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March 31, 2016

Trina and BYD Grow With State Support. How Will They Do Without?

Doug Young

Bottom line: Trina’s new loan and BYD’s uncertain outlook for EV sales this year reflect continued reliance of new energy technology companies on state support, which could pressure them as government incentives get retired.

Two new energy stories are in the headlines today, reflecting the progress but also the continued reliance on government support that this up-and-coming group of companies faces. That particular reality isn’t new, though some who were hoping the industries would become commercially independent more quickly may be disappointed. But more important, this reality could challenge many of the companies in the next 2-3 years in the face of disappearing support from governments that believe they have already given enough incentives to this slowly-developing group.

The first development has solar panel maker Trina (NYSE: TSL) announcing $143 million in financing for a new plant in Thailand, with all of the money coming from local lenders that almost certainly have government ties. The second has electric car maker BYD (HKEx: 1211; Shenzhen: 002594; OTC: BYDDF) reporting annual results that showed a surge in its EV business last year thanks to government incentives, setting the stage for a possible rapid slowdown this year as those incentives get set to retire.

Let’s begin with Trina, whose new Thai plant is aimed at producing solar panels that will be exempt from anti-dumping duties in the US and similar duties likely to come from Europe later this year. In that context the launch of the new factory looks like good news, as it will help Trina to avoid potentially serious fallout that would have come with the loss of sales in 2 of its most important markets.

Trina says the new Thai plant has just formally begun production with 500 megawatts of annual capacity for modules, and 700 megawatts for finished solar cells. (company announcement) Trina also announced $143 million in financing from China’s Minsheng Bank (HKEx: 1988; Shanghai: 600016) and Thailand’s Siam Commercial Bank Public Co to pay for and operate the plant.

To call this particular loan government-backed would be slightly misleading, since Minsheng is technically a private lender. I’ll admit I’m less familiar with Siam Commercial Bank. But I expect that both companies are private institution with close state ties, which is quite common in this kind of developing economy.

A better sign of true commercial viability for this project would have been financing from some big western lenders. But in this case it’s not clear if Trina could have secured such financing. And it’s also quite likely that even if it could get financing from such sources, the terms wouldn’t be as favorable as the ones it’s getting under this new deal.

Global EV Leader

Next let’s look at BYD, which has just announced annual results that show its profit leaped 6-fold and revenue jumped 40 percent last year, as it bounced back from a major company overhaul. (company announcement) BYD officially became the world’s biggest new energy car seller last year thanks to a surge in sales in its home China market, with sales tripling during the year to about 58,000 units.

BYD was once a stock superstar after billionaire investor Warren Buffett bought 10 percent of the company in 2008. But it has lost much of its luster since then after its new energy cars failed to quickly gain traction. Even Buffett seems to have lost interest, and his share of the company has dropped to 9 percent as he was diluted by BYD’s own new share issues to raise cash.

BYD doesn’t break out its new energy vehicle sales by country in the new results, though it says that China’s share of its overall revenue grew to a overwhelming 90.2 percent in 2015 from 86.5 percent the previous year. A big part of that most likely came from surging electric car sales. But Beijing recently discovered that many electric car buyers were making their purchases simply to get the government incentives, and had no intention of actually driving the cars.

Realizing that, Beijing has moved quickly to retire most of the incentives this year, and BYD acknowledges that the industry will be driven more by fundamentals than government incentives. That could translate to a sharp slowdown or even contraction in BYD’s new energy vehicle sales this year, since it’s not at all apparent that very many people are actually interested in such cars.

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.

March 28, 2016

Water Infrastructure: Opportunity Coming Down The Pipe?

by Debra Fiakas CFA

The most recent report by the American Society of Civil Engineers (ASCE) gives a grade D+ for U.S. infrastructure as of the end of 2013.  Not a very good grade, but an improvement over the plain D grade that had been handed out four years earlier.  With the travesty of the water contamination in Flint, Michigan during 2014 to 2015, the ASCE report should carry special interest.  The threat to the health of the Flint community could be found in anywhere in the U.S.

The executive summary of the ASCE 2013 report does allow that the quality of drinking water in the U.S. is relatively good.  However, the drinking water infrastructure is old and in too many cases the installed pipes and valves have reached the end of useful life.  The replacement of every drinking water pipe in the U.S.  -  over one million miles of water mains  -   would cost more than $1 trillion at today’s prices.

For investors total infrastructure replacement value might be misleading.  What is important is actual spending on water infrastructure. 

There are about 155,000 water systems serving as much as 90% of the U.S. population.   These systems are owned by a mix of public and private owners, all of which guard every penny received from their customers.  The U.S. Environmental Protection Agency estimates only about 5,000 miles of water mains are replaced annually, representing a half percent of the total installed base.  The represents about $5 billion in annual upgrade spending if the ASCE is correct in its calculation of water infrastructure value.

There is a possibility that water system spending could increase.  At the current upgrade pace it would take 200 years to replace the current water infrastructure, which means that water mains will need to provide service well beyond the expected useful life of the iron pipes and valves.  That does not even include new installations to address population growth or urban expansion.  Even the poorest of water system owners probably realizes the consequences of failing to repair the system.  The EPA suggests that the rate of water pipe and value replacement could rise to 20,000 miles per year, which implies a 50-year replacement cycle for the current installed based, but somewhat slower if urban growth is considered.  That would bring demand for water infrastructure components to $20 billion per year at current prices.

It might be a difficult road to reach higher water infrastructure investment.  At least 80% to 90% of water system revenue is based on volume used and water rates.  Water rates in the U.S. have been notoriously low.  True enough, in recent years water rates have been increasing at a faster pace than the Consumer Price Index (CPI), suggesting that water system owners are trying bring collections into line with costs.  According to a water industry research group, Circle of Blue, water rates increased an average of 6% in 2015, faster than most other household goods and services.

It may not be as simple as raising water usage rates.  Water system owners also have to deal with reduced demand for water.  Flint may have awakened the population to the threat of water contamination, but California’s severe drought conditions also brought to the collective conscious the importance of conserving water supplies.  A survey completed by Circle Blue found that total water usage declined in several major cities in 2014, including Austin, Las Vegas, Phoenix and Las Angeles.

In the next few posts we will look at companies producing the pipes, values and components that are used to construct our drinking water infrastructure.  We will try to answer the question, does the large installed based and imperative to improve also mean opportunity for sales and profits for the pipe and value folks.

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

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

March 25, 2016

A Light At The End Of The Bridge For Lightbridge?

by Debra Fiakas CFA

Earlier this week nuclear fuel technology developer, Lightbridge Corporation (LTBR:  Nasdaq), reported year-end 2015 financial results and provided an update on recent accomplishments.  Not unexpectedly, Lightbridge reported a net loss of $4.3 million or $0.24 per share for the year.  During the year the company scraped together $900,000 in revenue from consulting services, an effort to leverage the expertise of its scientists and engineers as they continue work on new fuel technologies.  The contribution margin of the consulting work was $216,239  -  not nearly enough to cover administrative spending or the costs of research and development on the company’s innovative nuclear fuel rod.   Fortunately, a good share of expenses were paid with stock and thus Lightbridge only needed $3.7 million in cash to support operations, most of which came from the corporate bank account balance of $4.2 million at the beginning of the year.

As dismal as those numbers might seem, for a change Lightbridge could tell more in its financial report than just a story of ‘we are hanging in there.’

lightbridge rod.png Lightbridge has taken a giant step forward in its quest to bring new nuclear fuel technology to the market.  France’s nuclear fuel giant, Areva NP (ARVCF:  OTC; AREVA:  PA), has entered into a joint development agreement with Lightbridge.  The objective is to establish a formal joint venture that would complete development of Lightbridge’s novel metallic nuclear fuel technology and then manufacture and sell the fuel assemblies.  The two companies have until the end of 2016 to get a definitive agreement put into place.

Of late Areva has made efforts to focus more keenly on the nuclear sector, refining and escalating its products and services for nuclear operators.  A joint venture with Lightbridge gives Areva access to a metallic fuel technology that could give nuclear power plant owners the chance to increase operating efficiency for the first time in decades.  Usually to expand output the power plant owner must seek local, state and federal approval for a new reactor  -  a costly and time consuming undertaking.  Tests have shown that Lightbridge’s all-metal fuel assembly can increase power output by as much as 17% in existing power plants.  New power plants, with large containment structures, could get up to a 30% power ‘uprate.’  The economics of such capacity expansion are quite appealing and it might be that Areva sees Lightbridge’s novel design as an easy sell to its power plant customers.

So easy, that Areva has pledged considerable engineering and managerial support over the next months to bring the joint venture to fruition.  Areva will not be footing the bill alone.  The two companies have agreed to share expenses.  During the earnings conference call Lightbridge management emphasized how zealously they have been husbanding their bank account.  Two ‘equity credit lines’ have remaining availability for additional draw down.  Management claims these financial resources should be sufficient to support its financial commitment to the joint venture as well as its operations through to first revenue from the sale of the fuel assemblies.

Still there is much to be done before that first important order.  There is more testing to be completed in research reactors.  All the while, Lightbridge and Areva will need to perfect the manufacturing processes.  Then the completed fuel assemblies must be tested under severe accident situations.  Assuming those tests are favorable, Lightbridge will still need to get final approval from the U.S. Nuclear Regulatory Commission or any other oversight or permitting organization in countries where the joint venture partners intend to sell the assemblies.

Lightbridge management has suggested that its fuel assemblies will not get installed in commercial reactors until 2020.  That is a full four years away, which probably explains at least in part why Lightbridge stock is still priced well below a buck a share.  For U.S. investors facing a particularly volatile equity market and considerable uncertainly in interest rates and economic prospects, it is difficult to give full valuation for a product still in development by a small company with a long history of losses and scant history of commercial success.  Thus LTBR remains priced as an option on management’s ability to execute on its strategic plan.  Indeed, the stock traded down in following news of the Areva relationship even though, in our view, the option should have increased by  a measure to reflect a ‘so far so good’  premium.

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. Lightbridge Corporation (LTBR) is included in the Nuclear Group of Crystal Equity Research’s Atomics Index composed of companies using the power of the atom to create energy.

March 21, 2016

Three Renewables Companies: No Pain, No Gain

Jim Lane

In California and Canada this week, BioAmber (BIOA), Pacific Ethanol (PEIX) and the former Solazyme (SZYM) reported their Q4 and year-end results, providing between them a fascinating look at the evolution in the fuels, renewable chemicals, specialty products and nutrition that make up the advanced bioeconomy.

In advanced nutrition

The most spectacular news of the week belonged to TerraVia (formerly SolaZyme), which landed a 5-year, $200 million “baseload” offtake deal with Unilever, which provides a huge lift for investors and validates the economics and performance of the company’s first commercial plant, which it operates in a Bunge JV in Moema, Brazil. “Importantly, this agreement was structured at variable cost-plus pricing,” noted Cowen & Company equity analyst Jeffrey Osborne, “enabling this deal to be cash flow positive at the plant level. We expect more deals such as this to be signed in the coming quarters, potentially offering greater visibility for TerraVia’s future vol. production.

The company stunned the market also last week with news of new investors and a re-branding of the company as TerraVia, to emphasize its decision to focus on nutrition and personal care, leaving “industrials” to be spun off at a later date. The Unilever deal, which has been five years or so in the making, which provide wind in the sails for the company, which hasn’t yet announced a fate for its Algenist health & beauty products business but otherwise has clarified its focus going forward around products such as AlgaVia whole flour and its pure food oils opportunities.

As we tipped in our coverage earlier this week of the name change, the company’s progress in industrials had stalled the face of low oil prices, and Q4 revenue was $10.4M compared with $14.5M in Q4 2014. The company has narrowed its net loss to $26.1M in Q4 vs $35.5M in Q4 2014, but the company had expected to be further along in industrial by now, and investors had wearied, with stock prices dropping below $2.

Cowen & Company’s Jeffrey Osborne wrote: “Algae is the next wave in protein ingredients and Solazyme, through is new TerraVia branding, is positioning itself to take advantage of higher margin and more stable applications. The company will predominantly focus on four main areas; food ingredients through its AlgaVia and AlgaWises brands, consumer foods through Thrive, specialty through personal care products with brands like AlgaPur, and through a yet unannounced animal nutrition product. Consequently, Solazyme will be de-emphasizing Encapso, fuels, and lubricants, which comprise the industrial segment of the business.

“We are very constructive on Solazyme’s strategic focus on high value applications of algae strains. However, given the de-emphasis on industrials and concentration on food, nutrients, and specialty ingredients we still see 2016 as a transitional year. The agreement with Unilever provides a meaningful volume baseload for its Moema JV facility with Bunge. As capacity and yields at this facility improve, it could accelerate milestones and allow for JV revenue to be recognized earlier than anticipated. While the exact timing of this event is inherently difficult to time we believe it could serve as a very material catalyst for shares of Solazyme.”

Over in renewable chemicals

For some time, investors and industry experts have pointed to succinic acid as a new intermediate for chemicals and an area where green renewable chemicals can shine. Succinic, say chemical experts, offers new options to make novel, high-performing chemicals that are not as easy or as affordable to maker from the traditional platform chemicals of the petrochemical refinery: Ethylene, Propylene, Butadiene, Benzene, Xylene, Toluene, Methanol.

The biobased advantage in this case? Organics acids like succinic acid contain oxygen, which biomass also contains but petroleum does not. It’s an extra processing step to oxygenate a petroleum-based molecule. So, though biomass starts at a disadvantage in making hydrocarbons, it has an advantage in organic acids — where biology can give us one-step methods of making a target molecule from sugar or plant oils.

Leading the succinic charge has been BioAmber, which concluded a successful IPO and is making and shipping succinic acid out of Sarnia, Ontario. To date, sales have been at the “emerging company level”, reaching $1.1M for Q4 , including initial shipments to PTTMCC Biochem, an important off-taker requiring high purity succinic acid to make bioplastic. However, more than 100 companies tested and qualified the bio-succinic acid produced in Sarnia, and in recent weeks Mitsui & Co. invested $CDN25 million in the Sarnia joint venture, increasing its equity stake from 30% to 40% and committing to play a bigger role in commercialization.

Investors have been encouraged by an average selling price for Q4 2015 above the $2,000 / MT guidance, despite low oil prices. Overall, 2015 revenues were up to $2.2M from $1.5M in 2014, and net loss for the year narrowed to $37.2M from $48.5M in 2014. R&D costs have increased to $20.3 million from $15.2 million in 2015, driven primarily by an increase in expenses related to the commissioning and start-up of the Sarnia plant.

The company’s first commercial plant opened in August at a cost of $141.5M, and volumes specified in signed take-or-pay and sales agreements exceed annual production capacity. Should the company be able to maintain a $2,000 per ton price and reach nameplate capacity of 30,000 tons at Sarnia — well, it’s not hard to get out a calculator and reach $60M in annual revenues. 2016 could well be a mighty year as the company begins to ramp up production.

In conventional biofuels, Pacific Ethanol

In Oregon, Pacific Ethanol reported Q4 revenues of $376.8 million for the fourth quarter of 2015, an increase of 47% when compared to $256.2 million for Q4 2014, and operating income for the Q4 2015 of $0.5 million, compared to $13.6 million for Q4 2014. Net loss for Q4 was $1.1 million compared to $11.9 million for Q4 2014. Cash and cash equivalents were $52.7 million at December 31, 2015, compared to $62.1 million at December 31, 2014. For 2015 as a whole, the company reported a net loss of $20.1M compared to $19.4M for 2014.

Neil Koehler, president and CEO, stated: “In 2015, we made significant progress in positioning the company for long-term growth. We completed our acquisition of Aventine in July, more than doubling our production capacity. Our expanded footprint is demonstrating operating benefits. The diversification of geography, technology, feedstocks and products strengthens our performance across margin cycles and provides a strong platform for growth.

Look for less production in Q1 2016.

Koehler notes, “we are moderating production levels to match supply and demand. While the demand for ethanol continues to grow, current industry ethanol inventories remain high. We are confident that the fundamentals of ethanol as a valuable source of octane and carbon reductions will support continued growth in demand and improved production margins.”

Cowen & Co’s Jeffrey Osborne wrote: Pacific Ethanol reported revenue below estimates but beat on earnings. The oversupply theme of 2015 continues to remain the biggest concern going forward. While management is hopeful that the end is near due to growing demand, they are planning for the trend to continue in the near to mid term by reducing capacity..our implied equity value reflects a price target of $10.00 per share.”

What do these three companies share, and where do they differ?

The search for volume is a connecting point.

In the case of Pacific Ethanol, they’re producing at scale but moderating production — as we expect other first-gen producers may do — to shore up the fuel price. Demand has grown for ethanol with rising vehicle miles and small upticks in Renewable Fuel Standard volumes and growing exports, but not as fast as supply has grown. Bottom line, lots of established customers, and more of a case of right-sizing the production for the margins.

In the case of BioAmber, it’s a matter up ramp-up on production without sacrificing price — as the $2000 per metric ton price is a good sign but the volumes have been scanty to date and the company is now at commercial-scale and poised to grow, fast. So, lots of potential customers — a matter of scaling up production at effective yields.

In the case of TerraVia, a more complex task. There’s a focusing going on in the customer base at the same time as the company is ramping production.

One of the more interesting points of comparison, though — is the contrast between the search for focus and the search for diversity. BioAmber finds itself keeping a focus on its single molecule and process, and diversifying the customer and investor base. Making its molecule multi-functional, that’s a key — new things you can do with succinic acid, in short. TerraVia, is also diversifying investors and customers, but continues to aim at diversifying its range of molecules. In short, new applications through new oils. Yet, a single technology, in this case algae fermentation.

Pacific Ethanol, that’s the outlier here.

It’s diversifying in all directions, as are all conventional, or “first generation” companies. They’re acquired Aventine to achieve economies of scale; they’re diversifying the customer base through exports. They’re diversifying the product line — adding corn oil extraction which has opened up new customers for them. In partnership with Edeniq, they’ve added cellulosic production which they get out of the cellulosic material in the corn kernel. And, they remain heavily invested in the nutrition space, through the animal protein business of the dried distillers grains (DDGs).

Some of their peers have also explored adding CO2 liquefaction to turn that CO2 gas into an asset. Call it a gasset. And, others in the first gen space have experimented with renewable natural gas and sorghum as a feedstock to qualify for advanced biofuels RINs.

Diversification vs focus

Bottom line — all pursuing growth but PEIX is approaching through diversification of feedstocks and technology, as opposed to focusing the technology and diversifying the customer base through new applications.

Experts differ on the merits of focus vs diversification almost as much as they differ on whether companies should be organized around customer sets, product lines, or regions. It’s the age-old debate, and it’s now invading the renewables space.

Diversification means risk-spreading, and that’s a good thing. Focus means putting resources onto the most important opportunities, and that’s a good thing.

Here in Digestville, we see diversification as a stronger strategy — though resources are hard to come by and the investors who provide them are known to have epic issues with attention-deficit disorder when the results come in more slowly than expected, and costs rise.

The reason is this. Aside from a handful of experts, some profiled recently in The Big Short, who correctly called the timing on the Great Recession of 2008-10. Who foresaw the problems with weapons of mass destruction repiuted to be in Iraq? Who called the timing well on the rise of fracking, or the 2014-16 crash in commodity prices?

We live in a world of global macro — macroeconomic events that shift the microeconomic landscape that renewables compete in, like seismic waves rolling through the San Andreas Fault. The world of $80 oil was expected to begat cellulosic ethanol — instead, we saw driving miles drop, fracking take off, and interest in electrics soaring. Meanwhile, fuels producers began to chase chemicals, which welcomed new sources in a world of high commodity prices. But now, chemicals find challenges and though fuels protected by the Renewable Fuel Standard are doing fine so long as there is not over-production — many technology developers are targeting protein, and nutrition as a whole.

The Summer of Fish Meal

It’ll be the summer of Fish Meal, perhaps. But where will the next set of trends take us? Hard to say, because we live in a macro world — to some extent influenced by global interest rate policy, or social factors that influence cartels such as OPEC.

How do renewables companies find strength through diversification when the resources that diversity demands can drain a treasury. The secret lies in partnership based on the search for an alternative to economic, social or climate pain.

No pain, no gain

Renewables, they’re a therapeutic for what ails us, and the natural first customer for an experimental therapeutic is the patient at the greatest risk, feeling the greatest pain. It’s pain that drives companies to complete tasks — groups driven by perceived opportunity have been known to be fickle — dirfiting to the next glowing target like moths to a flame.

Pain focuses, clarifies, and makes change inevitable and drives us to the finish line. If there’s pain the sector, there’s no gain without it.

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

March 20, 2016

McKinsey Report Hits The G(reen) Spot

by Sean Kidney and the Climate Bonds Team

Working on climate change involves reading a lot of reports. A lot. My general view nowadays is “Enough already! Can you we just do now and stop theorizing?”

But sometimes you come across a report and you find yourself sitting up in your seat and shouting “Yes Yes Yes” like that scene with Meg Ryan in the movie When Harry met Sally.

It usually means the report is saying what you’d like to say, but much better; and so it is with the McKinsey Center for Business and Environment’s new report on Financing change: How to mobilize private sector financing for sustainable infrastructure.

The report:

  • Draws the link between country climate change plans submitted to the UN Climate Change Conference and infrastructure needs. Tick.
  • Then explains that global demand for new infrastructure to 2030 could amount to $90 trillion – as compared to the value of the world’s existing infrastructure at $50 trillion. Wow!
  • Infrastructure spending has to scale up from $3 trillion a year now to $6 trillion a year.
  • More than 60% of this funding gap is for infrastructure in emerging markets, like China, Brazil, India and Mexico.
  • Explains that public sector capital will not be enough and we need to mobilize private capital. Yep.
  • That means attention has to be given to “enabling environments” that ensure capital will flow from institutional investors like insurance and pension funds.

They posit five major barriers:
  • Lack of transparent and “bankable” pipelines: Even in the G-20, only half the countries publish infrastructure pipelines.
At Climate Bonds we think this is by far the most urgent issue, because a clear pipeline will drive home to governments the extent to which they need private capital and make them more receptive to proposals for that “enabling environment”.

  • High development and transaction costs.
That’s a tough one; but it’s interesting to see how in India the government has been tackling this with fast-track approvals, cutting red tape and the like. A long way to go, but hopeful.

  • Lack of viable funding models: Up to 70 percent of water provided by utilities in sub-Saharan Africa is leaked, unmetered, or stolen; therefore not enough revenue is generated to maintain or expand the system.
We’d add urban rail transport as another example, where too many governments insist on trying to recover the cost of investment from operating revenues. Doesn’t work. But what does work is Hong Kong’s system of massive property development on top of subway stations that allows the capital cost of the subway to be paid for with property profits. Go MTR!
  • Inadequate risk-adjusted returns: Investors may be willing to take on sustainable infrastructure but want higher returns to compensate them for the perceived risks.
This has always been the issue with infra development; and governments in many many countries have successfully found ways to structure investments with long-term contracts, regulatory support, and even revenue guarantees (often used for motorways) to attract the right kind of capital.

  • Unfavorable and uncertain regulations and policies: Basel III and Solvency II regulations could have the effect of reducing investment in infrastructure at the global level; uncertain tax policies can do the same at the national level. The fact that sustainable-infrastructure projects typically have higher up-front capital costs makes them even more sensitive to the cost and availability of capital.
That’s the key challenge of the green investment path we need to take: capital costs are much higher (20-30%) than the dirty brown path we usually take. But against that are health benefits (like less toxic air in Beijing, Delhi, Mexico City and Sao Paulo); lower operating costs with clean energy and rail maintenance (vs roads); and 100 year assets that, once capital costs are paid off in 20-30 years, keep working for a lifetime afterwards. Oh, and we help fix climate change; mustn’t forget that.

McKinsey’s prescriptions:

  • Scale up investment in sustainable project preparation and pipeline development. Governments and development banks should focus investment on project-preparation facilities and technical assistance to increase the “bankability” of project pipelines (meaning those that have an attractive economic profile). This is the highest-risk phase of the project life cycle; it is critical to get right; and it is subject to significant rent-seeking conduct. Given a chronic shortage in many developing countries of the right developer equity/expertise, this is an arena in which the right financing facilities could have disproportionate returns.
Agree 100%

  • Use development capital to finance sustainability premiums. Encourage development banks and bilateral-aid organizations to provide financing for the incremental up-front capital spending required to make traditional infrastructure projects sustainable, in economic, social, and environmental terms. Attract private-sector financing by demonstrating that risk-adjusted returns can be competitive with those of traditional infrastructure, even if the policy settings and prices do not fully reflect the total benefits of greater sustainability.
  • Improve the capital markets for sustainable infrastructure by encouraging the use of guarantees. Increase development-bank guarantee programs for sustainable infrastructure by expanding access to guarantees.
In fact, policy risk is usually cited as the number one risk for investors. Selective guarantees that address policy risks hold the potential to be fiscally efficient compared to the blunderbuss full guarantees too often used in the past.
  • Encourage the use of sustainability criteria in procurement. Governments should strengthen sustainability criteria in both public-procurement processes and public-private partnerships.
  • Increase syndication of loans that finance sustainable infrastructure projects. Encourage development banks to expand loan syndication and create a larger secondary market for sustainable infrastructure-related securities.
This would increase institutional investor familiarity with the asset class, reduce transaction costs, and allow the recycling of development capital.
  • Adapt financial instruments to channel investment to sustainable infrastructure and enhance liquidity. “Yieldcos” or “green bonds” have characteristics similar to traditional investment instruments, but with an emphasis on sustainability. Increasing use of these instruments could unlock investment from previously restricted investors, lower transaction costs, and reduce barriers to entry.

Green bonds? Nice idea.

I like their concluding remarks as well:

If capital markets were perfect or could respond instantaneously, then it is possible that some of the actions proposed in this report would be redundant.

However, in the real world, there is ample evidence of pervasive imperfections in the capital markets, partly due to policy and regulatory rules (for example, which result in risk mispricing or excess capital weighting for specific asset classes) and partly due to institutional conduct and agency factors.

Given their limited direct exposure to infrastructure risk, institutional investors are naturally cautious about increasing their exposure to this asset class. That is why a muscular set of nudges and risk-sharing instruments are required: they can shift perceptions and get capital to flow.

And finally

There are many challenges to changing the design, construction, financing, and operation of infrastructure.

There are no simple solutions. What there should be is a sense of urgency.

In the next 15 years the world is set to build more infrastructure than the value of all the infrastructure that exists today. That will dramatically remake the global landscape and profoundly shape the trajectory of efforts to deal with climate change for decades.

We can secure a better future, but only if we act quickly—and wisely

Thank you Aaron, Mike, Melissa and the legendary Jeremy Oppenheimer for a fantastic report highlighting practical solutions to scale green infrastructure investment!


Financing change: How to mobilize private sector financing for sustainable infrastructure, by Aaron Bielenberg, Mike Kerlin, Jeremy Oppenheim, Melissa Roberts, McKinsey Center for Business and Environment, January 2016.

To find out about Climate Bonds Initiative work in this area read about our Green Infrastructure Investment Coalition, being developed with the Principles for Responsible Investment, the International Cooperative Insurers Federation and the UNEP Inquiry.

Also check out our public sector guide for scaling green bonds markets, which looks at how governments can leverage the green bond market to meet, their green infrastructure investment needs.

——— 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. 

March 16, 2016

Darling Soldiers

by Debra Fiakas CFA

This week Darling Ingredients (DAR:  NYSE) reported financial results for the quarter ending December 2015, demonstrating management’s collective ability to manage margins in a period of low inflation.  The fourth quarter 2015 top-line was $809.7 million, providing $84.4 million in net income or $0.52 per share.  Revenue was 19.1% lower than the same period last year, but net income increased by 20.7% year-over-year.  Weak commodity prices led to lower sales volumes and selling prices that translated into lower year-over-year revenue.  At the same time the commodity market compression also reduced raw materials costs, increasing profit margins.

The Company also benefited from its investment in the Diamond Green Diesel joint venture with Valero (VLO:  NYSE), by capturing value in the fats supply chain that might have otherwise been lost to Darling as an animal fats recycler.  The joint venture is part of Darling fuel ingredients segments, which delivered 8.1% of total sales to the mix in the fourth quarter and an exceptional 37.9% of operating income.

Earnings in the December quarter far outpaced expectations for a two-bit bottom line.  It was the first upside surprise delivered by the Company in over a year.  Consequently, under higher than average trading volume, the stock gapped higher in the first day of trading following the earnings announcement and conference call.  The stock gapped higher again in the final day of trading last week, moving well above a line of price resistance that we believed was developed through historic trading volumes at the $11.50 price level.

soldier fly.jpg Yet exceptional profit is not the only thing sparking investor interest in Darling Ingredients.  Last week Darling announced a new joint venture with Intrexon Corporation (XON:  NYSE) to develop black soldier flies for fish and poultry feed.  Concurrently, Intrexon acquired EnviroFlight LLC and its proprietary fly husbandry processes as part of the effort to cultivate black soldier fly larvae for fish and poultry feed.  The product is expected to be highly marketable given the merits of larvae over wild fish or other protein by-products for these markets.  Successful introduction of fly larvae as a preferred feed is also expected to reduce threats to fishing waters from over-fishing and pollution.

There were numerous questions during the earnings conference call about the joint venture and the apparent expansion of interest on the part of Darling to expand beyond feed by-product recycling to new feed production.  Randall Stuewe related the Darling’s history of work with EnviroFlight as a development partner with the fledgling protein producer.  The relationship has been formalized into a joint venture with EnviroFlight’s new owner, Intrexon.

Stuewe stated clearly that population growth is outpacing the ability of pastures and fields to produce enough animal feed protein.  In particular new sustainable sources of protein are needed for poultry and aquaculture to reduce pressures on other feed sources.  Darling has committed approximately $3 million in capital to building a pilot plant for cultivation of black soldier fly larvae.  Although a site has not yet been determined, construction could still begin in 2016.  Ultimately, each production facility could cost between $4 million to $5 million, with additional capital required to begin operation.

The black fly project adds a new dimension to Darling Ingredients business model, which has to this point been largely as a recycler of food by-products not as a cultivator of original feed.  Darling Ingredient’s management culture has proven that it is able to handle a wide range of business challenges from tough pricing environments, to large, multi-faceted acquisitions and joint ventures.  There is plenty of reason to have confidence in Darling’s soldiers.

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 Buy rating on DAR and Darling Ingredients is included in the Biofuel Group of the Beach Boys Index of alternative energy developers and producers.

March 15, 2016

Hyundai Charges Up Green Bond With EVs And Hybrids

by the Climate Bonds Team

Hyundai Capital Services issues first Korean corporate green bond for hybrids and electric vehicles (5yrs, 2.87%, $500m)

Hyundai Capital Services, the subsidiary of Hyundai Motor Company (005380.KS) that provides loans and leases for new Hyundai and Kia cars, issued a $500m green bond. The inaugural green deal has a 5-year tenor and fixed semi-annual coupon of 2.87%. Lead underwriters for the deal were Bank of America Merrill Lynch, Citi, and Credit Agricole.

The green issue is the first corporate Korean green bond and only the third out of Korea after KEXIM’s initial green bonds in 2013 and 2016. It’s also number 3 on the list of green bonds issued for green vehicles following Toyota’s two green ABS for hybrid and EV assets in the past couple years.

Similar to Toyota (TM), Hyundai does not have a second review of its green bond. Independent reviews of a bond’s green credentials provide investors with an important insight to the bond’s adherence with best practice guidelines. Next time round, it would be great to see Hyundai adopt a market leader position and obtain a review.

Proceeds from the Hyundai green bond will finance a range of Hyundai and Kia hybrids (HEV) (including the Sonata HEV, Grandeur HEV, Ioniq HEV, K5 HEV, K7 HEV, Sonata PHEV) and electric vehicles (EVs) (including the Soul EV, Ray EV and Tucson ix Fuel Cell).

So, how do we determine what vehicles are green?

Late last year we finalised the Climate Bonds Standard for Low Carbon Transport, which includes eligibility criteria for low emission passenger vehicles. Our Technical Working Group (TWG) and public consultation process both concluded that private vehicles should meet emissions threshold (based on data from the IEA mobility model and Global fuel economy initiative).

For cars to be considered green under the Climate Bonds Standard, they must meet, or be below, a maximum emissions level of 85-90 grams of CO2 per passenger kilometre travelled (g CO2 p/km).

The Hyundai and Kia Hybrids in this green bond are all under a 110 g CO2/pkm maximum emissions – so not far off the standard threshold. This is compared to the top performing petrol and diesel cars, which struggle to get below 110 g CO2/pkm in emissions.

This threshold decreases over time as part of a trajectory to achieve a 2-degree world by 2050.  As we get closer to the mid-point of the century we need vehicle technology to be improving to achieve lower and lower emissions. It's about pushing fuel efficiency across all modes of transport. ​

These thresholds apply to hybrid vehicles that use both fossil fuels and electric technology for motive power but it’s much easier to classify all electric or fuel cell vehicles.  These types of vehicles ​are considered ​green under the Climate Bonds Standard​.

We sometimes hear arguments along the lines of ‘but what if the electric vehicles are using electricity from a brown grid – is that still green?’ – well, yes! Here’s why: we can’t hang around for 20-30 years until we’ve transitioned all electricity grids to green energy sources before developing and adopting low emission vehicles technologies. 

If we wait until 2050, we will be too late. ​​​

We need to use the time now to get our technology up to scratch so that we develop highly efficient vehicles by 2050. So, all electric vehicles are in; full stop.

Back to this deal - it’s fantastic to see another green bond from a car manufacturer. It is financing technology crucial for a transition to a 2-degree future.

Welcome to green bonds Hyundai!

——— 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. 

March 14, 2016

Solazyme's Not-So-Puzzling Rebranding

Jim Lane

Solazyme undergoes Focus Reassignment Surgery and re-emerges as TerraVia. Industrials to spin off, nutrition the focus now.

The what, the why, and the “why now?”

In California, Solazyme (SZYM) said that it is now focusing exclusively on food, nutrition and specialty ingredients, renaming the company TerraVia. Having elevated CEO and co-founder Jonathan Wolfson to the Executive Chairman post, the company says it is on the hunt for a food-business CEO, and has raised $28M from a group of foodie investors including Glenhill Capital, VMG Partners, PowerPlant Ventures, ARTIS Ventures, Simon Equities and several influential food industry CEOs.

Leaving many observers feeling like Caitlyn Jenner’s golf buddies at Sherwood Country Club. Supportive but perhaps a little confused.

The products, technology and market opportunities in industrial markets including fuels, industrial oils, and the oilfield/Encapso business will be spun-off. The company stated: “Moving forward, these initiatives will be grouped together as “Solazyme Industrials” and will not be part of TerraVia’s refined focus. Solazyme believes these businesses have tremendous opportunity to develop into large and profitable entities, while improving the lives of people and the planet. The Company will be pursuing strategic alternatives over the next 12-18 months to unlock the value created. Solazyme’s objective is to identify partners who have the operational capabilities needed to realize the potential of those businesses.”

The TerraVia Business going forward

TerraVia’s portfolio of ingredients and products include: Specialty Food Ingredients, including the AlgaVia Whole Algae ingredients (lipid rich powder and protein) and AlgaWise Algae Oils (cooking and high stability oils). Consumer Food Products, including Thrive Culinary Algae Oil, Animal Nutrition Ingredients, a new area for the Company, and Specialty Personal Care Ingredients, including AlgaPur Oils.

There are two ways to tell the tale. We’ll visit the dark side first, and then focus on the path forward for the newly-minted TerraVia.

The Dark Side of the Story

Let’s face facts. We have a CEO search rather than a new CEO, plus a re-branding of the company without the kind of signature deal that usually propels companies to venture into the risky area of re-branding. And, we have a jettisoning of two of the four legs of the corporate stool.

The circumstances are screaming that the Monday afternoon’s Q4 earnings announcement will make it plain that Solazyme’s growth and growth prospects in certain sectors have stalled short of cash positive — just as the nutritional prospects have materially brightened. Clearly fuels are in that basket. We’ll have to see what the fate of Algenist is, and how the company will handle the pressing topic of securing orders for its commercial-scale plant in Brazil.

On the industrials side, it would come as no surprise that there’s the exhaustion powered by $30-$40 oil and crashing rig counts that doomed Encapso and made Solazyme’s fuels unaffordable except in boutique quantities. On the nutrition side, a name-brand group of White Knights have come along, and have targeted the company to get a hold of its powerful technology and applications in the foodie space. For sure, the investors are buying in at considerable premium to the stock’s moving average. Very encouraging.

Back to the sunny uplands of algae’s promise and Solazyme’s powerful technology

If you’ve been on Neptune for the past decade or so, let me state for your benefit that the world could use help on nutrition, with a population set to increase some 4 billion this century. That’s 3.8 quadrillion calories per year, more than we consume right now. Assuming that the developing world, by the way, doesn’t increase its caloric intake.

Think of that as 2 billion tons of the edible parts of a salmon, per year, additional. And that’s excluding any pets you might bring along. And excluding the food you plan to feed to the salmon. And the waste part of the fish, and the food that gets wasted through spoilage and so on.

Did I mention that the global fish catch last year was 90 million tons, the whole she-bang? And, that we’re currently alarmed over fish depletion rates. And, that we’d like our calories to be healthier, please. Which means making the healthy calories better tasting, and you’ll appreciate the challenge thereof if you’ve ever tried to sell the idea of broccoli to a five-year old with an ice cream in her hand.

For some time, Silicon Valley has been spewing our tech endeavors aimed at the nutrition problem — from ingredients (such as flavors and flavorings) all the way to food substitutes — and yield enhancing crop technologies and crop protection systems. Companies like Modern Meadow, Beyond Meat and Impossible Foods. Given the large valuations and epic venture rounds they’ve been racking up — it’s not surprising that some industrial biotech companies are either being acquired or changing their stripes as fats as they can, to join the rush.

Evolva, for example, acquired Allylix, but not for its transformative jet fuel capabilities but for its yeast fermentation patent portfolio, more or less. Sapphire Energy re-aimed itself at the omega-3 and protein markets not long ago. Amyris maintains a fuel and industrials unit of considerable promise, but has been making its most headway in the health & beauty and flavorings world, of late.

So, there are epic reasons for Solazyme, under the TerraVia brand, to go forward in the world of developing applications in food oils, and whole algal flour, and the like. And to those who’ve been around the food ingredient business — the winds of change are blowing and Solazyme’s technology is powerful enough to make it a major player.

But the competitive advantage will not be limited to its algae-based technology. There’s a considerable customer list now built up in nutrition — some of which are newly disclosed this week, including Hormel, Utz, Enjoy Life, So Delicious, Soylent and Follow Your Heart. And over in speciality personal care ingredients, there are “major customers” not yet disclosed, alongside the multi-year relationship with Unilever.

And, TerraVia has gone through many of the hardships of scale-up in its commercial-scale facility in Brazil. The company has substantially de-risked itself. And achieved a “sector focus” with these announcements that many in the financial community have been calling for. The major task going forward is to demonstrate that these customer relationships will translate into large, multi-year commercial orders at profitable margins — that we have yet to see and analysts will be scouring the quarterly report issued Monday for the signals that orders are scaling commensurate with the opportunity.

Reaction from Fortress TerraVia

Bullish they are.

“By unlocking the power of algae, the mother of all plants and earth’s original superfood, we are bringing much-needed innovation in food and nutrition,” said outgoing CEO Jonathan Wolfson. “Our new generation of breakthrough ingredients and foods delivers on nutrition, flavor and texture all with an unparalleled sustainability profile, and these products are already beginning to penetrate a market that is demanding healthier alternatives. Over more than 13 years we have invested in developing a unique understanding and expertise around algae. Today the pieces are in place for the Company to fulfill its mission and create substantial value for customers and shareholders.”

“There are opportunities for our algae-based ingredients across every aisle of the grocery store, driven by consumer demand for clean labels and an increasing focus on plant-based foods with great taste,” said SVP and chief foodie Mark Brooks. “We are enhancing a new generation of foods that deliver better flavor and nutrition, including healthier fats and enhanced protein, fiber and micronutrients. In addition to products incorporating our ingredients on store shelves today, we are currently in active development projects with major CPG companies for new products such as salad dressings and gluten-free bakery products that are healthier and offer the taste and texture that consumers demand.”

“We are moving forward with a strong business foundation and clear vision,” said CFO Tyler Painter, Chief Financial and Operating Officer. “We have invested significant time and capital in the development of our innovation platform and large-scale manufacturing capability. We enjoy long-standing commitments from partners, led by Bunge and Unilever, who have helped bring our vision to life. Importantly, we have also learned significant lessons in scale-up and commercialization, helping to de-risk the inherent challenges in bringing disruptive products to market. These strengths combined with our refined focus, a proven suite of products and the expanded market knowledge we gain with our new investors and board member, position us well to execute on our opportunities in food, nutrition and specialty ingredients.”

The Bottom Line

The need to focus resources, we get it. The need to raise capital, we get it. The need to focus on what has momentum, we get that too.

Technology takes us in strange directions, as any foodie might know. Percy Spencer invented the microwave in 1945 by complete accident, after noticing that the chocolate in his pants melted when he passed by a magnetron. Took 20 years to perfect it, but look at the microwave now.

Despite the messy pants.

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

March 13, 2016

Can Amyris Triple Sales In 2016?

Jim Lane

Despite a dismal beginning to earnings season, as Amyris, Arcadia disappoint, the Eco-Emirates of Emeryville look set for huge expansion in 2016.

In California, Amyris (AMRS) reported Q4 revenues of $9.6mn and a net loss for Q4 of $41.9 million ($34 million after elimination of non-recurring items), well below Wall Street consensus estimates of $32.4 million. “The fourth quarter resulted in our best renewable product sales quarter to date during 2015 while also highlighting our challenge in completing our product finishing and shipping in time for one of our customers,” said Amyris CEO John Melo, who noted in a call with investors that a $15 million revenue chunk was pushed into 2016 via a production delay.

Meanwhile, Arcadia Biosciences (RKDA) also took a beating, reporting $1.3 million in Q4 revenues, down by more than haf from 2014, and a net loss of $4.1 million for the quarter, compared with $1.6 million in Q4 2014. Arcadia also blamed timing, with interim CEO Roger Salameh noting that “While a major financial milestone was not recognized in 2015, we have made multiple advancements for our later-stage products that have the potential to lead to future milestone payments and, ultimately, to commercialization of our pipeline.”

Over at Amyris

The Business Progress

The big news?

Two items to note. 2016 revenue guidance of $90 million -$105 million. And, a planned sale of “ non-core assets expected to generate approximately $40 million-$60 million in net proceeds.” We’ll have to see what those non-core assets exactly are. All that Amyris would say is that those assets are generating 10% of the revenues and 20% of the costs.

Highlights for Amyris at year-end? From a volume point of view, the highlight may well be a record quarter in squalane shipments and recently-launched hemisqualane. Or, new major agreements with two mystery partners for farnesene applications related to nutraceuticals and polymers and converted two other partners from collaborations to farnesene supply agreements supporting Brotas plant utilization expectations through 2020

But we note the successful launch of the Biossance Beauty Brand on HSN last month with what Amyris described as “better-than-expected sales metrics, leading to increased number of shows planned for 2016 that will feature expanding line of products.”

muck daddyAlso, let’s not overlook Muck Daddy, perhaps the most strikingly-named product ever to appear out of the bioindustrial revolution. Here, Amyris points to “successful AAPEX and SEMA automotive aftermarket trade show presence and SCORE International (Baja racing series) and Pirelli World Challenge (PWC racing series) sponsorships.”

The Tale of the Tape

GAAP revenues were $9.8 million, compared with $11.6 million for the fourth quarter of 2014, and $8.6 million for the third quarter of 2015. The increase from Q3 2015 was despite a delay in a large product shipment to a collaboration partner anticipated for Q4 2015. Product sales in Q4 2015 of $5.2 million, compared to $4.7 million in Q4 2014 and $4.2 million in Q3 2015. Collaboration and grants revenues contributed $4.6 million to total GAAP revenues for the quarter, down from $6.9 million in Q4 2014, and increased from $4.4 million in Q3 2015.

Cost of products sold increased to $11.3 million for Q4 2015 from $9.3 million for the same period a year ago driven by higher sales, product mix and a higher yielding pilot run of our latest farnesene strain.

Net loss attributable to Amyris common stockholders for the fourth quarter of 2015 was $41.9 million, or $0.23 per basic share and $0.28 per diluted basis. Adjusted net loss, excluding non-recurring items, and excluding stock-based compensation, was $34.0 million, or $0.16 per basic share.

Reaction from Fortress Amyris

“We expect to complete a significant portion of the delayed product shipment during the current quarter with the remainder later in the year,” said Amyris CEO John Melo, “and continue to make very good progress in the expansion of our collaboration portfolio. We entered 2016 with key commitments in place for farnesene applications, which represent a substantial percentage of our total planned annual farnesene production volume for 2016. The volumes we expect under these farnesene supply agreements represent initial supplies for high-volume applications, and alone, could fully utilize our Brotas plant through the end of 2016.”

Melo added, “We are focusing on our core business, which is driven by solving supply challenges, delivering innovative products and providing our partners with a strategic advantage underpinned by high-performance, sustainable products. We expect our key results for 2016 to include divestment of non-core assets that we believe will generate approximately $40 million to $60 million of net proceeds, closing new collaborations in personal care and pharmaceutical industries and delivering on our farnesene supply agreements.”

Reaction from the Street

Jeffrey Osborne of Cowen & Co wrote:

Revenue in the qtr was soft & further magnified due to timing of shipments. Record low farnesene production costs and the continued launch of consumer products gives us confidence in our stock assumptions going forward. The Q4 equity raise helped to delever the BS, but we would continue to look for a steadier stream of commercialized product introductions to get more constructive on the stock.

Amyris reported GAAP Revenues of $9.6mn, significantly below both Cowen and the Street’s ests. of $36.3mn and $32.4mn.

Amyris continues to find success commercializing its various products/technologies. It advanced fiver major applications in 2015, and continued to apply its products in a wide variety of end markets, including tire manufacturers, fragrance companies, and various industrial and healthcare applications. Given Amyris’s expanding product lines and the commercialization of new products in 2016 we are using an EV/Sales multiple of ~4.5X. The resulting price target is $2.00 (prior $2.50). As new molecules are introduced and the direct to consumer new products hit shelves, we could see upside to our estimates. However, we are taking a wait and see approach on execution before getting more constructive on the stock.

Over at Arcadia

Arcadia Biosciences announced Q4 revenues of $1.3 million and for 2015, $5.4 million, down from Q4 2014’s $2.8 million and full-year 2014 revenues of $7.0 million.


According to Arcadia, “the decrease primarily reflected lower license revenues, as the fourth quarter of 2014 included a major milestone not replicated in the fourth quarter of 2015,” said interim CEO Roger Salameh.

But the company continues on its path. Salemeh added, “We’re maintaining a consistent level of funding for R&D and SG&A to support our growth, while continuing to tightly manage expenses. We’re particularly pleased with the regulatory, commercial and intellectual property advancements we’ve made this year and we continue to manage our pipeline to focus on those products and crops that create the greatest value for our grower customers, our commercial partners and our stockholders,” said Salameh.

The Business Progress

Investors might well rue that “a major financial milestone was not recognized in 2015,” but there are some big wins that are worth noting.

In December, Dow AgroSciences and Arcadia announced a strategic collaboration to develop and commercialize yield and stress traits and trait stacks in corn. The collaboration leverages Arcadia’s leading platform of abiotic stress traits with Dow AgroSciences’ enabling technology platforms, input traits, regulatory capabilities and commercial channels.

In the same month, Arcadia and BGI, the world’s largest genomics organization, announced a collaboration to create an extensive rice genetic resource library to advance food crop research and development.

And, In October, two years of field trials in Africa with leading lines of Nitrogen Use Efficient (NUE) rice demonstrated an average yield increase of 19 percent over the conventional control lines.

The Tale of the Tape

Revenues for the quarter were $1.3 million and for the year were $5.4 million, compared with $2.8 million for the fourth quarter and $7.0 million for the full year 2014. The decrease primarily reflected lower license revenues, as the fourth quarter of 2014 included a major milestone not replicated in the fourth quarter of 2015. Operating expenses for the full years of 2015 and 2014 included $596,000 and $1.7 million in non-cash inventory reserves, respectively, for the company’s GLA safflower oil product.

The company’s loss from operations for both the fourth quarter and the full year of 2015 was greater when compared with the loss from operations for the similar time periods in 2014. Lower revenues and increased operating expenses led to a loss from operations of $4.1 million in the fourth quarter, compared with $1.6 million for the same period in 2014. For the full year, loss from operations was $15.6 million in 2015 compared with a loss from operations of $15.2 million in 2014 as reduced operating expenses partially offset lower revenues for the year.

Highlights to watch, as seen from Fortress Arcadia

In the investor call, Graham Wells of Credit Suisse asked “if there any traits in particular that we, as investors, and the market should take a particular interest in following, anything that you’re really excited about over the next 12 to 24 months?”

Salemeh responded, “I’m excited about all of them, that’s why we take the portfolio approach. But I think over the next 12 to 24 months, traits, staying with the traits for the moment, you should be thinking about HB4 Stress Tolerance in soybeans, Nitrogen Use Efficiency in rice and wheat, and salt tolerance in rice. Those are from the productivity side. Those are, I think, the most exciting traits. From the product quality side, one trait that we probably haven’t talked about much but is an important one, and I think could be pretty significant value driver for the company is resistance starch wheat. And one of the things that I’m particularly excited about with that trait trade is it’s a non-GM product that’s really about human nutrition. We’re in advanced stages of breeding and field development. And the pathway to commercialization, frankly, is about being in competitive breeding programs and just scaling up volume to meet our customers’ demand.”

The Bottom Line

Traits a-go-go (in the case of Arcadia) and tripling of revenues (in the case of Amyris). Those strike us as the major takeaways from this quarterly round. Although, amongst other things beginning with a T, investors are probably emphasizing that the Time for Take-Off is Today, not Tomorrow.

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

March 10, 2016

Fly The Ecofriendly Skies

United Launches 50% Biofuel Flights On LAX-SFO Route

Jim Lane

In California, United Airlines (UA) will be using jet biofuels produced by AltAir using Honeywell (HON) UOP technology on up to 150 flights a day out of Los Angeles, the Digest has learned. March 11.

A two week, 14-day Los Angeles to San Francisco service will launch United’s jet biofuels plan. After the first two weeks, “pretty much all flights out of LAX will have a component of biofuel,” said a person familiar with the United plan. Flights are expected to begin almost immediately.

Depending on the feedstock used, Honeywell Green Jet Fuel can offer a 65 to 85% reduction in greenhouse gas emissions compared with petroleum-based jet fuel, which helps refiners meet EPA mandates for renewable transportation fuel content. It’s also being delivered at a price comparable to petroleum fuel, marking a major milestone towards the widespread use of renewables fuel.

United will purchase up to 15 million gallons of sustainable aviation biofuel from AltAir over a three-year period, with the option to purchase more.

The AltAir project

In 2013, AltAir and United announced the 15 million gallon deal, saying at the time that they expected to be operating flights in 2014. AltAir Fuels said that it planned to retrofit the idled portions of its Paramount petroleum refinery to produce renewable jet fuel and other products from non-edible oils and agricultural waste. The opening of the AltAir refinery created 150 jobs in Paramount, California. The biofuel is mixed with traditional jet fuel at a 30/70 blend ratio.

AltAir can produce enough sustainable bio-jet fuel to power the equivalent of more than 40,000 flights from Los Angeles to San Francisco over the next three years — at its historic 40 million gallons plant.

The Visual Story

Sustainable aviation biofuel: The Digest’s 2016 8-Slide Guide to United Airlines

Merging refinery tech with biofuels: The Digest’s 2016 8-Slide Guide to Honeywell’s UOP

Honeywell’s UOP Renewable Jet Fuel Process

This is third launch we’ve seen using Honeywell Green Fuel.

Last summer, the Disney Transportation bus fleet became one of the first in the country to run on R50, a cleaner renewable diesel (RD) made from used cooking oil and non-consumable food waste. Then, in January the US Navy’s Great Green Fleet sailed on its 2016 mission, using green marine diesel. Now, United takes off with renewable jet fuel — all made using the same technology.

“These very public users highlight the fact they the fuels are commercially available, and to have three different modes of jet, marine and road sends a positive message about the technology,” Honeywell UOP renewables czarina Veronica May told The Digest.

It’s been a long road, we note. But not as long as, for example, the path to getting lead out of fuels, May noted.

“Anyone who’s been in the business knows that changes in fuels take years and decades. When you look back, it took 30 years to remove lead. There was the Clean Air Act in 1970 which set the target, but it wasn’t until 1986 that we had all of the lead removed for road transport, and 1990 for all vehicles, and Europe took another 10 years to get the lead out. We’re 10 years into the Renewable Fuel Standard. and obviously the low oil price is rocking the financial market, but these projects are years in the making, and a blip in the price will slow but not stop the momentum.”

May emphasized having the capital and the portfolio of technologies to meet customer needs throughout the commodity price cycle.

“One thing that UOP brings to renewable fuels, is that we are able to continue investment year after year. A lot of groups have great ideas but don’t have the funding, so when gasoline prices are high you get a flurry of activity but they can’t can’t sustain it. Renewables are one part of UOP, and the rest helps to support renewables.”

We asked May about the low price environment and the era of high oil prices. Noting that in the era of high prices that we saw so much diversion of capital and consumer interest to electrics, natural gas vehicles, and reducing drive miles. Is there a pricing sweet spot, we wondered?

“Actually, what you don;t want to see is a lot of volatility. If it would just stay in one range, that would help, because a lot of feedstock prices track the oil price. Another thing that helps is feedstock diversity. Right now we have waste oils, but when camelina and others come along, purpose—grown oilseeds crops, there you start getting a foundation, for real expansion.”

“And, it would help if EPA could put out volumes not for a year or two, but for five years, because it takes 3 years to build a project from scratch.”

The Alt Air refinery

AltAir Paramount is using Honeywell’s UOP Renewable Jet Fuel Process to convert a variety of sustainable feedstocks into Honeywell Green Jet Fuel at the world’s first dedicated commercial-scale renewable jet fuel production facility. The plant, located near the Los Angeles International Airport, has also produced Honeywell Green Diesel, a drop-in replacement for diesel made from petroleum, using the same process technology.

AltAir is the second U.S. fuel producer using Honeywell UOP technology to produce renewable fuels, joining Diamond Green Diesel, which is producing renewable diesel in Louisiana

The Renewable Jet Fuel Process makes Honeywell Green Jet Fuel as well as Honeywell Green Diesel from a range of sustainable feedstocks such as used cooking oil, inedible corn oil, tallow, camelina, jatropha and algae. The process is compatible with existing hydroprocessing equipment commonly used in today’s refineries, making it ideal for plants that can be converted to produce renewable fuels.

Honeywell Green Diesel offers up to an 80 percent reduction in greenhouse gas emissions versus diesel from petroleum. Chemically identical to petroleum diesel, Honeywell Green Diesel can be used in any proportion in existing fuel tanks without infrastructure changes. Unlike biodiesel, Honeywell Green Diesel is a drop-in replacement for traditional diesel.

In aircraft, Honeywell Green Jet Fuel can replace as much as 50 percent of the petroleum jet fuel used in flight, without any changes to the aircraft technology, while meeting the current ASTM jet fuel specifications for flight. Depending on the feedstock, Honeywell Green Jet Fuel can offer a 65 to 85 percent reduction in greenhouse gas emissions compared with petroleum-based jet fuel.

“Production by AltAir and Diamond Green Diesel demonstrates that the vision of producing real fuels from sustainable feedstocks has taken the crucial step from technology demonstration to commercial-scale production,” said Veronica May, vice president and general manager of Honeywell UOP’s Renewable Energy and Chemicals business. “Honeywell UOP is committed to continuing to advance its technology to give fuel producers options to use sustainable feedstocks.”

AltAir’s Green Fleet contract

Earlier this year, the U.S. Navy’s Great Green Fleet, a carrier strike fleet of ships and aircraft, began using renewable fuel on regular deployments as part of the Navy’s efforts to demonstrate and deploy alternative sources of fuel, reduce energy consumption, decrease reliance on imported oil and significantly increase use of alternative energy. The ships are being powered by a blend of renewable marine diesel from AltAir – made from domestic sources of inedible waste, fats, oils and greases – and petroleum-based marine diesel. For the initial delivery in January 2016, AltAir prepared 1.34 million gallons of F-76 type Naval Distillate Fuel containing 10 percent HRD and 90 percent petroleum-based fuel.

The United-Fulcrum partnership

In addition to the AltAir partnership utilizing Honeywell UOP technology — last June, United Airlines announced a $30 million direct investment in advanced biofuels developer Fulcrum BioEnergy, obtained an option to invest in five future commercial-scale aviation biofuels plants, and signed offtake agreements for up 90 million gallons of biofuels per year. The offtake contracts are worth an estimated $1.58 billion over the 10-year offtake span, based on the current jet fuel price of $1.76 per gallon, according to Digest calculations.

The shift in United’s fuel purchasing represents 3% of its annual fuel consumption, reported by the airline at 3.2 billion gallons in 2013, and comes after Cathay Pacific invested in Fulcrum BioEnergy in 2014 and signed offtake agreements from the company’s first commercial facility, now under development near Reno, Nevada. The five new plants are expected to range in size between 30 and 60 million gallons.

US Renewables Group, Waste Management and Rustic Canyon, among others, have also previously invested in Fulcrum BioEnergy, which converts municipal solid waste diverted away from landfills into diesel and jet fuel. Fulcrum’s first commercial facility is expected to open before the end of 2017.

Visualizing the Fulcrum technology

Waste Makes Haste: The Digest’s 2015 8-Slide Guide to Fulcrum BioEnergy

The Tesoro partnerships

Where is the petroleum coming from for that portion of the blend? Tesoro, which in January unveiled its own plan to foster the development of biocrude made from renewable biomass, which can be co-processed in its existing refineries, along with traditional crude oil. T he company has identified three new partners in the process:

Fulcrum BioEnergy, Inc.: Fulcrum plans to supply biocrude produced from municipal solid waste to Tesoro to process as a feedstock at its Martinez, California Refinery. An estimated 800 barrels of biocrude per day will be produced at Fulcrum’s Sierra BioFuels Plant in Reno, Nevada, which is expected to be operational in early 2018.

Virent, Inc.: Tesoro and Virent are working to establish a strategic relationship to support scale-up and commercialization of Virent’s BioForming technology which produces low-carbon, biofuel and chemicals.

Ensyn Corporation: Ensyn has applied for a pathway with the California Air Resources Board to co-process its biocrude, produced from tree residue – called Renewable Fuel Oil – in Tesoro’s California refineries.

The Bottom Line

We’ve said it before. These are the golden days of renewable diesel. Offtakers have the interest. The technology works. More feedstock and more capacity, that’s what’s needed. And some of that starts with policy certainty.

So, all eyes on Washington DC and other capitals. Even while we sneak a peek at the California coast where the activity is humming.

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.

FutureFuel Profits Preview

by Debra Fiakas CFA

Biodiesel and biochemical producer FutureFuel Corporation (FF:  NYSE) will report fourth quarter 2015 financial results after the market close today.  No conference call will be held due to low attendance on recent calls.  The single published estimate for FutureFuel is for $0.28 in earnings per share on $122.5 million in total sales.  Despite an increase in this estimate in the last week, the number still represents a significant decrease in earnings compared to the prior-year period.  The Company has missed the consensus estimate in both of the last two quarters and we do not have particular confidence that this quarter will be a ‘beat.’ 

FutureFuel makes its living producing biodiesel and biochemicals, which represent the Company’s two reporting segments.  Many of the FutureFuel products are intermediate goods used in finishing consumer and industrial end goods.  FutureFuel chemicals end up in coatings, solvents, herbicides and nutrition products. The Company is known for its bleach activator, nonanoyloxybenzene-sulfate, which is used in household detergents.

FutureFuel shares took a tumble a few months ago after one of its primary customers for the bleach activator, Proctor & Gamble, announced it would cut back orders.  Ultimately, the agreement with Proctor & Gamble was extended to 2018 with reductions in price and volumes.  The company has had to scramble to keep investors content that the near-term quarters can still deliver growth and profits.

Historically, the Company has experienced erratic sales growth in part due to volatile commodity prices.  While sales and net income have varied year-to-year, FutureFuel is consistently profitable.  Operations generate cash every year, providing financial resources for future investments.  It is an attractive achievement for a participant in the renewable energy industry where most companies remain at developmental stage or have not yet reach sufficient scale to generate profits.

The pull back in price provided an entry point into FutureFuel’s shares.  Crystal Equity Research has a Technical Buy rating on FutureFuel.  The shares have been on a steady climb over the past three weeks, much as we expected in our initiation argument issued in late January 2016.  We observe a strong line of price resistance at the $14.00 price level that appears to have been established during historic trading as higher volumes at these prices suggest it is a trigger point for trader decisions. The stock stopped short of this level in trading last week.  The stock could drive up through this price if the quarter report shows strength.

A laundry list of technical indicators was used to select FF as a good stock for a long or bull case position.  Many of the same indicators are monitored daily or weekly to decide when to close out the position.  The stock appears overbought according to two of the favorites, the Relative Strength Index and the Commodity Channel Index.  However, we do not believe that all demand for FF has been satisfied.  The Moving Average Convergence Divergence (MACD) Line is still headed higher.  More importantly, the MACD histogram is continuing to increase.  The MACD histogram established a ‘higher’ high in trading last week, a circumstance that underscores the strength of the price movement higher. 

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

March 09, 2016

Three Marine and Hydrokinetic Stocks

by Debra Fiakas CFA

Three public companies end our series on wave and tidal power development.  Marine and HydroKinetic energy has only recently received enough interest from scientists and engineers to merit an acronym  - MHK.  It is an all-encompassing category, stretching across ocean tides and waves and reaching into the currents of inland rivers and straights.  It is separated from hydropower, which involves the construction of dams to create elevation differences in water levels that can be used to turn turbines.

Still this promising source of renewable energy is populated mostly by small, private companies that survive on government grants and investments from family and friends.  A few angel investors have also found their way to MHK, but minority investors have few options.

Ocean Power Technology (OPTT:  Nasdaq) has been previously featured in our articles.  The post ‘Ocean Powers Up the Big Apple’  on June 26, 2015, described the company’s success in getting permits to place one of its power buoys of the coast southeast of New York City.  In January 2016, the company announced the achievement of milestones in the project, including a generation record of 32 kilowatt hours for a twenty-four hour period.  Most importantly the system is still working despite extreme ocean conditions since deployment in October 2015.

In the twelve months ending October 2015, Ocean Power managed to earn $1.4 million in total sales, mostly from engineering work on development projects.  Of course, still in a developmental stage, Ocean Power reported a deep net loss of $12.7 million.  The company used $12.1 million in cash to support operations during this period, leaving $10.4 million in the bank at the end of October last year.  As much as half of that is probably gone, unless management found a way to bring in more revenue or cut costs.  Indeed, in January 2016, the company received $1.7 million from the State of New Jersey in the form of business tax credits.

Carnegie Wave Energy Ltd. (CWGYF:  OTC/PK or CWE.ASX) is another public company option on wave energy.  The company has patented a novel design for an underwater device that captures energy from ocean current movements.  The device is tethered to the ocean floor and remains below the ocean surface.  The company has spent over $100 million to develop the device and has completed over 10,000 hours of testing.

That price tag can only be justified by a significant commercial opportunity.  The primary application of the device is to power desalination plants on-shore, but excess electricity could be delivered to an electrical grid.  Island applications seem to have merit as well.    Carnegie has partnered with Western Power, an energy utility in Western Australia, to develop a project at Garden Island.  Construction is scheduled to begin yet in 2016 on six of the wave power devices and a desalination plant.  When completed the Australian Department of Defense has pledged to buy the power and water supplies.

Both Carnegie and Ocean Power are priced more like options on their technology than companies with sales and earnings expectations.  For risk averse investors or those with shorter investment horizons that might be required to see these developmental stage companies to full commercial operations, there is an alternative.

Lockheed Martin (LMT:  NYSE) has taken an interest in wave and tidal power generation.  The company has considerable experience in maritime systems and tidal power apparently does not seem like a big stretch for its engineers.  Lockheed is a partner of Atlantis Resources Ltd. (ARL:  LN), which was featured in this post in February.  Atlantis is deploying its proprietary turbine in the largest tidal power project so far off the coast of Scotland.  Lockheed will be manufacturing the nacelle or the business component of the Atlantis tidal turbine and supplying the controls and gearbox.  Then Lockheed will serve as the system integrator and use is considerable balance sheet strength to provide the required project assurances to the owner.  

Make no mistake, LMT is no small-cap company.  Lockheed Martin reported $46.1 billion in total sales in 2015, providing $3.6 billion in net income or $11.46 per share.  Of course, a share of Lockheed is more than a stake in tidal power.   Lockheed is still an aerospace company with additional interests in communications and security technology and services.  Tidal power at its current state of development is merely a drop in Lockheed’s very large bucket.  Some investors might take Lockheed’s partnership with Atlantis as a cue, much like the purchase of shares by an insider.  The logic is that a large company like Lockheed would not bother with a very small company like Atlantis and its tidal power project, it its engineers and planners did not see some potential in the sector.  It could be an appealing investment.  LMT is trading at 16 times the consensus earnings estimate for Lockheed in the year 2016.  The stock also offers a dividend yield of 6.6%.

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.  Ocean Power Technologies and Carnegie Wave Power are included in the Ocean Group of Crystal Equity Research’s Electric Earth Index of company’s developing power sources from the earth.

March 03, 2016

Cold Winter, Spring Coming? Ten Clean Energy Stocks For 2016

Tom Konrad CFA

The first two months of 2016 have been chilly ones for the market, and for clean energy stocks.  In addition to the worries about the world economy and plunging oil prices which have been hitting stocks in general, the clean energy sector had to deal with the Supreme Court's stay on Obama's Clean Power Plan.  This effect was mitigated the following week by the lost of conservative Justice Scalia, but many states' subsequent delays of their compliance plans have put an additional chill on clean energy stocks, even ones which are unlikely to be affected.

In January and February, my Ten Clean Energy Stocks for 2016 model portfolio declined 13.5%, slightly worse than its benchmark (see below), which fell 11.5%.  The seven income stocks were down 11.2% on average, slightly below my income benchmark, the Global X Yieldco ETF (YLCO.)  The three growth stocks declined 18.8%, also behind their benchmark, the Powershares/Wilderhill Clean Energy ETF (PBW), which fell 13.9%.  The overall benchmark mentioned above is a 70/30 blend of the income and growth benchmarks.

The Green Global Equity Income Portfolio, a seed account investing in green income stocks which I manage performed outperformed all of them, falling only 4.7% year to date.  It under-performed the much smaller income model portfolio last year, so but now it seems to be making up for lost time.

performance chart

The chart above gives detailed performance for the individual stocks.  Significant news driving individual stocks is discussed below.

Income Stocks

Pattern Energy Group (NASD:PEGI)

12/31/15 Price: $20.91.  Dec 31st Forward Annual Dividend: $1.488 (7.1%).  Beta: 1.22.  Low Target: $18.  High Target: $35. 
2/29/16 Price:  $16.98.  YTD Dividend: $0.  Forward Annual Dividend:$1.524 (9.0%) YTD Total Return: -18.8%

Wind Yieldco Pattern Energy's decline so far this year is completely unexplained by news.  The company's fourth quarter results were strong, and it increased its dividend for the eighth consecutive quarter since its IPO.  Even assuming the stock price does not recover and it cannot sell additional shares at an attractive price, the company has sufficient capital to increase Cash Available for Distribution (CAFD) to about $156M ($2.06 per share) over the next couple years, which would translate to a 12.2% yield at the current price.

Expect the continued dividend increases will eventually bring the price up, and allow further secondary offerings which can in turn accelerate growth.  At a 7% yield, a $2.06 annual dividend translates to a $29.43 share price, or a 73% increase on the current price.  While we're waiting for these capital gains, we are collecting a very healthy and growing 9.0% yield.

Enviva Partners, LP (NYSE:EVA)

12/31/15 Price: $18.15.  Dec 31st Forward Annual Dividend: $1.76 (9.7%).  Low Target: $13.  High Target: $26. 
2/29/16 Price:  $19.39.  YTD Dividend: $0.46  Forward Annual Dividend: $2.10 (10.8%) YTD Total Return: 9.4%

Wood pellet focused Master Limited Partnership (MLP) and Yieldco Enviva Partners has been one of the few bright spots in the portfolio.  Its gains have come because, like most Yeildcos, its long term contracts insulate it from the economy, and its results have nothing to do with the price of oil. 

The company exceeded its guidance by completing an asset drop-down from its parent ahead of schedule, and provided new guidance for total distributions in 2016 of at least $2.10, 19% over its annual distribution rate at the end of 2015.

Green Plains Partners, LP (NYSE:GPP)

12/31/15 Price: $16.25. 
Dec 31st Forward Annual Dividend: $1.60 (9.8%).  Low Target: $12.  High Target: $22. 
2/29/16 Price:  $12.85.  YTD Dividend: $0.4025.  Forward Annual Dividend: $1.61 (12.5%) YTD Total Return: -18.4%

Like Enviva, Green Plains is a new MLP and Yieldco.  The company's contracts with its parent, Green Plains (GPRE), also insulate it from the general level of economic activity and commodity markets.  However, this insulation is only as good as its parent's solvency.  While GPRE has a strong balance sheet, its ethanol operations are exposed to commodity markets, especially the oil price. 

Although Green Plains Partners also increased its distributions, the increase was small.  Because of this, GPP has declined along with the market and the oil price.  Should the oil price continue to recover, I would expect that to be reflected in GPP's price.

NRG Yield, A shares (NYSE:NYLD/A)

12/31/15 Price: $13.91.  Dec 31st Forward Annual Dividend: $0.86 (6.2%). Beta: 1.02.  Low Target: $11.  High Target: $25. 
2/29/16 Price:  $12.38.  YTD Dividend: $0.225.  Forward Annual Dividend: $0.90 (7.2%) YTD Total Return: -9.4%

I included Yieldco  NRG Yield (NYLD and NYLD/A) in this list because the stock had fallen so far because of management changes at its parent NRG and the Yieldco selloff that I felt it now represents a compelling value.  This is in sharp contrast to the start of 2015, when, at nearly three times its current price, I thought it was so overvalued that I was short the stock.

Despite the troubles and redirection at its parent, NRG Yield raised its first quarter dividend to $0.225, and reaffirmed its target dividend for Q4 of $0.25, which would translate to an 8% annual yield at the current price.

Terraform Global (NASD: GLBL)

12/31/15 Price: $5.59.  Dec 31st Forward Annual Dividend: $1.10 (19.7%). Beta: 1.22.  Low Target: $4.  High Target: $15. 
2/29/16 Price:  $3.17.  YTD Dividend: $0.  Forward Annual Dividend: $1.10 (34.7%). YTD Total Return: -43.3%

Terraform Global's stock has been suffering because it's sponsor and controlling shareholder, SunEdison (SUNE) is flirting with bankruptcy, and investor worries that the Yieldco wsill be drawn in, or at the very least have to cut its dividend. 

At the end of February, the company reaffirmed its $0.275 quarterly dividend, which should help to allay dividend cut fears in the short term.  The company will announce its fourth quarter results before the end of March. 

At the end of the third quarter, the company had $9.50 in cash and $7.48 in book value (mostly solar projects, less debt) per share.  So long as SunEdison does not have access to these assets in a bankruptcy, buying them for $3.17 with a $0.275 dividend on the way seems like a screaming deal.  Here is what credit agency Moody's has to say about the likelihood of losing control of those assets:

"The assets and cash flows of the yieldcos would only be available to SUNE's creditors in case of a SUNE bankruptcy if a substantive consolidation of the yieldcos into a SUNE bankruptcy were ordered by a bankruptcy judge. ... [W]e consider the likelihood of this event to be remote."

Hannon Armstrong Sustainable Infrastructure (NYSE:HASI).

12/31/15 Price: $18.92.  Dec 31st Forward Annual Dividend: $1.20 (6.3%).  Beta: 1.22.  Low Target: $17.  High Target: $27. 
2/29/16 Price:  $17.61.  YTD Dividend: $0.  Forward Annual Dividend: $1.24  (7.0%). YTD Total Return: -6.9%

Clean energy financier and REIT Hannon Armstrong has been benefiting from the 2015 Yieldco melt-down.  The withdrawal of most Yieldcos from the solar and wind financing markets has given Hannon more pricing power.  This allowed them to renegotiate some new financings in the fourth quarter.  The delays hurt fourth quarter performance, but the better terms will help with results going forward.  As a result of these better terms and better opportunities in general, HASI has increased the upper end its dividend guidance range to 14% to 18% from its previous guidance of 14% to 16%.  It also expects double digit growth in 2017.

HASI generally raises its dividend in the fourth quarter. The above guidance implies that the 4th quarter dividend will be between $0.34 and $0.36, and the dividend will be raised another 4 to 7 cents in 2017.

TransAlta Renewables Inc. (TSX:RNW, OTC:TRSWF)
12/31/15 Price: C$10.37.  Dec 31st Forward Annual Dividend: C$0.84 (8.1%).   Low Target: C$10.  High Target: C$15. 
2/29/16 Price:  C$11.25.  YTD Dividend: C$0.147  Forward Annual Dividend: C$0.88 (7.8%) YTD Total Return (US$): 8.9%

TransAlta Renewables completed a drop-down of a cogeneration plant, a wind farm, and a hydro facility in Canada from its parent, TransAlta Corp (TAC).

This increased Cash Available For Distribution per share to C$1.08 for 2015, and allowed another dividend increase to C$0.88 annually.  Investors are beginning to appreciate the attraction of RNW's slow but steady approach to dividend increases as compared to the roller-coaster ride of US Yieldcos, and the stock rose in the first two months while other Yieldcos were falling.  A slight (2.4%) increase in the Canadian dollar helped US investors as well.

Growth Stocks

Renewable Energy Group (NASD:REGI)

12/31/15 Price: $9.29.  Annual Dividend: $0. Beta: 1.01.  Low Target: $7.  High Target: $25. 
2/29/16 Price:  $7.29.    YTD Total Return: -21.5%

Advanced biofuel producer Renewable Energy Group (REG) suffered in January because of the continuing slump in the oil price, but it (and, possibly the oil price) seem to have begun coming back since then. 

The oil price has had worse effects on less well capitalized biodiesel firms, and this allowed REG to acquire its 11th US biodiesel plant just as the industry is poised for a boom because of increased volumetric requirements under the Renewable Fuel Standard, and the reinstatement of the biodiesel blender's tax credit.  If the oil price continues to recover, that should help REG as well.

The company will report 2015 results on March 8th.

MiX Telematics Limited (NASD:MIXT; JSE:MIX).
12/31/15 Price: $4.22 / R2.80. Dec 31st Forward Annual Dividend: R0.08 (2.9%).  Beta:  -0.13.  Low Target: $4.  High Target: $15.
2/29/16 Price:  $3.47 / R2.20.  YTD Dividend: R0.02/$0.12  Forward Annual Dividend: R0.08 (3.6%)  YTD Total Return: -17.0%

Software as a service fleet management provider MiX Telematics released its third quarter results in February.  The company remains on track with 16% year over year subscription growth and 11% year over year subscriber growth despite the pressure the oil price puts on its customers in the oil and gas industry.  MiX maintained its guidance for its fiscal 2016 year, which ends on March 31st.

The market seems to be ignoring the steady results, and the stock decline is affording investors the opportunity to buy a growth stock at value stock prices.  How many stocks have both a 3.6% dividend and a business growing in the double digits?

In addition, MiX has $1.85 worth of cash per share, a P/E ratio of 7.7, and EV/EBITDA of 3.3 (anything below 8 is usually considered good.)  For comparison, its US competitor Fleetmatics (FLTX) has a P/E of 36 and an EV/EDITDA of 17.9.  FLTX is growing a little faster, at about 20% a year, but has less cash and does not pay a dividend.

Ameresco, Inc. (NASD:AMRC).
Current Price: $6.25
Annual Dividend: $0.  Beta: 1.1.  Low Target: $5.  High Target: $15. 
2/29/16 Price:  $5.14.  YTD Total Return: -17.8%

Energy service contractor Ameresco also fell before results were released on March 3rd.  Although these results showed that the business is recovering (especially its government energy contracting business), the stock has not shown much life. 

Management and company insiders are extremely optimistic, as shown both by their statements and by their purchases of company stock.  But after the company's long downturn, it will probably take a few more quarters of accelerated improvement in the bottom line before the mass of investors again joins them.

Final Thoughts: Buy!

In my decade and a half watching the stock markets, I have only seen as many compelling buying opportunities as I see today at the start of 2009.  From its low in February 2009 to its recent peak, the S&P 500 nearly tripled.

I'm excited about most of the stocks on this list at their current prices, but Pattern and MiX Telematics all stand out as screaming bargains, while Terraform Global is one of the most compelling speculations I've seen in a very long time.

I can't say this enough: If readers have any cash still on the sidelines in this market, now is the time to buy.  Buy and keep reinvesting the extremely high dividends on offer until prices rise.  It is always possible for stocks to fall further, but when investing in dividend stocks like Pattern and MiX with the cash flows to continue and grow those dividends in any economy, you get (generously) paid to buy now and wait.


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

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