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February 28, 2015

Ten Clean Energy Stocks For 2015: A Fine February

Tom Konrad CFA

After a rough start to the yearMy Ten Clean Energy Stocks for 2015 posted a strong recovery in February. 

For the month, the model portfolio rose 7.9% in local currency terms and, 8.3% in dollar terms.  For comparison the broad universe of US small cap stocks rose 5.9% (as measured by IWM, the Russell 2000 index ETF), and the most widely held clean energy ETF, PBW, shot up 11.6%.

This year I split the model portfolio into two sub-portfolios of six income stocks (NYSE:HASI, NYSE:BGC, TSX: RNW, TSX: CSE, TSX:NFI, and XAMS:ACCEL) four value and growth stocks (NYSE:FF, NYSE:PW, NASD: AMRC, and NASD:MIXT). 

PBW (+11.6%) is a good benchmark for the value and growth stocks, which underperformed with a small gain of 1.6% in both local currency terms and dollar terms.  The six income stocks, on the other hand, gave a strong performance with a 12.0% gain in local currency terms and a 12.8% gain in dollar terms.  This is particularly surprising because global utility stocks (as measured by JXI) fell 3.5% for the month on worries about rising interest rates.  The fossil free Green Alpha Global Enhanced Equity Income Portfolio (GAGEEIP), which I co-manage, also bucked the global utility trend and turned in a 5.5% gain for the month.

For the year to date, the portfolio is up 3.1% in local currency terms, and down 0.2% in dollar terms.  This contrasts to a 4.2% gain for PBW and 2.5% for IWM.  The four growth and value stocks are down 6.1% in local currency terms and down 6.3% in dollar terms.  The income stocks are up 9.1% in local currency terms and up 3.9% in dollar terms.  GAGEEIP has gained 4.6% in January and February.

The chart below (click for larger version) gives details of individual stock performance, followed by a discussion of February news for each stock.

10 for 15 Jan.png
The low and high targets given below are my estimates of the range within which I expect each stock to finish the year.

Income Stocks

1. Hannon Armstrong Sustainable Infrastructure (NYSE:HASI).
12/31/2014 Price: $14.23.  Annual Dividend: $1.04.  Beta: 0.81.  Low Target: $13.50.  High Target: $17. 
2/28/2015 Price: $16.63. YTD Dividend: $0.  YTD Total Return: 16.9%.

The stock of sustainable infrastructure financier and Real Estate Investment Trust Hannon Armstrong staged a dramatic advance of 21.4% in February.  I believe this advance was catalyzed by an article by Brad Thomas, the author of a leading REIT newsletter.  In the almost two years since its IPO, Hannon Armstrong has been the odd man out among renewable energy yieldcos, because of its REIT structure and focus on energy efficiency financing so different from the higher profile renewable energy project ownership of other yieldcos.  There are also no real comparables among conventional REITs, meaning that HASI has also struggled to catch the attention REIT investors.

Thomas' strongly positive article seems to have changed that, and now REIT investors seem to be pricing HASI closer to what that would be expected from traditional REITs that have a comparable level of risk.  Not that I'm selling at this point; I'm happy to hold a company that pays a 6.3% dividend at the current price, especially since management expects to continue to increase that dividend by 12-15% over the next 12 months.

An ironic note to this whole story is that Brad Thomas himself was surprised by the sea-change his article catalyzed.  Reading between the lines of his comments, he made up his mind that HASI was very attractive, but decided to share his insight with his readers before buying himself.  He has an admirable policy of waiting 10 days between publication and trading a stock.  In this case, the stock was trading at $14.57 when he wrote the article, but it closed at $16.37 10 days after publication.  A more recent note from Thomas leads me to believe he is still waiting for HASI to pull back. 

Thank you Brad, for finally bringing Hannon Armstrong the attention I have been unable to attract with my many articles about the company since its IPO.  For your sake, and for anyone else who has not yet bought the stock at the very attractive prices we had for the last 20 months, I hope the pullback you're waiting for materializes.

2. General Cable Corp. (NYSE:BGC)
12/31/2014 Price: $14.90.  Annual Dividend: $0.72.  Beta: 1.54.  Low Target: $10.  High Target: $30. 
2/28/2015 Price: $15.04. YTD Dividend: $0.  YTD Total Return: 0.9%.

Last month  the stock of international manufacturer of electrical and fiber optic cable, General Cable Corp. declined 23% because of several analyst downgrades and worries about Europe.  A couple more downgrades followed before the company released its fourth quarter earnings and outlook for 2015 on February 4th.  The stock sold off that day, but I felt the discussion of restructuring and outlook were generally positive.  Investors seem to be coming around to my more optimistic point of view, since the company recovered all of its January losses in February with a percentage climb even more spectacular than Hannon Armstrong's.

3. TransAlta Renewables Inc. (TSX:RNW, OTC:TRSWF)
12/31/2014 Price: C$11.48.  Annual Dividend: C$0.77.   Low Target: C$10.  High Target: C$15. 
2/28/2015 Price: C$13.13. YTD Dividend: C$0.12832  YTD Total C$ Return: 15.5%. YTD Total US$ Return: 7.3%.

Investors and analysts also liked the strong earnings announcement from Canadian yieldco TransAlta Renewables, propelling the stock up another 3.6% after strong January gains. Scotiabank, Macquarie, and CIBC all increased their price targets for the stock, with the average price target now C$12.71.

4. Capstone Infrastructure Corp (TSX:CSE. OTC:MCQPF).
12/31/2014 Price: C$3.20. 
Annual Dividend C$0.30.  Low Target: C$3.  High Target: C$5.  
2/28/2015 Price: C$3.21. YTD Dividend: C$0.  YTD Total C$ Return: 0.3%.  YTD Total US$ Return: -6.8%.

Canadian power producer and developer (yieldco) Capstone Infrastructure lost ground gained in January, and is now down almost 7% in US dollar terms, although all of that decline is due to the weakness of the Canadian dollar.  I continue to think that this 9%+ yield company remains one of the best values among clean energy income stocks: it's high yield and low price are entirely due worries about a very disappointing decision by the regulator of its British water utility subsidiary.  Capstone is appealing that ruling, but management has stated that the dividend is not at risk even if the appeal fails.  Insiders has put their money where their mouths are by buying the stock on the open market.

In addition to the high yield (which alone seems sufficient reason to own the stock), there is potential for upside if the Bristol Water appeal is successful. Even if this appeal fails, I expect the high yield to cause the stock to appreciate as investors gain confidence that the dividend will not be cut.

5. New Flyer Industries (TSX:NFI, OTC:NFYEF).
12/31/2014 Price:
C$13.48.  Annual Dividend: C$0.585.  Low Target: C$10.  High Target: C$20. 
2/28/2015 Price: 13.91$. YTD Dividend: C$0.0975  YTD Total C$ Return: 3.2%.  YTD Total US$ Return: -4.1%.

Leading North American bus manufacturer New Flyer continues to announce significant new orders of buses, such as 110 compressed natural gas (CNG) buses and options ordered by Nassau county, NY, and smaller orders from Lane Transit in Eugene Oregon and Hamilton, Ontario for up to 20 hybrids and 18 CNG buses, respectively.  These orders follow on the strong backlog of orders I discussed in the last update.

Although a date has not yet been announced, the company should report 2014 fourth quarter and full year results in March.

6. Accell Group (XAMS:ACCEL, OTC:ACGPF).
12/31/2014 Price: €13.60. 
Annual Dividend: Varies: at least 40% of net profits. €0.55 in 2014.  Low Target: 12.  High Target: €20.
2/28/2015 Price: 16.06. YTD Dividend: 0.  YTD Total Return: 18.1%.  YTD Total US$ Return: 9.2%.

The stock of bicycle manufacturer Accell Group also advanced strongly in February.  This does not seem to be due to company specific news, but rather to growing interest by institutional investors in the bicycle industry.  It seems that fund managers, especially US fund managers, have become disappointed in the performance of golf companies, and are looking to replace these positions with well known bicycle brands.  Fund managers may be beginning to realize that bikes not no longer just for kids, and are increasingly popular among high income adults.

Outdoor retailer REI knows this fitness-conscious demographic well, and has recently begun offering Accell's "premium, high-performance, award-winning" Ghost Bike brand in its stores countrywide and on its website.

While it may seem strange that investment managers' attitude towards golf companies should have any bearing on how they feel about the bicycle companies, this connection is a product of widespread practice of diversifying and portfolios among industries.  While there is probably little economic connection between the economics prospects of Accell and Callway (NYSE:ELY), many fund managers specialize in certain industries.  When such analysts and managers upgrade or buy one stock in their universe, they often will downgrade or sell another stock.  Hence, if a mutual fund manager who specializes in sports equipment sells Callaway, it might not be surprising to see him buy Accell.

Even this annual list shows that effect.  I focus on clean energy companies, so in order to add four new companies to this 2015 list, I had to drop three clean energy companies I still liked from the 2014 list.

Value Stocks

7. Future Fuel Corp. (NYSE:FF)
12/31/2014 Price: $13.02.  Annual Dividend: $0.24.   Beta 0.36.  Low Target: $10.  High Target: $20.
2/28/2015 Price: $12.3 YTD Dividend: $0.06.  YTD Total Return: -5.1%.

Specialty chemicals and biodiesel producer FutureFuel, also recovered (and paid a 6¢ quarterly dividend) in February.  While there has not been significant company news, the EPA has made strong statements about getting "back on track" setting quotas under the Renewable Fuel Standard (RFS.)  The lack of quotas in 2014, and the delay of the 2015 quota are the main reason the stock is currently so cheap.  EPA transportation chief Christopher Grundler recently told a meeting of ethanol producers that the agency would combine three years' worth of standards -- for 2014, 2015 and 2016 -- into a single regulatory action. EPA plans to release a proposal this spring and finalize it by the end of November.  The RFS is at least as important to biodiesel producers like FutureFuel as it is for ethanol producers.

8. Power REIT (NYSE:PW).
12/31/2014 Price: $8.35
Annual Dividend: $0.  Beta: 0.52.  Low Target: $5.  High Target: $20.
2/28/2015 Price: $8.65. YTD Total Return: 3.6%.

Rail and solar investment trust Power REIT reversed some of its January gains.  Investors await a decision (or more likely, non-decision) in the summary judgment stage of its civil case with its lessee Norfolk Southern Corporation (NYSE:NSC) and sub-lessee Wheeling & Lake Erie Railway (WLE).  Unless the court renders a very strong summary judgement, a trial will begin in the next couple months.  I expect few of the outstanding issues to be resolved in summary judgment, so a trial is very likely.

Power RET released a new investor presentation on its website, which includes a management estimate of the net asset value of the company's assets if they were sold on the open market (page 19.)  Management feels that, even without a win in the civil case, its railroad asset is significantly undervalued compared to NSC's bonds, which have similar credit and cash flow characteristics.  However, the company has not revealed any plans to sell any of its assets, and would not consider a sale of the railroad asset before the civil case is resolved, even if a buyer could be found.

9. Ameresco, Inc. (NASD:AMRC).
12/31/2014 Price: $7.00
Annual Dividend: $0.  Beta: 1.36.  Low Target: $6.  High Target: $16.
2/28/2015 Price: $6.26. YTD Total Return: -10.6%.

Energy service contractor Ameresco will release fourth quarter and full year 2014 results before the market opens on March 5th.  Over the last two quarters, the company has spoken of signs that its market for may be recovering from a multi-year slump.  If the trend continues, the stock should reverse its long decline, possibly dramatically.

Growth Stock

10. MiX Telematics Limited (NASD:MIXT).
12/31/2014 Price: $
6.50Annual Dividend: $0.  Beta:  0.78.  Low Target: $5.  High Target: $20.
2/28/2015 Price: $5.65. YTD Dividend: $0.  YTD Total South African Rand Return: -12.3%.  YTD Total US$ Return: -13.1%.

Vehicle and fleet management software-as-a-service provider MiX Telematics released its third quarter fiscal 2015 results and increased its guidance for the full fiscal year ending March 31st.  I found the outlook and results discussion moderately encouraging, but other investors do not seem to see it that way.  The stock slipped 3.6% for the month.

MiX also signed its 500,000th subscriber in February.  To put this in perspective, US-based competitor Fleetmatics (FLTX) announced that it had achieved 500,000 vehicles under subscription in January.  I'm not sure how comparable MiX's "subscribers" are to Fleetmatics's "vehicles under subscription" but, if they are not the same thing, I have trouble seeing how MiX could have less vehicles under subscription than it has subscribers.  Further, Fleetmatics' offering is suitable to the small and medium sized businesses to which it caters, and so its offering is less sophisticated (and hence lower value) than the solution MiX delivers to the large multinational companies which are its core clients.

Given the similar size of the two companies' client bases, one would expect that the two companies would also be valued similarly.  In fact, Fleetmatics' enterprise value is $1.4 billion (approximately $2,800 per vehicle under subscription in January) compared to MiX's enterprise value of only $106 million, or $212 per "subscriber" in February.  Based on this metric, the market seems to be undervaluing MiX compared to FLTX by a factor of approximately 13.

Summary

I found the January declines of many of the stocks in this list inexplicable, and wrote that the start of February was an excellent time to buy any of them.  The rapid rises in Hannon Armstong, General Cable, and Accell Group show that I was right in at least these three cases. 

Several excellent values remain.  Capstone Infrastructure and MiX Telematics look particularly attractive at their current prices.  Ameresco also looks quite attractive, but its near term performance will hinge on the March 5th earnings announcement and management's outlook for the rest of the year.

Disclosure: Long HASI, CSE/MCQPF, ACCEL/ACGPF, NFI/NFYEF, AMRC, MIXT, PW, FF, BGC, RNW/TRSWF.  I am 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.

February 27, 2015

Tesla Vs. Hydrogen

By Jeff Siegel

One of Governor Arnold Schwarzenegger's dreams may soon be coming to fruition.

During his time as governor, while singing the praises of renewable energy progress in the Golden State, the Terminator would often tell tree-hugging Californians about his dream of building a hydrogen highway that would enable hydrogen-powered vehicles to run from Mexico to Canada — via California.

Not only did Prius drivers and vegans applaud the governor's dream, but it even got a decent amount of support from former GM Chairman Bob Lutz and President George W. Bush.

Since that time, California has managed to build only 10 hydrogen fueling stations in Los Angeles and San Francisco. But we got word over the weekend that the California Energy Commission is about to spend $20 million to build about 50 new hydrogen fueling stations.

According to the LA Times...

Starting in October with a new fuel station in the city of Coalinga, near I-5 in the San Joaquin Valley, hydrogen cars will be able to get from Los Angeles to San Francisco. Such vehicles can go about 300 miles on a fill up.

Hydrogen is Silly

Those who believe hydrogen represents the future of personal transportation have been quick to applaud this news.

Certainly it represents a small but meaningful step in instigating some early growth in the hydrogen vehicle market.

But here's the problem...

No one really cares now that Elon Musk has shown the world a much better mousetrap... and in the process, has been quite vocal about why he actually thinks hydrogen is “silly.”

Sure, the guy's got plenty of reasons to criticize potential competitors. But hydrogen isn't really much of a competitor, as Musk pointed out recently:

Hydrogen is an energy storage mechanism. It is not a source of energy. So you have to get that hydrogen from somewhere. if you get that hydrogen from water, so you’re splitting H20, electrolysis is extremely inefficient as an energy process…. if you say took a solar panel and use the energy from that to just charge a battery pack directly, compared to try to split water, take the hydrogen, dump the oxygen, compress the hydrogen to an extremely high pressure (or liquefy it) and then put it in a car and run a fuel-cell, it is about half the efficiency, it’s terrible. Why would you do that? It makes no sense.

If you're going to pick an energy storage mechanism, hydrogen is an incredibly dumb one to pick. You should just use methane, that's much, much easier. Or propane. The best case hydrogen fuel cell doesn't win against the current case batteries, so then obviously it doesn't make sense. That will become apparent in the next few years.

Too Late

Although I agree with Musk, there's no doubt that plenty of automakers are still getting quite aggressive on hydrogen.

Hyundai, Toyota, Honda, and Volkswagen don't really seem to be too interested in what Musk has to say about the issue. Of course, they also weren't too interested back when he first came on the scene with a silly dream of mass-producing a quality electric car.

You know how that dream turned out...

tslaa1

In any event, while there will likely be a few more opportunities to profit in the fuel cell space with companies like Plug Power (NASDAQ: PLUG) and Hydrogenics Corp. (NASDAQ: HYGS), over the long term, I wouldn't put too much faith in hydrogen vehicles getting as much love as electric vehicles.

In terms of price, performance, ease-of-use, and infrastructure demands, by the time the few automakers pursuing hydrogen actually have a decent number of these cars in the showrooms, electric cars will be even further advanced. Prices will have fallen further, driving ranges will have doubled (if not tripled), and high-speed charging infrastructure will be nearly as common as the infrastructure in existence today for internal combustion vehicles.

In other words, it's too late for hydrogen, because no one can put the electric vehicle genie back in its bottle.

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

 signature

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

February 26, 2015

Amyris Expects Huge Sales Growth In 2015

Jim Lane amyris logo

The first of the “2010-12 IPO kids” completes its transformation to a lively, product-driven commercial company with revenues in fragrances, emollients, solvents and fuels.

In California, Amyris (AMRS) announced Q4 2014 revenues of $11.6 million and $43.3M for the full year, a 5% increase over 2013, and Q4 net income of $58.0 million and $2.3 million for 2014 as a whole.

The company noted that product sales increased by nearly 50% despite lower than expected fuel sales in the second half of the year, due to drop in crude oil prices and currency headwinds. Collaboration and grant revenues were lower due to timing of government-funded project completion and previously outlined shift from upfront to milestone collaboration payments.

“2014 was a transformative year for Amyris. We delivered on the promise of our technology by manufacturing at industrial scale two breakthrough molecules now used in a range of product sectors — from consumer care to transportation. We realized record-low production costs at our Brotas industrial biorefinery, further reduced operating expenses and, with successful financing efforts, achieved our strongest year-end cash position in three years,”said John Melo, President & CEO.

“In 2015, we expect to build on our track record by expanding our renewable product portfolio and, more importantly, expanding our collaboration partnerships into new markets, such as biopharmaceuticals. Based on our plans and current performance during the first part of the year, we expect to achieve positive cash flow from operations in the first quarter, paving the way to exceed $100 million in total revenues for the full year,” concluded Melo.

In announcing the full-year results, Amyris highlighted:

• Record-low farnesene cash production runs below $2.50 per liter due to robust yeast strain performance and continued operational improvements at our industrial biorefinery.

• Better-than-planned cash production costs for our first fragrance molecule, meeting critical milestones for a leading collaboration partner.

BD-Amyris-022615-2

• In marketing, the company introduced several new products, including a new emollient under our Neossance line; a high-performance solvent for industrial cleaning under brand name Myralene; and renewable jet fuel with our partner TOTAL, now included in global aviation specifications.

• Operationally, Amyris upgraded the Brotas plant during current sugarcane inter-harvest season, “allowing us to continue our focus on reducing production costs in 2015.”

New financing

At the same time, Amyris announced that it entered into a Common Stock Purchase Agreement under which Amyris may from time to time sell up to $50 million of its common stock to Nomis Bay Ltd. over a

24-month period. Amyris will control the timing and amount of any sale of common stock to Nomis Bay, and will know the sale price before instructing Nomis Bay to purchase shares. When and if Amyris elects to use the facility, the company will issue shares to Nomis Bay at an undisclosed discount to the volume weighted average price of Amyris’s common stock over a preceding period of trading days.

The company’s cash had dwindled to $43.4M by year end.

“This facility provides us with a flexible source of common stock financing as our business grows, allowing us to strategically manage whether and when to draw on the facility based on market dynamics and other considerations,” said Melo.

Analyst reaction

Cowen & Company’s Jeffrey Osborne writes:

“Amyris posted soft Q4 results, with revenue of $11.6 mn down 25% y/y and non-GAAP EPS of ($0.40) below Street of ($0.29). Soft product sales were a function of timing and a decline in fuel sales due to oil economics. The shift of collaboration revenues to contract milestones provides better perspective going forward. Management guided $100+ mn revenue for ’15, carried by an expected record Q1.”

Raymond James’ Pavel Molchanov comments:

“Recommendation. After a period of retooling while in the “overpromise and underdeliver” penalty box, 2013-2014 were Amyris’ first years with operations truly in commercial mode. There is visible scale-up progress, but the historical reliance on partner-based R&D payments makes quarterly financials choppy. There was a sizable miss on the top line, with product sales falling from 3Q’s $11.5 million to only $4.7 million, partly due to dollar headwinds. Cash on hand ended the quarter at $43 million, down from $69 million as of 3Q.”

“Over the past month, Amyris entered two brand-new market segments – both in the high-value, non-oil-levered category. January marked the launch of industrial cleaning products based on the Myralene renewable solvent platform, with the goal of selling into the auto service market and other industrial end users.

BD-Amyris-022615-3

“Even more intriguingly, the microPharm discovery and production platform aims to provide the pharma industry with an integrated process for developing therapeutic compounds. While microPharm may seem like a departure from Amyris’ business focus, it’s worth recalling the company’s past (pre-IPO) work on antimalarial drug precursors.”

What does it cost and what does Amyris make on farnesene?

As Osborne noted: “Management has guided an ASP range of $6 to $8 per liter for 2015…with continued farnesene cost reductions, which is now below $3 per liter in cash production cost.”

What is the product mix expected in 2015?

Fragraces 30-35%
Emollients 20-25%
Solvents/cleaning 10%
Fuels 10%
Collaboration revenues 20-30%

The Digest’s Take

We’ve watched Amyris through its period as the #1 Hottest Company in the sector, through a value-crash after delays in getting to commercial-scale production volumes, it’s “Comeback of the Year” period in 2013-14 as it put production right, and now into its first strong commercial flowering. A sense of excitement has returned to the Amyris story — it’s become more about product surprises and the upside than operational surprises and the downside.

The cash production cost remains high. $2.50 per liter is going to drive some exciting returns in niche markets such as fragrances — and pharma opportunities will abound — but the larger markets in chemicals and fuels will have limited exposure to Amyris products for now.

Bigger and better?

Back in 2010, Amyris released some interesting figures on its performance — of course, these were before full-scale production got underway in Brotas. At the time, the company disclosed that it had reached 16.8% farnesene yields. Maximum theoretical is 30%. We haven’t heard much lately about actual production yields, but usually somewhere around 85% of theoretical is a reasonable limit in day-to-day operations, and that would put Amyris at around 25% yields. Product recovery rate in 2010 was already 95%.

BD-Amyris-022615-1

So that leaves the company with a pound of product from four pounds of sugar, which would cost $0.56 (at the current sugar price of $0.14 per pound) – and with 7 pounds of diesel in a gallon — the big markets in fuels are going to be a tough proposition for some time to come. And that’s not taking into account the operation cost of the facility or the amortized capex.

But there are a number of caveats there. Firstly, Brazilian projects do not buy sugar, they make cane sugar and the production price can be somewhat lower, if cane yields are good. More importantly, Amyris may not be making jet fuel from C15 farnesene at all — but rather, might make it from C10 isoprenoids, where the theoretical yields will be much higher.

To that end, it’s worth noting that Amyris still has on the books agreements with Sao Martinho to build two new production plants that would each be double the size of its first commercial faciliity in Brotas — overall, a quadrupling of capacity and better economies of scale.

BD-Amyris-022615-4

In 2012, Amyris CEO John Melo addressed most of these hopes in his springtime address at ABLC, projecting at the time that the company would produce finished products in six verticals — fuels, lubrivcants, polymers & plastic additives, home & personal care, flavors & fragrances and cosmetics. We’ve seen most of those product lines come to life, and the pharma route is a seventh route to revenue for the company.

As Pavel Molchanov notes. “The market wants to see more clarity on the pace at which Total will be scaling up its fuels joint venture with Amyris – a prospect we have questions about in the context of the oil and gas industry’s current period of austerity.”

BD-Amyris-022615-5

In two weeks, Melo will come back to ABLC with another major address — and we’re looking forward to hearing more about the Total JV, the potential for added capacity, the efforts to drive down production costs that open new marlets, and the state of efforts to unlock the large markets in fuels and chemicals that will take Amyris along the road toward “billion-dollar company” status.

Especially, the world of jet fuels.

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

February 22, 2015

SolarEdge looks to Raise $125 Million in IPO

By Tim Conneally

From a huge crop of Israeli cleantech companies, solar power optimization and management startup SolarEdge has filed for a $125 million initial public offering on the NASDAQ exchange.

SolarEdge has been talking about IPO since 2011, but opted instead to work with venture capital through three separate funding rounds. By the time it completed its Series D, SolarEdge had raised a total of $37 million from more than ten venture capital groups.

The company's CFO recently told Bloomberg that it was difficult to grow such a large company with only private money. An IPO was a given, it was just a question of when it would happen.

Yesterday, the Securities and Exchange Commission published SolarEdge's S-1 filing that revealed the nuts and bolts of this offering.

What SolarEdge offers

A major problem for solar panels is how easily their output can be lessened. When even a portion of a solar panel loses its direct sunlight, the energy output is compromised. SolarEdge claimed to maximize efficiency of panels to mitigate the effects of things like partial solar shading.

By correcting inefficiencies in DC to AC conversion, SolarEdge claimed to be able to boost energy output by as much as 30 percent.

The value of the company is in its patented power inversion technique. It's an upgrade to the dominant method of harvesting solar power. In short, the system uses a distributed architecture of power optimizers. The SolarEdge system hooks up each photovoltaic (PV) module in the array with its own low-cost optimizer. The whole network of optimizers is monitored and managed by a cloud-based interface.

In the company's SEC filing, it describes itself in the following way:

“Our system enables each PV module to operate at its own maximum power point ("MPP"), rather than a system-wide average, enabling dynamic response to real-world conditions, such as atmospheric conditions, PV module aging, soiling and shading and offering improved energy yield relative to traditional inverter systems...Our architecture allows for complex rooftop system designs and enhanced safety and reliability.”

SolarEdge is a B2B company. It sells this solution to solar providers of various sizes in 45 different countries so far. It works with big installers like SolarCity (NASDAQ: SCTY) Vivint Solar (NASDAQ: VSLR) and SunRun and claims to have shipped more than 4.5 million power optimization units and 201,000 inverters since its founding in 2006. Approximately 95,000 installations are hooked up to its cloud monitoring platform.

In 2013, the company's revenue was $79 million. In 2014, revenue grew to $133.2 million. The comany's revenue for the first six months of fiscal 2015 have been double that of the previous year. After a history of losses and negative cash flow from operating expenses, the company is posting a net gain for the first six months of this fiscal year. The first six months of fiscal 2014 resulted in a $13.1 million net loss. So far this year, it's tracked a $5.9 million gain.

But that's an extremely limited run. The company's ability to generate a profit seems to be the biggest question, and it's marked as the number one risk factor in the SEC prospectus. Sure, they market their ability to optimize solar panels for output, but can they optimize their operating costs so they can turn a consistent profit?

SolarEdge will trade under the symbol (NASDAQ: SEDG), and it will not yield cash dividends at any point in the forseeable future.

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

February 20, 2015

The Light On Blue Sphere's Horizon

by Debra Fiakas CFA

The stakes were high at the beginning of its fiscal year 2015, as Blue Sphere, Inc. (BLSP:  OTC/QB), a developer of waste-to-energy projects, was facing deadlines to fulfill its contractual commitments to the sellers of its two ‘front burner’ waste-to-energy projects in North Carolina and Rhode Island.  In the four intervening months it appears Blue Sphere has won all bets.

Blue Sphere had purchased a biogas project from original owner Orbit Energy and had received an equipment financing commitment from Caterpillar.  Unfortunately, an equity financing source withdrew its interest as a year-end 2014 deadline drew near to make a final payment.  Behind the scenes in the final months of 2014, Blue Sphere was able to forge a new alliance with York Capital Management and its subsidiary York Renewable Energy Partners.  

The alliance was formalized through a new limited liability company, Concord Energy, in which York holds 75% interest and Blue Sphere owns 25%.  The original purchase agreement Blue Sphere had struck with Orbit Energy to buy the Charlotte project was allowed to expire and the new Concord Energy JV bought the project.  York will be responsible for financing the remaining development budget.  The original project budget totaled $27.3 million, of which the anaerobic digesters and related plant equipment represents the largest portion at $17.4 million.  Blue Sphere will be responsible for bring the project to commercial operation sometime before the end of 2015.
 
Austep+Biogas+Diagram[1].jpg
Source:  Austep SpA, a Blue Sphere equipment supplier and contractor

The deal is transformative as it appears to put Blue Sphere on track to have an operational biogas plant in the Unites States by the calendar year-end 2015.  Management indicates it has been so confident in the Charlotte project that they had continued to work closely with its engineering firm to break first ground.  A food waste supply agreement and an electricity off-take agreement remain in effect.  Accordingly, if the plant is commissioned on schedule, we expect the project to contribute income beginning in second fiscal quarter 2016.  Preliminarily, an estimated $1.0 million per year could be added to annual pre-tax income from the Concord Energy JV.
 
Blue Sphere is also working with York Renewable Energy Partners on a similar joint venture for a food waste-to-energy project in Rhode Island.  That deal is expected to close by the end of February 2015, with terms similar to those struck for the North Carolina project.  If completed on schedule, the Rhode Island project could contribute to Blue Sphere income by second half fiscal year 2016.

Management has made progress with the pending acquisition of four biogas facilities in Italy.  Due diligence has been completed and Blue Sphere has lined up financing from an Israeli private equity fund.  Thus closing appears possible within the March 2015 quarter.  After the closing Blue Sphere will own a 70% share of the Italy biogas plants, which are reportedly fully operational and profitable at one megawatt in electricity generation.  The Italy biogas plants could contribute to sales and earnings beginning in the fiscal third quarter ending June 2015.

Blue Sphere appears poised to move from development to operating stage with the pending acquisition of fully operational biogas power generation plants in Italy.  Upon closing the Company may report its first revenue and earnings from power sales as early as the quarter ending June 2015.   The report of sales and earnings should have an impact on valuation as investors gain confidence in management to deliver promised results.   We also expect announcements related to progress on the Company’s two most advanced development projects in North Carolina and Rhode Island to have a catalytic impact on sentiment toward the Company.

At the current price level, the stock is valued much like an option on management’s ability to execute on strategic plans.  However, upcoming milestone announcements are expected to shift valuation to earnings.  In a research report recently published by Crystal Equity Research, BLSP was a speculative security and therefore appropriate only for investors with strong tolerance for risk and price volatility.  More details on these recent developments and the company’s most recent financial report can be found in the report.

If Blue Sphere can reach operating stage and begin report sales and earnings, it could have a salutary effect on the biogas sector.  There are few public companies in the sector in the first place and even fewer that have operations of significance.  Even for those investors for whom BLSP presents more risk than accommodated by their investment temperament, Blue Sphere is worth adding to a watch list of the biogas sector.

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. Crystal Equity Research has published a research report on BLSP in its Focus Report Series, a sponsored research publication.  Please read the important disclosures related to sponsorship and subscriptions in the final pages of all reports.

February 17, 2015

BYD Hopes To Recharge With Asset Sale

Doug Young

Bottom line: BYD’s latest asset sale, combined with its new auto finance joint venture, are both aimed at boosting its struggling EV business, but it may have to sell off more assets before the market finally starts to gain some momentum.

Struggling electric car maker BYD (HKEx: 1211; Shenzhen: 002594; OTC:BYDDF)  is starting to look a bit desperate, announcing a major asset sale just days after it received approval for a stalled finance joint venture aimed at boosting its sputtering sales. The approval this week for its auto finance joint venture comes as rival Geely (HKEx: 175) also has just announced its own approval for a similar stalled joint venture with France’s BNP Paribas (Paris: BNP). That indicates Beijing may be starting to worry about a broader slowdown in China’s car market after several years of breakneck growth.

China’s big domestic automakers like Geely and BYD have suffered over the last few years, as they rapidly lost share in their home market to big global rivals like General Motors (NYSE: GM) and Volkswagen (Frankfurt: VOWG). BYD has suffered more than most of its domestic peers, since it also placed big bets on an EV program that has yet to gain much traction despite Beijing’s strong desire to develop the clean energy sector.

Earlier this week BYD announced it had finally won approval from the banking regulator to set up a vehicle financing joint venture that it previously announced nearly a year ago. (previous post) That initiative should help both its traditional and especially its new energy car sales, since EVs are typically quite a bit more expensive than traditional cars and also face a wide degree of skepticism from mainstream consumers that BYD is targeting for the market.

Now BYD, which is backed by billionaire investor Warren Buffett, has just announced it is selling off one of its older electronic component businesses, in what looks like a bid to raise cash to shore up its shaky financial position. Under the deal, BYD will sell its BYD Electronic Components unit to Holitech (Shenzhen: 002217) for up to 2.3 billion yuan ($370 million). In exchange, BYD will get cash and up to 12.3 percent of Holitech, a dubious looking chemical company traded on the Shenzhen stock exchange.

BYD is quite direct in saying the sale is part of an asset disposal as it focuses on its newer core businesses in the traditional and new energy auto sectors, including battery technology. The electronic component business it’s selling was actually one of its more profitable units, generating about 200 million yuan in profits last year. Shareholders seemed to welcome the disposal, with BYD’s Hong Kong-listeed shares rising nearly 5 percent on the news.

Meantime, Geely will follow BYD into the auto finance sector, with word that it’s received approval from the banking regulator for its previously announced joint venture with BNP. (company announcement) Geely says the approval means it can now set up the joint venture, which could become operational within the next 6 months. Geely first announced this joint venture more than a year ago (previous post), and it does seem like the regulator’s approval of both the Geely and BYD joint ventures in the same week is probably not just coincidence.

The fact of the matter is that China’s broader car industry has shown signs of a rapid slowdown in recent months, in tandem with the nation’s broader economic slowdown. National car sales this year are forecast to grow only about 7 percent this year after posting a disappointing similar rate in 2014. Sales had been growing at double-digit rates before that, as China overtook the US to become the world’s biggest car market in 2010.

This latest asset sale by BYD, combined with its new auto financing joint venture, could buy the company some valuable time for its struggling EV initiative. Beijing has been working hard to promote the development of necessary infrastructure like charging stations to make EV ownership more attractive for average consumers, and many of the new projects will come on stream this year and next. It’s possible that development could provide some new life to BYD and its sagging stock. But it’s more likely the sector will continue to struggle in China, like it is in the rest of the world, and BYD may have to sell off more assets to stay afloat.

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

February 16, 2015

The Top Ten PV Manufacturers: What The List Doesn't Mean


by Paula Mints

Every year at this time lists of lessons learned during the previous year give way to lists of top ten PV manufacturers. It’s time to ask what these lists mean, and whether they have a purpose to the ongoing growth and health of the photovoltaic industry.

So Many Numbers, So Little Time

There is more than one way to size the photovoltaic industry and unfortunately, much of the time are the metrics are considered to be synonymous.  The PV industry is sized by capacity, shipments, production, module assembly capacity, installations and grid connections.  Since all of these metric describe something different, a host of misunderstandings can, and often do, arise.  Many times a one-to-one relationship is assumed between installations and shipments.  The difference between c-Si cell and thin film capacity and module assembly capacity is often misunderstood.  The role of inventory is overlooked. 

Many times the goal of sizing the PV industry is to announce continue growth, whether this growth is profitable or not.  All industries suffer a similar fate in this regard; growth is prized, whether or not it is healthy growth.

Figure 1 presents various metrics used to size the PV industry.  The metrics presented in Figure 1 are 2014 supply and demand inventory, module assembly capacity, commercial c-Si cell and thin film capacity, production, shipments from annual production, shipments + inventory and defective modules. In 2014, quality issues primarily with crystalline cells were found in modules that had been installed for, in some cases, over ten years.  In some cases, replacement of these defective modules requires a system redesign. 

Figure 1: 2014 PV Industry Metrics

Module assembly capacity, though not trivial, ramps up more quickly than c-Si or thin film capacity. Traditionally, the PV industry has had more module assembly capacity then c-Si cell and thin film manufacturing capacity.  The size of the PV industry is limited by its semiconductor capacity.  In 2014, the PV industry had ~50-GWp of module assembly capacity and 45.9-GWp of c-Si cell and thin film capacity.  This means that in a perfect world at 100% utilization and without considering inventory, PV industry shipments could only amount to 45.9-GWp. 

Manufacturers announcing quarterly and annual shipment data often (meaning, close to 100 percent of the time) do not differentiate between cell capacity and module assembly capacity.  When these numbers are taken at face value the industry is oversized, often significantly.  This is important for several reasons — one business reason is that manufacturers establishing a strategic direction need to have an accurate understanding of the competitive landscape in which it operates.

Table 1 presents data for the top ten manufacturers (as of publication) for 2014.  A final assessment will not be available until all shipment data are tallied. At that time, inventory from the previous year will be factored into the analysis. 

The manufacturers in Table 1 had 2.7-GWp more module assembly capacity than c-Si cell and thin film manufacturing capacity.  A manufacturer can only ship to the limit of its cell/thin film capacity + inventory in any given year.  It is common practice for manufacturers to buy cells from other sources and assemble these cells in-house, including the resulting product in annual shipment numbers. 

Table 1: 2014 Top Ten Manufacturers Shipment Estimate, Capacity, Module Assembly

One reason the annual top ten manufacturer list has lost meaning is that the buying and selling of cells/modules obscures an accurate count and sizing of the industry.  Another reason the annual top ten manufacturer list has lost meaning is that for many years shipments were not profitable.  Recognition of an unprofitable achievement does not support the worthwhile goal of establishing a healthy, thriving industry. Celebrating data that obscures the facts does not help new and established entrants understand the industry landscape in which they compete.   

Top Ten PV Manufacturers Over Time

Today’s number one manufacturer may be out of business tomorrow or merge with another more nimble entity.  Table 2 presents the top ten c-Si cell and thin film manufacturers from 2001 through the 2014 estimate.  Sharp Solar was the number one manufacturer from 2001 through 2007.  Sharp Solar has reduced capacity significantly overtime.  Q-Cells was the number one manufacturer in 2008.  Q-Cells c-Si business was acquired by Hanwha and its CIGS business was acquired by Hanergy.  Other Q-Cells’ businesses are no longer operating.  Suntech was the number one manufacturer in 2010 and 2011.  Suntech declared bankruptcy. 

Several manufacturers on the annual top ten list, such as Schott, AstroPower and BP Solar exited during trying (unprofitable) times.

Historically, and taken in context with what was happening at the time, the annual top ten list has much to teach and perhaps becomes more relevant over time.  Beginning in 2004, the PV industry began to experience accelerated growth. This growth was driven by the EU Feed in Tariff. In 2005, high prices for polysilicon began to pressure crystalline manufacturers.  During these days, investment in thin film technologies increased, the turnkey equipment concept was announced as the future of the industry and longtime participants without polysilicon contracts in place began to struggle. 

In 2009, aggressive pricing from manufacturers in China began to pressure crystalline manufacturers in other regions and First Solar, a manufacture of CdTe panels was the first and only thin film manufacturer to lead the list.  During 2011, 2012 and 2013, survival was the most important PV metric as low margins became impossible to hide. Many manufacturers ramped up during the early days of the EU FiTs, assuming that growth would continue unabated.  Still, even during unprofitable times, those on the top ten list were recognized. 

Table 2: Top Ten PV Manufacturers 2001 – 2014 Estimate 

The top ten list is primarily useful in hindsight, offering lessons about what pitfalls to avoid and where caution might have forestalled failure. It is used most often as a marketing tool, and, when the data are obscured or are confusing, is of little use in that regard. 

Paula Mints is founder of SPV Market Research, a classic solar market research practice focused on gathering data through primary research and providing analyses of the global solar industry.  You can find her on Twitter @PaulaMints1 and read her blog here.

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

February 15, 2015

Chinese Bureaucracy Casts Cloud Over Shiny Solar Finance

Doug Young

Bottom line: Complaints of problems from a major solar plant builder reflect the difficulty of new construction in China, and could wreak havoc on the sales and finances of panel makers and their construction partners.


Solar entrepreneur Shi complains of bureaucracy

Two solar energy news items are showing both the attraction and also the frustration that developers are feeling as they try to build new clean-energy power plants to help China wean itself from its dependence on fossil fuels. On the attraction side of the story, the industry has just won a major new backer in the form of insurance giant Ping An (HKEx: 2318; Shanghai: 601318), which is teaming up with panel maker Trina Solar (NYSE: TSL) in a new plant-building initiative.

But the frustrations that many plant builders are feeling were on prominent display in a separate report that cited another major developer complaining of the difficulties of new construction. Those kinds of complaints aren’t really new, and are being caused by provincial government interference and other local issues in the many remote locations where new plants are being built.

While solar power proponents are quite happy to talk about all the money they’ve raised and their big plans for new plant construction, few like to talk about the many troubles they face when they actually try to build those plants. Everyone is being attracted by Beijing’s ambitious plans to build up solar power in the country, partly to support the nation’s big field of solar panel makers and partly to clean up the nation’s polluted air.

Beijing has repeatedly boosted its target for new solar plant construction, with a current aim of installing 35 gigwatts of capacity by the end of this year. And yet an industry official was cited last fall saying that only 10 gigawatts were likely to be added by the end of 2014, making the 35 gigawatt target look nearly impossible to reach. Despite that, the ambitious target has continued to draw in big investors who believe Beijing and local governments will provide them with financial and other assistance in the drive to realize China’s solar energy dreams.

Now Shanghai-based entrepreneur and multi-millionaire Shi Yuzhu is showing just how difficult the road to solar construction can be in China. Shi announced a major new solar construction fund last year, but his enthusiasm has quickly turned into frustration since then. A new media report cites Shi as complaining on his microblog that of the 3 major plants his fund was planning, 2 have run into difficulties that could delay them indefinitely. (Chinese article)

The article details the situation with one stalled project in Inner Mongolia, but the bottom line shows that local government officials are playing their usual tricks designed to benefit themselves rather than facilitate business. Such games are quite common in China, especially in less developed provinces like the ones where many solar plants are being built. Shi is probably being hurt by his own lack of experience as well, but it’s quite likely that his story is being repeated at many similar projects around the country. That certainly doesn’t bode well for solar panel makers or plant builders.

One such panel maker that was counting on a local construction boom is Trina, which has just announced a new plant-building initiative with PingAn Trust and Jiuzhou Investment Group, an investment arm of the Jiangsu provincial government. (company announcement) The trio plan to build new solar plants with total capacity of up to 1 gigawatt over the next 3 years. The arrangement looks quite risky for Trina, as it appears Trina will borrow money from its partners for plant construction, and give them the option to convert the loans into equity ownership at a future date.

Trina and its peers like Yingli (NYSE: YGE) and Canadian Solar (Nasdaq: CSIQ) have announced a string of similar initiatives, which often see the companies join hands with financial backers for new plant construction. If a big portion of those plans runs into troubles like the ones we’re seeing from Shi Yuzhu, which seems almost inevitable, both panel makers and their plant-building partners could find themselves in a big mess that could wreak havoc on their finances and even threaten their survival.

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

February 13, 2015

Enphase Acquires O&M Provider Next Phase Solar

Meg Cichon

Enphase (ENPH) has been slowly inching its way into the solar service business on both a residential and commercial scale, and may even tap utility-scale projects in the near future, according to Marty Rogers, Enphase’s vice president of worldwide customer service and support. Last year Enphase announced a partnership with solar crowdfunding platform Mosaic to offer O&M services to residential solar loan customers. More recently, it announced a commercial O&M offering that combines its C250 commercial microinverter technology with services that assist the design, installation and maintenance of solar projects, including cloud-based monitoring and a dedicated service team.  

Next Phase Solar adds both residential and commercial projects to Enphase’s portfolio — about 70 percent of those are commercial installations, and the remaining 30 percent residential with a small amount of utility-scale.

“This is a repeatable business and it will be interesting moving forward since the market is really based on both the increase and age of installations,” said Rogers. “We don't see anyone else grabbing this market sector, so we decided it was a great move for us to go after it.”

With services that encompass project needs from start to finish, Enphase claims that its system will reduce financial uncertainty and capital costs while enhancing system performance and ultimately the return on investment (ROI). It’s sort of like commercial office space, explained Rogers. If an owner maintains office space with the highest levels of efficiency, the asset will stay strong and valuable. However, if the owner leaves the asset alone, it will decrease in value over time. “What we’re saying is: Let’s create asset value over a longer period of time, and include documentation to prove that it has been maintained — this will prolong the life and value of the system.”

Enphase also revealed a new Energy Management System at the 2014 Solar Power International (SPI) conference, which is set to hit the market in the third quarter of 2015. The system combines its microinverters, storage and monitoring technology and aims to satisfy the growing commercial and residential storage-plus-solar market that is set to reach 318 MW by 2018.

“The energy storage business requires service, and it will be important to have the right teams in the right places to maintain systems,” said Rogers. “This will be huge for those trying to dive into residential storage, and I can’t think of one company that has a residential fleet for service — but you have got to have this.”

Meg Cichon is an Associate Editor at RenewableEnergyWorld.com, where she coordinates and edits feature stories, contributed articles, news stories, opinion pieces and blogs. She also researches and writes content for RenewableEnergyWorld.com and REW magazine, and manages REW.com social media.  Formerly, she was an Associate Editor of ideaLaunch in Boston, MA. She holds a BA in English from the University of Massachusetts and a certificate in Professional Communications: Writing from Emerson College.

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

February 11, 2015

Tesla Hopes To Electrify Weak Chinese Sales

Doug Young

Tesla Logo

Bottom line: Tesla’s weak China performance owes mostly to its lackluster marketing to wealthy, status-conscious Chinese car fanatics, but its situation could quickly improve if it finds a new marketing-savvy country head.

After roaring into China last year on a wave of hugely positive publicity, electric car superstar Tesla (Nasdaq: TSLA) has rapidly lost momentum and now appears on the cusp of a major overhaul in a bid to jump-start its prospects. This kind of development isn’t hard to understand, as Tesla’s charismatic CEO Elon Musk set the bar incredibly high when he sold his company’s first electric vehicle (EV) in China last April.

One of Musk’s and Tesla’s obstacles has been Chinese consumer reluctance to buy EVs, despite Beijing’s strong desire to promote the clean technology. But Tesla’s target market was never really the mainstream consumer anyhow, and instead Musk was pursuing wealthy, status-conscious people who like to be first adopters of trendy new technologies. In that regard, Tesla’s marketing efforts have also sputtered despite Musk’s strong launch for his brand in China last year. (previous post)

I wasn’t surprised by the latest reports saying Musk is preparing to fire some of his key international managers, since Tesla’s China chief left the company in December after just 9 months on the job. (previous post) But what did surprise me was just how weak Tesla’s China sales were. According to the latest reports, the company sold just 120 cars in China in January, translating to an annual sales rate of 1,440 this year. (English article) That’s a far cry from previous reports that said the company was targeting 2015 sales ranging anywhere from 4,000 to as many as 8,000 vehicles.

Musk isn’t used to failure, and the latest reports say he’s sent out an email threatening to fire or demote more country managers unless they can demonstrate a “clear path to long-term positive cash flow”. It’s a bit unclear who exactly received the e-mails, though it seems unlikely they would have been directed at anyone in China. That’s because any country managers there would be quite new, and it’s also quite possible Tesla hasn’t even hired anyone yet to replace outgoing country chief Veronica Wu.

Tesla was holding out big hopes for China a year ago, saying its sales there could quickly grow to levels comparable in its main US market. But the market has been much slower to take off than expected, and Musk previously said that China sales were unexpectedly weak in the fourth quarter. He promised to fix the problem and be back on track with his aggressive growth targets by the middle of this year.

People like Musk tend to be very marketing savvy and in control of their companies, and I suspect this latest email threatening firings was leaked to the media with his direct knowledge, or at least the understanding that he wouldn’t object. Some may blame China’s broader sputtering EV initiative on lack of infrastructure and consumer confidence, which has hurt the prospects of companies like BYD (HKEx: 1211; Shenzhen: 002594; OTC:BYDDF) that are targeting more mainstream Chinese car owners.

But as I’ve said above, Tesla’s problems in China owe more to a lack of savvy marketing and perhaps weak customer support. Musk gave his company a huge boost by generating non-stop publicity during his trip to China last spring for its first sales, creating plenty of buzz and positioning Tesla as a top-tier brand. But the executives who ran the show after his departure clearly couldn’t maintain the momentum, and Tesla has largely disappeared from the headlines since then.

All of that said, the big question is: What’s next for Tesla in China? The answer is that the company’s local operations are clearly broken, and Tesla badly needs a marketing-savvy person who understands Chinese thinking to fix the situation. Such people certainly exist, and the key will be for Musk to find one such person who can build a strong marketing team. If he does, which seems likely, I could envision a turnaround for the company around the middle of the year, which would start with a new campaign launched by by Musk himself.

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

February 09, 2015

Cosan's Crush

by Debra Fiakas CFA

Last week Cosan Limited (CZZ:  NYSE) revealed a decision to delay the spin-off and recapitalization of its natural gas distribution network, COMGAS.  Management cited unfavorable capital market decisions.  Cosan has a mix of businesses, of which we have been most interested in its Raisen Energia sugar cane agriculture and ethanol production.  Raisen is a joint venture with Royal Dutch Shell that was initiated in 2011.  The operation squeezes over four million tons of sugar from cane grown in its fields and two billion liters of ethanol each year. The ethanol is sold through Shell’s network of gas stations in Brazil.  Raisen has also become player in electricity generation from sugar cane bagasse with 900 megawatts of installed capacity.
 
CZZ shares have been in a steady decline over the past two years, with only a couple of short-lived attempts at price recovery.  There is a good reason for Cosan management to look for strategic solutions.  In combination Cosan businesses command a market value of $1.8 billion.   I imagine that we were not the only Cosan watchers who wondered whether the sum of the parts might worth well more than the whole.
 
Perhaps part of the problem is the erosion of Cosan’s image as a ‘clean’ energy company.  Cosan shares first began trading on the NYSE in late 2008 and investors warmed immediately to the mix of sugar cane agriculture and ethanol production.  The market capitalization of Cosan at the close of trading that first day was $912 million.  The company had already achieved profitability and staged its U.S. equity market debut on a strong sales growth and profitability in the year 2007.  Sugar and ethanol sales represented 94% of Cosan’s business back then.
 
Fast forward to present time, Cosan has given up 50% portion of the sugar cane and ethanol operations to shell in the Raisen Energia joint venture and acquired the COMGAS business.  Based on the sales Cosan reported in the first nine months of 2014, Raisen’s sugar and ethanol sales fell to 77% of Cosan’s reported revenue and the natural gas distribution business had stepped up to 16% of the mix.

There are of course other factors that could be irritating investors.  Cosan’s net profits were dramatically higher in the first nine months of 2014 compared to the same period in the prior year.  However, cash operating earnings (EBITDA) grew by only 5.6% year-over-year in large part because Raisen Energia only managed to contribute half of the company’s cash earnings despite being over three quarters of the sales mix.  COMGAS on the other hand delivered a 23.8% operating margin in the first three quarters of 2014.

It seems Cosan’s ‘green’ business has given the company a black mark.  Management move to break up the company is probably more for the sake of getting its highly profitable (and valuable) natural gas operation out on its own than in burnishing its image as a ‘green’ company.

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. CZZ is included in Crystal Equity Research’s Beach Boys Index of companies developing alternative energy using the power of the sun.

February 08, 2015

Sol-Wind: A Unique Yieldco

By Jeff Siegel 

President Obama gave renewable energy investors a very nice gift this week...

As a part of his new budget proposal, the president is seeking a 7.2% increase in funding for “clean energy.” As well, he is asking for a permanent extension for the solar investment tax credit (ITC) and the wind energy production tax credit (PTC).

The solar ITC is set to expire at the end of 2016, and the wind energy PTC has already expired.

I can pretty much guarantee that a permanent extension of these tax credits is not going to happen. However, because so many red states generate an enormous amount of tax revenue and jobs from solar and wind, it is likely that both sectors will be thrown some sort of bone — particularly solar, as the industry now supports nearly 174,000 jobs

That data does not fall on deaf ears, despite the dog-and-pony show some lawmakers will put on during election season.

No, solar is the real deal. The market is booming, and cost reductions continue to make it more and more affordable for homeowners and businesses.

Which is why I hope you've been taking some of my advice over the past couple of months and taken a position in some of the more impressive solar names, like SunEdison (NYSE: SUNE), SunPower (NASDAQ: SPWR), and Canadian Solar (NASDAQ: CSIQ). 

Canadian Solar absolutely crushed it yesterday after announcing its acquisition of Sharp Corporation's Recurrent Energy. Check it out...

csiqbo

Recurrent has a massive utility-scale project pipeline that's scheduled to be built before the planned date of the solar ITC expiration. This is a huge win for Canadian Solar, representing an estimated $2.3 billion in revenue.

Going forward, I remain bullish on these major solar stocks, as well as the alternative energy yieldcos.

Year of the Yieldco

Back in November, I wrote in my yearly alternative energy predictions report that 2015 will be the year of the yieldco.

Yieldcos essentially allow retail investors to buy into multiple alternative energy assets that produce steady cash flow. For those who are not particularly keen on risk but still want exposure to the burgeoning alternative energy space, this is a great way to do it. Some of the bigger names include:

  • Hannon Armstrong Sustainable Infrastructure (NYSE: HASI)
  • Brookfield Renewable Energy (NYSE:BEP)
  • NRG Yield (NYSE: NYLD)
  • TerraForm Power (NASDAQ: TERP)
  • NextEra Energy Partners (NYSE: NEP)
  • Pattern Energy Group (NASDAQ: PEGI)

And next week, we'll be adding a new one to this list: Sol-Wind (NYSE: SLWD).

MLP for You and Me

As we wrote to our Green Chip readers earlier in the year, Sol-Wind will be the eighth yieldco to debut since 2013. However, this one is a bit different in that it seeks to utilize a master limited partnership (MLP) structure, so it'll actually be taxed differently from other yieldcos.

Now, because federal law does not currently permit MLPs for renewable energy companies (although oil and gas companies are permitted), Sol-Wind must utilize an exemption that allows certain publicly traded master limited partnerships to be taxed as partnerships instead of corporations.

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.

Back in 2012 and 2013, several bills known as the MLP Parity Act (MLPPA) were submitted to Congress, seeking to amend the tax code for publicly traded partnerships to treat all income from renewable and alternative fuels as “qualifying income.” The Senate bills and House resolutions known as the MLP Parity Act died in committee.

However, if an MLP Parity Act is enacted, the company could then be able to use a normal MLP structure, thereby allowing it to dodge extra corporate-level tax.

Long story short, Sol-Wind found a way to utilize an MLP structure despite the fact that renewable energy is still technically not invited to the MLP party.

$400 Million

Sol-Wind management describes the company as a growth-oriented limited partnership formed to own, acquire, invest in, and manage operating solar and wind power generation assets that generate power for retail, municipal, utility, and commercial customers under long-term power purchase agreements.

Following the completion of the IPO, Sol-Wind will acquire from its general partner equity and debt interests in an initial portfolio that represents 184.6 MW of nameplate capacity solar and wind power generation assets in the United States, Puerto Rico, and Canada.

Currently, the company is planning to issue 8.7 million shares at between $19 and $21 a share. At the high end, this would give it a fully diluted market value of $401 million.

Although it's still yet to be seen how Sol-Wind will compare to other alternative energy yieldcos, it'll be interesting for investors to see how the MLP model performs in this particular case.

Definitely keep a close eye on this one.

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

signature

Jeff Siegel is managing editor of Energy and Capital, where this article was first published.  He is also contributing analyst for the Energy Investor, an independent investment research service focusing primarily on stocks in the oil & gas, modern energy and infrastructure markets.  He has been a featured guest on Fox, CNBC, and Bloomberg Asia, and is the author of the best-selling book, Investing in Renewable Energy: Making Money on Green Chip Stocks .

February 07, 2015

Earnings Round-Up: ADM, Green Plains, Syngenta

Jim Lane

Green Plains

In Nebraska, Green Plains (GPRE) announced net income for the quarter was $42.2 million compared to net income of $25.5 million for the same period in 2013. Revenues were $829.9 million for the fourth quarter of 2014 compared to $712.9 million for the same period in 2013.

Net income for the full year was $159.5 million compared to $43.4 million for the same period in 2013. Revenues were $3.2 billion for the full year of 2014 compared to $3.0 billion for the same period in 2013. Fourth quarter 2014 EBITDA was $90.7 million compared to $63.9 million for the same period in 2013. For the year ended December 31, 2014, EBITDA was $350.7 million compared to $156.6 million for the same period in 2013.

Green Plains had $455.3 million in total cash and equivalents and $187.5 million available under committed loan agreements at subsidiaries at December 31, 2014. Green Plains reduced term debt outstanding by $100.8 million and invested $85.4 million in capital expenditures and acquisitions during 2014.

During the fourth quarter, Green Plains ethanol production totaled 246.6 million gallons, or approximately 96% of its daily average production capacity. Non-ethanol operating income from the corn oil production, agribusiness, and marketing and distribution segments was $23.9 million in the fourth quarter of 2014 compared to $28.2 million for the same period in 2013. Non-ethanol operating income for the year ended December 31, 2014 was $103.8 million compared to $80.9 million for the same period in 2013.

“We continue to focus on profitable growth opportunities within and adjacent to our value chain,” said CEO Todd Becker,. “This year gave us the opportunity to demonstrate the capability of the large diversified platform we have been building over the last 7 years. We produced a record 966 million gallons of ethanol, processed 10 million tons of corn, and earned over $100 million of non-ethanol operating income in 2014. We are also close to achieving our goal of zero net term debt.”

“U.S. ethanol margins have been volatile during the first part of this year. Demand for the product at these lower price levels remains robust, both domestically and internationally. We expect the industry will continue to adjust to lower energy prices and remain optimistic we will perform well over the coming year,” added Becker. “Green Plains just completed its sixth consecutive year of profitable operations, a testament to the resiliency of our people, our assets and our strategy.”

More on the story.

ADM

In Illinois, Archer Daniels Midland Company (ADM) reported net Q4 earnings of $701 million and segment operating profit of $1.26 billion.

After adjustments, Oilseeds operating profit of $395 million decreased $107 million from excellent year-ago results. Crushing and origination operating profit decreased $46 million to $206 million. Higher capacity utilization and improved margins helped drive record soybean crushing results in North America and very strong European crushing results. Results in South America were significantly lower, due to reduced crush margins, continued slow farmer selling, and weaker fertilizer results. Refining, packaging, biodiesel and other generated a profit of $99 million for the quarter, down $69 million. Overcapacity pressured margins in European biodiesel during the quarter, while year-ago North American biodiesel results benefited from a surge in demand ahead of the expiration of the U.S. blender’s credit.

“The Agricultural Services team executed well to capitalize on strong conditions, while international merchandising continued to show year-over-year recovery,” said ADM Chief Executive Officer Juan Luciano. “In North America and Europe, Oilseeds showed strong year-over-year growth, offset by weaker results in South America. Looking ahead in North America and Europe, solid crush margins and export opportunities have carried into the first quarter. Market conditions in South America Oilseeds should improve with the large harvest, and we are working toward higher returns throughout 2015 in this key geography. While U.S. ethanol demand was seasonally strong, boosted by the domestic response to lower gasoline prices, high industry production has built excess inventories. Margins in this industry should remain challenged until supplies are better aligned with demand. We will continue our work to optimize cost and product mix in the Corn business to maximize profitability.”

Bioproducts results increased from $134 million to $217 million, driven by favorable ethanol results. In addition, animal nutrition results improved on better margins and solid demand.

More on the story.

Syngenta

In Switzerland, Syngenta AG (SYT) reported earnings per share of $19.42, up 0.6% from $19.30 reported in 2013. Sales in 2014 lifted 3% year over year to $15.1 billion. The company noted that, at a constant exchange rate, revenues increased 5% on the back of price and volume gains. EAME (Europe, Africa, the Middle East), Latin America and Asia Pacific witnessed a healthy performance with sales growing 11%, 7% and 5% year over year to $4,547 million, $4,279 million and $2,033 million, respectively, on a CER basis. Growth in sales, across all these markets, was driven by Syngenta’s new product innovations and market expansion programs. However, revenues slid 7% in North America to $3,582 million. The year-over-year decline was primarily attributable to low regional temperature and reduced sales of non-selective herbicides and corn.

As of Dec 31, 2014, Syngenta had cash and cash equivalents of $1,638 million compared with $902.0 million on Dec 31, 2013. Financial debt and other non-current liabilities were $1,329 million, down from $1,591 million on Dec 31, 2013. Syngenta generated cash flow from operating activities of $1931 million in 2014, compared with $1,214 million of cash generated in 2014. Capital expenditure stood at $600.0 million, down from $625.0 million incurred in 2013. During the reported period, Syngenta paid dividends totaling $921 million and repurchased shares worth $176 million.

CEO Mike Mack said “Syngenta reached $15bn of sales for the first time. Our integrated sales were up by 6% on a constant exchange rate basis. EBITDA was 7% on a constant exchange rate basis and of course it was impacted by currency. EPS at $19.42 was up 1% and we had strong free cash flow generation during the year, $1.2bn. We had growth in three out of the four regions of the Company on a constant exchange rate basis. Headlining it was Europe, Africa, Middle East where we had 11% growth, which was particularly pleasing given the political upheaval we had in Russia and the CIS early in the year where our leaders got after price increases in local currencies to respond to the situation there.

“Turning to North America, the other big Northern hemisphere region, it was a difficult year in 2014. We got off to a late start with the late spring and that depressed some of the sales of our leading pre-emergent herbicide line and corn acres themselves were down of course and we’ve got a very strong corn portfolio. Then we didn’t get any help from Canada where we experienced some flooding. That said, we’ve got some terrific products in the pipeline and 2015 is right around the corner.”

More on the story.

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

February 06, 2015

Solar: Energy, But Not Oil

by Garvin Jabusch

Solar photovoltaic (PV) as a means of deriving energy is fundamentally different from fossil fuel-based commodities (oil, coal, and gas). Consider: A solar PV panel can be thought of as nothing more than a hugely oversized computer chip -- a bunch of circuitry embedded in a silicon wafer. Indeed, in most economic sector classification schemes (GICS, etc.), PV manufacturers are defined as "semiconductors," which is basically true (if misleading in other ways).  So different are the driving economics behind tech-based and commodities-based means of deriving energy, that we at Green Alpha are recommending to Standard & Poor's and MSCI that they consider formally separating the two into distinct subsectors.

Recently, though, the two types of energy -- oil and solar -- have been trading in tandem, both falling significantly since mid-2014. Traders by and large seem to be thinking "energy is energy." But this "energy-as-monolith" view is not appropriate to the reality of the economics, nor is it supported by the fundamentals.

To illustrate what I mean, a more valid comparison is that a solar PV company like First Solar, Inc. (ticker: FSLR) should trade more like a chipmaker, such as NVIDIA Corporation (ticker: NVDA) or Advanced Micro Devices, Inc. (ticker: AMD), than like West Texas Intermediate Oil. If we're going to treat similar investments as groups, then computer-processing power makes a better analog for solar modules than oil does.

Oil.PV.GLFOPS

Exhibit 1: Costs of Computer Processing Power, Electricity from Solar PV, and Oil Price per Barrel, 1976-2014[i]

In my sole exhibit here (above), it's difficult not to notice the similar and similarly dramatic price declines in solar PV in cost per watt (green line) and computing power in cost per GigaFLOP (blue line) over the last 37 years. Solar-PV–derived power has fallen some 170 times over that period. Computer processing power has declined in cost at many times even solar's rate, owing to huge demand and massive scaling. Meanwhile, Oil (red line) has done what commodities do: fluctuate in price according to demand and supply factors. Oil gets expensive when economies are growing, when there's geopolitical risk, when some nation or supra-national organization decides it wants it to be expensive, and so on.

Technology like computer chips and solar panels, in contrast, nearly always go down in price as demand goes up. Think about the price declines in computers and televisions over just the last five years -- and the simultaneous improvement in the products. But now the global economy can apply that same technology cost dynamic beyond goods to the energy that we use to power those goods and everything else.

Imagine what that means for world economies. When we grow and use more fossil-commodity–based energy, that energy becomes more expensive -- and economic growth is thwarted. But as we grow with technology-based energies, the increasing power demand decreases the cost of that energy and further stimulates economies! Put another way, consider the simulative effects as we realize the IEA's estimate of "over USD 115 trillion in fuel savings"[ii] by 2050 as the transition to tech-based renewables, chiefly solar, advances. Solar, although already grid-competitive in many areas, is just getting started. The blue line in the exhibit suggests what may yet be possible as solar technology evolves to enjoy the same level of scale and investment as semiconductors. Even with using current solar technology, though, $115 trillion is a heck of a liquidity injection.

Solar will become so inexpensive that it will inevitably continue to gain market share from fossil fuels, starting with those used to generate electricity (coal, then natural gas), and then, as the global economy adapts to make better use of renewable electricity in more sectors (think electric cars), it will displace oil. The popular current question "when will renewables reach grid parity?" will seem quaint and even funny in less than a decade. As one report has revealed, "a recent sign of the progress that solar is making in taking over the world: In 42 of the 50 biggest U.S. cities, home to about 21 million single-family homeowners, solar power is now cheaper than electricity from the power grid."[iii] This is happening because, again, as demand increases, so does scale, investment, R&D advances, and declines in installation expense, all of which lead to fast-falling overall costs. Solar PV module costs have declined "75 per cent since the end of 2009 and the cost of electricity from utility-scale solar PV falling 50 per cent since 2010."[iv] Now, reasonable estimates predict that "Solar Costs Will Fall Another 40% in 2 Years."[v]

Like a pundit in the 1960s or 70s predicting that the computers of 2015 would fill entire rooms and be capable of hundreds of calculations per minute, today's observers who believe solar is still an expensive, niche energy source will be proven badly mistaken.

Meanwhile, back in fossil fuel land, costs of production aren't getting any cheaper, even if barrel and pump prices (temporarily) have. Oil is expensive to find and to extract. That's why oil companies were cutting their exploration budgets long before the current oil price decline began in mid-2014. Unfortunately, a decline in oil prices does nothing to lower the costs of exploration and production --  meaning that  oil's margins get squeezed.

No one has written more clearly on this than investor Jeremy Grantham: "As a sign of the immediacy of this problem, we have never spent more money developing new oil supplies than we did last year (nearly $700 billion) nor, despite U.S. fracking, found less -- replacing in the last 12 months only 4 1/2 months' worth of current production! Clearly, the writing is on the wall. It is now up to our leadership and to us as individuals to read it and act accordingly." In a sidebar, Grantham goes on: "The only longer-term price relief and net benefit to the economy will come when either we reverse recent history and start to find more oil more cheaply, which will be like waiting for pigs to fly, or when cheaper sources of energy displace oil."[vi] As economist Gregor MacDonald recently tweeted: "Sorry, did everyone forget Majors started cutting capex in Q1 of 2014, because $100 not enough to outrun declining ROI on runaway costs?"[vii]

In the end, no producer can sell oil for less than it costs to recover it. And those costs are high -- too high to compete in the long run. As Stanford lecturer Tony Seba recently said, "Put these numbers together and you find that solar has improved its cost basis by 5,355 times relative to oil since 1970...traditional sources of energy can't compete with this"[viii] [italics added]. A nexus of effects is arising from the interplay of tech and commodity energy dynamics, and few if any of them are favorable to fossil fuels.

Solar PV is a technology, and its past and future cost dynamics will behave like those of a technology -- becoming ever cheaper. Oil is a finite commodity that is expensive to locate, extract, refine, and ship; it and other fossil fuels have had and will continue to have cost dynamics to match: economically volatile and forever affected by the cost of extraction.

Today, solar competes mainly with the other means of making electricity: coal, natural gas, and nuclear (more on how those stack up in my next post). In the long run, though, as our economy and infrastructure make more and better use of renewable electricity, oil and solar will compete directly in a way that they currently don't . By then, though, renewables, led by solar, will be so inexpensive that cost comparisons with oil will no longer spark argument.[ix] For now, suffice it to say that inexpensive oil can't and won't prevent the solar boom from continuing, because solar and oil, economically, scarcely share the same world.

Garvin Jabusch is cofounder and chief investment officer of Green Alpha® Advisors, LLC. He is co-manager of the Shelton Green Alpha Fund (NEXTX), of the Green Alpha Next Economy Index, the Green Alpha Growth & Income Portfolio, and of the Sierra Club Green Alpha Portfolio. He also authors the Sierra Club's green economics blog, "Green Alpha's Next Economy."

Disclosure: Green Alpha Advisors is long FSLR, and has no positions in NVDA, AMD or Oil.

[i] Exhibit by Jake Raden, Green Alpha Advisors, LLC

Data sources:

GFLOP Data:

  1.   "Cray-1". http://www.cray.com/company/history
  2. "Hardware Costs" http://en.wikipedia.org/wiki/FLOPS

Oil Data:

  1.   Bloomberg Historical Oil Prices; 1976-2014
  2.   Crude Oil Prices from 1861. https://www.quandl.com/BP/CRUDE_OIL_PRICES-Crude-Oil-Prices-from-1861.

Solar PV Data:

  1. Bloomberg New Energy Finance. http://www.economist.com/news/21566414-alternative-energy-will-no-longer-be-alternative-sunny-uplands

[ii] IEA, "Energy Technology Perspectives 2014 Harnessing Electricity's Potential," Global Outlook, 2014. https://www.iea.org/media/ETP14_factsheets.pdf

[iii] Richard, Michael Graham, "In 42 of the 50 biggest U.S. cities, rooftop solar is now cheaper than the grid!" TreeHugger, January 27, 2015.  http://www.treehugger.com/renewable-energy/42-of-50-biggest-us-cities-rooftop-solar-now-cheaper-grid.html

[iv] Parkinson, Giles, "Graph of the Day: The plunging cost of renewables," RenewEconomy, January 19, 2015. http://reneweconomy.com.au/2015/graph-day-plunging-cost-renewables-49704

[v] Parkinson, Giles, "Solar Costs Will Fall Another 40% In 2 Years. Here's Why.", CleanTechnica, January 29, 2015. http://cleantechnica.com/2015/01/29/solar-costs-will-fall-40-next-2-years-heres/?utm_source=dlvr.it&utm_medium=twitter

[vi] Grantham, Jeremy, "The Beginning of the End of the Fossil Fuel Revolution (From Golden Goose to Cooked Goose)" GMO Quarterly Letter Third Quarter 2014. https://www.gmo.com/America/CMSAttachmentDownload?target=JUBRxi51IICva8EQo4wdFQADWV9wEmzLzeD%2fGf9Lvs9eioH3K0LxNpPNgOFRVI8cwSP%2bAMJGLMAyxMzMVtpN8J49yf%2f%2bWX0Iv0NKRoYDe6hfhF3WeEjFuA%3d%3d

[vii] MacDonald, Gregor, Twitter, December 22, 2014. https://twitter.com/GregorMacdonald/status/547171901227798528 

[viii] Ahmed, Nafeez, "How Solar Power Could Slay the Fossil Fuel Empire by 2030", Motherboard, December 10, 2014. http://motherboard.vice.com/read/how-solar-power-could-slay-the-fossil-fuel-empire-by-2030

[ix] Jabusch, Garvin, "Cheap Oil and the Next Economy," Green Alpha's Next Economy, December 24 2014. http://blogs.sierraclub.org/gaa/2014/12/cheap-oil-and-the-next-economy.html

February 05, 2015

Amyris' Missing Magic

by Debra Fiakas CFA

Since the end of August last year shares of renewable chemicals developer Amyris (AMRS:  Nasdaq) have been in a steady decline.  Since falling through a line of price support near the $2.50 price level in early December 2014, it appears there is no safety net for AMRS.  The stock set a new 52-week low in the third week in January 2015.  Unfortunately, a popular technical indicator, the average directional index, is providing a very strong indication that the stock could fall even further.   With its stock chart providing no hints at a reversal in trend, Amyris could use a bit of fundamental magic.

The company has made some progress in its plan to commercialize its renewable chemical innovations.  The company has developed a line of industrial solvents based on a renewable hydrocarbon called farnesene.  Amyris is selling the line of solvents under the brand name Myralene. Just the day before the stock set that 52-week low price, management announced arrangements to market Myralene through two automotive and industrial distributors with access to over 35,000 points of sale.  Apparently there is no magic in distribution partnerships.

In early December 2014, Amyris received approval for its renewable jet fuel by regulatory authorities in Brazil.  The approval makes it possible for Amyris to sell jet fuel made from its proprietary biofene hydrocarbon.  Amyris also reported that a study completed by a scientific journal has proved Amyris jet fuel has a 90% smaller carbon footprint than fossil fuel.  News that Amyris was prepared to save the world from greenhouse gas emission one flight at a time, did impress investors enough to create a very bullish ‘engulfing’ pattern in AMRS trading the day after the Brazil regulatory announcement, but the bullish sentiment was short lived.  Evidently, not enough fundamental magic is conjured up through saving the planet.

Amyris is selling its jet fuel in Brazil on its own.  For the world jet fuel market, the company has entered into a partnership with Total S.A. (TOT:  NYSE) , a world leader in energy production.  Air France is among the first to order the Total/Amyris biojet fuel.  Air France will use the fuel for its Lab’Line for the Future project, which involves weekly flights between Paris and Toulouse powered by biojet fuel.  The flight-by-flight switch to renewable fuels for commercial aircraft is thought to facilitate chemistry development and production capacity expansion by innovators like Amyris. AMRS has lost 9.5% of its value since the Air France announcement, making it clear there is little to no magic in a world class customer relationship either.

What might be putting a damper on investor enthusiasm is the Amyris balance sheet.  In the twelve months ending September 2014, the company used over $100 million to support operations.  Amyris has been relatively well fortified with cash resources by its various venture investors.  However, the bank book is looking a bit thin.  At the end of September 2014, Amyris reported a total bank balance of $68.6 million.  At the rate Amyris management had been going through cash, its cash hoard will last until about June 2015.

The dark threat of dilution is often exposed by dwindling cash resources as investors fret over the time line to breakeven and whether cash can last to that point.  Dilution anxiety can dampen even the most impressive magic show.

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. AMRS is included in Crystal Equity Research’s Beach Boys Index of companies developing alternative energy using the power of the sun.

February 04, 2015

Ten Clean Energy Stocks: A Rocky Start To 2015

Tom Konrad CFA

2015 got off to a rocky start for both the broad market in general, as well as clean energy.  My Ten Clean Energy Stocks for 2015 model portfolio dd not fare any better, since the main bright spots for the portfolio were its three Canadian stocks, but these were dragged down by the 9% decline in the Canadian dollar for the month.

For the month, the model portfolio was down 3.6% in local currency terms, but fell 7.2% in dollar terms.  For comparison the broad universe of US small cap stocks was down 3.3% (as measured by IWM, the Russell 2000 index ETF), and the most widely held clean energy ETF, PBW, was down 6.6%.

This year I split the model portfolio into two sub-portfolios of six income stocks (NYSE:HASI, NYSE:BGC, TSX: RNW, TSX: CSE, TSX:NFI, and XAMS:ACCEL) four value and growth stocks (NYSE:FF, NYSE:PW, NASD: AMRC, and NASD:MIXT). 

PBW (-6.6%) is a good benchmark for the value and growth stocks, which fell 6.6% in local currency terms and 6.8% in dollar terms.  The six income stocks fell 1.6% in local currency terms and 7.4% in dollar terms. 

All three of the Canadian stocks mentioned above are income stocks, as is the lone European stock, which was hurt by the 6.8% decline in the Euro compared to the dollar.  I have searched in vain for good benchmarks for equity income portfolios, but have not found any that do not contain some aspect of active management, making them poor benchmarks for differentiating between category performance and stock picking skill.  The best I could come up with are JXI, the iShares Global Utilities index, since many income stocks are also global utilities.  Global utilities are a very defensive sector, with JXI rising 1% for the month. 

To date, there are no income oriented clean energy ETFs or mutual funds, so I instead settled on the Green Alpha Global Enhanced Equity Income Portfolio (GAGEEIP), a fossil-free equity income strategy which I co-manage.  GAGEEIP fails several tests of a good benchmark.  Most importantly, it is actively managed in large part by me, meaning I'm simply comparing one of my strategies to another. It also is not a pure equity strategy, in that covered call options are used to reduce risk and increase income.  The best benchmarks are easily investable, and GAGEEIP is not yet available to investors except as separately managed accounts through Green Alpha Advisors.  For January, GAGEEIP fell 0.7%.  The large difference between its performance and the income stocks in the model portfolio is mostly due to better diversification, and the advantage of the covered call strategy in a down market.

The chart below gives details of individual stock performance, followed by a discussion of January company news for each stock.

10 for 15 Jan.png
The low and high targets given below are my estimates of the range within which I expect each stock to finish the year.

Income Stocks

1. Hannon Armstrong Sustainable Infrastructure (NYSE:HASI).
12/31/2014 Price: $14.23.  Annual Dividend: $1.04.  Beta: 0.81.  Low Target: $13.50.  High Target: $17. 
1/31/2015 Price: $13.70. YTD Dividend: $0.  YTD Total Return: -3.7%.

Sustainable infrastructure financier and Real Estate Investment Trust Hannon Armstrong did not announce any significant news for the quarter.  Analysts at Roth Capital initiated the stock with a very bullish "buy" rating and a $19 price target.  Zacks upgraded the stock from "underperform" to "neutral," and now has a $14.60 price target on HASI.

2. General Cable Corp. (NYSE:BGC)
12/31/2014 Price: $14.90.  Annual Dividend: $0.72 (4.8%).  Beta: 1.54.  Low Target: $10.  High Target: $30. 
1/31/2015 Price: $11.44. YTD Dividend: $0.  YTD Total Return: -23%.

International manufacturer of electrical and fiber optic cable, General Cable Corp. was already cheap as the month began, and sold off by more than a quarter in mid-January before staging a slight recovery to a loss of 23% at $11.44 at the end of the month.  The decline seemed to halt when S&P removed its negative credit watch for the company's bonds.  Stock analysts were more bearish.  Analysts and Longbow Research downgraded BGC from buy to neutral, those at DA Davidson dropped their price target from $14 to $12, while Stifel Nicolaus cut its price target to $13 from $17.

The company will release fourth quarter earnings after market close on February 4th.

3. TransAlta Renewables Inc. (TSX:RNW, OTC:TRSWF)
12/31/2014 Price: C$11.48.  Annual Dividend: C$0.77 (6.7%).   Low Target: C$10.  High Target: C$15. 
1/31/2015 Price: C$12.74. YTD Dividend: C$0.064  YTD Total C$ Return: 11.0%.  YTD Total US$ Return: 1.2%.

Analysts at Scotiabank increased their price target on Canadian yieldco TransAlta Renewables from C$13 to C$14, and this may have contributed to the stock's 11% local currency gain for the month.

4. Capstone Infrastructure Corp (TSX:CSE. OTC:MCQPF).
12/31/2014 Price: C$3.20. 
Annual Dividend C$0.30 (9.4%).  Low Target: C$3.  High Target: C$5.  
1/31/2015 Price: C$3.37. YTD Dividend: C$0. 
YTD Total C$ Return: 5.3%.  YTD Total US$ Return: -4.0%.

Insiders at Canadian power producer and developer (yieldco) Capstone Infrastructure continue to purchase the stock on the open market.  Their conviction, along with the generous dividend yield make me consider this the best risk-adjusted stock value available in the market today.

5. New Flyer Industries (TSX:NFI, OTC:NFYEF).
12/31/2014 Price:
C$13.48.  Annual Dividend: C$0.585 (4.3%)  Low Target: C$10.  High Target: C$20. 
1/31/2015 Price: 13.72$. YTD Dividend: C$0.04875 
YTD Total C$ Return: 1.8%.  YTD Total US$ Return: -7.2%.

Leading North American bus manufacturer New Flyer announced its fourth quarter deliveries and backlog.  Orders remain strong, and the company continues to rebuild its backlog of firm orders as the industry recovers from a prolonged downturn, and management expects that recovery to continue.

6. Accell Group (XAMS:ACCEL, OTC:ACGPF).
12/31/2014 Price: €13.60. 
Annual Dividend: Varies: at least 40% of net profits. €0.55 in 2014 (4.0%).  Low Target: 12.  High Target: €20.
1/31/2015 Price:
13.50. YTD Dividend: 0.  YTD Total Return: -0.7%.  YTD Total US$ Return: -7.4%.

The main news for bicycle manufacturer Accell Group was the decline of the Euro, which not only hurt the returns of US shareholders, but may eventually lead to price hikes from some of its European customers due to the increased price of parts sourced from Asia when bought in Euros.  The flip side of this coin is that the strong dollar may help the company in its efforts to spread the adoption of e-bikes on this side of the Atlantic.

Value Stocks

7. Future Fuel Corp. (NYSE:FF)
12/31/2014 Price: $13.02.  Annual Dividend: C$0.24 (1.8%).   Beta 0.36.  Low Target: $10.  High Target: $20.
1/31/2015 Price: $10.99. YTD Dividend: $0.  YTD Total Return: -15.6%.
 

Lee Mikles  resigned as President of specialty chemicals and biodiesel producer FutureFuel, but will remain as a member of the board, and the retirement was not the result of a dispute, but for personal reasons.  Analysts at Roth Capital maintained their $19 price target and buy rating.

8. Power REIT (NYSE:PW).
12/31/2014 Price: $8.35
Annual Dividend: $0.  Beta: 0.52.  Low Target: $5.  High Target: $20.
1/31/2015 Price: $9.58. YTD Total Return: 14.7%.

Rail and solar investment trust Power REIT posted the transcript of the oral argument for summary judgement in its civil case with its lessee Norfolk Southern Corporation (NYSE:NSC) and sub-lessee Wheeling & Lake Erie Railway (WLE) to its website.  This argument did not seem to include anything which was not already in the written arguments, but the stock has rallied.

9. Ameresco, Inc. (NASD:AMRC).
12/31/2014 Price: $7.00
Annual Dividend: $0.  Beta: 1.36.  Low Target: $6.  High Target: $16.
1/31/2015 Price: $5.83. YTD Total Return: -16.7%.

Analysts at Northland Securities began coverage on energy service contractor Ameresco with an outperform rating.  The stock's decline seems to be due more to the general market decline than news.

Growth Stock

10. MiX Telematics Limited (NASD:MIXT).
12/31/2014 Price: $
6.50Annual Dividend: $0.  Beta:  0.78.  Low Target: $5.  High Target: $20.
1/31/2015 Price: $5.87. YTD Dividend: $0.  YTD Total South African Rand Return: -9.0%.  YTD Total US$ Return: -9.7%.

Vehicle and fleet management software-as-a-service provider MiX Telematics did not release any significant news.

Summary

In January, we saw a number of already very cheap stocks get even cheaper.  I thought the start of the year an excellent time to initiate a position in any of these, and now I'm even more convinced.

Disclosure: Long HASI, CSE/MCQPF, ACCEL/ACGPF, NFI/NFYEF, AMRC, MIXT, PW, FF, BGC, RNW/TRSWF.  I am 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.

February 03, 2015

Water Stocks: Better Than Oil Or Smartphones

By Jeff Siegel

I've never understood it, but no one really gives a damn about water.

Sure, it's the foundation of life. But what does that matter when we can get cheap smartphones and Internet-connected washing machines? Those things are exciting, and there's proverbial gold in those silicon hills.

Don't get me wrong; I love technology and continue to profit handsomely by devoting a small portion of my portfolio to tech stocks. My point, however, is that while technology is great, without water, we die.

It's pretty simple, really. Yet when it comes to investing, few investors take the time to realize just how lucrative water is. Well, except for all those farmers out in California.

But who cares about that, right? I mean, it's not like California feeds most of the country.

Sarcasm aside, I've long been bullish on opportunities in the water space. Some of my favorites in this space include Xylem, Inc. (NYSE: XYL), Calgon Carbon (NYSE: CCC), and Aqua America (NYSE: WTR), which actually pays a nice little 2.4% dividend.

As we move forward, I'm confident that water will prove to be one of the most highly valued commodities on the planet. You know, because we need it to live.

Water Bulls

Aside from my passive-aggressive diatribe about how ridiculous it is that we don't value clean water more than we do, I'm not the only water bull in the arena.

In fact, the CEO of Abengoa subsidiary Abengoa Yield (NASDAQ: ABY), Santiago Seage, recently suggested to Forbes reporter Ucilia Wang that the yieldco is looking to get into the water game as a way to capitalize on increased drought conditions and global population growth.

Seage is enthusiastic about adding water delivery and treatment projects, such as desalination plants, given the growing public worries about drought and depleting groundwater resources in the U.S. He pointed to a 30-year contract totaling $3.4 billion that an Abengoa-led consortium won last year to build and operate wells, collection stations, and pipelines to deliver water from two aquifers to San Antonio. Abengoa expects the project to come online by 2020.

Aside from the San Antonio project, Abengoa also announced last week that it was building the world's largest solar desalination plant in Saudi Arabia. When completed, the $130 million project will desalinate 60,000 cubic meters of seawater a day.

Abengoa Yield took a bit of a tumble last September, falling from around $40 a share to about $25 a share (although it should be noted that the company's only been public since last June).

That being said, over the past month, this young yieldco has started to swim back upstream. The stock has actually gained about 30% within the past 30 days:

aby1

Abengoa (NASDAQ: ABGB) has also climbed about 30% over the past 30 days:

abgb1

I don't really think you can go wrong with either one, but I do like the 3% dividend on Abengoa Yield.

I also remain quite bullish on renewable energy development companies and yieldcos this year. Hannon Armstrong (NYSE: HASI) and Pattern Energy (NASDAQ: PEGI) continue to be two of my favorites.

Lots of Potential

Of course, there are any number of ways to play water. Infrastructure, wastewater services, and water reclamation are just a few. And all of these water-related industries have a lot of potential.

However, you're probably not going to get stinking rich with water stocks.

Over the long term, water is a solid play, particularly if you can collect a nice dividend. But these are definitely not the types of stocks you want to jump in and out of, at least if you need a little stability in your life.

No, these are the long-term investments that, over time, will prove to be more valuable than gold, oil, and smartphones.

Because, well, none of that other stuff matters if you don't have clean water to drink.

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

 signature

Jeff Siegel is managing editor of Energy and Capital, where this article was first published.  He is also contributing analyst for the Energy Investor, an independent investment research service focusing primarily on stocks in the oil & gas, modern energy and infrastructure markets.  He has been a featured guest on Fox, CNBC, and Bloomberg Asia, and is the author of the best-selling book, Investing in Renewable Energy: Making Money on Green Chip Stocks .

February 02, 2015

FutureFuel's Future

by Debra Fiakas CFA

Last week the president of renewable chemicals producer FutureFuel Corporation (FF:  NYSE) turned in his resignation.  Lee Mikles is around sixty and seems a bit young for retirement.  He had been with the company from day one and served as the chief executive officer through the end of 2012.  He owns 2.3 million shares of FutureFuel stock or about 5% of the outstanding shares. 

Maybe Mikles is just looking for a better paycheck.  The last time the company disclosed compensation, Mikles was down for $36,000 in compensation as a director.  Along with the CEO and COO, Mikles has not been drawing a salary and receive no cash or stock bonus from FutureFuel. However, looking closer in the fine print of the footnotes, the company discloses that an affiliate of Mikles was paid $132,491 in 2013 related to his services to the company, an arrangement that was followed in all the years he worked for FutureFuel.  Similar arrangements were made for the company’s other officers.

Clearly, Mikles and his colleagues were not draining the FutureFuel bank accounts.  FutureFuel reported $378.9 million in total sales in the twelve months ending September 2014, providing net income of $49.5 million or $1.14 per share.  Operations generated $31.7 million in cash during the same period, implying that for every $1 of sale the company keeps 8 cents.  This is not a remarkably high rate, but given that FutureFuel is fairly consistent in generating profits and free cash flow, it takes the company’s cash conversion rate looks impressive.

At the end of September 2014, FutureFuel held $88.6 million in its bank accounts and held another $106.2 million in short-term investments.  The company has no long-term or short-term debt.  FutureFuel’s financial reports are so impressive it is hard to understand why Mikles would not want to hang around longer and just wallow in the flow of money.  Granted it was his name in the press release in December 2014, that announced the company’s intention to reduce the quarter dividend by 50%.  The dividend will be $0.24 this year, down from the $0.48 paid in 2014.

Still Mikles has helped preside over strong financial performance.  The company sells biodiesel and byproducts of the biodiesel process.  There is additional revenue from the sale of ‘renewable identification numbers’ associated with its renewable diesel.  FutureFuel turns about about 59 million gallons of biodiesel per year using a mix of oils, tallows and lards as feedstock at a plant in Arkansas.  The biofuel segment accounted for about 56% of total sales.  The other 44% of revenue comes from sales of specialty chemicals.  FutureFuel will produce chemicals to order, but mostly they just sell a line of performance chemicals like solvents, polymer additives, herbicides and bleach activator.   

The sales mix has been changing in favor of chemicals as price weakness and reduced demand for biodiesel in 2014, led to a decline in sales value and volume in that segment.  Fortunately, some products in chemicals segment have been gaining market share.

What is not growing at FutureFuel is profits.  EBITDA adjusted for non-cash expenditures declined to 15.4% of sales in the most recently reported quarter ending September 2014, compared to a much richer 23.3% in the same quarter of the previous year.  Both biofuel and chemicals segments have been hit by eroding profit margins.  Some might expect the biofuel division to experience a boost if policy makers in the U.S. re-establish a renewable fuel volume obligation and provide some clarity on credits to fuel blenders for using biofuel.

FutureFuel’s future appears to depend upon some serious blocking and tackling to maintain the company’s history of profits.  Perhaps it is this daunting task that has Mikles heading to the sidelines – at least in terms of operations.  Mikles will remain as a director, but all the troublesome day-to-day decisions for FutureFuel’s future will be someone else headache.

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 2015 | Main | March 2015 »




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