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February 26, 2016

Abengoa Bioenergy files for Chapter 11

In Missouri, Abengoa (ABY) Bioenergy US Holding, LLC filed for Chapter 11 bankruptcy relief in the US Bankruptcy Court for the Eastern District of Missouri on behalf of itself and 5 of its US bioenergy subsidiaries. The companies involved in the filings include the US holding company; companies that own and operate four of Abengoa Bioenergy’s six US starch ethanol plants; as well as various support/service companies for Abengoa’s US bioenergy operations.

This action follows the filing of two separate involuntary bankruptcy proceedings in Nebraska and Kansas earlier this month concerning the company’s starch ethanol facilities located in Ravenna and York, NE; in Colwich, KS; and in Portales, NM, and motions have been filed in the Nebraska and Kansas courts to transfer those involuntary filings to St. Louis for consolidated administration.

The filings do not include the company’s starch ethanol plants in Mt. Vernon, IN and Madison, IL, nor do they include the new cellulosic ethanol facility in Hugoton, or certain other subsidiary companies of Abengoa Bioenergy, which continue to operate in the ordinary course. Antonio Vallespir, President and Chief Executive Officer of Abengoa Bioenergy, said,

“Abengoa Bioenergy believes that this action is in the best interests of the company, the plant employees, and the creditors of each of the affected companies. Filing and consolidating the cases in St. Louis will provide for a more efficient and less costly administration of these cases in one location, and gives our companies the potential to resume operations and generate revenues at the more profitable of these facilities. It also provides the opportunity for a coordinated and supervised reorganization or sale process, while still allowing each involved debtor company substantial control over its own costs, debts and assets. Abengoa S.A. is currently in the process of negotiating a viability plan for the global organization of the company and aims to maintain business activity in all areas. Under Spanish law, Abengoa is in the process of restructuring its debt through a process that protects the company from claims from creditors.

The company said that the changes are expected to streamline operations and maximize resources.

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

February 24, 2016

The War On Net Metering

by Paula Mints

Net metering and interconnection are rights afforded distributed generation (DG) residential and commercial solar system owners through the U.S. Energy Policy Act of 2005. The act required publically owned utilities to offer net metering and left the various policies up to the states to enact.

In 2004, before that energy policy was enacted, 39 states had net metering and interconnection standards and policies. At the beginning of 2016, 43 U.S. states and three territories had net metering policies, and four states had policies similar to net metering that the Database of State Incentives for Renewables & Efficiency refers to as “statewide distributed generation compensation rules other than net metering.”

In the U.S., the availability of net metering was a key driver in the adoption of residential and small commercial solar. Net metering allows DG system owners (or lessees) to receive a credit for the electricity their solar systems generate. In the early days of net metering the electricity generated by the owner’s solar system was purchased monthly by the utility with, typically, the excess credited and rolled over to the following period or granted to the utility at the end of the year. Utilities paid for the net excess or credited the electricity generated by net metered solar systems at avoided cost, a market average or in some cases, at the retail rate.

The concept of avoided cost is essentially a comparison point used by utilities (in this context) to arrive at reference price point for buying electricity from another source. The Public Utility Regulatory Policies Act of 1978, affectionately known as PURPA, defined avoided cost in general as the cost of generating power from another source. In 2005, the Energy Policy Act amended PURPA and, as previously noted, obligated publically owned utilities to offer net metering. In terms of DG residential and commercial solar, avoided cost comes into play in terms of how utilities pay for a system’s net excess electricity. Not only is there no standard for the state-by-state definition of avoided cost in the context of net metering, there is no standard as to how net excess electricity will be compensated.

Some states use a definition of avoided cost based on short run marginal cost — diminishing marginal returns — and some states use a definition based on long run marginal cost — returns to scale. Basically, avoided cost is a reference point derived by some means to set a price for power. In the case of DG residential and commercial solar the method by which avoided cost is calculated is very important — it is also important in setting power purchace agreement rates.

In the early days of net metering, it was not typical for customers to be paid for the net excess generated by their solar systems at retail rates or favorable market rates. In many cases, utilities owned the net excess electricity generated by net metered systems while the owners of these systems had no right to the excess electricity. In the early days of net metering customers were solely looking to save money — the potential of making money at the DG system level is fairly recent.

Net Metering in the Spotlight

From 2005 through 2015, the residential application in the U.S. grew at a compound annual rate of 53 percent. Though net metering is only one driver of this growth, it certainly makes the economic case for the homeowners, particularly when net excess electricity is credited at retail rates. Figure 1 offers residential solar growth in the U.S. from 2005 through 2015.

residential DG growth
Figure 1: US Residential Application Growth, 2005-2015

Utilities did not expect solar industry growth to accelerate so significantly, and there is no doubt that they see this growth in terms of revenue decay.

Currently, and it must be stressed that there is no clear trend in terms of outcomes, the following changes to net metering are being sought on a case by case basis:

  • Additional or increased fees for net metered systems: Depending on the fee, this change can dissuade potential buyers/lessees, and high fees can upend the economic benefit for buyers/lessees
  • A switch to time-of-use rates: Higher prices for electricity during peak times and lower payment for net excess during off peak times can upend the economic benefit for buyers/lessees
  • Lowering the reimbursement for net excess to avoided cost: Danger of undervaluing net excess and upending the economic benefit for buyers/lessees
  • Changing the rules for reimbursement for net excess: A blast from the past that could (in the worst case) result in the net excess being granted to the utility
  • Making all of the above retroactive: So many dangers, so little time to list them

The utility argument for altering how net excess is compensated and for adding additional fees is economic. Utilities argue that ratepayers with solar systems (leased or owned) are renting less electricity from the utility and thus not paying their fair share for overall maintenance. The argument continues that the costs are unfairly shifted to ratepayers without solar systems on their roofs.

Establishing a fair fee for solar customers over and above the base fee all ratepayers pay is not simple. The addition of fees for solar customers should not be overly punitive or appear as a referendum against DG solar. After all, ratepayers without solar systems benefit from the clean energy generated by ratepayers with solar systems. Also, the electricity future likely includes more self-consumption and more microgrids as well as a new operating and revenue model for utilities. Fighting this change is futile.

The argument over who owns the net excess electricity generated by a DG solar system is simple. The electricity is fed into a common grid, all electricity customers use it and the generator of the electricity owns the net excess and deserves to be paid a market rate for it.

At the core of the utility’s argument, and often unmentioned, is a reduction in its revenues.

A Comparative Trip Down Memory Lane

Four states have been front-and-center currently in the net metering landscape: Arizona, California, Hawaii and Nevada. These states offer examples of the way things could play out as the net metering argument spreads from state to state. Reference years provided as examples are 2006, 2009, 2013 and 2016.

Arizona, Abandon all Hope Ye in APS Territory

In 2006, Salt River Project (SRP) purchased net excess at an average monthly market price minus a price adjustment, while Arizona Public Service (APS) and Tucson Electric Power (TEP) credited net excess at retail rate and granted the electricity to the utility at the end of the calendar year. There were no specific fees for solar system owners/lessees.

In 2016 things are very different; the state net metering policy credits net excess at retail rate with net excess paid at avoided cost. APS ratepayers, whether they leased or bought their systems, pay a $0.70/kWp monthly charge. For many, the changes in net excess compensation along with the additional fees for ratepayers in APS territory could swing the economic argument away from leasing or owning a solar system.

AZ net metering
Table 1: Arizona Net Metering Overview, 2006, 2009, 2013 and 2016

California: Walking the Fine Line of Compromise

California’s solar system owners came through a recent high profile fight over net metering relatively unscathed, though the result is not perfect. The net metering landscape has changed from no fees to a one-time interconnection fee and non-by-passable monthly charges for all electricity consumed from the grid. Though the charges are relatively modest, system owners beware; charges always go up and almost never go away. Ratepayers with solar systems will also be forced into time-of-use billing and will be credited or paid for net excess at the rate equal to the 12-month spot market price. To this last, spot market prices are not always favorable and in an oversupply situation can be downright penurious.

CA Net metering
Table 2: California Net Metering Overview, 2006, 2009, 2013 and 2016

Hawaii: Not an Island Paradise for Solar

In October 2015, for all those applying for interconnection/net metering after Oct. 12, 2015, the Hawaii Public Utilities Commission voted to end net metering, offing instead three options: grid-supply, self-supply and time-of-use tariff. This decision effectively put the brakes on Hawaii’s strong market for DG residential and small commercial solar.

HI net metering
Table 3: Hawaii Net Metering Overview, 2006, 2009, 2013 and 2016

Nevada: Et tu, Brute?

Nevada’s recent net metering decision slammed the door shut on the state’s DG solar installation industry, outraged current solar customers and set a precedent that — if not overturned by legislation or lawsuit — will be considered in states across the country. Specifically, by making the new rules essentially retroactive the decision of Nevada’s Public Utilities Commission (PUC) could cause potential DG solar system owners/lessees to think once, twice and maybe delay adoption.

Nevada’s PUC increased the monthly fee paid by net metered solar customers from $12.75 to $17.90 and will credit net excess at avoided cost. Existing solar customers will be phased into the new rates in three years for the monthly fees and over 12 years for the lower net excess rates.

HI net metering
Table 4: Nevada Net Metering Overview, 2006, 2009, 2013 and 2016

The Trend is That the Fight is On — As Usual

Net metering serves the market function of setting a price for kWhs of electricity. A DG solar system (homeowner or small business) generates electricity and the owner/lessee of the system sells the electricity that it does not need (the net excess) to the utility. The electricity that is generated is used by all ratepayers. The value proposition is clear. Reasonably the sellers want to profit from the electricity they sell or at least receive a credit on their electricity bill that fairly values their net excess generation.

Unreasonably, utilities would prefer not to pay a fair market price for the net excess.

Changes to net metering programs are being considered all across the U.S., and there will be wins, losses and new fees. Trends to be very concerned about include the switch back to crediting net excess at avoided cost instead of at retail rates and to higher fees for net metered solar customers. The most disastrous potential trend is to make changes to net metering retroactive thus encouraging potential customers to reconsider. This last trend must be fought vigorously. The U.S. solar industry is up to the fight.

Paula Mints is founder of SPV Market Research, a classic solar market research practice focused on gathering data through primary research and providing analyses of the global solar industry.  You can find her on Twitter @PaulaMints1 and read her blog here.
This article was originally published on RenewableEnergyWorld.com, and is republished with permission.

February 19, 2016

Recurrent Energy and Jumei: A Tale Of Two Listings

Doug Young

Bottom line: Canadian Solar’s Recurrent Energy unit is likely to make its first public filing for a New York IPO in the next 2 weeks and should get a positive reception, while Jumei is likely to quietly de-list from the US in the next 3-4 months.

One of the few Chinese IPOs likely to happen in New York this year is moving closer to the launch gate, with word of major new financing for the power plant-building unit of solar panel maker Canadian Solar (Nasdaq: CSIQ). But while that IPO for Recurrent Energy moves closer to the IPO gate, announcement of a new privatization bid for online cosmetics seller Jumei International (NYSE: JMEI) is far more typical for the market these days.

This pair of stories reflect a growing new reality for US-listed Chinese companies. That reality is seeing some of China’s leading private companies choose New York for their listings, banking on interest from global investors seeking to buy into the China growth story. At the same time, many smaller lesser-known Chinese companies listed in New York have discovered US investors are far less interested in their stories, and are privatizing with plans to re-list and hopefully get higher valuations back in China.

Canadian Solar and Jumei quite nicely summarize this divergence. Canadian Solar is emerging as China’s best-run and most innovative solar panel maker, and has attracted strong investor interest as a result. It continued its industry-leading posture last year with its purchase of Recurrent Energy, reflecting a growing trend that is seeing solar panel makers move into power plant construction to boost demand for their products.

Late last year Canadian Solar disclosed it had submitted its first confidential filing for a New York IPO by Recurrent Energy, in an effort to separate that part of its business from its core panel-making. (previous post) Following that disclosure, the company has announced a steady stream of new plant-building loans to show that Recurrent can secure the funding it needs to build new plants that typically cost $50 million or more.

Previous loans have been for relatively small amounts in the $30-$100 million range from big global names like RBS and Deutsche Bank, and now the company has just announced a $300 million loan from China’s own Ping An Bank. (company announcement) This particular announcement is significant for its size, and also for its source. Ping An is one of China’s more entrepreneurial major banks, and this announcement reflects a relatively big vote of confidence in Recurrent and also hints at a new plant building campaign in China.

Public Filing Coming

We have yet to see any public filings by Recurrent Energy since Canadian Solar disclosed the IPO plan in early December. But I suspect this new financing is aimed at creating more buzz around Recurrent, which is mentioned by name in the announcement. That indicates we could see the unit make its first public filing for a New York IPO to raise $100-$200 million in the next week or two.

Next there’s the Jumei story, which nicely summarizes the disappointment that many Chinese companies have felt on Wall Street after holding out big hopes for US listings. The company made its IPO nearly 2 years ago during a frenzy of new offerings, pricing its American Depositary Shares (ADSs) at $22. But after seeing an initial surge, the stock has moved steadily downward as investors lost interest, and now it trades at just $6.21.

The shares were trading even lower at $5.11 just last week, but rallied after Jumei announced a management led buyout plan to take the company private at $7 per ADS. (company announcement; Chinese article) There’s not much more to say about this deal, except that Jumei management is getting a good deal by buying its shares for one-third of their original IPO price. I expect this deal will probably close with little or no opposition, and the company will quietly bow from the US and attempt to quickly re-list on one of China’s growing number of boards for private high-growth companies.

Doug Young has lived and worked in China for 20 years, much of that as a journalist, writing about publicly listed Chinese companies. He currently lives in Shanghai where, in addition to his role as editor of Young’s China Business Blog, he teaches financial journalism at Fudan University, one of China’s top journalism programs.. He writes daily on his blog, Young´s China Business Blog, commenting on the latest developments at Chinese companies listed in the US, China and Hong Kong. He is also author of a new book about the media in China, The Party Line: How The Media Dictates Public Opinion in Modern China.

February 18, 2016

The Choppy Waters Of Ocean Power Investing

by Debra Fiakas CFA

The last post introduced Atlantis Resources Ltd. (ARL:  LN), a developer of tidal power generation technologies.  Atlantis has been working on a project called MeyGen ofthe coast of Scotland, which is to become the world’s largest tidal stream energy project.  It is a distinctive location where tidal action reaches up to five meters per second.  Atlantis will supply the underwater turbines for the 400-megawatt project, which has received regulatory consent.

Atlantis is not the only tidal power developer to hear the call to the high seas off the coasts of Ireland and Scotland, active waters particularly attractive for tidal power generation.  DP Energy Ireland Ltd. is seeking permits to build a 100 megawatt energy project off the coast of north Ireland near Ballycastle.  DP Energy is a renewable energy developer with far ranging interests in solar, wind and tidal power.  Its Fair Head Tidal project is the focus of a joint venture with Blue Power NV of Belgium, a renewable energy construction company with prior experience in tidal power.

Brookfield Renewable Energy Group and DCNS’s OpenHydro subsidiary are also dipping their collective toes into the ocean with another 100 megawatt tidal power project immediately adjacent to DP Energy’s Fair Head project.  The two companies have formed their own joint venture called Tidal Ventures Ltd.  An environmental impact statement has been completed, but Brookfield and OpenHydro still need to get marine licenses and other permits before moving forward with construction.  Like the Fair Head Tidal project, Brookfield plans to sell to the electrical grid operating in north Ireland.

Investors looking for exposure to tidal power development will find the alternatives few.  All of these developers are private companies and probably accessible only by those investors with the wealth and income to be considered ‘qualified’ investors.

Brookfield’s Renewable Energy Partners LP (BEP:  NYSE) provides an alternative. The shares are supported by a portfolio of renewable power generating facilities, most of which are hydroelectric dams and wind towers.  Purists might be put off by the two natural gas fired power plants in the mix.  Total the Brookfield limited partnership operates plants with a total generation capacity of 6,700 megawatts across the U.S., Canada, Brazil and Europe.  It is expected that once in operation the Tidal Ventures projects to end up on the portfolio.

The forward annual dividend yield on the Brookfield shares is 6.7% at the current price level. A long position in the stock will come at a price as the earnings multiple is 63.1 times the consensus estimate for 2016.

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. DP Energy Ireland Ltd. is included in the Ocean Group of Crystal Equity Research’s Earth, Wind and Fire Index of companies using the power of the planet to generate energy.

Atlantis Resources: Pure Play Ocean Power

by Debra Fiakas CFA

Atlantis Resources Ltd. (ARL:  LN) is among the most recent additions to the Ocean Group in Crystal Equity Research’s Earth, Wind and Fire Index of companies using the dynamic forces of the planet to generate energy.  Atlantis is a developer of tidal power generation technologies.  Atlantis has been working diligently for over a decade to developer underwater turbine technologies.  A project in San Remo, Australia using the company’s Aquanator tidal current turbine was among the first in the world to deliver ‘ocean’ power to an established electric power grid.  The Aquanator has since been replaced by a larger turbine.

Tidal and waver power is an attractive alternative to wind power generation.  Water is over 800 times denser than wind.  Consequently, underwater turbines can be substantially smaller than wind turbines yet generate comparable or greater power.  The moon cycle is also highly predictable, a characteristic that grid operators appreciate from a power source.  Even with some deviations due to weather conditions, consistent power generation from waves and tides can be counted upon day-by-day and year round.

Atlantis is ready to move ahead with its tidal turbine product line. The company is providing the tidal turbines for a demonstration project near Daishan, Zhehiang, China.  Atlantis is also involved in pilot projects in India and Canada.

MeyGen, the world’s largest tidal stream energy project has been under development off the coast of Scotand.  It is a distinctive location where tidal action reaches up to five meters per second.  Atlantis is will supply the underwater turbines for the 400-megawatt project, which has received regulatory consent.  Total estimated project cost is near £51 million (US$75 million).

The United Kingdom has been particularly supportive of tidal power development because of the particularly dynamic ocean around the island nation.  The UK Department of Energy & Climate Change calculated that wave and tidal energy could supply as much as 20% of UK electricity needs if efficient tidal turbines were in place.  The UK government has provided £10 million (US$14.5 million) in the form of a grant to support the MeyGen project.

In 2014, Atlantis completed an initial public offering of its common stock and listed on the London Exchange.  Since then the group has successfully raised project financing.  At the end of June 2015, Atlantis reported £85.1 million in equity (US$123.4 million) and £35.2 million in long-term debt (US$50.7 million).

While Atlantis is still a developmental stage company in many respects, it has picked up some revenue.  In the year 2014, Atlantis reported £5.3 million in total sales (US$7.7 million).  Losses have been significant with a net loss of £16.2 million (US$23.5 million).  Things have not changed much in recent months.  In the first six months of 2015, Atlantis recorded another £$951,000 in total sales (US$1.4 million).

Cash usage was significant and is increasing as the company moves forward with the MeyGen project.  Atlantis burned up £4.3 million of its cash resources (US$6.2 million) in the year 2014 to support operations and another £7.2 million in the first six months of 2015 (US$10.4 million).  The group had £29.2 million in the bank at the end of June 2015, providing support for operations for about another year at Atlantis’ recent spending rate.

Atlantis shares trade on the London Exchange under the symbol ARL, making them accessible to most investors.  The stock is currently trading near its 52-week high even after the rout of U.S. and European equity markets.  Investors keen on getting a stake in tidal power, will need to sharpen their trading skills.  ARL trades at low volumes near 6,700 share per day.

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

February 16, 2016

EU Extends Punitive Tariffs To Transshipped Chinese Solar Panels

Doug Young

Bottom line: The EU’s extension of punitive tariffs to China-made solar panels transshipped through shell factories in Malaysia and Taiwan could kill a recent wave of offshore factory construction by Chinese manufacturers.

A recent offshore movement by Chinese solar panel makers seeking to avoid western anti-dumping tariffs could come to a sudden halt, with word the European Union (EU) is extending its previously announced punitive duties to Taiwan and Malaysia. The EU’s ruling means it believes that many of the offshore solar panel plants recently built by Chinese manufacturers are little more than shells designed to hide the true origin of their products.

This story dates back 3 years, and began when the EU levied anti-dumping tariffs on Chinese-made solar panels after determining manufacturers were receiving unfair government support via policies like cheap land, low-interest loans and export rebates. Chinese manufacturers quickly agreed to raise their prices to levels comparable to those of western rivals in a bid to avoid the tariffs. But then they almost immediately began to violate the spirit of that agreement by offering discounts to buyers in other ways.

The EU is in the process of investigating claims of such violations to that agreement, and this latest development involving panels made in Malaysia and Taiwan shows the EU is also attempting to stop another way the Chinese are avoiding the tariffs. The latest reports say the EU has officially said that all panels made in Malaysia and Taiwan will be subject to the same punitive tariffs as panels made in China. (EU document; English article)

The document goes on to provide a long list of Malaysia- and Taiwan-based companies that will be exempted from the extension of anti-dumping tariffs originally set for China-made panels. But that list includes only truly domestic panel makers in those locations who have been in the business for a while, such as Motech (Taipei: 6244) and E-Ton (Taipei: 3452) of Taiwan and Flextronics (Nasdaq: FLEX) in Malaysia.

Two leading Chinese panel makers that had previously announced plans to manufacture in Malaysia at the height of the offshore movement include ReneSola (NYSE: SOL) and Jinko Solar (NYSE: JKS). Trina Solar (NYSE: TSL) also announced plans last year to develop 500 megawatts of solar panel-making capacity with a local partner in Malaysia, though it never named the partner. (company announcement) In its announcement it said that the partnership would start manufacturing in late 2015 or early 2016.

Shares Near Two-Year Lows

It’s not clear how many, if any, of the Chinese solar panel makers I’ve mentioned will be directly affected by this ruling. Shares of Trina actually rose 3.6 percent during the latest session on Wall Street, though it’s worth noting they’re now trading near 2-year lows. Shares of Jinko Solar and ReneSola posted similar performances.

This latest wrinkle in the China solar exporting story shouldn’t surprise anyone, and certainly doesn’t surprise me. Chinese companies have already shown they are quite capable of using backdoor tactics to avoid their earlier price-raising agreement with the EU. When that backdoor appeared to be closing, they simply tried another one by setting up these offshore shell factories. Such factories simply receive their China-made products, and then claim themselves as the country of origin before re-exporting them to Europe to avoid the anti-dumping tariffs.

The US has taken a similar approach to Europe, levying anti-dumping tariffs against Chinese panels and now taking steps to close loopholes like these shell factories in Malaysia and Taiwan. There’s no indication that the anti-dumping duties will disappear anytime soon, especially as weaker Chinese players like YIngli (NYSE: YGE) show increasing signs of getting more and not less government support.

The bottom line is that the status quo is likely to continue for at least the next few years, even as the US, EU and China start to phase out many of their government incentives for building solar power plants. That means many Chinese-made solar panels could ultimately get squeezed out of the US and Europe as loopholes close that were allowing a continued flow of such products even after original punitive tariffs were levied.

Doug Young has lived and worked in China for 20 years, much of that as a journalist, writing about publicly listed Chinese companies. He currently lives in Shanghai where, in addition to his role as editor of Young’s China Business Blog, he teaches financial journalism at Fudan University, one of China’s top journalism programs.. He writes daily on his blog, Young´s China Business Blog, commenting on the latest developments at Chinese companies listed in the US, China and Hong Kong. He is also author of a new book about the media in China, The Party Line: How The Media Dictates Public Opinion in Modern China.

February 12, 2016

Mitsui Raises Stake In BioAmber JV

Jim Lane

In Canada, Mitsui has invested an additional CDN$25 million in the BioAmber (BIOA) joint venture for 10% of the equity, increasing its stake from 30% to 40%. Mitsui will also play a stronger role in the commercialization of bio-succinic acid produced in Sarnia, providing dedicated resources alongside BioAmber’s commercial team. BioAmber will maintain a 60% controlling stake in the joint venture.

“Mitsui is continuously committed to renewable chemistry and through our increased equity stake we will be more actively involved in joint venture management and sales, leveraging our global sales platforms,” said Hidebumi Kasuga, General Manager, Specialty Chemicals Division, Basic Chemicals Business Unit. “We are very happy with Sarnia’s fermentation and plant operations performance to date and the JV has received quality certifications from more than 90 customers. With this progress, I am confident that Sarnia’s bio-succinic acid will be penetrating the global marketplace quickly.”

“Mitsui’s increased commitment to the Sarnia plant is a strong endorsement of its value and potential. We have in Mitsui a financially robust, global partner that is motivated by Sarnia’s progress and prospects,” said Jean-Francois Huc, CEO of BioAmber. “This investment strengthens Sarnia’s balance sheet as we ramp up production and sales.”

The publicly disclosed relationship between Mitsui and BioAmber dates back at least to 2011, when BioAmber and Mitsui partnered to build and operate the previously announced manufacturing facility in Sarnia, Ontario, Canada. The initial phase of the facility is expected to have production capacity of 17,000 metric tons of biosuccinic acid and commence commercial production in 2013. The partners intend to subsequently expand capacity and produce 35,000 metric tons of succinic acid and 23,000 metric tons of 1,4 butanediol (BDO) on the site.

Bioamber and Mitsui also said they would ultimately jointly build and operate two additional facilities that, together with Sarnia, will have a total cumulative capacity of 165,000 tons of succinic acid and 123,000 tons of BDO.

BioAmber’s Sarnia joint venture with Mitsui & Co. Ltd. began shipping bio-succinic acid to customers in October 2015 and is operating its manufacturing process at commercial-scale. Management expects the Sarnia plant to increase production volumes progressively to reach full capacity in 2017.

When BioAmber raised $45 million dollars in a 2011 Series B financing to accelerate the commercialization of succinic acid and modified PBS (polybutylene succinate, a renewable, biodegradable polymer), the round was led by NAXOS Capital Partners and included Mitsui & Co, Sofinnova Partners, and the Cliffton Group. BioAmber will also strengthen its management team and build out its in-house R&D capabilities to accelerate the development of its adipic acid platform. BioAmber operates the only dedicated biobased succinic acid plant and has partnerships with market leaders including Cargill, DuPont Applied Biosciences, Mitsui & Co. and Mitsubishi Chemical.

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

February 11, 2016

Gamesa Blows Siemens a Valentine

by Debra Fiakas CFA

Spain’s wind turbine manufacturer, GAMESA Corporation (GTQ1: Berlin; GAM: Madrid; GCTAF: OTC/PK), has been under pressure lately to spread profits over a hefty debt load.  The November post entitled The Wind in Spain is Mostly in GAMESA, noted the expanding product line and building customer base.  Backlog at the end of September 2015 was 3,034 megawatts, representing a 43% increases over backlog a year ago.

Robust sales and higher profit margins have generated strong cash flows and GAMESA has been able to pay down debt.  During the first nine months of 2015 the company used Euros 238 in cash to reduce net debt to Euros 70 by the end of September 2015.  Still the debt burden had been an issue for GAMESA as principal payments on notes and bond are coming due.  However, in December 2015, GAMESA announced an extension of the expiration date to January 2021, for its Euro 750 million syndicated loan facility.

Thus last week, with the pressure off on the debt front, it was a bit of a surprise to see news that GAMESA has been discussing a possible merger with Siemens AG (SIEGY:  OTC/PK, SIE: DE).  Siemens has extensive interests in the renewable energy sector as well as electricity generation infrastructure.  Folding GAMESA’s wind power business into Siemens would create the largest wind turbine company in the world, surpassing Vestas Wind Systems (VWS: Copenhagen or VWDRY: OTC/PK), which is now in the number one spot with about 12% market share, and General Electric (GE), which now appears to be neck and neck with Siemen’s for the number two position, each with about 9% to 10% market share.  A clear market leadership position might give Siemen’s a competitive boost.

Siemens would have much to gain in the deal.  The German giant would get GAMESA’s diverse product line of wind turbines as well as access to GAMESA’s installed base of wind power generation projects.  The November 13th post noted GAMESA’s recent introduction of a new 2.5 megawatt turbine for low winds earlier in the year.  The first turbine in a 3.3 megawatt family was launched at the European Wind Energy Association event in Paris in late November.  The turbine like most of GAMESA’s product line is intended for locations on-shore.  This might be a favorable complement to Siemen’s roster of wind turbines that are mostly used at off-shore sites.

GAMESA’s installed base of wind turbines might be the more interesting to Siemens, which does a fair amount of business through service contracts with energy infrastructure owners.  Siemens, with its strong reputation for quality and reliability of service, might fare will in winning GAMESA customers to long-term maintenance contracts that would drive a tidy flow of recurring revenue and profits.

Of course, GAMESA has much to gain as well.  As a part of a much larger company, GAMESA would have easier access to lower cost capital.  Additionally, Siemen’s has so very many good friends in the energy industry.  In the wind turbine market, GAMESA competes within a large pack none of which have more than 5% of market share.  The GAMESA-Siemen’s tie-up could make an imposing presentation with a broad product line, unparalleled service capability and deep bench of wind power generation expertise   -  a compelling circumstance for GAMESA sales reps.     

The validity of the Siemen-GAMESA merger discussion is likely to be proven out in the next couple of weeks.  GAMESA shares have already reflected new interest in the stock.

Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein. AMRS is included in Crystal Equity Research’s Beach Boys Index of companies developing alternative energy using the power of the sun.

February 09, 2016

N-Viro: Sludge Into Fuel

by Debra Fiakas CFA

After ethanol producers figured out that pricey feedstock could rapidly erode profits, the renewable energy industry began casting about for alternative feedstock.  What is cheaper than ‘free?’  Waste of all kinds  -  sewage, mixed municipal trash, animal manure, food and agriculture waste, wood pulp, exhaust gases, steam  -  can be virtually free.  Sometimes waste generators are even willing to pay a fee to anyone willing to accept their nasty stuff.

N-Viro International (NVIC:  OTC/PK) is one of those renewable fuel producers with its arms wide open.  The company has lengthy experience in treating wastewater using its proprietary conversion process.   The waste streams are subjected to mineral by-products that have an alkaline reagent that stabilizes and pasteurizes.  The process generates an odor-free ‘soil’ that improves harvests.  N-Viro has been producing this agricultural and gardening product for over twenty years.

Image result for n-viro image
More recently N-Viro has jumped into the alternative energy race with a patented biomass fuel that hashe characteristics of coal.  The production process accepts all sorts of feedstock from livestock manure to food waste to paper sludge to municipal waste.  The pelletized fuel can be blended with coal to achieve better energy results than coal alone.  N-Viro’s fuel is also environmentally-friendly with a lower sulfur emissions profile.
The company has quite a bit to offer the coal-fired power plant owner.  N-Viro’s fuel production process gives off ammonia, which can be used by the power plant for removal of nitrogen oxides from the plant’s exhaust gases.

With apparently excellent products investors could expect N-Viro to find rapid traction in the market.  Unfortunately, market penetration appears to be woefully weak.  The company recorded $1.3 million in total sales in the most recently reported twelve months ending September 2015.  Worse yet still is that the net loss was $2.0 million.  Revenue has been higher.  The company reported $3.6 million in total sales in 2012, but the top-line has been slipping downward ever since.  There have been no profits.

Operations have used $1.6 million in cash over the past four years to keep the doors open.  That is not a significant sum and it is clear the company has been operated with a frugal hand.  However, there was only $25,000 left in the bank at the end of September 2015.

That is why the company’s recent announcement to work with the Zhejian Jiangxing Sewage Treatment Facility in the City of Jiaxing, China might be of vital importance.  The treatment facility produces 550 metric tons of wet sludge every day and there are plans to triple capacity.  N-Viro has agreed to construct and operating a processing facility to turn the sludge of Jiaxing into N-Viro fuel.

Nothing ever happens quickly in China, but N-Viro may have stumbled on a gem in Jiaxing City.  Since the announcement in late September 2015, the company has been silent on plans for working and investment capital.  Shareholders are likely keeping their fingers crossed that its ‘Jiaxing gem’ can be used as collateral.

NVIC is quoted on the Over-the-Counter Pink Sheets, which likely presents a problem for many investors.  On the plus side, N-Viro files financial reports with the SEC just like any listed company.  The stock trades well below a dollar per share and that might seem tempting to some more adventurous investors.  Even so, the bid and ask spread is wide.  That means a long position will be met with immediate loss of value in their account just on the spread.  What is more trading volume is shallow and getting out of the position in a hurry is not likely possible.

Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein. AMRS is included in Crystal Equity Research’s Beach Boys Index of companies developing alternative energy using the power of the sun.

February 08, 2016

Beijing Bails Out Yingli, Shareholders Not So Much

Bottom line: Yingli’s new bank loan will be followed by a major restructuring that will force big losses on bond and shareholders, while a new asset-backed bond program to help the broader panel sector raise money will meet with tepid reception.

China is throwing a couple of lifelines to its struggling solar panel sector, including a relatively large rescue package for Yingli (NYSE: YGE), the player in the most precarious position. That package will see a consortium of banks, led by the policy-driven China Development Bank, provide Yingli with 2 billion yuan ($300 million) in funds as the company tries to reorganize its financially strapped balance sheet.

Word of the rescue package comes as media are reporting separately that China is preparing a much bigger lifeline for the sector, by allowing solar panel makers to sell bonds backed by the growing number of solar farms they are self-developing. Such farms provide a steady source of income from the power they generate, and thus should theoretically be more attractive to investors than directly investing in the financially-challenged solar panel makers themselves.

These 2 latest moves come as China’s solar panel makers are still trying to climb out of a 4-year-old downturn caused by a production glut that has stubbornly persisted to the present. A big reason the glut has yet to abate is due to companies like Yingli, which make lower-end product and compete almost purely by offering extremely low prices. Such companies should theoretically go bankrupt in a truly commercial climate. But in this case they are being artificially supported by government entities, who worry about the chaos that such closures might create.

After teetering on the brink of insolvency for much of the last year, YIngli’s situation remains very tenuous, including a massive $500 million net loss in its latest reporting quarter. The company is badly in need of a restructuring to relieve some of its large debt burden, which totaled 10 billion yuan ($1.5 billion) at the end of last September.

It technically defaulted on a bond last year, but later found funds at the last minute to pay most of the money, even as the patience of its bondholders wore thin. (previous post) Now media are reporting the company has just landed the new 2 billion yuan bank loan as part of a temporary measure to help it stay in business ahead of a needed restructuring. (Chinese article)

State-Backed Syndicate

China Development Bank is leading the borrower consortium, which is almost certainly composed exclusively of big state-owned banks that have been ordered by the government to provide the funds. Word of this funding comes just days after earlier media reports that Cinda Asset Management (HKEx: 1359), one of China’s largest asset-managers that specialize in bad debt, was looking to join a group of financial firms that would help Yingli to restructure. (English article)

I suspect these 2 developments are related, and we’ll probably see Yingli announce a major restructuring sometime in the next 2-3 months. It’s clear that bondholders will probably be asked to forgive a big portion of their debt as part of the restructuring, though it’s less clear what will happen to the company’s stock. Stock buyers appear to think they will escape without any damage, based on a recent rally in Yingli shares. But I suspect they could see their equity significantly diluted if Yingli decides to make a major new share issue as part of any settlement with its bond holders.

Next there’s the bigger industry news, which says China is preparing to allow solar panel makers to issue bonds that are backed by income from the solar farms that many are building. (English article) A company called Shenzhen Energy Group broke ground in the area when it was allowed to raise 1 billion yuan last month by selling the first such bonds.

Industry leader Canadian Solar (Nasdaq: CSIQ) has already been moving in a similar direction, announcing plans late last year to spin off its solar plant-building unit for a separate IPO to raise new funds. (previous post) This new plan could help many of the sector’s other players like Trina (NYSE: TSL) and ReneSola (NYSE: SOL) raise much-needed funds through bond issues. But that said, I expect that many of the bonds could get a tepid reception from investors due to man uncertainties about the future of solar power in China and in other countries.

Doug Young has lived and worked in China for 20 years, much of that as a journalist, writing about publicly listed Chinese companies. He currently lives in Shanghai where, in addition to his role as editor of Young’s China Business Blog, he teaches financial journalism at Fudan University, one of China’s top journalism programs.  He writes daily on his blog, Young´s China Business Blog, commenting on the latest developments at Chinese companies listed in the US, China and Hong Kong. He is also author of a new book about the media in China, The Party Line: How The Media Dictates Public Opinion in Modern China.

February 05, 2016

What's In Store For Cleantech Stocks?

Tom Konrad Ph.D., CFA talks with four investors about the rocky year ahead for the stock market and the likely impact of the market correction.

Note: This article was first published on GreenTechMedia on January 21st.

With the markets in free fall since the start of the year, many investors are rightfully worried about their portfolios' rapid declines. Although one of the biggest drivers of recent declines has been the fall in fossil fuel (especially oil) prices, clean energy investors have been far from immune.

Is it time for clean energy investors to run for the hills, or time to buy cheap clean energy stocks just when a number of drivers are turning in their favor?

Which clean energy sectors are best positioned to weather a worsening storm -- or recover the most if the clouds finally clear?

I asked a panel of professional green money managers these questions. Here is what they had to say.

Market trends

My panel is conservative to bearish on market trends. Tom Moser, portfolio manager at High Impact Investments, is particularly pessimistic.

He does not think cleantech will be spared. But he does think the sector “will be one of the leaders when a new, secular bull market emerges, just as biotech led coming out of the 2008 financial crisis.” A three- to five-year bear market does not leave much room for good performance in 2016, however.

“It will take patience and smarts to navigate through the coming S&P 500 carnage," said Moser.

Oil prices

Many managers see low oil prices as a weight dragging down the sector.

Robert Wilder, a co-manager of the WilderHill New Energy Global Innovation Index and manager of the WilderHill Progressive Energy Index, expressed worries about fossil fuel prices across the board.

“Perhaps the biggest hurdle across clean energy has been oil dropping near $30, something hardly predicted by anyone a couple of years ago. Natural gas continues to look cheap and abundant too far over the horizon, while coal too is fetching very low prices. All this has meant dirty fossil fuels are very tough competition, since natural gas, for instance, could readily fire new power plants, and oil can cheaply fuel traditional cars," said Wilder.

Wilder still holds out hope for solar, wind, efficiency, electric cars and advanced batteries.

“It has long been said the cure for cheap oil is cheap oil -- and at some point, declining rig counts are likely to have some impact. More important though, is that clean energy, unlike fossil fuels, is on a long-term and unwavering trend toward ever-greater cost-competitiveness," said Wilder.

"Once solar unsubsidized gets as cheap as fossil fuels, all bets are off in terms of support for dirty energy. That notion, which not long ago seemed very far off, is quickly becoming a more real threat to vested interests."

Shawn Kravetz, president at Esplanade Capital and manager of the solar-focused hedge fund Electron Partners LP, called the connection to oil prices “senseless" -- particularly for solar stocks.

Top clean energy sectors

Managers agree that solar will have a very good year in the U.S. and around the world.

“The extension of the Investment Tax Credit extends the runway for solar dramatically in the U.S.," said Kravetz.

“A more sustainable U.S market, combined with a robust global market, should propel solar stocks. Leading solar companies will see sustainable revenue and earnings growth in 2016. Perhaps more importantly, they should see multiple expansions as investors re-rate them based on a more predictable medium-term outlook," he said.

Wilder agreed, and said that the global climate agreement in Paris will provide tailwinds for the sector. However, in 2015, the solar industry was "unable to overcome strong headwinds that include a fast-weakening China, low energy prices, opposition to solar continuing in some domestic fronts, and solar profit margins upstream to downstream being squeezed ever harder.”

Moser thinks larger stocks are better positioned to survive the extended downturn, and is weighting his portfolio accordingly. His two favorite companies are Toyota Motors (TM), priced at $110 and Hydrogenics (HYGS), priced at $6.75. (Readers should note that HYGS is a microcap name, implying that Moser weights TM much more heavily in his portfolio.)

“These two companies are involved in development and selling of hydrogen fuel-cell technologies. This sector seems to me to be a bit under the radar of many cleantech money managers and investors. The growth prospects are much brighter now than a decade ago," said Moser. Of course, many people would strongly disagree with this thesis, given the poor track record for fuel-cell companies.

Like Moser, I think that investors should focus on safety to combat the effects of an extended downturn, and balance it with an off-the-radar sector that could benefit from a sooner-than-expected oil price rebound.

For safety, I prefer to focus on the safety of a company's cash flows, rather than its size. Only utilities have cash flow as reliable as clean energy YieldCos. YieldCos own clean energy projects such as solar and wind farms, and the electricity they generate is mostly sold under long-term contracts to investment-grade offtakers, usually utilities. Even the highest-quality YieldCos are trading with sustainable dividend yields around 7 percent.

Like solar, biodiesel also got a tax credit extension in December. Furthermore, the targets for biodiesel production under the Renewable Fuels standard were set in November and will help the industry grow through 2017. These supports should make the increasingly consolidated industry profitable in 2016, no matter what happens to the oil price.

If, on the other hand, the oil price rebounds, industry players are likely to see windfall profits.

Conclusion

The current market correction has not spared clean energy, despite very attractive valuations in many clean energy sectors. The best times to buy stocks are when periods of market turmoil end. But even the professionals often fail at timing the market.

If we can't call the timing, it never hurts to buy quality companies at great prices. Companies with the financial strength to weather any storm can form a solid core for a portfolio, while companies set to benefit from economic trends allow investors to benefit when conditions eventually improve.

Tom Konrad is a portfolio manager and freelance writer with a focus on clean energy income investments. He manages the Green Global Equity Income Portfolio and is editor of AltEnergyStocks.com.  

DISCLOSURE: Tom Konrad, his clients, and the Green Global Equity Income Portfolio have no positions in any of the stocks mentioned in this article.

February 04, 2016

Will Renewable Energy Group's Buying Spree Ever Stop?

Jim Lane

REG Monopoly

REG Sanimax

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

« January 2016 | Main | March 2016 »




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