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March 31, 2015

China Puts The Brakes On New Solar Production Capacity

Doug Young

Bottom line: New signals indicate Beijing plans to move aggressively to prevent solar panel makers from adding unneeded new capacity to help their local governments meet economic growth targets.

A new low-key announcement from Beijing is hinting at a quiet struggle taking place behind the scenes in China’s promising but embattled solar panel sector, with the regulator saying it will stop the building of most new manufacturing capacity. On one side of this struggle are local government officials, who may be encouraging solar panel makers in their areas to add capacity that will benefit their local economy but is the last thing the industry needs. On the other side of the battle is Beijing, which is trying to show the world it doesn’t unfairly subsidize its solar panel sector as it also tries to rationalize a bloated domestic industry that is stifling global development.

We’ll return to the bigger picture shortly, but first let’s focus on the latest industry development that comes in a low-key announcement from the Ministry of Industry and Information Technology (MIIT), which oversees the solar panel sector. The announcement on the MIIT’s website is quite brief (announcement), but media are saying the move will effectively forbid most panel makers from adding new capacity to their production lines. (English article; Chinese article)

The broader idea seems to be that Beijing wants solar panel makers to boost the efficiency of their current operations by focusing on quality over quantity. The government will demand that producers spend more money to upgrade production lines, and that they spend more money each year on new product development.

The reality is that most of China’s solar panel makers are quite cash poor, following a prolonged sector downturn that has only begun to ease over the last year. But in a country like China, being cash-poor doesn’t necessarily prevent companies from building new capacity that they individually can’t afford and that the bloated sector hardly needs.

That’s because local governments often have access to resources that can assist in the building of new capacity even when it isn’t necessary. Such resources include easy access to cheap financing from state-run banks, government-owned land that can be used for new factories, and control over local tax policies that can help manufacturers lower costs.

So why would these government officials want to promote development of unnecessary new capacity that’s likely to lose money? The reason is simple. Local governments in China get annual economic growth targets from Beijing, and are punished if they fail to meet those targets. Expanding their local solar panel output is one way to help them meet their targets, since the panels are a relatively mature product with a well-established market. Thus as China’s broader economy shows signs of a major slowdown, these local governments could easily use their resources to push local solar factories to boost production to help them meet their growth targets.

Worried about that possibility, Beijing appears to be taking preemptive action to halt a building wave of new capacity that will only further stifle development of the global industry. We’re already seeing recent signs that the sector could be slipping back into a rut, as 2 of China’s larger firms, Yingli (NYSE: YGE) and ReneSola (NYSE: SOL), slipped back into the loss column in their latest quarterly reports. (previous post)

All that said, the bigger question is whether Beijing will succeed in this potential struggle with local governments, and prevail in preventing manufacturers from boosting capacity. This message from the MIIT appears to show that it will be watching all of the country’s solar panel makers very closely, and will aggressively move to shut down any expansion plans that it detects. That should be good news for the global sector, and ultimately prevent a new downturn just as manufacturers start to recover from the last one.

Doug Young has lived and worked in China for 16 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.

March 30, 2015

Why This German Solar Executive Is Skeptical About American YieldCo Assumptions

by Tom Konrad CFA

Ever since the first YieldCo, NRG Yield (NYSE:NYLD), went public in 2013, it and other similar YieldCos have been reshaping the market for operating renewable energy assets, especially wind and solar PV farms. 

A YieldCo is, to put it simply, a publicly traded subsidiary of a developer and operator of clean energy farms that uses the cash flow from its assets to return a high current dividend to shareholders. Most large, publicly traded clean energy developers have already launched or are preparing to launch a YieldCo. The current crop includes NRG Yield, Pattern Renewable Energy Partners (NASD:PEGI), NextEra Energy Partners (NYSE:NEP), Abengoa Yield (NASD:ABY), TerraForm Power (NASD:TERP), and TransAlta Renewables (TSX:RNW, OTC:TRSWF). First Solar (NASD:FSLR) and SunPower (NASD:SPWR) are jointly planning the IPO of a YieldCo to own PV farms to be called 8point3, after the time it takes the sun's rays to reach the Earth.

This rush to launch YieldCos is unsurprising, given that investors can't seem to get enough of them. Since their IPOs, the YieldCos listed above have advanced between 15 percent (Abengoa Yield) and 127 percent (NRG Yield), while at the same time paying dividends and selling large amounts of stock in secondary offerings to fund their growth plans and raise cash for their sponsors.

The new kids on the block

YieldCos were not the only, or the first, publicly listed companies to use clean energy assets and pay a dividend. Long before they came along, there were the Canadian Income Trusts, many of which were focused on clean energy. The tax advantages that first made Canadian Income Trusts a tax-favored structure have since been changed, but several of these trusts survive in a similar form, the most notable being Brookfield Renewable Energy Partners (NYSE:BEP / TSX:BEP.UN), which differs from the YieldCos only in that it develops some projects internally, rather than buying them from a sponsor.

Another is Capital Stage AG (XETRA:CAP), the largest operator of solar PV parks in Germany. Capital Stage also has large holdings of PV in Italy and France, and wind in Italy and Germany, and is in the process of acquiring PV parks in the United Kingdom. It bought its first PV project in 2009.

German skepticism

In an interview, Felix Goedhart, Capital Stage's CEO, expressed mixed feelings about the YieldCo phenomenon. “We like having peers,” especially highly valued peers like the YieldCos, but they are also competitors for buying PV and wind projects. Many such projects do not even make it to the market, since they are sold directly by developers to their captive YieldCos. 

Goedhart is confident, however, that Capital Stage will continue to find attractive deals at after-tax internal rates of return well in excess of what is available to “anyone with a pot of money” who takes part in solar and wind mergers and acquisitions. 

He says that his firm's experience and reputation for reliability allow it to find special situations that less experienced players are not able to touch. When Capital Stage finds such deals, it can act quickly because it does due diligence internally, and can handle “complex situations” such as the current acquisition of solar in the U.K. 

He said some investors new to the business would have backed away from that deal because it looked complex. Capital Stage, on the other hand, knows “basically everything” about the deal and has “seen so many things [that] we know what to do to take on these challenges.”

Goedhart's skepticism of YieldCos centers on their accounting practices, and the inherent conflict of interest when they purchase assets from their sponsors. He asks, “Are you worried by the fact that [developers] and some 'independent' decision-making body decides which asset goes at which price?”

This conflict of interest has not worried investors yet, but it will doubtless begin to worry them if purchasing overpriced assets from their sponsors keeps YieldCos from producing the long-term dividend growth they currently expect.

A kind of Ponzi scheme?

Goedhart's other point of skepticism lies around the source of YieldCo dividends. He contrasts Capital Stage's own dividend, which is “paid out in cash, not paper, not on a business plan, [but] real money operationally earned. Not in a kind of Ponzi scheme where you're raising real funds and taking parts of the funds to pay out a dividend which you haven't earned operationally.”

Do YieldCos pay out dividends in a kind of Ponzi scheme as he claims?

In 2014, NRG Yield produced $223 million in cash flows from operations (CFO), and paid out $122 million in dividends to shareholders and distributions back to its parent, NRG. Cash flow from operations is a very broad measure, and does nothing to account for cash needed to replace its assets at the end of their useful lives. Actual income, which does include depreciation, was only $16 million, far below what would be needed to pay its current level of dividends and continue as a viable business beyond the useful life of its current assets.

Other YieldCos operate in a similar fashion. Abengoa Yield paid $24 million in dividends, created $44 million in CFO, but produced a net loss in 2014. Although their track records are short, most YieldCos seem similar: they have cash flow from operations to comfortably pay their dividends in the short term, but insufficient earnings to both pay a dividend and invest for the future.

Is Capital Stage any different? The company has not yet released its 2014 results, but in 2013, it earned €14 million from which it paid €7 million in dividends in 2014. Its dividend is easily covered by both earnings and cash flow. 

Summing up

YieldCo dividends are not supported by earnings, and so they are not sustainable in the long term unless the companies continue to raise capital to re-invest. Further, there are reasonable questions about the conflicts of interest when YieldCos purchase assets from their controlling sponsors.

While the YieldCo model is valuable in that it matches the strong cash flow producing characteristics of operating clean energy projects with the cash flow needs of income oriented investors, dividends from YieldCos are not directly comparable to dividends from operating companies which have earnings, not just cash flow, sufficient to replace their assets over time. 

Instead, investments in YieldCos should be viewed as amortizing assets. Over the 15- to 30-year typical remaining life of YieldCo assets, the value of those investments will slowly be paid out as a dividend, causing the share price to fall when aging assets are no longer able to support the dividend, or because early investments become diluted by the capital needed to invest in newer assets.

That does not make YieldCos any sort of Ponzi scheme, but it does mean that YieldCo dividends is not worth as much as dividends from operating companies that can fully cover their dividends with earnings.


Tom Konrad is a financial analyst, freelance writer, and portfolio manager specializing in renewable energy and energy efficiency. He's also an editor at AltEnergyStocks.com.

Disclosure: Tom Konrad and/or his clients have long positions in PEGI, FSLR, ABY, RNW, BEP, and a debt investment in GridEssence, a private company which Capital Stage AG is in the process of buying. They have short positions in NYLD and TERP.

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

March 29, 2015

US Geothermal: Wringing Profits From Hot Rocks

by Debra Fiakas CFA

Last week I spent the better part of a day listening to presentations of energy companies at the Wall Street Analyst Forum in New York.  Although I had heard the management of  US Geothermal (HTM: NYSE) tell the company’s story before, I was impressed to hear about the progress the company has made in squeezing profits from electricity produced with turbines run by underground steam.  Management called it gratifying!

The company reported $31 million in sales in the year 2014, delivering $14.9 million in net income to the bottom line.  That is something to celebrate!

Sales in 2014 grew 13.1% year-over-year compared to $27.4 million.  Production profits also increases to 48.5% of sales, up just a pinch from the year before when profits were 48.3%.  Unfortunately operating expenses rose during the year leaving profits at that level at $4.6 million or 14.8% of sales.  What really drove net income in 2014 was a $12.0 million tax benefit as the company amortized tax assets built up in previous years when the company experienced losses.

As is almost always the case with young companies, even ones that have achieved profitability, it makes sense to look carefully as the company’s ability to generate cash.  As confusing as US Geothermal’s profits and loss profile might be, its report of operating cash flow is illuminating.  In 2014, the company’s operations generated $12.8 million in cash, which tops 2013 cash generation of $10.6 million.

It is exciting seeing cash in the bank and even more gratifying when management finds something productive to do with it.  US Geothermal has a history of buying up thermal assets.  The company acquired new leases for its Vale project, but the real excitement has been in two other acquisitions.
In 2014, the company bought the WGP Geysers project from Ram Power (RAMPF: OTCBB)for what appears to be a very attractive price of $6.4 million.  WGP Geysers is a developed site with four wells in the larger Geysers project in California.  A recent engineering report suggests the project can generate 30 megawatts annually.   The company has received approval to build a 38.5 megawatt power plant.

Then in December 2014, US Geothermal issued stock to acquire Earth Power Resources, which included geothermal assets in Nevada that could give rise to three power projects.  A third party has estimated there is sufficient heat in place to generate 71 to 186 megawatts of power.  The company began drilling the first production well in December 2014.

The company is projecting nearly 200 megawatts of power by 2020 from the current 45 megawatts.  Management has told analysts who follow the company that it can generate $100 million in EBITDA (earnings before interest, depreciation and amortization).  Against such a prognosis, HTM shares appear grossly undervalued.  Unfortunately, investors are unconvinced.  A review of recent trading patterns found in a point and figure chart suggests a very bearish sentiment prevails in trading of HTM shares.  An investor taking a bull case position in the stock may have some time to wait for appreciation of the shares.

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.

March 27, 2015

Yingli Joins The $1 Club; China Solar Slows

Bottom line: A new second wave of consolidation is likely to occur in China’s solar panel sector later this year, with money-losing companies like Yingli and ReneSola as the most likely acquisition targets.

Looming signs of new trouble are brewing in the solar panel sector, with shares of Yingli Green Energy (NYSE: YGE) taking a bath after the company reported widening losses and slowing revenue growth. The 15 percent sell-off saw Yingli’s shares re-approach an all-time low from just 2 and a half years ago, as the company joined a small but growing club of US-listed solar panel makers whose shares now trade in the $1-2 range.

Yingli’s announcement makes it the last of China’s major solar panel makers to report their fourth-quarter results, painting a picture that hints of more consolidation on the way for a sector that has already undergone a painful restructuring over the last 2 years. Two camps are emerging: One that is profitable, including names like Canadian Solar (Nasdaq: CSIQ) and Trina (NYSE: TSL); and one that is losing money, which includes Yingli and ReneSola (NYSE: SOL), which became the charter member of the $1 club when its shares sank below $2 last November.

The broader solar sector took a beating in the latest trading day on Wall Street, with Yingli and ReneSola leading the downward charge with the 15 percent and 7.5 percent declines, respectively. Shares of both companies are now near all-time lows. The profitable Canadian Solar and Trina were both also down, but by smaller amounts in the 3-4 percent range. Both of those companies’ stocks still trade well above their all-time lows, and don’t appear to be in danger of joining the $1 club anytime soon.

Investors were clearly spooked by the bottom line in Yingli’s latest results, as it reported a net loss of 609 million yuan ($100 million) for the quarter. (company announcement; English article) That figure was actually an improvement over the company’s 806 million yuan loss for the fourth quarter of 2013, but it also marked a 4-fold increase from its loss of 138 million yuan in the third quarter of last year.

All of China’s solar panel makers, and most of the global industry in general, fell sharply into the red at the height of a sector downturn that began in 2011 and didn’t really start to ease until 2013. Companies like Canadian Solar and Trina were some of the first to return to profitability, and the pair have just reported relatively solid profits in their latest quarterly results.

In terms of top line, all of the companies are reporting that revenue growth is slowing sharply as prices start to decline after a relatively long period of steady gains during the recent recovery. Yingli predicted its shipments in terms of production capacity would only grow 7-16 percent this year. But if prices fall, that means actual revenue could grow by much less or even start to fall. ReneSola has forecast similar anemic growth this year, while Trina and Canadian Solar have forecast much stronger gains.

All of this brings us back to the question of whether a new shake-out is looming for the industry, and whether money-losing companies like ReneSola and Yingli might become attractive takeover targets. The recent sell-off of both companies’ shares has made each a relative bargain for any interested buyers. ReneSola’s current market value stands at just $150 million, while Yingli’s is about twice that amount at $360 million.

The bigger question is whether anyone would want to buy these companies, since such money losers aren’t exactly that attractive. I suspect the answer to that question is “yes”, as Beijing and local governments could provide some incentives to spur more consolidation that is still needed to put the sector on a longer-term sustainable footing. Accordingly, I would expect to see at least 1 or 2 mid-sized players to disappear later this year, most likely through acquisitions, before the sector returns to more solid footing in 2016.

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.

March 26, 2015

Who’s on First, What’s on Second and Why It Does and Does Not Matter

by Paula Mints

Sizing the supply side of the global PV industry has never been easy. As annual shipments grew to gigawatt heights outsourcing increased in tandem making it almost impossible to settle on a reliable number for the size of the industry in any given year.

Outsourcing, a common practice in all industries, takes place when one manufacturer buys a product or component from another manufacturer.  In the PV industry, manufacturer A buys cells from manufacturer B, assembles the cells into modules and includes these modules in its in-house production.  When both manufacturers report the resulting megawatts as their shipped product, the industry is instantly oversized. Since most manufacturers engage in outsourcing, the practice compounds and obscures the real capacity of the industry.

Figure 1 (below) provides an example of how easily the PV industry can be made instantly bigger by double counting.  In Figure 1, Trina, Canadian Solar, Jinko, Renesola and Yingli have a combined 9.1 GWp of c-Si cell manufacturing capacity and a combined 15.3 GWp of module assembly capacity for an excess of 6.2 GWp of module assembly capability.  These manufacturers will buy cells from other sources and include them in their production.

In contrast, NeoSolar, Gintech, TopCell, E-Ton and Inventec have a combined c-Si cell manufacturing capacity of 6.3 GWp and a combined module assembly capacity of 2.1 GWp for excess cell manufacturing capability of 4.2 GWp.

The manufacturers with excess cell capacity ship cells to the manufacturers with excess module assembly capacity and everyone reports everything. And thus the PV industry has been oversized on an annual basis for decades.

Figure 1: Select Manufacturer 2014 Crystalline Cell and Module Assembly Capacity

One misunderstanding that contributes to the annual oversizing concerns what should be counted.  A cell without a module is not going to be mounted on a rooftop, but a module without a cell can’t generate electricity.  This is not a chicken and the egg conundrum. The size of PV industry shipments (or sales) annually is limited by its semiconductor — that is, crystalline cell or thin film panel capacity. 

Unfortunately, there is still a misunderstanding about the difference between module assembly capacity and cell manufacturing capacity.  Twenty years ago almost 100 percent of the crystalline manufacturers assembled their internally manufactured cells into modules.  Currently, manufacturers, particularly in China, are adding significantly more module assembly capacity than cell manufacturing capacity.  In the case of China, given the tariff constraints its manufacturers face globally, it makes sense to include production that allows for the acquisition of cells from other regions such as South Korea and Malaysia.  Figure 2 presents module assembly capacity shares by region for 2014.

Figure 2: Global Module Assembly Capacity Shares 2014

Figure 3 presents 2014 module assembly capacity (100 percent dedicated to c-Si), crystalline cell manufacturing capacity, thin film manufacturing capacity, announced shipments, cell/thin film shipments from 2014 production, shipments plus 2013 inventory and 2014 inventory. 

Figure 3: PV Industry 2014 Supply Statistics

In Figure 2, there are 51.3 GWp of announced shipments and 40.2-GWp of shipments from in-house c-Si cell and thin film production plus the previous year’s inventory. The reason for the 11.1-GWp difference is this: manufacturers bought cells and/or modules from other sources and included the acquired product in their shipment announcement, while the original manufacturer also reported the product in its shipment numbers. 

Does It Matter Who’s on First?

The annual lists of the top ten PV manufacturers becomes irrelevant if the origin of the product being reported becomes so convoluted that no one knows the genesis of anything.  The lists are typically comprised of the same manufacturer names, but, as these lists are based on different methodologies, the names are almost never in the same order. Some specificity concerning what is being ranked is necessary in order to give these lists meaning. Without specificity the lists just do not matter.

As the module without cells is an empty frame, it is important to know who manufactured the cell in the first place. One reason that this is important is quality. A photovoltaic module is an electricity producing product that is expected to reliably generate electricity for at least 25 years.  Products that carry this responsibility for reliability and longevity need to be clear about their pedigree.  This should be a matter of pride, but if quality issues arise it may be a matter of necessity.

The fact is that once the module is assembled it is very hard to know who the original cell manufacturer was unless, of course, the module assembler reports these statistics. 

Who’s on first does not matter as much, frankly, as who’s cells are inside of whose modules. 

Why We Like Big Numbers

Constant growth has been the PV industry mantra for years even though, slower stable and profitable growth is a better path. The desire for ballooning growth is one reason that double counting of shipments is tacitly accepted by everyone. After all, referring to the previous example, 51.3 GWp is more impressive than 40.2 GWp (shipments from annual production plus previous year inventory) despite the fact that it was arrived at by counting the same cell once, twice, maybe three times.  Considered through the lens of bigger-is-better, the 38.9 GWp of shipments from 2014 production (not counting inventory) is downright penurious. 

That the annual celebration of ever bigger numbers has come hand in hand many years with low to negative margins is typically ignored until blatant — and never mind that it is almost impossible to figure out the real cost of producing anything in the PV industry.

We like big numbers because they symbolize success. Unfortunately, big numbers are often a façade obscuring failure.  The real success is the ability to point to PV modules that have been in the field for over 30 years reliably generating electricity.  This sort of success offers proof that photovoltaic technologies are not the future, this technology is the electricity generating technology of now.

The real danger of big numbers is that they are both addictive and self-fulfilling.  Addictive because the attention they garner feels good, self-fulfilling because of the tendency of people to look for data to support their beliefs.

So, who’s on first, what’s on second matters less these days primarily because the numbers have been combined and recombined often enough to render them meaningless.  The same confusion exists on the demand side of the industry, where multi-megawatt projects are sold and resold and therefore counted and recounted, while the difference between a grid connection and an installation is sometimes misunderstood.  The point is — and should be — quality up and down the value chain. 

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.

March 25, 2015

Praj Licenses Gevo's Isobutanol Technology

Jim Lane
gevo logo

In Colorado, Gevo (GEVO) announced that Praj Industries Limited has signed a memorandum of understanding to become a Gevo licensee for producing renewable isobutanol at sugar-based ethanol plants.

Under the MOU, Praj will undertake to license up to 250 million gallons of isobutanol capacity for sugar-based ethanol plants over the next ten years. Gevo will market the isobutanol produced by Praj’s sub-licensees. Praj will also contribute process engineering and equipment services to expand isobutanol capacity at Gevo’s plant in Luverne, Minn, as well as to improve yields and optimize energy consumption at the facility.

“Praj has conducted significant diligence on Gevo’s corn starch-based isobutanol technology and we believe in the technology,” said Pramod Chaudhari, Executive Chairman of Praj. “Isobutanol has a substantial market opportunity given that isobutanol is a high performance biofuel that can solve many of the issues of 1st generation biofuels. It also enables a true biorefinery model wherein a number of specialty chemicals and bio-products can be produced using isobutanol as a feedstock. We look forward to creating a new opportunity for 1st generation sugar-based ethanol plant owners, as well as accelerating the use of 2nd generation cellulosic feedstocks to produce isobutanol.”

“We are very pleased to be working with Praj and having them become an important licensee and partner. This new strategic alliance demonstrates the flexibility of Gevo’s GIFT technology to convert a wide range of sugar sources into isobutanol. It also continues to validate the interest in licensing our intellectual property portfolio as we look to transition our business to focus more on a licensing model,” said Dr. Patrick Gruber, Gevo’s Chief Executive Officer.

In a “quick take,” Cowen & Company’s Jeffrey Osborne noted:

“In addition to licensing Gevo’s technology for its first-gen ethanol plants, Praj will also tap Gevo to market the isobutanol produced. Praj will also contribute process engineering and equipment services for Gevo’s plant in Luverne, MN, which should help expand and stabilize Gevo’s in-house capability of producing isobutanol and improve yields and energy consumption at the plant.”

This news comes as a follow up to Gevo’s recent announcement of NASA’s purchase of Gevo’s Alcohol-to-Jet (ATJ) for aviation, which is manufactured at the company’s demonstration biorefinery in Silsbee, TX.

As of the last update in January, Gevo’s Luverne facility is producing 75-100k gallons of isobutanol per month, or approximately a run rate of 1 million gallons per year. Praj’s potential assistance at Gevo’s plant can help lead to stable increasing production levels, on top of the financial and technology validation benefits Gevo gains from the licensing arrangement.”

Gevo will announces its quarterly earnings on Thursday.

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.

March 23, 2015

SunRun: The Next Big Solar IPO

By Jeff Siegel

Good news for solar investors …

Another solar financing/installation company is about to go public. And if history serves as any indicator, this could be yet another opportunity to land some pretty solid gains.

As reported in the Wall Street Journal, Sunrun, Inc. is set work with banks including Credit Suisse Group AG and Goldman Sachs Group Inc. on an IPO.

No final price has be set at this time, but currently the company is valued at more than $1.3 billion, which puts it roughly in the same box with Vivint Solar (NYSE: VSLR). The fastest horse in this race right now is SolarCity (NASDAQ: SCTY), which is valued at just under $5 billion.

SolarCity was certainly a great opportunity for investors back in 2012, when the company first went public. At it's highest, the stock had climbed more than 700% since debuting. Check it out …


SolarCity is currently taking on a very aggressive growth strategy, and with this growth has come growing pains which have resulted in a sizable sell-off since last September. Still, overall I like SolarCity and believe it's a force that will continue to eat up market share. But for investors, 2015 is going to be a bumpy ride.

Now Vivint Solar has only been public for about six months. After the initial enthusiasm of its debut, the stock fell a bit and found support around the $8.00 level. However, since the start of the year, the stock is up about 40%.


Vivint Solar is also a force and should not be taken lightly.

Of course, Sunrun is no slouch either. Solar installation and financing companies aren't typically valued at more than $1 billion. The company has been in the game since 2007, has more than 60,000 customers, and is in the right business, as residential solar installation is expected to grow by 50% this year.

I will be curious to see how they price this thing, though. With so many investors so incredibly giddy over solar again, I won't be surprised if Sunrun gets a rather large price tag attached to it. In which case, I'll happily wait for the sell-off and scoop up a few shares after the smoke has cleared.

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

March 21, 2015

11 Wind Energy Stocks for 2015

By Jeff Siegel

Something doesn't add up here...

A recent Energy Department report has suggested that wind power will be cheaper than natural gas-generated power within 10 years. And that's without a federal tax incentive.

Sounds good. Certainly I love hearing about renewable energy competing with fossil fuels in the absence of subsidies.

Yet here's the weird thing...

While the DOE report states that wind can be the cheapest, cleanest power option in all 50 states by 2050, the Obama administration is pushing to not just renew the wind energy production tax credit but actually make it permanent.

That's the problem with those pesky subsidies: Once they appear, they're hard as hell to get rid of. Certainly that's been the case for the nuclear industry, fossil fuels, and farm subsidies.

I would hate for the same to happen to renewables.

A Shot of Steroids

Understand, I'm not anti-wind. In fact, I'm very much pro-wind, as wind power has proved to be a valuable component of our energy economy. In fact, in some states, wind is a major player.

The state of Kansas gets 19.4% of its electricity from wind. South Dakota gets 26%, and Iowa gets a whopping 27.4%. Also worth noting is that Texas now boasts enough wind generation to power more than 3 million homes.


Still, on a national level, wind only represents a little more than 4% of our overall power generation. So if the DOE believes it could be as high as 35% by 2050 — well, that's some serious growth potential.

Now, I'll be honest...

I tend to be skeptical of DOE reports in general. Not because I think something shady is going on (although there's certainly an argument to be made for that) but because the technological progress that has launched the renewable energy industry into mainstream status is rarely figured into the department's equations.

Which makes sense. Certainly you can't quantify something that doesn't yet exist.

However, if we look at how quickly solar and wind technology has advanced over the past 10 years and then look at how quickly it's going to advance over the next 10, I don't think a 35% share is out of the question — especially when you consider that coal will provide less and less along the way. Natural gas and renewables are certain to fill the void.

Now, while I'm not a fan of subsidies for any form of energy — this includes nuclear and fossil fuels — I do know that if the wind energy industry gets a bone thrown its way this year in the form of a long-term extension of the production tax credit, you can be sure the growth in wind will get a serious shot of steroids.

Of course, that being said, even if the wind energy industry is kept away from that big trough of tax dollars that feeds every other energy industry, it will continue to gain ground — albeit not as fast.

How to Play it

For investors, there are a few ways to play the wind energy market.

The most obvious is through wind turbine manufacturers. The main publicly traded players here are:

  • GE (NYSE: GE)
  • Siemens (OTCBB: SIEGY)
  • Gamesa (OTCBB: GCTAF)
  • Xinjiang Goldwind Science & Technology (OTCBB: XJNGF)
  • Nordex (OTCBB: NRDXF)
  • Suzlon (NSE: SUZLON)
  • Vestas (OTCBB: VWDRY)

You can also invest in wind farm developers, most of which come in the form of yieldcos and are rarely pure plays on wind, as many also include solar assets. Some of these include:

  • Hannon Armstrong Sustainable Infrastructure (NYSE: HASI)
  • TransAlta Renewables (TSX: RNW)
  • Pattern Energy Group (NASDAQ: PEGI)
  • Abengoa Yield (NASDAQ: ABY)
  • Brookfield Renewable Energy Partners (NYSE: BEP)

Say what you want about the integration of renewable energy, but there's no doubt that wind power is a cat that will never get back into its bag. It's a valuable source of power generation all across the globe, and its growth in the U.S. will continue — with or without government support.

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


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

March 20, 2015

Can Uber Save BYD?

By Jeff Siegel

Back in 2007, we jumped on a small electric car company called BYD Company (OTCBB: BYDDF).

We actually crushed it on that one as we took a position before Warren Buffett announced he was taking a 10% stake in the company.

Of course, when we started covering the company, I had no idea Warren Buffett even knew that a Chinese company was making electric cars.

The stock had a nice ride, but shortly after Uncle Warren jumped in, the stock soared and got very top heavy. It got way too hot, way too fast. We split.

You see, when we first started writing about the company, it was trading for less than $3.00. By March, 2010, it was going for well over $10 a share. It didn't make sense. And sure enough, by 2012, the stock was trading below $1.70.

Since then, BYD has had its ups and downs, but it has steadily climbed back, crossing $7.00 again last summer. Still, I haven't been particularly enthusiastic about the company. Sales in China have never measured up to the hype, and American auto analysts have ripped its passenger vehicles to shreds. Although when you're vying for customers in a limited market against a company like Tesla (NASDAQ: TSLA), the uphill climb is a long and treacherous one.

So it came as no surprise when the company recently announced it landed a deal with Uber. If you want to go against super genius Elon Musk, you have to go big. And right now, there are few things “bigger” than Uber.

Is BYD Back?

On Friday, Reuters reported the following …

Uber Inc said on Friday it struck a deal with Chinese automaker BYD Co Ltd to test a fleet of electric cars for its drivers.

The test program, which kicked off a few weeks ago in Chicago and could eventually expand to other cities, is the Silicon Valley startup's first attempt to focus on an electric vehicle, said Uber spokeswoman Lauren Altmin."We've seen interest in the program already from current and potential Chicago partners (drivers)," Altmin said.

The electric car is part of Uber's program to help drivers buy or lease new or used cars. The BYD e6 vehicles are available through Green Wheels USA, a Chicago car dealership that focuses on electric and hybrid cars and also builds EV charging stations.

About 25 BYD vehicles are currently being used by Uber drivers in Chicago, and the hope is to bring that number to a couple of hundred by the end of the year, according to Doug Snower, Green Wheels' president.

I'm not sure how the deal went down, but this is clearly a deal that does a lot more for BYD than it does for Uber.

You see, BYD has been desperate to get into the U.S. market, and the Uber deal opens the door in a big way for the Chinese electric car company. But it's only going to work if the cars appeal to U.S. consumers.

I'll also be interested to see how Uber drivers respond to the deal.

The Reuters article notes that Green Wheels is offering several options to drivers interested in the e6. The most popular program, however, allows an Uber driver to pay $200 a week to use an e6 for his or her driving shift. The vehicle is then returned to a Green Wheels lot, where it's charged until it's used again.

I'm not an Uber driver, so I don't know if this is appealing or not. Certainly as gas prices head north again, the benefits of an all-electric vehicle increase. Although it should be noted that the EPA range on the e6 is 127 miles. In real world driving, that means it'll probably deliver about 80 to 90 miles. Not horrible, but how many miles is an Uber driver going to drive during a typical shift? I don't pretend to know the answer to this question either, but I'd be interested to know.

In the meantime, BYD continues to take small, but relatively important steps into the U.S. Beyond the Uber deal, the company also has close to two dozen buses running in California, and the city of Los Angeles has another 25 on order.

I know the recent Uber announcement gave BYD a nice push. It'll be interesting to see if the stock can gain some more momentum this week.

It is worth noting that both Credit Suisse and Goldman Sachs have given BYD a buy rating. And despite the many obstacles the company hit over the past few years, there definitely seems to be a renewed interest in the company. Particularly as China seeks to get more aggressive on controlling its air pollution problem. BYD has also generated quite a bit of good PR by claiming its also moving forward to compete with Tesla on battery production. Essentially, the company is building its own version of the Tesla Gigafactory.

So is BYD back? Will Uncle Warren have the last laugh? I suppose we'll find out soon enough. But rest assured, BYD is back on the radar!


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

March 19, 2015

Linc Energy: Making Synthetic Crude From Coal Downunderground

by Debra Fiakas CFA

Gas-to-liquids is back on my radar screen after an article appearing in early March 2015 on Biofuels Digest described progress Emerging Fuels Technology (EFT) has made in perfecting the Fischer-Tropsch process to convert carbon-based feedstock to liquid fuel, otherwise called Gas-to-Liquids. 

Fischer-Tropsch often referred to as FT for short is a series of chemical reactions to convert carbon monoxide and hydrogen into liquid hydrocarbons.  The reactions are triggered by a catalyst, usually cobalt or iron, and managed under high temperatures in a chamber or reactor.  Some might consider it a neat trick to converting otherwise useless waste biomass or stranded natural gas to something useful like a liquid transportation fuel.  The problem is that FT is expensive, requiring significant capital to build the reactor and attendant gasification, water handling, and fuel distribution systems.  Operating costs are also steep for catalyst materials, operating personnel, maintenance. 

Plenty of developers have tried and failed to commercialize FT.  The last post ‘A Second Look at Gas-to-Liquids’ mentioned Rentech (RTK:  Nasdaq), which exited the gas-to-liquids development race a couple of years ago.  Rentech voluntarily threw in the towel, but Germany-based Choren Industries was forced into bankruptcy as development costs and construction delays burned up capital resources.  While that post made a nice trip down memory lane, turning over the shards of failure and loss, I really want to bring to investors’ attention new investment ideas of companies that are making a success of gas-to-liquids technologies.
Linc Energy (LNCGY:  OTC/PK, T16:  SGX) in Australia is combining its expertise in the gasification of underground coal deposits with gas-to-liquids technologies to produce synthetic crude oil.  The company is producing one million cubic meters of syngas from an underground coal deposit at a facility near Angren, Uzbekistan.  The syngas is used for electricity generation at an adjacent power plant.  Linc has demonstrated at a plant in Australia that its syngas can be converted to liquid fuel using a Fischer-Tropsch process.  A demonstration facility in Australia has proven five different coal gasifiers as well as a gas-to-liquids pilot system.  Linc Energy’s CEO has demonstrated its diesel output in a trip around Australia in 2011 and a second trip in 2012 demonstrating its jet fuel output. 

As impressive as those two trips might have been, Linc Energy has yet to earn revenue from the sale of liquid fuels.  What is more its gasification technologies are not yet its bread and butter.  In the year 2014, over 95% of revenue was provided by the sale of gas in the US derived from conventional oil and gas operations.  The sale of syngas in Uzbekistan accounted for 1.8% of sales.

Linc Energy reported AUS$148.4 million (US$112.8 million) in total sales in the year 2014, on which it experienced a total loss of AUS$229.5 million (US$174.4 million).  Gross profit was a slim 24.3%, down from a profit margin of 52.1% in the previous year.  The company used AUS$32.6 million (US$24.8 million) in cash during the year, putting some pressure on cash resources.  The company held AUS$48.7 million (US$37.0 million) in cash at the end of the December 2014, down dramatically from a year earlier when there was AUS$124.0 million (US$94.2 million) in the bank.

Understandably Linc Energy’s stock price reflects the red ink across the company’s financial reports.  The quotation for the stock on the U.S. Over-the-Counter service has come down by 48% since the beginning of December 2014.  Until the company announces some sort of fundamental accomplishment, it is not likely the stock will reverse the current weak trend.  On the other hand the contrarian investor who is tolerated of considerable risk could find encouragement in Linc Energy’s demonstration of gas-to-liquid diesel and jet fuel and regard the relatively lower price for LNCGY as a good opportunity to buy on the cheap.

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.

March 18, 2015

Trade Wars Send Chinese Solar Companies Offshore

Doug Young

Bottom line: A new wave of overseas investment by Chinese solar panel makers should ease western complaints of unfair state-support and provide a more solid foundation for the sector’s longer-term development.

Solar panel makers migrate overseas

As a settlement to avoid anti-dumping tariffs for Chinese solar panels exported to Europe showed signs of unraveling last week, a new report emerged that showed a more positive trend for a sector that has become the subject of nonstop trade wars over the last 4 years. That newer trend has seen a growing number of embattled Chinese solar panel makers set up overseas factories, helping them to avoid punitive anti-dumping tariffs imposed by the US on their domestically produced goods.

Both Beijing and the west should welcome and encourage this kind of development, which not only can help diffuse trade tensions but also benefits everyone, including governments inside and out of China and the solar panel makers themselves. Most fundamentally, such a development greatly reduces the complaints of unfair state-support lodged by western governments, since such new factories lack access to many of the beneficiary policies that manufacturers receive in China.

At the same time, such overseas investment boosts jobs in economies of recipient countries, while also helping China by raising its outbound investment and extending its global influence. Despite experiencing some short-term pain, the panel makers themselves also benefit by becoming more diversified and efficient through competition with western rivals on a more level playing field.

The solar panel trade wars date back nearly 4 years, starting with a string of bankruptcies by western players that couldn’t compete with their Chinese rivals. The failed foreign companies complained that their Chinese peers enjoyed a wide range of unfair government support, from policies such as export tax rebates, low-interest loans from state-run banks and subsidized land supplied by local governments for factory construction.

The US responded by imposing anti-dumping tariffs. The EU threatened to follow with a similar move, but the dispute was resolved after the Chinese manufacturers agreed to raise their prices to levels similar to western rivals. That deal was showing signs of unraveling last week, as the European Commission investigated complaints that the Chinese manufacturers were using loopholes to avoid charging the higher prices stipulated in the settlement. (previous post)

But amid the latest wave in heightening tensions, a new report showed that the Chinese manufacturers have quietly started building more factories overseas to make panels that won’t be subject to the US tariffs, and possible new tariffs from the EU. (Chinese article)

Mid-sized player JA Solar (Nasdaq: JASO) has become the latest to join the trend, contemplating construction of a factory in Southeast Asia capable of producing panels with up to 400 megawatts in annual power capacity. The company has said it might try to find a local partner to co-invest in the project, bringing multiple potential benefits to the recipient country of such a factory.

That move would come after JinkoSolar (NYSE: JKS), another mid-sized player, began construction last year of a plant in South Africa with up to 120 megawatts in annual capacity. Rival ReneSola is one of the most advanced, with overseas plants planned or already producing in Poland, Turkey, South Korea, Malaysia and Indonesia, the report said. Top-tier player Trina Solar (NYSE: TSL) also said earlier this month it is planning to build manufacturing facilities by itself or with partners outside China.

Analysts have pointed out that many of these countries offer similar advantages to China, including low-cost labor and some preferential tax policies, allowing the Chinese companies to keep prices low. But because they are outside China, such plants’ panels wouldn’t be subject to the punitive tariffs imposed by the US. They would also likely be exempt from future punitive tariffs implicitly threatened by the European Union if last year’s landmark settlement ultimately unravels.

This kind of market-driven movement is a far more constructive response to the western complaints than the angry war of words that has evolved between Beijing and its major trading partners over the last few years. A systemic change in Chinese policies is difficult to achieve quickly, since such policies occur at a wide range of governmental levels that have become pervasive throughout the nation over the last few years as the sector developed.

While the US tariffs and similar moves in other major markets initially looked confrontational and counterproductive to the sector’s development, they could ultimately benefit everyone if they force the Chinese firms to diversify with new manufacturing bases outside their home market. That kind of development should be welcome and even encouraged by Beijing, which should be careful to avoid providing the kind of direct assistance in this new go-abroad movement that led to the original complaints from the west.

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.

March 16, 2015

Rentech After Fischer-Tropsch

by Debra Fiakas CFA

A long article appearing in early March 2014 on Biofuels Digest about Emerging Fuels Technology (EFT) gave me pause.  The article has since been removed from the site but it was an interesting primer on Oklahoma-based EFT’s use of the Fischer-Tropsch process to convert carbon-based feedstock to liquid fuel, otherwise called Gas-to-Liquids. While Emerging Fuels Technology has been listed in Crystal Equity Research’s Alternative Chemicals Group of the Beach Boys Index of companies trying to harness energy from the sun through biomas, I must admit the company had not been taken seriously. 

There are reasons for my apathetic view. 

Fischer-Tropsch often referred to as FT for short is a series of chemical reactions to convert carbon monoxide and hydrogen into liquid hydrocarbons.  The reactions are triggered by a catalyst, usually cobalt or iron, and managed under high temperatures in a chamber or reactor.  The idea is quite beguiling: converting biomass or coal or even natural gas, especially stranded natural gas, to something useful like a liquid fuel.  Unfortunately, FT is expensive, requiring significant capital to build the reactor and attendant gasification, water handling, and fuel distribution systems.  Operating costs are not cheap either as all those systems require people to watch over them regular maintenance and repair.  Then there is the cost of replacing the catalyst when it wears out!

However, the Biofuels Digest article suggested EFT had achieved important efficiencies with its catalysts that could reduce the high costs of building and operating a FT-based gas-to-liquids plant.  EFT had managed to forge a partnership with an engineering firm Black & Veatch that specializes in the energy field and has worldwide reach.  Then at the end of 2014, EFT signed a memorandum of understanding with Airbus Group (AIR: Paris), which has made clear its interest in developing alternative aviation fuels.

Some investors might remember one of the most high profile developers of FT, Rentech, Inc. (RTK: Nasdaq).  Rentech exited the field with the 2013 shuttering of a demonstration plant in Colorado and the sale of property near Natchez, Mississippi that was to be the site of Rentech’s first gas-to-liquids production facility.  In winding down its gas-to-liquids development effort, Rentech indicated it would retain and protect its portfolio of patents.  Rentech owns a group of patents on FT-related technologies that purportedly improved upon the basic FT processes developed back in the 1920s.  Rentech also claims an effective, proprietary catalyst and tweaks to both the preliminary gasification and final refinement steps.  Even with all that innovation at its displosal Rentech elected mothball its efforts.   Over the last couple of years Rentech has morphed into a producer of wood pellets and a provider of wood chipping services to industry.  The company also has interests in nitrogen fertilizer production through its ownership in Rentech Nitrogen Partners LP (RNF:  NYSE).

Rentech voluntarily threw in the towel, but Germany-based Choren Industries was forced into bankruptcy as development costs and construction delays burned up capital resources.  After synthesizing the first liquid fuel from wood in a laboratory in 2001, and then building a commercial-scale plant in 2008, Choren stubbed its toe on its first large-scale ‘biomas-to-gas-to-liquids’ facility that was to have had the capacity to process 250 million liters of liquid fuel per year.  Like Rentech, the surviving Choren Industries has a series of international patents to commemorate its multi-stage gasification and fuel synthesizing process that the company still puts to use in protecting its gasification services.

Wood pellets and nitrogen are a long way from gas-to-liquids technologies.  Holders of RTK shares have found themselves short of a play on alternative or sustainable energy.  Unfortunately, for investors there is no investment play in EFT or any of its admirers either.  EFT is a private company that provides very little information to the public about its financial situation.  Its technology development and licensing business model may not require as many trips to the capital markets as an investor might expect from a company with plans to build production facilities.  On a trim operating and investment budget, EFT can remain quietly private for some time.  Assuming of course that EFT does not end up in the weeds like Rentech and Choren.

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.

March 14, 2015

EU Likely To Impose Further Sanctions On Chinese Solar Firms

Doug Young

Bottom line: A widening investigation into violations of an anti-dumping solar panel settlement between China and the EU is likely to result in punitive sanctions, dealing a blow to the Chinese panel makers.

What started as some quiet rumblings earlier this week is quickly brewing into a major storm, with word that a landmark settlement between the EU and China a year ago to resolve an anti-dumping dispute over solar panels is quickly unraveling. In this case it’s probably more accurate to say the settlement was between the EU and actual Chinese solar panel makers, rather than an agreement between governments. That’s an important distinction, since Chinese companies are often far more likely to try to undermine such agreements by exploiting loopholes, unlike central governments that are usually a bit more trustworthy.

According to the latest headlines, the European Commission is expanding its probe to include a number of other firms from the 3 originally targeted, as it looks into complaints that Chinese solar panel makers are violating the year-old agreement that was supposed to resolve a dispute over unfair state support. Under the agreement, the Chinese companies agreed to voluntarily raise their prices to levels comparable with their western rivals to offset any advantage they might get from state support via policies like cheap government loans and subsidized land use.

The matter first poked into the headlines earlier this week when media reported that ReneSola (NYSE: SOL), Canadian Solar (Nasdaq: CSIQ) and ET Solar were being probed for potential violations of the agreement.  The reports weren’t more specific, but both ReneSola and Canadian Solar issued statements confirming they were being queried.

Now media are reporting that the European Commission’s widening investigation has seen goods seized in the European warehouses where imported panels are stored. (Chinese article) The reports say the EU has also sent lawyers to the companies’ headquarters in China to conduct inspections. All of this hints that things are developing quickly, and the Chinese panel makers could soon fine themselves formally accused of violating the agreement and subject to punitive tariffs.

The report I read didn’t name any sources for the news, but it appears to be based on interviews with officials from the Chinese solar panel makers who are probably worried about losing access to one of their biggest markets. The report specifically mentions that ReneSola, which sold more than a third of its panels to Europe last year, was saying it would pull out of the settlement agreement.

ReneSola’s intention is a bit strange if it’s true, since such a move would immediately subject the company to threatened punitive tariffs it was trying to avoid. Thus its intention would look a bit like an admission of guilt. I previously said that such violations wouldn’t surprise me at all, since Chinese firms are famous for signing agreements and then immediately looking for loopholes that allow them to undermine their partners.

Rumors that such violations were occurring have been common in industry circles, and a contact explained one scenario that companies are using to circumvent the agreement. Under that scheme, the companies sell their panels to buyers at the prices stated under the agreement. But then they tell the buyers to set up fake service and consulting companies, and rebate money to those customers by paying for bogus services.

Surprisingly, Chinese solar shares weren’t moving very much in the latest trading session in New York, with most up or down by less than 2 percent. But I suspect that’s because this is a breaking story and the latest news has yet to get priced in. At the end of the day I expect the Chinese companies will lose any credibility they had left in the European Commission’s eyes, and the EU will go through with its original plan and impose punitive tariffs similar to what the US has already done.

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.

March 12, 2015

Invest Where Solar Beats $10 Oil

By Jeff Siegel

In Dubai, solar is now cheaper than oil at $10 a barrel.

Yes, you read that correctly.

As reported by the National Bank of Abu Dhabi:

Dubai set a new global benchmark in December 2014: at 5.84 US cents per kW hour, the bid for Dubai Electricity and Water Authority’s 200 MW solar PV plant was cheaper than oil at US$10/barrel and gas at US$5/MMBtu.

You see, while oil in the U.S. is used primarily as a transportation fuel, in the oil-rich Middle East, the shiny black stuff is used to generate electricity. In fact, in Saudi Arabia, oil accounts for more than 65% of all electricity production. In Kuwait, it's as high as 71%, and in Yemen, it's nearly 100%.

Oh, to be a fly on the mud-brick wall when the proverbial poop hits the fan.

Meanwhile, consider this...

In the absence of Saudi Arabia's own domestic oil consumption, the desert kingdom could have generated an extra $43.8 billion in 2013.

With that kind of scratch in play, it's not surprising that the smart money is piling into a burgeoning solar industry in the Middle East.

Grid Parity for All!

In a new report written for the National Bank of Abu Dhabi, researchers have found that renewable energy technologies are fast approaching grid parity in most parts of the world.

And this was no Greenpeace report, either. This thing was actually produced primarily for the finance community in the Gulf region.

Here are some of its findings...

  • More than 50% of investment in new generation capacity worldwide is now in renewables.
  • $260 billion a year has been invested in renewable energy technologies worldwide for the past five years.
  • Green bond issues to pay for low-carbon energy projects reached $36.6 billion in 2014, more than triple the previous year.
  • Prices for solar PV modules have fallen over 80% since 2008.
  • Solar PV will be at grid parity in 80% of countries in the next two years.
  • Solar PV is already cheaper than grid electricity in 42 of the 50 largest U.S. cities.
  • Industrial applications of energy efficiency can deliver 100% payback in five years.
  • Modern wind turbines produce 15 times more electricity than the typical wind turbine in 1990.
  • The cost of energy storage is expected to drop to $100 per kWh in the next five years. Today it's about $250.

These data points are music to the ears of Middle East kings, presidents, and prime ministers. After all, in the Gulf region, oil is the lifeblood of many economies. And make no mistake — the cheap oil party going on right now won't last forever.

Truth is, in the Middle East, there is no greater choice for new electricity generation than solar. You know, because it's a freaking desert!

Quiet Integration

While I remain bullish on solar in the U.S., I'm becoming more and more attracted to the opportunities that could soon be spawned throughout the Middle East. In fact, I'm planning a research junket to the region sometime this year to get a firsthand look at what could soon be one of the most lucrative solar markets on the planet.

In the meantime, keep a close eye on the solar and solar-related companies that are actively investing in the region right now. These include, but are not limited to:

  • SunPower (NASDAQ: SPWR)
  • First Solar (NASDAQ: FSLR)
  • Schneider Electric (OTC: SBGSY)
  • SunEdison (NYSE: SUNE)
  • Trina Solar (NYSE: TSL)

This list will continue to grow, too.

Because while the Saudis and the U.S. play their game of chicken, behind the backdrop of all this nonsense and rhetoric, a strong and vibrant solar market is quietly integrating itself into a fossil fuel-addicted world. And it's doing so profitably.

Invest accordingly.

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


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

March 11, 2015

EU Probes Chinese Solar Firms

Doug Young

Bottom line: The EU is likely to resolve its latest dispute with Chinese solar firms over implementation of a year-old pricing agreement, but the clash will undermine trust and hints at future conflict over the issue.

After several months of relative quiet, Chinese solar panel makers are back in the headlines this week with another looming trade dispute in Europe. This particular story, and much of the industry’s woes over the last 2 years, stems from broader western allegations of unfair government support for Chinese panel makers. In this case China and the EU signed a deal a year ago to resolve their dispute, but now the EU is accusing several Chinese firms of violating the deal.

The EU had previously threatened to levy punitive tariffs on Chinese panel makers, saying they received unfair support through policies like cheap loans from state-run banks and low-cost land from local governments. Washington made similar claims and ultimately did impose punitive tariffs, but the EU took a more conciliatory approach and reached a settlement after the intervention of several top government leaders.

The China-EU agreement reached last year didn’t really address the issue of unfair government support. Instead it attempted to level the playing field by calling on Chinese companies to voluntarily raise the prices of their panels to levels comparable to those of European firms. (previous post) Now we’re getting word that the European Commission has told at least 3 Chinese panel makers it believes they may be violating the agreement. (Chinese article)

It’s unclear if the action is limited to the 3 firms, which are named as Canadian Solar (Nasdaq: CSIQ), ReneSola (NYSE: SOL) and ET Solar, or if more names may also be involved. At least one of the trio, Canadian Solar, has issued a statement saying the European Commission has notified it of “potential issues” associated with its compliance with the agreement. (company announcement) It added it believes it has complied with the deal, and that no decision has been made yet by the EU.

The news sparked a sell-off for Chinese solar panel stocks, with ReneSola and Canadian Solar down by 6 percent and 2 percent, respectively, in the latest session. ReneSola is particularly vulnerable in this instance, since it relies completely on exports for its sales. Following the sell-off the shares have lost more than half of their value over the last 6 months, and are coming close to the $1 mark. Shares of other major solar panel makers also sagged, with Yingli (NYSE: YGE) and Trina (NYSE: TSL) also down by about 3 percent.

It’s slightly surprising that Canadian Solar investors were relatively less worried about the news, even though the company was named in the reports and confirmed the situation. But the fact of the matter is that investors have probably worried about this particular agreement ever since it was signed a year ago, and companies are being punished based on their exposure to the EU market.

The reason for investor concerns is relatively straightforward. Put simply, Chinese firms are famous for reaching this kind of deal, and then doing everything they can to undermine such agreements if doing so will benefit themselves. Thus, for example, a Chinese firm may sign an agreement agreeing to raise its prices, and then immediately start looking for loopholes in that same agreement that allow it to continue charging its previous lower prices.

It’s hard to comment in any detail on this particular development without knowing more about the European Commission’s queries. Those queries are almost certainly being prompted by complaints from local solar panel makers, who are hugely distrustful of their Chinese rivals. At the end of the day, the 2 sides will probably resolve this issue and the EU may implement a stronger system to ensure compliance. But this development will undermine the credibility of the Chinese companies, and could also hurt their sales as they are forced to raise prices to fully comply with the settlement.

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.

March 10, 2015

India Hates Coal

By Jeff Siegel

indiasolarIf you think the war on coal in the U.S. is bad, you ain't seen nothing yet!

We recently got word that India is set to double the tax on coal production, while promoting electric vehicles and renewable energy projects.

I'm pretty sure there's some Luddite reporter in Mumbai right now who's head's about to explode.

But that's neither here nor there.

While I'm no fan of regulatory regimes of any kind, I'd be lying if I said I wasn't happy to know that a crap-ton of money is getting funneled into renewable energy and electric cars in India, and not coal. This is for two reasons …

1.) India is one of the most polluted countries in the world. And while fuel wood, biomass, and traffic congestion are bigger culprits when it comes to air pollution, certainly reducing coal-fired power isn't going to hurt.

2.) Thanks to India's latest hard-on for renewable energy, we're now presented with even more opportunity to profit from from the inevitable transition of the global energy economy.

This is Huge

As it stands now, India plans to add 175 gigawatts of renewable energy generation capacity by 2022. 100 gigawatts of that will come from solar.

To put this in perspective, the U.S. currently has less than 18 gigawatts of solar capacity installed.

This is huge!

Analysts over Deutsche bank issued a report about a week ago which indicated that by 2022, 25 percent of India's power will come from solar. Analysts also suggested that solar will ultimately become the dominant source of electricity around the globe, generating $5 trillion in revenue over the next 15 years.

Deutsche bank notes that over the next 5 to 10 years, new business models will generate a significant amount of economic and shareholder value, and that “within three years, the economics of solar will take over from policy drivers (subsidies).”

I love it!

Here's more …

As we look out over the next 5 years, we believe the industry is set to experience the final piece of cost reduction – customer acquisition costs for distributed generation are set to decline by more than half as customer awareness increases, soft costs come down and more supportive policies are announced.

While the outlook for small scale distributed solar generation looks promising, we remain equally optimistic over the prospects of commercial and utility scale solar markets.

We believe utility-scale solar demand is set to accelerate in both the US and emerging markets due to a combination of supportive policies and ongoing solar electricity cost reduction. We remain particularly optimistic over growth prospects in China, India, Middle East, South Africa and South America.

The biggest solar player in India is Tata Solar Power, which is a subsidiary of Tata Power.

Other solar companies with a solid foothold in India include SunEdison (NYSE: SUNE) and First Solar (NASDAQ: FSLR).

Definitely keep a close eye on India throughout the rest of this year as new laws, regulations and incentives kick the Indian solar market into overdrive.


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

March 09, 2015

Hypersolar: Hydrogen In A Baggie

by Debra Fiakas CFA

The last post “Man Makes Mother Nature Look Like a Lazy Maid” featured the work of Harvard scientists who have developed a breakthrough ‘bionic leaf’ system that uses sunlight to split water into hydrogen and then combine it with carbon to make isopropanol, an alcohol that can be used as fuel.  It is very much like reverse combustion.  Kudos to Harvard!  However, the good folks at Harvard are not alone in their quest to outsmart Mother Nature.

In the late 1990s, the U.S. National Renewable Energy Laboratory in Golden, Colorado had reported progress with an artificial leaf that achieved 12% efficiency.  This an efficiency level well in excess of leaves in nature that only store 1% of the sunlight it receives as biomass.  Unfortunately, the Colorado artificial leaf was expensive, producing fuel that cost more than twenty-five times competing fuels.  That artificial leaf needed a great deal more work to reduce costs and achieve scale and efficiency over time.

At the California Institute of Technology or Caltech there are several dozen scientists working on similar artificial leaf technology, trying to build on the Colorado laboratory’s earlier successes.   Caltech is one of five Energy Innovation Hubs created by the Department of Energy to solve the critical energy and environmental issues facing the U.S.  A grant valued at $116 million has been provided to Caltech to support their experiments.

Caltech is trying to reduce costs by perfecting the photovoltaic element.  As proven in Colorado over fifteen years ago, electricity from a solar panel can be used to split water into hydrogen and oxygen.  A membrane is also used to keep the hydrogen gas separate.  Caltech is working with a more efficient configuration of electrodes with special semiconductor materials coated with a catalyst.  Iridium has been found to be the best catalyst for the oxygen electrode, but cost could be an issue.  High purity iridium sells for more than $4000 per 100 grams.  Thus the group is experimenting with various mixes of cheaper materials such as titanium, nickel, iron, cobalt and cerium oxide to find the best combination for light absorption and stability.  After analyzing over 5,000 different combinations the group has settled on silicon with a coating of titanium dioxide for the oxygen electrode.

Caltech has claimed the potential for up to 20% energy efficiency.   Even with such effective conversion of sun power to fuel, cost will be an issue.  Titanium is not free and silicon is expensive.  There is considerable more work that has to be done before investors will get a crack at even investment in privately held company not to mention shares of stock in a public company.

HyperSolar, Inc. (HYSR:  OTC/QB) in California claims it has found solutions for the cost issues that have plagued hydrogen to fuel developers.  HyperSolar describes its system as a ‘solar hydrogen generator’ that integrates the electrolysis function directly into a solar cell.  Its system combines a photoabsorber and a catalyst in a transparent water-filled plastic bag.  The company calls it a ‘baggie system.’  The bag inflates when exposed to sunlight as the hydrogen and oxygen form inside.  In December 2014, the company announced it has achieved 1.25 volts in its electrolytic element, which is sufficient to split water molecules into hydrogen and oxygen.  
HyperSolar is using nano- and micro-particles to cut down on materials costs.  Since the electrolysis takes place at a nano-level fewer photovoltaic elements are required and this reduces over-all cost.  Before HyperSolar’s recent achievements only photovoltaic cells using expensive silicon and titanium had been able to meet the voltage requirements. 

HyperSolar shares are priced at pennies, making it a stock unsuitable for all expect the most risk tolerant.  About 10% of the float changes hands each day, but even with good trading volume, the bid-ask spread is wide.  At the end of December 2014, the company had $62,222 in cash on its balance sheet, bringing into question the company’s capacity to execute on the business plan.  Management has foregone compensation, keeping the cash usage at about $40,000 per months to keep the company going.  A small capital raise at the beginning of January 2015, should tide the company over for another month or two.  Agreements with the University of Iowa and the University of California at Santa Barbara help keep working moving forward.

As a fully reporting public company it is relatively easy to follow HyperSolar’s progress.  It after recent accomplishments it is a company well worth watching despite its weak balance sheet. 

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.

March 06, 2015

Solar Storage Dream Becomes Reality

By Jeff Siegel

sune4While the solar industry continues to heat up, I maintain that one of the best plays in the space is SunEdison (NYSE: SUNE).

This is an aggressive operation, run by incredibly smart people. The company is well-capitalized, fairly liquid, and well-diversified in the energy space, boasting both a top-notch, vertically-integrated solar operation, and a basket of healthy wind assets, too.

The company is also now advancing on energy storage – the final obstacle to the creative destruction necessary to alleviate the world's reliance on fossil fuels.

In a press release this morning, SunEdison made the following announcement …

SunEdison, Inc., the world's largest renewable energy development company, and Solar Grid Storage LLC, a leader in deploying combined energy storage and solar PV systems, today announced that SunEdison has acquired the energy storage project origination team, project pipeline, and subject to customary consents and assignments, four operating storage projects from Solar Grid Storage. SunEdison now offers battery storage solutions to complement solar and wind projects worldwide, providing solutions that can benefit utilities, municipalities, businesses, and consumers alike.

"Storage is a perfect complement to our business model and to our wind and solar expertise," said Tim Derrick, General Manager of SunEdison Advanced Solutions. "Our strategy is to increase the value of the solar and wind projects that we finance, develop, own, and operate by improving their availability and ability to interact with the grid. With this acquisition we have added the capability to pair energy storage with solar and wind projects, thereby creating more valuable projects and positioning ourselves as a leader in the rapidly growing energy storage market."

The growth in the energy storage market is being driven by commercial and municipal customers who are interested in both immediate energy savings from solar and emergency back-up power from storage, and by electricity grid operators, who place a high value on storage for its ability to make the grid more resilient and less susceptible to failure. Renewable generation-plus-storage has proven to be a cost-effective way of integrating renewable energy such as solar and wind into the grid.

"Solar Grid Storage is unique in the storage industry in that we approach storage from a solar perspective. Understanding the core solar customer value proposition, as well as the ways that energy storage can add customer benefits and economic value to solar projects, enables us to deliver renewable energy projects that are more valuable for both customers and grid operators," said Tom Leyden, Chief Executive Officer of Solar Grid Storage. "Becoming a part of SunEdison, a renewable energy market leader with a strong pipeline of customers and development projects, positions us incredibly well to accelerate our growth and integrate energy storage with renewables to help create the electricity grid of the future."

Interestingly, this news comes less than one month after Tesla (NASDAQ: TSLA) genius Elon Musk announced that his company is about six months away from unveiling a new kind of battery that'll be able to power your home.

I'm telling you right now, the elusive storage dream is about to become reality. And it's companies like SunEdison and Tesla that are going to make fat wads of cash by getting this stuff out of the labs and into the marketplace first.

Invest accordingly.


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

SunEdison Adds Batteries to Its Arsenal with Acquisition of Solar Grid Storage

Meg Cichon

The renewable energy market has been slowly strengthening ties with energy storage, and it now seems to be tying a secure knot. Wind and solar developer SunEdison (SUNE) announced today that it bought the energy storage team, projects and 100-MW pipeline of Pennsylvania-based Solar Grid Storage (SGS).

SunEdison is now able to offer integrated battery storage solutions for its renewable energy project portfolio, and delve into an energy storage market that is set to grow 250 percent in 2015, according to a new report from the Energy Storage Association and GTM Research. The solar plus battery storage market alone is set to reach $1 billion by 2018.

“Storage is a perfect complement to our business model and to our wind and solar expertise,” said General Manager of SunEdison Advanced Solutions Tim Derrick in a statement. “Our strategy is to increase the value of the solar and wind projects that we finance, develop, own, and operate by improving their availability and ability to interact with the grid. With this acquisition we have added the capability to pair energy storage with solar and wind projects, thereby creating more valuable projects and positioning ourselves as a leader in the rapidly growing energy storage market.”

Solar Grid Storage saw market opportunity a few years ago when electric vehicle interest started improving battery technology and driving prices down, according to CEO Tom Leyden. It was also a time when significant weather events like Hurricane Sandy caused power outages, sparking greater interest in renewables and emergency power.

“A lot of things have moved in our direction, and because of the success in solar and wind, utilities are raising concerns about grid stability,” explained Leyden. “So there is a lot of interest in storage on a regulatory basis to create grid resiliency, an many companies and individuals want emergency backup.”

Solar Grid Storage offers an integrated inverter plus lithium-ion battery storage system that works best for commercial projects ranging from 150 kilowatts to 10 megawatts, along with valuable grid ancillary services. They are focused on the east coast, where they have a contract with grid operator PJM to establish and operate battery storage to help balance the grid. This contract creates a revenue stream, and allows SGS to go into solar and storage projects, according to Leyden. It currently has four completed projects in its portfolio, with several more in the pipeline.

While their focus has mostly been in the PJM territory, SunEdison’s wide U.S. and global reach will open new doors for the storage technology. “To grow we needed additional capital, so SunEdison decided to acquire us — they have a strong balance sheet and attractive financing, which are all good things for us,” said Leyden.

SunEdison has been in expansion mode for the past year or so. In February 2014, it established a yieldco called TerraForm Power (TERP). This yieldco model allows SunEdison to raise capital by selling its projects to TerraForm and then using the proceeds to purchase additional projects and pay investors. Since yieldcos have very strict criteria, SGS won’t be able to qualify just yet due to a lack of contracted revenue, but it hopes to rectify that by the end of the year, said Leyden.

Back in November, SunEdison and TerraForm announced the $2.4 billion acquisition of wind developer First Wind and its 1.3-GW portfolio, making SunEdison the largest renewable energy developer in the world. It also announced plans for a possible $2 billion polysilicon plant in China, a $30 million module plant in Brazil, and a $4 billion module plant in India to help along its more than 5 GW of potential projects in the region.

For now, Leyden said that SGS will focus on ramping up in the PJM market and moving into California, where there is storage procurement in place. Said Leyden, “Those are our two initial focuses, but we do want to expand beyond that — and we intend to — but it will take some time.”

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.

March 04, 2015

FuelCell Energy Rising

by Debra Fiakas CFA

Last week I was surprised to find FuelCell Energy (FCEL:  Nasdaq) on a list of companies registering a particularly bullish technical formation called an ‘Aroon’ indicator.  This measure that is designed to reveal stocks entering a new, decisive trend.  Shares of this fuel cell technology developer and producer had been in a steady decline through most of the year 2014, reaching a 52-week low price of $1.05 in January 2015.  However, since then FCEL has regained 27% from that low point.

Source:  Stockcharts.com
The turn in fortunes seemed to coincide with an announcement commemorating one year of operation at a fuel cell park operated by Dominion Power (D:  NYSE) using five of FuelCell’s Direct FuelCell power plants.  Dominion produces 14.9 megawatts from the installation, which is sufficient to power 15,000 homes.  A heat recovery element adds to the efficiency of the plant.  Then again it must be noted that several of the major small-cap indices such as the S&P 600 Index has been on the rise since about mid-January 2015.  One way or the other FuelCell may have regained its ‘mojo’ in terms of its stock valuation.

Trading volumes near 3.7 million shares per day seem impressive, but this is still only 1.5% of the 'float'  or shares outstanding and not held by insiders.   Besides relatively shallow trading volume, FuelCell has been stalked by traders with a bearish view.  The number of shares sold short is around 14% of the float.  Based on volumes at each price level, I estimate a significant portion of the short interest was established at the $2.50 price level.   If I am right in this assessment, shareholders of FCEL cannot expect a ‘short squeeze’ without further price recovery.

I do not expect to see results for the first fiscal quarter ending January 2015 until well into March.  The consensus estimate is for a loss of two pennies on $48.0 million in total sales.  If achieved these results would represent 8% top-line growth and a reduction in the bottom line loss by half.  The company has been building sales and trimming its operating losses over the past six months or so.  Any upside surprise in financial results could reinforce the new found interest in FCEL. 

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

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

« February 2015 | Main | April 2015 »

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