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June 30, 2015

Leather Without The Cow

Flokser launches Artificial Leather based on DuPont Tate & Lyle, BioAmber ingredients

Jim Lane

In Canada, BioAmber (BIOA) announced that the Flokser Group has successfully developed an innovative artificial leather fabric using bio-based materials supplied by DuPont (DD) Tate & Lyle Bio Products and BioAmber.

Flokser has launched this new synthetic leather fabric under its SERTEX brand. The novel fabric comprises a polyester polyol made from BioAmber’s Bio-SA bio-based succinic acid and DuPont Tate & Lyle Bio Products’ Susterra bio-based 1,3-propanediol.

Flokser’s artificial leather fabric has 70% renewable content and delivers improved performance. It provides better scratch resistance and has softer touch than current synthetic leather fabrics made with petroleum derived chemicals. The global addressable market opportunity for these bio-based polyester polyols in artificial leather is estimated to be 330 million pounds per year (150,000 metric tons); a 165 million pound market for bio-succinic acid and a 165 million pound market for bio-1,3-propanediol.

The background on biobased artificial leather

Historically, artificial leather has been popular with cows, but not always with consumers or environmentalists. Brands abound, including Biothane, Birkibu, Birko-Flor, Clarino, Kydex, Lorica, Naugahyde, Rexine, Vegetan, and Fabrikoid. Most include petroleum-based ingredients such as polyamide, acrylic, and polyvinyl chlordie.

Back in May 2014, BioAmber CEO Jean-François Huc tipped the new work then underway on artificial leather, stating: Huc comments: “Over the past year we worked with a number of innovative companies that validated our Bio-SA in several new applications. For example, in artificial leather they demonstrated that the polyester polyol made with Bio-SA offers better aesthetics including softer touch than the polyols made with adipic acid. This market reportedly consumes 150,000 tonnes of adipic acid annually.

Back in December 2013, Green Dot announced developed a compostable synthetic leather made with the company’s Terratek Flex bioplastic. The new synthetic leather combines the look and feel of high quality leather with a lighter environmental footprint compared to traditional leather tanning or synthetic leather manufacturing. The material can be returned to nature if placed in a composting environment when its useful life is over. Initial trials have been completed with manufacturing partners in the U.S.. The new synthetic leather can be made in a wide range of colors, textures and thicknesses with a variety of naturally biodegradable backings.

In June 2012, Suzanne Lee has developed a “vegetable leather” fabric made using bacteria, green tea, sugar and yeast. The material can be cut, dried, molded and sewn. The product has a life expectancy of five years, at which point it will rot and harden, but not to worry, as it can be composted with a standard home garden composting system.

Reaction from the stakeholders

“We have been working over the years on sustainability and have made remarkable steps, including producing first in Turkey phthalate free artificial leather polyurethane systems. We strive to work with global best in class companies to shape the future. Working with BioAmber and DuPont Tate & Lyle has helped us to generate fresh ideas and develop new products that offer a unique combination of performance and sustainability for our industry,” said Ekin Tükek, Flokser Group board member.

“This new eco-friendly artificial leather fabric from Flokser demonstrates the performance that bio-based materials can offer in technically challenging applications. The artificial leather made with our Bio-SA™ and DuPont Tate & Lyle’s Susterra® outperforms standard products, bringing better abrasion resistance and softer touch,” said Babette Pettersen, BioAmber’s Chief Commercial Officer.

“We are pleased with this new product launch in a major industrial segment of the polyurethane market, and we believe that working with Flokser, an industry leader, will drive market adoption. This new artificial leather fabric is a unique product, combining renewable content with the highest standards of performance and quality”, said Steve Hurff, VP Marketing and Sales, DuPont Tate & Lyle Bio Products.

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.

June 29, 2015

Ocean Power Technologies Bobs Into The Big Apple

by Debra Fiakas CFA

Mid-June 2015, Ocean Power Technologies (OPTT:  Nasdaq) announced final permits had been secured to deploy one of its power buoys off the coast southeast of New York City.  The company has lost no time in laying down mooring lines for the buoy.  The next step is to watch the skies for the best weather conditions to deploy the buoy.  Over the next year, Ocean Power will collect data the power buoy’s performance.
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Ocean Power Technologies is a developer of ocean wave energy technology.  The company has been working on its ‘power buoy’ for over fifteen years for off-grid as well as integrated network electricity generation.  The company’s website provides a concise description of how the power buoy works, using a mechanical system to drive electrical generators using wave motion.  Two different designs provide size and capacity alternatives.

In the twelve months ending January 2015, Ocean Power generated $4.0 million in total revenue with its power buoy technology.  That revenue level is not adequate to support development and other operating costs.  The net loss was $13.1 million.

For any company not yet generating profits, the first question has to be about the adequacy of cash resources to support operations until sales begin to ramp.  Operations used $13.2 million in cash during the twelve-month period ending January 2015.  With another $19.2 million in cash in the bank, it would appear Ocean Power has some time to keep working on its power buoys.  That said, we note that activity has been suspended under the company’s contract with Mitsui Engineering & Shipbuilding for the purposes of gathering and evaluating data needed in the next step of the project.  Work is expected to resume yet in 2015, but with a reduction in revenue in the quarter ending April 2015, it is not likely the company can report growth in sales over the prior fiscal year.
PowerBuoy[1].jpg
Investment in developmental stage companies like Ocean Power is fraught with risk.  What if the technology does not work?  What if management cannot develop a good strategy to commercialize its technology?  On and on it goes with problems and pitfalls.  With that practical view in mind, I note that Ocean Power has been making progress with each passing quarter, with management blocking and tackling each obstacle as it comes along.

OPTT looks over sold according to one of my favorite technical indicators, the Commodity Channel Index.  Granted this micro-cap stocks trades with so little volume technical indicators can be less than robust.  Earlier this year, the company has notified by Nasdaq that continued listing is in jeopardy if the price is not brought up above $1.00.  Unfortunately, the current price of OPTT is still just over two bits.  Nonetheless, at the current price level the stock is more an option on management’s ability to move the ball forward.  For investors with a tolerance for risk, a two-bit option on Ocean Power’s technology and management team could be an interesting play on renewable energy from the ocean.
 

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. OPTT is included in the Ocean Group of Crystal Equity Research’s Electric Earth Index.

June 26, 2015

Commodity Energy Vs. Technology Energy: This Changes Everything

by Garvin Jabusch

We now live in a global economy with two fundamentally different types of energy: commodity-based in the form of fossil fuels and uranium, and technology-based, represented primarily by solar and wind. That observation is interesting as far as it goes, but what does it mean? The term renewable (as it pertains to energy) gets used so often that it is easy to forget what it really entails. For starters, tech-based renewables become less expensive over time, as demand for them drives scale, innovation, and improves cost structures in implementation (think about the last couple of computers you’ve purchased). This is precisely the opposite of how we have traditionally thought about energy and, how it’s priced. With commodity-based energy like coal and oil, energy costs go up over time as demand increases (population and economic growth necessitates this) and the cheaper-to-acquire sources are used up. The contrast between the old and new means of acquiring energy is nothing less than revolutionary, as it means that economic growth need no longer choke itself off as a consequence of its own success. Since the fuels for technology-based energy (sunshine and wind) are free, it means we're entering into a fundamentally new economic era wherein traditional measurement of energy costs will no longer apply.

We currently measure energy in units of power from the supply side: gallons, barrels, BTUs, kilowatt hours, and so on. However, if power generation is no longer slave to a commodity resource with its accompanying supply and pricing dynamics, perhaps it’s time to change how we measure it.

Given the amount of power the world economy uses in a day, compared to the available wind and solar power naturally provided in a day, the potential power that can be harnessed is basically infinite for human purposes. To illustrate this, imagine the time in history when everyone thought there was infinite coal and oil in the ground, but we just didn’t have very many wells or mines to get it out. This was, as far as anyone then could see, the situation at the dawn of the 20th century, when oil rushes and coal booms around the globe redrew borders, sparked decades-long wars, and reshaped human existence on the planet. The future of human productivity was at stake, and people rushed to capitalize on that, similar to how investments are beginning to flow today towards the great transition of our own time - the switch to electrification through renewables.

Of course, there are some crucial differences between the renewable energy future we see today and the beginning of the fossil fuel era that shaped the last century. For one thing, oil and coal turned out to be nowhere near infinite: in fact, the more we use, the more we need, and the harder (read: more expensive) it becomes to get. A similar argument is sometimes made (poorly) about sun and wind: the best spots for wind and solar will be utilized first to maximize investment, and over time more marginal areas will have to be utilized. For instance, Hawaii and California, both very sunny places, are moving quickly on utility-scale solar. Similarly, flat and windy Texas is a world leader in installed generating capacity for wind turbines. However, unlike oil, the amount of sun that falls on less sunny places, like Vermont, is still consistent and never diminishes. The same is true for more and less windy places. To cap all of that off, the amount of wind and sun that occur even in the darkest and least windy places is still in excess, given sufficient deployment of renewables, of current power needs. 

So, what happens now as the equivalent of unlimited barrels and gallons, falling from the sky for free, are increasingly captured and put to productive economic use? Will we remain fixated on measurement only from the supply side? Could we even if we wanted to? Can one put a meter on sunlight? Perhaps a more relevant measure now would be to assess the ability of that energy to do productive work, or in economic terms, to turn material into products and to provide services. Much as supply measurements are used today, this more descriptive production measure would be applied the same to, say, the energy needed by a company like Patagonia to turn plastic bottles into high quality fleece clothing, and the power to operate your television.

Essentially the question becomes: how much of the energy we pour into the economy is productive and how much is wasted? According to economists, notably John A. “Skip” Laitner, about 15% of it becomes economically useful while the remaining 85% dissipates unrequited (here is Laitner’s 2013 paper; free registration required).

Green Alpha’s Next EconomyTM thesis is that our collective and per capita economic activities must ultimately have only a de minimus impact on the economy’s underlying ecosystems, all while we maintain and improve standards of living. In that light, any accounting of global economic activity that suggests we are only getting 15% of the productive energy we generate is, to put it mildly, kind of a big deal. It means that the ability of our economy to grow and to run in a way that won’t overtop earth’s carrying capacity is badly hampered relative to what could be. “You can imagine what a huge array of costs that imposes on the economy and that set of costs just clamps down and makes it harder to provide economic activity and to provide jobs that we need,” as Laitner put it on a recent podcast.

If energy is increasingly coming from a cost-negligible source, and the lifetime of the technology we use to capture it is long enough to easily amortize its capital expenditure, it is time to start focusing on what we do with it, and how. There will, before long, be such an abundance of renewable energy available that we need to start asking how it can best be deployed to maximize economic gains. Measuring where energy goes, and what is done with it when it gets there, will become more important than where it comes from. Laitner has reached a similar conclusion: he believes that our abysmally low rate of converting energy to productive work is a systemic weakness. As he has blogged, “if we miss the big gains in energy and exergy efficiency, focusing instead on investments in costlier and more hazardous new energy resources, we run the risk of a continued weakening of the economy.” (Italics added.)

Energy efficiency and resource productivity are opposite sides of a coin. We need efficiency to do more with less: less material inputs, less person-hours, less water, etc. Doing more with less is key to providing jobs and transitioning to an indefinitely sustainable economy. As the world electrifies, economies will increasingly revolve around renewables to power the factories, shipping, computers and consumers who require those goods and services. What matters now is measuring energy’s ability to functionally provide for society, as opposed to the price per of input on the supply side. Put another way, the 85% of energy we generate and pay for that is wasted is an enormous basket of costs that slows the potential growth of the global economy in all of its manifestations (e.g. job growth).

Growth in global economic productivity is well understood to be slowing. The Organization for Economic Cooperation and Development (OECD) has recently given the global economy a "barely passing grade of B-." The World Bank and others have agreed that global productivity growth this year may decline to 1-1.2%. McKinsey & Company agrees, and reports that the problem is more long-term and systemic: “unless we can dramatically improve productivity, the next half century will look very different. The rapid expansion of the past five decades will be seen as an aberration of history, and the world economy will slide back toward its relatively sluggish long-term growth rate.” 

The primary reason for slow productivity gains is the inefficient use of resources, largely energy, but also water, phosphorus, land and human labor, among many others. Structurally, in terms of our institutional understanding of how to address this, the problem is that we don’t track the right kind of data to measure the effective use of energy in the economy. The conversion of energy to productivity is the numerator in the ratio of human endeavor to global economic growth. We collect energy’s supply side information, but we don’t track how much of that ends up being productive. This is odd, because that’s really the core of understanding economic activity. Moreover, the data we do have doesn’t inform us how individual inputs can help optimize the economic activity that would, in turn, drive sustainability as well as productivity. Knowing how many BTUs we’ve sold doesn’t get us very far; again, it’s not the supply so much as the effective use of energy that runs the world.

What’s required to make best use of the emerging abundance of renewable energy is a transparent flow of rich information to measure, evaluate and direct energy in a way that optimizes use and increases productivity. To get the world thinking outside of a supply-side orientation is a big change, and will require lots of new tools and education. Perhaps the emphasis on the supply-side aspect of energy has been a consequence of the historical commodity nature of the fuels themselves. Since they have been dangerous, dirty, difficult to extract and move around the globe, those responsible have expected commensurate (perhaps outsized) recompense. Increasingly however, energy harvested from renewable sources is freeing the world from those economic handcuffs; you no longer need a multi-billion dollar coal plant to power your house or drive your car. More systematic observation, automation and intelligence in our entire array of systems and devices, with real time measurement driven by machine-to-machine and Internet-of-things technologies, all optimized by algorithms, can now accelerate this revolution.

But present supply side thinking can’t inform any of this because measuring inputs isn’t the same as measuring outcomes. Fundamentally, increasing growth, jobs and standards of living are all about reducing costs of energy, material, services and capital. As with most aspects of holistic Next Economics we have to solve for multiple objectives. So, the transition away from supply-side measurement to outcomes optimization will require a paradigm shift. Understanding what we need as a society and how to line up resources in a way to achieve those outcomes is the critical issue. And incremental improvements to legacy metrics will not cut it.

At Green Alpha Advisors we strive to rethink what we’re doing in our own business of portfolio and asset management in a way that reflects the requirement of the global economic system to evolve to align our energy, material resources and capital with our economic best interests and desires for prosperity. The old, inherited paradigms that only allow us to think in terms of incremental improvements do not help us understand the functional and structural problems associated with unutilized energy, material and capital. As Greentech Media journalist Katherine Tweed recapped from a paper from Laitner, “If we want to understand how to wring more efficiency out of our energy usage, we need to redefine energy use in the first place.”

An economy-wide 15% productive energy use rate is only good news if you’re on the supply side selling all those barrels; the wasted 85% is easy money in that case. But what happens as renewables become the globe’s dominant source of energy and there are far fewer barrels to sell? Laitner’s work seems to be agnostic regarding where energy comes from, emphasizing instead the need to redefine our old ideas about how to measure its impacts and outcomes. For Green Alpha, the fact that the world is increasingly making energy from cheap tech instead of from expensive commodities means it is finally in a position to begin recapturing the lost 85% and realizing a far more sustainable, regenerative and prosperous global economy.

We can now design an economy where a far greater fraction of our energy is put to productive use improving standards of living, accelerating progress and reducing impact on climate and resources. But before we can do that we have to reimagine how we think about energy in the first place. No one can sell a photon, so perhaps it’s time to stop running the world of energy from the supply side, using supply side metrics and talking to each other with outdated language.

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, of the Sierra Club Green Alpha Portfolio, and of the Green Alpha Global Equity Income Portfolio. He also authors the Sierra Club's economics blog, "Green Alpha's Next Economy."

This material is for informational purposes only and is not an offer to sell or the solicitation of any offer to buy any security. Performance data quoted represent past performance, which does not guarantee future results. All returns are total returns net of fees.

To obtain a prospectus for the Shelton Green Alpha Fund (NEXTX), visit www.sheltoncap.com or call (800) 955-9988. A prospectus should be read carefully before investing.  Shelton Funds are distributed by RFS Partners, a member of FINRA and affiliate of Shelton Capital Management. 

Green Alpha is a registered trademark of Green Alpha Advisors, LLC.  SIERRA CLUB is a registered trademark of the Sierra Club. 

June 25, 2015

2020 Solar Investment Outlook

If you Hate Money, Don't Invest in Solar!

It took the solar industry forty years to reach a cumulative global capacity of 100 gigawatts …

By 2020, more than 100 gigawatts will be installed in a single year!

According to a new report from the good folks over at Greentech Media, the solar industry will install a mind-blowing 135 gigawatts of solar PV projects all across the globe in less than five years. This will push the cumulative market to nearly 700 gigawatts - or about the size of all the electrical generating capacity in Europe today.

And consider the following estimates:

  • 55 gigawatts in 2015. This represents 36% y/y growth.
  • Emerging markets will account for 17% of growth of the next 5 years. Historically, they’ve accounted for only about one percent.
  • By 2020, 45% of total solar PV demand will come from just three countries - China, Japan and the U.S.
    
Admittedly, I still see China as a potential wild card based on the fact that if China’s economy implodes - which is not only possible, but probable - there will be significant solar market contraction as China is not only a major producer, but consumer, too.

This is why, as I’ve explained before, I’m trying to limit our exposure to China solar stocks.

On the flip side, however, U.S. solar manufacturers and developers can only continue to get stronger. If you want exposure to the solar space, Sunpower (NASDAQ: SPWR), First Solar (NASDAQ: FSLR), or SunEdison (NYSE: SUNE) should definitely be a part of your portfolio.

All three, by the way, should also get a very nice bump if a select group of lawmakers in California get their way.

No Subsidies Needed

The California Senate recently passed a new bill that, if signed into law, would require the Golden State to get 50 percent of its electricity from renewables by 2030.

It wasn’t long ago when California upped its renewable energy mandate from 20 percent by 2020 to 33% by 2020. Now here we are today looking at the possibility of a 50% renewable energy portfolio.

On the surface, it seems quite aggressive. And in all fairness, right now, it is. But in another few years, costs will fall so low, solar will actually be the most cost competitive source of electricity in California. And that’s without subsidies.

Of course, it seems like every day the need for additional subsidies dwindles, anyway.

Solar superstar and founder of SunEdison, Jigar Shah, has been quite vocal on this issue, insisting that if we phase out the solar tax credits and other solar subsidies in mature markets, the result will be more robust growth.

Check it out …

As the Founder of the largest solar services provider, SunEdison, I had a hand in putting in place subsidies so that we could reduce costs through scale in local markets. This strategy has resulted in an average system cost reduction of over 50% since 2008.

But today, solar subsidies in maturing markets like the United States are actually holding us back, not propelling us forward. In fact, Germany has hit an all time high for solar capacity with 30-gigawatts peak (GWp) of solar power installed. Germany has done this by installing solar at far cheaper prices than we are in the United States. That is because solar subsidies are manipulated by investors like me to maximize our returns. The truth is that installers in the United States can, and do, install solar at roughly the same cost as German installers – save for some increased soft costs. If we want to reach higher growth, we need to phase out the solar tax credits and other solar subsidies in mature markets and watch the price of solar fall.

And just the other day, First Solar CEO, Jim Hughes, actually called the expiration of the solar investment tax credit “irrelevant,” saying …

Within 18 months, we will overcome the cost delta resulting from the drop [of the ITC] from 30 percent to 10 percent. It actually opens up new markets, in our opinion, because you'll see an increased interest in utility generation once the distortion of the ITC is behind us.

Hughes also made an important point that I’ve been making for years …

The growth in corporates interested in direct acquisition of photovoltaic power is not driven by climate change concerns -- it's driven by economics. When you look at data centers, when you look at electricity-intensive industries, they are all interested in locking in a significant cost as a fixed cost rather than a commodity-priced variable cost -- and that's driving a whole lot of procurement on a global basis.

Indeed!

So here we are, looking at a global market that’s growing incredibly rapidly, and even in the absence of direct subsidies, will continue to break records.

When it comes to energy investing, there is simply no greater growth opportunity than solar.

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

June 24, 2015

With Oil Price Drop, Ceres Looks To Food

by Debra Fiakas CFA

Last week Brazilian agriculture technology developer Ceres (CERE:  Nasdaq) made formal plans to shift its focus to seed traits and the food and feed markets and away from energy.  Ceres is not abandoning biofuels as such, but with oil prices at historic low levels, it is not economic enough to justify working capital not to mention new investments.   The company is restructuring operations and reducing personnel in both its U.S. and Brazilian operations.  Ceres management estimates the changes will save between $6 million and $8 million next year.

The question investors need to ask now is whether the shift in priorities can change the value of Ceres.

The company has a strong balance sheet with no debt and $4.8 million in cash and $9.9 million in marketable securities.  The cash and financial assets will come in handy over the months as Ceres tries to reinvent its business model.  Ceres has yet to post a profit on its various agricultural technologies.  Consequently, the company has required considerable investment in working capital.  Over the last year alone Ceres has used $23.9 million in cash to support operations.  Assuming the anticipated savings develops as planned, it is possible that Ceres might need another $16 million to $18 million to keep the wheels turning.  Still it looks like the company could be $2 million to $4 million short.

Thus the first hiccup in creating value is the potential need to raise capital.  That means either increased leverage or issuing additional equity securities.  For a company that is not generating profits or cash, debt can be troublesome.  For most investors, the dilution from new stock is anathema to creating value.

To be fair, Ceres has been making progress with its crop traits.  In March 2014, the company announced plans to accelerate development of its sugarcane traits after initial field trials found better than expected growth and biomass even under drought conditions.  The next stage of field research is expected to be completed by June 2016.  If the company is able to keep pace with the planned schedule, the sugarcane traits should be ready for commercial market introduction in 2018.

The company has made some progress that could bring in revenue in the near-term.  Ceres has licensed its homegrown bioinformatics software platform to HZPC Holland BV, a seed potato developer.  The license will allow HZPC to access DNA databases.  One software license is not material.  However, in my view, the fact that Ceres commercialized a technology that it has originally developed only for in-house purposes, is a plus for Ceres.  It is just the kind of creative management that is needed during adverse market conditions like those presented by weak price conditions in the energy market.

It does not look like there are any significant revenue and earnings generators in the wings.  The single revenue estimate that is published by Thomson Reuters for Ceres suggests revenue could ramp dramatically in the fiscal year ending August 2016.  That that analyst thinks there will be profits, he or she is keeping it a secret as they have not published an earnings estimate.    Of course, this estimate could be predicated on the old biofuel-centric business model.  Yet, I see little change in the potential for revenue and earnings in a ‘food and feed’ business model.

So if investors must wait for earnings to create value, the stock represents an option human or capital assets.  While I might like management’s style, Ceres stock price seems a bit steep for an option on management.  Its crop products, sorghum, sugarcane and switchgrass seem better suited to the energy market than to feed hungry mouths.  Thus the stock seems a bit overpriced as an option on the intellectual property if its application is to be limited to ‘food and feed.’

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.

June 23, 2015

Graphene: It Is All In The Strategy

by Debra Fiakas CFA

In the recent series of articles on graphene we have found a number of companies working on more efficient production processes and as well as applications for this exceptional material.  So beguiling graphene is  -  conductive, strong and pliable.  Scientists and investors alike have thought certainly graphene can provide that all-important ingredient that enhances value and creates profits.  In this post we look at two more companies that claim real progress in commercializing graphene materials. 

Based in the UK, Applied Graphene Materials (AGM:  LON; APGMF:  OTC) reported no sales in 2014 and a net loss of GBP1.9 million (US$2.9 million).  However, management is confident these circumstances will not last.  Applied claimed sending dozens of samples to prospective customers during 2014, and that initial feedback has been ‘encouraging.’  The team is so confident they have moved forward with plans for adding production capacity.  Applied is targeting three separate markets:  advanced composites, functional fluids and coatings.

Applied’s strategy to commercialize graphene seems to differ from most of the other graphene developers.  Instead of creating an entirely new product, Applied is focused on enhancing existing industrial materials by adding a small portion of graphene.  The company’s engineers cite graphene’s mechanical, barrier and lubricating properties as valuable in increasing impermeability, reducing wear and tear, or increasing efficiency.  In my view, this is an interesting strategy. Potentially, even at low-volume, high-cost production rates, a graphene producer could make a profit by offering higher priced graphene material supplies to a customer that will find the increase in performance worth the investment.

Canada-based graphene developer, Grafoid, Inc., has recorded significant revenue in recent months, although it is not entirely clear it the sales are from its graphene material branded as MesoGraf.  Although privately held, Grafoid’s most significant investor, Focus Graphite (FMS:  V; FCSMF:  OTC), reported that Grafoid had recorded sales of CND$1.9 million (US$1.5 million) in the twelve months ending March 2015, resulting in a loss of CND$8.9 million (US$7.2 million).

Grafoid’s market strategy is hitched to a series of acquisitions to integrate forward into the supply chain that would use the company’s graphene materials.  A year ago Grafoid paid US$1.3 million for ALCERECO,  an advanced materials technology developer that provides its customers with specialty ceramics and aluminum-scandium materials.  ALCERECO brings considerable engineering capability to Grafoid, including practical knowledge of manufacturing and materials production.   In September 2014, Grafoid bought a 75% position in Braille Battery, Inc., a developer of lithium ion batteries.  No details of the purchase price or Braille Battery sales or profits have been disclosed.  More recently in April 2015, Grafoid announced plans to acquire Ames Rubber Corporation based in the U.S.  Ames supplies materials for coatings, gaskets, moldings and other ‘rubbery’ products.  Grafoid’s CEO characterized the deal as the company’s ‘springboard’ into the rubber and plastics market.  Although the Ames deal is still pending, Grafoid has forged ahead with yet a fourth acquisition of MuAnalysis, Inc., a provider of testing and analytical services to industry, manufacturing and life sciences companies.  It is no surprise that deal terms were not disclosed.

Integrating all of these operations into the Grafoid fold presents something of a challenge.  It may have already taken its toll on Grafoid’s parent and 18% owner, Focus Graphite.  Grafoid’s chief executive officer, Gary Economo, is also the top executive at Focus Graphite.  In early June 2015, Focus Graphite announced the resignation of its chief operating officer due to a ‘divergence of vision.’  Economo has taken over as interim COO for Focus Graphite.

Some investors might consider shares in Focus Graphite an alternative to a direct investment in Grafoid.  However, it might be wise to let the recent drama at Focus Graphite play out, before taking a stake in what would only be an indirect position in graphene and a significant exposure to Focus Graphite’s yet unproductive graphite mining operations.

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.

June 22, 2015

The Pope and the Climates of Justice

by Jake Raden

Pope Francis’s encyclical on global warming and environmental degradation, Laudato Si, identifies our disruptive effects on our climate as social justice and spiritual issues. “Those who possess more resources and economic or political power seem mostly to be concerned with masking the problems or concealing their symptoms,” he writes, lamenting that those with privilege lack a “sense of responsibility for our fellow men and women upon which all civil society is founded.”

Mapping the Impacts of
Climate Change_CenterforGlobalDevelopment

(Image Courtesy of: http://www.cgdev.org/page/mapping-impacts-climate-change)

The image above is from the Center for Global Development and it’s one in a series that ranks the negative impact of climate change by country. The darker red colors are where currently measurable consequences are the worst. Notice that the richest countries in the world, with the exception of China and India, the largest polluters, are all relatively safe. To quote the New York Times:

“Catholic theologians say the overarching theme of the encyclical is ‘integral ecology,’ which links care for the environment with a notion already well developed in Catholic teaching — that economic development, to be morally good and just, must take into account the need of human beings for things such as freedom, education and meaningful work.”

Anyone who does not refuse consensus science understands that climate change is real, and reliably and statistically caused in whole or in part by the emission of greenhouse gases, most notably carbon dioxide and anthropogenic methane. On the other hand, you have climate deniers who can be grouped into two camps: the truly ignorant, and the feigned ignorant. The feigned ignorant tend to be the people, governments, and organizations which stand to lose the most both personally and professionally from admitting the true causes and ramifications of climate change. This group isn’t probably worth any time or effort, as they will simply be swept away as the world changes, if they continue to refuse to change with it.

It is the truly ignorant that we must come to terms with if we hope to have a chance. In the United States, public education has been faltering and deteriorating since the 1970s. Wages have stagnated, and the number of truly poor people has exploded. It’s not hard to find young (or middle-aged) people who are the product of safe and fulfilling middle class upbringings who understand climate change, the fossil fuel economy, and support changes to the global economy that would avert and reverse climate change. The problem is, those demographic groups are an extremely small minority of the entire planet.  They are mostly white, mostly western, and even in their own countries not always the majority. Why?

Because: inequality. Inequality is the new cause celebre in the West, as the existing middle class that re-built Europe after WW2, and turned the United States into the world’s greatest superpower begins to notice itself wasting away, and mobilizes to save itself. A new gilded age has quietly and subtly transformed Europe and the United States, and engorged itself on the former prosperity of the middle class.

The point is that climate change is no longer an intellectual issue. The science is clear, and it is decisive. Secondarily to climate change itself, pollution kills or harms millions of people a year. Even if in the longer term rising global temperatures posed no risk, we’re poisoning our air, water and food at ever accelerating rates. Eventually, given business as usual, even the rich people will have to eat GMOs, Round-Up, and breathe asphyxiating particulate matter in their air. The causes of climate change and ecological destruction on a global scale are all largely the result of a small cabal of industries that support and in return are vigorously supported by central and peripheral governments.

So if climate change is not an intellectual issue, what is it? If we borrow from the social sciences, like public health and sociology, we can see that it’s really all about inequality. Poor people live shorter lives, are beset by more illnesses, and generally enjoy their time on Earth (objectively, as measured by researchers) less than the non-poor. Many studies have investigated the ramifications of poverty on the mind and decision making, as well as the ability of the brain to grow and develop normally under such conditions. It turns out, it can’t. One study pinned the cost of poverty at around 13 IQ points over time. The stress, anxiety, and increased health related setbacks that the poor face simply take over any dreams or aspirations most poor people have of leading healthy, educated, informed lives. When you’re running to school dodging bullets, it does not leave a lot of time to think about whether or not cars should be electric or internal combustion and fossil fueled.

People who are poor, poorly educated, and stressed out just trying to live one day to the next are both more at risk from climate change (in the especially at risk countries in the map above), and also unfairly left out of the global consensus on how we should treat the environment and how we should power our economies. Whether it’s a lack of access to high quality education to make informed decisions, or simply a lack of material resources to make environmentally aware life and lifestyle choices, the poor are systematically tied to the carbon economy, with no intellectual or material resources with which to combat it, or change their station. Additionally, all of the worst impacts of climate change like food insecurity, increased infectious disease (unclean water), increased chronic disease (asthma, cancers, etc.), disproportionately affect those who lack the resources to insulate themselves from them.

The science is clear on climate change, but only those privileged enough to have access wealth, education, and therefore decision making power over their own lives are in a position to care, much less do anything about it. See the chart below for a global accounting of environmental concern plotted against average per capita GDP (Franzen and Meyer, 2009)

Fig3

As investment managers, we at Green Alpha write and talk a lot about the economic benefits of investing in the solutions to our greatest systemic risks. Pope Francis’s humanist take on the crisis has given us a chance to reflect anew on why the transition to indefinite sustainability matters for everyone, not just those who can own mutual funds. 

Jake Raden, MPH, is Vice President of Research and Data Systems at Green Alpha Advisors, LLC

This material is for informational purposes only and is not an offer to sell or the solicitation of any offer to buy any security. Performance data quoted represent past performance, which does not guarantee future results. All returns are total returns net of fees.

To obtain a prospectus for the Shelton Green Alpha Fund (NEXTX), visit www.sheltoncap.com or call (800) 955-9988. A prospectus should be read carefully before investing.  Shelton Funds are distributed by RFS Partners, a member of FINRA and affiliate of Shelton Capital Management. 

Green Alpha is a registered trademark of Green Alpha Advisors, LLC.  SIERRA CLUB is a registered trademark of the Sierra Club. 

June 20, 2015

MiX Telematics: Fleet Efficiency, Saftey And Security At An African Discount

by Jan Schalkwijk, CFA

In a recent article I wrote about the tech sector in Africa, I mentioned a South Africa company called MiX Telematics Ltd (NYSE:MIXT). There is a dearth of investable tech names in Africa and the worry is that investors would have to stretch to gain exposure to African tech. With this company, no stretching is necessary and it thus provides exposure to the African technology sector without comprising on value or quality.

MiX Telematics is a company that provides fleet and mobile asset management solutions, delivered through the Software-as-a-Service "SaaS" model. The company seeks to deliver its fleet operator customers improved efficiency, safety, and security. The core technology is real-time vehicle tracking and a software platform to record, interpret, and act on the data. This is what the company offers in a nutshell:

Efficiency: manage poor driver behavior, improve route efficiency and maximize vehicle utilization. The improved efficiency results in fuel savings, reduce wear & tear, faster delivery, and minimal vehicle downtime.

Safety: human error is to blame for 80% of motor vehicle accidents. The company's vehicle/driver tracking and monitoring system can record, analyze, and correct poor driver behavior, thus improving fleet safety. In South Africa, the company also has consumer solutions for insurance approval, roadside assistance, crash alert, and business mileage tracking.

Security: Vehicle tracking and monitoring allows for the recovery of stolen vehicles, the monitoring of precious cargo, and alerts to the driver of possible dangers or suspicious vehicle behavior. On the latter point, if for example your car is close to the South African border, MIXT will call you to make sure you are still in possession of your car and it is not on its unauthorized way out of the country.

The company has over 1,000 employees across offices in South Africa, Uganda, UAE, US, UK, Brazil, and Australia, managing over 0.5 million mobile assets and a network of 130 fleet partners. The company's shares trade on the Johannesburg Stock Exchange and on the NYSE since July 2013 through an IPO that raised the equivalent of 650 million South African rand (650 Rm) gross of fees.

Two thirds of the company's 2014 revenue of 1,272 Rm were subscription revenues, which produce an annuity-like stream of income. It is very much the strategy of the company to grow through increasing the number of subscriptions, rather than the off-the-shelf sale of hardware/software. Today, half of its revenue and 2/3s of its employees are Africa based. The percentage of revenue from Africa is likely to decline as the company's foothold in Brazil and the US expands.

While overall revenue was flat in 2014 in dollar terms (up 8% in rand terms), its revenue from subscriptions increased 8% in dollar terms, which will be a key metric to follow. As the mix shifts towards subscriptions, margins improve, which benefits the bottom line even if overall growth is slow. Using CY 2015 Street estimates, the company is trading at an Enterprise Value to Revenue multiple of 1.4x, this compares to 5.2x for the SaaS industry as a whole and 5.6x its closest competitor Fleetmatics (NYSE:FLTX) in the UK. Also - refreshing for a SaaS company - MIXT consistently generates free cash flow.

Even if the market does not narrow the valuation gap, there is a reasonable chance that a corporate buyer might step in. On June 18th US-based Novatel (NASDAQ:MIFI) announced it was buying Digicore, another (smaller) South African fleet-management and vehicle tracking firm, for $87 million in cash, or 4.40 rand per share. On June 1, prior to the announcement, shares were trading around 2.6 rand. MIXT would cost a little more to acquire, but it is digestible with a market cap of $250m.

On the business side, one of the key metrics to look at is renewal rates. There are other players in the space and therefore a declining renewal rate is an indicator of a deteriorating competitive position. The most recent figure for that metric is 90%, which shows that customers when evaluation SaaS solutions available, have a high rate of resigning with MIXT. This speaks to their technology being world class.

Does this company fit in an Africa fund? The answer is a resounding yes, in my view. If we are investing in the African domestic economies we should not limit our universe to African companies with local ambitions, but also consider Africa-domiciled companies with global ambitions. Such an investment can often prove rewarding, as it enables an investor to buy a world class company that's trading with an Africa discount. Moreover, you are banking on the growth of the African middle class in much the same way as when you are buying a bank or a consumer company, because companies like MIXT grow the middle class income that fuels banking and consumption.

Jan Schalkwijk, CFA has 18 years of experience in the investment industry. He is the founder and Chief Investment Manager of JPS Global Investments, an investment firm specializing in green investing on a global basis, and serves on the portfolio management team of Africa Capital Group, where he co-manages a sub-Saharan Africa strategy. From 1997 – 2005, Jan worked at Franklin Templeton Investments, where he was vice president of investment platforms. There, he was responsible for a book of business of $10 billion in assets under management and raised institutional assets in various sub-advised investment mandates that the firm offered, including domestic and international equity and fixed income.


June 19, 2015

How A Part-Time Uber Driver Can Buy A Tesla

By Jeff Siegel

“My next car will definitely be a Tesla,” (NASD:TSLA) my Uber driver said with great enthusiasm.

As he was driving me from the Hyatt in Newport Beach to John Wayne Airport, a Tesla P85D quietly flew passed us.

It was black, shiny, and clearly driven by an individual that was in a hurry. He must've been doing at least 90, and this 20-something part-time Uber drive could barely control his excitement.

While I certainly shared his enthusiasm, I was unsure of how a part-time Uber driver (I believe he was a college student driving for Uber to make some extra cash) would be able to afford an $80,000 car. But then I realized that by the time this guy gets a new car, he won't need $80,000 to buy a Tesla. He won't even need half that.

You see, Elon Musk's next big rollout — following the Model X all-electric SUV — will be the Tesla Model 3, which is set to debut next year with a $35,000 price tag. And rest assured, it won't lack much more than space compared to the Model S. In fact, I've heard it's basically just a smaller version of the Model S.

In any event, the $35,000 price tag on the Model 3 is the actual price — without any incentives included. Throw in the $7,500 federal tax credit, along with California's state tax credit of $2,500, and my Uber driver will be able to pick up a shiny new Tesla for $25,000.

Not a bad deal considering he'll save at least another $10,000 on gasoline during the first three years of ownership (and all Tesla Superchargers are free to Tesla owners). Figure that into the equation, and you're looking at a price tag of $15,000.

Of course, we can't forget that with a Tesla, there are no oil changes or smog checks either. And because it uses regenerative braking, the brake pads can last between three to five years longer than those on a typical internal combustion engine vehicle. Overall, over the course of three years, you're probably looking at another $1,500 in savings on maintenance.

That brings us down to $13,500 for a Tesla!

I believe the cheapest internal combustion vehicle you can buy today is the Nissan Versa, which will cost you about $12,800. But of course, when you figure in gas and maintenance costs, it quickly becomes much more expensive.

Just Kidding!

Okay, so admittedly, I went a bit over the top just now.

Yes, the new Tesla Model 3 will be priced very competitively. But when looking at pricing, I actually try to exclude any special tax incentives. If you figure those into the equation, you're not really getting an accurate read on pricing.

So if we take that same Model 3 and exclude the tax incentives but still include gas and maintenance savings (which are absolutely relevant), that puts us back up to $23,500.

Now, let me ask you this...

Would you pay $23,500 for what is basically a smaller version of the car in the image below?

teslamodelsk

Before you answer, keep in mind that you will still be limited in driving range.

Right now, I can drive my Prius from Washington, D.C. to Boston on a single tank of gas. In a Tesla Model 3, however, which will deliver 250 miles per charge, I'd only get as far as New York City.

I say “only” because I'm being a bit sarcastic.

Being able to drive from Washington, D.C. to New York City in an electric car — without having to stop to recharge — is pretty damn impressive. Especially if you get to do it in a Tesla.

Change is upon us

The reason I did these quick calculations was to illustrate that the two biggest obstacles to electric vehicle integration — price and range — are quickly being overcome. Hell, they're being torched!

Next year, we're going to see an electric car that will be competitively priced against similarly styled internal combustion vehicles and will provide nearly every daily commuter with enough “fuel” (i.e. battery power) to get to and from work or school.

Now imagine where we'll be by the end of the decade!

My engineering contacts tell me 300 miles per charge should be the standard by 2020, and according to UBS, electric car sales should soar after an “expected rapid decline in battery cost by more than 50%.”

With the dual threat of cost reductions and increased range, the highly disruptive breakthrough of electric vehicles is now in place where a major ramp-up is inevitable.

In fact, consider what was recently written at Oilprice.com in an article entitled, "Electric Vehicles to Become Mainstream in Short Period of Time."

Consider the ramping up of some of the most basic items that have conquered the American market over the past century. Refrigerators went from a luxury item to 60 percent household penetration during the Depression and World War II. Technologies we used to live without including PCs, the Internet, and cell phones have become an integral part of daily life.

specialevClick Image to Enlarge

We are about to find out if electric vehicles can make their mark and become mainstream. The launch sequence and liftoff phase (now barely underway) will soon reveal the extent of their fuel supply, i.e. How much interest will consumers have in EVs when a 200-mile-per-charge car costs less than $25,000? When a 60 kilowatt-hour (kWh) battery costs $9,000, there will be plenty of room in the budget to build a lightweight car around it.

At any price, the cost of ownership falls by 75 percent (not including cheaper insurance and maintenance); gasoline miles costing 12 cents each (at the current mileage standard with $3 per gallon) cannot compete with electric miles costing 3 cents or less.

My friend, if you're a regular reader of these pages, you know I've been bullish on electric vehicles since 2005 — back when hardly anyone knew a company called Tesla even existed.

And here we are today, with electric vehicles being nearly ubiquitous in terms of any discussion regarding the auto market. These days, Tesla models, Volts, LEAFs, and a handful of compliant electric cars are just as easy to find on a highway as roadkill — an ironic foreshadowing of what lies ahead for internal combustion.

There is no doubt that we are at the dawn of one of the biggest transitions we'll ever see in personal transportation. Ten years from now, I'll be surprised to see many internal combustion vehicles even being manufactured.

Hell, most kids born today will probably never even know what it's like to fill a gas tank, get an oil change, or smell exhaust.

Change is upon us, dear reader. Embrace it, enjoy the benefits of it, and — by all means — profit from it!

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

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

June 18, 2015

BYOB: Bio-Yachts On Butanol

Jim Lane

Luxury YachtsIn Washington, the National Marine Manufacturers Association (NMMA) announced support of the use of fuels blended with up to 16 percent biobutanol in recreational marine engines.

This decision follows five years of evaluation performed by NMMA with the American Boat and Yacht Council (ABYC), under the direction and guidance of the U.S. Department of Energy and Argonne National Laboratory, and in partnership with the US Coast Guard, Gevo and Butamax.

During this time, the NMMA has gathered a great amount of data supporting the viability of isobutanol as the preferred renewable fuel blendstock for gasoline-powered marine engines. The studies showed that isobutanol fuel blends are a preferable power source for the marina markets.

Biobutanol-blended fuels are especially valuable for use in marine engines, as they are highly resistant to phase separation in the presence of water and have been demonstrated to offer a high level of compatibility with the materials commonly employed in engines and fuel-handling equipment. Applicable for use in marine, automotive and other gasoline-fueled engines, 16 percent biobutanol blends offer a valuable option for growing the use of renewable fuels beyond what is achieved with 10 percent ethanol blends, moving the market toward the long term goals of the U.S. Renewable Fuels Standard.

The formal announcement by the NMMA to endorse isobutanol as an industry-wide biofuel alternative comes as the fuel industry focuses on addressing the congressionally-mandated Renewable Fuel Standard (RFS), which requires 36 billion gallons of renewable fuel to be blended into the gasoline supply by 2022.

NMMA member companies produce more than 80 percent of the boats, engines, trailers, accessories and gear used by boaters and anglers throughout the U.S. and Canada.

Reaction from the isobutanol stakeholders

Jeff Wasil, BRP-Evinrude Engineering Manager for Emissions Testing, Certification & Regulatory Development and a key contributor to the NMMA biobutanol evaluation

Based on years of collaborative testing across the industry, biobutanol fuel blends, such as the ones provided by Gevo (GEVO) during our test program, are a safe and viable alternative to ethanol for use in recreational marine engines and boats up to 16.1 percent by volume.

Butamax CEO Paul Beckwith

The extensive work by NMMA and its partners, which enabled today’s announcement of support for 16 percent biobutanol blends, strengthens to the body of data supporting the value of biobutanol in the transportation fuels market. Butamax is continuing its work to secure required EPA and UL approvals for use of 16 percent biobutanol blends with existing road vehicles and dispensing infrastructure. The broad distribution which those approvals would enable will be key to making these blends widely and economically available for marine use.

Gevo CEO Dr. Patrick Gruber

We believe that the marine industry will be an important market for Gevo’s isobutanol. The technical properties of isobutanol shine in this application. We appreciate the efforts and the collaboration between Gevo and the NMMA throughout the testing program. We are pleased to have provided, from our plant in Luverne, the isobutanol needed to make the 16% isobutanol blended fuels that the studies required, for both on-water tests and in the laboratory,” said “We are delighted with the results of the testing and to have the endorsement of the NMMA. Isobutanol has proven to be an effective, highly compatible biofuel for the recreational boating industry.

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.


June 16, 2015

Graphene Pixie Dust

by Debra Fiakas CFA

Ever since British scientists worked a little magic with some scotch tape, the world has been captivated their discovery of graphene, the single atom thick material that can conduct electricity and is at once strong and bendable.  Investors have been dreaming graphene could be sprinkled across industry like pixie dust, creating valuable new products and driving company valuations to lofty heights.  Reality has been a bit less grand.

To be clear, there have been successes.  As noted in the June 9th article, “Graphene in the Oil Patch,” the wonder material has been found to be of benefit in water-based drilling fluid by limiting dispersion of drilling fluids into surrounding rocks.  Graphene NanoChem Plc. already sells a high performance drilling fluid branded as Plat Drill, which has been enhanced by graphene nanomaterials.  The article “Plasma for Graphene” published on June 12th, described the conductive inks of Haydale Graphene Industries, Plc. (HAYD:  AIM).  Indeed, fluids and solutions appear to be the easiest road to commercial products.

Haydale is not the only company to give investors a chance to capture some of that ‘lofty value.’  Graphene 3D Labs, Inc. (GPHBF:  OTC or GGG: TSX) has developed three dimensional printing filaments that have conductive properties.  The company is marketing the filaments for printing electronic circuitry with the brand name Black Magic 3D.  According to the company’s most recent filing with Canada’s SEDAR, there have been no sales yet.  However, management apparently believes the large and growing market for 3D printing is the ‘oyster’ for Graphene 3D Labs.

There are numerous industry size and growth estimates.  Canalys is typical with a prediction of growth from $2.5 billion in 2013 to $16.2 billion by 2018, implying a compound annual growth rate of 45.7% in the forecast period.  The installed base of 3D printers might be a better focus for investors.  IDC predicts that worldwide 3D printer unit sales and installed base will grow at a combined compound annual growth rate of 59% through 2017, with the value of shipments attaining a 27% CAGR in the forecast period.

Like HAYD, the stock of Graphene 3D Labs trades in small volumes at prices below USD$1.00.  Such stocks can be viewed as an option on management’s ability to execute on the strategic business plan.  In the case of Graphene 3D Labs, a fast growing and highly populated customer group using 3D printers is the target market.  Typically such fragmented markets present an easier mark for a small, modestly capitalized company.

Graphene 3D Labs reported over US$1.1 million in cash on its balance sheet at the end of February 2015.  The cash is primarily from a private placement of common stock that was completed in August 2014, raising US$1.6 million.  The company has been using about US$155,000 per month to support operations, suggest management has about another six months before they need to raise more capital.  Some investors might be worried about the dilution. Others might see the capital raise as an opportunity to catch some ‘value creating’ pixie dust.

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.

June 12, 2015

Graphene From Plasma

by Debra Fiakas CFA

The corporate literature of Haydale Graphene Industries, Plc. (HAYD:  AIM) says graphene material could ‘revolutionize the 21st century.’   Unfortunately, finding an economical way to produce graphene has had some wondering if we might have to wait until the 22nd century to finally gain the benefits of graphene’s numerous superior qualities of strength, flexibility and conductivity. 

Based in the U.K., Haydale reported an eight-fold increase in sales of its graphene materials in the last six months of 2014.  Granted revenue totaling GBP482,000 (USD$737,460) is still small, but the growth lends new credibility to Haydale’s proprietary plasma or ‘gas’ production process for graphene called the HDPLAS process.  The company cites several advantages of HDPLAS, but ‘functionalization’ is a key to the economic viability.  This is a process of adding new features or capabilities to the graphene material by changing the surface chemistry using plasma.  This allows Haydale to produce many ‘types’ of graphene with different properties that might fit a specific application.  Management has some confidence in its technology.  The company recently took delivery of several new reactors for their plasma process to be used in both research and commercial production. 
Haydale is targeting a number of markets, including inks, coatings, energy, electronics and consumer products.  The company recently entered into a commercial agreement with the Welsh Center for Printing and Coating to develop and commercialize electronic inks.  Haydale had already launched conductive graphene-based ink in Fall 2014, and has been sending samples to prospective customers. 

Composite materials are also high on Haydale’s priority list.  In November 2014, the company acquired EPL Composite Solutions Ltd., and recently entered into a pact with Alex Thomson Racing to develop graphene-based composites to build a racing boat.  Haydale claims its addressable market in composits is GBP10 billion (USD$15.3 billion)

At the end of December 2014, Haydale had GBP4.0 million (USD$6.1 million) in cash on its balance sheet.  The company has been using approximately GBP246,000 (USD$378,000) in cash per month to support operations.  That suggests that Haydale can survive through the end of 2015, before it needs to raise additional cash.  The company has 1.3 million options and warrants outstanding, which if exercised could bring in some additional capital.  However, that would also mean about 12% dilution, a circumstance that is probably unavoidable for an early stage company like Haydale.

Some investors might note that Haydale is not alone in bringing graphene-based inks or composites to the market.  However, it is notable that in both these markets precision and consistency are vital for the graphene materials.  Haydale’s production process appears to be particularly well-suited to delivering a customized material to the customer.  That makes Haydale a company well worth watching in the graphene world.

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.

June 10, 2015

Bob Lutz Is Wrong About Tesla

By Jeff Siegel

tblDoes Bob Lutz like Tesla (NASDAQ: TSLA) or not?

The bigwig car exec who probably knows more about the car industry than practically anyone else, has certainly tipped his hat to the electric car-maker and to Elon Musk, but when it comes to the stock, he's perpetually bearish.

Of course, I've yet to find anyone who can really make sense of the stock.

On a technical basis, it's pretty much always been valued at levels that never really coincided with the reality. But the Tesla story has never been about just the technicals.

Tesla's valuation has always been attached to two things: A necessary disruption in the auto manufacturing space, and Elon Musk.

Some folks seem to think it's ridiculous to base the value of a company on its CEO. I disagree.

The way I see it, when you invest in a company, you're investing in its people.

Elon Musk has the intelligence, the charm and the “take-no-prisoners” attitude you want in a CEO.

Building an Empire

In my line of work, I come across dozens of new companies every month. Companies that are run by folks that have great ideas and great enthusiasm. But even if those folks had the greatest product on earth, if they don't know how to run a successful company – particularly in the alternative energy space – then the company will fail miserably. It's pretty simple, really.

So when people say, “Oh, Tesla's only been so successful because of Elon Musk,” my response is, “well, yeah.”

Don't get me wrong. It takes more than a great leader to build an empire. Like-minded individuals are necessary as well. Employees, investors, customers – all are paramount.

But getting back to Bob Lutz …

Apparently, in a recent interview with Squawk Box, Lutz said …

I think [the battery] is greatly overvalued because having batteries as backup storage has been around for hundreds of years. I can't understand the fascination with this.

He said those words before Elon Musk gave a speech at the Edison Electric Institute convention in New Orleans.

I suspect this was a swipe at Tesla and its recently unveiled backup battery system, the Powerwall.

While I have no illusions about the knowledge this man possesses when it comes to cars, I think Lutz is dead wrong about batteries.

He said that he thinks batteries are overvalued because having them as backup storage has been around for hundreds of years.

While it's true that backup storage has been around for hundreds of years, the battery chemistries utilized today are far superior than anything that was developed hundreds of years ago. Hell they're far superior than anything that was developed just twenty years ago.

Take a look at this …

oldbatt

This is what a “modern” backup battery system looks like for an off-grid home that's powered primarily by roof-mounted solar panels.

Now look at Tesla's backup battery …

tpw

Beyond just the aesthetics, the power-to-weight ratio and energy densities make the old backup systems nearly superfluous. And don't forget, this is the very first version.

As technologies continue to develop rapidly, and as costs continue to plummet, backup batteries will become ubiquitous, and Lutz will be right – why the fascination with batteries?

Do we have a fascination with microwave ovens?

Do we have a fascination with indoor plumbing?

Do we have a fascination with email?

Of course not. Because these days, this stuff is just part of our everyday lives.

Mark my words, the same will happen with battery backup systems. And Tesla will lead the way.

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

June 08, 2015

EU Cracks Down on Solar Cheats

Doug Young

Bottom line: The EU will impose anti-dumping tariffs on all Chinese solar panel makers by year end, and will refuse to negotiate any new agreements to mediate the issue unless Beijing becomes directly involved.

A crackdown has officially begun on Chinese solar panel makers who skirted a deal to avoid anti-dumping tariffs in Europe, with word that the EU has taken formal action to punish 3 violators. The action will see anti-dumping tariffs imposed on Canadian Solar (Nasdaq: CSIQ), ReneSola (NYSE: SOL) and ET Solar, reviving a threat they previously avoided by agreeing to voluntarily raise their prices as part of a breakthrough deal in late 2013.

Western solar panel makers in the US and Europe had long complained that they were at an unfair disadvantage to their Chinese peers, which received a wide array of state subsidies through policies like cheap government loans and tax rebates for their exports. Washington responded by levying anti-dumping tariffs on the Chinese companies, while the EU took a more conciliatory approach by signing a deal that saw the Chinese agree to voluntarily raise their prices to levels comparable with their western rivals.

That deal began to unravel earlier this year, when some European panel makers complained that the Chinese manufacturers were using tricks to avoid their earlier promise to raise prices. Such tricks included secretly rebating money to customers through fake consulting deals, and setting up fake factories in other countries to make their panels appear like they weren’t being exported from China.

Now the European Commission, which oversees trade issues for the EU, has determined that Canadian Solar, ReneSola and ET Solar violated the deal, and has reapplied tariffs that were previously threatened. (English article) Canadian Solar issued a statement saying it believes it was in compliance with the deal, and added the action won’t affect its guidance for the second quarter and for all of 2015. (company announcement)

Under the European Commission’s decision, all 3 companies will be subject to an anti-dumping duty of 43.1 percent. Canadian Solar and ET Solar will also be subject to an anti-subsidy duty of 6.4 percent, while ReneSola will be subject to anti-subsidy duties of 4.6 percent. Canadian Solar’s and ReneSola’s New York-listed shares both actually rose by 5.2 percent and 7.7, respectively, after the announcement. But each is still down about 15 percent since mid-May amid growing concerns about the EU spat.

Canadian Solar’s reaffirmation of its 2015 revenue guidance indicates it’s confident that this newest action will take at least half a year to implement, meaning there’s still potentially time to avert the new tariffs. But frankly speaking, the EU’s patience is rapidly running out towards these Chinese solar companies, and I suspect a finalization of punitive tariffs against this trio and other Chinese panel makers is inevitable by year end.

This latest action comes just a week after the European Commission launched a broader probe into whether Chinese companies were violating the earlier agreement, following complaints by a group of local producers led by Germany’s Solarworld. (previous post) The move to separately impose punitive tariffs on the 3 Chinese companies indicates the EU wants to act quickly on the matter, and is probably in no mood to listen to excuses or negotiate any new agreements on the issue. That’s certainly not good news for the solar panel sector in general, but isn’t too surprising either due to the apparent lack of goodwill by the Chinese panel makers.

More broadly speaking, this outcome really does show that Beijing’s participation is needed to make any similar deals in the future. This particular deal was reached directly between the Chinese panel makers and the EU as Beijing stood aside. The Chinese panel makers probably believe they did nothing wrong, since they may have technically honored the agreement even though they violated it in spirit. Getting Beijing involved could avoid this kind of problem in the future, since the companies would be less likely to engage in this kind of mischief if it might mean upsetting the main supplier of their many forms of government subsidies.

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.

June 05, 2015

Making the Most Energy from the Wind

Better technology is allowing some wind farm operators to get more out of their existing wind farms by completely repowering the farm - replacing old technology with new - or by conducting performance upgrades on their turbines.

Jennifer Runyon

There is an old piece of wisdom that states: "If it ain't broke, don't fix it." But some wind farm operators, especially in Germany and North America, are finding that advice difficult to heed. That's because technology improvements in turbines coupled with software analytics are revealing that signing up for a performance upgrade could allow them to squeeze even more wind energy - and money - out of existing wind farms.

Replacing Old Technology with New

According to the recently released Global Wind Report by the Global Wind Energy Council (GWEC), "Repowering has become a billion euro market." The report shows that in Germany 544 wind turbines with a combined capacity of 264 MW were taken offline in 2014 and replaced by new turbines with a capacity of 1000 MW.

1505REWRunF-1[1].jpg
The Vestas V100-1.8 MW turbines at Macho Springs Wind Farm in New Mexico, USA. Credit: Vestas.

While repowering "has not become a very substantial market yet anywhere besides Germany, the potential is huge," said Steve Sawyer, GWEC's president and CEO. "Especially in places like California, Denmark, Germany, even in India where a lot of the best wind sites are now occupied by, in some cases, comically ancient machines that look like they belong in a museum," he said. Sawyer predicts there will be much more action in the re-powering market in the coming years.

Performance Upgrades

It isn't only old technology that is being upgraded, however, sometimes turbines that have been in the field for just four or five years are candidates for an upgrade.

Navigant Consulting's Jesse Broehl is one of the authors of the recently released World Wind Energy Market Update 2015 published by BTM Navigant. He explained that wind performance upgrades are a recent development where major turbine vendors such as Vestas [VWDRY], Siemens[SIEGY], and GE[GE] (the number 1, 2 and 3 suppliers in 2014, respectively) among others "are looking for every opportunity that they can to diversify their revenue stream and increase their income beyond just turbine sales," he said. Broehl explained that performance upgrades are taking place on relatively young turbines. He pointed to a deal in which EPD purchased GE's PowerUp package for 402 turbines spread out over 5 different wind farms. "Maybe those [turbines] are 4 or 5 years old. Probably in that range, maybe even newer," he said.

Ken Siddall, Director of Service Technology Americas at Siemens said that his company offers its modifications and upgrades packages on turbines that are as little as two years old. He explained that upgrades span the entire power curve. "In low-wind situations, we've got a reactive power offering. In the ramp of the power curve, as the wind speeds are coming up, we offer a power-curve upgrade kit, at the top, at full winds, we can offer a power boost to customers with certain turbine models," he said. Siemens also keeps customers informed about available upgrades to its existing fleet of turbines. "Every year or so Siemens launches new turbines with new upgrades or enhancements for improved power performances and as much as we can we try to bring those back into the existing fleet that's already out there," he explained.


Development of the annual installed and cumulative capacity (MW) of land-based wind energy in Germany including repowering and dismantling as of December 2014. Source: Platts Power Vision 2015. Credit: GWEC's Global Wind Report.

Wille Mildebrath, Product Manager at Vestas likened power performance upgrades to customization on a car. "With traditional maintenance, [you would, for example] change the gear oil," he said, adding, "you could also do customization of the car and that's what we're doing with performance upgrades." Mildebrath said that Vestas works with customers to do anything it can to customize and optimize the turbines that are already installed in the field.

Vestas performance upgrades take place after the company, in partnership with the wind farm owner, has conducted "a site specific analysis of that turbine to make sure we understand which upgrade or upgrades would be best." Vestas offers a product suite called PowerPlus, which encompasses power upgrades, extended cutouts, and aerodynamic upgrades, said Mildebrath. "Power upgrades and extended cutouts are most effective on high wind sites, and aerodynamic upgrades have the most impact on low wind sites," he explained. To date, Vestas has sold PowerPlus upgrades for more than 1,300 wind turbines - less than a year after its public launch.

Data collection and analysis of turbines in the field is a big part of both Vestas' and Siemens' offerings. It's that data analysis that helps Siemens know when it is best for customers to entertain the idea of implementing these modernizations and upgrades. The company is constantly monitoring its entire fleet of turbines, according to Siddall "gathering terabytes of data from all of our turbines onshore and offshore."

Software plays a big role in upgrades. Improving the software that controls the turbine "is probably the largest part of these performance upgrade packages," said Navigant's Broel. He said that better algorithms are able to improve "how the turbine operates and how it reacts to the wind environment it is experiencing."

Attractive Costs

Since the money to perform an upgrade often comes from a wind farm owner's O&M budget, rather than the capital expenditure budget, OEMs have made doing them quite enticing. "Vestas PowerPlus is basically free for customers to install," said Mildebrath. The customer pays for the additional energy produced through a revenue share arrangement that is worked out before the upgrade is installed.



DinoTails can be installed directly on the rotor blades of existing wind turbines. Credit: Siemens.

The offshore Wind Farm Horns Rev in Denmark uses Siemens turbines. Credit: Siemens.

GE has a similar arrangement, said Andy Holt, general manager for global projects/services, GE Renewable Energy. "Our customers pay very little upfront costs to implement our PowerUp services platform," he explained adding that GE only profits if its customers do. Siddall said that Siemens has a profit split arrangement where the company shares in any increased revenue they might get from the upgrades.

How much more revenue are they going to get? That is dependent on a lot of factors of course, including wind conditions, which upgrade was specified, the site itself etc. However, Siddal, Holt and Mildebrath said that a 5 percent increase in annual energy production (AEP) is a good target. "Up to 5 percent AEP increase is not uncommon," said Mildebrath.

One Note of Caution?

With no upfront costs, performance upgrades seem to offer what everyone wants: the opportunity to gain more revenue from an existing asset. However Navigant's Broehl offers one word of caution. "Basically if you run your turbine harder then there might be a compromise on its end-of-life use," he said. "You might be taking away years on the back end in order to get that up-front increased performance." Broehl cautioned that a tax-equity investor who plans to exit the deal after a certain rate of return has been reached, say in 10 years, and a different organization that will own the wind farm once that investor has left, may have differing financial motivations. "It's a little bit like how you might prefer to buy a used car from the retirees down the street instead of from a college student," he said.

Nevertheless, most OEMs are committed to a long-term relationship with their customers. Siddall talked of the 10- and 15-year O&M contracts that Siemens makes with its customers. It seems that any risk of prematurely wearing out a turbine could be mitigated with the right kind of contract in place. "We take a long-term approach to this," Siddall said.

Jennifer Runyon is chief editor of RenewableEnergyWorld.com and Renewable Energy World magazine, coordinating, writing and/or editing columns, features, news stories and blogs for the publications. She also serves as conference chair of Renewable Energy World Conference and Expo, North America. Formerly, she was the managing editor of Innovate Forum, an online publication that focused on innovation in manufacturing. Prior to that she was the managing editor at Desktop Engineering magazine. In 2008, she won an "Eddy Award" for her editing work on an article about solar trees in Vienna. In 2010, RenewableEnergyWorld.com was awarded an American Business Media Neal Award for its eNewsletters, which were created under her direction. She holds a Master's Degree in English Education from Boston University and a BA in English from the University of Virginia.

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

June 04, 2015

Car Charging Group Shifts into 'Park'

by Debra Fiakas CFA

The chief executive officer of Car Charging Group (CCGI:  OTC/PK), Michael Farkas, made an appearance at the Marcum Microcap Investment Conference in New York this week.  Farkas used the forum to brag a bit about this company’s practical accomplishments in providing electric vehicle charging stations and services to residential and commercial customers.  Farkas is particularly proud of snapping up the EV charging network of bankrupt ECOtality (ECTYQ:  OTC/PK) at a price he claims was about two pennies on a dollar of ECOtality’s government-funded assets.   Only thinly disguised was his scorn for government investment to foster electric vehicle adoption and ECOtality’s management’s failure to make good.

A closer look at the track record for Car Charging suggests Farkas’ company has its own issues.  It appears the company has 'shifted into park' at least as far as financial reporting is concerned.
 
Blink Car Charging stationThe last time the Company filed the required financial reports with the SEC was for the quarter ending June 2014.  The company filed a notice in November 2014, citing outstanding questions related the accounting treatment for a ‘deconsolidated subsidiary.’   The subsidiary in question was not specified, but the company listed forty-seven subsidiaries in its 2013 10K filing with the SEC, most of which relate to the company’s various agreements to provide charging services at parking structures.  That list did not include Blink Network, LLC, which was formed when the company bought the ECOtality assets.  Beginning in 2013, Farkas and his team went on a buying spree, folding up the assets of three other EV charging operations under the Car Charging umbrella  -  350Green, Beam Charging and EVPass.  Are any of these slated to be de-consolidated?

Apparently, the accounting treatment for such an action is less than straight forward and Car Charging wants ‘pre-clearance’ in advance from the SEC on the acceptable method.  Just the same, the shareholders of Car Charging have to be wondering what is so critical about this accounting question that regulators have allowed management to let financial results to go unreported for over six months.    As it is Car Charging has never been particularly conscientious about filing financial results in a timely manner.  Only one quarter report in the last two years was filed on time. 

Through the financial reports that the company has filed, we know that Car Charging had yet to post a profit and had only recorded $507,833 in total sales from 2001 to the end of the third quarter 2013 before acquiring ECOtality’s Blink network of EV charging stations.  Car Charging has not disclosed how much of its revenue is attributable to the ECOtality assets, but it is clear the Blink network immediately became an important sales driver.  In the December 2013 quarter, the first reporting period after the deal, Car Charging reported a spike in revenue to $278,923  -  well more than the $187,480 in sales the Company had recorded in the first nine months of that year.   Then in the first six months of 2014, the last public report Car Charging has made, the company recorded $973,268 in total sales.

Sales were headed in the right direction, but the bottom line was bleeding red ink at a faster rate than ever.  In the first six months of 2014, Car Charging reported a net loss of $7.1 million on $973,268 in total sales.  Operations used $4.6 million in cash to keep ‘stations charging.’  At the end of June 2015, Car Charging claimed $2.3 million in cash on its balance sheet.  At the rate the company had been using cash that would only last about one quarter.

Thus it was not surprising that in December 2014, the Company headed to the private capital market, raising $6.0 million through the sale of convertible preferred shares to existing institutional shareholders.  These private investors got to see what the rest of can only guess  -  financial results through December 2014.  The terms of the private placement provide a few clues as to the conclusions of these ostensibly sophisticated investors.  Only $2.0 million of the total investment was made available to the company with the rest held until Car Charging management achieves some milestones.  One of those goals is the reduction of general and administrative expenses by 40%.

Let’s do a bit of math to figure out what that savings might be.  In the first six months of 2014, the company reported $1.5 million in ‘general and administrative expense’ and another $4.9 million in ‘compensation’ and ‘other operating expense.’  We note that perhaps as much as half of the reported compensation expense could be in the form of non-cash stock and options grants.  Based on the reported expenses in the first half of 2014, I estimate the annual mandated savings could be anywhere from $1.2 million a year ($1.5 million times 2 for the year and then times 40%) to $3.5 million ($1.5 million + $4.9 million less $2.0 million for stock compensation all times 2 for the year and times 40%).

Car Charging Group is included in the SmartGrid Group of Crystal Equity Research’s Mothers of Invention Index of energy alternative innovators.  The company is worth watching, but until costs are under control and financial reports are up to date a stake in CCGI might not be worth the risk that someone new could end up bragging about assets bought at a few cents on the dollar and making smug remarks about investment failures.

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.

June 03, 2015

Amyris, Cosan JV Launches 100% Renewable Base Oils

Jim Lane

BD-TS-Novvi-060215-4Portrait of a breakout: Amyris (AMRS), Cosan (CZZ) JV Novii launchesnext generation of revolutionary oils” touting “unmatched value” and “unbeatable economics”

In California, Novvi unveiled two new 100 percent renewable base oil products, a 100 percent renewable polyalphaolefin (PAO) Group IV and a 100 percent renewable version of its NovaSpec Group III+ base oil. Both will be manufactured at the company’s production facility in Houston.

Base oils are blended with additives to make the engine oils and lubricants sold on the market today.

So, here’s the technical scoop. Novvi’s 100 percent renewable PAO is a clean, direct replacement for conventional Group IV PAO base oils derived from petroleum and natural gas. Novvi notes that it is “the first company to commercialize high-performance PAO oil from renewable materials,” and said that its streamlined supply chain drastically “reduces capex costs considered standard in the industry by bypassing upstream processing steps required by petroleum PAO.”

The global polyalphaolefin market

Try saying that three times real fast. Polly Alfa Hola Fin, Polly Alfa…oh, never mind.

What you need to know, in general, is that it is one of those “small-volume, high-margin” markets that equity analysts point to approvingly when they give kudos to advanced biotech companies for finding a breakout early product. The iPhone comes later, first comes the Apple I.

Specifically, according to Transparency Market Research, Group IV & V Lubricants (PAO, PAG and Esters) Market – Global Industry Analysis, Size, Share, Trends and Forecast, 2012 – 2018,” the Group IV & V lubricants demand was 624.6 kilo tons in 2011 and is expected to reach 752.9 kilo tons in 2018, growing at a CAGR of 2.76% from 2013 to 2018. TMR notes that “Group IV & V lubricants have been growing at a faster pace than mineral-based lubricants as they are more fuel efficient and can be used in extreme operating conditions. In addition, there has been positive regulatory support for the development of Group IV & V lubricants from various agencies.”

BD-TS-Novvi-060215-3

The leap from 50% to 100% blends

There were three main drivers,” Novvi CEO Jeff Brown told The Digest. “First, there was pull from customers who want to be as green as possible, and don’t want to be 50 percent, they want to be 100%. That was a big part of it.

“Also, there are a lot of customers are blending to a renewable content spec. For example, once you get to 25 percent, you can have a Biopreferred label, and customers want to hit that point efficiently, so they prefer to blend on their own. That way, they have the freedom to hit their targets, and for some it is 50, 70 or 80. So, this gives them blend flexibility, especially considering that a finished product can be made of a blend of several base oils.

“The last piece is great for industry, and that is creating value in the renewable content. There is value in green, and if it more valuable to be at 100% than 50% because of some of the factors we’ve discussed, well, that’s something we should create a structure around.

Market share driver or price premium?

We asked whether the value in green was in driving market share or whether there were price advantages.

“We see both, it depends on the product. If there is a high renewable requirement or a tight clean spec, then there can be a price premium.”

BD-TS-Novvi-060215-2

Who’s the customer?

We asked Brown if the demand for Novvi oils was primarily being driven by customer-facing partners in the lubricants business or primarily with blenders and formulators of ingredients.

“We work with customer-facing strategic partners in both, the base oil business and the finished lubricant side.”

What about the business model – is Novvi manufacturing or is licensing in the offing? “We’re doing the manufacturing now but we have a variety of partnership structures with customers, and we will scale production through strategic industry partnerships.”

Will we see expansion of that manufacturing capacity, given the new launches? “Yes,” Brown said, “we have expansion plans on the manufacturing side. First though, we want to move through the product launch period. But we continue to see the market build, and we are seeing the product work, and product adoption.

BD-TS-Novvi-060215-1

Policy supports

In the rush to support the creation of renewable fuels, sometimes the afore-mentioned “small-volume, high-margin” products get overlooked as targets for policy supports — especially critical for young industries starting with smaller production scales. What’s on the “policy shopping list” for Novvi, if anything, we asked Jeff Brown.

“Novvi is not built to rely on policy support; we can compete on price. But with that said a lot of things can help. To give an example, one of the single biggest factors is a country’s fuel economy standard. The higher those are, the higher performing lubricants are required, so we are an enabler for OEMs and large global players. Beyond that, an eco-label spec and laws on toxicity are helpful.

Policies that sound minor can be huge game-changers. For instance, there’s the new Vessel General Permit guidelines – the VGP.

[Readers, please note: The EPA oversees the Vessel General Permit, and new regulations issued in December 2013 affected all commercial vessels longer than 79 feet in length. The EPA advises: The 2013 vessel general permit requires the use of an environmentally acceptable lubricant for all oil to sea interfaces for vessels unless technically infeasible. The intent of this new requirement is to reduce the environmental impact of lubricant discharges on the aquatic ecosystem by increasing the use of environmentally acceptable lubricants for vessels operating in waters of the United States…Use of environmentally acceptable lubricants results in discharges that biodegrade more quickly and are less toxic than their traditional mineral oil counterparts. For all applications where lubricants are likely to enter the sea, environmentally acceptable lubricant formulations including using vegetable oils, biodegradable synthetic esters or biodegradable polyalkylene glycols as oil bases instead of mineral oils can offer significantly reduced environmental impacts from those applications.]

The VGP offers a staggering potential in volume, and last week the Obama Administration issued new regulations on clean water and protecting streams. Traditional mineral oils can be detrimental to the water supply, so we are seeing a lot of legislation under consideration, for example in California. “But we’re not waiting for anything,” Brown hastened to add.

Comments from industry observers

“Renewable oils offer customization of specs and performance that differentiate them from conventionally produced oils,” said Pavel Molchanov, senior vice president and equity research analyst at Raymond James. “A renewable oil that competes on performance and price is well positioned for the multibillion dollar lubricant and base oils market.”

“If a company could make the same quality PAO with a different feedstock, they could dramatically change the market. Customers would run to them,” said Joe Rousmaniere, director of business development at Chemlube International.

The Bottom Line

To relate an anecdote that has absolutely nothing directly to do with Novvi, or lubricants, but illustrates a point, this week some 71 years ago Brig. Gen. Theodore Roosevelt Jr., the senior US commander was traveling with the first wave of soldiers landing at Utah Beach on D-Day. With strong tides and seas that day, Roosevelt’s landing craft arrived a mile away from the carefully-selected objective. Whoops. After surveying the options, Roosevelt coolly announced, “We’ll start the war from right here.”

Which is to say, the advanced bioeconomy revolution was not exactly planned around the battle for global market share in base oils. But it makes a very nice beachhead. Good for Novvi.

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.

June 02, 2015

EU Likely To Impose Sanctions On Chinese Solar Cos

Doug Young

Bottom line: The latest EU anti-dumping probe into Chinese solar panels is likely to find that manufacturers violated a previous agreement, which could result in new punitive tariffs by the end of this year.

In a move that will surprise to no one, the European Union has formally launched a probe into Chinese solar panel makers who are being accused by European rivals of violating a landmark agreement that averted anti-dumping tariffs. I should really stop using the word “landmark” to describe the 2013 deal between the Chinese panel makers and EU that avoided a trade war. In fact, it’s becoming increasingly obvious that a better word to describe the deal would be “foolish”, since it appears many of the Chinese panel makers never really intended to follow the spirit of the agreement to begin with.

The bottom line is that the agreement signed in late 2013, which averted punitive tariffs against Chinese solar panels, is likely to be declared void by the end of this year. I personally didn’t predict this outcome, and at the time I actually congratulated both sides on finding a more productive way to resolve their trade disputes than the usual punitive tariffs. But it seems Chinese companies aren’t ready for this kind of mediated settlement, since the only language they seem to understand is actual punishment.

According to the latest reports, the European Commission, which represents the 28 EU member countries on trade issues, has formally opened an inquiry into whether the Chinese panel makers deliberately took steps to violate the 2013 agreement. (English article) That deal saw the manufacturers agree to voluntarily raise their prices to levels similar to their European rivals, who complained that the Chinese got unfair state subsidies through policies like cheap government loans and export subsidies.

The agreement was strongly supported by several prominent leaders of EU countries, and came after Europe conducted an investigation and had threatened punitive tariffs. But less than a year later, European panel makers began to complain that Chinese were circumventing the deal using a number of tricks, such as offering refunds to customers through fake consulting contracts.

The complaint that prompted the European Commission to launch its latest investigation was made by German manufacturer Solarworld (Frankfurt: SWVK, OTC:SRWRF), and involves yet another tactic that Chinese panel makers allegedly used to avoid their own promised price hikes. In that instance, Solarworld claims the Chinese would transship their panels to Europe by via other places like Taiwan and Malaysia, making them appear to be manufactured in those other places and therefore exempt from the promised price hikes.

Following its agreement to investigate the matter, the European Commission could take as long as 9 months to reach its conclusions, the reports say. But I expect that the probe won’t take nearly that long, as it should be quite easy to determine if big changes have occurred in panel shipment patterns since the EU signed its agreement with the Chinese panel makers less than 2 years ago.

At the end of the day, the US comes out looking the smartest in this whole situation, as it was the first to start investigating Chinese solar panel makers 3 years ago and later levied its own punitive sanctions. I don’t know if any attempts were made to avoid those sanctions through a negotiated settlement like the one with Europe. But I suspect that experienced trade officials in Washington were familiar with the tactics used by Chinese companies, and simply decided to levy the sanctions because they knew a negotiated settlement was likely to run into this kind of problem.

At the end of the day, the only real longer-term solution is for China to end this kind of state support that too often results in trade wars. That won’t be easy, as this kind of support has a long tradition in China due to the country’s socialist past when all businesses were owned by the state. But until that happens, this kind of trade war will continue, and western countries are unlikely to try the negotiated settlement approach again after this failed experiment in Europe.

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.

June 01, 2015

May Dividends Rise: Ten Clean Energy Stocks For 2015

Tom Konrad CFA

 My Ten Clean Energy Stocks for 2015 model portfolio had a good May, despite headwinds from the strengthening dollar and declines in clean energy stocks in general.  As a whole, the model portfolio rose 2.2% for the month, the same as my broad market benchmark.  In general, clean energy stocks did worse, with the Powershares Wilderhill Clean Energy ETF (PBW) down 1.9% for the month.  The portfolios clean energy benchmark, which blends PBW with the more income oriented Utility ETF, JXI, was flat.

For the year to date, the portfolio is up 7.4%, ahead of all its benchmarks for the first time this year.  Their YTD returns were 3.9% for IWM, 7.2% for PBW, 1.4% for the blended benchmark, and -2.5% for JXI. 

Income Portfolio Performance and New Benchmark: YLCO

The six-stock income oriented sub-portfolio continues to shine, up 1.9% for the month and 16.5% YTD.  The fossil fuel free income oriented portfolio I manage with Green Alpha Advisors, GAGEIP, also continues to do well.  It is up 1.5% for the month and 10.2% YTD. 

The benchmark for these income portfolios is JXI (up 1.2% for May and down 2.5% YTD), but as I discussed in previous articles, it is an unsatisfactory benchmark because it lacks a clean energy focus.  That changed on May 28th, with the launch of the Global X YieldCo Index ETF (NASD:YLCO), which focuses on global income-producing clean energy power producers that pay high dividends.  Three of YLCO's 20 holdings are also in this portfolio TransAlta Renewables Inc. (TSX:RNW, OTC:TRSWF), (Hannon Armstrong Sustainable Infrastructure (NYSE:HASI), and Capstone Infrastructure Corp (TSX:CSE. OTC:MCQPF), but they comprise only 9.2% of YLCO compared to half of the income stocks in my model portfolio. 

One of the most important functions of a benchmark is to indicate what part of a portfolio's return is due to stock selection, as opposed to sector and overall stock market performance.  Hence, YLCO is a much better benchmark for a clean energy income portfolio than JXI because it is also focused on income producing clean energy stocks.  Going forward, I intend to add YLCO as in income benchmark, and substitute it for JXI in the blended clean energy benchmark for the whole portfolio.   I will back-fill performance data for YLCO using JXI for the first five months of the year unless I am able to obtain historical performance information from its underlying Indxx Global YieldCo Index.

Value/Growth Portfolio Performance

The four stock value and growth sub-portfolio  gained 2.6% for the month, and now is down 6.2% for the year.  This remains far behind its benchmark, PBW, which fell 1.9% for the month but is up 7.2% year to date.

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

10 for 15 Performance
Chart

The low and high targets given below are my estimates of the range within which I expected each stock to finish 2015 when I compiled the list at the end of 2014.

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. 
5/29/2015 Price: $20.48. YTD Dividend: $0.52  YTD Total Return: 47.6%.

Sustainable infrastructure financier and Real Estate Investment Trust Hannon Armstrong continues to go from strength to strength.  The company released first quarter earnings in line with its previous guidance, growing Core Earnings by 35% over the previous year.

Although I don't consider HASI overvalued at current prices, I have been selling in my own and managed portfolios for re-balancing.  As I wrote many times in 2013 and 2014, I felt it was extremely undervalued in the $10-$13 range in 2013 and 2014. It was my largest position at the start of the year.  Now that it's up almost 50% and more fairly valued, I'm selling to bring it back in line with the rest of my holdings.

Long-time readers who also acquired large stakes below $13 should also consider taking some profits.

The company released its annual Sustainability Report Card.  The company estimates "that assets financed by Hannon Armstrong in 2014 will reduce emissions by more than 340,577 metric tons of GHG per year, equivalent to more than 165,000 tons of coal, and save more than 145 million gallons of water annually."  That's one annual metric ton of GHG saved for every 96 HASI shares, one annual ton of coal saved per 197 HASI shares, and 4.5 annual gallons of water saved per HASI share. 

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. 
5/29/2015 Price: $18.89. YTD Dividend: $0.  YTD Total Return: 26.8%.

International manufacturer of electrical and fiber optic cable General Cable Corp. reported strong first quarter results.  After adjusting for the sale of some divisions, revenue was up a modest 3% over the same quarter a year earlier, but net profit more than doubled.  The company attributes the strength to its restructuring efforts, careful management of working capital, and strong demand for submarine products in Europe.

The company will pay a quarterly dividend of $0.18 on June 26th.

3. TransAlta Renewables Inc. (TSX:RNW, OTC:TRSWF)
12/31/2014 Price: C$11.48.  Annual Dividend: C$0.84.   Low Target: C$10.  High Target: C$15. 
5/29/2015 Price: C$12.65. YTD Dividend: C$0.32  YTD Total C$ Return: 13.0%. YTD Total US$ Return: 5.3%.

Yieldco TransAlta Renewables did not advance as much as I expected after increasing its monthly dividend to 7 Canadian cents.  I believe its failure to advance was due to rising interest rate expectations in Canada.  Rising interest rate expectations tend to hurt all income investments, including yieldcos.

I continue to consider TransAlta Renewables to be very attractively valued at the current price, but no longer like the company as much from an environmental perspective.  The acquisition of four natural gas pipelines and a natural gas power station which is currently under development has made TransAlta a lot less "Renewable".  When the gas power station is commissioned, approximately a third of the yieldco's assets will be transportation or electricity generation from natural gas. 

I am currently holding my positions in the company, but intend to sell when the stock is no longer so undervalued.

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.  
5/29/2015 Price: C$3.13. YTD Dividend: C$0.15  YTD Total C$ Return: 2.5%.  YTD Total US$ Return: -4.5%.

Canadian power producer and developer (yieldco) Capstone Infrastructure suffered from the same Canadian interest rate expectations as TransAlta Renewables, but did not have a dividend increase to offset that effect.

Revenues fell by 21%, and Adjusted Funds From Operations (AFFO) fell by two-thirds mainly because of the new power contract at Capstone's Cardinal facility offset by newly commissioned wind farms.  The company maintained its full year forecastAFFO is important because it is management's estimate of how much money they have available to pay dividends.  

In 2013, before the agreement was signed, I made some estimates about its effect on 2015 AFFO.
The actual contract was essentially in line with my lowest estimate, which I predicted would result in a 2015 approximately C$21 million AFFO.  First quarter AFFO was C$6.5 million, easily on track to exceed my low prediction, especially with the addition of the Goulais Wind Farm which was commissioned in May and will be contributing to results for the rest of the year. 

At the current rate, 2015 dividends are likely to be a little above AFFO, but I expect the dividend to be maintained, despite the fact that the market seems to be pricing in a dividend cut.  (The current dividend yield is 9.6%, many analysts feel that anything above 8% indicates expectations for a cut.)

I believe a cut is unlikely for several reasons, starting with company insider's confidence in the stock.  Management has repeatedly said that they intend to maintain the dividend, and they have been buying shares in the public market and not selling any of the shares they receive as part of their compensation.  Company insiders would not be buying the stock if they thought there was any likelihood of a dividend cut.
nuke refurbishment ontario
Second, while 2015 AFFO could easily fall below dividends paid, there are many reasons to expect that 2016 will be a much better year.  Capstones' development projects will continue to add incremental AFFO, and more importantly, two more of Ontario's nuclear reactors will begin refurbishment next year.  This this will reduce overall electricity supply and likely lead to periods of higher electricity prices and increased profits at Cardinal.  These increased profits will provide extra AFFO to maintain the dividend as Capstone's development projects are commissioned and increase long run AFFO.

New Flyer Industries (TSX:NFI, OTC:NFYEF)
.

12/31/2014 Price: C$13.48.  Annual Dividend: C$0.62.  Low Target: C$10.  High Target: C$20. 
5/29/2015 Price: C$15.60.  YTD Dividend: C$0.25  YTD Total C$ Return: 17.6%.  YTD Total US$ Return: 9.6%.

Leading North American bus manufacturer New Flyer also suffered from increasing Canadian interest rate expectations, but these were more than offset when the company announced a surprise dividend increase in conjunction with its first quarter results. 

As I'd previously discussed, I was expecting a dividend increase towards the end of the year.  From the discussion in the conference call, I get the impression that this will likely be the first of many dividend increases in coming years.  New Flyer's CEO, Paul Soubry, stated "We are not going to disclose our exact formulas and methodologies, but I can tell you that we are now in a methodology of a regular review" of the dividend.  This means that as long as the company's financial performance continues to improve, some of that improvement will flow through to shareholders in the form  of increased dividends.

Investors tend to value growing dividends highly, often much more highly than stable dividends.  If I am right that his is just the first of many dividend increases, I would expect New Flyer's stock to increase even more rapidly than the dividend. 

6. Accell Group (XAMS:ACCEL, OTC:ACGPF).
12/31/2014 Price: €13.60. 
Annual Dividend: €0.61.  Low Target: 12.  High Target: €20.
5/29/2015 Price: €16.66. YTD Dividend: 0.61  YTD Total Return: 27.0%.  YTD Total US$ Return: 14.5%.

Bicycle manufacturer Accell Group did not report any significant news in May, although there was an interesting article about Accell's leadership in the new and growing category of speed e-bikes in its home country of the Netherlands.

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.
5/29/2015 Price: $12.00 YTD Dividend: $0.06.  YTD Total Return: -7.4%.

Ethanol producers are again up in arms about proposed cuts to biofuels mandates in the EPA's proposed 2014-2016 targets, but renewable diesel producers such as FutureFuel would be "reasonably OK with it," according to Jim Lane, publisher of Biofuels Digest.  Given how bad the EPA's track record over the last couple years has been, that's a ringing endorsement.

FutureFuel has not released a statement on the proposal, but Renewable Energy Group's statement gives some insight. "We are positive about today’s EPA announcement related to proposed biomass-based diesel volumes for 2014-2017 and overall advanced biofuels for 2014-2016. This proposal reduces uncertainty and points towards continuing growth for the near future and beyond. ... This is a significant improvement over the original 1.28 billion gallon 2014 [biomass-based diesel] proposal."

The news came out on Friday, and FutureFuel and a more pure-play biodiesel producer, Renewable Energy Group (NASD:REGI) I also follow were both up on the news, by 3% and 4%.  I expect them to climb further next week as the market digests the news. 

8. Power REIT (NYSE:PW).
12/31/2014 Price: $8.35
Annual Dividend: $0.  Beta: 0.52.  Low Target: $5.  High Target: $20.
5/29/2015 Price: $5.03. YTD Total Return: -39.8%.

Solar and rail Real Estate Investment Trust Power REIT's stock continued to decline in the wake of the negative summary judgement I wrote about last month.  This decline was partly due to the fact that the few outstanding issues in the case were not resolved, and so the case will go to trial in August. 

Most of the legal work on both sides has already been done, so I don't expect legal expenses to balloon again, and I expect that, even if Power REIT appeals the ruling, it will only do so if expenses can be contained.  Hence I maintain my expectation that the dividend will be resumed before the end of 2016, and think the stock will again be a good buy if it falls substantially below $5.

9. Ameresco, Inc. (NASD:AMRC).
12/31/2014 Price: $7.00
Annual Dividend: $0.  Beta: 1.36.  Low Target: $6.  High Target: $16.
5/29/2015 Price: $7.26. YTD Total Return: 3.7%.

Energy service contractor Ameresco released strong first quarter earnings, again beating analyst estimates for the third quarter in a row.  The company continues to see recovery, especially in the Federal market.  Ameresco is also reducing its risk profile by developing renewable assets which it keeps on its books.  The resulting depreciation reduces income in the short term, but leads to long term stable income streams.

These positive developments have not yet drawn significant investor attention and the stock price remains low.  Company insiders, on the other hand, are taking advantage by continuing to add to their positions.  Four different insiders have bought a total of 265,000 shares over the last three months.

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.
5/29/2015 Price: $7.70. YTD Dividend: $0.  YTD Total South African Rand Return: 27.0%.  YTD Total US$ Return: 18.5%.

Vehicle and fleet management software-as-a-service provider MiX Telematics also announced quarterly results on Thursday, as well as annual results for its fiscal year, which ends on March 31st.  The company resoundingly beat the consensus earnings estimate (14¢ vs. 7¢ per share) and was very upbeat about its opportunities in the North American market. 

The stock has rallied strongly since the announcement, but given its massive undervaluation, I think there is still plenty of room to the upside.

Predictions for June

Last month, I thought TransAlta Renewables and MiX Telematics had the best chance of short term gains.  TransAlta's dividend increase produced only a small (2%) advance in Canadian dollar terms, but this was wiped out by the strong US dollar, leading to a small loss of 1.2% since last month.  MiX's strong earnings, on the other hand, helped to push its stock up 12.3% in terms of the South African Rand, which was reduced to 10% for US investors because of the strong dollar.

So my perfect track record of predicting five out of five monthly winners in previous updates was broken by TransAlta's slight decline.  The record is now 6 out of 7.  But given that MiX's advance was much larger than TransAlta's decline, I'm happy with the result and willing to stick my neck out again. 

I don't expect much news as we move into the slow summer months, so price moves should be driven mostly by valuation.  I'm quite bullish on all four of TransAlta, Capstone, FutureFuel, and MiX right now, but given MiX's recent advance, I think that it may give back some gains in the short term.  Hence I'm going to limit my prediction for June advances to just the first three: TRSWF, MCQPF, and FF.

Disclosure: Long HASI, CSE/MCQPF, ACCEL/ACGPF, NFI/NFYEF, AMRC, MIXT, PW, PW-PA, FF, BGC, RNW/TRSWF, REGI.  I am the co-manager of the GAGEIP strategy.

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

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