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October 30, 2015

Yieldcos: Calling The Bottom

by Tom Konrad Ph.D., CFA

On a podcast recorded on September 14th, I said I thought that Yieldco stocks had bottomed at the end of September.  Two weeks later, that call still looks like a good one (see chart.)
I'm starting to hear optimistic noises from other Yieldco observers, although the general tone remains quite bearish.

Why do I think September 29th was the likely bottom?
  • End of quarter.  Some institutional investors such as mutual funds reshuffle their portfolios at the end of the quarter so that they don't have to report losing stocks as holdings.
  • Market capitulation.  Although the chart of the thinly traded Global X YieldCo Index ETF (YLCO), above, does not show the high volume selling of a typical capitulation bottom, most of the largest and most liquid Yieldco stocks do.  NRG Yield (NYLD), Terraform Power (TERP), and NextEra Energy Partners (NEP) all show high volume trading on September 28th or 29th.  The pattern is most dramatic for NRG Yield:
NYLD chart
  • Valuation.  Valuation is usually useless for market timing, including calling bottoms.  Undervalued stocks can grow even more undervalued.  That said, Yieldcos are much easier to value than most stocks, especially if we assume that low stock prices will prevent growth through acquisition.  In that case, a Yieldco should be worth approximately the same as its assets.  Those assets are solar and wind farms, or other clean energy infrastructure will long term contracted cash flows.  Since most Yieldco assets have been acquired recently, the current value of those assets should not be too different from what the Yieldco paid for them.  Hence, Yieldco prices per share should never fall far below invested capital per share.  If a Yieldco recently bought its assets at near market prices, tangible book value per share will be a good measure of invested capital.  If the asset were acquired for in kind contributions of Yieldco stock, we may still be able to value them using a discounted cash flow analysis.

The newest Yieldco is Terraform Global (GLBL), which went public at the start of August.  At the IPO, Terraform Global had a net tangible book value of $9.47 per share, compared to a $15 IPO price.  At the recent price of $7.50, GLBL is trading at a 21% discount to net tangible assets, or more than a fifth less than the recent purchase price of solar farms it owns.   In other words, investors seem to be assuming that any future acquisitions will fail to create (or potentially destroy) value for current shareholders, and that GLBL significantly overpaid for its current assets. 

Terraform Global seems priced for nearly everything to go wrong.  Even assuming that everything does go wrong, I'm happy holding the stock at $7.50 and collecting the $1.10 (15%) annual dividend.

8point3 Energy Partners (CAFD) went public in June with a net tangible book value of $5.99 per share, compared to a $21 IPO price.  The reason for this low tangible book value was because its sponsors First Solar (FSLR) and Sunpower (SPWR) contributed solar farms at cost.  The actual value of those farms would be significantly higher if sold to unrelated parties. 

Tangible book value is not particularly useful for valuing 8point3's assets, but my colleague Jan Schalkwijk, CFA of JPS Global Investments has done a discounted cash flow analysis of 8point3 under the assumption of absolutely no revenue growth after 2026, and his estimates of nearer term revenue growth without the addition of new assets before that date.  At a 7% discount rate (which seems appropriate given the low risk of 8point3's contracted cash flows, he arrived at a value per share of $12.99.  In other words, at the recent price of $13, the market is placing no value on 8point3's potential future acquisitions, or the chance that this high quality Yieldco will recover from the current sector downturn. 

So there is plenty of potential upside in CAFD shares, and we get paid an $0.84 (6.5%) annual dividend while we wait for that upside to materialize.


Many Yieldcos are currently trading at or below the value of their current assets.  Even investors who believe that the Yieldco model is broken should consider buying and holding these stocks at current prices.  If Yieldcos stay in the doldrums, and stock prices will never again recover, investors do not need the new acquisitions and dividend growth which could follow to earn an attractive risk-adjusted return.

 Disclosure: Long NYLD/A, GLBL, CAFD, FSLR.

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.

October 29, 2015

Tesla Mulls Local Chinese Production

Doug Young

Tesla Logo

Bottom line: Tesla’s newly announced modest China sales and announcement of a plan for potential local production reflect the uphill road it faces in the Chinese market, which is unlikely to get much easier in the next 2 years.

China is fast becoming the land of promising upstart companies that failed to reach their potential, with word that former new energy superstar Tesla (Nasdaq: TSLA) has posted very ho-hum car sales in a market where it once held out big hopes. The rare China sales figures come as Tesla discussed possible plans to localize some of its manufacturing in the world’s largest auto market, a move that charismatic founder Elon Musk says could cut the cost of cars by up to a third.

The latest Tesla news came from a local media event in China that didn’t go off too smoothly, and apparently wasn’t meant to be reported by foreign media. The event’s lower-key nature and other glitches were unusual for Tesla, which was traditionally a master at slickly orchestrated events and appearances by Musk that gave the company hugely positive publicity when it first drove into China last year.

Of course much has changed since then, and Tesla has been just one of several new energy car makers that have been hobbled by weak consumer sentiment towards a sector that has sputtered despite strong promotion from Beijing. Total electric vehicle (EV) sales in China stood at a 5,114 in the first half of the year, up around 40 percent from a year earlier but still quite a paltry figure. (previous post)

Tesla has been quite tight-lipped about its China sales since cruising into the market more than a year ago, but revealed during Musk’s visit that it sold 3,025 of its mainstay Model S cars in the country in the first 9 months of this year, including 1,680 in the first 2 quarters. (English article; Chinese article) That means the company sold about a third of all EVs purchased in China in the first half of the year, and also that its sales picked up sharply in the third quarter.

King of the Ant Hill

So perhaps Tesla can boast that it controls a third of China’s EV sales, though the market is so small right now that such a boast doesn’t really seem to carry much weight. The reality is that Tesla had much bigger hopes for China when it entered the market last year, hinting that it hoped it could sell as many as 10,000 of its EVs there each year. (previous post) But things didn’t go quite as smoothly as it anticipated, with the company suffering from a combination of its own internal issues and also a much broader failure of wider incentives by Beijing to boost the market.

As a result Tesla conducted a major China overhaul early this year that included the departure of its local head and reportedly also saw large layoffs of its relatively modest local staff. It’s unclear what the company has done differently since then and whether these latest rare sales figures represent achievement of its newer targets or still represent weak performance.

What we do know is that Tesla is in negotiations to do some production locally, a move that it says could lower the cost of its expensive cars by as much as a third. The fact that Musk was talking about lowering car prices seemed uncharacteristic, since Tesla was typically aiming for high-end buyers who wanted to own the latest high-tech gadgets and weren’t so price sensitive.

In many ways, Tesla’s missteps look a bit like another former high-flyer, former local smartphone superstar Xiaomi. After a hype-filled first few years, Xiaomi’s prospects have suddenly stalled as it faces its own issues, including some technical glitches, lackluster new product reviews and most notably intense competition in the China smartphone market. In this case Tesla seems to be facing different issues, some company-specific and others related to the broader China EV market. I wouldn’t write off the company in China yet, though it could still be another few years before it starts to reach some of the loftier targets it first suggested during headier times when it first arrived to the market.

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

October 28, 2015

Green Asset-Backed Bond From Hannon Armstrong Has Measured GHG Savings

by the Climate Bonds Team

Hannon Armstrong’s (HASI) second green ABS, $118.6m, will save 0.39 tons of GHG annually per $1,000!  ($100.5m, 4.28%, 19 yr, A and $18.1m, 5.00%, 19 yr, BBB)

Hannon Armstrong (NYSE:HASI) closed its second green ABS bond (Sustainable Yield Bond) following its inaugural issuance in December 2013. The ABS was a private placement split into two tranches with different credit ratings (from Kroll Bond Credit Rating Agency): $100.5m with a rating of A and 4.28% interest rate, and $18.1m with a rating of BBB and 5.00% interest rate. Both tranches have a 19-year tenor.

Similar to its first green bond, the green ABS is a securitization of ground lease payments for the land used by solar or wind operating assets. Most large scale US wind and solar projects do not own the land on which the assets are installed and operated. Instead it is essential for long-term leases to be agreed to enable stable cash flow of on-shore renewable projects.

For every $1,000 invested in the bond 0.39 tons of carbon will be saved annually according to a CarbonCount  review.  CarbonCount was originally pioneered by Hannon Armstrong and further developed by the Alliance to Save Energy as part of the BNEF FiRE initiative.

Now, it may spring to mind, how do leases for land relate to a direct carbon saving of 0.39 tons annually?

CarbonCount uses a 1:1 ratio between project emission savings and total capital costs, therefore every $ spent on capital cost, from buying the hardware to renting the land, is linked to an equal proportion of the carbon emissions saved by the entire project.

Here is a brief overview of how it works: independent audits of each project determine the expected energy output. This is then fed into the US Environment Protection Agency (EPA) energy-to-emissions model to estimate the amount of carbon displaced by producing renewable energy rather than non-renewable, based on the existing energy mix of the State where the project is.

The total annual carbon saved is then split across the total capital cost of the project. The capital cost covers all aspects of the projects (from the wind turbines or solar panels, to the contractual ground leases). The result: for each dollar spent on capital costs of green projects, the amount of carbon saved is the same. So, the score of this bond is based on the emissions saved associated with the total amount of ground lease payment.

Now, this is a really exciting step in transparency of green bonds as it gives investors a tangible impact of their investment per dollar. Other green bonds can leverage CarbonCount, but at the moment the tool seems to be limited to US based renewable energy projects because of the dependence on the US EPA model (we expect this will change in time as CarbonCount grows). Though, we still need to keep our collective eyes on the prize – it’s about a rapid transition to a global low carbon and climate resilient economy. That means we need to think about carbon emissions (absolutely!) but we also need to include assets that are even more complex to define such as sustainable water across broader geographical scope.

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

October 27, 2015

US Yieldcos Will Survive

by Susan Kraemer

As unrealistic expectations of dividend growth are scaled back, yieldcos are now on a more sustainable path.

Weaknesses in the US yieldco model came into sharp relief this summer as share prices fell along with oil and gas stocks. This was in part due to investor confusion about energy stocks but also in response to a flaw in US yieldco expectations.

Manager of the Green Global Equity Income Portfolio and AltEnergyStocks.com editor Tom Konrad Ph.D., CFA had warned of the looming potential for exactly this kind of market correction in a conversation a year ago. He was worried that investors imagined that yieldcos could keep raising their dividends "forever."

In July of 2014, Konrad voiced this concern: "I think investors think that the party will never end, but at some point we're going to reach this place where yieldcos can't raise their dividends. They have sowed the seeds of their own demise. I think most investors do not understand exactly what's going on."

Now, he said: "There has been a kind of an emperor-is-wearing-no-clothes moment. Investors were assuming that dividend growth would continue forever but that was predicated upon infinite stock price rises. I think it will certainly make people more cautious about investing in yieldcos."

“What yieldcos need to be is boring”

Until recently, yieldcos were benefiting from a virtuous cycle of rising stocks, share issuance at high prices, rapid dividend growth and more share-price rises.

"People are greedy and the people who were setting up yieldcos were catering to that,” Konrad said. “The stocks were overpriced. That has corrected."

The fall happened when too many yieldcos issued too much stock at once and the market was not able to absorb it. This led to falling expectations for dividend growth, leading to stock-price falls.

To fix the yieldco model, both investors and management just need to stop focusing on dividend growth, according to Konrad.

"What yieldcos need to be is boring," he said. "You don't want a stock price that goes up and down crazily, you don't want a dividend getting raised really quickly because they are selling lots of stock."

“A more rational growth rate for dividends would be 2% to 5%”

Konrad believes yieldcos could do worse than imitate certificates of deposit (CDs) at US banks, which offer interest rates well under 1%. Investing in a yieldco would offer a better return than simply leaving money in a CD, and be a little riskier as bank deposits are government guaranteed.

But even yieldco dividend rates of 3% to 7% are much more attractive than CD interest rates at a fraction of a percent, and it is unrealistic to expect yieldcos to grow at 10% or more annually. “A more rational growth rate for dividends would be 2% to 5%, or even 0%," said Konrad.

"You basically just want a stock that you can buy like buying a piece of a community solar farm."

Konrad does not think a lot of changes have to be made to the yieldco model, because they are already happening now with the market correction. Now that investors have a more rational expectation of lower dividend growth, share prices for yieldcos are falling.

But that doesn't mean the dividends themselves are going down. The value of a yieldco doesn't change because its stock price has changed. The value of a yieldco is simply its ability to pay dividends, and what that dividend rate is.

Dividends are not affected by the stock prices, and are still expected to rise, just more gradually, assuming that more stable solar assets with power-purchase agreements continue to be added, which is a reasonable assumption.

It seems that in their haste to leverage these very solid assets, solar firms overreached.

Currently the dividend yield, or dividend as a percentage of the share of stock, is increasing, because the more the share price falls, the higher the dividend yield goes.

The fundamentals are sound. And solar farms with guaranteed 25-year power contracts in place have been likened to toll roads in terms of the stability and security of the income they generate.

Since a yieldco holds only these already-generating assets, with guaranteed revenue streams, a yieldco is arguably a more secure and safe investment than the companies that built the assets. After all, there are no 25-year contracts that guarantee the income of project development companies.

It seems that in their haste to leverage these very solid assets, solar firms overreached. For the solar industry, a high share price in a yieldco provided cheap capital. Yieldcos set dividends to start low so that they could raise them, making it appear that dividend increases would continue long term.

Konrad is not pessimistic about the long term after the correction of the bubble, and believes yieldcos serve a real need that has been overlooked in the recent bad news.

"I do think that there will be more people buying solar farms once they understand the characteristics,” he said. “They are simple vehicles to allow you and me to buy solar and wind farms."

This article was written for YieldCon, the Renewable Energy Yieldco Conference to be held in NYC on December 3rd.  Tom Konrad Ph.D. CFA will speak at the conference.

October 26, 2015

Notes On YieldCos, Future Fuel, and Aspen Aerogels

by Tom Konrad Ph.D., CFA

Since I have not had much time to write for AltEnegyStocks, I thought I'd share with readers some notes I wrote for investors in the JPS Green Economy Fund, a hedge fund for which I'm director of Research, regarding our holdings in the third quarter:
In the third quarter, we took advantage of the general decline of clean energy "YieldCos" to add two of these owners of wind and solar farms to our portfolio at attractive yields.  Pattern Energy Group (PEGI) is an owner of wind farms having long term power purchase agreements with utilities and large companies like Amazon Web Services.  Abengoa Yield (ABY) has a diversified portfolio of 18 long term contracted assets spread across the globe. Two-thirds of its assets are renewable generation, with the balance in electricity transmission, natural gas, and water infrastructure.  The general Yieldco decline and turmoil at ABY's parent company, Abengoa (ABGB) has caused ABY to fall to a very attractive valuation, even though we believe that ABY's quality assets protect it from the problems at ABGB.

In July, Proctor and Gamble canceled its supplier agreement for a bleach activator (NOBS) with holding Future Fuel (FF), which produces biodiesel as well as specialty chemicals.  This move was not a surprise, since it was the result of a long term decline in NOBS volume, but the market reacted very negatively, dropping the stock from around $14 to $10.  We continued to hold because we expected the contract to be renegotiated.  We saw that we were in good company, since FutureFuel's insiders were buying the stock, not fleeing like other investors.  Our patience was rewarded after the end of the quarter: A renegotiated contract was announced and the stock has recovered.

Aspen Aerogels (ASPN) started reporting increasing revenues in the second quarter after a year of flat sales.  We expected this increase (and expect it to continue) because the previous lack of growth was due to Aspen's limited production capacity, not lack of demand for its high performance insulating aerogel blankets.  The increase is due to a new production line which will be ramping up over the course of the year, and we expect the market to continue to react favorably to the continued growth in revenue and profit.
Hope that's useful.  I've wanted to write an in-depth article about Aspen for some time, but other projects have taken priority.    Although the stock seems to have bottomed in July, I think it remains a compelling value at the current $8.50.

Disclosure: Long PEGI, ABY, FF, and ASPN.

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.

October 25, 2015

Energy Recovery Recovers Its Own Energy

by Debra Fiakas CFA

Energy Recovery (ERII:  Nasdaq) has announced a breakthrough license of its hydraulic fracturing pump to oil and gas patch service provider Schlumberger (SLB:  NYSE).  Called the Vorteq by Energy Recovery, the pump features the company’s core pressure exchange technology, representing an entirely new approach to driving the chemical-laced water producers send deep into the earth to extract oil and gas. 

Energy Recovery develops and markets components and equipment for fluid flow and pressure cycles found industrial processes.  Its patented pressure exchange devices are designed to take advantage of energy created in fluid flows and pressure cycles.  The company has developed applications for reverse osmosis desalination, industrial turbines and pumps, and high pressure fluid flows such as oil and gas pipelines.

Energy Recovery’s most recent product innovation is an alternative hydraulic fracturing pump for use in extracting gas from shale deposits.  The Vorteq value proposition is compelling as it replaces the bank of high-priced pumps that must be deployed around the well site to keep fracking operations underway without interruption.  Field tests with another gas patch field services company have helped prove the versatility of the pumps in various conditions.

Apparently impressed and keen to capture the potentially disruptive forces of the Vorteq pump, Schlumberger has agreed to pay an upfront fee of $125 million to gain exclusive world rights to the technology.  Once fully commercialized sometime in 2016, Schlumberger will pay royalties based on the number of Vorteq pumps in use.  Previously, the Company had planned to lease the Vorteq pump to oil and gas producers, retaining all risk in the asset functionality and useful life.  While not yet tested, the leasing arrangement appeared to be a low-margin business model.
The license arrangement solves a vexing problem for Energy Recovery, which has long been known more for its product engineering capabilities than its ability to market and sell.  The Vorteq was the third product Energy Recovery had aimed at the oil and gas market.   Sales have been few given the extended down cycle of the oil and gas sector. 

After sharpening his teeth on this deal, newly appointed CEO, Joel Gay, may have the confidence to move more aggressively in other markets.  Energy Recovery engineers have suggested there are additional applications for other industries with significant flows of high pressure or corrosive fluids.  Energy Recovery can use Schlumberger as a reference relationship taking advantage of that company's reputation for discerning due diligence.
In the first day of trading following the news of a landmark license deal for the Company, shares of Energy Recovery soared.  Volume on the day was several multiples of recent trading volumes and the stock had started the day by gapping dramatically higher on the open.  We believe the conference call that management had scheduled in the hour prior to the market open helped stoke the fires of enthusiasm for the development.

Shares of Energy Recovery had been stagnant for months despite a widely publicized launch of the Vorteq hydraulic fracturing pump in December 2014, and its plans to field test and eventually lease the equipment in the U.S. oil and gas patches.  The reluctance of investors to accord value to the Company’s unproven leasing business model for the Vorteq could be understood.  Now that the Company had proven its ability to craft a profitable business arrangement for the Vorteq , in our view the value of the other oil and gas applications of Energy Recovery’s pressure pumping technology should be recalibrated. 

Energy Recovery seems to have staged its own revival.  It is a company well worth revisiting on the Schlumberger breakthrough.

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.

October 22, 2015

Can Rubicon Hire Bring Shine Back To Sapphire?

by Debra Fiakas CFA

On Friday Rubicon Technology, Inc. (RBCN:  Nasdaq) announced the appointment of a new chief operating officer to manage the company’s sapphire materials production.  Rubicon is a producer of materials used in electronics components, including the company’s specialty, monocrystalline sapphire materials.  

Rubicon chose a seasoned operator for the COO post, which now encompasses functions previously carried about by managers in two different positions.  The new hire, Hany Tamim, was previously with SunEdison (SUNE:  Nasdaq), the developer and producer of solar cells and modules.  He has experience in managing crystal growth and wafer production, two steps Rubicon needs to get right to keep costs low.   By elevating these job functions to a position in the corporate suite, Rubicon seems to be signaling a new view on the importance of operational success to the company’s future.

Rubicon needs to find its groove, so to speak.  The company has experienced a decline in fortunes over the last three and a half years due to what it calls a slump in the market for materials intended for electronics.  Rubicon’s products include sapphire core in two to six inch diameter cylinders, patterned sapphire wafers, and sapphire shapes in various sizes.  The sapphire cores are sliced for use in Light Emitting Diodes (LED) or as lens covers in mobile devices.   Patterned sapphire wafers are also used in LED applications for better efficiency in extracting light.  There are additional uses for the company’s sapphire components in electronics destined for the communications, aerospace, and other end markets.

Business for Rubicon peaked in 2011, when sales totaled $134.0 million.  That was also the last year the company reported a profit.  Since then sales have slumped, declining to $33.0 million in the twelve months ending June 2015, and resulting in a net loss of $40.0 million.  Operations only required $21.4 million in cash to keep the business going during the last twelve months.  Even though the company had $36.0 million in cash on its balance sheet at the end of June 2015, and could potentially support operations for another year, it is understandable why leadership at Rubicon would give Mr. Tamim a shoutout.  ‘Help!  We need to cut costs so we can survive until the world reawakens to the merits of sapphire materials.’

Rubicon has only tangentially benefited from the exit of GT Advanced Technologies (GTATQ:  OTC/PK) from the sapphire materials sector, following the breakdown of GT’s relationship with Apple, Inc.  (APPL:  Nasdaq).  Apple and GT have differing stories on who was at fault in the demise of Apple’s plans to use sapphire glass on its iWatch and iPhones.  The iWatch eventually debuted with sapphire glass components, but iPhone 6 has been produced with conventional glass alternatives.  GT Advanced Technologies declared bankruptcy to get away from the toxic sapphire glass production alliance it had with Apple.

No one has stepped up to take GT’s mission to bring sapphire any closer to handheld electronic devices than the optical lens components.  There is no surprise there.  In the end it seemed more a passing dream by Apple engineers and designers, who were not willing to accept the limitations of sapphire crystal growth and the high costs associated with new product development.

The benefit Rubicon may have enjoyed from GT’s exit is not in terms of new sales.   GT’s former vice president in charge of crystal growth systems development has joined Rubicon as that company’s chief technology officer.  So besides Mr. Tamim, Rubicon has a CTO who is also highly sensitive to cost issues in sapphire crystal manufacturing.

Rubicon appears to have its back to the wall with continued losses and dwindling cash resources.  We have kept the company in the Materials Group of our Mothers of Invention Index of companies that are contributing to energy efficiency because we believe sapphire materials will have a place in 21st century advanced electronics picture.  

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

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

October 21, 2015

Is The Big Win For The Liberals In Canada Also A Big Win For Renewables?

Jim Lane


Liberals sweep to victory in Canada; Trudeau to become Prime Minister, pledging sharp increases in infrastructure investment and a renewed focus on clean technology.

In Canada, the Liberal party, under the leadership of 43-year old Justin Trudeau, swept to victory in the Canadian federal elections. As of 6am Eastern time, the Liberals have won 184 seats — 14 seats more than needed to form a majority government. Prime Minister Stephen Harper’s Conservative Party won in 99 ridings, a loss of 60 seats, while the New Democratic Party has reeled in 44 seats, a loss of 51. The Bloc Quebecois have won 10 seats, a gain of 8 (though party leader Gilles Duceppe was defeated in his own riding), and the Green Party retained its single seat.

Just after midnight Eastern time, the Conservative Party announced that Harper had resigned as party leader.

How it happened

Canadian-election-2The Liberals swept every one of Atlantic Canada’s 32 seats in early voting, and racked up another 80 seats in Ontario; in Québec, voters rolled back much of the NDP’s 2011 “Orange Wave”, and gave the Liberals 40 seats (up from 7 in 2011).

Strong results in the western provinces of Saskatchewan and Alberta for the Conservatives could not offset the losses they racked up in Eastern Canada.

The new Government

Incoming Prime Minister Trudeau has pledged that his government will run a short series of budget deficits aimed at boosting infrastructure spending.

Renewable agencies that stand to benefit?

The primary agency for renewables development in Canada is Sustainable Development Technology Canada, and its SD Tech Fund. In August, we reported: “the SD Tech Fund and the SD Natural Gas Fund are now open for applications through October 14, 2015. The SDTC portfolio is currently composed of 269 clean technology projects with a total value of $2.5 billion, of which over $1.8 billion is leveraged primarily from the private-sector.”

Leah Lawrence, President and CEO, Sustainable Development Technology Canada, said at the time, “Cleantech represents that double bottom line, bringing together environmental goals and economic activity in a way that generates jobs and opportunity across Canada. And what an opportunity it represents for Canada: recent reports peg the Canadian cleantech market at $12 billion.”

Another agency that is “on the biubble” and may benefit from a stronger focus on renewables is BioFuelNet Canada, whose network benefits from a $25 million grant over 5 years (2012 to 2017) through the federal Network of Centres of Excellence program.

BioFuelNet Canada is an integrated community of academic researchers, industry partners and government representatives who engage in collaborative initiatives to accelerate the development of sustainable advanced biofuels. BFN’s research is funded through a mix of government and private contributions, and is structured around the themes of feedstock, conversion, utilization, and social, economic and environmental sustainability.

At the same time, Bioindustrial Innovation Canada may stand to benefit from increased attention, after the group recently completed phase 1 of a project to assess the economic viability of the agricultural biomass to cellulosic sugar value chain in Canada. We reported in July that “the Cellulosic Sugar Production Project is designed to evaluate, develop and physically validate agricultural biomass to sugars and co-products conversion technologies for commercial scale-up application.” The agency had received $7 million in 2014 from the Harper Government, aiming to add value to the agriculture sector and respond to global demand for environmentally-friendly bioproducts.

A new direction for Natural Resources Canada?

In December 2014 we reported, “Natural Resources Canada failed to spend $298.6 million that was budgeted for biofuels, green energy, energy efficiency and technology plans last year, yet somehow spent more than $438 million on programs for oil and gas research and market development, including research on how to clean up spills. Of the total, $113 million went unspent on biodiesel programs because of “poor production economics and uncertainty around blending mandates and incentive programs in the U.S.,” said the Natural Resources Canada Performance Report.”

The Liberal platform on renewables

The Trudeau government is pledged to “Make “critical investments” in the clean energy industry, and “support clean energy and energy-efficiency projects to “help reduce climate change causing gases, and to add high-paying, cutting edge jobs”. Specifically, the incoming government is pledged to “quadrupling Canada’s production of renewable energy from sources such as solar and wind, by 2017” — and to investments in “renewable energy production such as solar, wind, geothermal and biomass”.

The extent to which a Trudeau government will focus on transport and alternative fuels — as opposed to power generation — is as yet unclear. But the incoming government’s pledge to introduce a cap-and-trade system for greenhouse gas emissions suggests that transport may be on the table — especially in that the party platform states that a Canadian cap-and-trade system must “cover all industries with no exceptions.”

The Liberal Party of Canada also supports Canada’s 5% renewable fuels standard for gasoline and 2% mandate for diesel.

Forestry and Agriculture

The incoming government is pledged to investments of up to $200 million each year to support clean technology in the forestry, agriculture and energy sectors — and specifically $100 million for the development of clean technology companies.

At a conference in Vancouver in June, incoming Prime Minister Trudeau said, “the environment and the economy go together like paddles and canoes. If you don’t take care of both, you’re never going to get to where you’re going.”

The Bottom Line

Last night, Canadians voted for a change of direction in government, and renewable energy policy is very much a focal point in that effort. Details will be forthcoming regarding the extent to which the new government will focus on electric power vs. the transportation sector — but the news of the change in control in Ottawa is bound to be exciting for those who have been calling for a more robust Canadian policy on greenhouse gas emissions and clean technology.

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.

October 20, 2015

YieldCo Bubble: The Aftermath

Readers may be interested in listening to this podcast. Where Stephen Lacey and Shayle Kann of GreenTechMedia speak with me about the current YieldCo landscape.

Follow this link to The Interchange Podcast.

-Tom Konrad, Editor

October 14, 2015

Chinese Government Bails Out Yingli, Sort Of

Doug Young 

Yingli logo

Bottom line: Yingli’s sudden repayment of 70 percent of a maturing bond shows the government may provide partial assistance for struggling solar panel makers, in an effort to engineer an orderly shut-down of these weaker companies.

The story of China’s troubled solar panel sector has taken an unexpected twist, with word of a last-minute partial reprieve for Yingli (NYSE: YGE), one of the weakest major players that looked set to default on a large debt payment. The development came quite quickly and had a few unusual elements that hint strongly at government intervention.

Yingli’s case is important because it will show to what extent Beijing and local governments may come to the rescue of ailing companies from the solar panel sector. Earlier signals had indicated Beijing was prepared to let weaker companies fail or get acquired, providing a second round of much-needed consolidation for a sector plagued by overcapacity. But this latest sign shows Beijing and especially local governments may be losing some of that resolve as China’s economy slows.

The latest news comes directly from Yingli, which announced it repaid most of the $157 million in debt and interest on some 5-year notes that came due on October 13. (company announcement) The announcement comes just a week after YIngli said it was likely to miss the deadline. (previous post) In that earlier announcement, Yingli said it was in the process of selling some idle land that could help it to raise up to $138 million, or enough to repay much of the debt.

Now it appears the company was able to raise the new money more quickly than it expected, which allowed it to pay off $110 million worth of the 5-year notes and associated interest, amounting to about 70 percent of the maturing debt. YIngli said it continues to work with holders of the remaining 30 percent of the debt, and expects to pay off that amount within the next year.

Yingli’s shares have rallied sharply since the end of September, nearly doubling in value from their low of 33 cents at the end of the month to their latest close of 58 cents. Of course the stock is still well below the $1 mark, after falling below that level in July, and the company has been notified it must return to the $1 level or risk de-listing.

Many of the stock’s movements these days are tracking investors’ belief over whether YIngli will survive at all, as it’s clearly the weakest of China’s remaining major solar panel makers. The company warned earlier this year that its ability to remain in business was in jeopardy, sparking concerns about insolvency. But it later said that investors had misinterpreted its words.

Limited Government Support

So, what does this latest twist in the Yingli story mean for the company itself, and also for the broader sector? In this case, the local government in YIngli’s industrial hometown of Baoding almost certainly came to the rescue by buying up land that it probably previously gave to the company for little or no cost. The fact that the money came so quickly means Baoding doesn’t want to see Yingli suddenly fail, which would potentially put thousands of people out of work.

But the fact that YIngli could only repay 70 percent of its debt also seems to send a signal that the government won’t bail out these companies completely. Yingli says it still intends to pay off the remaining 30 percent of its debt, but it may have difficulty doing that without more government assistance. And in this case the government may tell Yingli that it needs to sort out the remainder of this particular debt repayment by itself.

At the end of the day, this latest signal is decidedly mixed and appears to show Beijing isn’t prepared to let struggling companies like Yingli and ReneSola (NYSE: SOL) fail completely. Instead, it may be looking for a more orderly wind-down of their business, which could see them gradually sell down assets and lose customers until their sales dwindle and there’s nothing left of the original company but a shell.

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.

October 12, 2015

Blue Sphere To Start Biogas Commercial Operations

by Debra Fiakas CFA

The Blue Sphere, Inc. (BLSP:  OTC/QB), stock price has weakened in recent months as investors registered their apparent frustration with fundamental developments.  Proposed acquisitions of operating biogas power plants in Italy have taken much longer than expected and majority interest in planned biogas plants in the U.S. were sold into joint venture arrangements rather than held as 100% equity positions.  Despite these developments, Blue Sphere management has doggedly moved forward on all fronts and there has been measurable progress toward first revenue.

Commercial operation dates have been set for Blue Sphere’s first two biogas development projects in the U.S.  Construction progress is on-schedule for a 5.2 megawatt biogas power plant near Charlotte, North Carolina.  The facility is scheduled to be connected to the local electrical grid on October 27, 2015.  Likewise construction is on-schedule for a 3.2 megawatt biogas power plant in Johnston, Rhode Island.  The Johnston plant is on the calendar for connection to the local power grid the third week in December 2015.  Both plants deploy anaerobic digestion equipment to convert food waste to energy to heat steam-powered turbines and electrical generators.

Blue Sphere lined up Austep, S.A. of Italy to supply the digestion and generation equipment for both the North Carolina and Rhode Island plants.  Austep has also agreed to operate both plants once construction is completed and has provided performance guarantees to the Blue Sphere and its joint venture partner in the two plants, York Capital.  Food waste supply agreements for both plants have been secured and tipping fees to the joint venture have been finalized.  A 15-year power purchase agreement with Duke Energy (DUK:  NYSE) is in place for the North Carolina electricity output and a similar agreement has been secured for the Rhode Island plant.  Additionally, McGill Environmental has signed a 10-year off-take pact for compost by-product of the anaerobic digestion process.

Once operational, Blue Sphere will claim 25% and 22.2% of the profits from the North Carolina and Rhode Island joint ventures, respectively.  Since construction of both plants is near completion, and connection to the electrical grid and power purchase agreements are in place, we expect both plants to begin contributing to financial results in fiscal year 2016.

Progress has also been made in Blue Sphere’s bid to acquire fully operational biogas powered plants in Italy’s famed Lombardy agricultural region.  The final due diligence and legal arrangements have been completed, clearing the way for Blue Sphere to close its pending purchase agreements to acquire the four plants.  All four plants will be 100% owned by Blue Sphere and are expected to contribute revenue beginning in fiscal year 2016.  Each plant is separately operated, producing 999 kilowatts that is being transmitted to the contracted power purchaser Gestore del Servizi Energetici, S.p.a., through Italy’s regional power grid.  Biogas equipment supplier and operator, Austep, has been signed to operate each plant.  Pending completion of legal and financing arrangements, Austep is monitoring operations at each of the four plants.

Our most recent research report on BLSP still cites shallow trading volume as a potential securities risk for investors in the stock.  However, the report also notes that average daily trading volume has increased to 1.2 million shares per day over the last six months compared to about 800,000 in the previous six months.  This is an encouraging development that signals rising investor interest and more efficient valuation of the stock.  The report also noted that management has made progress in reducing debt, albeit at the expense of shareholders through the dilutive impact of debt converted to common stock.  Thus the stock at its current depressed price remains an interesting option on management’s execution success.

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.  BLSP is featured in research reports published by Crystal Equity Research.  Please note the important disclosures at the end of all Crystal Equity Research reports.  Please read the important disclosures related to sponsorship and subscriptions in the final pages of all reports.

October 11, 2015

Holistic Approach Needed to Charge Up China EVs

Doug Young

Bottom line: Beijing should take a more holistic approach to developing green cars in China, which should include education of owners and creation of owner communities in addition to financial incentives and infrastructure building.

China made the latest new move to boost its sputtering electric vehicle (EV) program over the holiday, disclosing an ambitious plan to sharply accelerate installation of charging stations across the country. The plan was aimed at countering one of the biggest obstacles to EV development, namely concerns from potential owners about difficulties they might face recharging their vehicles.

The new move comes after Beijing announced new financial incentives for EV buyers in May, and could provide some more momentum to a national program that has fallen far short of expectations. These kinds of piecemeal measures look good in theory, but often seem to fall flat due to lack of national coordination and supporting education and other publicity.
Instead of relying on these kinds of one-off measures, Beijing should take a more holistic approach that includes development of an ecosystem to support broader development of the green vehicle industry.

Such a system should include not only subsidies and tax incentives for buyers and builders of charging stations, but also building of other infrastructure like service centers for car maintenance. A central element of such an approach should also include a stronger focus on consumer education, which could include holding of local workshops and creation of online social networking groups. It should also include more media coverage of issues related to EV ownership.

China has set ambitious plans for new energy vehicles, in a drive to reduce the country’s polluted air and foster development of a cutting-edge sector with big potential not only at home but also in the global market. The country aims to have 5 million green energy vehicles on its roads by 2020, equaling about a fifth of the 23 million total cars sold nationwide last year.

And yet EV sales have remained painfully low, despite tax incentives that were introduced last year, and were further boosted in May. Total sales of electric, hybrid and natural gas powered vehicles roughly doubled in the first half of the year, but even then the figure was only a modest 60,000 vehicles. Among those EVs, one area with the biggest potential, grew at a slower rate of about 40 percent to just 5,114 vehicles.

Accelerating Charging Stations

In a move to boost the slow growth of EVs, a top official at the National Energy Administration said last week that guidelines would soon be issued aimed at accelerating the roll-out of infrastructure for such vehicles. (English article) Those guidelines would aim to see charging facilities installed at one-tenth of the nation’s public car parks over an unspecified period.

The official conceded that lack of national coordination has been one of the major obstacles to EV development to date, resulting in widely varying standards for various brands of cars, batteries and charging stations. He added the government is now taking steps to improve the situation by creating a set of unified national standards.

The sector’s fragmented nature has dampened sales at big names like homegrown EV maker BYD (HKEx: 1211; Shenzhen: 002594; OTC:BYDDF), as well as US high-flyer Tesla (Nasdaq: TSLA), both of which had big hopes for the market. BYD has struggled to find a big consumer market for its vehicles, pressuring the company’s profits, while Tesla’s disappointing progress prompted the company to launch a major overhaul of its China operations earlier this year.

The National Energy Administration’s latest moves could help to jump-start EV sales, especially the drive to standardize charging technology. But the agency should take this more broad-based approach a step further and use its influence to create other standards and networks that would become part of a national ecosystem to promote the technology.

Bringing consumers more intimately into the process should be a central part of that effort, since such people will ultimately drive sales that could help Beijing meet its ambitious targets. Such efforts could include creation of online and offline EV communities, and other forums where potential owners could easily learn about the technology and get quick answers to their questions. That kind of educational campaign would provide consumers with the information they need to ease their concerns about adopting such a new technology that is still poorly understood by most.

Even such a coordinated approach may not be enough to overcome other obstacles, most notably the relative immaturity of some related technologies that still make EV ownership less attractive than driving traditional gasoline-powered cars. But creation of such an ecosystem would greatly improve the chances for success by giving consumers not only financial support but also the confidence they need before making the major decision to buy an electric car.

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.

October 08, 2015

BioAmber's Sarnia Plant Operating At Commercial Scale

Jim Lane

Ultra-secret yeast tech also exceeding expectations in yield, productivity and quality, BioAmber reports.

Baby Sarnia checks in at 60 million pounds, no ounces, doing fine.

In Canada, BioAmber’s (BIOA) Sarnia joint venture with Mitsui & Co. Ltd. has begun shipping bio-succinic acid to customers and is operating its manufacturing process at commercial scale, meeting a significant company milestone, the company said.

Yeast biotechnology exceeds performance targets

BioAmber has confirmed the performance of its proprietary yeast in the production fermenters in Sarnia. The fermentation performance achieved is significantly above the initial targets set for 2015, and the yield and productivity levels already exceed the targets the plant was designed to hit longer term. The bio-succinic acid being produced is of higher quality than the product previously produced in the demonstration plant located in France.

Customer shipments initiated

Initial shipments have started to customers so they can confirm the quality of the bio-succinic acid produced in the Sarnia plant. Management expects the Sarnia plant to be in commercial operation later this month and to increase production volumes progressively to reach full capacity in 2017.

3 lessons learned so far in the BioAmber story

1. Limited feedstock risk is a good idea. BioAmber is using relatively plentiful Ontario corn sugars that are generally available in the sub-$4 range, and for which a supply chain is already in place.

2. Think advantaged fermenation, not advanced. Succinic acid is one of the most efficient targets, starting from dextrose. C4H6O4 succinic, from C6H12O6 dextrose — that’s up to 98% theoretical efficiency, much higher than making hydrocarbons or alcohols from sugar. Plus, it’s a one-pot system — compared to stepping up to succinc from a petroleum-based hydrocarbon.

3. Creative offtake partnerships make a real difference. The take-or-pay partnership with Vinmar for boatloads of succinic acid relieves a young company from the burden of identifying and capturing all the global customers, and aids immensely with financing by offloading some market risk. Under the terms of the 15-year agreement, Vinmar has committed to purchase and BioAmber Sarnia has committed to sell 10,000 tons of succinic acid per year from the 30,000 ton per year capacity plant that is currently under construction in Sarnia, Canada.

One lesson left to learn

Will the technology reach nameplate capacity, and when? That’s a questino not only of the yield — but the at-scale rates and titers and whether the economic lift from sugar to succinic supports the capex. BioAMber says, emphatically, yes — and we’re standing by for confirmation when the company reaches expected capacity in 2018.

More about BioAmber, including growth potential and future milestones

The Digest’s 2015 8-Slide Guide

The Digest’s 2015 5-Minute Guide

Reaction from BioAmber

Not surprisingly, some proud peacocks around Planet BioAmber.

“The operational ramp-up is ongoing and our fermentation results have exceeded all expectations, offering us the prospect of better operating margins than we had originally projected,” said Fabrice Orecchioni, BioAmber’s Chief Operations Officer. “We have a remarkable group of dedicated employees in the plant, supported by excellent engineers, and our decision to hire and train them well in advance of the startup is paying dividends. We are only a few weeks from commercial production and our yeast has already proven to be operationally robust and efficient, and our purification process is producing the high quality bio-succinic acid that we expected,” he added.

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.

October 07, 2015

Schizophrenic Signals Surround Sino Solar Stocks Yingli, ReneSola And Jinko

Doug Young

Bottom line: YIngli’s debt restructuring plan and ReneSola’s early debt repurchase will bring some confidence to solar shares, but pessimism will quickly return as their situations deteriorate without major signals of new government support.

Shares of Yingli (NYSE: YGE) and ReneSola (NYSE: SOL) have taken investors on a wild ride these last few weeks, reflecting the alternating hopes and fears gripping 2 of the shakiest companies in a solar sector crippled by a downturn now entering its fourth year. If I were a betting man, I would say the chances are better than 80 percent that Yingli won’t survive the crisis, especially after the company’s latest announcement that it will miss a debt repayment deadline. Chances for ReneSola look slightly better, but even then I would only put the company’s likelihood of survival at 50-50.

One of the biggest questions fueling the uncertainty is whether Beijing and local governments will step in to rescue these companies. A year ago the answer would almost certainly have been “no”, reflecting China’s desire to clean up a bloated sector plagued with excess capacity. Recent signals show Beijing may still want to let the weakest players fail, but also that China’s slowing economy may be weakening that resolve.

The latest signals appear to still show that Beijing still wants to see consolidation, even though that could cost China’s economy thousands of jobs and other economic activity. One of those signals came from Yingli, which said that one of its subsidiaries would miss repayment of $157 million for notes that are coming due on October 13. (company announcement; English article; Chinese article)

But just a day later, a more positive signal came from ReneSola, which said it had begun to buy back notes that were set to come due as soon as next year. (company announcement) Last but not least, media also reported that another mid-sized player, Jinko Solar (NYSE: JKS) was indefinitely delaying plans to build a new plant in Brazil, again pointing to the shaky finances that are now undermining many companies. (English article)

Looking for Cash

The YIngli news is certainly the most worrisome, and will see the company’s Tianwei Yingli subsidiary miss a deadline to repay 5-year notes coming due on October 13. But Yingli held out hope that it could eventually repay the debt, saying it expects to receive $138 million from the sale of land and demolition of some older facilities. That could cover most of the payment if and when it receives the money, which could happen before the end of the year.

This particular move reflects Yingli’s ongoing woes, but also the weakening resolve of local governments that looked set to allow the failure of poorly performing solar panel makers. That’s because the buyer of Yingli’s land is almost certainly a local government entity, which means the sale would be almost the equivalent of a government rescue.

Next there’s ReneSola, which announced it recently repurchased more than half of about $50 million in convertible notes that will come due in 2018 but have a put option next year. ReneSola also said it has repurchased around 800,000 of its American Depositary Shares (ADSs), as part of a $20 million share buy-back program announced on September 23.

Both of these moves are clearly confidence-building measures despite the small amounts of money involved, and they did provide some support to the broader sector. ReneSola shares jumped about 20 percent after its latest announcement, though they still trade below their levels from early September. Even Yingli stock, which tumbled 20 percent after its earlier debt restructuring announcement, returned to pre-announcement levels.

Finally there was the Jinko Solar news, which looked downbeat as the company indefinitely shelved plans to build a factory in Brazil. That plan was part of a growing wave of new outbound investment announced earlier in the year, which appeared to show the sector might be returning to health. (previous post) But turmoil in the global economy may now put many of those expansion plans on hold.

At the end of the day, all of this news points to the same reality, namely that many Chinese solar companies are struggling and will face closure without government support. Yingli’s bailout shows such support may come in limited amounts for now. But I expect government patience will be short-lived, and we will ultimately see YIngli and one or two other larger players fail.

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.

October 06, 2015

Velocys: A Key To Advanced Biofuels At Scale

Jim Lane

Velocys-unitFour new technologies approach scaled operations, all with one element in common – Velocys (VLS.L) technology on the back-end.

Why Velocys, why now? The Digest investigates.

In Oklahoma, Southeast Oregon, Eastern Ohio, and a site near London we’re about to see the commercial-scale debut of Velocys technology, a smaller scale gas-to-liquids processing technology that converts natural gas or biomass into premium liquid products, such as diesel and jet fuel. In this case, specifically designed for smaller scales, resulting in standardized modular plants that are economic, easier to ship and faster to install, at lower risk, even in the most remote locations.

velocys logoVelocys makes what’s called micro-channel FT technology, and two of the major aviation biofuels projects, Solena (in partnership with British Airways, in the UK) and Red Rock (in partnership with FedEx and Southwest Airlines) are using it at the back-end to convert syngas to fuel. Fischer-Tropsch has been around as a technology for a long-time, but only at a massive scale — these are among the first small-scale FT projects ever. It’s not entirely correct to say that the future of sustainable aviation rests on this technology, but it’s not entirely incorrect either.

More about Velocys

The Digest’s 2015 8-Slide Guide

The Digest’s 2015 5-Minute Guide

Where will it be seen first?

Where will we see it at a “commercial reference” scale first? Probably in Oklahoma, where the Envia Energy Oklahoma City project is underway and will deploy a number of Velocys’ full-scale reactors. It’s now under construction, after a joint venture between Waste Management, Velocys, NRG Energy (NRG) and Ventech was announced early last year and the final investment decision was made (in July 2014) to proceed with construction of the joint venture’s first plant being developed adjacent to Waste Management’s (WM) East Oak landfill site in Oklahoma, USA. Ground breaking took place last May, and mechanical completion is expected in the first half of 2016.

Next? Could be Red Rock or Solena

In July 2012, Velocys was selected by project developer Solena Fuels as sole Fischer-Tropsch supplier to GreenSky London, Europe’s first commercial-scale sustainable jet fuel facility, being developed in partnership with British Airways. A site for this project was selected in April 2014, and the project is expected to be in operation in 2017.

GreenSky London is the first of several waste-biomass to jet fuel projects planned by Solena. Approximately 575,000 tonnes per year of post-recycled waste, normally destined for landfill or incineration, will instead be converted into 120,000 tonnes of clean burning liquid fuels. British Airways has committed to purchasing all 50,000 tonnes per annum of the jet fuel produced at market competitive rates on a long-term basis.

Meanwhile, in September 2014, Red Rock Biofuels was selected to receive a $70 million grant through the US Department of Defense to construct a biomass-to-liquids plant in Oregon, USA that will incorporate Fischer-Tropsch technology from Velocys. Red Rock Biofuels, a subsidiary of IR1 Group, is experienced in constructing and operating commercial scale biofuel facilities.

What about natgas?

Last year, Velocys announced the acquisition of Pinto Energy LLC and the Ashtabula GTL project. This represents a significant step in the North American oil & gas industry’s adoption of smaller scale GTL and of the Velocys technology, accelerating the development of “shovel ready” projects. As its first facility, Pinto Energy is developing an approximately 2,800 barrels per day (bpd) plant at an 80 acre industrial site that it owns near the Port of Ashtabula, Ohio, USA.

The project will benefit from both access to abundant low-cost natural gas from the Marcellus shale region and substantial existing infrastructure. Initial engineering for the facility is complete and the air permit has been issued. Final investment decision is expected within six to nine months. Future expansions could see installed capacity of 10,000 bpd or more at the site. In addition to Ashtabula, Pinto Energy has a pipeline of smaller scale GTL projects it is seeking to develop throughout North America.

Where can you see it today?

The Velocys Pilot Plant is operating in Plain City, Ohio — this integrated GTL facility includes Velocys’ microchannel FT and steam methane reforming reactors.

How much does Velocys make out of these projects?

Some time back, Velocys indicated that successful implementation of the GreenSky London project and receipt of the notice to proceed is expected to generate more than $30M to Velocys during the construction phase, and additional ongoing revenues of more than $50M over the first 15 years of the plant’s operation.

Why aren’t investors falling all over a technology that can tap new value in stranded gas?

Well, stranded gas may stay stranded a little longer. Just two years ago, we had $2 gas and $90 oil. Now, we have $2 gas and $40 oil — a lot of enthusism has gone out of the GTL space because the crack spread has narrowed considerably.

When will demand recover for GTL technologies?

Ultimately, we’ll see more enthusiasm when demand for liquid energy recovers — it’s been sluimping in China, and even a resurgence in gasoline demand in the US — it’s up several points since oil prices crashed — hasn’t shored up oil prices in the face of a surge in US production around fracking technology, and a “no backing down on market share” strategy from OPEC.

Will biomass or natgas be the big winner?

It’s really not a case of fossil feedstock vs biofeedstock, it’s all about advantaged feedstock. Smart investors will take a portfolio approach. As LanzaTech CEO Jennifer Holmgren says, “never fall in love with a feedstock”. 10 years ago, it was all about corn sugars and soybean oil. Then, cellulosic energy crops, then cellulosic residues. Then, the rage was for cheap Brazilian sugar. Then, along came algae, then it was advantaged natgas will save the world. Most recently it is “oil prices will be low, possibly for 10 years”.

Virtually every feedstock excepting coal and palm oil have received significant amounts of global love at some point in the last decade?

Two lessons there. One, think portfolio, don’t pick stocks and don’t pick feedstocks. Two, the drive towards sustainability will occasionally be interrupted by temptingly low short-term prices, but environmentally-sustainable feedstocks that are cost-advantaged will be double-advantaged, and that’s formidable. The days of single-attribute feedstocks — e.g. low on price or low on carbon, but not on both, are increasingly numbered and will end as soon as the project development crowd gets its messaging right and insists on sustainable certification and a public-imposed low-carbon benefit for technologies that deliver cleaner air, because that is a benefit to the public not to the investor.

But, then there’s policy-advantaged feedstock as well — meaning sustainability — and there we are at an impasse of sorts in the EU and US. Regulators haven’t seen enough of a robust supply-chain in residues, or enough processing technology roll-out, to robustly enforce biofuels mandates set in the 2000s — we’ve seen overt roll-back in the EU, a wishy-washy attitude in the US, and only in California is the drive still on for lower-carbon fuels., The Velocys projects will help with the latter, of course.

One of the key advantages of Velocys technology is that has the small-scale necessary to tap the value in stranded natgas or stranded biomass (e.g. waste residues such as gasified MSW or stranded wood) — that helps with finding economically advantaged feedstock.

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.

October 04, 2015

10 Clean Energy Stocks for 2015- September Performance

by Tom Konrad Ph.D., CFA

Sorry I did not have time to write the usual monthly update article this weekend, but I hope to get to it in the next couple weeks.

Until then, here is how the stocks were doing through the end of September (click for larger version):

10 for 15 Sept.png

The recent market downturn continues to make my relatively conservative picks (especially the income stocks) generally outperform. For the year, the model portfolio is down only 6% in dollar terms compared to its clean energy benchmark, which is down 30%, and almost matching its broad market benchmark, which is down 4%.

The income sub-portfolio shines brightest, with a 7% gain for the year to date, despite a 35% decline in its benchmark. The Growth/Value subprotfolio continues to drag, down 26% for the year to date, but now its benchmark has fallen nearly as much, down 23%.


On the buying/selling side, I've been trimming some winners (New Flyer [TSX:NFI/NFYEF] and Accell Group [Amsterdam:ACCEL / ACGPF]) in order to buy a number of yeildcos which are now very attractively priced after the yieldco bubble burst and is now over correcting.

October 01, 2015

Covanta: Comfort In An Ample Dividend

by Debra Fiakas CFA

In late August 2015, volatility turned its frightening countenance on the U.S. equity market.  The volatility measure for the S&P 500 Index (VIX) spiked to a peak of 53.29 during trading on August 24th.  While things have calmed down since, volatility remains well above the 20.00 level where many investors consider it too precarious to take new equity positions.  At time like these it makes sense to seek the warm comfort of an ample dividend.  Those regular cash rewards can make it worthwhile waiting for stock prices to calm down.

Within the renewable energy sector Covanta Holdings, Inc. (CVA:  NYSE) is a strong candidate for dividends.  At the current price level, CVA is yielding 5.2%, making it one of the best dividend payers in our indices of renewable energy, efficiency and conservation companies.  Will Covanta be able to sustain its generous payments?

Covanta’s revenue comes from the sale of electricity and steam generated by 46 waste-to-energy facilities strung out across the country.  There are another 11 power generation sites that use biomass or hydroelectric technologies.  The company also sells metals recovered from the municipal waste it uses as feedstock.  In the twelve months ending June 2015, Covanta reported $1.6 billion in total sales, from which it squeezed $229 million in operation cash flow.

Indeed, Covanta consistently extracts cash out of its operations even in years when it reports a net loss on its income statement.  In the last three years average cash flow from operations was $333 million.  With average capital expenditures near $175 million, Covanta has had about $158 million in operating cash available in recent years to pay its dividend.

Even if times turn bad for the waste-to-energy business, Covanta has a fairly secure financial situation.  At the end of June 2015, the company had $167 million in cash on its balance sheet, which is probably enough to support working capital needs.  The company also has $410 million in long-term investments that could be cashed in if the need arises.  Covanta does have long-term debt totaling $2.4 billion.  However, the debt is balanced by $2.6 billion in property, plant and equipment assets.

Covanta has cultivated a good following among analysts interested in the renewable energy industry.  The consensus estimates suggest Covanta is in a relatively stable situation.  The company has been experiencing some top-line and margin pressures and it appears sales and earnings in the year 2015 will be lower than last year.  Covanta did miss the earnings consensus in both the March and June 2015 quarters and analysts lowered expectations for the rest of 2015 and the year 2016 after the June quarter disappointment.  However, there is still some optimism for recovery next year and the current consensus for both sales and earnings suggests mid-single digit growth in 2016.

After Covanta reported disappointing results for the quarter ending June 2015, traders have been bidding the stock down.  Just last week CVA registered a 52-week low price of $18.05.  The stock now appears oversold.  That might be a call for some bargain hunters to take new long positions.  However, like so many stocks in the U.S. equity market CVA appears to have lost its upward momentum.  For investors interested only in growth that is not a compelling scenario.  The dividend could make the wait for recovery a lot more pleasant.

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

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

« September 2015 | Main | November 2015 »

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