: Buses produce far fewer emissions, require less parking and road space, and have fewer accidents per person-mile than cars.

Leading North American bus manufacturer New Flyer took advantage of the industry downturn over the last few years to consolidate its lead in the North American bus market as well as expand its product offerings, especially in the fragmented parts and service market.  Aging bus fleets are leading to a market revival, and New Flyer is in an excellent position to benefit from this rebound.  New Flyer was one of the strongest performers in the 2014 list, but improving margins and the possibility of expanded production could drive even larger gains in 2015.

6. Accell Group (Amsterdam:ACCEL, OTC:ACGPF).
Current Price: €13.60. 
Annual Dividend: Varies: at least 40% of net profits. €0.55 in 2014 (4.0%).  Low Target: 12.  High Target: €20.
Insider Sentiment:  Mixed buying (7000 shares) and selling (10,000 shares) over 3 months.
Why it's green: Bikes and e-bikes are among the greenest forms of transportation. 

International bicycle manufacturer Accell remains in the portfolio for the third year in a row.  Over the last couple years,  the stock has appreciated slightly and paid €1.30 worth of dividends, while the business has improved substantially due to the acquisition of additional brands (Such as Raleigh and Currie) and distributors.  Business rationalization and increasing adoption of e-Bikes are also driving sales growth.  I expect the strength of Accell's business to drive some price appreciation and another healthy dividend in 2015.

Value Stocks

7. Future Fuel Corp. (NYSE:FF)
Current Price: $13.02.  Annual Dividend: C$0.24 (1.8%).   Beta 0.36.  Low Target: $10.  High Target: $20. 
Insider Sentiment: Mildly positive.  No trades in last 3 months. Previous buying in last year above current price ($14-$16), selling at much higher price ($20+)
Why it's green: Biodiesel has the lowest environmental impact per mile driven (roughly 1/3 of that of gasoline) of any conventional biofuel.

FutureFuel is a combined specialty chemicals and biodiesel producer which has been suffering from the expiration of the blender's tax credit for biodiesel and the uncertainty surrounding the EPA's decision to delay the release of cellusoic biofuel targets for 2014.  In November, the agency announced that it would not finalize the requirements until next year, when it is expected to announce the targets for 2014, 2015, and 2016 together.

FutureFuel's specialty chemicals business had also been suffering from some problems with ramp-up of a new product over the summer, but those problems seem to have been largely dealt with.  With the biodiesel market in flux, FutureFuel cut its dividend from and annual $0.48 to $0.24.  This will free up cash and could potentially finance acquisitions of weaker biodiesel producers if the industry downturn continues.

Over the last few years, the prices for biofuel feedstocks have been set by what biofuel producers can profitably pay for them.  This means that, even without government support, biofuel and feedstock prices will reach eventually an equilibrium where the most efficient producers can be profitable.  I expect FutureFuel to be one of those, and the current uncertainty is providing an attractive buying opportunity.

I wrote a more in depth article on FutureFuel in October.

8. Power REIT (NYSE:PW).
Current Price: $8.35
Annual Dividend: $0.  Beta: 0.52.  Low Target: $5.  High Target: $20.
Insider Sentiment: Mildly poitive. One small buy over last 3 months, no sales.
Why it's green: Owns land under solar farms and rail lines (efficient transportation.)

The ongoing civil action between rail and solar investment trust Power REIT and its lessee Norfolk Southern Corporation (NYSE:NSC) and sub-lessee Wheeling & Lake Erie Railway (WLE) looks likely to go to trial in early 2015.  The case grew out of Power REIT's attempt to foreclose on the lease due to WLE's refusal to pay a legal bill which Power REIT believes it is entitled to under a clause of the lease which states that the lessee is responsible for any of Power REIT's expenses which are "necessary or desirable" for maintaining its interest in the track.  NSC and WLE commenced the action to prevent the foreclosure on a lease which favors them greatly.

The two sides are very far apart in their interpretations of the lease.  Power REIT's interpretation seems is mostly supported by the lease itself, which the lessees say should be ignored in favor of how the parties have actually behaved under the lease over the last 50 years.  I find it impossible to predict how the judge will rule, but the downside for Power REIT is limited to a return to the status quo, while the upside could easily double the value of Power REIT's shares.  Even Power REIT's legal expanses could be reimbursed under the very broad "necessary or desirable" language of the lease discussed above.

At the current price, I see significant upside and limited downside potential from the civil action, and I am optimistic that potential will be realized in 2015.

9. Ameresco, Inc. (NASD:AMRC).
Current Price: $7.00
Annual Dividend: $0.  Beta: 1.36.  Low Target: $6.  High Target: $16. 
Insider SentimentMildly positive.  One director bought 2,500 shares with no selling over 3 months.
Why it's green: Provides energy efficiency and renewable energy solutions with a service model.

Energy service contractor Ameresco has been suffering for the last two years because its clients, mostly government entities, have been slow to finalize contracts.  Over the last two quarters, however, management has indicated that they see signs of improvement in certain markets.  They have also worked to diversify Ameresco's business into renewable energy development.

Despite these positive signs, the market has failed to reward the stock, which is now trading near book value.  Another quarter or two of improving market conditions should be enough to produce a strong price rebound.

Growth Stock

10. MiX Telematics Limited (NASD:MIXT).
Current Price: $
6.50Annual Dividend: $0.  Beta:  0.78.  Low Target: $5.  High Target: $20.
Insider Sentiment:  Neutral.  No trades in last 3 months. Previous trades mixed, but at higher prices.
Why it's green: MiX's fleet management solutions reduce fuel use and accidents.

MiX provides vehicle and fleet management solutions customers in 112 countries. The company's customers benefit from increased safety, efficiency and security.  Based in South Africa, Mix's stock price has suffered from the general decline of emerging market stocks over the last few months.  The falling oil price may also have hurt the stock, since many of its fleet management customers are in the oil and gas industry.

I don't expect the oil price to stay this low for all of 2015, and MiX's emerging market home belies the global nature of its revenues.  Considering that MiX delivered 15% subscriber growth in 2014 but the stock fell by almost half from what I considered an already undervalued level, this stock is poised for a massive rebound with any shift of market sentiment.

Model Portfolio Characteristics
Average Yield: Overall: 3.8%

Income stocks: 6.1%
Listing country
US: 50%

Dual listed in US and South Africa: 10%

Canada: 30%

Euro Zone: 10%
Location of business: Mostly US: 40%

US & Canada: 10%

Canada: 10%

Worldwide: 40%




Basic Materials

Real Estate




As I have in previous years, I will compare the performance of a model equal-weighted portfolio of these ten stocks against the Powershares Wilderhill Clean Energy ETF (PBW), which is the most widely-held clean energy ETF.  For a broad market benchmark, I will continue to use the Russell 2000 index ETF (IWM).

Given the heavy income focus of my picks, I am adding income-oriented benchmarks for the six income picks.  The first is a fossil free income oriented portfolio I co-manage with Green Alpha Advisors of Boulder Colorado called the Green Alpha Global Enhanced Equity Income Portfolio (GAGEEIP.)  This strategy combines high income green stocks with option selling to provide a high level of current income with a secondary objective of capital preservation.  We now have a full year's track record managing the strategy: The option strategy complicates return calculations, so I cannot give a precise return yet, but my back of the envelope calculation shows that it has returned approximately 5% after management fees over the past year, most of that in the form of income.

With this record, we will be looking for a mutual company to launch the portfolio as a fund in 2015.  If we succeed, it will be the first green (in fact, fossil fuel free) mutual fund that produces a significant level of current income, and will provide a natural complement to Green Alpha's fossil fuel free growth fund, the Shelton Green Alpha Next Economy fund (NEXTX.)

GAGEEIP is a strange benchmark in that it is an active fund and I am deeply involved in its management, but it does differ from the model income portfolio in its use of options and exclusion of fossil fuels.  While it includes five of the six income picks, it excludes Capstone Infrastructure, because of Capstone's natural gas fired cogeneration facility, discussed above.

For a more conventional income benchmark, I will also include the S&P Global 1200 Utilities Index ETF (JXI), which is also a benchmark for GAGEEIP.


Once again, I have weighted the list heavily towards income and value companies.  These tend to be less risky than the growth companies which people generally think of when considering investment in clean energy.  This choice will likely serve the model portfolio well if we have another challenging year for clean energy, as we did in 2008 and 2010 to 2012.  If we have another blow-out year like we did in 2007, 2009, and 2013, the model portfolio will likely again underperform its industry benchmark. 

Rising oil prices and depressed stock prices could easily bring the sun back for clean energy stocks in 2015, but I much prefer to be prepared for a storm.

Disclosure: Long HASI, CSE/MCQPF, ACCEL/ACGPF, NFI/NFYEF, AMRC, MIXT, PW, FF, BGC. RNW/TRSWF.  Short NYLD.  Tom is the co-manager of the GAGEEIP strategy.

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

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