Tom Konrad, Ph.D., CFA
So far, the broad stock market seems to like the idea of a tax and
regulation-cutting and infrastructure spending Trump administration
and Republican controlled Congress. The bond market is less
pleased at the rapidly growing deficits such a "borrow and spend"
policy will inevitably entail. While the S&P 500 advanced
3.4% in November, bond funds fell in the face of rising interest
rates. The iShares 20+ Year Treasury Bond (TLT) fell 8.4%.
Clean energy stocks were also hurt by the incoming President's
climate change skepticism and his promises to undo environmental
regulations put in place by the Obama administration. While
the PowerShares WilderHill Clean Energy ETF (PBW
fell only 0.1%, clean energy income stocks such as Yieldcos were hit
by the double-whammy of rising interest rates and anti-environmental
rhetoric. The Global X YieldCo ETF (YLCO
Against this backdrop, my income-heavy Ten
Clean Energy Stocks for 2016
model portfolio fared relatively
well. While the seven income stocks matched YLCO's 5.6% losses, the
three growth stocks shot up 9.6% (one for little apparent
reason.) This kept the overall portfolios' losses to a modest
1.0% for the month.
For the year, the model portfolio, its income and growth
sub-portfolios, and the Green Global Equity Income Portfolio (GGEIP)
which I manage all widened their large leads against their
benchmarks. (The benchmarks are PBW for the growth stocks, YLCO for
the income stocks and GGEIP, and a 30/70 blend of the two for the
Ten Clean Energy Stocks model portfolio, as specified in the original
Detailed performance is shown in the chart below.
How Trump Will Affect Yieldcos
While rising interest rates are bad for all income stocks, a
roll-back of environmental regulations such as Obama's Clean Power
Plan and a withdrawal from the Paris Climate Agreement should have
little if any financial impact on Yieldcos. This is because
Yieldcos own existing renewable energy generation assets which have
already received their subsidies. Even if the last year's
solar and wind tax credit extensions were to be rolled back (which
most observers think is unlikely), existing solar and wind farms
would almost certainly be unaffected.
In fact, a decrease in incentives to future wind farms could even
help the owners of existing farms, since it would reduce competition
from new, less subsidized, solar and wind when existing Power
Purchase Agreements (PPAs) expire (in 10-20 years) and Yieldcos need
to find new buyers for their power production.
Despite this reality, investors who are increasingly worried about
coming regulatory changes and increasing interest rates are likely
to use any minor hiccup at Yieldcos and other clean energy companies
as an excuse to sell.
The chart below and the following discussion gives detailed
performance for the individual stocks, and the reasons for it.
for a larger version
Pattern Energy Group
12/31/15 Price: $20.91. 12/31/15 Annual Dividend: $1.488
(7.1%). Beta: 1.22. Low Target: $18. High
11/30/16 Price: $19.63. YTD Dividend: $1.17. Expected
2016 Dividend:$1.58 (8.0%) YTD Total Return: -0.8%
Wind Yieldco Pattern Energy released its third
on November 7th. Power production was
good, and the company increased its dividend to $0.408 per share,
but the investor reaction was hijacked by the statement that the
company had found a material weakness in its internal
"Management believes that the Company's internal control
over financial reporting was not effective as of September 30,
2016 , due to the aggregation of internal control deficiencies
related to the implementation, design, maintenance and operating
effectiveness of various transaction, process level, and
monitoring controls. These deficiencies largely have arisen during
fiscal 2016 because of growth of the Company, increases in
employee headcount to support growth, and frequent changes in
organizational structure were not adequately supported by elements
of its internal control over financial reporting. However,
management has concluded that the consolidated financial
statements present fairly, in all material respects, the Company's
financial position, results of operations and cash flows for the
periods disclosed in conformity with U.S. generally accepted
accounting principles (GAAP). Management has developed a
plan to remediate the material weaknesses. Management expects the
remediation plan to extend over multiple financial reporting
periods; therefore, the Company will receive an adverse opinion on
its internal control over financial reporting as of December 31,
In other words, while something could
go wrong with
financial reporting, they are confident that nothing has so far, and
they have a plan to fix the problem over several months.
They're telling us now because this is not the type of thing you
should try to cover up, and the company's auditors will also be
saying something in the annual report, anyway.
While I never like to see any questions about accounting, it seems
like Pattern caught this one early before any harm was done, and
they are working to fix it. I consider the current sell-off a
buying opportunity, and have added to my position.
Enviva Partners, LP
12/31/15 Price: $18.15. 12/31/15 Annual Dividend:
$1.76 (9.7%). Low Target: $13. High Target: $26.
11/30/16 Price: $28.20. YTD Dividend:
$2.025 Expected 2016 Dividend: $2.025 (7.2%)
YTD Total Return: 69.1%
Wood pellet focused Master Limited Partnership (MLP) and
Yieldco Enviva Partners has been my biggest winner for the year, and
it is potentially more vulnerable to the fallout of a Trump
Presidency than most of the other companies in this list. Like
most Yieldcos, its revenue comes from long term contracts with
investment grade utilities, so those operations should be
Most of Enviva's potential growth prospects are with existing coal
plants which want to convert to much less carbon intensive wood
pellets, which Enviva supplies. Coal plants convert to wood
because it is one of the most cost effective ways to comply with
greenhouse gas and other emissions rules. In the US, Trump
promises to roll back these Obama era regulations, and his promise
to abandon the Paris Climate agreement may lead to Europe (the home
of the majority of Enviva's current customers) taking a less
aggressive stance on greenhouse gasses.
I would not see any of this as a problem if Enviva were yielding
more than the current 7.5%. I expect a higher yield from MLPs
than other companies, because their special tax structure makes it
difficult for many investors to own them. I sold my entire
holdings of Enviva the morning after the election. I will
continue watching the stock for opportunities to buy back in at a
Partners, LP (NYSE:GPP)
12/31/15 Price: $16.25. 12/31/15 Annual
Dividend: $1.60 (9.8%). Low Target: $12. High
11/30/16 Price: $18.25. YTD Dividend:
$1.638. Expected 2016 Dividend: $1.638 (9.0%) YTD Total
Ethanol production MLP and Yieldco Green Plains Partners may or may
not benefit from a Trump administration. The oil industry
hates the EPA's Renewable Fuel Standard (RFS), which requires a
minimum volume of ethanol to be blended with gasoline, and Trump has
strong ties and large investments in the industry.
On the other hand, ethanol is a domestic fuel source which reduces
imports and (gallon for gallon) creates more jobs, especially in the
Midwest. In 2013, the ethanol industry created 387
and sold 13.3 billion gallons, or one job for
every 34 million gallons. According to industry numbers, an
increase of 1.2 million barrels per day would be associated with an
increase of 394
thousand US jobs
. 1.2 million barrels/day equates to
15.3 billion gallons per year, or one job for every 39 million
gallons per year. If Trump's main goal is to increase domestic
jobs, he will favor ethanol over his friends in the oil industry.
The EPA recently released
its RFS targets for 2017-18
, and for the first time in a long
time, the ethanol industry felt that the EPA had released a standard
in accordance with the law. Trumps pick to head the EPA, Myron
Ebell is not only a climate change denier, but also a critic
. His libertarian Competitive Enterprise
Institute often released reports critical of the ethanol mandate, so
I think we can be fairly confident that future EPA ethanol mandates
will be more to the satisfaction of oil refiners, even if the
2017-18 targets are not watered down.
GPP is also less protected from policy changes and market forces
than other Yieldcos, because it only has long term contracts with
its parent, ethanol producer Green Plains (GPRE
Green Plains' ability to honor these obligations depends on its
ability to remain solvent, which in turn depends on the ethanol
With this in mind, I have sold most of my shares of GPP.
Yield, A shares (NYSE:NYLD/A)
12/31/15 Price: $13.91. 12/31/15 Annual Dividend:
$0.86 (6.2%). Beta: 1.02. Low Target: $11. High
11/30/16 Price: $14.59. YTD Dividend:
$0.695. Expected 2016 Dividend: $0.945 (6.5%) YTD Total
The only likely impact on Yieldco
prospects due to a Trump administration is a rise in interest
rates. Given the recent decline of the stock, I've been
increasing my holdings of the company's A shares.
Terraform Global (NASD: GLBL)
12/31/15 Price: $5.59. 12/31/15 Annual Dividend:
$1.10 (19.7%). Beta: 1.22. Low Target: $4. High
11/30/16 Price: $3.78. YTD
Dividend: $0.275. Current Expected 2016 Dividend: $0.275 (7.3%).
YTD Total Return: -24.7%
Yieldco Terraform Global released an investor
on November 29th. The company expects to be back
in compliance with NASDAQ reporting requirements in advance of its
extended March 2017 deadline, but they are still negotiating with
bondholders about failure to meet covenants, including timely
reporting requirements. It expects to be fully operationally
independent by January.
Underlying the company's long term viability are the fact that its
portfolio of solar and wind projects continue to perform well, and a
hefty cash pile. Some of this cash was used to pay down
corporate level revolving debt. Unrestricted cash at the
company level was $583 million at the end of the third quarter, or
approximately $3.38 per share (including both A and B shares.)
This should allow the company operational flexibility while
negotiating with bondholders.
The company released a number of preliminary financial estimates for
2016, but did not include CAFD, which measures the company's ability
to pay dividends to shareholders.
If we compare these to the first quarter estimates on which I based
of the stock, we can see how the numbers have
As we can see, owned operational solar and wind farms have increased
by 57 MW (part of which I knew about when writing the July article),
power production has increased by 15% to 22% from the numbers I used
for that article, capacity factor, revenue, and revenue per MWh have
all also improved. In July, I put the company's net debt at
the holdco level at $461 million. In the third quarter, net
debt increased by $52 million, or by $0.91 for every new owned
Plugging these numbers into the same spreadsheet as I used for the
July valuation, I revise the more conservative asset based valuation
down to a range of $4.12 to $5.19 per share. Given the lack of
CAFD estimate, I can't revise the CAFD based estimate of $4.00 to
$8.50, except to say that CAFD should probably have fallen slightly
along with the Adjusted EBITDA estimate, which fell from an
annualized $168-$192 million to the current $150-180 million.
In short, resolving Terraform Global's problems is taking longer and
costing more than I had hoped, but I'm still comfortable that the
company is worth well over $4, which is in turn above the current
$3.78 stock price. I continue to hold my shares but do
not regret having sold a number of covered calls with a $5 strike
Sustainable Infrastructure (NYSE:HASI)
12/31/15 Price: $18.92. 12/31/15 Annual
Dividend: $1.20 (6.3%). Beta: 1.22. Low
Target: $17. High Target: $27.
11/30/16 Price: $19.88. YTD Dividend:
$0.90. Expected 2016 Dividend: $1.24 (6.2%). YTD
Total Return: 9.6%
Clean energy financier and REIT Hannon Armstrong has fallen due to
rising interest rates and concern that it might lose its status as
I feel the risk of a potential loss of REIT status has been
overblown. REIT expert Brad Thomas provides a
good summary: The short version is, don't panic!
I added slightly to my Hannon Armstrong position after it dipped
Renewables Inc. (TSX:RNW,
12/31/15 Price: C$10.37. 12/31/15
Annual Dividend: C$0.84 (8.1%). Low Target:
C$10. High Target: C$15.
11/30/16 Price: C$13.73. YTD Dividend: C$0.8063
Expected 2016 Dividend: C$0.88 (6.4%) YTD
Total Return (US$): 45.4%
Canadian listed Yieldco TransAlta Renewables' fell sharply after
the US election, as did many Canadian income stocks, which in
general fell more than their US brethren. I'm not sure why
this is other than the fact that Canadian stocks had been trading
at higher valuations than US stocks in the run-up to the
election. The stock has begun to recover from its sharp fall
since November 14th.
Given TransAlta's relatively rich valuation compared to my other
Yieldco holdings, I sold most of my position on November 9th, and
only bought a little of that back after the stock fell 10% over
the next couple days.
Renewable Energy Group
12/31/15 Price: $9.29. Annual Dividend: $0.
Beta: 1.01. Low Target: $7. High Target: $25.
11/30/16 Price: $9.75. YTD Total
Advanced biofuel producer Renewable Energy Group, like ethanol
producers (see the Green Plains Partners discussion above), is
potentially more vulnerable to action by an administration
skeptical of renewable energy than are Yieldcos. That said,
the company remains very attractively valued, and I don't know if
I made the right move in selling most of my holdings in response
to the election.
MiX Telematics Limited
12/31/15 Price: $4.22 / R2.80. 12/31/15
Annual Dividend: R0.08 (2.9%). Beta:
-0.13. Low Target: $4. High Target: $15.
11/30/16 Price: $5.83 / R3.28. YTD Dividend:
R0.08/$0.138 Expected 2016 Dividend:
R0.08 (2.4%) YTD Total Return: 42.3%
Software as a service fleet management provider MiX Telematics is
a significant potential beneficiary of a Trump
administration. First, many of MiX's largest clients are
part of the global oil and gas industry. The drilling
revival that Trump hopes to bring about should lead these
customers to buy more vehicles, and they pay MiX for fleet
management on a per-vehicle basis.
Even if the oil market continues to revive, this South Africa
based company's stock price is vulnerable to a flight to safety
triggered by the greater global uncertainty which an unprecedented
and relatively unpredictable Trump administration may bring.
Ameresco, Inc. (NASD:AMRC).
Current Price: $6.25. Annual Dividend:
$0. Beta: 1.1. Low Target: $5.
High Target: $15.
11/30/16 Price: $5.95. YTD Total Return: -1.7%
Energy service contractor Ameresco is the company in this list
which I deem most vulnerable to action by a Trump
administration. This is because the company's bread and
butter is energy service contracts with federal government
agencies. In recent years, these contracts have been driven
by increasingly ambitious targets for energy saving in Federal
buildings set by the Obama administration. These targets are
among the executive actions which Trump could easily reverse with
the stroke of a pen.
Such energy saving initiatives save money and create jobs, so it
would be irrational for Trump to reverse these particular
executive actions. That said, I do not have a lot of
confidence he will do (or refrain from doing) anything just
because it makes sense. The market seems to think otherwise,
as Ameresco rallied 24% in November. Perhaps investors are
simply buying stocks of companies that do a lot of business with
the Federal government because of the expected surge in
infrastructure spending? I'm open to your ideas.
Sneak Peek: 10 Clean Energy Stocks for 2017
I and the owners of AltEnergyStocks.com are considering launching
a premium service for paying subscribers. This would include
early or exclusive looks at my most actionable investment ideas,
like the one I recently wrote about Seaspan
Worldwide. It will also likely include more timely
comments on news events as they affect the stocks I follow.
The details will depend on what you tell us you want and are
willing to pay for. The people I'll pay the most attention
to are those who have demonstrated a willingness to pay for my
writing in the past.
To that end, I'm offering an opportunity to see next year's list
of 10 Clean Energy Stocks one trading day before it's published,
but only to people who think my writing is worth paying something
for. If you are one of those people, please send $5 to me at , and I will email you a
draft version of the article a full trading day before it is
published on AltEnergyStocks.com. If you don't use PayPal, send me
a note and I will respond with the address for a check.
I don't usually decide on the stocks in my annual list until
after Christmas, since last minute changes in valuation sometimes
make a difference as to how well I think a stock will do in the
following year. With that caveat, this year's list looks likely to
include at least one thinly traded energy efficiency stock that,
like MiX Telematics, should benefit from an revival of the oil and
gas industry but which is too small to be on most investors'
If you think an early look at next year's list is not worth $5,
but think some of my future writing might be worth paying for,
just PayPal me (your) two cents, and I'll add you to the list of
people who get to have input into what might be included in future
AltEnergyStocks premium content, and how much it should cost.
Last month, I was optimistic for the chances of a Clinton victory,
and saw the market's sell-off in the months running up to the
election as an opportunity to buy relatively cheap names like Hannon
Armstrong and Pattern which have good prospects not matter who is in
the White House. I still like these names, but I am deeply
puzzled that one stock I thought could really benefit from a Clinton
victory, Ameresco, has advanced the most.
Disclosure: Long HASI, AMRC, MIXT,, RNW/TRSWF, PEGI, GPP,
NYLD/A, REGI, GLBL, TERP, GPRE
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