Industry General Archives


January 23, 2017

Sustainable Investment Opportunity In 2017

by Garvin Jabusch

Lord Nicholas Stern recently said, “Strong investment in sustainable infrastructure—that’s the growth story of the future. This will set off innovation, discovery, much more creative ways of doing things. This is the story of growth, which is the only one available because any attempt at high-carbon growth would self-destruct [emphasis added].” More pointedly, the Investment Bank division at Morgan Stanley in 2016 advised clients that long-term investment in fossil fuels may be a bad financial decision, writing, “Investors cannot assume economic growth will continue to rely heavily on an energy sector powered predominantly by fossil fuels."

What both Lord Stern and Morgan Stanley understand is that the world has changed and our approaches to investment need to change with it. This is at the heart of what I do working in Next Economics and Next Economy Portfolio Theory.

In thinking about Next Economics and investing, then, it’s worth asking two questions. ”What will the world’s economy look like in 10 and 20 years?” And,” What would I like it to look like by then?”

Our answers should, at a high level, inform where we invest. In arriving at a well-informed thesis hinged on the economy’s ongoing evolution—rather than on the economy of the past—we can position ourselves to take advantage of high-growth areas, and we can have the effect of advancing a far more efficient economy, one with a better chance of thriving indefinitely. As a pop star once wrote (not the one who won a Nobel Prize), “If it's a future world we fear, we have tomorrow's seeds right here.”

Every year since founding Green Alpha, we’ve observed innovations emerge and compound like a fast-rolling snowball. Each innovation, improvement, and tool in the economy is smarter than the last and is immediately put to work in the development of a new generation of smart tools, evidently ad infinitum. I'd write a book with a title like Special Topics in Next Economics 2017, but the pace of innovation is so fast that it would be out of date before I could get it done. Still, there are a few trends that I think merit our attention, and our optimism.

Renewable energies.

They’re cheap and getting cheaper. In 2016, we saw the price of solar-generated electricity fall below that of wind, making it the least expensive source of power generation available, half the price of new coal. Wind and solar, being tech-based (as opposed to commodity-based), will continue getting cheaper, and will generate more and more of the world’s energy until they ultimately have most of the energy market share. At some point, markets will understand solar for what it is and begin to value it appropriately. Companies like First Solar, Inc., and Canadian Solar Inc. are leading the transition in world energy, and if they continue to work on innovation, growth, and maintaining strong fundamentals, they could find themselves among the world’s leading power companies.

Is renewable energy adoption at scale for real? President Obama just wrote about the “irreversible momentum of clean energy” in Science, and many of the world’s largest companies are on the same page, working toward running all operations on wind and solar. The poster firm for this is Google Alphabet, which says it will hit its goal of 100% renewable power for all operations this year. The company is a huge consumer of power, and its transition to wind and solar is resulting in large emissions cuts for the economy, as well as business stability and cost controls for their business. Cities are getting in on this, too, with San Francisco, San Diego and others planning to run entirely on renewables by 2035 or sooner. What about arguments that solar makes electricity rates go up? Well, in some places that use the most solar, the opposite is happening, and utility customers are seeing rates fall.

Inevitably, all this adds up to jobs in renewables. Though coal jobs were a focus of the 2016 presidential election, renewables are where more paychecks are. Wind power supports 88,000 jobs, while close to 373,807 U.S. workers are currently employed in solar, a 25% rise in 2016—and that number is predicted to rise to 420,000 workers by 2020. Wind power employs 101,738 workers, a 32% increase over 2015. As of October, coal employed fewer than 54,000, according to the Bureau of Labor Statistics. It has been surprising to many observers, like Jigar Shah, that these remarkable economic changes don’t yet get more recognition.

Across the country, wind power has become the “new corn” for Red State farmers, providing a steady source of income in low-income, rural areas. In fact, the 10 congressional districts that produce the most wind energy are represented by Republicans.   California and other states, meanwhile, vow to push ahead in the fight against climate change—with or without President Trump's blessing.

China is doing more to develop and install renewable energies than any nation. Already the world leader in wind and solar capacity, China now says it will “plow $361B into renewable power generation by 2020, and create more than 13 million jobs” (via Reuters), leaving the U.S. in the dust. According to The Guardian, “China now owns five of the world’s six largest solar-module manufacturing firms and the largest wind-turbine manufacturer.” It’s also far and away the world’s leader in electric vehicle production and sales. Also, China is spending over $500 billion to expand high-speed rail. Its war on pollution and commitments to mitigating global warming are real, and China clearly is happy (and even excited) to accept the leadership mantle in sustainable economics, a title many perceive the U.S. has abdicated. Having taken the reins on renewable energy and technology leadership, China is now shoring up the case for its moral leadership as well, made apparent by Beijing’s recent announcement that it will now ban all imports of ivory.

Renewable energyadoption, transportation, storage.

What about renewable energy adoption, plus zero-emissions transportation, plus energy storage? Well, Tesla. I don’t mention this company particularly as a stock recommendation but rather as a primary catalyst and the firm at the nexus of the Next Economy. It’s close to impossible to overestimate Tesla’s importance. Tesla re-introduced, made sexy, and popularized electric cars at a time when major automakers and oil companies were trying to prevent that from ever happening. Tesla’s ambitious approach to battery storage for cars and renewable energy has resulted in their Gigafactory, capable of doubling the world’s current annual output of lithium-ion batteries and lowering costs commensurately. Don’t think storage is a particularly big deal? Consider just one example: After the massive Porter Ranch natural gas leak, the City of Los Angeles decided to invest in battery backup for its electricity supply instead of gas, and has hired Tesla to provide some systems. LA has been among the first big cities to make this move, but then, it was among the first to be bitten by the risks of overreliance on a fossil fuels.

What of Tesla’s and others’ plan to scale up mass-market electric cars? Will that become huge or remain niche?  Consider these developments: Germany, Holland, and Norway have all taken steps to ban internal combustion engine-driven passenger vehicles between 2025 and 2030; more major economies surely will follow. India, for example, is now considering a similar move. Yes, these are ambitious goals that could easily be missed, but even if these nations get only halfway to their targets, it is not only incredibly bullish for any carmaker selling electric vehicles but also bearish for oil, since ground transportation is its primary source of demand.


A New Yorker article said it best, “Vertical farming can allow former cropland to go back to nature and reverse the plundering of the earth.” Vertical farms are revolutionary for a number of reasons:

  • They uses a fraction of the water required for traditional farming,
  • They’re close to or within urban centers meaning no need for long-haul transport,
  • Their indoor location eliminates need for pesticides and herbicides, thereby mitigating multiple systemic risks (e.g., ocean pollution from agricultural runoff),
  • They can be maintained at a lower cost than conventional farming,
  • And they’re more resilient to climate change.

No question, vertical farming is what’s next. Business Insider has posted a nifty photo essay of an indoor farm in Brooklyn if you’re interested in how it looks.

Additional key areas…

Computing power. It’s becoming so massive that our collective ability to assimilate data is now and will increasingly be unprecedented. The question will become, what can we do with this amazing ability?  And let us not forget the key related areas of cybersecurity and fast-emerging artificial intelligence and robotics, all of which are ushering in an era of heretofore unimagined economic efficiencies. What about the Internet of Things? After a slow start, it is coming into its own: “The falling cost of sensors and connectivity means the internet of things is finally a reality.” Lots of opportunity there. In medicine? Don’t get me started on CRISPR-Cas9, a technique to edit genomes, thus opening up endless possibilities in medicine and biology, with equally endless humanitarian, ecological, and commercial applications.

Okay, enough. We’re overwhelmed with innovations and breakthrough after breakthrough. We get it. For those of us trying to assimilate these changes and find the best path forward, the most important point is this: It’s in seeing the world for what it is becoming and not for what it was that investors and markets are going to allocate capital to manage risks and profit from new opportunities. This all leads, not incidentally, in the opposite direction from fossil fuels.

It is funny and yet poignant that some astrophysicists classify we humans as constituting merely a Level Zero Civilization, with nearly infinite scientific and technological prowess yet to be realized. Well, I’m not qualified to evaluate that theory, but what I do know is that so much progress is being made in so many areas, that I wake up every day excited to think about the world anew and uncover its opportunities.

An earlier version of this post originally appeared on

Garvin Jabusch is cofounder and chief investment officer of Green Alpha® Advisors, LLC. He is co-manager of the Shelton Green Alpha Fund (NEXTX), of the Green Alpha Next Economy Index, the Green Alpha Growth & Income Portfolio, and of the Sierra Club Green Alpha Portfolio. He also authors the Sierra Club's green economics blog, "Green Alpha's Next Economy."

October 02, 2016

What Obama Did To Coal Investors, What The Next President Might, And How Investors Can Survive

by Tom Konrad Ph.D., CFA

Investing in the past is a good way to lose money.  Just ask anyone who has been investing in coal stocks since Obama we re-elected.
Obama bump.png

A glance at the chart above shows that the VanEck Vectors Coal ETF (KOL) is down about 50% over the last four years, even while the broad market (as represented by the SPDR S&P 500 ETF (SPY)) has gained almost 50%.  But even if we knew this was going to happen, should investors have rushed into the energy sectors most loved by liberals: That is, Wind, Solar, or Clean Energy Stocks in general?

Hindsight says "Yes, No, and No," which is hardly a comforting response to a an investor looking to understand what might happen over the next four years.  Wind stocks were up 90%, as shown by the First Trust ISE Global Wind Energy ETF (FAN).  Solar stocks were volatile, and ended basically flat, significantly lagging the market as a whole, as embodied in The Guggenheim Solar ETF (TAN).  Finally, the PowerShares Clean Energy (PBW), a widely held basket of clean energy stocks.

What Obama Did

Shortly after the election in 2012, a reporter with USA Today called to ask me why wind and solar stocks had not taken off.  As you can read in his article, I told him that essentially, one presidential election would not transform the economy.  I predicted legislation promoting alternative energy or attacking coal was off the table- an easy prediction to make, given Republican control of Congress.  I also predicted that Obama would continue doing "Pretty much what he [had] been doing for the" previous three years: doing what he can through rule-making.  Which is what he did. 

What many may find surprising is that Obama's rule-making was only a minor factor in the recent decline of coal stocks.  His administration's most important energy policy, the Clean Power Plan remains tied up at the Supreme Court.  True, coal advocates like the Institute for Energy Research (IER) will point at two other regulations, the Mercury and Air Toxics Standards (MATS) and the Cross State Air Pollution Rule (CSAPR.)

What Obama Didn't Do

The coal industry is like a coddled child sent out into the world: It's not flexible or tough enough for a real-world job, it's bankrupt from credit card debt, and it still has not learned to clean up its room.

The coal industry's problems with MATS and CSAPR hint at the underlying cause of the industry's troubles.  The industry is like a coddled child sent out into the world: It's not flexible or tough enough for a real-world job, it's bankrupt from credit card debt, and it still has not learned to clean up its room.

Take these points in reverse order.  MATS, CSAPR, and even the Clean Power Plan are regulations telling coal plants to be a little less dirty than they are, but not nearly as clean as any of their power generation siblings: natural gas, nuclear, wind and solar.  Like any wayward child, coal promised to clean up its room... remember "Clean Coal?"

Fantasies like Clean Coal and hiring a professional housekeeper to keep a child's room tidy might have been affordable before technology innovation in natural gas drilling, solar, and wind started cutting into the price of power. 

But even without affordable clean coal, MATS is not causing the wholesale closure of coal plants, according to the nonpartisan Energy Information Administration.

EIA coal closures MATS

Technology has recently been sending the price of power in the opposite direction: down.  Ten years ago, coal power could legitimately call itself a source of cheap (if not clean) power.  Now, technology innovation have left coal choking on its own fumes, while clean coal (a.k.a. IGCC) and nuclear as simply too expensive to compete without subsidies, as shown by in this 2015 analysis by financial advisory firm Lazard.

Lazard LCOE.png

Lazard found that, without subsidies, the cheapest sources of power were:

  1. Energy efficiency, at $0 to $50 per MWh
  2. Wind, at $32 to $77 $ per MWh
  3. Utility scale solar, at $43 to $70 per MWh and
  4. Combined Cycle Gas, at $52 to $78 per MWh

Coal was far behind, with the cheapest coal costing almost as much as the most expensive wind, solar, and combined cycle gas at $65 per MWh.  The cheapest nuclear and clean coal (IGCC) were far behind, at $97 and $96. 

Keep in mind that these are unsubsidized numbers.  If the Obama Administration declared a war on coal, it's the invisible hand of economics that won all the battles.  And that is why new capacity additions are overwhelmingly wind, solar, and natural gas:
Source: GTM Research / SEIA U.S. Solar Market Insight, Q2 2016

Adding to the poor economics of coal power, the coal mining industry racked up debt like an irresponsible teenager with a credit card at the worst possible time.  Arch Coal borrowed heavily to fund acquisitions in 2011, Peabody borrowed to fund acquisitions in Australia.  And these are just two in a string of bankruptcies that have left nearly every big coal firm in bankruptcy or emerging from it.  They also play back into the theme of coal not cleaning up its own room: Coal producer bankruptcies are shifting the costs of cleaning up mines to the states.

Baseload: An Unwanted Suitor

Coal advocates like to point out that "the sun does not always shine and the wind does not always blow." They then go on to call solar and wind power "unreliable" and claim that the grid cannot operate without backup power always at the ready. Coal and nuclear power plants are what is called "baseload" power: they run at a near constant level.  That's not the same as being reliable: Reliable people show up when they say and do what they say they are going to do. 

A person who is always there, never goes away even when you want a little privacy, and is always doing things for you even when you don't want anything is more likely to be called an unwanted suitor than "reliable."

We're actually pretty good at predicting the weather, especially over large areas and a few days or hours in advance.  While wind and solar power on the electric grid does vary over time, it's usually there in approximately the quantity we expect.  It would be a great complement to say that a large coal or nuclear power plant was "as reliable as the sun coming up in the morning."  The "Equivalent Forced Outage Rate- Demand" (EFORd), a measure of how often a power plant is out when it's needed, is about 4% for nuclear, 7.5% for coal, and 10% for gas plants [pdf, 2008-2012 data].  So coal power is there most the time (even producing power at 3am when everyone is asleep and it may not be needed.)  Yet even this unwanted suitor fails to show up about one time in 13 when he's really needed.

Solar arrays and wind turbines also go down unexpectedly, but the small size (relative to coal) of solar arrays and individual wind turbines means that they don't all go out at once.  A single 250 MW coal plant produces approximately the same amount of energy as 400 typical 1.5MW wind turbines, or 100,000 to 200,000 home solar arrays.  Some of these will be down at any time, but they won't all go down at once, especially if they are scattered over a wide area.

In this sense, solar and wind are far more reliable than coal.  It's true that solar and wind need to be supplemented with more flexible generation, energy storage, or flexible demand response in order to match the patterns of electricity demand.  But baseload power also needs flexible power resources to match the normal fluctuations of demand, and to stand by at the ready for that one time in 13 when you're hoping it will be there, but it isn't.

What The Next President Can't Do

The heated rhetoric from fossil fuel advocates and environmentalists alike served to hide the very real economic problems coal power has had in adapting to the new reality of falling technology costs for solar and wind and falling fuel prices for natural gas generation. 

The continued decline in the cost of wind and solar generation guarantee that these technologies will continue to be the leading forms of new power on the electric grid.  In turn, their variability will make it more expensive to run baseload power stations such as coal and nuclear, making them even less economic than they already are.

The free market is much more powerful than any president.

Donald Trump has repeatedly promised to 'save' the coal industry.  If elected, he is certain to be even less effective at reviving coal than Obama was at killing it.  The free market is much more powerful than any president, and coal simply cannot compete in a free market. 

If Hillary Clinton is elected, she will almost certainly be accused of putting more coal miners out of work as she tries to promote renewable energy, but she will not deserve the blame or the credit any more than Trump or Obama.

The true blame and credit for the changes in the way we produce and use electricity fall squarely on technological progress and market economics.

How Investors Can Survive and Even Thrive in the Future of Energy

Investors who observed the gridlock in Washington, D.C.four years ago, and rightly concluded that Obama would be ineffective at reigning in fossil fuels were correct.  Nevertheless, they have lost most of the money.

Would they have done better if they had plowed their money into solar and wind?  Not if they bought a solar ETF like TAN or a clean energy ETF like PBW.

Conservative investors (in the financial sense of the word: risk-averse) investors had an additional problem.  The future of energy may lie in solar, wind, and other energy technology, but technology companies are not conservative investments.  The technological innovation driving the rapid price declines for wind and solar is a problem for incumbent companies as well.  Today's leading solar manufacturer is tomorrow's has-been, a fact I pointed out in 2009. In the same article, I also said my top pick at the time was a company that few people would think of as "green:" a Toronto-listed bus manufacturer called New Flyer (NFYEF.)  At the time, New Flyer was trading at C$9 and paid a C$0.62 (7%) annual dividend.  Today, seven years later, the stock trades at C$43, the dividend has been maintained and recently increased, and my readers and I still own it.

In 2012, I could not give the USA Today reporter a similar conservative income pick in what I told him was my favorite energy sector at the time, energy efficiency: Such stocks did not exist.  That changed in early 2013 with the IPO of Hannon Armstrong Sustainable Infrastructure (HASI.)  After interviewing the CEO of Hannon Armstrong, I said, "I can't help but be enthusiastic about the company," which was then trading at $11.75, slightly below the IPO price.  HASI was about to start paying an annual dividend which I estimated would exceed 15 cents a quarter (5%). The company quickly increased its dividend to $0.22 a quarter that December, than to $0.26 in 2014, and $0.30 last year.  I expect it to increase the quarterly dividend to at least 34 cents this year, or 5.9% at the current price.  Did I mention the stock price has doubled?

How do I find conservative income stocks that double or quintuple in a handful of years, while solar and coal investors are losing their shirts?  Not just by understanding the technology.  Anyone who understood solar technology in 2009 would have rightly predicted the enormous growth of the industry - from 2% of new generation capacity in 2010, to 64% in the first quarter of 2016.  But if they had taken that prediction, ignored my warning and bought the Guggenheim Solar ETF (TAN), they would have lost 77% of their money, despite Obama's attepts to promote the solar industry.  Even coal investors would have done better with the VanEck Vectors Coal ETF (KOL): It "only" fell 64% over the same period.

It takes knowledge of economics, technology, and the whole energy system to successfully navigate the Future of Energy.  Knowing who is going to win the election in November might help on the margin, but neither Trump nor Clinton can roll back the progress of technology nor battle with Adam Smith's Invisible Hand of the market.

Disclosure: Long NFYEF, HASI

Tom Konrad Ph.D., CFA is a freelance writer and portfolio manager specializing in income stocks positioned to benefit from ongoing changes in the energy economy.

September 13, 2016

Can Public Equity Investing Have Impact?

by Garvin Jabusch

There’s an argument in the world of impact investing that goes something like, "impact happens only through private investments; there is no real impact, apart from shareholder engagement efforts, in public equity investing." An associated perception is that investment impact means capitalizing an enterprise beyond what would happen otherwise, meaning private equity alone has the power to provide real impact. But is this true?

Publicly traded corporations are the largest and most visible social and environmental bellwethers of the global economy, and the high allocation to public equities in most investor portfolios means public equity investing is and must remain one of our key opportunities for impact. To cause a positive impact, families, institutions, and individuals can invest in public companies whose primary businesses activities address pressing social, economic, and environmental challenges at scale. This does not mean companies with a pretty sustainability report or that are incrementally making their operations less carbon-intensive, but firms that have made it their purpose to enable a better world with an indefinitely sustainable economy. Skipping traditional investment practices to focus on buying these companies sends the clear signals that markets do value solutions, and that markets will devalue businesses that are the leading causes of our most pressing risks. In addition, flexible, go-anywhere public equities strategies may invest in micro and small cap firms where there may be limited liquidity, and we can have meaningful impact just by being there.

Clearly, how we invest in public equities matters.

A growing number of public markets strategies are being developed to meet investor demand for solutions-focused investing. These strategies (including Green Alpha’s own) are pushing boundaries in terms of how managers define risk, and are challenging preconceptions from traditional portfolio theory in order to invest in the best solutions to the dangers presented by the business-as-usual economy. Public equity portfolios can have real impact, and yet we must acknowledge that the perception that they do not exists. But why is that?

The Index Trap for Impact

Most investment managers have been trained to think about risk-adjusted returns in the same way, and in the case of equity strategies, that means making sure to exhibit correlation with your self-identified and/or assigned benchmark, usually the S&P 500 or other broad-market index. A competitive absolute return can still be considered a poor risk-adjusted return if you have more volatility along the way than your underlying benchmark. This can be traced back to the near-universal indoctrination into Markowitzian modern portfolio and efficient-markets theories, popularized by Jack Bogle and etc.

Bogle’s saying, "Why look for the needle when you can buy the haystack," has come to mean "if you vary from the haystack, you may be punished." This index-supremacy has been institutionalized to the point that rating agencies have a hard time imagining risk defined any other way than relative benchmark correlation, or how much a portfolio looks like the broad market. Morningstar, for example, determines its star ratings for equity funds on the basis of absolute return vs. the peer group bench, less any deduction for higher volatility than the peer group. In this way, some funds can and do beat their peer group's performance over time, yet receive a rating of two or three stars (out of five) despite overall superior returns. Thus, fund managers, fearing for their retail sales, try very hard to mimic their benchmark, ideally outperforming it by a little but not enough to be considered "volatile."

The overall result of all this is too many dollars chasing the same benchmark constituent companies, leading to unintended consequences such as, for example, the average S&P 500 firm right now having negative 12 month forward earnings per share (EPS) growth rate, yet at a high average price-to-book value near 3. Not great, from a value point of view, which to me shows this culture of index-homogeneity is causing market distortions. Moreover, indexing and index-mimicking generally ignore a lot of interesting innovation that occurs outside of index constituent companies, which is unfortunate because this innovation is where a lot of economic growth occurs, and also where we confront and solve the realities our most pressing systemic risks.

Thus, to have impact, we must recognize that equity investing can actually involve companies not found within traditional benchmarks, and, with some financial analysis, interesting portfolios can be constructed and opportunities can emerge. So it is imperative to look as closely at our public equity holdings as we do at our private equity investments, and also, equally, to stop concerning ourselves with correlation to traditional indexes.

Real impact depends upon voting with your dollars for the future economy, for the actual catalysts of change, for the viable growth areas where we can reasonably expect to earn good equity growth in this era of rapid change. This means a higher level of due diligence that avoids the trap of thinking public equities are “set it and forget it.” Even when selecting funds that market themselves as sustainable, it is key to do your homework. Many green public equity funds correlate very closely with the S&P 500, meaning they are still largely invested in the legacy economy, which of course is a lousy way to have impact with your public equity dollars. In fact, the prevalence of investment funds that hug their benchmark first and think about impact second is why it is so commonly assumed that public equity investing can’t have impact.

Well, it’s not that public equity portfolios can’t have impact, it’s just that they usually don’t. But if we can change the way we think about risk and indexing in public equities, we can and will see real impact ripple around the world.

So, where to invest?

Next Economy, Innovation Economy

If economic history shows us nothing else, it is that innovation and better products and systems that perform better and cost less always win in the marketplace. And this is what sustainability is -- innovation-led gains in efficiency that mean we can have a thriving economy while lessening our footprint on our required yet delicate earth systems. It’s imperative to direct capital into the future that you in fact see coming, in part through public equity investing. That investment represents real impact and also positions your stock portfolio to grow as that future emerges and grows, supplanting the old fossil-fuels based economy.

For investors, the best Next Economy solutions simply outperform their old economy counterparts and predecessors, all while circumventing our most daunting long-term risks. In addition, there’s now a growing demographic demand from women and millennials for solutions-oriented investments that growing in size and wealth as part of the $40 trillion wealth transfer that is occurring in the U.S. In short, we’re at the early stage of share price appreciation for meaningful, scalable solutions.

In this light, we view investments through a holistic lens, and therefore deploy impact on the world across asset classes of private equity, public equity, and debt. In other words, if you have a commitment to impact, it’s not just a private equity hobby, it’s across all classes. Again, strategies dedicated to seeking equities that are solving big risks by investing in solutions amplify powerful market signals that firms with proven business models addressing challenges around climate and resource scarcity are now highly valued.

In the case of public equities, this does mean letting go of the idea that high correlation to the old indexes is somehow safer or even a good way to measure risk. Investing in public equities that are addressing looming systemic risks means looking for companies where financial return drivers and impact are inextricably linked, without regard to how well this tracks the S&P 500 or any other old index.

Public equity is a core component of a diversified investment portfolio -- why would we not seek maximum impact from this key piece of our total assets? Next Economics, focusing on what the de-risked economy will look like, and building portfolios that reflect that economy now, is compelling both in terms of affecting change and also in terms of financially benefiting from that change: Impact.

Garvin Jabusch is cofounder and chief investment officer of Green Alpha®Advisors, LLC. He is co-manager of the Shelton Green Alpha Fund (NEXTX), of the Green Alpha Next Economy Index, and of the Sierra Club Green Alpha Portfolio. He also authors the Sierra Club's economics blog, "Green Alpha's Next Economy."

February 05, 2016

What's In Store For Cleantech Stocks?

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

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

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

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

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

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

Market trends

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

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

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

Oil prices

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

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

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

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

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

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

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

Top clean energy sectors

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

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

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

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

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

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

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

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

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

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


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

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

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

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

January 13, 2016

Molycorp: Holding a Stinky Bag

by Debra Fiakas CFA
Last week news agencies reported plans by Molycorp (MCPIQ:  NYSE) to move forward with plans to sell major assets as part of a plan to emerge from bankruptcy.  Molycorp was the single largest producer of rare earths in the U.S. until it discontinued product at its Mountain Pass mine in Colorado.  Molycorp filed for bankruptcy protection in June 2015 after it became apparent that it could no longer support the debt on its balance sheet on historically low selling prices for its rare earth materials.

The turn of the tide for Molycorp and its rare earth business plan surprised few who follow the mining industry.  The U.S. had led the way in the rare earths arena.  The Mountain Pass mine had been the world’s leading producer  of these unusual metals in the 1960s when new color television designs escalated demand for europium.  It took a while for the Chinese to catch up, but by the 1990s producers there had increased production to rival that of Mountain Pass.  What is more, strategists in China had also figured out how to use low prices to force competitors out of business.  The machinery came to a stop at Mountain Pass.  Other mines in Japan and elsewhere followed suit, leaving China with as much as 95% of the market for rare earth materials.

Then the Chinese decided to curtail exports of rare earths.  Sensing an opportunity to grab customers from the Chinese and sufficiently high selling prices to justify investment, Molycorp management decided the time was ripe to return Mountain Pass to its previous glory.  Why anyone would invest billions on the vagaries of Chinese business and political strategies seemed a bit ludicrous to me, but it passed the tests of lenders who extended over $1.7 billion in loans to Molycorp.  

Of course, about the time that Molycorp and its lenders became fully committed to the Mountain Pass plan, Chinese rare earths producers were treated to a reversal in policy by government officials.  In an attempt at compliance with World Trade Organization rules, China resumed rare earth exports and the world prices plummeted.
Molycorp’s business model at Mountain Pass was no longer viable at the new, lower prices.  Production at Mountain Pass was confined to the ‘light’ rare earths, europium oxide, dysprosium, lanthanum oxide and cerium oxide, which commanded the lowest prices of all.  Furthermore, Molycorp management had experienced problems in coming to market in the first place.  There were impurities in initial rare earths production and low-quality construction of tanks at one of its plants ended up increasing costs and delaying achievement of target production.

To make matters worse, all the while that the Chinese were holding back exports of rare earths and Molycorp was gearing up production at Mountain Pass, manufacturers of magnets, batteries, electronics devices and other items requiring rare earths got busy figuring out ways to get along with lower amounts of rare earths.  As a consequence demand for rare earths has diminished.

By the time Molycorp finally got to the rare earth materials market its production cost was as much as $20 per kilogram.   With the Chinese now back at the sales block and customers reluctant to pay top dollar, the rare earth portfolio is selling for around $10 per kilogram.

The creditors of Molycorp are now left holding the bag and it is apparently a stinky one.  Certain of Molycorp’s junior lenders have been at odds with one of the more significant creditors, Oaktree Capital Management.  There is good reason to argue.  Initial bids for the company’s assets, which will go to the auction block on the first week in March 2016 and are valued at $2.5 billion on the company’s balance sheet, have risen from a nickel on the dollar to more than a dime on the dollar.  That means there will be more money available to repay creditors.

Shares of Molycorp closed last week at $0.05 per share, suggesting that after debt the value of the company is $14 million.  It appears shareholders and traders have some optimism that Molycorp can emerge from bankruptcy with some sort of business intact.  The company’s mine operation is a money loser, but its downstream processing facility in   China is turning a profit.  Can this management team be trusted to craft a viable business with whatever assets are left after the March auction?  So far their business strategies have been wrong and execution weak at best.  The March asset auction might be worth watching to see what sort of asset base is left over and whether the current management team survives the battle that is unfolding as the date draws near.
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.

December 21, 2015

Interest Rate Increase? FuhGettaBoutIt!

by Debra Fiakas CFA

There has been considerable fuss in recent weeks about the Federal Open Market Committee decision to raise its benchmark interest rate.  The one-quarter point increase has finally been announced and investors now are watching with bated breath to see how the increased cost of funds at the Fed ‘window’ will impact borrowing costs for companies large and small.  In our Beach Boys Index of alternative energy producers, we found a number of companies that rely on debt as a capital source. 

However, not all energy producers have debt.  So when Janet Yellen made her historic announcement, raising the benchmark interest rate for the first time in over nine years, they just said ‘fuhgettaboutit.’ 

Operating Cash Flow
Cash Flow-to-Sales Ratio
Cash Balance
Debt-to-Equity Ratio
Trailing twelve months ending September 2015; balances on September 30, 2015

Energy sector investors might be surprised to see Liquidity Services, Inc. (LQDT:  Nasdaq) in our index.  The company facilitates the recycling of used assets, scrap metal and salvage through its auction marketplace.  Recycling is a critical element in energy efficiency.  The founders might not have anticipated the duel meaning in the name, yet the company has become very liquid through its track record of turning as much as 11% of its sales into operating cash flow.  The success has made it possible to keep a debt-free balance sheet.

Astec Industries, Inc. (ASTE:  Nasdaq) is also a net generator of cash through sales of its industrial equipment and components.  Astec has been pivotal in helping build geothermal power plants and wood processing plants, both of which are important participants in renewable energy production.  Its sales-to-cash conversion rate is a modest 2.8%, but that is enough to maintain a low-debt balance sheet.  Astec also has sufficient cash to pay off its long-term debt if their creditors call with a rate increase.

Seed producer Ceres, Inc. (CERE:  Nasdaq) has applied it biotechnology to the both food and energy crops.  The company is still a net cash user as it struggles to win customers and ramp revenue, relying on the sale of common stock to make ends meet.

Codexis, Inc. (CDXS:  Nasdaq) is swimming against and even stronger current.  The company has refocused its biocatalysts away from the ethanol and biofuel sectors to pharmaceutical, flavors, fragrances, food and feed applications.  The decision appears to have been astute as the company reported a net profit in the quarter ending September 2015.  Operating cash flow in the quarter was also positive.  With that accomplishment, Codexis management can thumb the corporate nose at interest rate increases as its current cash kitty appears adequate to see the company through to more prosperous times.    

Over the last few weeks management teams in every U.S. company have likely put a pen to paper to figure out what an increase in interest rates might mean for their future.  However, for these four companies the rate increase poses no immediate problem for them.

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. 

December 18, 2015

Bearing The Interest Burden

by Debra Fiakas CFA

Smaller companies frequently avoid debt as a capital source, relying instead mostly on equity.  After all common stock  holders are often content to wait for years for a dividend as the small, young company secures its market position and builds profits.  Pesky creditors are always knocking on the door for interest payments and principal return.

Yet, a number of smaller companies included in our Beach Boys Index of alternative fuel producers have chosen to use debt. We reviewed a group of them to determine the impact of increase in interest rates that could result from an upward revision of the Federal Reserve’s benchmark interest rate. 

Waste-to-energy producer Covanta Holding Corp. (CVA:  NYSE) wins top prize as the most levered company in the group with Darling Ingredients (DAR:  NYSE), a food by-products recycler and renewable diesel producer, follows up as a distant second.

Operating Cash Flow
Cash Flow-to-Sales Ratio
Cash Balance
Debt-to-Equity Ratio
Trailing twelve months ending September 2015; balances on September 30, 2015

First we looked at the total debt and calculated the after-tax impact in earnings per share of a quarter point increase in interest rates.  We then took our analysis to the next level by measuring the impact on the stock price that might result from the reduction in earnings.  For this analysis we used the company’s forward earnings multiple, if available, and otherwise the trailing earnings multiple.  Not surprising the two companies for which we estimated the greatest price reduction are the two most-leveraged operations based on debt-to-equity.

Current Price
Change in EPS
Valuation Impact / Share
Percent of Price

For some of the companies in the group this initial uptick in the bench market interest rate may be a ‘non-event.’  For example, the stock price of Covanta may ultimately show the least impact of higher interest rates.  Covanta’s production of electricity from low- or no-cost waste materials affords a highly efficient business model with strong profits and cash flows.  Covanta converts nearly 14% of its sales dollars to operating cash flow, making it one of the strongest cash generators in the group.

In contrast to Covanta, Amyris, Inc. (AMRS:  Nasdaq), Pacific Ethanol, Inc. (PEIX:  Nasdaq), Green Plains, Inc. (GPRE:  Nasdaq), and Ameresco, Inc. (AMRC:  Nasdaq) have all struggled to maintain positive operating cash flows.  Each of these companies is a reported net user of cash in the most recently reported twelve months.  The strain on cash balances could trigger greater concern on the part of traders and shareholders.

Perhaps a greater concern for these smaller companies than the impact of greater interest burden on earnings per share, is the risk that increases in interest rates might make it more difficult to remain in compliance with debt covenants.  Nearly all companies with debt have agreed with creditors to maintain minimum financial performance such as minimum coverage of interest obligations by operating earnings or maximum debt-to-equity ratio.  Darling Ingredients is the second most levered company in this group and has had difficulties in maintaining covenant compliance in the past.

It will take some time to determine how the increased Federal Funds rate will impact lending patterns.  In the meantime, it appears these renewable energy producers have the mean to bear up under their interest burden

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. 

December 17, 2015

Can Broad Shoulders Shake Off The Rate Hike?

by Debra Fiakas CFA

Some investors may be surprised by the repercussions of an increase in the Federal Reserve’s benchmark interest rate.  The Federal Open Market Committee is expected to take action next week for the first time in nine years to increase the rate from near zero.  Odds makers have pegged the magnitude of the rate increase by a quarter percentage point.

We decided to take a look at some of the companies in Crystal Equity Research’s Beach Boys Index composed of biofuel, ethanol, renewable diesel and other alternative fuel producers.  We looked to see which ones might be vulnerable to an interest rate increase by virtue of having large amounts of debt.

Top of the list is agriculture giant Archer Daniels Midland (ADM:  NYSE), which appears on our Beach Boys Index by virtue of its biodiesel and ethanol interests.  Of the five companies in this group, ADM uses the lowest leverage.  Eastman Chemical (EMN:  NYSE) is a specialty chemicals company that is attempting to transform its old-line petrochemical-based products with renewable materials.  Eastman is the most levered in the group.  Ethanol producer, The Andersons (ANDE:  Nasdaq) is the smallest of the group in terms of sales and assets and has the second lowest debt-to-equity ratio in the group.  Air Products and Chemicals (APD:  NYSE) is the most successful in the group at converting sales to operating cash flow.  Yet even with all that cash flowing in, debt is still an important element in the company’s capital structure.  The Praxair Group (PX:  NYSE), the second specialty gas producer in the group, has the higher debt-to-equity ratio in the group. 
For each of these companies, we estimated the incremental interest burden that might ensue with an quarter point interest rate increase.  Our calculation assumes all of the debt was either subject to variable rate interest rates or would need to be refinanced within the year.

Operating Cash Flow
Cash Flow-to-Sales Ratio
Cash Balance
Debt-to-Equity Ratio
Trailing twelve months ending September 2015; balances on September 30, 2015

Next the impact on earnings per share was calculated.  Then we used each company’s forward earnings multiple to determine the potential impact on price.  As ominous as an interest rate increase sounds, from a valuation standpoint, these large companies might not experience any significant price adjustment. 

Current Price
Change in EPS
Valuation Impact / Share
Percent of Price

It is also possible that the impact of rising interest burden has already been incorporated in stock valuations.  This particular decision by the Federal Reserve has been discussed for months.  It seems logical that equity investors have already taken increasing interest rates into consideration in completing forward projections and determining target prices.  For this group of five large companies, all of which have ample analyst coverage, the FOMC meeting and Janet Yellen’s announcement next week might be anti-climactic.  These ‘broad shouldered’ companies have appear ready to shake off an interest rate hike whenever it comes along. 

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. 

December 04, 2015

Investing For The Anthropocene

by Garvin Jabusch

Jack Bogle is flat wrong. I mean, within his worldview and that of Modern Portfolio Theory, he’s right, but in the Anthropocene, he’s wrong. Bogle, founder and retired CEO of the Vanguard Group, is known for championing the superiority of low-fee index funds. His firm’s largest product, the $155 billion Vanguard 500 Index Fund is the perfect poster child for his philosophy. It closely tracks the S&P 500 Index of America’s largest companies, and it has a fee of only 0.06% inclusive. The S&P 500 has performed better than most actively managed portfolios over time, so Bogle’s thesis of “don't look for the needle in the haystack. Just buy the haystack!”, and buy it as cheaply as you can, is brilliant in its simplicity. Elegant, even.

Here’s where it fails: investing in a broad index, Bogle’s or anyone else’s, means owning every sector and company in that index. Every sector and stock. Including oil. Including tar sands. Including coal. Including myriad other causes of major yet avoidable risks around water, agriculture, transportation and many other sectors. All the traditional equity market indexes were built by, of, and for the old business-as-usual economy. Index rules of economic sector allocation demand ownership of all areas of the economy that were important when these indexes were devised in the middle part of the last century, before anyone had heard of climate change, could imagine resource scarcity on a global scale, or could fathom 7.3 billion people and a mass extinction event likely to rival the largest in prehistory. There are massive economic risks now that simply did not exist when our stock market indexes and the body of theory that supports them, Modern Portfolio Theory, were devised.

Modern Portfolio Theory has another big limitation: It requires measuring risk by analysis of past performance. It asks, of any stock portfolio, "what would the return for that have been over the last 10 or 20 years, and at what level of risk?" Here again, this seems eminently reasonable, but it has the negative result of making the economic causes of our most threatening risks appear to be wise investments. Today, though, our primary risks are so obvious, and human innovation is advancing solutions so rapidly, that there’s no economic outcome 10 or 20 years hence that looks anything like the last 10 or 20 years. Where legacy economy stocks have traded historically is irrelevant now. Causes of economic and environmental risks, like fossil fuels, are not the safe source of risk-adjusted returns that they used to be. The world has changed, and following Bogle’s advice to invest in an S&P 500 Index fund doesn’t give you much access to this new world of profitable innovation and investing opportunity, but it does keep you invested in the causes of our problems.

Like it or not, we’ve ushered in a new era. It’s the Anthropocene now, yet we’re still largely investing with old Holocene methods.

It’s time for a new investing philosophy, one that reflects what we have learned at last about how to sustainably inhabit the Earth. So, what updates could portfolio construction theory employ? If we believe we can arrive at an indefinitely sustainable and even thriving economy, here are some ideas:

  1. No more blind use of traditional sector allocations. Even some green, SRI, and ESG funds use the old allocations schemes, and then try to screen out some of the objectionable companies. This won’t work. Instead, we must allocate portfolio investments by evaluating forward-looking risk. It’s time we created portfolios from the bottom up, intentionally, by selecting the economic areas to invest in via risk-factor allocation, rather than traditional sector allocation methods. That is, we must stop investing in causes of systemic risks, wherever they may exist, and start investing in the most economically exciting, innovative solutions to those risks, economy-wide. Continuing to invest in all sectors of the economy regardless of the risks that a given sector has to our future viability has no place in today’s investing world.
  2. Stop evaluating risk using backward-looking models. In order to create portfolios that accurately factor in today’s and tomorrow’s risk continuums, investors need to change their paradigm and begin using forward-looking economic modeling. Innovation is far more rapid now than at any time in all human history, and we can finally now bring to investing a vision of where the economy is going, and where it should go, in both economic and sustainability terms. Modern Portfolio Theory’s rearview mirror approach to risk evaluation can actually be said to violate the causality principle in physics, in that it expects past outcomes to emerge from present events. They won’t.
  3. We must each be aware that the rules, habits, and institutions of the past do not have to bind the future, and indeed they must not. We must be aware of as much as we can, studying science and basic principles, and working hard to suggest new, better ways forward.

We can’t acquiesce into accepting that the framing of investing for the future can be achieved within the terms of Modern Portfolio Theory, which was developed in the 1950s with no knowledge of the world of 2015. We can’t work on evolving our economy from within the terms of that frame. To the extent that we could, it would be far too slow. As Jacob Goldstein, host of NPR’s Planet Money, said of Paul Volcker’s comments to him regarding fighting another systemic risk, the runaway inflation in the 1970s, “Volcker told us that in the '70s the Fed had tried doing things gently, and it didn't work because it didn't convince people. You know, he said gently wasn't enough to change what was in people's heads to make them really believe” (Episode 664: The Great Inflation).

Our ability to do all this will depend on the rigor of our economic models in factoring realistic risks related to climate change, resource scarcity, and population growth, paired with innovation and solutions. A holistic model of what it will take to fit human civilization less awkwardly and less destructively into the rest of biodiversity and, beyond that, into the fundamental conditions and physical limitations of Earth, won’t arrive any time soon. The problems and systems involved are too complex.

Nevertheless, we have to take strides toward understanding our place in, and effect on, the world represented by that model. Because in full light of what we now know in 2015, the consequences of continuing to accept investing advice rooted in the outdated dynamics of the legacy economy, even from a mind as brilliant as Jack Bogle’s, will cause our environmental and economic situations to rapidly become unimaginably worse.

Garvin Jabusch is cofounder and chief investment officer of Green Alpha® Advisors, LLC. He is co-manager of the Shelton Green Alpha Fund (NEXTX), of the Green Alpha Next Economy Index, the Green Alpha Growth & Income Portfolio, and of the Sierra Club Green Alpha Portfolio. He also authors the Sierra Club's green economics blog, "Green Alpha's Next Economy."

November 18, 2015

Growing Market Skepticism Towards Chinese Renewable Energy

Bottom line: Weak share reactions to upbeat news from Trina, ReneSola and Ming Yang reflect investor skepticism towards new energy stocks, as they face lingering issues of overcapacity and phasing out of government subsidies.

A flurry of upbeat news is in the headlines today from 3 of China’s largest new energy equipment makers, led by a return to the profit column for solar panel maker ReneSola (NYSE: SOL) after a year in the red. At the same time, wind power equipment maker Ming Yang (NYSE: MY) also announced its latest quarterly results that were quite upbeat, and solar panel maker Trina (NYSE: TSL) said it obtained a modest new financing from some major global lenders.

But contrary to expectation, investors greeted the string of upbeat news by dumping shares of all 3 companies, reflecting a high degree of skepticism in the market. Ming Yang led the downward migration, with its shares slipping 3.7 percent after it announced its latest quarterly results. Its shares now trade more than 17 percent below the price for a previously announced buyout bid to take the company private.

ReneSola shares didn’t fare much better, shedding 1.5 percent after it announced its return to the black. Trina did the best of the trio, with its shares only closing marginally lower after it announced it received $90 million in new financing in two different facilities from US banking giant Wells Fargo and Britian’s Barclays Bank.

It’s worth noting that shares of all 3 companies are all well above lows reached back in September when skepticism about the sector’s future was highest. But a looming end to state subsidies for new energy power plants in many major markets is creating worries that these manufacturers could struggle if their products can’t become more competitive with conventional energy sources.

Ming Yang highlighted that potential risk in its otherwise upbeat quarterly report, which showed that its profit jumped nearly 30 percent in the third quarter to 91.5 million yuan ($14.4 million), as revenue grew slightly to 1.7 billion yuan. (company announcement) The improved profitability came partly on rising prices, even as the company warned that China was likely to phase out wind power subsidies over the next 5 years.

ReneSola Returns to Black

Next there was ReneSola, which reported its return to the profit column in this year’s third quarter after a year of losses. Most of China’s solar panel makers sunk into the loss column during a major sector downturn 4 years ago, but the stronger ones have all managed to return to profitability and stay there over the last 2 years.

ReneSola returned to the profitable club with its announcement of an $8.6 million net profit in the third quarter, reversing a $2.3 million loss in the previous quarter. But the return to the black came as the company also posted a slight year-on-year decline in quarterly revenue, reflecting its new focuses on building power plants with less emphasis on boosting output.

Last there was Trina, which announced it has received credit facilities worth $60 million and $30 million from Wells Fargo and Barclays, respectively. (company announcement) Neither sum is particularly large, but the more important signal is that Trina could get such private sector funding at all. Until recently, many of these panel makers were forced to look to government sources for funding, and were largely shunned by commercial banks due to their shaky financial position.

All that brings us back to the original issue of the latest market sentiment towards these companies, as they search for formulas to ensure their long term survival. There’s clearly a big degree of skepticism towards the group, which is facing double challenges of overcapacity and pressure from changing government policies. Some of the stronger names like Canadian Solar (Nasdaq: CSIQ) still look like good bets over the longer term, though we probably still need to see some consolidation before the broader sector can be said to be back on solid footing.

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

August 26, 2015

Charitable Investments: How to Grow Your Portfolio While Making a Difference

by Mark Tan

The country is currently experiencing a shift toward more sustainable living. In addition to the wide array of whole food markets and hybrid cars available to today’s consumer, many people also want their investments working for the greater good. Although these investments have been around for more than a decade, the past few years have seen substantial growth in the areas of charitable investments, sustainable 401ks, and green bonds. No matter your passion, your financial portfolio can make a difference in the world, while still generating profit for you.

Charitable Investing 101

Charitable investments, also known as impact or sustainable investments, are those made in companies, organizations or funds with the intent to generate a measurable, beneficial impact on society. Rather than yielding exclusively financial returns, they seek to boost a positive social agenda, an environmental or medical cause, or back socially responsible companies.

Now Trending

The landscape of charitable investments has been growing steadily for the past few years. According to a recent study conducted by the Morgan Stanley Institute for Sustainable Investing, the total volume of these investments has nearly doubled over the past two years, growing from $3.5 trillion in 2012 to nearly $6.6 trillion in 2014.

The same study found that more than 70 percent of investors are interested in finding more charitable options and expect to see growth in the area over the next five years.

Financial Institutions. Some of the nation’s largest banking institutions have moved toward investing more assets in charitable causes. In 2013 when Morgan Stanley formed the Institute for Sustainable Investing, it did so with the goal of having $10 billion in client assets invested for social and environmental causes within the first five years. Chief Executive Audrey Choi said, “We fundamentally believe that considering the sustainability and impact of your investments is a business opportunity for us and our clients. We also think it’s a fundamentally strong value proposition to integrate thinking about large global issues in your investing decisions.”

Bank of America’s head of Global Wealth and Retirement Solutions Andy Sieg agrees, saying, “We think impact investing is an idea whose time has come in mainstream wealth management.”

Corporations. Many businesses are also beginning to see the benefits of focusing on sustainability and providing ethical investment options. Smart investing, good publicity, and a positive reputation will eventually lead to profit, but companies are also seeing improvement off the books.  A charitable giving program can improve employee engagement and company morale. When employees are pleased with their corporate culture it drives them to perform better.

Higher levels of employee engagement, coupled with more responsible and forward-thinking practices have led many of the nation’s largest corporations to work toward improving climate change, adopting sustainable production and operation practices, and addressing poor conditions within their organizations as well as in developing countries.

Some companies have taken responsible financing one step further from simply running their businesses and choosing their investments more responsibly, and begun helping their employees invest responsibly as well. The industry is beginning to see a trend in companies choosing their employee 401k programs based on sustainability ratings. These plans rate the sustainability of its participants’ holdings to ensure each dollar invested is done so ethically.

Millennials. While the nation’s banking institutions and business are shifting their priorities and providing the capital behind the charitable investing trend, the real driving force behind the growth is the millennial generation. While young adults may not be contributing large sums to charities each year, studies show that the majority of the generation has made donations, solicited donations and/or volunteered, and even more have the intention to do so in the future.

Bradford Bernstein, Senior Vice President of Wealth Management with UBS in Philadelphia thinks that experienced investors could actually learn something from the younger generation. “Millennials are the biggest force behind this trend of socially responsible investing,” he said. “[They] are interested in making a difference, and they choose to invest and buy from companies that are making a social statement.” It is this generation that will be running the banks and businesses in a few years. When their drive to make a difference meets the ability to put the capital behind it, the market with undoubtedly see even more exponential growth in this area.

Profit Concerns

Despite overwhelming growth and the desire to make a difference, there are still financial considerations to be made when choosing investments. Charitable investing is about finding the balance between investments and maximizing the social benefits of those investments. A portfolio built entirely on emotional and moral decisions is not likely to yield the same returns as one that focuses solely on appreciation and growth.

The common misconception is that charitable investments do not perform as well as others. It may be true that the returns may be lower than in some more traditional investments. However, the drive and passion behind the causes being funded by these investments can lead to greater returns.

The Forum for Sustainable and Responsible investment conducted a study in 2012 that found that at the time, one out of every nine dollars under professional management in the country was invested according to sustainable strategies. The report found that charitable investing grew 486 percent between 1995 and the date of the study, while other assets under professional management only grew 376 percent during that time period. The responsible investments saw greater growth in response to social changes in the country, government backing, and through a desire and a need to affect high-profile issues, such as climate change.

As is always the case when building a financial portfolio, certain types of investments may be more risky than others.  Choosing stocks based on the organization’s social responsibility, for example, may not be as productive as buying based on appreciation. Because of their limitations, stocks focused specifically on making a difference often are not very growth-oriented.

Identifying Responsible Investments

Mutual Funds. If you are ready to start making your money work for more than just returns, socially responsible or faith-based mutual funds are a great starting point. It can be difficult to identify sustainable and ethical companies. There may be a false perception that a certain company would not do anything immoral, but mutual fund managers generally have done their due diligence. These funds are often designed to favor companies that meet certain criteria, cover companies with high social, environmental and governance standards and actively avoid companies with unsustainable business practices.  

Green Bonds. For those investors who want to balance their portfolio to include more stable investments, green bonds can round out a portfolio while encouraging environmental sustainability. Green bonds are typically issued by federally qualified organizations for the development and maintenance of brownfield sites – areas of land that are underutilized or underdeveloped. Other green bonds aim to raise funds to support lending for projects that seek climate change or renewable energy.

Due Diligence. When investigating companies be wary of those that use good deeds to conceal bad behavior. Instead focus on companies where environmental and social concerns rank high among the corporation’s priorities, like Google (GOOG).

In such companies the executives often make substantial contributions to the company-backed causes and truly live their values.

Identify companies that provide sustainable and helpful goods or services. These companies conserve energy, operate efficiently, and design products and services using recycled materials that save the user money and make their lives better. Companies such as Nike and Johnson Controls (JCI) fit this description.

Closely monitored working conditions, strong safety and health standards, and high employee satisfaction are also good indicators of a responsibly-run organization. Employee satisfaction and engagement ratings do not lie and can help identify those organizations with an ethical mission statement, such as Apple.

Last, but not at all least, seek out investments in businesses with a long-standing reputation for product sustainability, transparency, and leadership. Panera, for example, prides itself on its history of fair animal treatment, using local produce, and adding no artificial ingredients to its healthy menu items. Strong leadership with strong ethical beliefs can ensure that your money will be put toward a good cause.

Getting Started

The first step toward building a sustainable investment portfolio is to decide how to blend your finances and life views.

For example, some investors may view Coca-Cola as an organization that mass produces sugary, unhealthy drinks to the American public, while others may see a global clean-water and efficiency program.

Define what causes and cultures are important to you and begin investigating companies that share your vision, but that does so while keeping an eye on growth. Experts suggest starting slowly, and finding a guide.

About the Author
Guided by his strong faith and charitable instinct, Mark Tan is committed to helping others live happy, virtuous lives.
At Thrivent Financial, Mark assesses his clients’ unique situations and creates financial plans customized to their needs. He empowers his clients to make informed decisions to stay on track and reach their goals. His sophisticated approach to financial planning helps clients assess multiple financial goals and concerns.  As part of a team of professionals that share his commitment to service, Mark has the opportunity to work one-on-one with clients and also access additional resources and knowledge from of members of his team when needed. Contact Mark at To view or download the entire eBook, visit

August 06, 2015

Crowdfunding and Clean Energy

by Beth Kelly

The digital era has enabled an “entrepreneurial explosion”, equipping ordinary people with the tools to invest in a myriad of early stage companies. Rather than investing millions of venture capital at once, interested individuals can use online platforms like Indiegogo and Kickstarter to invest smaller sums in projects they feel passionate about. Crowdfunding holds vast potential in the renewable energy sector in particular, opening up a world of opportunity for both investors and “green” project developers.

Now that renewable energy technology is becoming viable and cost-effective, firms in the industry are turning to crowdsourcing as a means of attracting capital. There are even a few platforms that cater exclusively to clean energy projects. Mosaic and Divvy are two crowdfunding endeavors that allow people to put their money into new renewable energy enterprises particularly those dealing with solar energy.

It's perhaps not surprising that renewable and clean energy is seeing quite a bit of investment on these platforms. Many people are looking for ways to do their part to help the environment, and crowdfunding allows the little investor to participate in this communal undertaking. From the companies' perspectives, this new model of raising money allows them to solicit investment for ideas that are risky and speculative, which may drive off more traditional institutions and private equity investors. It also allows them to finance small, local installations that may be too tiny to grab the attention of the rich and powerful.

There has been a growing awareness in recent years that clean energy goals aren't likely to be achieved by a single, monolithic approach. Rather, multiple forms of energy production and distribution will probably have to come into play. Crowdfunding sites act as laboratories for innovation since many new ideas can be tried out without the lengthy and uncertain funding processes that have been used in the past.

Solar Roadways has plans to create roads that also act as solar panels. It achieved more than double its $1 million fundraising goal, setting a record on Indiegogo in the process. In the Netherlands, more than 6,000 shares in a wind turbine were sold by Windcentrale for €200 each. The organization thereby collected more than €1.3 million in funding in less than 13 hours.

In the United States, there are laws restricting some activities to accredited investors only. Despite the passage of the Jumpstart Our Business Startups Act of 2012, which aimed to make it easier for everyone to invest, there are still restrictions on the types of activity that are permitted with crowdfund investing. For example, Kickstarter and Indiegogo are prohibited from offering returns on investment, so they operate on a different model whereby those seeking funding instead offer gifts or perks to their investors instead of cash payouts.

Companies can get around most of these restrictions by offering bonds as a means of acquiring financing. Solar equipment installer SolarCity [SCTY] offers solar bonds with a 5 percent coupon rate, which compares favorably with CDs, muni bonds and other low-risk investments. This allows people to invest in solar energy without the risks and uncertainty inherent in backing an unknown or newer firm.

The benefits of crowdfunding aren't restricted only to developed economies; in some ways, they may be even more important for countries without well-developed financial infrastructures. If many small investors get together to pool their resources, there will be less need for banks, venture capital funds and other financiers whose presence may be lacking in some third-world nations. The Kenya Climate Innovation Center has, in this year alone, assisted six new businesses that are seeking crowdfunded investments. This is the first such initiative in the East Africa region.

These examples aside, there are some drawbacks and problems with crowdfunding, to go along with an uncertain legislative climate in some jurisdictions. Some issues are inherent in the way crowdfunding works; for instance, startups that have the best marketing departments or concepts that sound cool but are impractical could reap the largest share of funding, leaving those with more staid and solid business prospects out in the cold.

Others are more structural, but ultimately represent bigger problems. For instance, sourcing funds from the crowd rather than from seasoned, expert investors can lead to inflated expectations of your company’s viability, since it’s more likely that no one will be vetting your business plan from a skeptical perspective. Even if a company becomes initially successful just from using crowdfunded capital, problems can arise when a network of experts then doesn’t exist to give good advice about business decisions that begin to arise at this stage, like when to take a company public.

Much as it has done for education and entertainment, the internet is causing a sea change in the world of investment (estimated to be around $65 billion at the end of 2014). People now have their choice of new renewable energy projects to get involved with. While crowdfunding still has a few challenges ahead and many wrinkles that need to be ironed out, investments in green tech already seem to be more widespread and democratic than those in most other industries.

Beth Kelly is a guest writer and blogger for, where she tracks news and emerging trends in the clean energy sector. A graduate of DePaul University, she continues to live and work in Chicago, IL.

June 26, 2015

Commodity Energy Vs. Technology Energy: This Changes Everything

by Garvin Jabusch

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Garvin Jabusch is cofounder and chief investment officer of Green Alpha®Advisors, LLC. He is co-manager of the Shelton Green Alpha Fund (NEXTX), of the Green Alpha Next Economy Index, of the Sierra Club Green Alpha Portfolio, and of the Green Alpha Global Equity Income Portfolio. He also authors the Sierra Club's economics blog, "Green Alpha's Next Economy."

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

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

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

June 23, 2015

Graphene: It Is All In The Strategy

by Debra Fiakas CFA

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

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

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

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

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

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

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

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

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

June 22, 2015

The Pope and the Climates of Justice

by Jake Raden

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

Mapping the Impacts of
Climate Change_CenterforGlobalDevelopment

(Image Courtesy of:

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

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

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

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

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

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

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

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

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


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

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

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

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

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

June 16, 2015

Graphene Pixie Dust

by Debra Fiakas CFA

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

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

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

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

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

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

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

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

June 12, 2015

Graphene From Plasma

by Debra Fiakas CFA

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

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

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

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

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

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

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

May 29, 2015

Saudis Confirm Switch from Oil to Solar

By Jeff Siegel

al-naimiYou probably wouldn't recognize him if you saw him on the street.

Heck, you probably don't even know his name.

But Ali Al-Naimi is one of the most powerful men in the world.

As the Saudi oil minister and chairman of Saudi Aramco, Al-Naimi is not particularly popular with U.S. oil producers, especially after telling the media he didn't care if oil prices crashed to $20 because it was not in the interest of OPEC producers to cut production — regardless of price.

Still, he remains the most influential oilman on the planet. Listed as one of Forbes' 50 most powerful people in the world, Ali Al-Naimi may not feel the love in Texas, but his influence is unquestionable.

So last week, when he made the following statement, the gatekeepers of the global energy economy blinked...

In Saudi Arabia, we recognize that eventually, one of these days, we’re not going to need fossil fuels. I don’t know when - 2040, 2050 or thereafter. So we have embarked on a program to develop solar energy. Hopefully, one of these days, instead of exporting fossil fuels, we will be exporting gigawatts of electric power.

Al-Naimi also added:

I believe solar will be even more economic than fossil fuels.

And he calls himself an oilman!

One of these days...

Sarcasm aside, Al-Naimi is right.

One of these days, we're not going to need fossil fuels.

We're not going to need gasoline or diesel to fuel our vehicles because in the future, our vehicles will not be reliant upon outdated internal combustion technology.

We're not going to need coal or natural gas to juice up our grid because those resources will simply be too expensive and environmentally burdensome to rely upon.

But let me assure you, dear reader, that this “one of these days” scenario is pretty far off.

Although I'm without a doubt one of the biggest advocates for transitioning our energy economy to one that is primarily built on cleaner energy, moving from a fossil fuel-dominated world to a renewable energy-dominated world will take more than 25 to 35 years.

Renewable Energy is the Future

Don't get me wrong; this transition is well underway. And those making the important investments in renewable energy today will be the dominant energy providers of tomorrow.

Don't think for a second that companies like Tesla (NASDAQ: TSLA), Google (NASDAQ: GOOG), and Apple (NASDAQ: AAPL) are embracing cleaner energy because they're run by a bunch of tree-huggers.

Renewable energy IS the future, and embracing it in its earliest stages is little more than a very smart investment decision.

By the end of this decade, solar will be competitive with all forms of fossil fuel power generation in nearly every city, town, and neighborhood on the planet. In some places, it's already there.

New developments in energy storage are not 50 years away — they're here today. In another 10 to 15 years, innovations like Tesla's Powerwall will be ubiquitous.

Electric cars — not even representing 1% of all the cars on the road today — will conquer 20% of the entire new car market in less than 15 years.

By 2030, we'll be moving people and freight at speeds in excess of 500 miles per hour using hyperloop technology. Centuries-old rail systems will find new homes in museums, and short-range air travel will become almost non-existent.

But here's the thing...

Even with all of these wonderful and exciting innovations that will move us forward as a global society, it's highly unlikely that all of the world's energy needs in 2050 will be met without the inclusion of fossil fuels.

That being said, the demand for fossil fuels is definitely going to decrease dramatically, and in a relatively short amount of time.

Your Grandkids Will Thank You

By 2030, 30% of the U.S. will be powered by renewables. And that's a conservative estimate.

By 2040, we'll be at 45%, and by 2050, we'll be well above 70%.

As far as transportation is concerned, I suspect that by 2050, they won't even be building internal combustion passenger vehicles anymore. Economically, environmentally, and socially, they just won't make sense.

Electric cars and high-speed travel (powered almost exclusively by renewable energy) will be the norm, new drivers won't even know how to put gas into a gas tank, and guys like Elon Musk and Jigar Shah will be in the history books as the most influential inventors and entrepreneurs of the 21st century.

As for you...

Well, if you approach investing as a long-term, sustainable avenue for wealth creation, do yourself a favor and commit at the very least a small portion of your portfolio to renewable energy. You'll be happy you did, and your grandkids will thank you — not just for the fat inheritance, but for the clean air and water, too!

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


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

April 24, 2015

Alternative Energy Stock Returns, Past and Future

By Harris Roen

Alternative energy became a serious market player after the turn of the millennium. Since that time, solar, wind, smart grid and other alternative energy stocks have experienced both strong up and down trends. The forces at work driving these markets are complex, counterintuitive, and sometimes mysterious. This article looks at what has been driving the price of alternative energy markets, and as a result, alternative energy company stocks. Looking ahead, we will also consider what should affect the direction of alternative energy stock prices.

Past trends in Alternative Energy Stocks


The Wilder Hill New Global Index (NEX) is a fitting proxy to track overall alternative energy markets. This index contains companies that “focus on generation and use of cleaner energy, conservation and efficiency, and advancing renewable energy generally.” The chart at right shows some of the clear trends the alternative energy sector has had in the recent past.

The first down channel on the chart coincides with a general stock market slump. This drop started during the eight month recession which began in March 2001.

By 2003, alternative energy stocks started to turn around. This marked the beginning of a fantastic five year run, as investors started noticing wind power and photovoltaics were becoming economically viable alternatives to traditional electric generation. Annualized returns in this five year period averaged a remarkable 38%!

The Great Recession then hit in December 2007, just as alternative energy stocks appeared to be ascending into nosebleed territory. As a result, prices came crashing down a painful 71% in about a year. This outstripped the distressing declines the stock market in general had at that time.

After this crash, no clear trend emerged until the end of 2012, when the next up-channel started. At that time, investors felt that alternative energy stock prices better reflected the economic realities of the underlying business, and started buying again. There is likely another reason, though, that it took five years for alternative energy markets to recover. Psychologically, after getting severely burned in the crash of 2008, it took a long time for investors to feel comfortable dipping their toes back in the water.

Following the uptrend that went from 2012 to the beginning of 2014, there was a noteworthy giveback. The NEX fell 21% in about nine and a half months. Much of that giveback has been regained. It remains to be seen if the current trend will continue to be positive, or if we have entered into a sideways market.

Do Fossil Fuel Prices Drive Alternative Energy Markets?

Are fossil fuel prices the main driver of failure or success of green energy companies? Though this seems like a reasonable theory, the answer, in my analysis, is that it depends.

Alternative Energy versus Oil

oil_altenergyMost of the larger alternative energy stocks are multinational corporations that are part of an international economy. As a comparison, crude oil prices are good indicator of global fossil fuel values. Oil is a worldwide commodity that can more easily flow to markets than coal or natural gas. The latter two fossil fuels are subject to local supplies and disruptions, so prices can range widely by region.

The chart at right shows crude oil (Cushing OK spot) as compared to the NEX over two time periods. From 2001 to 2009, oil and alternative energy prices were very strongly linked. For you math wonks, the two had a correlation coefficient of 0.87, which is extremely significant. This makes sense, since a rise in oil prices would mean that other energy alternatives become more attractive. From 2010 to the present, the NEX had a slight negative correlation to oil prices. The two markets did not exactly go in opposite directions, but they had virtually no corresponding movement.

oil_S&P_02A further reason for the 2002-2009 correlation is that the economy was humming along very well at that time. This helped fuel investor optimism that the market would continue to grow for solar, wind, and the like. Similarly, oil became a strong proxy for the stock market at that time, as speculators started investing heavily in oil. They believed that as the global economy expanded, there would be more demand for oil, thus raising the prospects for oil prices. In essence, oil became a proxy for the stock market.

The correlation between oil and the stock market remained strong for a decade, but finally started to diverge at the end of 2013. Since then there has been a strong negative correlation.

oil_S&P_divergOil prices are now being affected more by supply and demand. Much of this has to do with the North American oil and natural gas boom, which is injecting an abundance of supply right where it is being used. This not only tips the supply/demand equation by reducing U.S. oil imports, but also mitigates the fear that oil prices will skyrocket when a crisis crops up in the Middle East. For this reason, I expect any rise in oil prices going forward will positively affect alternative energy stocks.

Alternative Energy versus Natural Gas


Often, the decline in alternative energy electricity generators such as wind and solar has been attributed a drop in natural gas prices. There is a correlation between the two, though it is not as strong as one might think.

The charts at right show natural gas (Henry Hub LA spot) compared to the NEX. There is a clearly a correlation between the two, though it is somewhat weak. It is also interesting to note that at starting around 2015, there was a divergence between natural gas prices and the NEX.

Prospects for Alternative Energy Stocks

Though no one can tell with certainty where alternative energy stocks will head in the future, there are factors that can shed some light on the long-term prospects for this sector. These include increased manufacturing efficiencies, financial innovations and energy policy.


Much of what many alternative energy companies do is similar to tech sector stocks. As product design and production engineering keeps improving, manufacturing efficiency can greatly help a company’s bottom line. Whether its photovoltaics, LED lighting or wind arrays, the cost of production continues to drop for green economy companies. This trend shows no signs of abating, which bodes well for alternative energy investors.

Financial Innovations

The alternative energy sector has profited greatly from new and innovative financial models. Companies like SolarCity (SCTY) and SunPower (SPWR) have benefited from various financial arrangements that allow consumers to install solar with no upfront costs. These include lease arrangements, power buyback agreements, and securitization of tax benefits.

Another innovative financial model to benefit alternative energy is the advent of renewable YieldCo’s. These are companies that bundle solar and wind generating assets into predictable cash flows that are paid out in dividends. This innovation allows green investors can choose from several companies with strong yield attributes.

Investors love dividends, especially in this low interest rate environment. Any added yield an investor can put in their portfolios is of great value. YieldCo’s should continue to attract investors and lead to higher stock prices.

These types of financial innovation reflect a maturing of the alternative energy sector, which I see as a good sign. As long as these products have strong fiscal underpinnings, the prospects for long-term growth remain healthy.

Energy Policy

Because of the public good that results from reduced fossil fuel use, alternative energy has benefitted from government policies supporting the industry. Indeed, targets and incentives remain strong internationally, particularly in Europe and Asia. These regions and others continue to be serious in their commitment to solar, wind, energy storage, efficiency and other alternative energy strategies. Domestically, there are two important policy developments to watch, one a carrot and one a stick.

The first important domestic incentive is the Business Energy Investment Tax Credit (ITC). The ITC rebates up to 30% for solar, fuel cells, wind, combined heat and power (CHP) and geothermal. This incentive is scheduled to sunset at the end of 2016. Whether it gets renewed or not will affect the rate at which renewable projects go forward. This will cause concern for investors.

The second policy development is the Clean Power Plan. These proposed rules from the EPA target pollution reduction from power plants, and will have a vast affect on how energy gets produced and consumed in the country. Essentially each state has an emission target, which will force it to find ways to reduce carbon emissions. There has been some strong pushback from many states, especially those heavily reliant on coal for production electricity. The rule making process will likely take a few years and several court cases to resolve, but if the Clean Power Plan remains mostly intact, it will accelerate renewable energy projects in a big way.


By keeping an eye to the ground on fossil fuel prices, energy policies and other factors, investors can go far to understanding prospects for alternative energy stocks. There will undoubtedly be up and down swings ahead, but there are enough positives underlying the sector that we remain bullish for the long-term.


Individuals involved with the Roen Financial Report and Swiftwood Press LLC do not own or control shares of any companies mentioned in this article. It is also possible that individuals may own or control shares of one or more of the underlying securities contained in the Mutual Funds or Exchange Traded Funds mentioned in this article. Any advice and/or recommendations made in this article are of a general nature and are not to be considered specific investment advice. Individuals should seek advice from their investment professional before making any important financial decisions. See Terms of Use for more information.

About the author

Harris Roen is Editor of the “ROEN FINANCIAL REPORT” by Swiftwood Press LLC, 82 Church Street, Suite 303, Burlington, VT 05401. © Copyright 2010 Swiftwood Press LLC. All rights reserved; reprinting by permission only. For reprints please contact us at POSTMASTER: Send address changes to Roen Financial Report, 82 Church Street, Suite 303, Burlington, VT 05401. Application to Mail at Periodicals Postage Prices is Pending at Burlington VT and additional Mailing offices.
Remember to always consult with your investment professional before making important financial decisions.

February 06, 2015

Solar: Energy, But Not Oil

by Garvin Jabusch

Solar photovoltaic (PV) as a means of deriving energy is fundamentally different from fossil fuel-based commodities (oil, coal, and gas). Consider: A solar PV panel can be thought of as nothing more than a hugely oversized computer chip -- a bunch of circuitry embedded in a silicon wafer. Indeed, in most economic sector classification schemes (GICS, etc.), PV manufacturers are defined as "semiconductors," which is basically true (if misleading in other ways).  So different are the driving economics behind tech-based and commodities-based means of deriving energy, that we at Green Alpha are recommending to Standard & Poor's and MSCI that they consider formally separating the two into distinct subsectors.

Recently, though, the two types of energy -- oil and solar -- have been trading in tandem, both falling significantly since mid-2014. Traders by and large seem to be thinking "energy is energy." But this "energy-as-monolith" view is not appropriate to the reality of the economics, nor is it supported by the fundamentals.

To illustrate what I mean, a more valid comparison is that a solar PV company like First Solar, Inc. (ticker: FSLR) should trade more like a chipmaker, such as NVIDIA Corporation (ticker: NVDA) or Advanced Micro Devices, Inc. (ticker: AMD), than like West Texas Intermediate Oil. If we're going to treat similar investments as groups, then computer-processing power makes a better analog for solar modules than oil does.


Exhibit 1: Costs of Computer Processing Power, Electricity from Solar PV, and Oil Price per Barrel, 1976-2014[i]

In my sole exhibit here (above), it's difficult not to notice the similar and similarly dramatic price declines in solar PV in cost per watt (green line) and computing power in cost per GigaFLOP (blue line) over the last 37 years. Solar-PV–derived power has fallen some 170 times over that period. Computer processing power has declined in cost at many times even solar's rate, owing to huge demand and massive scaling. Meanwhile, Oil (red line) has done what commodities do: fluctuate in price according to demand and supply factors. Oil gets expensive when economies are growing, when there's geopolitical risk, when some nation or supra-national organization decides it wants it to be expensive, and so on.

Technology like computer chips and solar panels, in contrast, nearly always go down in price as demand goes up. Think about the price declines in computers and televisions over just the last five years -- and the simultaneous improvement in the products. But now the global economy can apply that same technology cost dynamic beyond goods to the energy that we use to power those goods and everything else.

Imagine what that means for world economies. When we grow and use more fossil-commodity–based energy, that energy becomes more expensive -- and economic growth is thwarted. But as we grow with technology-based energies, the increasing power demand decreases the cost of that energy and further stimulates economies! Put another way, consider the simulative effects as we realize the IEA's estimate of "over USD 115 trillion in fuel savings"[ii] by 2050 as the transition to tech-based renewables, chiefly solar, advances. Solar, although already grid-competitive in many areas, is just getting started. The blue line in the exhibit suggests what may yet be possible as solar technology evolves to enjoy the same level of scale and investment as semiconductors. Even with using current solar technology, though, $115 trillion is a heck of a liquidity injection.

Solar will become so inexpensive that it will inevitably continue to gain market share from fossil fuels, starting with those used to generate electricity (coal, then natural gas), and then, as the global economy adapts to make better use of renewable electricity in more sectors (think electric cars), it will displace oil. The popular current question "when will renewables reach grid parity?" will seem quaint and even funny in less than a decade. As one report has revealed, "a recent sign of the progress that solar is making in taking over the world: In 42 of the 50 biggest U.S. cities, home to about 21 million single-family homeowners, solar power is now cheaper than electricity from the power grid."[iii] This is happening because, again, as demand increases, so does scale, investment, R&D advances, and declines in installation expense, all of which lead to fast-falling overall costs. Solar PV module costs have declined "75 per cent since the end of 2009 and the cost of electricity from utility-scale solar PV falling 50 per cent since 2010."[iv] Now, reasonable estimates predict that "Solar Costs Will Fall Another 40% in 2 Years."[v]

Like a pundit in the 1960s or 70s predicting that the computers of 2015 would fill entire rooms and be capable of hundreds of calculations per minute, today's observers who believe solar is still an expensive, niche energy source will be proven badly mistaken.

Meanwhile, back in fossil fuel land, costs of production aren't getting any cheaper, even if barrel and pump prices (temporarily) have. Oil is expensive to find and to extract. That's why oil companies were cutting their exploration budgets long before the current oil price decline began in mid-2014. Unfortunately, a decline in oil prices does nothing to lower the costs of exploration and production --  meaning that  oil's margins get squeezed.

No one has written more clearly on this than investor Jeremy Grantham: "As a sign of the immediacy of this problem, we have never spent more money developing new oil supplies than we did last year (nearly $700 billion) nor, despite U.S. fracking, found less -- replacing in the last 12 months only 4 1/2 months' worth of current production! Clearly, the writing is on the wall. It is now up to our leadership and to us as individuals to read it and act accordingly." In a sidebar, Grantham goes on: "The only longer-term price relief and net benefit to the economy will come when either we reverse recent history and start to find more oil more cheaply, which will be like waiting for pigs to fly, or when cheaper sources of energy displace oil."[vi] As economist Gregor MacDonald recently tweeted: "Sorry, did everyone forget Majors started cutting capex in Q1 of 2014, because $100 not enough to outrun declining ROI on runaway costs?"[vii]

In the end, no producer can sell oil for less than it costs to recover it. And those costs are high -- too high to compete in the long run. As Stanford lecturer Tony Seba recently said, "Put these numbers together and you find that solar has improved its cost basis by 5,355 times relative to oil since 1970...traditional sources of energy can't compete with this"[viii] [italics added]. A nexus of effects is arising from the interplay of tech and commodity energy dynamics, and few if any of them are favorable to fossil fuels.

Solar PV is a technology, and its past and future cost dynamics will behave like those of a technology -- becoming ever cheaper. Oil is a finite commodity that is expensive to locate, extract, refine, and ship; it and other fossil fuels have had and will continue to have cost dynamics to match: economically volatile and forever affected by the cost of extraction.

Today, solar competes mainly with the other means of making electricity: coal, natural gas, and nuclear (more on how those stack up in my next post). In the long run, though, as our economy and infrastructure make more and better use of renewable electricity, oil and solar will compete directly in a way that they currently don't . By then, though, renewables, led by solar, will be so inexpensive that cost comparisons with oil will no longer spark argument.[ix] For now, suffice it to say that inexpensive oil can't and won't prevent the solar boom from continuing, because solar and oil, economically, scarcely share the same world.

Garvin Jabusch is cofounder and chief investment officer of Green Alpha® Advisors, LLC. He is co-manager of the Shelton Green Alpha Fund (NEXTX), of the Green Alpha Next Economy Index, the Green Alpha Growth & Income Portfolio, and of the Sierra Club Green Alpha Portfolio. He also authors the Sierra Club's green economics blog, "Green Alpha's Next Economy."

Disclosure: Green Alpha Advisors is long FSLR, and has no positions in NVDA, AMD or Oil.

[i] Exhibit by Jake Raden, Green Alpha Advisors, LLC

Data sources:


  1.   "Cray-1".
  2. "Hardware Costs"

Oil Data:

  1.   Bloomberg Historical Oil Prices; 1976-2014
  2.   Crude Oil Prices from 1861.

Solar PV Data:

  1. Bloomberg New Energy Finance.

[ii] IEA, "Energy Technology Perspectives 2014 Harnessing Electricity's Potential," Global Outlook, 2014.

[iii] Richard, Michael Graham, "In 42 of the 50 biggest U.S. cities, rooftop solar is now cheaper than the grid!" TreeHugger, January 27, 2015.

[iv] Parkinson, Giles, "Graph of the Day: The plunging cost of renewables," RenewEconomy, January 19, 2015.

[v] Parkinson, Giles, "Solar Costs Will Fall Another 40% In 2 Years. Here's Why.", CleanTechnica, January 29, 2015.

[vi] Grantham, Jeremy, "The Beginning of the End of the Fossil Fuel Revolution (From Golden Goose to Cooked Goose)" GMO Quarterly Letter Third Quarter 2014.

[vii] MacDonald, Gregor, Twitter, December 22, 2014. 

[viii] Ahmed, Nafeez, "How Solar Power Could Slay the Fossil Fuel Empire by 2030", Motherboard, December 10, 2014.

[ix] Jabusch, Garvin, "Cheap Oil and the Next Economy," Green Alpha's Next Economy, December 24 2014.

February 03, 2015

Water Stocks: Better Than Oil Or Smartphones

By Jeff Siegel

I've never understood it, but no one really gives a damn about water.

Sure, it's the foundation of life. But what does that matter when we can get cheap smartphones and Internet-connected washing machines? Those things are exciting, and there's proverbial gold in those silicon hills.

Don't get me wrong; I love technology and continue to profit handsomely by devoting a small portion of my portfolio to tech stocks. My point, however, is that while technology is great, without water, we die.

It's pretty simple, really. Yet when it comes to investing, few investors take the time to realize just how lucrative water is. Well, except for all those farmers out in California.

But who cares about that, right? I mean, it's not like California feeds most of the country.

Sarcasm aside, I've long been bullish on opportunities in the water space. Some of my favorites in this space include Xylem, Inc. (NYSE: XYL), Calgon Carbon (NYSE: CCC), and Aqua America (NYSE: WTR), which actually pays a nice little 2.4% dividend.

As we move forward, I'm confident that water will prove to be one of the most highly valued commodities on the planet. You know, because we need it to live.

Water Bulls

Aside from my passive-aggressive diatribe about how ridiculous it is that we don't value clean water more than we do, I'm not the only water bull in the arena.

In fact, the CEO of Abengoa subsidiary Abengoa Yield (NASDAQ: ABY), Santiago Seage, recently suggested to Forbes reporter Ucilia Wang that the yieldco is looking to get into the water game as a way to capitalize on increased drought conditions and global population growth.

Seage is enthusiastic about adding water delivery and treatment projects, such as desalination plants, given the growing public worries about drought and depleting groundwater resources in the U.S. He pointed to a 30-year contract totaling $3.4 billion that an Abengoa-led consortium won last year to build and operate wells, collection stations, and pipelines to deliver water from two aquifers to San Antonio. Abengoa expects the project to come online by 2020.

Aside from the San Antonio project, Abengoa also announced last week that it was building the world's largest solar desalination plant in Saudi Arabia. When completed, the $130 million project will desalinate 60,000 cubic meters of seawater a day.

Abengoa Yield took a bit of a tumble last September, falling from around $40 a share to about $25 a share (although it should be noted that the company's only been public since last June).

That being said, over the past month, this young yieldco has started to swim back upstream. The stock has actually gained about 30% within the past 30 days:


Abengoa (NASDAQ: ABGB) has also climbed about 30% over the past 30 days:


I don't really think you can go wrong with either one, but I do like the 3% dividend on Abengoa Yield.

I also remain quite bullish on renewable energy development companies and yieldcos this year. Hannon Armstrong (NYSE: HASI) and Pattern Energy (NASDAQ: PEGI) continue to be two of my favorites.

Lots of Potential

Of course, there are any number of ways to play water. Infrastructure, wastewater services, and water reclamation are just a few. And all of these water-related industries have a lot of potential.

However, you're probably not going to get stinking rich with water stocks.

Over the long term, water is a solid play, particularly if you can collect a nice dividend. But these are definitely not the types of stocks you want to jump in and out of, at least if you need a little stability in your life.

No, these are the long-term investments that, over time, will prove to be more valuable than gold, oil, and smartphones.

Because, well, none of that other stuff matters if you don't have clean water to drink.

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


Jeff Siegel is managing editor of Energy and Capital, where this article was first published.  He is also contributing analyst for the Energy Investor, an independent investment research service focusing primarily on stocks in the oil & gas, modern energy and infrastructure markets.  He has been a featured guest on Fox, CNBC, and Bloomberg Asia, and is the author of the best-selling book, Investing in Renewable Energy: Making Money on Green Chip Stocks .

December 31, 2014

Energy Investing: What To Expect In 2015

By Jeff Siegel

Tonight, I will welcome in the New Year with family.

We'll feast on cured meats, pickled vegetables, and lamb neck stew.

We'll sip an old fashioned or two with apple and sage, share some laughs, and maybe even shed a few tears as we remember those we lost in 2014.

When the ball drops, we'll hug, kiss, and cheer on all that waits to be discovered in 2015.

There will be good and there will be bad, but I suppose it's the uncertainty of it all that makes life worth living.

Don't Fear the Uncertain

It was Joseph Campbell who said, “The cave you fear to enter holds the treasure you seek.”

I've always loved that quote.

Whenever I need a little push before venturing off on a new path, I remind myself of that quote. And I wanted to share it with you today because as we head in to 2015, it seems as if fear is weighing on our collective shoulders more than ever.

This is a shame, since we really don't know how 2015 will unfold. And until something horrible actually happens, it's really nothing more than an illusion.

Of course, it's easy to say something like this, but it doesn't change the fact that there are a lot of horrible things that could happen this year.

War, terrorism, plagues, environmental catastrophes, starvation — you name it. All of these threats are very real and cannot be ignored.

But we can't live our lives fearful of the outcome. Because if we do, we can't live. And if we can't live, we can't prosper.

A Profitable Year

In 2015, bad things will happen.

I suspect the tension between Russia and the U.S. will increase. The death toll from all these wars in the Middle East will rise. Rights will be trampled, waters will be poisoned, and taxpayers will continue to be pilfered like newlyweds at a timeshare presentation in Vegas.

But there are also a lot of great things that'll happen this year — especially for energy investors.

With the gutting of oil prices, the laggards in the oil and gas production space are going to go belly-up, and the small fish are going to get gobbled up by the sharks. This will shake out the losers and make it much easier for us to identify the winners over the long term.

New technological developments are going to push solar and electric car batteries to places we've never dreamed.

Solar installation costs will continue to fall dramatically, making it even more affordable for consumers — and more lucrative for solar companies like SolarCity (NASDAQ: SCTY), Vivint Solar (NYSE: VSLR), and SunEdison (NYSE: SUNE).

Cost reductions for electric car batteries will continue, while the quality of those batteries will increase. In fact, Tesla (NASDAQ: TSLA) just recently announced a new upgrade for its Roadster that will push its all-electric range to 400 miles.

Folks, three years ago, such a thing would've been little more than a pipe dream. Yet it's available right now.

Internationally, nuclear power will continue to be developed and expanded, particularly in China, India, and the Middle East. It's going to be a great year for uranium!

So enjoy your last remaining hours of 2014. Drink some champagne, eat good food, and spend time with your family and friends. But most importantly, get ready...

Because 2015 is going to be busy, loud, and very, very profitable.

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


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

December 29, 2014

Cheap Oil: Nemesis Or Sideshow?

by Garvin Jabusch

Next economics posits that for the global economy and earth's tolerances/carrying capacities to run in a mutually tolerable equilibrium, we must continue to make rapid advances in economic efficiencies in all sectors. For 7.3 billion of us (and counting) to thrive on finite resources and avoid the worst effects of climate change, we have to drive more and more economic output from less and less input. Fortunately, energy is one of the areas where we can quickly make huge strides in this respect -- but not with fossil fuels in the mix. On the contrary, in fact. Efficiency gains across the global economy in the last few years have been such that, according to a Bloomberg piece titled "America is Shaking Off Its Addiction To Oil," "the U.S. is consuming less oil per dollar of gross domestic product in more than 40 years." In part, it is this slowdown in oil demand growth that's causing downward oil price volatility. The long and slow shift away from dependence on some fossil fuels, in other words, is finally starting to cause ripples.

Short Term Effects of Less Expensive Oil

Oil's recent narrative has become familiar: worldwide supply-and-demand economics (mostly declining demand, according to the World Economic Forum), expansion of both Libyan field and U.S. shale production, and as always, speculation. All well and good, but fundamentally what does it have to do with the prices of renewable energy stocks? At present, very little.

Investors are understandably concerned with solar, wind and other renewable energy stocks following the same pattern of oil trades in the market. The perception that all energy production is similar and can be treated and traded as a monolith, however, is a false one. As general awareness of the differences between types of energy advances, we expect this trend to slow, and then reverse itself. Solar, wind and other renewables will not follow the same trading patterns as oil, because more people will soon know better.

Many experts and other pundits have been weighing in to make this point.  Lyndon Rive, CEO of SolarCity Corp. (SCTY) in a CNBC interview said, "the market doesn't understand the dynamics; this is a great opportunity to understand the issue and truly see if this is a big problem or not a problem and then capitalize on the opportunity. Oil has no effect or almost no effect on the cost of electricity in the U.S. In the U.S., almost no oil is used to create electricity, so even if oil went down to fifty [$50/barrel], it will have almost zero effect on the cost of electricity but the opposite is true too. If oil went up to a hundred and fifty [$150/barrel], it will have almost zero effect on the cost of electricity."

Rive's comments fit with Green Alpha's belief that investors are currently presented with a rare moment of market inefficiency, as broad markets struggle to clarify the role of a disruptive technology. In the near term, renewable energy investors should have little to fear from falling oil prices as there isn't much of an underlying reason why the two distinct assets classes should be valued in tandem. On the contrary, since the price of oil should not be affecting the price of renewables, one could use this moment of misunderstanding as an opportunity to initiate or add to a select solar and wind portfolio.

The first reason we believe this is that solar provides a competitive, economic advantage over diesel, coal or natural gas, because fossil-fuel prices, even if low at this moment, have proven to be quite volatile over time.  A recent New Yorker piece on oil prices points out that "…oil has historically been more volatile than most other commodities; a 2007 study found that in the U.S. it was more volatile than ninety-five per cent of other products." The same can't be said of wind or sunlight -- once the capital expenditure for the systems to capture them and convert them to usable energy has been made, the price for fuel is zero. Indefinitely. 

Again, Rive: "Fluctuations in oil prices have little impact on solar or many other renewable energy sources. This is partly why the economic proposition of solar is so compelling, unique and valuable…For example, up to 50% of the cost of a fossil plant is the expense of the fuel over the life of the plant, while sunlight is essentially free."

A recent energy cost analysis by investment firm Lazard validates the idea that oil pricing logically should be having a diminutive impact on renewables pricing, and goes on to calculate that the cost of energy from new utility-scale solar and wind power plants is increasingly competitive with more electricity-relevant comparative conventional fuels like coal, natural gas and nuclear, even without subsidies in some markets.


Image: Lazard, Levelized Cost of Energy Analysis -- Version 8.0, 2014

According to Lazard, the reason for this newfound economic advantage is that the long-term costs of utility-scale solar has fallen 20% just in the past year and 78% in the last five years. Declining almost as rapidly, wind energy costs are down 60% over the last five years.

With the application of Gordon Moore's famous law now visibly applicable to solar photovoltaic (PV) technology, and showing no signs of slowing anytime soon, it's plainly manifest that technology-based and commodities-based means of deriving energy do not belong to the same class of investable assets. Solar and oil, economically, scarcely share the same world.

In the Longer Run

The portfolio manager Jeremy Grantham has titled his latest quarterly letter (Q3 2014) "The Beginning of the End of the Fossil Fuel Revolution (From Golden Goose to Cooked Goose)." He writes, "As a sign of the immediacy of this problem, we have never spent more money developing new oil supplies than we did last year (nearly $700 billion) nor, despite U.S. fracking, found less -- replacing in the last 12 months only 4½ months' worth of current production! Clearly, the writing is on the wall. It is now up to our leadership and to us as individuals to read it and act accordingly." Grantham refers to U.S. fracking as "the Largest Red Herring in the History of Oil," noting that its economic advantages may be short-lived.

The International Energy Agency (IEA) has recently written that "The sun could be the world's largest source of electricity by 2050." Mostly, it says, because of declining costs, and not so much because it can help battle climate change, although that could be a growth factor as well.

The key point in this analysis is that solar is a technology, and it's past and future cost dynamics will look like technology -- becoming ever cheaper. Fossil fuels are commodities -- finite and expensive to locate, extract, refine and ship -- and fossil fuels have had and will have cost dynamics to match: very volatile. In the long run, 10-20 years from now, as our economy and infrastructure can make more and better use of renewables, the two will compete directly in a way that they do not now, but by then renewables, led by solar, will be so inexpensive that the cost comparison will no longer spark argument but will seem quaint. So different are the commodity and technology means of deriving energy that we at Green Alpha have proposed that they be classified as different sectors altogether.

Ultimately, as the next economy advances and we increasingly transition to using renewables (electricity) to power things that currently rely primarily on liquid BTU (such as transportation and some heating) solar and oil will indeed compete with each other directly. When that time comes, oil will again become cheap, because demand for it will have fallen dramatically as renewables, ever cheaper, command more and more market share. Even then, though, oil won't be economically competitive, because no matter how inexpensive any "cheap" fossil fuel becomes, it will always be more expensive than the free fuels employed by wind and solar. And any power plant converting fossils to electricity will also have far higher operating costs than do most renewables.

As Bloomberg's Michael Liebreich recently said, "The story should not be how falling oil prices will impact the shift to clean energy, it should be how the shift to clean energy is impacting the oil price."

Ultimately, the next economy can only thrive on power that is nearly free, inexhaustible, that does not contribute to systemic risks such as climate change and a toxic atmosphere, and that can be sourced nearly anywhere with a relative minimum of effort. Only solar PV, and to a slightly lesser extent wind, can reach this extraordinary level of economic efficiency. The writing is indeed on the wall, and the days of high market correlation between tech power and fossil power will soon be behind us.

Garvin Jabusch is cofounder and chief investment officer of Green Alpha® Advisors, LLC. He is co-manager of the Shelton Green Alpha Fund (NEXTX), of the Green Alpha Next Economy Index, the Green Alpha Growth & Income Portfolio, and of the Sierra Club Green Alpha Portfolio. He also authors the Sierra Club's green economics blog, "Green Alpha's Next Economy."

September 26, 2014

Big Money Looking For Green Investments

Sean Kidney

Climate Finance session at UN Summit is electric.  Insurers go wild with promises; investors plead for green investments; Jim Kim almost breaks out in song about green bonds.

It's the day after the UN Climate Summit party in New York. Yes I do feel as if I'm hungover; but it was a gas. If you're one of those who worry about the world, there is something magical in being inside the totemic General Assembly, with it's embodiment of one world idealism.

Ban Ki Moon's audacious Summit convening (that's really the only power we allow him) made for a really useful event: it bought out marchers around the world to ask their governments for action; and it extracted some useful new commitments, such as:

  • Germany and France each announced $1bn for the Green Climate Fund.
  • China said it will reduce carbon emissions (per unit of GDP) by 45% by 2020 compared with 2005 levels.​
  • The International Development Finance Club (IDFC) announced that it's on track to increase direct climate financing to $100bn a year by the end of 2015.

But above all there was an awful lot of talk about green bonds (and no, it wasn't just me being noisy). UN Secretary-General Ban Ki Moon talked about the opportunities of green bonds in his speech, World Bank President Jim Yong Kim spoke about scaling up - in fact he spoke rhapsodically on the topic - and the CEOs of Credit Agricole and Bank of America waxed lyrical on their application. And that was just the start of it.

Best of all, the Summit elicited some pretty cool commitments from institutional investors, those folks who now own half the planet on our behalfs (after all, we're the pension fund or insurance beneficiaries). We got:

  • A new Portfolio Decarbonization Coalition (PDC) made up of coalition of institutional investors, coordinated by our friends at CDP. They committed to decarbonizing $100bn of their investments by end 2015 and to measure and disclose the carbon footprint of $500 billion in investments. In fact spokesperson Mats Anderson, the CEO of Swedish pension fund AP4, said his fund would fully decabornize by 2020.
  • Three big pension funds announced they would grow their investments in low-carbon assets to more than $31 billion by 2020.
  • The media statement we put out yesterday listed more, like Barclay's new $1bn green bonds fund, ACTIAM's promise to have invested $1bn in green bonds by end 2015, and Zurich Insurance Group's $2bn commitment.

​Then the two insurance industry associations, ICMIF and the IIS, representing the majority of insurance companies globally, put out a humdinger. This is an industry that manages a third of the world’s investment capital - approximately $30 trillion. That gets attention. But only $42 billion can be called climate related investment (what have they been doing!). So they announced they would double the industry investment in climate investments to $84 billion by end of 2015. That's good.

Then they went further and announced then would multiply current investment in climate investments by 10 times by 2020 = $420 billion. A that point I was in love - that's a big kicker for climate change related investments. Of course the majority of their investments are in the form of bonds - which will mean increased demand for climate bonds and green bonds. Yes, that's increased demand in the already hot market.

But wait, there's more! Then, Angelien Kemna, CEO of the $400bn+ APG Asset Management came on, representing a coalition of investors with $24 trillion of assets under management - coordinated by the the Global Investor Council on Climate Change, the Principles for Responsible Investment and UNEP Finance Initiative. She effectively said "we stand ready to invest; please get us some deals" and called on policymakers to take action that supports greater investments in clean energy and climate solutions. That was also the theme of the Investor Statement we published yesterday.

So there's the theme. "The capital is ready, bring on the investments to be made! And green bonds."

——— Sean Kidney is Chair of the Climate Bonds Initiative, an "investor-focused" not-for-profit promoting long-term debt models to fund a rapid, global transition to a low-carbon economy. 

September 10, 2014

Divesting: Last One Out Loses

Tom Konrad CFA

Anew report written by Nathaniel Bullard at Bloomberg New Energy Finance highlights the difficulties large institutional investors would have divesting from fossil fuels. What it does not specifically discuss is that these difficulties could lead to large financial losses for investors who see the difficulty of divesting as a reason to delay.

Just as we can't easily fill up our cars with solar power instead of gasoline, the report points out that there is no asset class that can directly substitute for oil and gas in large institutional portfolios.

A person with a short commute can simply ditch gasoline for renewable fuel by riding a bike, and small investors can easily divest from fossil fuels without sacrificing growth or yield by using small capitalization stocks and yield cos.

The relatively high yield of oil and gas stocks is the most difficult to replicate, even at its level of 2.41%, which the report describes as “not enormous.” According to the report, the only sector with a higher average yield is REITs (at 4.55%). REITs have a total market capitalization of less than a third of oil and gas stocks, so it would be impossible for more than a fraction of large investors to replace their oil and gas holdings with REITs.

The Instructive Case of Coal

In contrast to oil and gas, the report makes the point that because the market capitalization of coal companies is much smaller, divesting from coal alone is much easier than divesting from oil and gas. The report states that “Coal equities are less than 5% the total value of oil and gas equities, and have already trended down nearly 50% in the past five years... as a result, divesting from coal would be much easier then divesting from oil and gas.”

The report's author Nathaniel Bullard, told me in an interview that divesting from coal would have been more difficult just three years ago. He says, “US coal has had clear indicators of future change in place for a while. … Some coal equities have lost 90% of their value since 2011... This much diminished size means that... the same number of shares will represent a much smaller portion of an investor's overall portfolio relative to 2011.”

Hold High, Sell Low?

To put it more bluntly, investors who have already lost their shirts in coal stocks will have a much easier time selling their much-diminished holdings today than they would have when coal stocks were at their peak. Ironically, it's easier to sell low and buy high than vice-versa, especially for investors who manage large pools of money.

It does not take a multi-million dollar salary to know that waiting until your stocks have fallen by half before you sell is a suboptimal investment strategy. Despite past “clear indicators of future change” and lower estimates of future coal demand due to air pollution regulations in the coal industry, institutions like Stanford are only now beginning to divest from the sector. Most have not yet budged.

Are Oil and Gas Next?

The report begins with a quote from an executive who describes the divestment movement as “one of the fastest-moving debates I think I've seen in my 30 years in the markets”. If this fast-moving debate leads to fast-moving divestment, the sheer size of institutional oil and gas holdings would lead to a scale of the selling that could easily drive down prices of oil and gas stocks as fast as coal stocks have fallen over the past few years.

The divestment movement was only in its infancy when coal stocks peaked in 2011, so divestment has been only a minor contributor to their decline. Bullard attributes most of the decline to fundamental factors, such as low gas prices and (to a limited extent) wind power in the US, and concerns about air pollution in China.

That said, the long term fundamentals of oil and gas are not favorable. Industry costs are rising as producers shift towards unconventional sources such as tar sands and tight oil and gas which are extracted with relatively expensive techniques such as hydraulic fracturing (“fracking”). Meanwhile, high fuel prices are beginning to reduce average driving distances in mature markets such as the US and Europe while the declining costs of efficiency technologies such as hybrid and electric vehicles further lower demand. In the fastest growing vehicle fuel market, China, air pollution concerns have led the government to aggressively promote “new energy” vehicles, particularly hybrids and EVs.

Natural gas faces increasingly inexpensive competition in electricity markets from wind and solar generation. That, combined with technologies such as storage, smart grid, demand response, and better transmission which make it easier and cheaper for these variable sources to supply a larger portion of electricity demand with less reliance on dispatchable generation such as natural gas, hydropower, and biomass-fired electricity.

The fundamentals of all fossil fuels will be further undermined if the world ever makes a concerted effort to rein in carbon emissions. At the moment, the prospects for large scale regulatory moves seem dim, but at some point the increasing costs in terms of falling crop yields, widespread and severe heat waves and droughts, ocean acidification and the like will lead to political action. At this point it will almost certainly be too late to avoid significant economic and human costs from climate change, but that does not mean that it will not help us avoid even greater damage. And the longer we delay taking substantive actions to curb greenhouse gas emissions, the more draconian those actions will have to be. Drastic moves to curb carbon emissions will have even more drastic effects on the fundamentals of fossil fuel industries.


In part because it is so hard for large investors to exit fossil fuels, it is unlikely that a majority of such investors will move to divest before they have lost a large portion of their current holdings to price declines driven by the fundamental factors outlined above and selling from more motivated investors.

Some of the factors listed above, such as concerted political action to curb carbon emissions, may take a long time to be felt. Other factors, such as the declining cost of renewable energy and efficiency technologies and the increasing costs of fossil fuels are moving energy markets today.

When these factors will begin to hurt oil and gas stocks is unclear, but the coal industry shows that, although divesting is hard, it does not pay to wait too long.

This is where the analogy to replacing fossil fuels in your commute by buying an electric car breaks down. With electric cars, the more people own them, the easier and cheaper they will be to use: growth in charging infrastructure will rise with the adoption of plug-in vehicles, while higher volumes should help bring down their initial cost.

In contrast, it pays to be first rather than last when divesting from fossil fuels. While it is possible to be too early, at some point the worsening fundamentals of fossil fuel industries and/or a large scale divestment movement will undermine the value of all fossil fuel stocks. Those who divest sooner will have much more money to invest elsewhere than those who delay because divesting is just too hard.

Fortunately, small investors have it easy. Divesting, for once, is a place where the small investor has the advantage on Wall Street.

This article was first published on Renewable Energy World, and is republished with permission.

September 05, 2014

Capital Pacific Bank: Free Market Alternative with a Conscience

Not A Bankster

By Jeff Siegel

In the long, slow recovery from the 2008 financial collapse, the banking industry has increasingly been regarded as a buglight for the untrustworthy.

The Libor (London Interbank Offered Rate) scandal brought banking corruption to the front of the news, and showed the world a huge ethical hole that had burned through the middle of major banks.

In a 2012 essay entitled “Is Banking Unusually Corrupt, and If So, Why?” Financial analyst, Circuit Court judge and University of Chicago Law School Lecturer Richard A. Posner laid out the reasons why the system might foster unethical behavior.

"The complexity of modern finance, the greed and gullibility of individual financial consumers, and the difficulty that so many ordinary people have in understanding credit facilitate financial fraud, and financial sharp practices that fall short of fraud, enabling financial fraudsters to skirt criminal sanctions,” Posner said.

The public embraced a depression-era term to show its feelings of distrust and disgust.


A portmanteau of “bankers” and “gangsters,” the term was first used in 1933, but embraced anew when people saw what had become of their assets. Trust in banks sank.

Seventy-eight percent (78%) of people surveyed in the Consumer Banking Insights Study believed big banks were fully to blame for the financial crisis of 2008 and the subsequent recession. Thirty one percent (31%) of those people said they didn't trust big banks with their money even though they were already customers of one.

Smaller banks and credit unions started to become more attractive to disaffected customers as a result, and America's credit unions recently passed 100 million members, according to the Credit Union National Association (CUNA).

“[It's] the unique structure - not-for-profit, member-owned cooperative - of credit unions that gives them the ability to offer better rates and member-focused service,” CUNA said in a statement in August.

Beyond local banks and credit unions, Americans looking to bank differently have yet another option: the B Corp Bank.

A bank with a philosophy

Benefit Corporations and Certified B Corps are companies that are committed to responsibility beyond providing shareholder value. They have to uphold certain environmental standards, labor standards, and tax standards; and are bound to provide something more than just profit.

We recently took a look at B Corps and liked what we saw.

With more than 1,000 corporations submiting to B Corp certification, a select group of banks has begun to gravitate toward the philosophy, too. Earlier this summer, the sixth bank attained Certified B Corp status.

It's a public company, too.

Portland, Oregon's Capital Pacific Bank (OTCBB:CPBO) was founded in 2003 as a local bank to serve the needs of local businesses. In the intervening decade, it has grown into a full-scale financial institution that also has a mission of sustainability and community involvement.

B Labs has given CPB a score of 98 out of 200 on the B Corp certification scale. The lowest score allowed to keep certification is an 80, so it is closer to the low end of the scale than the high. However, it's only been certified for a couple of months, so its score can improve with each monthly review. It's also on par with the Business Development Bank of Canada, another Certified B Corp bank.

At the end of 2013, CPB had $239 million in total assets, and net income of $1.8 million, or $0.69 per share, the highest annual earnings in the company's history. It had double digit growth in both deposits and loans, and an 8.8% return on equity for the year. It closed out the year with a book value per common share of $8.36.

“Many banks are dealing with sluggish loan growth due to lackluster demand, low-interest rates, and increasing regulatory and compliance costs,” Mark Stevenson, CEO and President of Capital Pacific Bancop wrote in the company's annual report to shareholders. “Unlike many of our peers, we’ve been successful in achieving growth in our loans, deposits and net interest income in spite of these headwinds, and our profits have grown to record levels, putting us among the top performing banks in the Pacific Northwest.”

It's also worth noting that Capital Pacific Bank has only one single physical location. This was chosen to diminish its footprint and streamline its operations, and it shows that CPB is in tune with broader trends.

Branch closures in the U.S. hit its all-time highest level in 2013, with 1,487 branch locations closing over the course of 2013. This is the most significant decline ever recorded by SNL Financial, a financial market analysis firm.

Since the crisis of 2008, banks have increased their efforts in mobile and online banking services to cut any overlap in service. If a customer can deposit his checks and manage his finances online, he would have no reason to go to his local branch and waste several hours of his precious time.

Time is money, after all.

So Capital Pacific bank is keeping it small and local, while adhering to more stringent regulations outlined by B Labs. It's a new kind of bank for a post-crash economy.  And from a free market perspective, I like seeing this kind of alternative.


Jeff Siegel

Full Disclosure: I currently own shares of SCTY.

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

May 09, 2014

Renewable Energy Stocks By The kWh

Tom Konrad CFA

Disclosure: Long BEP.  Short PEGI $20 and $25 puts, short PEGI $30 and $35 calls, short NYLD $40 and $45 calls.

I recently sized up five renewable energy power producers using the metric that’s most often used for solar panels: Dollars per Watt ($/W).  It’s an intuitive metric, but has serious flaws both for evaluating solar installations and stocks.  Slightly better is Watts per Dollar (or W/$100 to make the numbers look nice) as shown in the chart from that article below.

The main advantage of W/$100 over $/W is that it’s additive: I can meaningfully stack the capacity contributions from various fuel sources.  (I.e. ookfield Renewable Energy Partners (NYSE:BEP) has 7 Watts of wind power, 33 Watts of Hydropower, and 2 Watts  of cogeneration for every $100 of Enterprise value, for a total of 7+33+2 = 42 Watts of capacity per $100.  You can’t perform a similar calculation with the number of dollars you have to invest in BEP to get a Watt of each type of energy production.)  That said, W/$100 retains the other disadvantages of $/W, most importantly that different types of power plants are used in different ways.

Watts per 100 dollars

Baseload plants such as geothermal run nearly constantly, while variable resources such as wind and solar produce variable amounts of power based on climatic conditions.  Dams allow hydropower to respond somewhat to demand for power, but run-of-river hydro facilities are totally dependent on water flows, and seasonal and annual flows are dependent on precipitation.

One way to account for all this is to look at annual energy production in GWh per year.  The data from the following chart is taken from each company’s 2013 annual report.  I had to drop SolarCity (NASD:SCTY) from the list because I could not find energy production data.

kWh per dollar

Ormat (NYSE:ORA) and NRG Yield (NASD:NYLD) only reported aggregate energy production for 2013, so I made some assumptions based typical capacity factors to allocate production between Ormat’s geothermal and waste heat operations, and between NRG Yield’s wind and solar farms.  Ormat’s products business which sells equipment to other geothermal and waste heat recovery operations is scaled based on the relative revenue earned by each segment, while NRG Yield’s thermal businesses provide heat or cooling, and are shown in thermal kWh, which typically have lower value than electrical kWh.

A new category which does not appear in the W/$100 chart is Brookfield Renewable Energy Partners’ (NYSE:BEP) Storage business.  This takes advantage of extra capacity in its hydroelectric dams buy pumping water back behind the dam when during times of low electricity demand, and allowing that water to flow back through the turbine and generate electricity when demand it high.

It’s interesting to note that Ormat and Brookfield look most attractive when evaluated on annual energy production, while NRG Yield looked best based on capacity.  This is because hydropower and geothermal are typically being used at closer to their potential output more of the time than solar and wind, and much more than NRG Yield’s thermal assets.   This variation is captured by a power plant’s “capacity factor,” which is the percentage of its theoretical maximum production it actually achieves.

The following chart shows the capacity factors actually achieved by these four companies in 2013:

Capacity Factors

Note that I had to guess at the relative capacity factors for NRG Yield’s wind and solar operations, since the company only provides aggregate energy production data.  In any case, NRG’s total renewable energy production is large relative to its renewable energy capacity,  so we can conclude that its wind and solar farms are in good locations for those resources.  There were no such complications with PAttern Energy Group (NASDAQ:PEGI) since all of its generation is wind power.

Final Thoughts

Annual energy production is still a very incomplete picture of the value of these company’s operations.  The value of electricity depends greatly on local market conditions, as well as the time and season.  Nor do any of these charts include the companies’ expansion plans.

Can we conclude anything from this series of charts comparing power produces by $/W, W/$100, annual kWh/$, and capacity factor? Perhaps only that it’s impossible to sum up a company’s operations in a single number, or even a hundred numbers.  Not that this will be a surprise to anyone who has cracked open a company’s annual report.

On the other hand, I never know what I’ll find when I decide to look at companies using a new metric.

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.

May 07, 2014

Renewable Energy Stocks By Dollars Per Watt

Tom Konrad CFA

Disclosure: I and my clients own HASI and BEP. I have short call positions in NYLD and PEGI, and short put positions in PEGI.

Dollars per watt ($/W) is a lousy measure of the economics of solar, but it persists.

Most likely, it persists because it seems familiar.  We can pay $4 for a watt of solar, or $4 for a Iced Hazelnut Macchiato at Starbucks.  Unfortunately, while the analogy may seem apt, this is a lot like knowing you’re getting a Macchiato without knowing if it’s a Tall, Grande, or Venti.  The actual energy production from a solar system depends greatly on a number of factors, including location, orientation, mounting structure, shading, string configuration, and choice of inverter.

Nevertheless, dollars per watt persists.  You’ll find it even in industry reports like US Solar Market Insight from GTM Research, as seen in this graph of annual PV installations and cost in dollars per watt:

PV Installations dpw GTM Research.png

Dollars of Stock Per Watt

Knowing that I can’t beat them, I decided to join them.  I used dollars per watt to provide a rough guide of how much solar an investor gets when buying the stock of publicly traded companies that own or finance solar: SolarCity (NASD:SCTY), NRG Yield (NASD:NYLD) and Hannon Armstrong Sustainable Infrastructure (NYSE:HASI) in a recent article about solar leases.

Here, I take it a little farther, and look at $/W for all renewables.  Below I also include wind farm owner and developer Pattern Energy Group (NASD:PEGI), geothermal company Ormat Technologies, Inc (ORA:NYSE) and hydropower and wind partnership Brookfield Renewable Energy Partners (NYSE:BEP.)   I dropped Hannon Armstrong from the list because I was not able to obtain sufficient information from the company about the renewable projects it has financed in time for publication.

The following chart shows how much of each company’s stock you would have to buy to get a watt of each type of renewable energy production:

Dollars per Watt RE

Note that one weakness of $/W is that the numbers are not additive.  If you spend $43 on a share of NRG Yield, you will be effectively buying a little over 2 watts of wind power and a little over 6 watts of solar.  You can’t get the solar without the wind.  If you only want one watt of any renewable energy, the green bars show that you could spend about $2.50 on either Brookfield or Pattern, $3.63 on Ormat, $5.05 on NRG Yield, or $13.89 on SolarCity.

Of course, renewable energy is not all you get when you buy these companies.  With SolarCity, you also get the solar installation business, and Ormat has a significant business selling equipment and services to other geothermal companies.  Most of NRG Yield’s business is not renewable at all: it also provides heating and cooling in commercial facilities, and has significant natural gas generation.  About 3% of Brookfield Renewable Energy Partners’ generation is from two natural gas co-generation facilities acquired “as part of larger hydro portfolio transactions many years ago,” according to a company spokesman.

While dollars per watt can be easy to grasp when thinking about just one technology, the metric starts to suffer when we consider a portfolio of several businesses.  Things become a little clearer when you consider watts bought per dollar spent.  The following chart shows how many watts of each type of business you would get if you bought $100 worth of each company’s securities:

Watts per 100 dollars


Dollars per watt is at best a rough starting point when evaluating a bid for solar on your home, or for evaluating companies that own renewable energy generation.  On the other hand, it works well with the intuition we’ve honed with years of trips to the grocery store and coffee shops.  That intuition may make these charts useful as you develop your understanding of renewable energy power producers.

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.

March 27, 2014

Our Investments Matter

Tom Konrad CFA

Many people consider themselves to be moral, but also feel morality has no place in investing.

There is much argument about whether “Socially Responsible Investing” helps or harms returns, but it is not a moral argument.  Some people believe gambling is immoral, others don’t.  Neither group makes a distinction between the morality of gambling winnings and gambling losses.

The main moral argument people make against socially responsible investing is that buying or selling a few shares of stock won’t have a real effect on giant corporations.  The added emotional distance many people get from investing through mutual funds or ETFs makes this easier to believe.

The question deserves direct scrutiny:

Do the stocks or mutual funds we buy affect the management of the companies we invest in?

This question has two parts.

  1. Do our investments affect stock prices?
  2. Does the stock price affect management behavior?

A company’s stock price is the net result of all investors’ decisions. We’re really asking if a single purchase has a significant effect. This is like asking if throwing a hamburger wrapper out our car window makes a difference. It’s wrong, regardless of if the road is covered with trash or pristine.  A litterbug may be subject to legal fines, but the limited liability structure of modern corporations protects investors from the legal (but not financial) consequences of corporate behavior.  If there is such a moral structure, it is the belief that our investments don’t make a difference in corporate behavior.

How much a company’s stock price affects its behavior depends on how much it needs money. Certain types of companies, like Master Limited Partnerships and Real Estate Investment Trusts must return profits to investors. Others are not profitable enough to fund planned investments. If such companies want to survive or grow, they must obtain the funding from investors. The stock price is always important to such companies because it determines how much control and what share of future profits they must exchange for the needed funds.

For all companies, including profitable ones, a high stock price increases management pay via share options and stock ownership. A low stock price makes a company vulnerable to activist investors and hostile takeover bids. These seek to influence management, or replace it altogether. Managers like high pay, autonomy, and keeping their jobs. If they expect a business decision will cause investors to sell, they will avoid it.

In short, our investments collectively set the stock price, and the stock price influences corporate behavior.  The same applies to bonds and other securities, through the interest rates companies pay.

We may be tiny actors on a giant stage, both in our personal lives and our financial lives. We don’t litter even if we think no one will notice, and we shouldn’t buy companies that do harm even if we think our a single purchase won’t get management’s attention.

Collectively, we have power.  With collective power comes collective responsibility.

This article was first published on the author's blog, Green Stocks on March 16th.

March 15, 2014

A Dangerous Game Of Us vs. Us Played With Our Life Savings

Tom Konrad CFA

US law requires that money managers put their clients’ interests first.

Investment advisers and money managers almost universally assume this means that they must try to make as much money for clients as possible. If your job is all about money, this can seem like a natural interpretation. More money is better, right?

For others, equating making money to serving clients’ interests seems like a very narrow view of the world.

If Tracy is saving for retirement, she obviously wants to have enough money to pay for it. She also wants to be healthy enough to enjoy it. If her money manager invests in a company which poisons her drinking water to increase returns for its shareholders (including Tracy), she probably won’t be very happy about it, no matter what the gains in her 401(k). Her adviser’s pursuit of profit has clearly not served her very well.

This scenario may seem far-fetched: What’s the chance that Tracy is directly harmed by a company she owns?

In truth, that scenario is not at all improbable. It happens all the time. Most investors own slices of most large, publicly traded companies. 44% of US households owned mutual funds in 2012. Whenever a large public company harms more than one household through its actions, it’s probably harming a shareholder. Only our hands-off approach to our investments, often through multiple intermediaries like advisers and mutual funds, keeps us from thinking about the harm we’re doing to ourselves.

Some might justify this harm by saying that other shareholders’ gains outweigh the harm to one or two families. But what about climate change? When a company emits greenhouse gasses, it’s harming all its shareholders. And their children.

When it comes to companies polluting, it’s not us vs. them.

It’s a dangerous game of us vs. us. And it’s played with our life savings.

This article was first published on the author's blog, Green Stocks on March 5th.

March 09, 2014

Watt's Watt?

by Debra Fiakas CFA

In the earlier post on Brightsource Energy and its Ivanpah solar thermal power plant in California cited costs for the plant as well as costs for nuclear and conventional power sources.  A reader pointed out a discrepancy in those figures and it prompted me to look more closely at various sources and citations on power plant costs.  Even within one design or fuel category, costs for power plants are exceptionally site specific.  In particular variance can occur in labor, site preparation, and interconnection requirements.  Certain material and equipment costs are more volatile than others.  For example, high temperature- high-pressure pipe, electrical transformers and copper wire are high in demand in the oil and gas market as well as the power market.  When both industries are busy, costs increase dramatically.  So investors should expect quite a bit of variance across power sources and from region to region.

It is also easy to get tripped up in the power industry vernacular.  (This is where the cart left the path in the earlier article.)  Back in the 1700s when the steam engine was being perfected a smart Scotsman named Watt came up with a measure of energy conversion.  The measure became standard and of course it had to be named after him.

Yet, one Watt is not enough. In very large power complexes, it becomes unwieldy to discuss power generation in terms of Watts.   Here the Watt siblings come in handy to keep the digits at a reasonable number.  You can choose Kilo’s or Mega’s or Giga’s.  If a power plant has a capacity to produce 2,000,000,000 Watts and you want to shed all those zeros, you can choose among “2.0 billion watts” or “2,000 Megawatts” or “2.0 Gigawatts.” 

1 Joule Per Second

1 Watt

1,000 Watts

1 Kilowatt

1,000,000 Watts

1 Megawatt

1,000,000,000 Watts

1 Gigawatt
Watts are standard, but the way we talk and write about them is not.  The U.S. Energy Information Administration is among the most cited sources for Capital Cost Estimates for Utility Scale Electricity Generating Plants.  This is probably because they have a fairly detailed report by that name.  The report was most recently updated in April 2013 and expresses all costs per kilowatt.  For example, the nuclear power plant cost is listed in the EIA report at US$5,533 per kilowatt.

The Nuclear Energy Agency also provides information on nuclear power plant construction costs, but uses megawatts as their basis.   The NEA says “a typical cost for construction of a Generation III reactor between 1400 - 1800 MW in OECD countries might be in the region of USD 5 - 6 billion.”

Comparing the two sources requires some math.  First, let’s get the average for that range of sizes and costs provided by the NEA.

1,400 Megawatts

US$5 billion or US$5,000,000,000

US$3.6 million or US$3,571,429 per Megawatt

1,800 Megawatts

US$6 billion or US$6,000,000,000

US$3.3 million
US$3,333,333 per Megawatt

1,600 Megawatts

US$5.5 billion or US$5,500,000,000

US$3.4 million or US$3,437,500 per Megawatt

Now we need to either re-express the EIA numbers in Megawatts or the NEA numbers in Kilowatts to compare the two sets of numbers.

  Original Cost Equivalency Translation New Measure
EIA US$5,333 per Kilowatt 1 Kilowatt = 0.001 Megawatts US$5,333 / 0.001 US$5,333,000 per Megawatt
  New Measure Equivalency Translation Original Cost
NEA US$3,438 per Kilowatt 1 Megawatt = 1,000 Kilowatts US$3,437,500 / 1,000 US$3,437,500 per Megawatt

That was exhausting.  In the end, the two are so far apart as to bring into question the value of the cost benchmarks in the first place, from either source.  Did I mention regional variances and how power generation costs can be quite site specific?  It is also helpful to know that the EIA has recently updated it benchmark power plant costs, but the NEA’s numbers appear to be a bit older.

The EIA report on power plants cites costs for a collection of conventional fossil fuel plants.  Natural gas power plants are among the fossil fuel-type power sources.  The average is US$1,137 per kilowatt with a range of US$676 per kilowatt for an advanced conventional combustion turbine to US$2,095 per kilowatt for a conventional combustion plant outfitted with carbon capture technology.  If fuel cells using natural gas were also included in this category, it would hold the dubious record as the most expensive at US$7,108 per kilowatt.

The EIA report also indicates a cost of US$5,067 per kilowatt for solar thermal power which we could have compared to our source for the cost of BrightSource’s Ivanpah power plant.  It would have been a tip-off that the cost of US$5,500 per megawatt cited in the article on Brightsource was “off.”  The Ivanpah facility has a capacity of 377 Megawatts and a cost of US$2.2 billion. That is a cost of US$5.8 million per megawatt or US$5,836 per kilowatt (since 1.0 Megwatt = 1,000 Kilowatts).  Indeed, it appears there could be more to the discrepancy.  The Brightsource website indicates the plant has a 377 megawatt capacity, but planned capacity is apparently 392 megawatts.  Using 392 megawatts leads to a lower cost figure of US$5.5 million per megawatt.

For investors, the comparison of costs from one plant to another or even across categories has some informative value.  Yet there are limitations.  A resource poor region might find the construction of a nuclear facility compelling even if the cost per kilowatt is high in comparison to other energy sources.  It is all relative.  What is important for investors is whether future cash flows from the sale of electricity will be sufficient to allow investors to receive a return on their investment.

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.

February 05, 2014

Renewable Energy Finance Outlook for 2014: Where Will the Cash Flow?

By all accounts, more money will be invested into renewables in 2014 than was invested in 2013. Our experts lay out where, why, when and how.

Jennifer Runyon

The world of renewable energy finance is vast: encompassing everything from venture capital funding for innovative start-ups, to research and development (R&D) and manufacturing expansion spending, to project finance and all the way through to investing in clean energy companies on the stock market. Because of that, for the general public, predicting where money will flow over the course of the next year is a shot in the dark at best. But there are finance experts who spend their lives tracking where the money is and where it isn’t and here we offer you their expert opinions on renewable energy cash flow in 2014.

Funding Innovation: Venture Capital Dollars No Longer Available

Renewable energy finance experts describe the early days of clean tech venture capital (VC) investment as being one fraught with “exuberance” and “frothiness.”  Investors were eager to fund what they believed would be the next big thing and clean tech aka green energy aka renewable energy was where the action was.  Dallas Kachan of boutique cleantech research and advisory firm Kachan and Company points to biofuels as a technology that received billions of dollars of investment capital in 2007 and 2008 and now has very little to show for it. Not a good result for an early-stage investor.

Kachan said that in 2014 VCs will be funding what he called “capital efficient plays,” for example, “energy efficiency or efficiency in general…so-called cleanweb investments,” he said.  Cleanweb refers to the intersection of IT and sensors and big data, i.e. products and services that drive efficiency in homes by using the cloud (think nest thermostats) or drive efficiency in workflow or access to capital such as crowdfunding.  “There has been an emphasis on capital efficient initiatives as opposed to 2007 and 2008 and the massive billions of dollars that we saw go into biofuels, for instance,” he explained.

(Image, right: Global Total Investments in Clean Energy (2004-2012). Credit: Bloomberg New Energy Finance)

VC investment in renewable energy has been trending down for the past two years in fact and it will continue to do so in 2014 and beyond, said Kachan. “We predict that in 2014, we will continue to see companies having a harder and harder time raising venture capital,” he said, “but that’s not necessarily a bad thing.” 

Kachan, a seasoned cleantech investment advisor, believes that 2014 may actually be the year that renewable energy expectations and deliveries begin to match.  In other words, the technology is mature enough that investors understand what it is capable of providing and invest accordingly.  In addition, major corporations are getting into renewable energy. “The largest companies in the world are taking a more active, aggressive role than ever in wanting to profit from clean energy,” said Kachan who explained that renewable energy and clean tech are still following the same trajectories of those technologies that came before them. “This is representative of the overall lifecycle of the maturation of the clean tech space,” he said.  “If you look at other technology revolutions in the past where venture capital played a dominant role in the early days, sources of capital diversify over time,” he explained. 

“That is clearly underway in cleantech,” he concluded and we need not worry about it. “It’s important to remember that this doesn’t mean the sky is falling, it just means that we are following the same trends, the same waves that happened in other industries.”

Project Finance: Utility-Scale Wind and Solar Still Grabbing the Lion’s Share

With five solid years of installed capacity growth coupled with steady cost reductions, it’s no surprise that renewable energy finance experts agree that large-scale wind and solar projects will receive the biggest portion of renewable energy dollars in 2014.

“Utility scale solar, mainly photovoltaic solar, and utility-scale wind will continue to be active in their growth in particular outside of the U.S.,” said Adam Umanoff, partner with Akin Gump law firm. Lynn Tabernacki, managing director of renewable and clean energy at Overseas Private Investment Corp. (OPIC) agreed.  “In 2014, solar and wind will remain the mainstay of renewable energy investments because of sustained cost reductions for plant construction using these technologies,” she said.

Umanoff pointed to the Middle East as a region that is looking to tap renewable energy as an electricity source in the coming years. He said that Middle Eastern countries would like to dramatically reduce the amount of oil they use a fuel source for electricity generation so that they can garner more profits from selling their oil on the open market.  “That’s what we’ve seen in the past year,” he said, mentioning, “the Saudis came out with a huge 5-GW plus mandate for solar.” Umanoff believes that CSP plus storage will play a role in building up that supply of renewable energy capacity.

Large energy end-users are also becoming more interested in renewable energy, said Umanoff. He said that the industry is active in Latin America. “In Chile, we’ve got very high power prices, relatively unreliable supply, and yet active commercial activity,” he said. And the same goes for Africa, “especially around the mining industry. There we are seeing both wind and solar looking very attractive,” he explained.

Tabernacki agreed and pointed to an uptick in public/private partnerships in developing nations as helping give rise to more renewable energy projects. “From the public side for example, the Power Africa Initiative has marshaled U.S. government trade and development resources for the specific purpose of energy development in six pilot countries in Africa,” she said.  Specifically those countries are Kenya, Liberia, Ethiopia, Nigeria, Ghana, and Tanzania. Tabernacki also sees these types of partnerships in Asia. “There is a similar program directed to South-East Asia under the US-Asia Clean Energy Partnership,” she explained. 

“Mobilization of grant funding, technical assistance, transaction advisory services, and project financing from these public sources is expected translate into an increase in renewable energy investments in these regions next year,” Tabernacki concluded.

Umanoff summed it up nicely, “as you go around the world: Latin America, parts of Asia, the Middle East are very attractive markets for renewable energy growth [in 2014].”

In the U.S., the story might be slightly different. Umanoff predicted explosive growth in the distributed solar industry as more customers see the financial benefits of putting solar panels on their roofs or in ground-mounted arrays close to their commercial facilities. He also pointed to incidents in the past where large industrial power users were without power for extended periods as drivers for renewable energy adoption, particularly in the form of micro-grids. “Industrial consumers who, on the heels of hurricane sandy were out of power for 4-5 days, they take a look,” he said.

In addition, in 2014, expect to see more solar installation companies tap into the burgeoning innovations in how to offer their customers low-cost financing options or attractive leasing models to help offset the cost of going solar.  (More on financial innovations in the section below.)

The U.S. wind market will flourish in 2014 as companies work steadily to complete construction on projects they began in late 2013 (wind project developers had to start construction by the end of 2013 in order to take advantage of the Production Tax Credit (PTC)).  But since the PTC officially expired in 2013, don’t expect to hear about too many new wind power projects being commissioned in 2014 and beyond. Umanoff predicted that the U.S. will install upwards of 9 GW of wind power in 2014 and even more in 2015 as companies build out their planned projects.

Most experts agree that other renewable energy technologies will hold steady in 2014.  Geothermal will continue to make progress in areas with good resourced such as the Philippines.  “Large hydro continues to be very attractive but mainly in developing economies and new markets,” said Umanoff.  “It’s very, very hard to permit a large hydropower facility in a mature, industrial democracy,” he said.  Biofuels and biomass projects will make headway as well but in terms of gaining marketshare, the winners will be wind and solar. 

Optimism Dominates the Investment Space

While investors will give many concrete reasons that they chose to invest in a technology, project or a company, one very important reason often overlooked and difficult to quantify is consumer sentiment.  In others words, investors usually have positive or negative feelings about technologies, industries or companies and invest accordingly, whether they are aware of their emotional assessment of it or not. 

Navigant consulting has been examining consumer attitudes towards clean energy since 2009 and published its latest report “Energy and Environment Consumer Survey” in December 2013.  The report is a summary of a survey conducted among 1,084 U.S. adults based on a “nationally representative and demographically balanced sample.”  The survey asked for consumer attitudes towards 10 clean energy topics and the results are shown in the chart below.

Overall consumer sentiment toward solar and wind energy was up significantly in 2013 over 2012, indicating that in general, U.S. residents feel positive about clean energy.  And when investors are looking for investment opportunities, it follows that they put their money into technologies, products, services and companies that they feel good about.

Perhaps that’s why all of the finance experts that we spoke to for this article said they were “optimistic” about the 2014 outlook for renewable energy finance.

“I remain optimistic that renewable energy investments will continue to gain ground in 2014,” said OPIC’s Tabernacki.  “I think, without question, more money will be invested into renewable energy in 2014 than was in 2013,” said Akin Gump’s Umanoff.  “I’m more optimistic than ever about the health of the clean-tech space,” stated Dallas Kachan. “I think that overall, we’re going to have a really good year,” said Tom Konrad, a private money manager who writes about clean energy investing.

Konrad believes that 2014 will be a great year for renewable energy finance, he said.  He said that we saw the beginning of it in 2013 with the securitization of a bond by Solar City and pointed to Hannon Armstrong’s securitization of an energy efficiency bond in late December 2013 as another indicator that renewable energy financing is on track to take off in 2014. 

“I think that we will see a few publicly traded ‘yield cos’ (yield companies) in solar listed in 2014,” he said.  A yield co is a publicly traded company that is oriented towards income as opposed to growth.  This type of investment opportunity is a major switch, said Konrad.  “Any stock you have ever written about pretty much has been a growth stock,” he explained.  “Tesla (TSLA) is a growth stock.  People buy Tesla because they think the company is going to keep on gaining market share,” he clarified.

“Now there are some new income stocks that came public last year: Hannon Armstrong (HASI), Pattern Energy Holdings (PEGI), NRG Yield (NYLD) and Brookfield Renewable Energy (BEP), so there are four, I would say, renewable energy income stocks on U.S. exchanges.”

Further, Konrad expects to see at least one renewable energy income mutual fund unveiled in 2014 “because there are lots of things to put into it,” he said.

It makes perfect sense.  Once renewable energy assets are operating efficiently, they generate payback for their investors.  Now that the technology has matured enough to gain the trust of some of the more reticent, risk-averse investors like corporations and banks, expect to see lower cost of capital for projects and greater interest in renewable energy stocks, bonds and mutual funds.

Other newer financial innovations will expand in 2014, said Dallas Kachan, pointing specifically to crowdfunding.  “When the equity-based crowdfunding systems start taking hold, that really stands a chance of unlocking large sums of hitherto unavailable capital for the whole cleantech space,” he said.  Solar Mosaic, for example, which launched in officially in August of 2011 gained a lot of visibility in 2013.  The company allows individuals to invest in solar projects and offers attractive returns to investors.

Kachan expects to see more innovative funding opportunities like Mosaic in 2014. “You will also see new systems, new initiatives targeted at the space, many of which, for the first time offer investors the chance to make money at making small investments in projects or innovation,” he said.  Kachan cautions that he has some reservations about the long-term viability of equity-based crowdfunding – he worries what will happen when investors lose money, which undoubtedly will occur at some point. “I think it’s not going to take too many of those squeezes, those so-called down-rounds, and the requirements for pro rata investment.  These things are going to potentially bite investors and it might turn off people from equity-based crowdfunding,” he explained.  But nonetheless, he’s certain that we will see lots more in the financial innovation space in 2014.  “That said, some people will make some money in doing this [equity-based crowdfunding]  and that will encourage others to start doing this.”

Konrad agrees that financial innovation in renewable energy is probably going to be THE story of 2014. Ever the mathematician, Konrad guesses that about 60-75 percent of renewable energy investment will be driven by financial innovation, with the remainder being driven by policy, which he also feels will be favorable, at least on the state level, in 2014.

“I see 2014 as the year that renewable energy finance comes of age,” said Konrad. 

This article is part of th Renewable Energy World January/February Annual Outlook Issue for 2014, which will be published on February 10, 2014. The issue includes our Global Directory of Suppliers.  If you are not already a subscriber, why not subscribe now?

Jennifer Runyon is chief editor of and Renewable Energy World magazine, coordinating, writing and/or editing columns, features, news stories and blogs for the publications. She also serves as conference chair of Renewable Energy World Conference and Expo, North America. She holds a Master's Degree in English Education from Boston University and a BA in English from the University of Virginia.

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

January 17, 2014

Google's Renewed Cleantech Investment Binge

James Montgomery

google earthday06
Google Doodle for Earth Day 2006
This week the Internet giant Google revealed that in December it invested $75 million in Pattern Energy's (NASD:PEGI) 182-MW Panhandle 2 wind farm in Carson County, Texas, northeast of Amarillo, expected to be operational by the end of this year. Pattern will hold an 80 percent stake in the project, whose owners also include Google and two institutional tax equity investors, with Morgan Stanley providing construction and equity bridge loans and a letter of credit.

Google certainly has displayed a healthy appetite for Texas Panhandle wind energy. Last fall it committed to purchase all the output from EDF Renewable Energy's 240-MW Happy Hereford wind farm southwest of Amarillo. A year ago it plunked down $200 million in EDF's 161-MW Spinning Spur Wind Project in Oldham County, Texas, also west of Amarillo, which went operational in late 2012. (Note that EDF is taking over Spinning Spur III from Cielo Wind Power, in case Google is eyeing more investments for power circa 2015.)

This new deal adds yet another renewable energy feather to Google's cap, spanning projects and procurements from Texas to Finland. To date the company has committed more than a billion dollars in 15 renewable energy projects totaling more than 2 GW of electricity annually. That's enough to power all public elementary schools in New York, Oregon, and Wyoming, or 500,000 US homes, the company points out. Last year the Internet giant purchased over 727,000 MWh of renewable energy via long-term contracts, covering 22 percent of its total electricity consumption.

"We believe that corporations can be an important new source of capital for the renewable energy sector," writes Kojo Ako-Asare, Google's senior manager for corporate finance, in a blog post announcing the investment.

That's a neat segue to our next Google news item. While the company continues to lunch on renewable energy deals, this week it swallowed its biggest meal yet: $3.2 billion for Nest Labs, maker of the Nest smart thermostat and a newer line of smoke/CO2 alarms. (Sorry, anyone who predicted Nest as one of the most anticipated 2014 IPO offerings.) Here's a bit of sunshine for other cleantech investors: the deal means Nest's early VC investors are exiting with 15-20× multiples, including a $400 million payday for Kleiner Perkins Caufield & Byers.

Google has had an investment say in Nest since 2011, and the firm "has the business resources, global scale and platform reach to accelerate Nest growth across hardware, software and services," writes Fadell in a blog post. "Google will help us fully realize our vision of the conscious home and allow us to change the world faster than we ever could if we continued to go it alone. We've had great momentum, but this is a rocket ship." An Apple-watching news site explores why Google, not Apple, is buying Nest: ultimately managing data about home usage is more in line with Google's business, while smaller hardware plays like chips has become Apple's pursuit. And Google's cash warchest gives it the freedom and wherewithal to take big shots like this.

The deal is the latest showcase in a $17 billion two-year push out of its core Web search and advertising platform and into hardware and software. It also underscores the increased competition between Google and Apple: the two already were at odds over smartphone platforms (iOS vs. Android), and nearly a third of Nest's 300 employees are Apple expats, including founder Tony Fadell who helped design the iPod. (One report suggests there's been even more direct competition and recruitment.)

Jim Montgomery is Associate Editor for, covering the solar and wind beats. He previously was news editor for Solid State Technology and Photovoltaics World, and has covered semiconductor manufacturing and related industries, renewable energy and industrial lasers since 2003. His work has earned both internal awards and an Azbee Award from the American Society of Business Press Editors. Jim has 15 years of experience in producing websites and e-Newsletters in various technology.

This article was first published on, and is reprinted with permission.

January 14, 2014

Alternative Energy Stocks In 2013: Winners And Losers

By Harris Roen

Alternative energy stocks had an epic year in 2013. The widely watched Ardour Global Alternative Energy Index Composite (AGIGL) was up 53% in 2013. That’s double the 26% return for the S&P 500. In fact, 2013 marked the largest annual return for the AGIGL since 2007. In January 2013, I predicted that “…low interest rates and plenty of corporate cash will be a strong driver of stocks in 2013, including the growth industries within alternative energy.” That forecast turned out to be true and then some.

This report drills down into the data to better understand what happened to alternative energy stocks in 2013, and considers where cleantech investments may go in 2014.

Alternative Energy Stock Returns for 2013


For all of the +/-250 alternative energy companies that the Roen Financial Report tracks, stocks were up an average of 59% in 2013. The highest returning stocks did exceptionally well, with the top ten companies averaging a gain of 414% for the year! More than half of the top ten gaining stocks are in solar.

Canadian Solar Inc. (CSIQ) was by far the largest gainer, up almost 800% in 2013. This solar cell and module company has been rebuilding its capacity over the past year, with choppy but growing sales. It also posted its first profitable quarter since 2010. Though Canadian Solar is technically based in Ontario, all of its manufacturing facilities are in China.

Of the bottom ten stocks, the worst performer was Ecotality (ECTYQ), which went bankrupt in September. Three other of the lowest performers were delisted to the pink sheets.

Half of bottom ten returns are in different business segments of the fuel alternatives industry. One is a biofuel company, BioFuel Energy Corp (BIOF), a former ethanol producer that has been selling plants and reducing its workforce. Chilean-based Sociedad Quimica y Minera (ADR) (SQM), the world’s largest producer of lithium for batteries, suffered from massive insider selling back in August. Cereplast Inc (CERP) is a very volatile startup with flagging sales. CERP develops bio-based resins as a renewable substitute for petroleum-based plastics.


Comparing returns of the various alternative energy industries confirms that solar was the best performer in 2013. The average return for the 67 solar stocks that the Roen Financial Report tracks was an impressive 81%. Solar investing has taken off for several reasons, rising impressively from its oversold lows in August 2012.

Energy efficiency stocks were the next best performers on average, up 60%. The market likes a business that can reduce a client’s fossil fuel consumption, curtail pollution and save money. When executed well, this business model is low hanging fruit in the alternative energy world.


When looking at returns globally, Asia was by far the most profitable region for alternative energy stocks. Though North America and Europe also had respectable returns on average, the Asian region was lifted mightily by Chinese solar stocks.


The above chart shows average alternative energy stock returns by size. Smaller companies did better overall, with a sweet-spot in the mid-cap companies. We define mid-cap as companies with annual sales between $1 billion and $10 billion.


Stocks that were the most volatile had the best returns in 2013. This is not surprising, since in a robustly up market year, volatile stocks will swing way above the averages. Conversely, stocks with the lowest volatility had lower average returns.


This next chart shows how stocks did when looking at sales compared to the same quarter last year. The graph clearly illustrates that the stocks with the highest sales growth had the best performance on average. Lowest sales growth companies had smaller average returns by a huge margin compared to the highest sales growth stocks.

What to Look For in 2014

The economy is setting up 2014 to be another good year for the stock market. Profits remain adequate, interest rates are low, and most importantly, the U.S. housing market continues to improve. Additionally, price momentum in the stock market is very good, so I expect additional money that retail investors have been keeping on the sidelines to flow in. I doubt growth will match that of 2013, however, since prices and valuations are not as depressed as they were a year ago. This means that even if a company continues to have a good year, comparisons to previous years data will look less impressive.

Since 2014 should be a year of steady growth, larger cap stocks that are lower on the speculative level will likely be the best performers. It is often the case that in the maturing stages of a bull market, large cap stocks do better. If the stock market falls dramatically, I would expect the more volatile stocks to experience accelerated losses, but I do not believe this will be the case in 2014.

Energy efficiency should continue to be a high returning industry for the reasons mentioned above. A. O. Smith Corp. (AOS), the Milwaukee-based water heating company, is one of my favorite picks in this industry.

Solar should also continue to be strong, especially for the upstream companies involved in installation. The two strongest choices here are SunPower Corp (SPWR) and the much ballyhooed SolarCity Corp. (SCTY). Of the two I think the stock price of SCTY has gotten ahead of itself, so SPWR may be the better choice at current prices.

Picking the right stocks will remain important in 2014, so investors are urged research alternative energy stocks carefully to ensure the best returns.


Individuals involved with the Roen Financial Report and Swiftwood Press LLC do not own or control shares of any companies mentioned in this article. It is also possible that individuals may own or control shares of one or more of the underlying securities contained in the Mutual Funds or Exchange Traded Funds mentioned in this article. Any advice and/or recommendations made in this article are of a general nature and are not to be considered specific investment advice. Individuals should seek advice from their investment professional before making any important financial decisions. See Terms of Use for more information.

About the author

Harris Roen is Editor of the “ROEN FINANCIAL REPORT” by Swiftwood Press LLC, 82 Church Street, Suite 303, Burlington, VT 05401. © Copyright 2010 Swiftwood Press LLC. All rights reserved; reprinting by permission only. For reprints please contact us at POSTMASTER: Send address changes to Roen Financial Report, 82 Church Street, Suite 303, Burlington, VT 05401. Application to Mail at Periodicals Postage Prices is Pending at Burlington VT and additional Mailing offices.
Remember to always consult with your investment professional before making important financial decisions.

January 13, 2014

60 Minutes Reply: Cleantech Rocks

On Sunday, January 5, 60 Minutes aired a piece on the cleantech space. In the days that followed, I have had interesting conversations with clients about what was broadcast to 7.4 million viewers.[1] Those discussions reinforced my belief that 60 minutes missed the mark and inspired me to write this blog on why cleantech is essential, massive, vibrant, and desired.

Cleantech is essential.

We recently took fifteen clients to China on our annual tour, and the Beijing Air Quality index (AQI) of PM2.5 read above 200 on multiple days. The average AQI in Los Angeles, California, through 2009 was 19[2]. As CBS News has reported, the health and economic implications of severe pollution are significant. Kids with asthma flood hospitals. Flights are canceled. Schools are closed. Concerts are postponed. People wear masks and stay indoors.

The cause for China’s dirty air is not a mystery. The country’s coal-fired power generation, rapid industrial growth, and significant increase in vehicles all contribute to poor air quality. The costs are not trivial: The Beijing Municipal Bureau of Environmental Protection has estimated it will cost China $817 billion to clean its air, and $163 billion for Beijing alone to do so.[4]

It’s just not air; let’s consider water. Only half the water sources in Chinese cities are safe to drink. Seventy percent of the groundwater in the north China plain is unfit for human contact.[5]

While air and water quality in the US are better than in China, we too have been impacted by a changing climate. Hurricane Sandy caused $50 billion worth of damage, and Katrina caused $128 billion (in equivalent dollars); and we can’t place a value on the loss of lives.[6] California just experienced its driest year on record.

By 2030, nearly 4 billion people will live in emerging market cities.[8] Over time, their consumption patterns will approach wasteful American practices. The world’s natural resources simply cannot support this consumption without significant changes to how we produce and use energy, water, transportation, food and products. In other words, the world needs cleantech.

What is cleantech? Cleantech represents new technological and business model innovations that empower us to use natural resources more productively and responsibly, to do more with less: less energy, less water, less waste, less land. Cleantech includes solar, wind, biofuels, energy efficiency, smart grid, energy storage and fuel cells, transportation, agriculture, advanced materials, water, and waste solutions.

The world needs cleantech.

Cleantech is massive.

Cleantech products and services are disrupting massive global industries. In 2014 alone, the US is projected to spend about $1.3 trillion on energy.[9] As costs of clean technology have declined, adoption is increasing rapidly. Let’s look at solar photovoltaic (PV) as an example: Since the beginning of 2011, the average price of a solar panel has declined by 60%[10]. As we look further back in time, the declines are more impressive. The price of PV cells has dropped from $76.67 per watt in 1977 to $0.74 per watt in 2013.[11] This has led to a significant increase in PV deployments. PV installations in the US have grown approximately 50% per year from 2011 to 2013.[12] In 2012, renewable energy sources (biomass, geothermal, solar, water, wind) represented half of all new capacity in the US.[13] Towards the end of 2013, BrightSource Energy’s Ivanpah Unit 1 connected to the grid.

rocks - 3b

Photo: BrightSource Energy

Demand-side markets are also very large and growing significantly. In the US alone, we consume approximately 70 quadrillion BTUs of energy per year across transportation, industrial, residential, and commercial applications.[14] US buildings alone consume about 33.5 quads annually, representing over $420 billion in annual spend.[15] Cleantech solutions are making buildings smarter and more energy efficient.

The global lighting market is approximately $100 billion[16]. While the overall market is growing modestly (~5% per year) the market for LEDs is growing rapidly. Prices for LEDs have similarly come down significantly over the past few years – prices have declined at ~15% per year. Cree (and other manufacturers) are now offering sub $10 prices for 40-watt equivalent LED light bulbs.[17] This allows for improved payback for customers and results in rapid adoption of LEDs across many lighting sectors.

These are massive markets.

Cleantech is vibrant.

If you watched the 60 Minutes piece, you might think all cleantech companies have failed. This is not true. Yes, companies have failed, but all emerging markets are volatile. Let’s remember that 75% of all startups fail.[18] Over time, more than 600 US automobile companies have failed.[19]

In addition to the highly publicized failures, we (via our i3 data platform) have also tracked many successes. Tesla is perhaps the best example of a company that has achieved great commercial success and is being rewarded for this in the financial markets. The company was founded in 2003, went public in 2010 and today trades with an $18 billion market capitalization. Let’s compare this with the value of an established car company: Peugeot was founded in 1810 and produced its first automobile in 1889. The company currently trades at a market capitalization of $3 billion, one-sixth of Tesla’s value. The Model S was named the Motor Trend Car of the Year, and Elon Musk was recently named Fortune’s Business Person of the Year.

Is Tesla the only cleantech public market success story? No, not at all. In 2013, we tracked 14 cleantech IPOs including Marrone Bio Innovations (MBII), Silver Spring (SSNI), Control4 (CTRL), BioAmber (BIOA), and Evogene (EVGN). These IPOs and other cleantech public companies have performed exceedingly well. We recently analyzed the 2013 performance of stocks within the Russell 3,000 diversified index and were pleased to discover that Revolution Lighting Technologies (RVLT), SunEdison (SUNE), Solar City (SCTY), and Tesla (TSLA) were among the very top performing stocks in the index:

rocks - 4

Source: i3, Google


What about cleantech venture capital (VC)? While some VCs have indeed lost money in cleantech, other VCs are getting good returns. DBL Investors invested in both Tesla and SolarCity. Generation Investment Management invested in Nest and SolarCity. I don’t have insight into their specific returns but believe their funds will perform very well. EnerTech, Westly Group, Braemar, and BDC all recently raised new funds. In 2013, our i3 market intelligence platform tracked $6.8 billion dollars of investment across 18 sectors of resource innovation. We tracked a 38% quarterly increase in funds invested from Q3 2013 ($1.5 billion) to Q4 2013 ($2.1 billion).[20]

Cleantech financing is broader than venture capital. Investment firms are investing in cleantech via debt, project finance, and public securities. There has been much discussion and progress towards using traditional energy and financial vehicles such as Master Limited Partnerships (MLPs) and securitization to finance cleantech. While certain vehicles have yet to be applied to cleantech, financial companies are already investing heavily in cleantech. Goldman Sachs recently invested $500 million into a SolarCity lease-financing agreement that will help the company deploy about 110 megawatts of solar.[21] Goldman also pledged to invest $40B into cleantech over 10 years.[22]

Did the government lose some money in cleantech? Yes, it did. However, from a portfolio perspective, the losses (less than 3%[23] of the aggregate) are far smaller than they were portrayed on 60 Minutes. The DOE has also done many positive things. The ATVM Government loan guarantee program (derided in 60 Minutes) provided $5.9 billion to Ford Motor Company in 2009, $465 million to Tesla (which repaid 9 years early), and $1.5 billion to Nissan NA. [24] Via ARPA-E, the DOE has stimulated innovation in important ways with relatively modest amounts of money.[25] Governments are investing in cleantech in a number of other constructive ways not mentioned on the program. For example, the US Military is deploying cleantech to achieve greater energy security and flexibility. Cities all over the world are racing each other to use cleantech solutions to address traffic, pollution, and resource challenges.

While I find most attempts to count jobs created from specific government programs confusing, readers might be surprised to learn that the solar industry currently employs more workers than the coal industry. In 2012, the solar industry employed 119,000, and the industry is growing rapidly. In 2012, the coal industry employed 89,800, and the industry is contracting.[26] [27]

When we consider the critique we witnessed one week ago, it’s important to reflect on the role government has played in other industries. The government provided significant support to conventional energy industries via policy, direct investment, and allowing for exploration on federal lands. As DBL Investors reported, California’s nuclear energy industry has received four times more federal support than the state’s solar builders.[28]

Big corporates are actively investing in cleantech to drive growth and competitive advantage, differentiation and to further their sustainability goals. As noted in our recent report, “Partnering with Corporates,” energy companies have been among the leading investors. The chart below shows the most active corporate investors between the third quarter of 2011 and the second quarter of 2013. Over that period, GE, ConocoPhillips, Total, and BP all ranked highly with more than 10 deals. Shell recently launched a new venture fund, Shell Technology Ventures. And it’s good that the oil and gas majors are innovating.

Corporate Investors in Cleantech:

Cleantech rocks - 5


Big IT companies (Google, Apple, Microsoft, Facebook) are purchasing clean energy in impressive quantities. Facebook’s new Iowa data center will be fully powered by wind power.[29] Facebook worked closely with MidAmerican Energy to secure land and develop a 138 MW wind farm adjacent to the data center. Apple’s new North Carolina data centers are powered by custom built solar and fuel cell farms.[30] Google has invested over $1 billion in cleantech through power purchasing contracts and also via equity and debt investments. Microsoft is actively exploring powering its data centers with fuel cells in a disruptive, decentralized architecture. eBay has partnered with Bloom to use fuel cells as the primary power source for its Utah data center.[31] Why are these internet companies driving hard into cleantech? We believe the youth of their employees and end-customers and their values are one critical factor.

The levels and types of activity in this market are inspiring.

Cleantech is desired.

Every survey I have read confirms that people (especially young people) want cleantech. For example, in its most recent annual National Solar Survey, the SEIA found that nine out of ten Americans (92%) think that the United States should use solar.[32]

More importantly, when companies (or people) develop awesome products, people want to buy them. For example, Nest Labs has built a learning thermostat that people all over the world want to install in their homes. Their thermostat consistently results in 20% energy savings, but I suspect it’s their phenomenal design and ease-of-use that’s really driving adoption. Nest is a young company – launched in 2011 – yet has grown tremendously and is now selling ~50,000 thermostats per month. Impressively, there is evidence that people have been “smuggling” Nest thermostats outside of the US before the company was officially shipping to those countries.[33]

rocks - 6c

Photo: Heather Matheson, Cleantech Group

Homeowners want solar on their roofs. Drivers want Tesla cars.

I believe that as consumers engage with great products and services that have a positive impact on the planet, they will want more. Or less. In some cases, cleantech solutions are allowing consumers (and businesses) to own fewer resources. AirBNB is increasing the efficiency of our housing stock by allowing people to rent out their homes when they are not there. i3 tracks 113 car, taxi, or ride sharing/renting companies. We recently hosted Zipcar at one of our events, and participants were eagerly boasting how they had abandoned their cars. They were proudly showing each other their ZipCar cards.

rocks - 7b

Photo: Millen B. Paschich, Cleantech Group

This consumer pull reminds me of the role consumer choice has had in disrupting other industries. For example, the cell phone industry was not particularly exciting back in 1983, despite the launch of the DynaTAC. As cell phones penetrated the work place, they were very much part of a company’s IT system. Companies selected which employees would be eligible for a cell phone and which devices it would support. Then an interesting thing happened: employees started to care about their phones. They started lobbying their IT departments for iPhones. The top-down decision making process was no longer tenable. Employees insisted on choice. Why couldn’t their IT departments just figure out how to support whatever smart phone they wanted to own? As you probably know, this led to the decline of Blackberry (current market cap of $4.5 billion) and the rise of Apple (current market cap of $480 billion[34]).

This is what happens when industries get disrupted. It’s not just cell phones. How many people are still reading paper-based newspapers?

Before I sign off, I want to thank 60 Minutes. Last week’s program sparked many interesting discussions. It forced me and my colleagues in the industry to step back and reflect on our work. While I disagree with the way 60 Minutes characterized the story as being over (I believe we are in the early innings of cleantech), I did appreciate the emphasis on China’s impressive role in scaling cleantech. I also loved the reminder that progress will depend on bold actions by entrepreneurs like Pin Ni who are embracing capitalism and cleantech.

If you liked this piece, please pass it along.

Thank you and remember: People desire cleantech. It is essential, massive, and vibrant.


Sheeraz Haji

CEO, Cleantech Group





































November 16, 2013

Graftech Manages the Heat of Competition

by Debra Fiakas CFA
Products like Graftech's ultra-thin heat spreader help customers manage the heat. Investors think restructuring will help Graftech do the same.

Feeling the heat of competition, graphite materials supplier Graftech International Ltd. (GTI:  Nasdaq) has initiated a restructuring of sorts.  The company’s two highest cost graphite electrode plants will be closed.  Those are located in Brazil and South Africa.  A machine shop in Russia will also be shuttered.  Locks will go on the doors in these locations by the end of June 2014.

Downsizing capacity is expected to yield substantial savings.  Total production capacity will be reduced to about 60,000 metric tons, which eliminates fixed plant costs.  More importantly the closures are expected reduce inventory requirements.  The company has stated that working capital improvements should reach $100 million over the next year and a half.

What is more, about 600 employees or about 20% of the company’s workforce will be getting pink slips.  The company estimates annual savings of $35 million.  That represents about 3.6% of annual direct costs, which should drop right to the gross profit margin.

The savings will come in handy as the company turns from older, declining markets to new, more lucrative sources of demand.  Graftech staged a major media event in August this year to publicize the opening of a new manufacturing facility in Ohio.  That new plant, which was purchased last year for $3.0 million, is dedicated to the production of a thermal management product intended for smartphones and tablets.

Of course, the restructuring effort comes with its own price tag.  Graftech management says they need to use about $30 million in cash over the next three quarters.  There is another $75 million in non-cash expenses related to the write-down of certain assets.  Shareholders have already seen about $18 million of these write-off expenses pass through Graftech’s income statement in the third quarter.  The rest will follow in the next two quarters.

So far investors have reacted with great enthusiasm to Graftech’s strategy.  The stock climbed 29.5% in the first week following the restructuring announcement.  No one would blame shareholders from taking some profits at the current price level near $11.36.  Price oscillators such as the Residual Strength Index suggest the stock has for the time being entered over bought territory.  Just the same we do not believe the last chapter has been written in the Graftech story.  If the stock retraces to the pre-announcement level, investors would have compelling chance to build positions in what is arguably a stronger, more competitive operation.
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.

November 11, 2013

What Do The New Crowdfunding Rules Mean For Renewables?

James Montgomery
Crowdfunding illustration via Bigstock
The SEC has finally proposed its rules to allow crowd-funding under the Jumpstart Our Business Startups (JOBS) Act. What do they mean for small-scale investments in renewable energy companies and projects?

Title III of the JOBS Act created an exemption under securities laws for crowdfunding, which set the table for its regulation by the SEC -- that was supposed to happen by the end of last year. Two weeks ago the SEC finally issued its proposed rules on crowdfunding (summary here, full 500+-page PDF here). Here are the highlights:

  • Companies are capped at raising $1 million cap per year through crowdfunding.
  • Investors with less than $100,000 annual income and net worth, could invest up to $2,000/year or 5 percent of annual income or net worth (whichever is greater).
  • Investors with at least $100,000 annual income and net worth, investment amount levels rise to 10 percent of annual income or net worth (whichever is greater), and purchase no more than $100,000 of securities through crowdfunding.
  • Non-U.S. companies are ineligible for the crowdfunding exemption, as are companies that already report to the SEC, some investment companies, those who aren't compliant with certain reporting rules, and others with no business plan or pending M&A deals.
  • Securities purchased via crowdfunding can't be resold for a year.
  • Under the proposed rules, issuers publishing notices advertising an offering can include terms: the nature and amount of securities offered, their pricing, and the closing date of the offering period.

So how do these proposed rules affect companies seeking to get funded by the masses? "Renewable energy companies seeking to enter the new territory of offering a security legally may find it easier to raise start up capital or additional capital because they can offer investors a return on investment" such as stock or debt with interest payable, explained Debbie A. Klis, attorney with Ballard Spahr. "It would not be difficult to create a compelling campaign to raise funds for renewable energy products especially if it brings revenue and jobs to areas of the U.S. (and abroad) that it need it the most."

For small businesses and entrepreneurs seeking to raise capital, the rules "may be a God Send" to help solve delays common in formal full-blown SEC registration and disclosure, observed Lee Peterson, senior tax manager with CohnReznick. Some entrepreneurs dream of building the next Apple or HP on the renewable energy side; others might see crowdfunding as a way to bridge the "valley of death" in startup-up financing to bring their company to market. "So as long as folks act smart and understand the investment risks," he added, "it may be a good thing."

Of course there's a difference between crowdfunding as a donation, and microfinance as a path toward ROI. SEC's proposed rules address the latter, as a way to opening doors to much more private capital. Selling securities to the public generally requires SEC compliance, and has been allowed until now only if it involves donations with no return on investment (ROI). Sites like Kickstarter and Indiegogo might choose not to help companies issue securities and just continue to facilitate donations, with investors assuming that the company raising money is playing by the rules. Indiegogo, EquityNet, and RocketHub reportedly are interested in pursuing equity crowdfunding, while Kickstarter is not.

One of the early renewables crowdfunding success stories has been Mosaic, which has amassed investments for projects totaling $5.6 million in value and "tens of millions of more dollars in the pipeline," according to a company spokesperson. It has pitched 25 offerings in over 19 projects, with 2,500 investors spanning nearly every U.S. state, and roughly half its projects sell out within a week. Its newest offering is a 12.3-MW installation across more than 500 homes at Joint Base McGuire-Dix-Lakehurst in New Jersey. The company has been working with the SEC as the agency wrestles with understanding how crowdfunding meshes with traditional finance, though it claims it doesn't and won't rely on the JOBS Act for its business. "There are different provisions of the securities laws that we have relied on in the past, and I would expect that this would continue to be the case in the future," noted Nick Olmsted, Mosaic's general counsel and corporate secretary.

The Natural Resources Defense Council (NRDC) recently announced its own crowdfunding plan, to build an online platform to help organize and direct groups how to put solar on schools: site assessment, approvals, funding, the RFP process, etc. "Like most NGOs, we go out to big donors and foundations," explained Jay Orfield, environmental innovation fellow in NRDC’s Center for Market Innovation. This effort, though, means going to "people who are going to use and benefit" from such solar installations, getting them to fund this $5, $10, $50 at a time, he said. "That market validation is specifically what we find really exciting about crowdfunding."

Needs Some Tweaking

Not that the SEC's proposed crowdfunding rules are without criticism. Capping fundraising at $1 million over a 12-month period might be too low of a threshold for many companies. "I think the gist will be that crowdfunding has some very low limits on how much you can raise," said John Marciano, partner at Chadbourne & Parke LLP. "[It] raises the question of whether it is really a viable financing option for building and owning projects, except maybe very small projects." Some companies could be motivated "to create many subsidiaries so each entity can raise money independent of the other," though "we have not heard about rules on aggregation yet," added Debbie A. Klis, attorney with Ballard Spahr.

Another potential sticking point in the rules: Anyone investing more than $500,000 has to provide audited financial statements. Small investors might balk at that, since in some cases that could be part of why they went the crowdfunding route in the first place vs. a more formal investment plan.

These proposed rules now move into a 90-day comment period, which will almost certainly be voluminous, and likely will be extended by the SEC, with final rules coming after that -- likely late 2014 or even 2015, points Adam Wade, associate at Foley Hoag. With that much time, there could be significant difference between these preliminary rules and what gets finalized.

Marciano likens the crowdfunding discussions as similar to those around real estate investment trusts (REIT) and master limited partnerships (MLP), two other potential avenues for funding renewable energy ventures, particularly at smaller scales. "It has the promise of raising cash equity, but not tax-equity. Time will tell whether it is a viable option, but I'm guessing it may be difficult to implement."

The topic will be presented in depth next week at Renewable Energy World Conference in session 17B - New Sources of Low-Cost Capital for Solar Projects.

Jim Montgomery is Associate Editor for, covering the solar and wind beats. He previously was news editor for Solid State Technology and Photovoltaics World, and has covered semiconductor manufacturing and related industries, renewable energy and industrial lasers since 2003. His work has earned both internal awards and an Azbee Award from the American Society of Business Press Editors. Jim has 15 years of experience in producing websites and e-Newsletters in various technology.

This article was first published on, and is reprinted with permission.

October 24, 2013

6 Reasons Why Stock Markets Are No Longer Fit For Purpose

A new investment architecture is set to emerge

By John Fullerton and Tim MacDonald

Stock markets are not as portrayed on TV, the nerve center of capitalism.  Stock markets are nothing more than tools to facilitate the exchange of stock certificates that represent contractual rights that have little to do with real ownership. Today’s stock markets are primarily about speculating on the future prices of stock certificates; they are largely disconnected from real investment or what goes on in the real economy of goods and services.  It’s time for real investors such as pension funds and endowments to reconnect with business enterprise in long-term relationship through a new investment architecture:  the Evergreen Direct Investing (“EDI”) method.

Stock exchanges were originally conceived for the public interest and had a clear public purpose:  to allow companies to raise equity from a large pool of investors and to provide a market for investors to later sell their shares in those companies.  The promise of a liquid secondary market lowered the cost of that equity to enterprise thereby increasing economic growth and, theoretically at least, shared prosperity.

But capital formation is only a small part of what happens on stock markets today.  Yes, successful stock offerings provide the avenue for venture capitalists to recycle investments made in private markets back into new, innovative young enterprises.  But it is short-term speculation in stocks, aided by the increased speed of information flow, that has grown like a cancer into a big business of little real value and now dominates stock market activity. 

Keynes quote

Too-big-to-fail bank (and whale-scale speculator) CEO Jamie Dimon extols liquid capital markets as one of America’s greatest strengths in his latest letter to shareholders.  But many who sing the praises of market liquidity are more often than not just self-interested speculators.   Indeed, recent history has shown that our world leading liquid markets are as well the source of extreme global instability with dire and ongoing consequences.  Nonetheless this trader ideology remains stubbornly at the heart of our short-term-obsessed finance capitalism which, left unchecked, surely will lead us to economic, social, and ecological collapse.  

Six reasons combine to make our equity capital markets no longer fit for purpose:

  • The privatization of stock exchanges, destroying their public purpose mandate and instead making the growth of trading volume their single-minded goal and high-frequency traders (computers programed to trade) their preferred customers;
  • The unrestrained technology arms race in computing power combined with the adoption of technology-driven information flow spurring the rapid acceleration of trading volume, which at critical times can be highly destabilizing;
  • The misguided ascent of “shareholder wealth maximization” (at the expense of all other stakeholder interests) in our business schools, board rooms, and the corporate finance departments on Wall Street;
  • The well-intended but equally misguided practice of using stock-based incentives, and stock options in particular, as the dominant form of senior management compensation, which incentivizes them to focus only on short-term results at the expense of the long-term health of the enterprise, people and planet;
  • The misalignment of interests between short-term focused Wall Street intermediaries and real investors such as pension funds whose timeframe should be measured in decades;
  • Regulators’ lack of courage and confidence to counter the trader-driven paradigm and institute substantive structural reform such as a Financial Transactions Tax and other reforms that would penalize excessive speculation while incenting long-term productive investment.

Rather than limit themselves to this deeply flawed system, real investors can build direct relationships with enterprise in negotiated, innovative, mutually beneficial partnerships that are truly aligned with both parties’ long-term goals including the harmonization of financial, environmental, social, and governance imperatives.

The Evergreen Direct Investing Method

Private direct investment in enterprise (in contrast with trading in the stock market) with a long investment horizon, even an “evergreen” horizon, is nothing new.  As described in detail in Capital Institute’s fifth installment of its “Field Guide to Investing in a Regenerative Economy,” the EDI method enables long-term investors like pension funds to share in the cash flows of mature stable businesses.  Financial returns are earned through these planned cash distributions rather than through a hoped-for sale of the stock at a higher price than originally purchased. Stakeholder interests can be truly aligned, with environmental and social, and governance values negotiated into the partnership up front.

Buffett Quote

EDI investors will want to target mature, stable, low-growth businesses, often unappreciated by growth-obsessed equity capital markets.  They will thus disprove the myth that growth at the expense of the environment or employees is the only path to adequate financial returns.  The cash flows of mature, stable businesses may not exhibit the (in our view often unsustainable) growth characteristics equity investors have been trained to desire, but they are far more dependable sources of financial return than speculation-driven capital markets.  That resiliency is what stewardship investors will value most in an increasingly uncertain future with growing resource and fiscal constraints hampering economic growth, particularly in the developed economies.

In fact, investing in mature, low growth sectors in which companies pay out rather than retain most of the cash flow they generate (energy infrastructure MLPs, REITs, utilities) is a proven formula for dependable, long-term investment success as the table below reveals:  

While the EDI method involves taking businesses or subsidiaries of public companies private, its returns to the investor are not conditional on sales.  It thus differs significantly in approach and intention from conventional highly leveraged and therefore less resilient, exit-driven private equity with its excessive fees.

Can EDI be scaled up as an alternative vehicle for investment in large, mature businesses of the mainstream developed economies, while also providing a more effective way to embed ESG values into their investments and the economy in aggregate?  It will require a fresh look with a critical eye at the failed promise of modern portfolio theory, and the self-serving interests of our short-term-driven Wall Street trading paradigm.

This is the great promise of Evergreen Direct Investing.

Earlier versions of this post previously ran on The Guardian's Sustainable Business Blog and on Capital Institute's Future of Finance Blog."

John Fullerton is the founder and president of Capital Institute, and a recognized New Economy thought leader. He is also a leading practitioner of "impact investment" as the principal of Level 3 Capital Advisors, LLC.  He was previously a Managing Director of JPMorgan, where he worked for over 18 years.
Tim MacDonald, Capital Institute Senior Fellow, is a theorist-practitioner in the evolving new field of purposeful investment by stewardship investors, and the principal architect of the Evergreen Direct Investing method.  He was previously a tax partnership lawyer.

October 10, 2013

Graftech: On Graphite Coattails

by Debra Fiakas CFA

Graftech makes graphite
products like this crucible for
traditional industries, and
is expanding its products for
alternative energy industries
Photo by Vladnov
Graftech International Ltd. (GTI:  NYSE) has been in business over a hundred years, supplying graphite materials and products to the steel industry and other manufacturers.  Most investors would put Graftech on a list of ‘dirty’ companies, not with alternative energy leaders.  However, with technological innovation Graftech has found new customers for its graphite materials.  Fuel cell components, wind turbine blades, energy storage devices, and electronic thermal management components are just a few of the products critical to the establishment of alternative energy sources.

Graftech has struggled some in recent months to keep momentum going at this top-line, but long-term the company has experienced strong growth.  The addition of new customers in the alternative energy industry has been a part of that growth.  In the most recently reported twelve months Graftech recorded $1.3 million in total sales and delivered $66.9 million in net profits.  Operating cash flow was $144.5 million.

GTI is trading at 17.4 times trailing earnings, which is just under the average price/earnings ratio of its industrial peer group.  There is a 30% differential between the trailing and forward price/earnings ratios, suggesting an impressive appreciation potential. A beta of 1.40 means relatively low volatility for the holder waiting for a price increase.

Of course, the half dozen analysts who have published earnings estimates for Graftech could be all wrong in their predictions of future earnings.  That would cast doubt on the anticipated ramp up in stock price.  One thing for certain is that graphite has a compelling future in the alternative energy sector and it seems reasonable Graftech will be a beneficiary.  
Debra Fiakas is the Managing Director of
Crystal Equity Research, an alternative research resource on small capitalization companies in selected industries.

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

October 06, 2013

New Energy IPOs

by Debra Fiakas CFA

IPO wordcloud.jpg
IPO Wordcloud photo via BigStock
Investors looking for a piece of the public offering action from the alternative energy industry have been sorely disappointed in recent months.  The last big initial public offering in the sector was SolarCity, Inc. (SCTY:  Nasdaq) in December 2012.  Then in April 2013, there was an initial public offering of the REIT Hannon Armstrong Sustainable Infrastructure Capital (HASI:  Nasdaq). 

Anyone looking for bragging rights to IPO shares will have to look to the conventional energy market.  Last week Valero Energy (VLO:  NYSE) filed to raise as much as $300 million in a new master limited partnership it is forming called Valero Energy Partners, a logistics-based business.  The partnership is to own oil and refined petroleum pipelines and terminals in the Midwest and the Gulf Coast.  Valero has a handful of ethanol plants and a wind-farm as well as the Diamond Green Diesel joint venture with Darling International (DAR:  NYSE).

Cheniere Energy, Inc. (LNG:  NYSE) is undertaking a bit of reorganization.  A new holding company has been organized  -  Cheniere Energy Partners LP Holdings  -  that will own a 56% stake in a Cheniere master limited partnership.  The underlying assets are regasification facilities at the liquid natural gas terminal Sabine Pass in Louisiana.  It will be a very large offering of $690 million and it will give investors a stake in proven, stable assets and a flow of business in the burgeoning U.S. natural gas market.

By comparison the $100 million offering planned by EP Energy Corporation is chicken feed.  However, the preliminary valuation of the company is $8 billion, implying a nice step up for it owner private equity group Apollo Group.  It was just last year that Apollo had taken the company private as a maneuver to enable in the sale of parent El Paso Corp. to Kinder Morgan.  Apollo paid $7.15 billion.  The ‘new’ EP Energy is expected to trade under the symbol EPE.

A stake in any of these deals means predictable earnings and cash flows, something alternative energy companies have been slow to deliver. SolarCity is still operating in the red and Hannon Armstrong reported a whopping $5.7 million loss on $3.4 million in sales just in the June 2013 quarter alone.  Perhaps a stake in one of these cash generating gas companies on the current IPO calendar can help investors wait out ramp to profitability in the alternative energy plays.
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 shares. 

October 04, 2013

Investor Enthusiasm for Graphene: Strong as Graphene

Tom Konrad CFA

Graphene is going to transform clean tech in less than five years.

Graphene Timeline - Poll.png

That, at least, is the opinion of the majority of the respondents to my reader poll about how graphene is likely to affect clean tech stocks.  This is in marked contrast to the caution expressed by the the responses from my panel of professional money managers who invest in clean tech stocks. (Their responses are the subject of a previous article on graphene investing.)

I think Shawn Kravetz, President of Esplanade Capital,  LLC, and manager of solar-focused hedge fund Electron Partners, LP exemplifies the panelists’ attitude towards greaphene’s likely impact on their investments: “I must respectfully pass on this one.  Ignorance is indeed bliss in this case.”  Technologies, like graphene, which are still in the lab, won’t have much impact on stocks’ performance until they are commercialized and can start contributing to a company’s revenue.  Commercialization usually takes much longer than innovators and many investors think.


Flexible Graphene Sheet image via BigStock

In my research, I found many companies which are developing graphene applications, and rushing to patent the results.  Most of these applications are still years from producing measurable revenue.  One example from my previous article was Lockheed Martin‘s (NYSE:LMT) patent on graphene water filters in March.  Lockheed clearly has the financing and brand name needed to commercialize this application quickly, but only says that it aims to have a prototype ready for testing by 2014 or 2015.  That puts the launch of a commercial product at least another three years beyond that, to give time for adequate testing an manufacturing scale-up at least five years out.

Perhaps other applications can be commercialized more quickly, but the “less than a year” or “1 to 2 years” responses to my poll seem very unrealistic, unless we are talking about inks and other applications of graphene powder, which is just normal graphite exfoliated into tiny molecule-thick sheets, lacking many of the properties of large graphene sheets which make graphene exciting in the first place.

Graphene… From Graphite Flakes 

I was contacted by the Corporate Communications officer of Grafoid, Inc in response to my poll and upcoming articles, and later did a short interview with its CEO, Gary Economo.  Grafoid describes itself as “a privately held Canadian graphene development and investment company,” 21% owned by Focus Graphite, Inc. (TSX-V:FMS, OTC:FCSMF,) a junior mining firm which owns the high grade Lac Knife graphite property  in Quebec, Canada.  It was previously known as Focus Metals, but changed its name to Focus Graphite in 2012.

Grafoid’s signature product is MesoGraf™, a range of trademarked bilayer and trilayer graphene product created from graphite ore using a “novel chemical exfoliation and transformation process.”  I am skeptical of graphene refined from graphite, because most of the potentially revolutionary applications for graphene require the use of large sheets of graphene, and established companies and researchers seem focused on creating graphene by vapor deposition.

In terms of applications, Grafoid’s projects are in the laboratory stage, and they include a graphene cathode for a patent-pending improved lithium ferrophosphate (LFP) battery developed Hydro-Quebec.  Grafoid is also doing research into highly conductive, energy absorbent, and strong plastics made using graphene as an additive. Grafoid has applied for patents on its mixing process, which Economo says is the key to getting high quality graphene infused plastics.

He also told me that Grafoid is able to create large, (“as big as a table”) well structured sheets of graphene from MesoGraf, although he did not mention any applications of MesoGraf using large sheets made in this way.  If scalable and the sheets are of controllable quality, such sheets would open the door to most graphene applications.

My reaction to Grafoid is “too good to be true.”  It’s my experience that the time between success in the laboratory (which is where both companies seem to be with their graphene) and a commercial product is measured in years.  The road to commercialization is long (unless it is a dead end) and typically requires repeated rounds of financing which often leave small investors owning little of the final product.

A similar company to Focus Graphite, Lomiko Metals Inc.  (TSX-V:FMS, OTC:FCSMF) was recently in the news for having turned graphite into “graphene oxide.”  (Grafoid also says it can also easily oxidize MesoGraf.) The graphene supercapacitors which made headlines last March were made from graphene oxide using the laser from a DVD burner.

A company representative left a comment on my previous post saying the company is

[W]orking closely with Glabs [Graphene Laboratories of Calverton, NY] to develop supercapacitors and other devices and ideas using graphene converted from natural flake graphite we find in Quebec.  The connection between graphite and graphene on a scientific level is large.  However the some of the amazing properties of graphene can be found in graphene nanoplatelets.  Imagine graphene to be a pristine, smooth plywood sheet and nanoplatelets a particle board or cork board formation.  This structure may increase conductivity but reduce strength and make the substance useful in battery and supercapacitor applications (which we are working on).  As you know, there are more than 9000 patents for graphene.  There is enough flake graphite resources to supply the creation of an industry based on graphene.  But few are working on the pinch point of the hourglass – the conversion technology.  That is what Lomiko and Glabs would like to create graphite and graphene substances that focus on one or two of the qualities of graphene – strength, conductivity, or elasticity and produce it for pennies per gram.  Current costs of $ 100 – $1000 per gram are prohibitive for production purposes.

According to my professional investor panel and several respondents to my poll, suppliers of graphene like Lomiko and Focus Graphite, as well as associated production equipment such as Aixtron (NASD:AIX) and CVD Equipment Corporation (NASD: CVV) because of their ability to benefit from a broad range of commercial applications.

However, given the early stage of Grafoid’s and Lomiko’s research, I believe these two companies should only be considered as investments on the basis of the value of their graphite mines. Graphite will have value whether or not it turns out to be a practical source of graphene feedstock.  If these companies can be bought at attractive valuations based only on their mining assets, then graphene may provide a potential long-term upside.

As with commercial graphene applications discussed in the previous section, investors need to realize that the commercialization of graphene from graphite technology will be a very long haul if it is not a dead end, and invest accordingly.

Effects on Cleantech Stocks

Graphene Sectors - Poll.png

Considering the effect on an industry’s competitive landscape is very useful to understanding have a new technology might affect stocks in that industry.  An industry will benefit if the technology makes its suppliers’ markets more competitive, while they will be hurt if new competitors are likely to emerge using this technology, making the markets for its products more competitive.

Many investors tend assume that if a new technology has application to an industry, it will help the stocks in that industry.  This is seldom the case.  Consider, for instance, the effect of First Solar’s (NASD:FSLR) thin-film CdTe photovoltaic technology on incumbent solar companies.  By producing solar panels at a lower cost per watt than its competitors, First Solar reduced the margins of these competitors as it scaled up production by pushing the price of solar panels down.  Meanwhile, all solar manufacturers’ customers benefited.  The market for solar exploded as solar installers, developers, and their customers took advantage of rapidly falling prices.

In the case of graphene, the top applications suggested by readers were Solar Cells, Ultracapactiors, Batteries, Electronics, protective coatings, and water filtration. If this is correct, the biggest beneficiaries should be those industries which use these products.

Cheaper and better ultracapacitors and batteries should help electric vehicle companies, their customers, while likely harming electricity storage incumbents (competitors.)  Poll respondents identified electric vehicles as the most likely sector to be helped (88%) and least likely to be hurt (0%), but were also bullish about utracapacitor stocks (83% helped, 8% harmed) and battery stocks (70% helped, 18% harmed.)

Variable electricity generation technologies such as Solar and Wind might be helped by cheaper energy storage which could make it easier to integrate these resources into the electric grid, but wind stocks are much more likely to be helped than solar stocks.  Wind companies, unlike solar companies, are unlikely to see new competitors emerge using graphene based technology, but ultracapacitors are used in the electronics of wind turbines.

Companies which may supply companies using graphene technology may also benefit from new markets for their products.

With wind and solar sectors, my respondents seem to have the relative effects of graphene reversed (after correcting for the general bullishness.)   Most (79%) of my poll respondents thought solar stocks would be helped, compared to only 10% who thought they would be harmed, while 30% thought wind stocks would be helped compared to 26% who thought they might be harmed.

These poll results most likely arise from the assumption that a technology which helps an industry produce better products will help the existing companies in that industry.  As I discussed above, this assumption is most likely false.  A new technology only helps existing companies is when they manage to commercialize the new technology before start-ups or competitors from other industries do. But existing companies tend to be bad at such innovation because of a reluctance to undercut their existing lines of business.

Stock Picks

Given my skepticism of my poll respondents’ accuracy in picking cleantech sectors, their stock picks should be approached with caution.  Below are their suggestions, organized by sector, for those looking for ideas and ready to do some serious due diligence.

Companies with graphene patents:

  • Lockheed Martin (NYSE:LMT)
  • Nokia (NYSE:NOK)
  • AT&T (NYSE:T)
  • Verizon (NYSE:VZ)
  • Tesla Motors (NASD:TSLA)
  • Maxwell Technologies (NASD:MXWL – Note: I am short this stock.)

While these companies may be helped, the effect on their stocks is likely to be small because of their large and diverse existing operations in other businesses.

The exception in this group is Maxwell – it might be helped a lot if it can commercialize graphene capacitors before anyone else does, but it could also be harmed if another company gets there first.  Maxwell has been an active researcher in the graphene space, but management does not typically mention graphene in its MD&A, which leads me to believe that any graphene ultracapacitor from MXWL is years away. On the other hand, Maxwell’s management tends to play things very close to the chest.  They may surprise me.

Potential Graphene and Equipment Suppliers

  • Aixtron SE (NASD:AIXG)
  • CVD Equipment Corporation (NASD: CVV)

I consider this group the best bets, if bought at reasonable valuations based on their current businesses.

Graphene from flake graphite suppliers

  • Lomiko Metals (TSXV:LMR, OTC:LMRMF)
  • Focus Graphite (TSX-V:FMS, OTC:FCSMF)

Best bought only based on mine valuations.  Graphene might eventually provide some upside.


I think the strongest take-away from my reader poll is that cleantech investors expect too much from graphene, and expect it too soon.

Even more than the sector breakdown, the number of poll respondents who think existing cleantech stocks will be helped rather than harmed or unaffected by graphene technology should be a warning sign to prospective graphene stock market investors.  Investor enthusiasm often draws stock promoters, so a company branding itself as a “graphene stock” should be a warning sign in and of itself.  Even if a company has a real way to profit from graphene technology, that technology’s popularity is likely to mean the stock will be overpriced.


This article was first published on the author's Green Stocks blog on on September 24th.

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.

September 28, 2013

Graphene Stock Investing: What The Pros Think

Tom Konrad CFA

Flexible Graphene Sheet image via BigStock

 Graphene is a crystalline form of carbon in which carbon atoms are arranged in a regular hexagonal pattern. It is very strong, light, and an excellent conductor of heat and electricity. It is also nearly transparent. New laboratory  techniques for creating large sheets of graphene, including a roll-to-roll production process, have triggered an explosion of research into new practical applications taking advantage of graphene’s unique properties.

Some potential cleantech applications are solar cells, ultracapacitors, water filtration and desalination, and electronics including touch-screens and better transistors. Graphene’s high electrical conductivity and near-transparency make it a good candidate for solar cells. Researchers have demonstrated the use of graphene conductors for dye-sensitized, organic solar cells, and silicon nanostructures.

While roll-to-roll production processes have yet to move out of the lab, researchers continue to improve the quality and size of graphene sheets produced in this way.  The most advanced version of the technology seems to be vapor deposition of carbon on copper sheets.  Other substrates have been used, but copper’s flexibility makes it uniquely suitable for roll-to-roll production.  Lockheed Martin announced that it has obtained a patent for perforated graphene nanopore-based water filters in March, and also produces its graphene on copper sheets.  The company has not yet commercialized the technology, however, saying that it is still figuring out how to scale up production.  Lockheed aims to have a prototype for testing in a desalination plant by 2014 or 2015.

One of the closest applications to commercialization is graphene ink used to lay down circuitry.  BASF SE is experimenting with graphene ink for printing flexible circuitry on car seats, something it hopes to commercialize in a few years.

Last week, I asked my panel of green money managers for their thoughts on investing in graphene, as well as polling my readers.  I’ll relay the professional’s ideas in the rest of this article, and then take a look at my readers’ responses in a follow-up article.  The reader poll is ongoing (you can take it here.)

Green Mutual Fund Managers

I received thoughtful responses from two managers of green mutual funds, Garvin Jabusch and Frank Morris.  Jabusch is co-founder and chief investment officer of Green Alpha Advisors and co-manager of the Shelton Green Alpha Fund (NEXTX.)  NEXTX invests in companies focused on solutions to the world’s key climatic-macroeconomic issues such as climate change, resource constraints and global production capacities.

Morris is co-founder of Ecologic Advisors and manages the Epiphany Global Ecologic Mutual Fund EPENX.  EPENX has a more diversified focus, and concentrates on companies that provide goods and services that maintain the ecologic health and viability of the Earth, or remediate damage already done.

I asked them each which graphene cleantech applications they thought were most promising, the commercialization timeline, and their ideas for stock market investments.

Top Applications

Jabusch says “[I]t’s hard not to be bullish on the long term prospects for graphene as a material.”  In particular,

Graphene has unmatched capabilities in both electronic and material/mechanical capacities. For example, it has the ability to convert almost every photon that it absorbs into direct current, meaning theoretically it could be used to make the holy grail of solar cells – one that is 100% efficient. This unmatched conductivity also means it could greatly improve energy storage and transmission, meaning everything from EVs (batteries and super-capacitors, etc.) to large-scale grid storage to transmission efficiencies of power and optical communications, and other infrastructure components may become so much better as to be disruptive to existing approaches to all these things. Graphene’s ability to be formed into nanowires means it may provide the smallest and most size and speed efficient circuitry for electronics and LEDs to date, by far. Graphene is the strongest material ever measured, ~200x stronger than steel, making it extremely light and resilient, offering the possibility of making many things we use, from vehicle chassis to airframes both lighter and more durable, like carbon fiber did decades before.  At one molecule thick, it is also transparent, meaning it offers possibilities in touch screens and displays and means that windows may become PV modules in time.

Morris focused only on its energy storage applications, and thinks that three firms in his Global Ecologic Mutual Fund are all researching its potential: EnerSys (NYSE:ENE), Tesla Motors (NASD:TSLA,) and Johnson Controls (NYSE:JCI.)

From my recent reading, I’m most optimistic about graphene’s applications as a thin, transparent conductor in solar and LED lighting applications.  Its ability to both conduct electricity and dissipate heat seem likely to be very useful for LEDs.  Graphene circuitry in devices where size and weight are critical also seems likely to be an early application, but are more likely to bring incremental improvement than revolutionary change.

Commercialization Timeline

Both Morris and Jabusch were cautious about predicting any commercialization timeline.  Jabusch said,

[W]idespread commercial viability of [graphene's] properties may still be further off than many  investors seem to be hoping. This is mainly because a lot of its benefits are paired with limitations that to greater or lesser degrees, still need to be overcome. For example, even though it has 100% energy conversion rate for absorbed photons, it only absorbs ~3% of photons striking it. There is a lot of research going on addressing this such as with dye-sensitized cells and other ideas, but all of this is primarily still in the lab and not ready for widespread use. Keep in mind, graphene was only discovered in 2004. Something we’ve been aware of for less than a decade will necessarily have a long way to go in terms of our understanding how to best unlock its potential.

This caution fits well with the results of my research.  A Wall Street Journal article printed cautionary notes from two industry experts,

Graphene faces hurdles. It is still far too expensive for mass markets, it doesn’t lend itself to use in some computer-chip circuitry and scientists are still trying to find better ways to turn it into usable form. “Graphene is a complicated technology to deliver,” says Quentin Tannock, chairman of Cambridge Intellectual Property, a U.K. research firm. “The race to find value is more of a marathon than a sprint.”

One factor holding graphene back is cost. Some U.S. vendors are selling a layer of graphene on copper foil for about $60 a square inch. “It needs to be around one dollar per square inch for high-end electronic applications such as fast transistors, and for less than 10 cents per square inch for touch-screen displays,” estimates Kenneth Teo, a director at the Cambridge unit of Germany’s Aixtron SE  (NASD:AIXG) that makes machines to produce graphene.

Top Stocks

While Morris mentioned three companies he thought might be researching graphene, he was cautious not to predict any near-term measurable benefits.  With all of us expecting commercialization timeliness of at least three years, it’s premature to start picking stock market winners.  Jabush likens it to investing in biotech in the early 1990s, saying that it makes more sense to hold a basket of the most promising companies, especially those hedged by not having graphene as their entire business.

He said his basket might “include Aixatron (NASD:AIXG; also makes deposition and other equipment used in making PV and LED), Samsung (OTC:SSNLF; has many other well-known businesses, many of which may directly benefit from graphene integration), and Graftech International (NYSE:GTI; legacy graphite and coke-needle business now focusing more on patenting graphene IP, and production of the material).  We’re long AIXG and GTI, and may initiate an SSNLF position.  Note: I’m also long GTI.

Proceed with Caution

Graphene is undeniably exciting, and has the potential to transforms a number to cleantech industries.  The timeline for that transformation, however, is likely to be slower than investors bidding up graphene-related stocks today.  The only reason I own Graftech, mentioned above, is because I think it is undervalued on the basis of its existing businesses: manufacturing graphite electrodes for energy efficient electric arc furnaces, and its existing Engineered Solutions business which sells a variety of graphite based solutions to a range of cleantech businesses.

Jabush is more optimistic, and thinks “careful investments in the best graphene producers and even more careful selection of companies making early efforts at application of the material have outstanding long term growth potential.”

Note the double use of the word “careful.”

This article was first published on the author's blog, Green Stocks on September 18th.

Disclosure: Long GTI

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.

September 20, 2013

How to Read a Sustainability Report: Five Tips

Five tips to help you make sense of the next sustainability report you read

reading green reports.jpg
Reading Sustainability Reports photo via BigStock
By Marc Gunther. This article was first published on

Corporate sustainability reports have been around since … well, it’s hard to say.  The first report may have been published by “companies in the chemical industry with serious image problems” in the 1980s, or by Ben & Jerry’s in 1989 or Shell in 1997. No matter — since then, more than 10,000 companies have published more than 50,000 reports, according to, which maintains a searchable database of reports.

But who really reads them? As a reporter who covers business and sustainability, I do. Maybe you do, too — as an employee, investor, researcher or activist.

Here, then, are five tips to help you make sense of the next report that lands on your desk or arrives via email. They were developed with help from Steve Lydenberg of Domini Social Investments — the principal author of How to Read a Corporate Social Responsibility Report, an excellent 2010 study from the Boston College Center for Corporate Citizenship — and Bill Baue, a consultant and leader of the Sustainability Context Group, an organization working to improve corporate reporting.

1. Pay attention to what’s in the report — and what’s left out. Lots of companies fill their sustainability reports with anecdotes, but these are often off point. Chevron’s 2012 corporate responsibility report says a Chevron executive in Angola is part of “a team that protects endangered turtles that come ashore to breed, dig sandy nests and lay their eggs on the beaches at Chevron’s Malongo oil production facilities.” And we learn that the company has partnered with the Wildlife Conservation Society to “introduce passive acoustic monitoring in the south Atlantic Ocean to assess humpback whale breeding activity” as it explores for oil.

That’s nice, but environmentalists will want to understand what the giant oil company (2012 revenues: $234 billion) is doing about climate change, if anything. Figuring that out from the report is hard, if not impossible. Chevron reports that its 2012 emissions from operations were 56.3 million metric tons of CO2 equivalent, down by about 3.5 million metric tons from 2011, and below its goal of 60.5 million metric tons. That sounds like progress. But you have to read the footnotes to learn that the decline was largely caused by the sale of one refinery in Alaska and “decreased production” from a second refinery in Richmond, Calif., where an August 2012 fire sent thousands of people to hospitals and later led Chevron to pay $2 million in fines and restitution.

What’s more, emissions from operations account for only part of Chevron’s impact. The company’s report says, “combustion of our products resulted in emissions of approximately 364 million metric tons of CO2 in 2012, approximately 8 percent less than the 396 million metric tons emitted in 2011.” Why the decline? Is the fact that people are burning less gas and oil good for the planet but bad for Chevron? The report doesn’t explain.

A good sustainability report should focus on those company activities that have the greatest impact.More importantly, is Chevron trying to move away from fossil fuels and develop cleaner forms of energy? It doesn’t seem to be, since the word “renewable” appears nowhere in the body of the report.

2. Follow the (big) money. A good sustainability report should focus on those company activities that have the greatest impact. So, for example, what matters most in the financial services industry is not paper consumption, LEED-certified work spaces or direct greenhouse gas emissions, but lending and investment practices. Citi’s most recent report says it opened 23 LEED-certified branches in 2012 — a data point that is hard to put into context (since the report doesn’t say how many branches the company operates) and not very meaningful, in any event. What we want to know about Wall Street is how the big banks are taking environmental issues into account in their lending and investments. “No other industry has as much ability to affect the environmental and social practices of other industries as financial services does,” says Lydenberg.

Bank of America tackles the big question better than most. In its report, BofA says it has committed $70 billion over 16 years to “address global climate change and demands on natural resources,” and it describes the goal as “the largest among our peers.” That’s helpful. The bank also tallies where the first $21 billion of its climate-friendly financing has gone. To its credit, BofA also tries to explain why it does business with the coal industry in the face of criticism from environmental groups. “If large financial institutions were to unilaterally discontinue financing the coal industry, it would have negative consequences for the U.S. and global economies,” the BofA report says. The bank also notes, helpfully, that it supports government policies to tax or regulate carbon emissions.

Like most banks, however, BofA doesn’t provide an accounting of its loans to or investments in fossil fuel companies. (According to the Rainforest Action Network, BofA finances Coal India, one of the world’s biggest coal mining companies, which has displaced forest communities and destroyed critical tiger habitat.) How do Bank of America’s investments in fossil fuels, which aggravate climate change, compare to the $70 billion it has pledged to finance, in part, climate solutions? Is the bank making the climate crisis better or worse? Good luck finding out.

You can be confident that most companies present their data in the most favorable light.

Sustainability via BigStock

3. Think about context.  When trying to understand a company’s impact on climate or energy usage or water, a single number or two won’t help. You’ll need to look at absolute numbers (how much energy did the company use, in total), normalized numbers (adjusting for acquisitions or divestitures), and numbers that reflect energy or water intensity (how much was used per unit of product or dollar of revenues). These numbers only become meaningful when they are accompanied by year-over-year comparisons, or when set against previous goals. You can be confident that most companies present their data in the most favorable light.

The concept of context-based sustainability is designed, in part, to cut through obfuscations and generate meaningful sustainability goals and targets. The idea is elegant: Companies should measure their impacts against science-based sustainability thresholds and resource limits. Is Coca-Cola only using its fair share of the water supply in India? What should Ford’s carbon reduction target be? These aren’t easy questions, but Baue and Mark McElroy of the Center for Sustainable Organizations — leading advocates of context-based sustainability — say answers can be found. Companies, for example, could for reporting purposes be allocated a share of greenhouse gas emissions based on their contributions to gross national product; they would then set emissions reduction targets that are deep enough to meet global climate goals, and report on their progress against those targets.

Several companies are experimenting with context-based sustainability, including the Vermont dairy company Cabot Creamery Cooperative, EMC and Mars. BT (British Telecom) has developed a methodology to determine its share of GHG emissions, as has the California software company Autodesk, which makes its tool, called C-FACT (Corporate Finance Approach to Climate-Stabilizing Targets), available for free.

4. Read more than one report at a time.  How many glasses of water does it take to brew a gallon of beer? I have no idea either, so reading that New Belgium, a Colorado brewing company, wants to reduce its water use per barrel to 3.5 to 1 by 2015 doesn’t tell me much. In 2011, the ratio was 4.22 to 1.

New Belgium has a well-deserved reputation for sustainability but when it comes to water, the brewer lags behind its bigger competitors. MillerCoors’ latest sustainability report says it achieved an average water-to-beer ratio of 3.82 to 1 across its major breweries, while the world’s biggest beer company, Anheuser-Busch InBev, does even better, reporting a water-to-beer production ratio of 3.5 to 1.

Good sustainability reporting, above all, needs to be credible.Reading the Coca-Cola and PepsiCo reports side by side is more enlightening than reading one at a time. The same with UPS and FedEx. But be aware that peer-to-peer comparisons are inexact. New Belgium explains that a practice called “dry hopping” has increased the water intensity in the brewing process. A bottle of Fat Tire is not the same as a Bud or a Coors Light, as any beer drinker knows.

5. Look for all the news that’s fit to print.  Good sustainability reporting, above all, needs to be credible. It’s not easy to decide whether to trust what a company is telling us, but one sign is whether companies deliver the bad news along with the good. In the Chevron report, the refinery fire in Richmond, as well as a fire on an offshore oil-drilling rig near Nigeria, get only a passing mention. “These incidents do not reflect the expectations we have of ourselves,” the report says. We should hope not.

By contrast, Gap has been more willing than most companies to air its dirty linen (pun intended). The company has been forthcoming about what it calls “the severity of worker safety issues in Bangladesh” since 2010. When it comes to the environment, the company is clear about where it will exert its influence — over its supply chain and its own operations — and where it will leave the problems for others to solve.

At the end of the day, the most important thing to know about corporate sustainability reports may be that they almost inevitably raise more questions than they answer. A report cannot, by itself, be relied upon to explain a company’s environmental impact. It’s a useful starting point, at best.

Marc Gunther writer for Fortune, GreenBiz and Sustainable Business Forum co-chair, Fortune Brainstorm Green 2012 and a blogger at  His book, Suck It Up: How capturing carbon from the air can help solve the climate crisis, has been published as an Amazon Kindle Single. You can buy it here for $1.99.

September 04, 2013

Insiders Are Buying These Five Canadian Cleantech Stocks

TSX Logo

Tom Konrad CFA

In the US insider trades are easily found on the SEC website, stock exchange websites, and financial aggregation sites.  No so in Canada.  A search for insider trades for a Toronto-listed stock on Google will turn up all the financial aggregation websites, but they don’t have any data.

The TSX has more clean technology listings than any other exchange worldwide, many of which are truly international.  I follow several, so I was thrilled when I came across CanadianInsider, where anyone can peruse recent insider trades for Canadian listed companies.

Of the 14 Canadian clean technology companies I own, here are the ones that have seen recent insider buying.

Company: New Flyer Industries Inc.

Canadian Ticker: TSX:NFI


Business: The largest manufacturer of heavy-duty transit buses in North America.

Who’s Buying: 

  • President and CEO Paul Soubry bought 14,400 shares at C$10.80 and C$10.64 on August 20th and June 25th
  • Board Member Wayne McLeod bought 3,200 shares at C$11.25 on August 14th
  • Executive Vice President Wayne Joseph bought 9688 shares at C$11.25, C$10,90, and C$10.75 on August 13, June 28th and June 26th.
  • Major Shareholder Coliseum Capital Management, LLC bought over 42,600 shares during the last two weeks of August at prices from  C$10.76 to C$10.80.

Company: Ram Power Corp.

Canadian Ticker: TSX:RPG


Business: Geothermal Power developer and operator with main projects in Nicaragua and the US.

Who’s Buying: Director Alistair Sinclair bought 1,100,000 shares at C$0.15 on June 18th.


Company: Alterra Power Corp.

Canadian Ticker: TSX:AXY


Business: Renewable Energy Developer and operator with a diversified portfolio of geothermal, run of river hydropower, wind and solar assets on three continents.

Who’s Buying: Executive Chairman and founder Ross Beaty bought 37.6 million shares at prices between C$0.29 and C$0.32 in April and June.  He has hinted that he might buy the entire company if the stock price does not recover.


Companies: Renewable Energy Developers (ReD) and Capstone Infrastructure Corp. 

Canadian Tickers: TSX: RDZ and TSX:CSE


Business: Canadian Renewable Energy and Clean infrastructure developer and operator Capstone is in the process acquiring smaller ReD in an all-share deal.  Each ReD share will be worth 0.26 Capstone share.

Who’s Buying: Director of both firms Uwe Roper bought 39,000 shares of RDZ at C$0.99 on July 31st, and 25,000 shares of Capstone at C$3.85 on July 13th.

Company: Innergex Renewable Energy, Inc.

Canadian Ticker: TSX:INE


Business: Canadian power producer Innergex owns 23 run-of-river hydro plants, 5 wind farms, and one solar farm.

Who’s Buying:

  • CFO and SVP Jean Perron bought 2,000 shares at C$8.89 on June 25th.
  • President and CEO Michel Letellier bought 3,000 shares at C$8.95-9.20 in June.
  • Director Richard Laflamme bought 1,000 shares at C$8.85 on August 13th.
  • Corporate Secretary and director of legal affairs Nathalie Théberge bought 500 shares at C$9.64 on June 6th.
  • Director John Hanna bought 5,000 preferred shares at C$18.75-18.80 on July 16th and 18th.


Insiders can be as bad at timing the market as anyone, but insider buying can be a useful indicator that the people in charge of the company think it’s undervalued.

Few insiders need to buy their own stock to get exposure to the company:  Share and option grants are standard in most compensation packages.  When you see insiders buying shares in the open market in addition to these grants, it’s often a good time to consider buying yourself.

Disclosure: I own all these stocks.

This article was first published on the author's blog, Green Stocks on August 23rd.

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.

July 18, 2013

Energy Efficiency and Solar Lead Alternative Energy Stocks Skyward

By Harris Roen

Industry Day Week Qtr Year
Energy Efficiency -0.3% 2.3% 18.7% 49.9%
Environmental -0.2% 1.1% 9.8% 11.8%
Fuel Alternatives -0.3% 1.3% 19.6% 29.2%
Smart Grid -0.1% 2.4% 9.5% 31.9%
Solar 0.5% 6.8% 40.3% 52.8%
Wind 0.0% 2.1% 9.7% 21.6%
Average -0.1% 2.7% 17.9% 32.9%
Data as of: 7/17/2013

Alternative energy stocks are up over 30% on average for the year, reflecting impressive gains off of widely oversold lows in 2012. Almost three-quarters of stocks have been gainers, and two-thirds have seen double-digit price growth in the past 12 months. Solar and energy efficiency stocks in particular have done extremely well, both up over 50% annually.


The run-up in solar stock prices exhibit strength and breadth. For example, almost four out of five solar stocks are up in both the past three-month and 12-month time periods.

The best performer is SunPower Corp (SPWR), up 505% for the year! This vertically integrated, California-based solar company works at all levels of the photovoltaic business: from manufacturing to installation to service; and from rooftop residential to commercial to utility-scale. Caution is advised, though, since SPWR is still in negative earnings territory. Because SunPower is well positioned in the growing solar installation market, however, we believe that this energy stock is a good long-term prospect.

Energy Efficiency

Energy efficiency stocks have also done extremely well, with over 70% of companies posting annual gains in the double digits. The return leader here by far is Revolution Lighting Technologies Inc. (RVLT), a company that is worth 20 times what it was a year ago. Investors see RVLT as a strong play in the push for increasing efficiency in electric consumption by greater adoption of LEDs.

As with SPWR, it is hard to suggest investing in this and other high flyers except for a speculative portion of one’s portfolio. Having said that, these and other high-quality green investments will more than likely pay off as a buy-and-hold for the long-term.

Market Bottom?

On a technical basis, alternative energy stock prices look like they have formed a bottom. The chart below shows the WilderHill New Energy Global Index (NEX), which after flying high for a couple of years dropped 66% off its peaks in 2007. The downward pattern, however, shows a clear triple bottom. Three times, a new low occurred below the previous downward trough creating a wave-like pattern. This typically happens in three or four waves before a significant upturn begins.

In addition, the 200-day moving average crossed the 50-day moving average in December 2012, and the NEX has been trading above the 200-day moving average since that time. This can be an early sign of a prolonged upswing, as occurred in September 2006. The crossing marked the start of a 15 month, 83% surge.

Investors should be vigilant and monitor to see if the two moving averages cross again. This can indicate a false bull, as happened with the run between May 2009 and February 2010. Alternatively, it can signify the start of decline. This was foretold by the two moving averages crossing in February 2008, which preceded the precipitous drop later that year.

Unless the NEX starts forming a short-term top, we believe the two moving averages should remain widely apart as the recovery in clean energy continues.


Individuals involved with the Roen Financial Report and Swiftwood Press LLC do not own or control shares of any companies mentioned in this article. It is possible that individuals may own or control shares of one or more of the underlying securities contained in the Mutual Funds or Exchange Traded Funds mentioned in this article. Any advice and/or recommendations made in this article are of a general nature and are not to be considered specific investment advice. Individuals should seek advice from their investment professional before making any important financial decisions. See Terms of Use for more information.

About the author

Harris Roen is Editor of the “ROEN FINANCIAL REPORT” by Swiftwood Press LLC, 82 Church Street, Suite 303, Burlington, VT 05401. © Copyright 2010 Swiftwood Press LLC. All rights reserved; reprinting by permission only. For reprints please contact us at POSTMASTER: Send address changes to Roen Financial Report, 82 Church Street, Suite 303, Burlington, VT 05401. Application to Mail at Periodicals Postage Prices is Pending at Burlington VT and additional Mailing offices.
Remember to always consult with your investment professional before making important financial decisions.

July 07, 2013

The Next Tesla Or SolarCity

Tom Konrad CFA

Andrew Shapiro

Speaking at the Renewable Energy Finance Forum – Wall Street this morning, Andrew Shapiro, the Founder of Broadscale Group, presented his ideas on how small clean energy companies can succeed: Collaborate with big corporations.  That does not mean going cap in hand looking for the cash those companies can bring, but forging collaborative partnerships where interests are aligned with a corporate investment, and leveraging the reach and scale of those companies to rapidly achieve scale that entrepreneurs have trouble finding on their own.

Stock Market Implications

If you’re wondering how this is relevant to clean energy stock market investors, you need look no farther than the recent blistering performance of Tesla Motors (NASD:TSLA) and SolarCity (NASD:SCTY), two examples he used in his presentation.

Shapiro sees a new stage in the approach of large corporations towards the clean energy space, one which he dubs “transformative.”  Corporations are now looking for new business models of open collaboration, not just in clean energy, but throughout the corporate world.

For small, innovative companies, large corporations can help with what Shapiro says is their greatest need: commercialization and scaling.  Scaling is key to mainstream success.  Without rapid scaling, we may continue to increase investment in clean energy but not fast enough to bring down worldwide carbon emissions.

He sees Elon Musk-backed Tesla and SolarCity as examples of this collaboration with large, established corporations.  Musk realized he needed major strategic partners to make his ideas reality, while the big corporations were able to tap into the small companies’ innovative talents.  For Tesla, Musk brought in Daimler with a 10% stake, Toyota (NYSE:TM) with a $50m investment, and Panasonic  (OTC:PCRFY) with a $30m investment.  These were self-interested investments: Toyota has collaborated Tesla on the technology of its new Electric RAV-4.  Panasonic also collaborated with Tesla on new battery technology, and is now benefiting from Tesla’s rise.  Panasonic will is expected to ship 100,000 automotive grade lithium-ion battery cells to Tesla by the end of the month.

SolarCity (SCTY) also worked in collaboration with big corporate partners. SolarCity’s financing partnerships with Google (NASD:GOOG) and Goldman Sachs (NYSE:GS) are well known, but Shapiro highlights its lesser-known partnership with Honda as the most innovative.   Honda is not only seeking cost savings and green credentials by installing SolarCity systems on its dealerships, but it is also lending SolarCity some of its marketing muscle.  Honda and Acura car owners get a $400 discount on SolarCity systems.


Want to find the next IPO like SolarCity or Tesla?  Look for the company with established corporate partners that are committed to the success of their clean energy partners.

Disclosure: No position in any of the companies mentioned.

This article was first published on the author's Forbes blog on June 25th.

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.

May 19, 2013

Does Buying Green Stocks Do Any Good?

Tom Konrad CFA

Volt owners are almost universally happy with their cars, despite the fact that very few will recoup the extra costs of the car in gas savings.   Even though the financial savings are small compared to the large up front payment for the vehicle, the emotional payback more than compensates.

As someone who helps people invest in green stocks, I can tell you from first hand experience that investor enthusiasm has everything to do with recent financial returns, and not much to do with the good we’re doing.

In 2007, when practically any stock which could be labeled green was going stratospheric, my phone was ringing off the hook.  Then came the crash in 2008, with green stocks falling more than the market as a whole.  Worse, they failed to participate in the market recovery since then.  Green investors are a dedicated lot.  Many of my clients worried that the slump might never end, but none left.  But the calls from new clients became very few and far between.

Finally, in late 2012, green stocks began to rally.  The leading clean energy ETF, PBW, is up 40% from its November low.  The leading solar ETF, TAN, is up 65% from its low.

The phone is ringing again.

Why the Difference?

To judge by the comments from Volt owners, their enthusiasm has a lot to do with the regular thrill they get driving by a gas station without stopping.  Whenever they drive, they are reminded that they’re doing good for the environment.  This makes them feel good, and that feeling keeps them feeling good about their cars, even without positive financial returns.

A green stock portfolio is different.  Few investors make the emotional connection between their green stocks and the success of green companies.

Too Cerebral

Green money managers, in general, are not much help.  I asked my panel of thirteen green money managers, ranging from investment advisors to hedge fund managers how buying green stocks helps green companies.  Here is a sample of their responses:

Investment advisor Jan Schalkwijk, CFA at JPS Global Investments:

In theory, higher demand for green stocks –  to which small investors would contribute by purchasing green stocks, mutual funds, and ETFs – should decrease the cost of capital for these companies, thus improving their ability to expand. Additionally, to the extent that the purchase is funded by a redemption of a non-green stock, this should increase the cost of capital for that company; thus reducing its scope for expansion. However, I don’t think small investors have enough clout to make this theory pan out in reality. It really requires big buy-in from large investors to make a dent.

Solar hedge fund manager Shawn Kravetz at Esplanade Capital:

[T]he small investor is in effect providing capital to the green company and depriving capital of other alternatives.  While the green company has already raised the actual capital, the market purchase fuels demand for that sliver of ownership and in essence rewards the green company, making it easier and lower cost for them to raise more capital in the future and thereby spread their greenness.  One investor does not move the needle per se, but the sum of multiple such investors indeed does.

That’s all true, but it does not exactly get the heart racing.  Schalkwijk, Kravetz and I are immersed in the stock market on a daily basis.  To us, moving the price of a stock a smidgen is very real, we do it and see its effects regularly.  To the average small investor, however, this logic must seem hopelessly abstract.

Your Money, Direct to Clean Energy Projects
Fortunately, it’s not the whole story.

With the arguments for investing in green stocks so intellectual, it’s no surprise that even the most environmentally minded prospective investors are more interested in last month’s returns.

On Monday, I spoke to John Fullerton is the Founder and President of Capital Institute.  The Capital Institute’s mission is to transform finance to effect a more sustainable economy.  Its focus is on large institutional investors such as pension funds and endowments, but he agreed to speak with me about my personal focus: small investors.

In general, Fullerton thinks that the focus on trading in the stock market makes it very difficult for the sustainable investor to affect change.  But he sees some exceptions.  In particular, Master Limited Partnerships (MLPs) and REITs return their cash flows to investors, so they need to conduct secondary offerings (sell shares) whenever they make new investments.  Investors in these vehicles are buying the future cash flows derived from the expansion of the enterprise, not just speculating on a future stock price.

At the moment, the MLP structure is limited to depleting resources such as fossil fuels and their transport, and so are not likely to be of interest to green investors.  However, the MLP Parity Act, which was designed to correct this imbalance, has been re-introduced in the Senate with bipartisan support.  If the act passes, small investors will have the opportunity to invest in publicly traded MLPs which will directly use the money to fund solar, wind, geothermal, and other clean energy projects.

For now, there are two publicly traded REITs investing in clean energy projects.  The larger of the two is Hannon Armstrong Sustainable Infrastructure (NYSE:HASI), which went public last month and is investing the proceeds in eight clean energy projects that it had lined up in preparation for the IPO.  Since Hannon Armstrong is a leading financier of clean energy projects, investors can be confident that secondary offerings to fund other projects are not too far in the future.  By buying and holding HASI, they increase the amount of money the company can raise for new projects with a fixed amount of stock.  The profits from those projects will then be returned to the investors as dividends.

With the second clean energy focused REIT, Power REIT (NYSE:PW), the connection between the small investor and the clean energy project they are financing is even more direct.  Power REIT has just signed a term sheet for the acquisition of 100 acres of California land underlying approximately 20MW of to-be-constructed solar projects for $1.6 million.  PW will fund that purchase with a combination of debt and equity.

The equity will be raised by the company selling stock through a broker on the New York Stock Exchange under PW’s existing At Market Issuance Sales Agreement.  In other words, if you buy the stock today, there is a good chance that the money won’t go to another investor; it will go straight to Power REIT to fund a solar farm.  Even new investors who buy from other investors are directly helping by keeping the price up and ensuring that for every share PW sells as much money as possible helps finance the solar farm.  Profits from the solar farm will then flow back to Power REIT and be returned to investors as dividends.

Venture Capital

Many small investors wanting to make an impact envy the venture capitalists (VCs) who can fund a start-up green technology company with a better battery or a more efficient wind turbines design.

They should not be jealous.  VCs take their cues from the stock market, not the other way around.  Without the stock market and the ability to sell a company to ordinary investors in an IPO, the only ways for venture capitalists to get a returns on their investments would be to sell them to other companies, or wait for the start up to generate enough profits to pay them back itself.

Many VC-backed companies are sold to other firms, but this is a second choice option, mostly used when stock market valuations are low.  Waiting for a start-up to pay back its initial investors is simply not an option of VCs: the returns take too long.   They prefer the money sooner, in five to ten years at most, so they can move on and fund the next promising start-up.

Because VCs count on IPOs for their best returns, they’re much more likely to fund start-ups in sectors with high valuations.  When  solar stocks are in the stratosphere, VCs fund solar start ups.  When Smart Grid stocks are all the rage, VCs will be looking for the next great smart grid technology.

It’s not only First Solar’s (NASD:FSLR) management and shareholders who are paying attention to FSLR’s share price.  It’s VCs, and all the entrepreneurs hoping to get those VCs to fund the next breakthrough solar technology.

We’re Invested in More Ways Than One

In addition to pointing out that buying a green company helps its stock price, Shawn Kravetz made another point:

[W]hen people own stocks they tend to patronize and talk about those companies.  This vested interest and evangelism, when aggregated, does move the needle.

Fullerton makes a similar point in a recent blog post.  He argues that we should understand investment in the context of a holistic decision-making process that seeks to harmonize (not trade off) financial, social, and ecological objectives.

Both are saying that it’s too simple to just look at the effect our investment are having on companies, we also have to consider the effect our investments have on us.  People whose retirement depends on the continued profits of a coal companies are much more likely to give those companies a sympathetic ear when they complain that regulations to limit mercury emissions (or any other environmental harm) are too expensive and will undermine their profits.

If we invest in companies that stand to lose from the shift to a sustainable economy, the vested interests we are fighting are our own.  Much better to invest ourselves, both financially and emotionally, in companies that will benefit from the changes we know must be made to protect our planet and our children.


Even the smallest investors’ green investments make a difference.  This is most direct when they buy the shares of companies  in the process of raising money for green investments.  Yet they also makes a difference to a company’s ability to reward valuable employees with shares or options, and to the prospects of start-ups in similar industries.   Higher prices for green stocks mean more green companies having successful IPOs, and more green start-ups secure funding.

Perhaps most important are the effects owning a slice of a green company has on the investor.  It is much easier to make the right decisions for the planet and our future when we know the stocks we own will benefit from those decisions as well.

When green investors understand the very real changes their investments are having on the world, perhaps they’ll love their portfolios as well, like Volt owners love their cars.

Disclosure: HASI, PW

This article was first published on the author's blog, Green Stocks on May 8th.

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.

March 27, 2013

The iCloud's Green Lining

Meg Cichon

hp_photo_solar_federal_ornl[1].jpg Just one year after Greenpeace called out Apple, Inc. (AAPL) for its use of fossil fuels in its "How Green Is Your Cloud" report – which graded Apple no higher than a "D" in four categories consisting of energy transparency, infrastructure siting, energy efficiency, and renewables and advocacy – Apple announced that its data centers are now powered by 100 percent renewable energy. In fact, renewables contribute to 75 percent of its entire corporate operations energy needs, according to its website.

The 2012 report cites Apple’s planned expansion into “iDataCenters” to support its booming iCloud services, which at the time were thought to be powered mostly by fossil fuels. Apple was given poor rankings due to its apparent lack of initiative in clean energy and efficiency. Due to this lack of commitment,  “Apple [was] finding itself behind other companies such as Facebook (FB) and Google (GOOG) who are angling to control a bigger piece of the cloud. Instead of playing catch up, Apple has the ingenuity, on-hand cash and innovative spirit to Think Different and make substantial improvements in the type of energy that powers its cloud,” according to Greenpeace.

Shortly after the report was released — and Greenpeace hosted several colorful protests — Apple announced it would power its three new data centers in North Carolina, Oregon and California would be fully powered by renewable energy. Its Maiden, NC facility includes two 20-MW solar PV installations, with its remaining power to derived from a 10-MW biogas plant, fuel cells and renewable power purchased from local and regional sources — which are all set to be up and running by the end of 2013. It is locally sourcing wind power for its Newark, Calif. center and will do the same with a mix of renewable sources at its Prineville, Ore. center. Its next data center in Reno, Nevada will be powered by onsite geothermal and solar sources.

Apple is standing by its commitment to be powered entirely by renewables company-wide. According to its Environmental Footprint Report, “The implementation of our energy strategy results in an energy supply mix unique to each location. In all cases, though, Apple’s goal is to meet our energy needs with 100 percent clean, renewable energy that reduces GHG emissions and other environmental impacts.”

Greenpeace acknowledged Apple’s swift turnaround in a statement: "Apple's announcement shows that it has made real progress in its commitment to lead the way to a clean energy future. Apple's increased level of disclosure about its energy sources helps customers know that their iCloud will be powered by clean energy sources, not coal."

Meg Cichon is an Associate Editor at, where she coordinates and edits feature stories, contributed articles, news stories, opinion pieces and blogs. She also researches and writes content for and REW magazine, and manages social media.  Formerly, she was an Associate Editor of ideaLaunch in Boston, MA. She holds a BA in English from the University of Massachusetts and a certificate in Professional Communications: Writing from Emerson College.

This article was first published on, and is republished with permission.

February 20, 2013

China: The Rise of the Global New Energy Scavenger

Doug Young

King Vulture Sarcoramphus papa. Photo by Hein waschefort via Wikimedia Commons.
New reports that major car maker Dongfeng Motor (HKEx: 489) is bidding to buy a struggling US hybrid car maker are casting a spotlight on China's emerging role as scavenger for global new energy companies struggling to stay in business. A number of factors are driving this budding trend, led by the fact that many of these Chinese suitors are relatively cash rich and in a good position to provide much-needed funds for cash-starved western new energy firms.

What's more Chinese firms in general love a bargain when they shop for global assets. Then there's also the technology factor, as many of these Chinese buyers are hoping to bring some of the technology they get from their purchases to their operations back home. Lastly there's also the Beijing factor, as many of these buyers are making such purchases to show their commitment to developing new energy technologies, a top priority for the central government. Of course, the only problem in all of this is that most of these factors have little or no foundation in running a commercially viable business, meaning many of these purchases are ultimately likely to result in headaches and quite possibly failure for their buyers.

But now that I've said all that, let's take a look at the latest headlines, which say that Dongfeng is one of several potential bidders for Fisker Automotive, a US maker of high-end hybrid cars. (English article) Dongfeng's bid would see it pay about $350 million for 85 percent of Fisker, whose luxury hybrid cars sell for more than $100,000 each. Fisker was forced to halt production of its Karma model car last year after one of its key suppliers declared bankruptcy, but has said more recently that it plans to restart production soon.

According to the reports, Fisker will face its own cash crunch around the middle of this year if it doesn't find a new big investor by then. If Dongfeng succeeds in buying the stake, it could eventually move some of Fisker's production to China -- a common strategy by Chinese buyers who often think they can fix troubled western companies simply by moving their manufacturing operations to China.

This latest deal follows a series of similar recent Chinese purchases of struggling western new energy firms over the last year. The latest of those deals saw China's Wanxiang Group recently win approval to purchase most of the assets of bankrupt high-tech battery maker A123 Systems. (previous post) That deal previously faced some uncertainty due to national security concerns, but the US government ultimately approved the transaction last month.

Last year also saw a number of Chinese companies make global acquisitions in the solar panel sector, which has been struggling for the last 2 years due to a massive supply glut. Chinese firms Hanergy Holding Group reached a deal last fall to buy struggling Silicon Valley company MiaSole for a bargain price. (previous post) Hanergy also made an acquisition in Germany, buying a unit of QCells for about $500 million. Other deals saw LDK Solar (NYSE: LDK) buy 33 percent of Germany's Sunways AG last year, and TFG Radiant Group buy a 41 percent stake in US firm Ascent Solar Technologies (ASTI) in 2011.

This latest Dongfeng bid for Fisker shows the Chinese appetite for western new energy firms is still strong, and could even accelerate in 2013 for many of the reasons that I described above. These kinds of deals are important in one sense, because they will help to drive consolidation in crowded sectors like solar panels that are suffering from overcapacity.

But as I've already said, I do believe that many of these purchases are destined for difficulties and failure because the Chinese companies lack the resources and experience to turn around the troubled assets they are buying. From a broader perspective, look for more of these purchases in the next 2 years by bargain-seeking Chinese companies, followed by the first signs of trouble for many of these acquisitions starting by the end of this year or even sooner.

Bottom line: Dongfeng Motor's purchase of a struggling US hybrid automaker reflects China's growing appetite for western new energy firms, which is likely to accelerate this year.

Doug Young has lived and worked in China for 15 years, much of that as a journalist for Reuters, writing about publicly listed Chinese companies. He currently lives in Shanghai where he teaches financial journalism at a leading local university. He also 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 the author of an upcoming book about the media in China, The Party Line: How The Media Dictates Public Opinion in Modern China .

February 01, 2013

Earnings Season – Alternative Energy Stocks to Watch

By Harris Roen

Some 44 companies active in alternative energy have reported earnings in January 2013. Results have been all over the map, so it is important for alternative energy investors to know where to be cautious, and where the best potential profits are to be found. Below is a summary of selected earnings results from alternative energy companies that the Roen Financial Report tracks.

Linear Technology Corporation (LLTC)
More Info
1/15 Earnings came in on target for this integrated circuit company, but EPS were down 16% for the quarter and down 3% year-over-year. The stock, however is trading at annual highs, up 13% for the quarter and 7% in 12 months. We consider LLTC stock overvalued at these levels. Conference call


1/16 Earnings slightly beat analyst estimates, coming in 22% higher than the previous quarter but still remaining flat year-over-year. The stock shot up over 5% in one day, and 7% in 10 days on the news. Press release

Xilinx, Inc. (XLNX)

1/17 This smart grid company announced disappointing earnings, with revenues dropping 6% for the quarter, and both net income and earnings down double digits. Additionally, 2013 guidance dropped below analyst estimates. XLNX stock fell close to 25% on the news. Reuters article

Johnson Controls Inc (JCI)

1/18 EPS remain low for Johnson Controls, though earnings have bounced back up since last quarter. Sales remain flat, and profits have dropped slightly. The stock is down 8% for the year, but has gained 33% since its lows in August. Still, the stock is considered undervalued at current prices. Press release

General Electric Co (GE)

1/18 Revenues increased 8% for GE last quarter. Both earnings and net income were up double digits, though orders for wind turbines were down. The stock has had solid gains, up 17% for the year. Webcast

Rock-Tenn Co. (RKT)

1/22 EPS dropped 8% for the quarter, but this recycling company still beat analyst estimates by 6%. Sales have leveled off but remain strong, and the company retains excellent cash flow. We consider the stock undervalued at the current trading range in the mid to high $70s. Press release

Google, Inc. (GOOG)

1/22 Google came in with stronger than expected earnings, up 28% for the quarter and 15% greater than the same quarter last year. This means another in a long uninterrupted string of annual revenues increases for the company. The stock is up 7% since the announcement, and up 22% in one year. Press release

Cree, Inc. (CREE)

1/22 Cree's stock price surged after a stronger than expected earnings report, beating analyst expectation by over 8%. Profits increased 15% for the quarter and 27% year-over-year. The stock traded up 22% in one day on historically high volume on the news. Earnings call transcript

Siemens AG (SI)

1/23 Siemens posted lackluster earnings, with revenues dropping 16% for the quarter and EPS down 8%. It plans to sell its Solar Thermal business and Water Technology unit. This is in addition to 1,100 job cuts in its energy division due to decreased economic activity in the European Union. Bloomberg article


1/23 This smart grid company issued a strong earnings report, with profits up 36% for the quarter and EPS more than doubling. The stock is up on the news, and has gained 29% in the past year. Press release

Hexcel Corp (HXL)

1/23 Revenues were flat and earnings went down slightly for Hexel this quarter. Guidance from the company remains strong for 2013, with revenues projected to be between 4%-10% above 2012 levels. The stock is up 22% off its lows in August, but is still essentially flat for the year. Reuters article

Timken Company, The (TKR)

1/24 Even though Timken beat analysts estimates by almost 30%, earnings for the fourth quarter were still sluggish. Revenues, profits, and EPS all fell for the quarter and year. This power transmission company is expecting a 5% drop in sales for 2013. Press release

Corning Inc (GLW)

1/29 This silicon company took a big hit on net income this quarter, but EPS gained on rising profits. The stock has been bouncing around between the $11 to $14 price range, and is considered at fair value at current levels around $12/share. Press release


Individuals involved with the Roen Financial Report and Swiftwood Press LLC owned or controlled shares of GOOG. It is also possible that individuals may own or control shares of one or more of the underlying securities contained in the Mutual Funds or Exchange Traded Funds mentioned in this article. Any advice and/or recommendations made in this article are of a general nature and are not to be considered specific investment advice. Individuals should seek advice from their investment professional before making any important financial decisions. See Terms of Use for more information.

About the author

Harris Roen is Editor of the “ROEN FINANCIAL REPORT” by Swiftwood Press LLC, 82 Church Street, Suite 303, Burlington, VT 05401. © Copyright 2010 Swiftwood Press LLC. All rights reserved; reprinting by permission only. For reprints please contact us at POSTMASTER: Send address changes to Roen Financial Report, 82 Church Street, Suite 303, Burlington, VT 05401. Application to Mail at Periodicals Postage Prices is Pending at Burlington VT and additional Mailing offices.
Remember to always consult with your investment professional before making important financial decisions.

January 25, 2013

Alternative Energy Investing for 2013

By Harris Roen

2013 is poised to be an exciting year for alternative energy investors. Despite the conflagration solar had in 2012 we see opportunities there, as well as in wind and energy efficiency. This article also reveals why 2013 is shaping up to be a good year for the stock market in general, and alternative energy in particular.



If 2011 was a bad year for solar, with the bankruptcy of Solyndra, tariff wars with China, and other damaging events, then 2012 was a disaster. The Ardour Solar Energy Index (SOLRX) lost 35% in 2012. This is on top of a blistering 66% loss in 2011!

The chart below shows the change in net profit margin from 2011 to 2012 for the largest solar companies. Performances were not stellar in 2011, only 12 out of the 13 companies turned a profit and the average net profit margin was just over $5 million. In 2012, however, only one of the companies posted a tiny profit, and companies averaged over $28 million in losses. I could throw up similarly downbeat charts for other measures of financial health, including earnings per share (EPS), price to book ratios, and sales growth.


Even analysts’ projections for solar earnings have come way down. In 2011, the average EPS estimate for these large solar companies was a meager 0.57 one year out. In 2012, analyst EPS estimates dropped to a very negative average assessment of -1.72. Though depressing, this reality jived with my forecast at the beginning of 2012, where I predicted another year of rough sledding for solar stocks.

Despite the gloomy statistics, financial and energy analyst may look back at 2012 as the turnaround year for solar. Many individual companies (particularly the upstream photovoltaic (PV) manufacturers) are facing economic realities of oversupply and falling PV prices, which will ultimately lead to bankruptcies or mergers. According to IHS iSuppli Market Intelligence, the number of PV suppliers is expected to plunge by 70% in 2013. Those left standing, however, will profit immensely, since solar is a white-hat energy source that is likely only at the beginning of its long-term growth story.

It is very hard to pick winners and losers in this environment, so a broad collection of solar stocks is likely the best route for adventurous investors to take from here. One good option is a Mutual Fund (MF) or Exchange Traded Fund (ETF) concentrated in solar. For MFs, I currently like Guinness Atkinson Alternative Energy (GAAEX). Market Vectors Solar Energy ETF (KWT) also looks like a good value.



One of the fastest growing clean energy sectors is wind. The chart below shows projected growth of installed wind power in the three largest markets—the EU, North America and China. In 10 years, the amount of installed wind could more than triple from current levels, and in 20 years it could grow by 8 times! Moreover, this chart does not even include other important growth regions around the world.


Another exciting and dynamic area in renewable energy is offshore wind, and the Obama administration is starting to move forward on this. According to the U.S. Department of Energy (DOE), the generating potential of offshore wind in areas with less than 100 feet of water equals the entire generating capacity of the U.S. electric system!

Bloomberg reports that at the beginning of January, the Bureau of Ocean Energy Management started to gage interest in offshore wind leases for 127 square miles off the coast of New York. Also, in 2013 the administration plans to conduct competitive lease auctions off the Massachusetts coast.

Since there are very few publically traded pure-play wind companies in the U.S., a good way to add wind to a portfolio is by investing in ETFs. Two good examples are First Trust ISE Global Wind Energy Index Fund (FAN), and PowerShares Global Wind Energy Portfolio ETF (PWND). Though these funds were down between 15% and 20% for 2012, they have bounced back nicely since their July lows. In fact, both funds are up in the 33% range since that time.


Energy Efficiency

One of the most promising investment areas for 2013 may come from the area of energy efficiency. From an economic standpoint alone, smart efficiency measures that businesses and individuals can deploy have a short payback period, and many can bank immediate cost savings.

In 2012, Fidelity Investments featured energy efficiency as a “compelling investment opportunity.” According to Fidelity, global power needs are expected to rise 50% in the next 25 years, creating an increasing market for more efficiency lighting, engines and buildings.

Energy efficiency companies tracked by the Roen Financial Report have done extremely well in the past three months. Almost three quarters of stocks have been gainers, and 45 companies, or fully 20% of those energy efficiency businesses covered, have gained over 25% for the quarter.

Companies I like as long-term investments in energy efficiency include A. O. Smith Corp. (AOS) and Tetra Tech, Inc. (TTEK). AOS is in the commercial and residential water heating business, which has a strong balance sheet, excellent sales growth, reasonable debt levels, and its stock is considered undervalued in the high 60 to low 70 price range. TTEK is an engineering and management firm whose services include water resources, energy efficiency and carbon management. It is a very well-managed company with excellent free cash flow, but its stock is considered overvalued at current prices. If it dips to the mid to low 20’s, TTEK would merit a look.

I have no doubt that energy efficiency companies with good management and strong balance sheets will do well in 2013 and beyond.


Oil Prices

Even though the Roen Financial Report does not follow big oil, we do track oil and natural gas prices very closely. As reported previously (Volume 3, Issue 12), the long-term prospects of solar, wind and other clean energy options are clearly tied into the cost of the prevailing dominant energy source, which are petrochemicals.

Until recently, oil was a commodity that traded principally on supply and demand, or on the perception of how supplies may be squeezed due to regional conflicts. In the past several years, however, oil prices have turned into a proxy for how traders believe the economy, and thus the stock market, will fare. The logic goes that the more economic activity occurs, the greater oil consumption will be. Since 2009, the price of a barrel of crude oil has been almost exactly correlated to the S&P 500 index.


Of course, other factors will contribute to the price of oil in 2013. New drilling technologies are on the rise, giving life to what were thought to be unproductive wells, which will increase supplies. This increased production efficiency, though, has associated environmental issues. Also, the increased production will be more than offset by increased consumption, particularly by developing countries. For example, according to the International Energy Agency, energy consumption in China is likely to double in 10 years from 2008 levels, and triple by 2025!

Since I believe increased consumption will continue to more than offset increased production, I envisage that oil prices will continue to be pegged to the stock market. Because of this, domestic crude oil prices should rise slightly to the $100/barrel range by year’s end, but may peak out at $115/barrel at some point in 2013.


As Goes January…

Alternative energy stocks do not exist in a vacuum, so it is important to look at the prevailing stock market trajectory in 2013.

There is a saying on Wall Street “as goes January, so goes the rest of the year.”  Indeed, since 1950, the direction of the stock market in the month of January foretold the movement of the market for the rest of the year 70% of the time. Additionally, almost all Januarys that had over a 5% gain (11 out of 12) predicted a gain for the rest of the year. In fact, the average gain in those years was 17%, far exceeding historical averages.


So far the stock market, as measured by the S&P 500, is up 4.8% since the beginning of the year, and is on track to have continued gains for the month. Even more impressive, alternative energy stocks are up 9.2% so far for the year on average. Even if you take out volatile penny stocks, gains averaged 8.1%. Considering this I feel all stocks, including the alternative energy sector, will have a very positive 2013.

Another reason I believe stocks will do well in 2013 is that the economy is improving. Unlike the gloomy years of 2009-2011, where a continuum of bad economic news was the rule of the day, 2012 revealed some financial bright spots. These include improved business sentiment, a turnaround in housing, and healthy stock market returns.

Also, companies are still primed for business investment. S&P 500 companies in total have over $4.2 trillion in cash and short-term investments on hand, a 4.2% increase from the previous quarter, and 6.6% above levels of the same quarter last year.

Another positive is that inflation remains low. The chart below shows the annual change in the core rate of inflation over the past 50+ years. Though there was a 2.1% jump in the past 12 months, the graph clearly shows inflation is well below the long-term average. A low inflation rate has always been helpful for the economy.


I believe inflation will remain tame, despite unprecedented amounts of government spending. The “Velocity of Money’ (the rate at which money flows through the economy) is still very low, and actually dropped in 2012. Unless this indicator picks up, we do not see excessive inflation coming any time soon.

The bottom line is that low interest rates and plenty of corporate cash will be a strong driver of stocks in 2013, including the growth industries within alternative energy.

About the author

Harris Roen is Editor of the “ROEN FINANCIAL REPORT” by Swiftwood Press LLC, 82 Church Street, Suite 303, Burlington, VT 05401. © Copyright 2010 Swiftwood Press LLC. All rights reserved; reprinting by permission only. For reprints please contact us at


Individuals involved with the Roen Financial Report and Swiftwood Press LLC do not own or control shares of any companies mentioned in this article, but it is possible that individuals may own or control shares of one or more of the underlying securities contained in the Mutual Funds or Exchange Traded Funds mentioned in this article. Any advice and/or recommendations made in this article are of a general nature and are not to be considered specific investment advice. Individuals should seek advice from their investment professional before making any important financial decisions. See Terms of Use for more information.

Remember to always consult with your investment professional before making important financial decisions.

January 24, 2013

Inevitable Shifts and Indispensable Technologies

Next Economy Inflection, Pt. III

Garvin Jabusch

Back at the New Year, I thought it’d be fun to write up a short recap of some of the evidence that, finally, the world is waking up to the real need to get our economies on a footing that can allow it to persist indefinitely. In that post I wrote of those observations that “these are just the first few recent ‘tipping point’-like stories to come to mind. I've read dozens more examples recently, and I feel the fact that I can no longer be aware of all the evidence of inflection much less keep track of it all is surely a sign in itself.”

2013 has already revealed key moves forward from institutions not traditionally aligned with post fossil fuels economy thinking.

First is the U.S. Government, which released its somewhat regular (approximately every four years), multi-agency National Climate Assessment (caution: link is to the full report PDF of 147MB) on January 11th. Its message is unequivocal, “…observed climatic changes are having wide-ranging impacts in every region of our country and most sectors of our economy. Some of these changes can be beneficial, such as longer growing seasons in many regions and a longer shipping season on the Great Lakes. But many more have already proven to be detrimental, largely because society and its infrastructure were designed for the climate of the past, not for the rapidly changing climate of the present or the future.” (Italics mine.) Federal scientists and career professionals clearly get the need for transition, as does at least one governor.

In his 2013 State of the State Address, New York Governor Andrew M. Cuomo went far beyond recognition of these facts and expressed his desire to make his state an economic leader in and therefore a beneficiary of the next economy transition: “The economy of tomorrow is the clean tech economy.  We all know it, it’s a foot race – whatever state, whatever region gets there first wins the prize, and we want it to be New York.” On the topic of government inflection, I suppose it’s obligatory to mention that during his second inaugural address, President Obama did appear to be talking the talk on climate. But we’ve heard encouraging words from him before, most notably during his 2011 State of the Union Address, which I discussed at the time as being generally positive. Time will tell. As many have pointed out, the watershed decision for Obama will be final approval or disapproval of the Keystone XL pipeline. Approval would demonstrate beyond any doubt that he prioritizes short term political/monetary benefits over the long term health of the American economy or environment.

Next, in the realm of leading think tanks, the World Economic Forum (WEF), leading up to its annual meeting at Davos, Switzerland, issued its “Global Risks Report 2013,” citing climate change, water scarcity and greenhouse gas emissions among society’s chief risk factors. There’s a slightly longer discussion of WEF’s important acknowledgements towards the end of our 2012 annual shareholder letter.

Finally, Bloomberg last week reported about Goldman-Sachs that, “[t]he investment bank is backing renewable energy that it expects will gain favor in a global shift it says is inevitable. That’s why short-term volatility will be trumped by long-term gains as emerging technologies first become commonplace and then become indispensable, according to Stuart Bernstein, the Goldman partner overseeing its renewables unit.” (Italics again mine.) ‘Inevitable shifts and indispensable technologies’ might as well have been Green Alpha’s motto these past five years, and it’s great to see the world’s leading bank, which for better and worse also influences the highest monetary and fiscal policymakers worldwide, thus publicly recognize reality.

As one colleague remarked to me via email, “nobody can accuse the Goldman boys and girls of being dumb...”

Garvin Jabusch is co-founder and chief investment officer of Green Alpha ® Advisors, and is co-manager of the Green Alpha ® Next Economy Index, or GANEX and the Sierra Club Green Alpha Portfolio. He also authors the blog “Green Alpha's Next Economy." 

January 20, 2013

The Next Economy in 2012: Progress Towards Inflection

Green Alpha Advisors' Annual Client Letter and Portfolio Commentary

Garvin Jabusch and Jeremy Deems

2012 saw a return to positive performance for the next economy and for markets overall. Generally, global economic conditions, as indicated by some jobs growth, slowly improving industrial output and a housing rebound, improved marginally, but debt crises in Europe and America, exacerbated by eternal dithering, gamesmanship and posturing by politicians and other policy makers on both continents, kept optimism in check and moderated expectations for growth. With respect to the next economy, though, growth and expectations for growth began showing real signs of building momentum as mainstream awareness of the need ensure the longevity of the world economy by changing some of its foundations continued to advance. Thus our ‘next economy’ macroeconomic thesis became still more relevant and closer to fruition.

The basic macroeconomics of the next economy thesis are fundamental, and their essentials don’t change over time.  As we wrote in last year's letter: “Earth’s economies may stagnate or grow; either way, we believe things like renewable energy, clean transportation, sustainable infrastructure and water resources must grow in value. Over time, the value of stocks in our models will not be dependent on Wall Street gamesmanship, but on simple necessity. As awareness of the magnitude of our growing resource-climate-security problems advances, so will the valuations of our portfolio companies.” Even as chronic fiscal imbalances distract world leaders’ attention from climate and resource challenges, business, individual and institutional investors, academia, think tanks and research all are addressing the latter at an ever accelerating pace.

Thus we continue to be very optimistic about our potential to provide competitive long term returns performance to our portfolio shareholders. Essentially, Green Alpha Advisors is an asset manager offering portfolios of stocks in companies with proven business plans responding to the challenges presented by a warming, increasingly populous, resource-constrained world. Portfolios of these companies deliver growth in all sectors including transportation, communications, commerce, infrastructure, materials, energy, agriculture and water. Considering:

I. The world’s population is growing fast, but its resources aren’t,

II. Energy security and national security depend upon the U.S. minimizing use of foreign oil,

III. The fossil-fuels based economy, with its digging, burning, scarring of the landscape, disruption of ecology, and disease causing pollution, is ultimately too expensive to maintain, and

IV. Climate change,

it’s clear the time is past due for serious investment in mitigation and adaptation, and indeed the signs that people and institutions are getting that are becoming omnipresent.

Each of the three Green Alpha portfolios saw a positive return for 2012. Our flagship green economy benchmark, the Green Alpha Next Economy Index (or GANEX) returned 4.21%; our Sierra Club Green Alpha portfolio (SCGA), actively managed and more concentrated than the GANEX, returned 6.79%; and our newest portfolio, the Green Alpha Growth and Income Portfolio (GAGIP), was up 6.96% for the partial year from its inception on October 8th, 2012.  While we are happy to return to positive performance after a tough year for next economy stocks in 2011, we did nevertheless underperform the legacy fossil-fuels based indices; the S&P 500 was up 16% and the Dow Jones Industrial Average returned 7.26% in 2012. All three of our portfolios did however outperform prominent green economy ETF portfolios (see discussion below).

All Green Alpha portfolios are based on our universe of next economy companies, with individual securities and weights selected to best fit the mandate of each portfolio. We’re especially pleased that December 30th 2012 saw the fourth anniversary of the inception of the GANEX, reflecting a four year track record milestone measuring the growth and progress of the overall next economy. (On the topic of portfolios, look for an exciting announcement from us later in Q1 regarding our fourth and newest portfolio offering that will greatly enhance our ability to serve current and future clients.)

On the securities level, we saw once again in 2012 the importance of diversification across all sectors of the next economy. We find it hard to overemphasize this point: the post fossil fuels economy is emerging in all sectors, so to invest as though renewable energy (as critical as it is) is the only aspect of a green economy is shortsighted and results in high volatility. Attempting to represent the entirety of the next economy, our Green Alpha Next Economy Index (GANEX) is invested in 27 sectors and 52 sub-sectors, spanning, we believe, nearly everything required for a broad-based economic system to function. Reviewing GANEX’s top five 2012 total return performers gives some indication of its diversification:

  1. Badger Meter, Inc. (BMI), 63.98%. Badger makes water meters, “flow measurement and control solutions” for farming, commercial, utility and residential applications. The U.S. drought of 2012 (and continuing) has brought the need for smarter, more productive water management into sharp focus. You can’t manage what you don’t measure.
  2. Trex Company, Inc. (TREX), 62.51%.  Trex is the world's largest manufacturer of high performance wood-alternative decking. We consider Trex a prime example of waste-to-value economics that not only keeps huge quantities of waste out of landfills and oceans (Trex used 3.1 billion plastic bags in 2010, participates in a system responsible for 70% of all U.S. plastic bag recycling, and has never harvested a single tree to make its product), but also delivers a superior product with better long term value. In a world of constrained resources, making great stuff from leftovers is the best of all worlds.
  3. Cree, Inc. (CREE), 54.17%. Cree is a leading developer of high efficiency LED lighting and systems and semiconductors for radio frequency applications. Cree LEDs can provide illumination as efficiently as 200 lumens per Watt, compared to 14½ lumens per Watt of a 60W incandescent bulb. This translates to big savings in energy and money, and is a straightforward example of one of our primary themes, focusing on innovation in economic efficiencies – getting more output out of less input.
  4. Valmont Industries, Inc. (VMI), 51.03%. Valmont Industries provides critical infrastructure such as efficient mechanized poles and towers for wind turbines, lighting, communications and more. In 2012, VMI gave our portfolios exposure to the infrastructure aspects multiple trends such as the booming mobile and mobile web markets as well as the growing wind energy sector without the risk associated with an individual turbine manufacturer. Full disclosure, for valuation reasons, we removed Valmont from our portfolios as of year-end 2012.
  5. The Hain Celestial Group, Inc. (HAIN), 47.9%. Hain Celestial is a leader in natural and organic food that vertically integrates manufacturing, marketing sales and distribution. We think of Hain as a macroeconomic bet on efforts of people to improve their individual health, and also on efforts at a policy and advocacy level to manage mushrooming and economically destructive escalation in healthcare costs. In addition, from a long-term agricultural management point of view, we think that that industry’s ever more potent pesticides, herbicides and petroleum based fertilizers will prove so deleterious to human health, land productivity and biosphere health that organic methods will continue to increase in popularity, and may one day even be required.

From the standpoint of our next economy sector classification scheme (NESC), the top performing Industry and Sector in the GANEX Portfolio was the Products (Industry), Capital Goods & Equipment (Sector), with Portfolio exposure of 16.11%. 

The chart below shows the performance of the GANEX, from its inception on December 30, 2008 to the end of 2012, versus two prominent green exchange traded funds, the Guggenheim Solar portfolio (TAN, in gold here), and the PowerShares WilderHill Clean Energy ETF (PBW, the black line). Over this period, the GANEX returned 28.15%, while the TAN was -79.22% and PBW performance was -46.68%. To be clear, GANEX differs significantly from these other two. TAN is a basket of exclusively solar and solar-related stocks, and PBW, though not as sector focused as TAN, is limited primarily (but not exclusively) to renewable energy. GANEX by contrast attempts to capture the entirety of the next economy, including renewable energy and solar, but also everything else we’ll need to have a thriving economic system, including, again, transportation, communications, commerce, infrastructure, materials, energy, agriculture, water and more. So while the comparison with these two may not be exact, we believe it does show the importance of careful diversification into all areas of the emerging green economy.  

Client letter 2012 chart
Inception to 12/31/12 GANEX chart w/PBW and TAN

While we are generally growth oriented managers, we also in 2012 had good reason to believe that many of our holdings represent excellent values. As of December 31st 2012, 66 of our 80 holdings were trading below the average (1979 to present) price to book ratio of the S&P 500 index.  Our average price to book was 1.45, compared to 2.27 for the S&P 500.

Finally, a compelling argument, if we needed one, for hastening the transition to an economy that can persist and even thrive in a warming world was recently articulated by the World Economic Forum at Davos. "On the economic front, global resilience is being tested by bold monetary and austere fiscal policies. On the environmental front, the Earth's resilience is being tested by rising global temperatures and extreme weather events that are likely to become more frequent and severe. A sudden and massive collapse on one front is certain to doom the other's chances of developing an effective, long-term solution." In other words, we need to get the economy on a sustainable footing before it comes unraveled. Given the imperative of this reality, we have difficulty imagining a near-future scenario where the best next economy companies don’t become the most important to society and subsequently, potentially the best performing.

The decisions we make as an interconnected global civilization now will be the difference between catastrophe and a thriving society with a healthy economy. Given the stakes, we have no doubts about how to place our bets.

Thanks for your continued support of Green Alpha Advisors and investing in the next economy.


 Garvin Jabusch and Jeremy Deems

Garvin Jabusch is co-founder and chief investment officer of Green Alpha ® Advisors, and is co-manager of the Green Alpha ® Next Economy Index, or GANEX and the Sierra Club Green Alpha Portfolio. He also authors the blog “Green Alpha's Next Economy."  Jeremy Deems, Co-Founder, Chief Financial Officer & Chief Operating Officer is co-founder and chief investment officer of Green Alpha ® Advisors,

January 15, 2013

Earnings Are Mixed for the New Year

By Harris Roen

There have been six earnings reports released so far in 2013 for alternative energy stocks, all small or microcap companies. There were no blowouts, but also no superstars – most were within analyst expectation or somewhat below. 

DayStar Technologies Inc. (DSTI)
More Info
1/7/2013 Revenues remain elusive for this thin cell PV producer. EPS dropped about 10%, and gross losses doubled. The stock is down 35% for the year, but has bounced up 20% for the quarter. SEC Filing

Acuity Brands, Inc. (AYI)

1/8/2013 Revenues for Acuity Brands are flat for the year, but down for the quarter, as are profits. EPS remains razor thin but is up slightly. Still the stock has dropped 4% for the week, since actual earnings came in about 15% below street estimates. The stock is considered at fair value by the Roen Financial Report. Press release

Mistras Group, Inc. (MG)

1/8/2013 A positive earnings report showed a 21% increase in revenue and a doubling of net income for the quarter. Mistras Group also raised the low end of its range of earnings expectations for FY 2013. The report is in line with analyst estimates, but the stock price has remained flat. Reuters Article

Schnitzer Steel Industries (SCHN)

1/8/2013 EPS turned slightly negative for this salvage company on dropping revenue, down 22% from the previous quarter. The stock gave up about 8% for the week on the news. Press release

AZZ Inc. (AZZ)

1/9/2013 Revenues were basically flat for the quarter, but up 28% from the same quarter last year. Similarly, EPS were down slightly quarter, but up over 50% year over year. Earnings were in line with analysts expectations, and AZZ has slightly raised guidance for 2013. The stock price has been stair-stepping up nicely, with a gain of 70% for the year. Press Release

SemiLEDs Corporation (LEDS)

1/14/2013 Revenues picked up for this Taiwanese LED company, gaining 14% for the quarter. Revenues for the year, however, are still down 8%. EPS remains negative, missing analyst estimates by about 25%. The companies stock price continues to fall, down 52% for the quarter and 77% for the year. Press release

About the author

Harris Roen is Editor of the “ROEN FINANCIAL REPORT” by Swiftwood Press LLC, 82 Church Street, Suite 303, Burlington, VT 05401. © Copyright 2010 Swiftwood Press LLC. All rights reserved; reprinting by permission only. For reprints please contact us at POSTMASTER: Send address changes to Roen Financial Report, 82 Church Street, Suite 303, Burlington, VT 05401. Application to Mail at Periodicals Postage Prices is Pending at Burlington VT and additional Mailing offices.


Individuals involved with the Roen Financial Report and Swiftwood Press LLC do not own or control shares of any companies mentioned in this article, but it is possible that individuals may own or control shares of one or more of the underlying securities contained in the Mutual Funds or Exchange Traded Funds mentioned in this article. Any advice and/or recommendations made in this article are of a general nature and are not to be considered specific investment advice. Individuals should seek advice from their investment professional before making any important financial decisions. See Terms of Use for more information.

Remember to always consult with your investment professional before making important financial decisions.

January 06, 2013

2013: Green Economy Inflection Point

Garvin Jabusch

There are a few truths that make the fundamental case that investing in the emerging next economy is the clearest path to long term competitive portfolio performance. First, innovation – meaning improving economic output without increasing material or capital inputs - always wins. This is simply how capitalism works, money chasing the best ideas, and has been the basis of the industrial revolution. Second, successfully mitigating the worst effects of economically and societally disastrous climate change (that we're not already irreversibly committed to) will save enormous costs, provide generational investment opportunities and also be inestimably economically stimulative.

For over a decade now, Green Alpha cofounders Jeremy Deems and I have been wondering when popular awareness of these truths would emerge. And while I can't represent that we're there yet, I can say that we definitely are noticing a major shift in both frequency and tone of recent journalism and punditry on the subject of sustainability economics. Fellow green economist Tom Konrad got me thinking about all this when he asked me and a few other money managers for thoughts about 2013 for his Forbes piece on the subject. The more I thought about framing an answer, the more I realized how much momentum I’ve been noticing just over the last quarter or so. To give an idea of what I mean, here's a representative but far from complete list of some smart people and organizations articulating a vision of and working towards a next economy wherein society can thrive without exceeding earth's tolerances or threatening the underpinnings of the global economy. Each of these is worth delving into in its own right.

- PricewaterhouseCoopers’ November 2012 report titled “Too late for two degrees?” (N.B., 3.6 degrees Fahrenheit) states flatly that “[i]t’s time to plan for a warmer world.” Since, as they conclude, to limit warming to two degrees Celsius, the world needs to begin slowing its carbon dioxide emissions “by 5.1 percent every year from now to 2050, essentially slamming the breaks on [CO2 emissions] growth starting right now," is not going to happen, we need to take all realistic mitigation steps we can and also plan for adaptation. Coming as it does from a mainstream accounting and auditing firm with no tree hugger ax to grind, this serves as a particularly stark warning, but also signals the truly massive scale of the investment opportunity.

- The National Research Council’s report (via the National Academy) on climate change and national security, “Climate and Social Stress: Implications for Security Analysis,” released in November 2012, was “prepared at the request of the U.S. intelligence community.” It provides a clear-eyed look at economic and politico-social consequences of climate change.  It states, in part, “[a]s a practical matter, [climate change] means that significant burdens of adaptation will be imposed on all societies and that unusually severe climate perturbations will [be] encountered in some parts of the world over the next decade with an increasing frequency and severity thereafter. There is compelling reason to presume that specific failures of adaptation will occur with consequences more severe than any yet experienced, severe enough to compel more extensive international engagement than has yet been anticipated or organized.” When realized, this “more extensive international engagement” means more opportunities for companies providing solutions, and crucially, in this case, the momentum for economic transition is coming from the security and intelligence community. The more disparate the voices urging transition, the closer to popular inflection we become.

- Not to be outdone by the National Academy, the World Bank (also in November 2012) warned that in its opinion, the globe is on track for warming of four degrees Celsius (7.2 degrees Fahrenheit) if mitigation does not commence immediately. The Bank, in asserting that that kind of warming could devastate the global economy, cited in particular “Ocean Acidification,” “Heat Extremes,” “Lower agricultural yields,” and “Risks to Human Support Systems.” The Bank concludes by indicating a pressing need for “increased support for adaptation, mitigation, inclusive green growth and climate-smart development.”

- Warren Buffett’s MidAmerican Renewables has been pouring money into renewable energy projects. In addition to US$11 billion invested in renewable energies over the last year or so, MidAmerican just announced that it’s investing $2.5 billion more for a 579 Megawatt plant in Los Angeles County. As MidAmerican’s Chief Financial Officer Patrick Goodman recently said, “we believe renewables is the better investment right now.” Buffett, certainly not one to invest this kind of money for the sake of being “green,” sums up the opportunity this way: “[m]any more wind and solar projects will almost certainly follow.”

- The U.S. Department of Defense, which cares first about national security, second about costs and traditionally not much about ecology, has nevertheless put together America’s single most impressive list of renewable energy and low and zero emissions transportation initiatives. Why? As then Joint Chiefs Chairman Admiral Dennis McGinn said, “Ultimately, as we gain proficiency in generating sustainable, renewable energy sources as a nation we build national strengths and stability.” How far is the military going with these projects? “The DOD is positioned to become the single most important driver of the cleantech revolution in the United States,” according to Clint Wheelock, president of Pike Research, one of America’s leading pure research firms on the subject of renewable energy.

- The insurance industry, which ultimately has to pay every time there’s a new climate disaster, has had enough. Munich RE, a leading global reinsurer whose climate practice releases key reports on the economic risks of climate change, in October wrote (registration required), "[i]n the long term, anthropogenic climate change is believed to be a significant loss driver…It particularly affects formation of heatwaves, droughts, thunderstorms and -- in the long run -- tropical cyclone intensity."

- Reuters recently published a piece explaining “Why you need a climate change portfolio,” using the cogent argument “[w]hether you believe in man-made global warming or not, it's undeniable that trillions of dollars will be spent on technologies to address the collateral damage of climate change.” We do believe in climate change, so we think there may be reason for all those dollars to flow to the appropriate mitigation and adaptation technologies with even more velocity than Reuters may be assuming.

-’s “Fossil Free” institutional divestment campaign is, amazingly, already starting to see some traction. Really. From 350’s website: “Seattle Mayor Mike McGinn sent a letter to the city’s two chief pension funds on friday [sic], formally requesting that they ‘refrain from future investments in fossil fuel companies and begin the process of divesting our pension portfolio from those companies.’”

- Even the slow-to-change traditional investment banking industry is showing signs of tuning into reality. In a blog post on its website, the New York Times cites evidence for “A Change in the Weather on Wall Street,” largely as a result of superstorm Sandy, which impacted Wall Street directly. But in addition, “[t]he other new argument is economic. Until this year, the political calculus about climate change had only one side. The oil and coal companies made sure everyone knew about the costs of action. But few people mentioned the costs of inaction. Now they cannot be ignored.”

Public opinion has already begun to change. According to Yale University’s Public Support for Climate and Energy Policies (Nov 13, 2012) report, “A large majority of Americans (77%) say global warming should be a “very high” (18%), “high” (25%), or “medium” priority (34%) for the president and Congress. One in four (23%) say it should be a low priority.”

These are just the first few recent ‘tipping point’-like stories to come to mind. I've read dozens more examples recently, and I feel the fact that I can no longer be aware of all the evidence of inflection much less keep track of it all is surely a sign in itself.

There are several additional trends underway now that may have significant impacts on renewable energy companies and their stocks in 2013: the new, emerging ways to invest in and to monetize electric utility revenues from scale solar and wind plants, and infrastructure upgrades to accommodate a renewables-friendly distributed smart grid (especially where networks have been damaged (such as in the wake of superstorm Sandy). Each of these presents opportunities and interesting ways to invest.

For us, though, the most interesting macroeconomic trend is simply that the green economy is finally showing signs of approaching a meaningful inflection point into mainstream consciousness.   

Adding it all up, it sure seems like the time is now.

Garvin Jabusch is co-founder and chief investment officer of Green Alpha ® Advisors, and is co-manager of the Green Alpha ® Next Economy Index, or GANEX and the Sierra Club Green Alpha Portfolio. He also authors the blog “Green Alpha's Next Economy."

December 19, 2012

Energy Trends That Matter For Investors

By Harris Roen

The US is by far the world’s greatest user of energy per capita in the world. Each American uses about 87,000 kilowatt-hours per year – that is twice as much as the European Union (EU), the next closest consumer! Understanding energy trends in this country is extremely important for investors who want to understand how the energy landscape will look 10, 20 or 30 years from now. fig1.jpg
Figure 1: Global Per Capita Energy Use

The U.S. Energy Information Agency (EIA) made public an early release of its in-depth Annual Energy Outlook. This comprehensive report details likely trends in production, consumption, prices, and sources of energy out to 2040.

Figure 2: Total Energy Consumption

Figure 2 shows that although energy consumption will likely be lower in the next five years, this is only a short-term trend. The immediate reduction in energy use is mostly due to increased fuel efficiency standards kicking in, as well as other conservation and efficiency efforts.

Over the longer term, however, total U.S. energy consumption in 2040 is projected to continue to grow by an average of 0.3% annually, to between 9-10% above current levels. Consumption of liquid fuels (oil, gas, etc) is actually projected to drop by about 4.5%, while use of natural gas is expected to increase by almost a quarter above current levels.

The use of biofuels and renewables such as wind and solar are also expected to increase dramatically. Utilization of biofuels is expected to increase by 60%, and use of other renewables should be three quarters greater than they are now.

Figure 3: Percent Consumption by Fuel Type

Figure 3 shows the same information in a different format. Each fuel type is shown as a percent of the total fuels consumed. A sharp eye can see a decrease in the amount of liquid fuels used, and an increase in renewables. Still, those renewables will comprise less than 10% of the overall energy picture, even projected 30 years out! Put another way, fossil fuels are expected to account for 80% of the energy consumed in 2040, which is only 5% less than they do now. The days of drilling and coal mining are not coming to an end any time soon.

Figure 4: Production Net Consumption

Figure 4 illustrates that between 20-25% the oil will remain imported, despite the domestic oil boom going on now in and around North Dakota. Supplies of domestic natural gas, however, are expected to continue to increase at a greater rate than they are being consumed domestically which should feed expanded export markets (this is an investment opportunity for another article).

Figure 5: Average Annual Growth in Renewable Electric Generation

Despite what looks like a continued status quo for several decades, the dramatic increase in renewables is something energy investors need to pay attention to. Figure 5 reveals the projected growth of electric generation by type of renewable. Photovoltaic is slated to grow by 15% annually, which should make solar panels at least 25 times more ubiquitous by 2040!

The pie slices in Figure 5 measure the share of the projected growth that each type of renewable source will have. It is clear to see that photovoltaic and solar thermal combined should account for well over half of the growth in renewables.

Figure 6: Solar Stocks

What does this mean for alternative investors today? Despite the fact solar as a sector has been extremely beaten down, it would be foolish for the long-term investor to ignore the industry as a whole. Photovoltaic manufacturers are hurting because of the overproduction of cells. Additionally, the industry is suffering from a widening tariff war between China, the U.S. and the E.U., an atmosphere that is never good for business.

Buying individual photovoltaic stocks now may be a bit like catching a falling knife, since there will likely be more bankruptcies and other disappointments. Having said that, 15% annual growth cannot be disregarded. A well-diversified portfolio of solar stocks could be an excellent move for the long-term investor.

I have written before that I like installation companies as a group within the solar sector. Investors that scooped up shares of the newly issued solar installer SolarCity (SCTY) have done extremely well, up over 20% from its opening on December 13. While SolarCity may be a good long-term play as part of a speculative portfolio, it is not for the faint of heart considering that it has nowhere near positive earnings yet.

An additional installation company that the Roen Financial Report tracks is Ameresco Inc (AMRC). Its stock price was beaten down in November on an earnings release. The company showed decent growth in profits and earnings per share since March, but still showed a 25% drop in revenues compared to the same quarter last year. In addition, the company dropped its revenue guidance to between 7-10% lower than analyst expectations. Still, I think the company is fairly valued in the $10/share range.

In summary, the EIA foresees no game-changing shift in the U.S. energy landscape, and caution is advised for the alternative energy investor. If you want to be where the growth is, though, solar needs to be on your radar.

Harris Roen is Editor of the “ROEN FINANCIAL REPORT” by Swiftwood Press LLC, 82 Church Street, Suite 303, Burlington, VT 05401. © Copyright 2010 Swiftwood Press LLC. All rights reserved; reprinting by permission only. For reprints please contact us at POSTMASTER: Send address changes to Roen Financial Report, 82 Church Street, Suite 303, Burlington, VT 05401. Application to Mail at Periodicals Postage Prices is Pending at Burlington VT and additional Mailing offices.

DISCLOSURE: No positions in or plans to purchase any of the stocks mentioned,

DISCLAIMER: Swiftwood Press LLC is a publishing firm located in the State of Vermont. Swiftwood Press LLC is not an Investment Advisory firm. Advice and/or recommendations presented in this newsletter are of a general nature and are not to be construed as individual investment advice. Considerations such as risk tolerance, asset allocation, investment time horizon, and other factors are critical to making informed investment decisions. It is therefore recommended that individuals seek advice from their personal investment advisor before investing.

These published hypothetical results may not reflect the impact that material economic and market factors might have had on an advisor’s decision making if the advisor were actually managing client assets. Hypothetical performance does not reflect advisory fees, brokerage or other commissions, and any other expenses that an investor would have paid.

Some of the information given in this publication has been produced by unaffiliated third parties and, while it is deemed reliable, Swiftwood Press LLC does not guarantee its timeliness, sequence, accuracy, adequacy, or completeness, and makes no warranties with respect to results obtained from its use. Data sources include, but are not limited to, Thomson Reuters, National Bureau of Economic Research, FRED® (Federal Reserve Economic Data), Morningstar, American Association of Individual Investors, MSN Money, sentimenTrader, and Yahoo Finance.

December 05, 2012

SEC Charges Chinese Units of Five Accounting Firms; Chinese Cos Defect

Doug Young

Media are buzzing with word that the US securities regulator is once again tussling with major auditors over access to the accounting records of US-listed Chinese firms, in the latest chapter of an ongoing story; but what has me more intrigued is the scramble that is probably taking place behind the scenes, as those same auditors try to figure out what they will do when the inevitable happens and they are forced to share their records with the US Securities and Exchange Administration (SEC).

Right now I can imagine what is happening: the auditors, including big names like Ernest & Young and Deloitte, are probably frantically poring over all their audits for US-listed Chinese firms from the last 2-3 years, and trying to decide which firms to sever their ties with. While big names like Baidu (Nasdaq: BIDU) and Sina (Nasdaq: SINA) are unlikely to see any big changes in their accounting partnerships, mid-sized and smaller players could see a big shuffling of the cards as their auditors abandon them over concerns about some of their past accounting practices.

Let's take a step back and look at the history of this current tussle between the SEC and Chinese firms, which began last summer at the height of a series of scandals caused by aggressive or even fraudulent accounting by some US-listed Chinese firms. As the SEC began to investigate some of those cases, it quickly discovered that the companies' external accountants, which often included big names like Deloitte, were unwilling to share information from their audits. (previous post)

The auditors said they weren't allowed to share such information, since all of the companies being examined were based in China and therefore only Chinese regulators had the authority to demand such sharing of information. Of course, many observers, myself included, suspected the auditors were using the jurisdictional argument to avoid sharing data that would show they had either neglected their duty as auditors or, even worse, had actually colluded with Chinese companies to defraud investors.

The SEC responded by approaching Beijing and opening landmark talks with Chinese authorities designed to facilitate the access to auditing records they were seeking. Those talks are still in progress and could finally result in a breakthrough information sharing agreement by the end of next year.

But in the latest development of this ongoing case, the SEC has taken the equally aggressive tact of actually charging the Chinese units of 5 US accounting firms, including the so-called "Big Four" auditors, of potentially defrauding investors related to their accounting for 9 US-listed Chinese firms. (English article) The auditors have reportedly cited China's "state secrets" law for their refusal to hand over the records, relying on this arcane and highly ambiguous law to avoid complying with the SEC's order.

This SEC move to file criminal charges will add to the pressure on the auditors, and I suspect that we're likely to see some cooperation between the 2 sides before the end of 2013. As this inevitable outcome approaches, the auditors are likely to quickly determine which of their clients might become the biggest liabilities and sever their relationships with those companies sooner rather than later.

We already saw solar panel maker Trina (NYSE: TSL) cut its ties with Deloitte back in June, though it's unclear who initiated the split. (previous post) We should expect to see more similar divorces in the months ahead, with the rate accelerating as the SEC and auditors move closer to their final cooperation. As that happens, look for lots of volatility in the share prices of companies that get dumped by their auditors, as investors fret that such companies could eventually become the targets of SEC investigations and eventual de-listings.

Bottom line: Big US auditors are likely to sever their relations with a growing number of mid-sized and smaller US-listed Chinese firms in 2013 as they face growing pressure to comply with SEC investigations.

Doug Young has lived and worked in China for 15 years, much of that as a journalist for Reuters, writing about publicly listed Chinese companies. He currently lives in Shanghai where he teaches financial journalism at a leading local university. He also 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 the author of an upcoming book about the media in China, The Party Line: How The Media Dictates Public Opinion in Modern China .

November 25, 2012

Seven Indian Clean Energy Stocks

by Sneha Shah

170px-Ravi_Varma-Lakshmi[1].jpg Raja Ravi Varma's portrait of the Hindu goddess of wealth, Lakshmiലക്ഷ്മി ദേവി. via Wikimedia Commons
Why Invest in Indian Green Energy

India is set to become the 3rd largest market for wind energy after USA and China and is set to enter the top 10 club of countries in installing solar energy capacity in 2012. Massive power deficits, millions of people without power, billions of dollars in oil, gas and coal imports imply that India offers massive opportunities for renewable energy generation. In fact Indian solar energy represents one of the biggest energy opportunities in the 21st century. The Indian government target of 20 GW by 2022 will be beaten by a huge margin in our view.

Rocky Present, Sunny Future

However the performance of publicly listed green stocks in India has been quite abysmal in line with what we have seen in the past few years with global cleantech stocks. The solar and wind stocks have been battered by the global oversupply in solar panels and wind turbines respectively. Some of the solar companies like Moser Baer have gone into restructuring of bad loans while other companies are operating at 10-20% utilization.

However one good area of investing in the Indian renewable energy story is through green focused utilities like Greenko, Orient Green Power etc. Most Investment banks and big Private Equity firms have already committed hundreds of millions of dollars investing in renewable energy focused power generation firms. Larger privately owned electricity utilities in India are also investing heavily into green power generation to meet the Renewable Purchase Obligations (RPO) which mandates that 15% of the electricity generation by 2020 should come from clean energy sources. In Summary while the past few years have not been the best for the green sector in India, the future looks very promising indeed. Read why Private Equity firms are investing millions in India's wind energy industry

Some of the top publicly listed Green Stocks in India

1) Suzlon Energy (NSE:SUZLON)– Suzlon Energy is one the biggest wind energy companies in the world and the poster child of India's green story. The company boasted of a market valuation upwards of $10 billion at its peak. However overzealous expansion and expensive acquisitions of European wind players like Repower has left it with an unsustainable debt burden. Read more about the Suzlon Death Spiral.

2) Moser Baer (NSE:MOSERBAER)– Moser Baer which used to mainly deal in optical media made a strong expansion into all parts of solar energy manufacturing such as polysilicon, solar thin film and crystalline silicon panels. However the global solar panel glut has sent the company into debt restructuring. The company now mainly operates in the solar system and integration part of the solar value chain. Read more about hard times being faced by Indian solar companies.

3) Tata Power (NSE:TATAPOWER)- Not strictly a green company, Tata Power is the biggest private utility in India. It recently acquired the Tata BP Solar JV after BP exited the solar panel business. The company has huge plans in wind, solar and geothermal energy. It has also invested in a geothermal energy project in Indonesia.

4) Orient Green Power (NSE:GREENPOWER)- Orient Green Power is one of the biggest green focused utility companies in India focused mainly on wind and biomass power generation. The company's operations have recently turned around and it is now showing a consistent profit. At its recent stock price of Rs 10-11, it represents a good investing opportunity at its current value. Read more about is Orient Green Power turning around?

5) Greenko (LSE:GKO)- Another big green utility  in India with around 200 MW of Electricity Capacity predominantly in small hydro and biomass plants, it is listed London’s AIM Exchange and has a top notch management team. Its recent performance has been quite good and it is expanding rapidly acquiring small hydro plants in India.

6) Lanco (NSE:LANCOIN)The Company through its subsidiary Lanco Solar has aggressively expanded into the crystalline silicon solar panel system right from manufacturing to installation. However the recent travails of infrastructure companies in India has seen Lanco making a loss which has impacted the growth of its solar subsidiary as well.

7) Welspun Energy (NSE:WELCORP) - Welspun Energy is a part of the Welspun conglomerate. It has expanded rapidly into solar and wind energy installation in the last couple of years to become one of the top green developers in India.


There are also a large number of smaller private companies in India operating in the green energy space. There are also a number of bigger industrial companies such as Thermax, Praj Industries, Jain Irrigation which derive revenues from green industry though contribution to overall revenues is quite small. Investing in the green space in India is not easy but offers handsome rewards to those that make the right calls given the massive growth that is going to happen.

Sneha Shah is the editor of, a blog about Global Green Industry and Renewable Energy Industry, focusing on Solar Energy, Wind Energy, Energy Storage, Efficiency etc.

November 15, 2012

Why Alternative Energy Stocks Are Down Despite An Obama Victory

By Harris Roen

If you follow the energy sector closely, then you know that many questions regarding the direction of alternative energy companies were looming during the 2012 campaign season. Was the country going to continue with the Obama Administration’s “all-of-the-above” strategy with its strong emphasis on renewables, or would there be an accelerated domestic drilling and pipeline bonanza under Republican leadership. When the election finally ended last week, many pundits expected investors to pour money into the beleaguered alternative energy sector resulting in a surge of stock prices. So why, instead, did alternative energy stocks head down?

What Happened?

First, let us look in detail at what happened in the last week of trading. Of the approximately 250 alternative energy companies that the Roen Financial Report tracks, only 21 companies, or less than 9%, were gainers. In other words, losers beat gainers by a 10:1 ratio! On average, alternative energy companies were down 5.8%, with 35 companies showing double-digit losses for the week. Of the 21 gainers, fully half were volatile penny stocks with market caps less than $100 million, so those gains may change very quickly.

Of the six alternative energy industries - wind, solar, smart grid, efficiency, fuel alternatives and environmental companies - wind fared the worst. Only two wind companies posted a gain for the week, Pike Electric Corporation (PIKE) and the highly speculative Quantum Fuel Systems Technologies (QTWW). Otherwise, the average wind company lost 6.0% for the week.


 Why the Decline?

Many people are wondering why alternative energy stocks dropped so dramatically last week. Was it a sell-on-the-news situation? Do investors think alternative energy is doomed as a sector? Was it payback to big oil for all their election contributions? Perhaps some of this was true, but I believe it had more to do with the dog wagging the tail.

Overall, it was a bad week for the entire stock market, with the major averages down in the 4% range. According to Fidelity Investments, all 10 business sectors were down for the week. In fact, energy took the biggest hit of all the sectors, down 5.1%. Of the 68 industries Fidelity lists, only one, Biotechnology, showed a gain.

Most of the loss in stocks came on Wednesday, the day after the election. Apparently, everyone woke up to realize that not much changed concerning the economic crisis de jour – the fiscal cliff. After all the endless political gyrations and hundreds of millions of dollars spent, the country was pretty much back where it started: a democratic white house and a split congress. By Friday some of those losses were recovered, as savvy investors saw the drop as an overreaction, and thus a good buying opportunity.

Why was the energy sector hit in particular? Simply because short term oil price movementa have little to do with supply and demand, but have instead turned into a proxy for the outlook on the economy, and thus the stock market. Since 2009, the correlation between the S&P 500 and oil prices has been ridiculously tight, 1.00 being a perfect correlation. So when people started gazing over the ever-nearing fiscal cliff, the odds of a recession increased, oil futures dropped and energy stocks tanked.


What Lies Ahead?

So where are alternative energy stocks likely to go from here? I remain cautious in the short term, concerned that the broader economic picture will overshadow any sector plays. Between the threat of massive tax hikes and spending cuts in the U.S., and the re-fanning of the dangerous debt embers that are smoldering in Europe, I would not be surprised at all by a market correction in the 15% range or worse. This type of correction would not be surprising, though, considering the S&P 500 reached a high in September that was 33% above its lows at the end of 2011.

I see these market fears as conventional wisdom, however, so the contrarian in me views any major correction as a buying opportunity. As long as the U.S. stays in an ultra-low interest rate environment, as I believe it will for at least the next two years, the long-term trend in the stock market should remain positive.

If Washington continues to move ahead with alternative energy initiatives, and particularly if it takes bold steps such instituting a carbon tax, I believe energy efficiency companies will benefit the most. There is still much low hanging fruit in terms of cost savings and carbon reduction to be gained by reducing current energy usage.

Companies that could benefit include Cree, Inc. (CREE), a well-managed North Carolina based firm that manufactures efficient LED lighting as well as other products. Cree has had growing sales, relatively low debt levels and positive cash flow. A concern is that it has an excessively high PE, but if prices drop from current levels, the stock would become more attractive. Using an average of combined trailing and forward EPS, I see Cree as fairly priced in the $27/share range, and a good value at $25/share.

Because larger economic troubles may continue to put a drag on all sectors, including alternative energy, this looks like a good time for strategic investors to accumulate stocks at the right price.

Harris Roen is Editor of the “ROEN FINANCIAL REPORT” by Swiftwood Press LLC, 82 Church Street, Suite 303, Burlington, VT 05401. © Copyright 2010 Swiftwood Press LLC. All rights reserved; reprinting by permission only. For reprints please contact us at POSTMASTER: Send address changes to Roen Financial Report, 82 Church Street, Suite 303, Burlington, VT 05401. Application to Mail at Periodicals Postage Prices is Pending at Burlington VT and additional Mailing offices.

DISCLOSURE: No positions in or plans to purchase any of the stocks mentioned,

DISCLAIMER: Swiftwood Press LLC is a publishing firm located in the State of Vermont. Swiftwood Press LLC is not an Investment Advisory firm. Advice and/or recommendations presented in this newsletter are of a general nature and are not to be construed as individual investment advice. Considerations such as risk tolerance, asset allocation, investment time horizon, and other factors are critical to making informed investment decisions. It is therefore recommended that individuals seek advice from their personal investment advisor before investing.

These published hypothetical results may not reflect the impact that material economic and market factors might have had on an advisor’s decision making if the advisor were actually managing client assets. Hypothetical performance does not reflect advisory fees, brokerage or other commissions, and any other expenses that an investor would have paid.

Some of the information given in this publication has been produced by unaffiliated third parties and, while it is deemed reliable, Swiftwood Press LLC does not guarantee its timeliness, sequence, accuracy, adequacy, or completeness, and makes no warranties with respect to results obtained from its use. Data sources include, but are not limited to, Thomson Reuters, National Bureau of Economic Research, FRED® (Federal Reserve Economic Data), Morningstar, American Association of Individual Investors, MSN Money, sentimenTrader, and Yahoo Finance.

October 16, 2012

2013 Alternative Energy Stock Predictions

Will Natural Gas Crush Alternative Energy in 2013?

By Jeff Siegel

Swami photo via Bigstock
In 2004 a hotshot Wall Street type cornered me after I spoke at a private luncheon in New York.

He told me I had a lot of balls wasting his time talking about alternative energy — declaring he was an “important man” who didn't find it amusing that some tree hugger in a suit (yes, that's what he called me) would lecture him about a coming boom in solar...

I never forgot that guy. In fact, over the years I had hoped to run into him again, just so I could remind him that not only was I 100% right about and made a fortune as a result of the solar bull market from 2005 to 2008, but that he was also kind of an asshole.

Of course, it's not healthy to hold grudges. And quite frankly, after all these years my success in playing the modern energy space more than makes up for my inability to engage him in a spirited debate back then, when I was still fairly new to the public speaking circuit and hadn't quite built up the confidence to take on guys like him.

Since then, I've come to realize that a lot of these Wall Street guys — with their overpriced suits and overpriced educations — aren't any smarter or any more “in-the-know” than you are.

In fact, when push comes to shove, most of these guys are completely clueless...

Especially when it comes to the world of modern and alternative energy.

This is why a lot of the same guys who trivialized my analyses back in 2004-2005 now regularly read these pages and invite me to speak at their conferences...

Next week I'll be at a private meeting in New York where I'll be discussing some of my predictions for 2013. Here's a preview...

Electric Cars Ride Steady

Electric cars will remain the target of naysayers and partisan slaves in 2013.

Sales will be light, but not nearly as dismal as many continue to suggest — particularly given the higher pricing that typically comes with any new, game-changing technology.

Early adopters will continue to move these things out of showrooms and onto highways at a pace that is actually faster than what we saw with the conventional hybrids back in the late 90s.

Every major carmaker will have electric and plug-in hybrid electric vehicles in production or on the road, but battery technology will not progress much next year outside of the lab. I don't expect to see much improvement on miles-per-charge as it relates to battery technology; most increases here will likely be the result of lighter-weight materials, body design, and software developments.

Either way, while these increases will be valuable, they won't tack on the additional 80 to 100 miles — nor will they provide the cost reductions necessary to facilitate the next wave in consumer interest, taking us away from early adopters and onto the early majority. I don't expect to see that unfold for at least another five to six years.

In the meantime, fleets will also steadily add electric vehicles to the mix, particularly in regions where gas and diesel prices are exceptionally high. Sales won't be so strong that it'll move the needle much, but it'll definitely help automakers move inventory and gain visibility in the marketplace...

On the political front, it won't matter who wins the next election. Although Romney will talk a good game when it comes to ending those very generous tax credits for electric vehicles, he won't have enough support in Congress or from the auto industry to make it happen.

Solar Stocks Struggle to Survive

Solar investors looking to hit it big this year will be disappointed.

Most solar companies (primarily panel and cell manufacturers) will continue to suffer another year of unpleasant margins.

China will continue to pump more money into its solar industry which will result in two things:

First, solar prices will continue to fall, albeit probably not as fast as we saw in 2012. This will benefit solar installers that are making a killing right now in the United States. Installation growth will remain strong, particularly with all these new solar leasing companies that are breaking records on both commercial and residential installations.

Worth noting is SolarCity, one of the largest and most successful solar leasing companies in the nation. It's set to go public this year, and will trade under the symbol SCTY.

Second, with so much cash being pumped into China's solar industry (just to keep it afloat), we're definitely seeing the stage being set for a massive implosion. China's solar industry ATM machine is working overtime, and it's doing so while the world is clearly starting to see visible cracks in China's economy.

China solar companies will continue to pump out cheap solar in 2013, but they'll be among the first casualties when the house of cards comes crashing down.

For investors, solar will remain tricky. The most lucrative opportunities in 2013 will continue to be in those small niche tech sectors and in installation. The latter could prove to really launch the SolarCity IPO, so definitely watch that one carefully.

Wind Energy Blues

In the absence of the wind energy production tax credit, the U.S. wind industry will absolutely stall in 2013.

In fact, you can pretty much kiss the domestic turbine industry goodbye next year... Layoffs will continue, and aside from GE (NYSE: GE) and Siemens (NYSE: SI), most shops will be mothballed until a new mechanism is introduced to jumpstart the industry again — or subsidies for oil, gas, and nuclear are phased out. And that's just not going to happen.

Of course, there's not much left for investors in this space now, any way. And publicly-traded wind development companies that are already operational, like Western Wind Energy (TSX-V: WND), will be fine, as they won't be affected by the loss of the production tax credit.

In fact, Western Wind is currently finishing up construction on a new project while its older projects are actively generating revenue via long-term power purchase agreements with the utilities. The company's also now selling off its assets, which we believe will get the stock up to at least $3.00 a share. The timing on this one is actually pretty spectacular.

It's Good to Be King

Natural gas will remain king in 2013. And while it will continue to be dirt cheap, prices will start inching back up next year.

Also worth noting is that going forward, we're definitely going to see more trucks and buses running on natural gas.

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


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

July 20, 2012

Next Economy and Faith for Empiricists

Garvin Jabusch

Let's be clear: Justice is not an immutable law of nature. Neither math nor physics nor chemistry recognizes justice as one of the universe's governing principles. The strong, rich, and powerful have, since long before humans emerged, by and large taken what they wanted, when they wanted, and never counted the costs to those they took it from. Despite what Socrates may have said, justice has forever occurred, at best, in fleeting, ephemeral flashes. We yearn for a god capable of seeing and ultimately judging all rights and wrongs -- because we know we can't be counted on to do it ourselves. Small wonder that the legend of Robin Hood – the original 99 percenter -- still resonates after 800 years.


Image courtesy Zach Weinersmith and SMBC

We can say that humanity might change, but that's just another, kinder, more optimistic lie. We can't. Not as a whole, not within the time scales required to preserve ourselves. We are descended, on a time frame of 3.5 billion years, from organisms that succeeded because they were the best at gathering as much as they could in the shortest amount of time possible. This has been true throughout history. And prehistory. And primordial history. It's too deeply ingrained to switch off or even ignore. We just don't work that way, and it's time for us to accept that and start thinking about how to address our problems without relying on an ultimate goodness in our nature.

So, what, then? How can we approach our main challenges? How can we arrive at the sustainable, circular, next economy and learn to live within the various budgets that earth can provide?

In concept, it's simple: Align people's economic interests and sense of well-being with the best interests of Earth's ecological totality. Call it next-economy capitalism.

In practice, that's insanely difficult.

It's difficult, because, again, maximizing short-term profit while ignoring larger costs is humanity's prevailing worldview, and extracting fossil fuels (especially when subsidized) is a fantastic way to earn short-term profits. Consequently, the phalanx of opponents of renewable energy and electric transportation is impressive and daunting. It's the list of industries that stand to lose market share and profits as renewables advance: oil, coal, gas, traditional electric utilities, and makers of internal-combustion cars.

Given this opposition, rather than lament the slow adoption of renewables and electric vehicles, we should be proud and even amazed that we have made as much progress as we have. That's a testament, really, to two things: the tireless efforts of all those working for change and, more importantly, the fact that ultimately renewables just make better economic sense. No matter how much disinformation gets thrown at people, there's no escaping the fact that technologies with a zero cost of fuel will inevitably become cheaper than any extractive industry of the same or even somewhat larger scale, even, ultimately, natural gas.

But there's the rub, renewables are still such a tiny fraction of the size of fossil fuel industries that their true potential does not yet shine brightly in the popular imagination. And when we do see hints that this tide is turning, tactics are swiftly deployed to keep the status quo intact. Is it coincidence that large tariffs are being placed on the world's least-expensive solar modules just as those modules reach cost parity with coal on the U.S. electric grid (see "Why We Pay Double for Solar in America (But Won't Forever)")? Or that in North Carolina "sea level rise" is pilloried as a "liberal buzzword?" Facts of science are not buzzwords. Forbidding developers from planning for accelerated sea level rise will not protect low-lying communities from storms, nor force insurance companies to cover them. Placing authoritarianism ("because I said so" laws) above science and empiricism will simply not work. Folks who plan for sea level rise are outlaws now? Please.

Given the power of our fossil fuels oligarchs, it seems like change toward sustainability faces long odds. Who can doubt the power of the oil plutocrats when there are still huge subsidies for fossil fuels (the most profitable industry in history), while renewables (which are actually still in the "kick start" phase that subsidies are meant to support) get relative pennies. When the temporary denial of the KXL pipeline to cross the U.S.-Canada border quiets critics, while construction both north and south of the border legs continues unabated. (On this point let's not forget that the last major tar sands pipeline spill cleanup is still underway and costing $800 million.) When there are already over 680,000 deep-injection wells that have pushed more than 30 trillion gallons of toxic liquid into U.S. ground, and yet there is scarce examination from policy makers? When the U.S. supported the obviously nondemocratic coup in the Maldives against a popular, democratically elected president, Mohamed Nasheed, who happened to be a tireless worker to limit fossil fuels where possible. Nasheed, who was crusading to limit global warming to such an extent that he held a symbolic cabinet meeting underwater, was illegally removed from office with rhetorical support from U.S. officials.

I think it's naïve to blame this or that administration for our refusal to slow the growth of our carbon emissions, when it's clear that in certain areas, oil executives have as much or more influence as the executive and legislative branches combined. They're the richest organizations in all of human history, so that's simply where power resides.

And one assumes big oil will have seen the writing on the wall of the future by now, and be plotting ways to become the masters of the next great sources of energy. I hope that's the case, but other than Total buying a big piece of Sun Power, I've seen no major moves in that direction. In fact, as recently as October 2011, I heard an oil executive at a conference say something very like "yeah, we tried experimenting with solar in the '70s, but it was just way too expensive to make a decent value proposition," as though he thought the audience was credulous and uninformed enough not to know PV efficiency has improved more than 100 times per dollar's worth since then.

So leaving global warming, pollution, disease, resource scarcity, and war aside, the argument we can win is going to be economic: The best renewables are a better value proposition. At least on a level playing field. The race is, even after we've come all this way, to prove that we still have even small reasons for long-term optimism that we can credibly make this case. 

And, fortunately, we do. For as surely as humans are programmed to maximize short-term gains, we're also fantastic innovators, and we may have a greater capacity for adaptation than any other species. And this is where the most rational of empiricists, who only believe in what they can observe, can place some modicum of faith. Because when it comes down to adapt or fail, we will take a big swing at adapting. And, being much better at adaptation than some of earth's former dominant species, e.g. dinosaurs, we have a far better chance of success.

It's now clear that unrestrained burning of fossil fuels is backing us into an existential corner. Therefore, we will hopefully try to adapt by limiting fossil fuels' use where we reasonably can. (The struggle between short-term individual gain and larger picture group selection that ultimately benefits individuals as well was recently discussed in an editorial by E.O. Wilson, who argued that we're the products of both types of evolutionary pressures, and that we apply whichever is most appropriate to given circumstances. For what it's worth, I believe that the primary ideological divisions in this country are straightforward manifestations of Wilson's approach to this "multi-level natural selection," and that evolution proves that we need both.)

So to tie our remarkable capacities for innovation and adaptation to our economic and social well-being is clearly now, as it has always been, the way forward. Plus ca change… Most directly, we need to accelerate investments into the best, most profitable, most effective renewables, water solutions, agricultural solutions, and all other sustainable manifestations of technologies required to run an economy. And we need to invest in them until it becomes so obvious that they're the most efficient multipliers of human effort that all ideological considerations fall by the wayside, the way oil replaced coal, the way coal replaced water wheels. We know how to be better, more innovative, and smarter at accumulating profits and wealth. As computer science pioneer Alan Kay put it, "the best way to predict the future is to create it."

Garvin Jabusch is cofounder and chief investment officer of Green Alpha ® Advisors, and is co-manager of the Green Alpha ® Next Economy Index, or GANEX and the Sierra Club Green Alpha Portfolio. He also authors the blog "Green Alpha's Next Economy."

June 08, 2012

Three Things Goldman Sachs' $40B Greentech Investment Means, and Two it Doesn't

Tom Konrad CFA

goldman sachs tower
Goldman Sachs Tower photo via Bigstock
Goldman Sachs’ Investment in Green Tech

More than any other investment bank, Goldman Sachs (NYSE:GS) is famed for its skill at picking good investments.  Last week, the bank  announced it would invest another $40 billion in green technologies over the next 10 years (or an average of $4 billion a year.)   While this is a drop from the $4.8 billion invested in 2011, the last time Goldman Sachs made a commitment to green tech was 2005.  The $1 billion pledged then ended up as $4 billion in direct investments of Goldman’s own money, and another $24 billion of financing arranged by the bank.

What the Investment Means

We can draw several insights from Goldman’s announcement.

1. The announcement is public relations (PR)

Since the $4 billion per year pledged is less than what Goldman is already investing, this is not a new commitment, or a stretch goal.  Rather than using the public forum as a way to bind its own hands, the bank is “committing” itself to something it’s already doing.  Hence, the announcement is designed more to bring attention to Goldman’s greentech expertise, and get articles (such as this one) written about the bank.

2. The investments are more than PR

Since the investments are real, this is not greenwashing (trying to give something that’s not really green the appearance of green.) It’s not new, either.  Goldman simply wants to be known for their green tech investment expertise.

Fair enough.

3. Goldman thinks there are good investments to be made in greentech

Goldman’s track record of investing more than promised means that the investments are being made for non-PR reasons.  Since they are not greenwashing, Goldman must be investing for some other reason.  Goldman Sachs is known more for being hard-nosed than for dreaming of butterflies and unicorns, so it’s a safe bet that they’re investing because they expect to make good financial returns.  A few PR points scored along the way are icing on the cake.

The head of Goldman’s clean technology and renewables investment banking group, Stuart Bernstein, says green tech is a “quite large” emerging investment opportunity, and compared it to investing in the BRICs (Brazil, Russia, India, and China) over the last decade.

What it Doesn’t Mean

1. Goldman Isn’t Buying Everything Green

Goldman’s investments since 2005 have been successful, or the bank would be unlikely to be coming back for more.  Yet the leading clean energy ETF, the Powershares Wilderhill Clean Energy ETF (NYSE:PBW),  has fallen 70% over the same period.  Clearly, Goldman was not just passively investing in a basket of green stocks, as PBW does.

Going forward, Goldman will continue to choose green investments carefully, just as they choose their investments in the BRICs.  Not every investment in Russia or China has been a good one, and not every green investment will be a good one going forward.

2. This is not an Endorsement of Green Stocks

A few weeks before Goldman announced the new commitment, the investment bank downgraded First Solar (NASD:FSLR) stock to Neutral, and slashed its price target.  The $40 billion announcement was not some coded reversal.  Goldman was saying that while First Solar may not be a great investment right now, there are plenty of very profitable opportunities in green tech.  Many of those opportunities will be investments in renewable energy deployment: wind and solar farms, as opposed to wind and solar manufacturers.


It’s a mistake to assume that just because Goldman thinks there are many profitable opportunities in green tech, all opportunities in green tech will be profitable.  Right now, I think the most profitable investments are likely to be investments in renewable energy and energy efficiency deployment: wind and solar farms, and upgrades to facilities to make them more energy efficient.

Green stock investors are likely to be best served by buying the companies that are acting like little green tech investment banks, and are buying up distressed assets in the sector.  Companies like Alterra Power (TSX:AXY, OTC:MGMXF) and Western Wind Energy (TSXV:WND, OTC:WNDEF), which both announced deals to buy wind assets this month, or companies like Power REIT (AMEX:PW), which plans to use investment-bank style financial engineering to bridge the gap between REITs and renewable energy.

If we can’t invest like Goldman Sachs, we can at least invest in companies that can.

Disclosure: Long MGMXF, WNDEF, PW

This article was first published on the author's blog, Green Stocks.

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.

May 06, 2012

Top Questions to Ask a Venture Capitalist in the First Pitch

David Gold

Katherine Connors ceremonial pitch 8
Katherine Connors, Miss Iowa USA 2010 throws the ceremonial first pitch.  Source: Cathy T, via Wikimedia Commons
You landed your first pitch at a venture capitalist’s (VC) office. You’ve practiced the pitch and have your laptop fired up to deliver. So, like a sprinter at the sound of the gunshot, you dive in hard and heavy to make sure you get through the deck. After all, you might only have one chance to excite them with your company’s story. Inevitably, with all the questions the VC throws at you, time expires before you even think about asking questions of your audience.

             Don’t let that happen to you.  The more you learn about your prospective investor and where you stand with them, the more productive your meeting will be.  Start off by asking questions. You may be very surprised at how many VCs are willing to spend time answering them. And be sure to watch the clock and leave time at the end to ask key closing questions. Presuming you’ve already asked the questions from my last post, Top Questions to Ask a Venture Capitalist in the First Five Minutes, here are some of the questions you should consider asking as part of the pitch session.

Question to ask before the pitch:

Tell me about yourself and how you got into venture capital?

             If you have done your homework, you should already know something about the attendees in your meeting. Check the firm’s website, LinkedIn page and other sources to learn more about them. If you already have the information, why ask this question? First, asking this question helps to create touch points with your audience. Maybe you went to the same university, had the same major, worked a similar job in the past or know someone who may have worked with them. You may have already identified the touch points from your research, so asking this question gives you the opportunity to talk about those connections. Second, the more you know about what motivates your audience, how they think and what makes them tick, the better you can tailor your story to include things that will resonate with them most.

On what percent of your investments were you the lead investor?

            The journey of raising venture capital has a required starting point: finding a lead investor. Some funds lead many investments, while others are designed to be followers. That doesn’t mean that the meeting is a waste of time if the fund usually follows. Followers can be valuable, but you are looking for different things out of them. An interested follower can be leveraged to help you find or close your lead investor. A lead investor can deliver you a term sheet.

How often do you co-invest with others and how many different funds have you syndicated with in the past?

             In forming your syndicate of potential investors, it is important to understand which investors may prefer to invest alone, and which would want co-investors. The number of funds that a firm has co-invested with is an indicator of how well connected they are in the venture capital world.  A well-connected firm is usually more helpful  in bringing in additional co-investors. This is usually true no matter if  they are a lead investor or a follower.

Questions to ask after the pitch:

If I call the CEOs of your portfolio companies, what will they tell me about your fund?

             Raising investment capital is like marriage without the option of divorce. It is critically important to understand what it would be like to work with your prospective investor.. Good investors respect entrepreneurs that are as concerned about that relationship as they are about the money coming into the bank.

Where do you see the strengths and weaknesses in our management team?

             In a venture investment, little is more important than discussions about the roles of the management team. Would you really want to take investment capital from a firm that has a starkly different view of your management team than you? The earlier you start to understand your alignment on this issue the better.

How high is your interest in our company compared to your other investment opportunities?

             Entrepreneurs often make the classic mistake of presuming that funding will follow once they convince the venture fund that their business, team, market, technology and plan are exciting. But venture capital is a relative sport. No firm can do unlimited investments during any given time frame. So, which companies get selected for investment is relative to the other deals in the fund’s pipeline. It is better to know in a first pitch that the venture’s interest is tepid than to falsely believe there is high interest. The key measuring stick of their interest is understanding how their attraction to your company compares to others.

What are the key things you need to be convinced of to commit to visiting us?

             One of the classic tenants of a good sales process is “always be closing.” Yet, so many entrepreneurs deliver their first pitch and leave the meeting with enormous ambiguity about whether there will be any next steps. You can be certain that no fund is going to get to a term sheet without visiting your company. So, this is a key milestone you need to focus on achieving after the first pitch. Venture capitalists can suck you dry with information requests. Understanding what hurdles you need to get through in order to get them to commit to such a visit provides focus for the next steps you need to take.

David Gold is an entrepreneur and engineer with national public policy experience who heads up cleantech investments for Access Venture Partners (  This article was first published on his blog,

April 19, 2012

Report: US Re-takes Lead In Clean Energy Race from China... But Not For Long

Tom Konrad CFA

According to the just-released report "Who's Winning the Clean Energy Race?" from the Pew Charitable Trusts, the United States invested the most in Clean Energy of any country in 2011, retaking the lead from China, which had held the top sport for the last two years.  But the US's resurgence is more likely to be a blip than a trend.

Investment by Country and Financing Type.png

The United States' investments in Clean Energy were up 42% in 2011 over 2010, reaching $48.1 Billion.  Meanwhile, Chinese investments were basically flat at $45.5 Billion.

The US maintains a firm lead in venture capital invested in Clean Energy, accounting for 70% of the total $8.6 billion invested, but while that is vital for Clean Energy technology to progress, it is not very significant in terms of total investments, or profits from those investments.

Venture capital investments typically fund technology development, while pubic market investments, asset finance, and debt finance fund manufacturing scale-up and infrastructure investment.  Later stages of investment are typically much larger, because they need to be large enough to fund the returns to early stage investors and still reap returns for themselves.  Similarly, while the returns to early stage investors can be spectacular in terms of percentage, what matters to a country's economy is the absolute size of returns, which require large investments, typically in Clean Energy Infrastructure, such as wind and solar farms.

Financing Types
and Trends.png
Current Boom and Coming Collapse

Expired incentives.png While the US still dominates technology development and venture investment, our inconsistent and fading support for clean energy has allowed China to take the lead for the last two years.

Ironically, fading support for Clean Energy is also what allowed the US to re-take the lead in 2011.  Many developers rushed to get projects started before the end of 2011, when a number of Clean Energy incentives expired (see sidebar.) 

Because so many initiatives expired and may not be renewed, 2011 seems likely to be America's last hurrah in the the Clean Energy race.  Unless we re-initiate significant support for clean energy soon, Clean Energy investment and the industries and jobs it creates are likely to head for more hospitable political environments.

China's pause in Clean Energy investment growth was a re-consolidation, not a sign of a peak.  While the US was cutting incentives in 2011, China was adopting new ones.  Not only did China increase a national target for solar deployment to 50 GW in 2010, but they adopted their first national feed-in tariff.

It looks like America is winning the Clean Energy race, but 2011 was just our year to be the Hare to China's Tortoise.  Next year, look for the US to take a nap along the side of the Clean Energy racecourse, while China resumes its purposeful ramp-up of Clean Energy investment.

This article was first published on

April 11, 2012

Five More Winners of the Clean Energy Race

Tom Konrad CFA

The Pew Charitable Trusts just released the 2011 edition of their report, "Who's Winning the Clean Energy Race?"

This is the second year I've written about their findings, and I wonder what the question really means.  In particular,

  • Who are the competitors?  (Pew looks at countries)
  • How do we judge the winner? (Pew looks at total investment)
I write about Pew's winner (and why its lead won't last) here, but there are other winners, perhaps even more significant ones, depending on how we judge the race and who's running.

And the Winners Are...

#5 Largest Investment Sector: Solar

Solar manufacturing stocks were lousy investments in 2011.  That was mainly a consequence of rapidly falling solar module prices.  Those same falling prices led to a boom in solar deployments.  Solar attracted more than half of all Clean Energy investments in 2011, at $128 billion, up 44% from 2010.

Investment by Technology.png

Solar deployment was up 54%, to 29.7 GW in 2011.  This was particularly notable in Italy, where solar has hit grid parity.  Grid parity means that power from solar panels now costs the same as grid electricity, and is a consequence of Italy's high electricity prices and good solar resource.  Italy added almost 8GW of distributed photovoltaic capacity, more than half of all distributed capacity added in 2011.  8GW of solar is about the same capacity as six large nuclear reactors, and (due to lower capacity factors) produces almost as much energy as two such reactors.

Italy's rapid solar deployment in the midst of a financial crisis should finally prove that solar can scale as quickly as any traditional electricity generation technology.

Solar investments also surged in the United States (where developers rushed to take advantage of the expiring incentives, and Japan, in the wake of the Fukushima nuclear disaster.
Investment by Country and Sector.png

#4 Most Rapid Transition Towards a Clean Energy Economy: Italy

transformation.png The ultimate goal of the Clean Energy Race is to transition the world economy off its unhealthy and resource-constrained dependence on fossil fuels to a sustainable economy based on the efficient use of renewable resources.  To measure progress towards that goal, we need to evaluate not total investment, but rather how significant the investment is relative to a country's economy. 

By this measure, Italy is the clear winner.  Italy grew its investments in clean energy at a compound annual rate of 89% over the past five years, producing 24-fold growth over that period, and clean energy investment now accounts for 1.58% of the country's GDP.

For skeptics who worry that Italy is wasting money on clean energy at a time it can least afford to, it's important to note that solar, which accounts for virtually all Italian investments in Clean Energy, has reached grid parity in Italy.  In other words, Italian solar investments are profitable investments. 

Italian solar power also reduces future imports of natural gas to produce electricity, improving the long term balance of trade in a country with too much debt.

#3 Sector Finally Getting Some Respect: Efficiency

Energy Efficiency has long been the under-appreciated but hardworking sibling in the Clean Energy family.  Energy Efficiency is far more cost effective than renewable (or even conventional) energy generation, and has the capacity to meet at least half of our future energy needs. 

In addition, the arguments that Clean Energy creates jobs are the strongest (and the criticisms the weakest) for Energy Efficiency. Those who argue that Clean Energy will destroy jobs base their arguments on the relatively high costs of some clean technologies relative to conventional energy.  While these arguments are weakening as Solar and Wind deployment gets cheaper, they have never been true for Energy Efficiency, which has always been cheaper than coal.

Efficiency is getting respect in the sense that Venture Capital and Private Equity(VC/PE), are increasingly flowing to the sector.  In 2011, the energy efficiency and other low carbon technologies accounted for 40% ($3.6 Billion) of VC/PE investment.  With luck, other types of investment will follow (as they often do) where VC/PE investment leads.

VC and PE Financing.png

#2 Economic Winner: Energy Consumers

The most notable change in Clean Energy during 2011 were the rapid price drops.  With Wind and especially Solar power cheaper, the big winners are Clean Energy consumers.  As discussed above, Italians are already saving money by investing in solar to displace electricity from the grid. 

World Clean Power capacity additions in 2011 were 83.5 GW, 59% more than in 2010, at a cost of $141 billion, up only 12% from 2010 levels.  In other words, we're getting a lot more energy by only spending a little more.  The $59 billion dollars extra that the same amount of capacity would have cost at 2010 prices is pure gain for consumers.

Asset Finance.png

#1 Winner of the Clean Energy Race: Our Children

At some level, it's not important which country invests the most in Clean Energy, which sector comes out ahead, which country is moving most quickly towards sustainability, or even who benefits the most economically. 

What is important is that we make the transition as quickly as possible, so that fewer resources are wasted digging stuff out of the ground and burning it, scarring the landscape, polluting the air, and messing with our planet's delicate ecological balance. 

With investments in Clean Energy we get what we pay for.  The up-front cost has often been more (although that's rapidly changing), but that's typically the whole cost.  With fossil fuel investments, we've long been getting more than we paid for, but now the difference is coming back in the form of deferred, hidden costs.  Our children and our children's children will be paying these costs in the form of depleted resources and a less hospitable (if not downright hostile) environment for generations to come. 

We're even paying for our previous use of fossil fuels today.  This mild winter may seem like less of a cost than a benefit of Global Warming (unless you are a skier or a maple syrup producer), but any disruption of the natural cycle creates costs far beyond the immediate effects.  Allergy sufferers are already feeling the effects, and the mild winter was even more of a boon to insects than it was to us.

If the Clean Energy Race makes everyone run faster, we all win.  Except maybe the bugs.

March 29, 2012

Six Questions to Ask a Venture Capitalist in the First Five Minutes

David Gold

Ask First.png So, you’re at a networking event and you get an opportunity to talk with a Venture Capitalist (VC) for just a few minutes. After breaking the ice with quick introductory formalities, you present your elevator pitch, right? Wrong. How can you possibly capture that VC’s interest if you don’t know what excites them? Would you try to sell meat to a vegetarian or bricks to a carpenter? Not if you knew a little about their needs and interests! 

When you are raising money, you are selling yourself and your company to your prospective investor. A great sales person knows that learning the needs and desires of your prospect is much more important than telling them about what you’re selling.  Yet, all too often, entrepreneurs focus on conveying as much information as they can in the short time they have with a VC rather than asking questions to learn about the VC’s motivations.  What are some of the more important things you should desire to learn in the first five minutes?  Here are some of the top questions to ask a VC in that first short meeting.

Which specific sectors are of top interest to you?

If you’ve done any homework, hopefully you know whether the VC’s fund invests in the broad segment in which your company lies. But, just because the fund invests in cleantech doesn’t mean they invest in solar. And just because they have invested in solar doesn’t mean they are still interested in more solar investments. Even if they are into solar, they are likely more interested in some areas of technology or supply chain than others. You need to understand what current hot areas the VC is focused on—the areas that makes their ears perk up. Your goals for the first five minutes and your sales strategy should change dramatically based on whether you are a fit for their areas of interest.  If you are not a fit for their interests, look to engage them as a referral source as they may know funds that would be interested.  If you are a fit, then it’s time to move on to other questions…

How many new investments do you have remaining in your current fund?

How much energy would you put into selling something to a person if you found out they had no money? Venture funds don’t always have money to invest. Sometimes they are between funds. Even when VCs are in that situation, they still like to cultivate deal flow so they have a pipeline to turn to when they are ready to invest in the next fund. For funds in that situation, building a relationship for future financing can still be valuable. However, it’s important to know how to prioritize your time with them. If they are not currently active, it’s hard to justify placing them at the top of your priority list.

What size of initial investments do you typically make?

If a fund’s “bite size” is too large or too small for your round, you will likely approach them differently. For a large fund that needs to invest more than you had considered, you will have to contemplate what a larger round would look like and be prepared to pitch that to the VC. Or you need to look at that firm as a referral resource and potential prospect for any future larger rounds of investment.  For a small fund that can’t even invest 20 percent of your round, you first need to find out if they would be interested in such a large round. If they are, you need to assess if they are a fund that—despite being such a small investor—can rally other funds to the deal.

What is your geographic focus?

Some large funds are truly international.  But most at least limit themselves to a country or two.  Small to mid size funds may focus even more on a specific geographic region.  And even large funds that have a big geographic footprint will typically end up doing more deals within a several hour drive of their offices than any other single geography.  Understanding how well you fit with the VC’s geographic focus is an important element of knowing whether your location will be a showstopper, inhibitor or accelerator with that particular fund.

What stage of companies do you focus on?

“Early stage” means different things to different venture funds. For some it means two people with a business plan. For others it may mean a company with over $10M in revenue. You can’t change your stripes when it comes to your stage. That doesn’t mean there’s no value in conversing with a VC if you’re at a growth stage that doesn’t fit with his or her venture fund. If your stage is too early for them, keeping in touch and building a relationship over time can grease the wheels on their participation in the next financing round. If your stage is too late for them, here is the question to ask:

Do you know of funds that would be interested in a company that [insert elevator pitch] and is raising a $XM Series Y round?

Even if you discover that you are not a good fit for a VC’s focus areas or stage, that doesn’t mean there is no value in the discussion. VCs often advertise the areas most interesting to them to other investors specifically to encourage referrals from other types of companies. If a VC views you as credible, many find it valuable to make such referrals because they hope it will encourage other VCs to return the favor.

Would a company that [insert elevator pitch] and fits your stage and segment criteria be worth 45 minutes of your time for a deeper overview?

            Only after you have determined that your company is a good fit for a VC does your elevator pitch come in to play. If you start the pitch with an acknowledgement that your company fits their stage and segment focus, you will have a much more attentive listener. Remember that your goal is not to close on a term sheet—it is simply to get an opportunity for a longer meeting. I bet you can guess at this point that a key goal for you in that meeting should be to ask many more questions!

Watch for my next post on some of the best questions to ask in your first pitch session with a VC.

David Gold is an entrepreneur and engineer with national public policy experience who heads up cleantech investments for Access Venture Partners (  This article was first published on his blog,

March 08, 2012

Sages and Seers: Warren Buffett, Bill Clinton, Oxford University Prof. Nick Bostrom, and the Next Economy

Garvin Jabusch

The last couple of weeks have seen some remarkable next economy pronouncements from three of the world's smartest people, each representing a different realm of human endeavor: business, politics and academics. Warren Buffett, Bill Clinton, and Oxford University professor Nick Bostrom are among the world's highest achievers, and each has remarkable visibility in to the real, actual state of the world. As such, I couldn't help but notice their recent confluence of messaging.

In his most recent annual shareholder letter, release February 25th, 2012, Warren Buffett touted Berkshire Hathaway's significant, recent investments in renewable energies:

MidAmerican will have 3,316 megawatts of wind generation in operation by the end of 2012, far more than any other regulated electric utility in the country. The total amount that we have invested or committed to wind is a staggering $6 billion. We can make this sort of investment because MidAmerican retains all of its earnings, unlike other utilities that generally pay out most of what they earn. In addition, late last year we took on two solar projects – one 100%-owned in California and the other 49%-owned in Arizona – that will cost about $3 billion to construct. Many more wind and solar projects will almost certainly follow.

Nine billion dollars is a lot, even for a guy like Buffett. He clearly believes in the moneymaking power of the most efficient renewables, so much in fact, that Berkshire Hathaway's energy arm, MidAmerican, is America's leading wind utility. Smart competitors will need to race to catch up, but with "many more" projects in the pipeline, that may be difficult. Berkshire Hathaway is not currently a Green Alpha Advisors holding, but as their next economy plans continue to develop, that may change. We might say the same of GE, which is also going big into renewables, particularly solar, about which a spokesman has commented, "We've been successful, in fact more successful than we thought."

Warren-buffett-wind-power-turbine-photo (1)
Buffett and one of MidAmerican’s turbines (public domain image)

Our next sage, America's 42nd president Bill Clinton, gave a keynote address to the 2012 ARPA-E Energy Innovation Summit, March 1st, 2012, which was exclusively about how we may benefit from actualizing the next economy:

We're the only major country in the world that has one political party where apparently it’s an ideological imperative to deny the reality of climate change…evidence that we now have that is abundant that investments in changing the way we produce and consume energy can launch an enormous economic boon for our country and for the world…We've had this incredible venture capital network in America that has continued to commit to this and that believe in this. Once people know the facts, nobody's against this, but there are still too few...Americans who understand what a huge impact this could have on their future, who understand that there are already more people working in clean energy than in traditional energy. There are still too few people who intensely believe that the consequences of climate change can be calamitous, and that there are wildly profitable ways to avoid climate change. This is a great time to be alive. We just have to make sure that more people understand it and that more people participate in it. [Italics added.]

Clinton's comments resonate with us, as they're (in a far more eloquent and positive way) communicating a message I've been trying to get across recently as well:

There are enormous risks emerging now…but crisis and risk also provide opportunity, notably to those who provide solutions. Next economy investing then can be defined as a way to provide capital to those solutions, and is also the clearest path to competitive investment returns as the world becomes ever riskier and more politically and environmentally complicated. It amazes me that how we decide to manage our economies over just the next few years will make the difference between a new dawn of innovation, freedom and security for mankind, or a dangerous, dirty world fighting for what's left.

And Clinton is right, it is a "great time to be alive." But, like every generation, we need to rise to confront our primary challenges. As Clinton inferred, a big part of that is messaging and creating popular awareness of the challenges and opportunities. 

The other part is defining and understanding our challenges so we can bring the best solutions, the theme sounded by my third sage.

Nick Bostrom, professor of philosophy and director of the Future of Humanity Institute at Oxford, in the course of discussing existential, extinction level threats to civilization, made some interesting remarks in an interview this week about understanding risk, even though he did not discuss climate change and resource scarcity:

I think there are vastly better ways of being than we humans can currently reach and experience. We have fundamental biological limitations, which limit the kinds of values that we can instantiate in our life -- our lifespans are limited, our cognitive abilities are limited, our emotional constitution is such that even under very good conditions we might not be completely happy. And even at the more mundane level, the world today contains a lot of avoidable misery and suffering and poverty and disease, and I think the world could be a lot better, both in the transhuman way, but also in this more economic way. The failure to ever realize those much better modes of being would count as an existential risk if it were permanent…But to me the most important thing to do is more analysis, specifically analysis to identify the biggest existential risks and the types of interventions that would be most likely to mitigate those risks.

Taken in reverse order then, our seers are saying, "identify and understand the risks, broadly communicate that there are big risks but also commensurate opportunities, then actualize the opportunities by investing in the very best ways to mitigate those risks and profit from them."

So, the capitalist, the policy expert and the academic futurist are all ringing very clear notes about the next economy.  The capitalist sees plainly that renewable energy works profitably, right now, with existing technology. The policymaker agrees, and sees a "wildly" profitable future in expanding the green economy, but worries that too few people understand that for America and maybe civilization to make rapid enough progress.  The professor, perhaps more than the others, sounds like us at Green Alpha in asserting that we must study and understand the most significant risks facing civilization, and that we must then invest big in the technologies and other approaches that address and mitigate those risks. 

On each of these three fronts, business, political and theoretical, it's clear that our best and brightest are echoing our own economic thesis: that the next economy must and likely will grow faster than the legacy, fossil-fuels based economy, because that's the best way to stimulate economic growth and simultaneously avoid some of our primary risks: win-win. Over time, we're confident that the necessity of these realities will lead our investments to provide above-average returns and to provide a conduit of capital into an economy that minimizes existential risks.  Failure to build the next economy is not an option.

Garvin Jabusch is cofounder and chief investment officer of Green Alpha ® Advisors, and is co-manager of the Green Alpha ® Next Economy Index, or GANEX and the Sierra Club Green Alpha Portfolio. He also authors the blog "Green Alpha's Next Economy."

January 26, 2012

Minimizing a Key Threat: State of the Union Address 2012

Garvin Jabusch

Americans, rightly, prefer specifics and plans, as opposed to rhetorical vision and platitudes, from their president in their State of the Union addresses. We couldn't agree more, so here are our thoughts about President Obama's 2012 address, with respect to our area, the next economy and investing therein.

President Barack Obama delivers the 2012 State of the Union Address (Image source:

Two years ago, President Obama in his State of the Union Address said, "The nation that leads the clean energy economy will lead the global economy and America must be that nation." So how are we doing?

From a next economy point of view, the critical parts of last night's State of the Union Address were:

  • Oil and gas development are the centerpiece of the administration's energy plan
  • Natural gas is the primary to the 'clean energy' part of the energy plan
  • America is the leader in battery technologies
  • The president attempted to encourage more development in wind, solar, and other renewables by encouraging clean-energy tax breaks and the removal of subsidies to profitable oil companies
  • The president attempted to leverage American competitive spirit: "I will not cede the wind or solar or battery industry to China or Germany because we refuse to make the same commitment here."
  • "Differences in this chamber may be too deep right now to pass a comprehensive plan to fight climate change, but there’s no reason why Congress shouldn't at least create a clean energy standard."  So,
  • Major new renewable standards by executive order were announced, three million homes' worth via government land and private development and 250,000 homes' worth per year to be purchased by the Navy
  • Efficiency and conservation were mentioned as easy and as job creators, so the president proposed incentives to businesses to become more efficient, and asked Congress for legislation to that effect

Unfortunately, a lot of these fall more on the rhetorical side, although we do welcome the few specifics that were offered. Unquestionably, it is a partial contrast with the rhetoric coming from Republicans' campaigns, which exclusively pander to big oil and Wall Street by pretending climate change and resource scarcity do not exist, so they can pursue their depletist, dangerous, destabilizing policies.  But, sadly, it’s not nearly enough.

Here's what the president didn't say.  He didn't say that the climatic and resource challenges facing America are the most long-term economically destabilizing risks that exist. He didn't say that three million homes' worth of renewable energy is a good start but tiny next to the progress required to avoid financially disastrous resource scarcity and climate change, and he didn't mention a time frame for that.  He didn't acknowledge that the climate disinformation campaign causing all the disastrous pandering, policy stagnation and partisan gridlock is, in the words of NASA's James Hansen, America's foremost climate scientist, a "crime against humanity."

Since the possibility exists that this could be President Obama's last State of the Union Address, the president should want to make his most full, complete case for his legacy, for what he wants his administration to stand for.  It's easy to see why he would fear taking on the most profitable companies in the history of humankind in a larger way than merely proposing taking away their tax welfare, but he should have wanted to make his strongest case on all fronts. We can only hope the economic realities of pursuing a clean efficient future will speak for themselves, because our policymakers, even the good ones, are way behind.

Garvin Jabusch is co-founder and chief investment officer of Green Alpha ® Advisors, and is co-manager of the Green Alpha ® Next Economy Index, or GANEX and the Sierra Club Green Alpha Portfolio. He also authors the blog “Green Alpha's Next Economy."

December 30, 2011

Energy in the Great Depression

Energy in the Great Depression

Eamon Keane

With the focus on the size of the ECB's balance sheet and eurozone bond auctions, it can be difficult to see the big picture of where this is going. Concerns about oil and climate change have taken a backseat to the foreboding sense of doom. To see the implications for energy it requires a look at the direction of the financial system.

In recent times every 40 years or so there has been an upheaval in the monetary system, as Philip Coggan explains in his excellent new book Paper Promises. The gold standard broke up during WWI, an attempt was made to reinstall it in the inter-war period, and then in 1944 the Bretton Woods system was introduced. America, as principal creditor, designed the system (although Keynes had some input). Bretton Woods broke down in 1971 due to America's trade imbalance when Germany, France and Switzerland demanded to convert their money into gold. For the past 40 years money (debt) creation has exploded, with the initial result epic inflation, followed by a stupid stock market bubble and a ridiculous housing boom, with debt increasing all the time as shown below:

bretton woods bubble

Sources: Housing prices, CAPE, Interest rates: Robert Shiller; US Credit Market Debt - Fed flow of funds L1.

The music stops when American long term interest rates return to some semblance of normality due to a buyer's strike by external creditors. China, as principal creditor this time round, will get to call the shots for the new monetary system. This is likely to include capital controls, fixed exchange rates, and limits on current account imbalances. This will do away with much of Wall St. and the City. Not before time, you might say, with the bankers still unrepentant. The staff at Irish banks, which have cost Ireland 50% of GNP (American equivalent $7.5 trillion), have still not taken a pay cut. Contingent banking liabilities which the state has assumed are a further 129% GNP. The following two graphs show just how out of control the finance industry has gotten:

stern finance pay
Source: Thomas Philippon (2008)
finance american gdp
Source: Thomas Philippon (2011); Historical Statistics of the United States p24; BEA (.xls)

In case you're wondering who we've bailed out, it's these:

Based on deleveraging of global debt coupled with malinvestment in ghost estates/cities from Ireland to America to China and very poor GDP weighted demographics (Germany, China, Japan, Korea, Italy etc.) a period of painful deflation may be in store. Global debt is now over three times GDP:

global debt gdp
Source: Business Insider

With this backdrop, the outlook for the energy industry has to be bleak. UBS estimates the current wind turbine industry is only operating at a 60-65% factory utilization rate.  The solar industry is significantly oversupplied also:

solar supply 2012

G-Pap had designs for €35 bn of renewable energy investment in Greece, but the IMF looks set to put paid to that. Levelised cost of energy calcluations are very sensitive to the discount rate - when interest rates normalise, projects will become significantly more expensive. Getting to the title of the piece, with a great depression II no longer out of the question, the effect on energy demand is likely to be profound. The data from the first great depression are shown below:

energy consumption in the great depression
Source: Historical Statistics of the United States p165; BP Statistical Review of World Energy 2011 (.xls)

The difference this time is that during the great depression 95% of America's oil was domestically produced, while in 2010 60% was imported (11.8 mb/d). This time round global oil industry costs are structurally much higher. A 40% drop in the oil price like in the 1930s, to $60/bbl, is possible but not sustainable given the oil production cost curve. 75% of currently produced oil was discovered before 1980, leaving the potential for declines from mature fields. Overall US energy demand dropped by 34% between 1929 and 1932. The beneficiaries in such a scenario are those energy solutions which have a low upfront and low running costs like bicycles, ebikes and small, efficient cars.

December 28, 2011

2012 Energy Stock Predictions

By Jeff Siegel

Domestic Oil to Reign in 2012

Last December, I made three predictions for 2011:

  1. The mounting solar glut problem would be rectified by the end of the year;
  2. Domestic oil and gas production would increase significantly, regardless of environmental concerns related to fracking and tar sands production; and
  3. With the introduction of the Chevy Volt and the Nissan LEAF, domestic sales of electric cars would reach no less than 10,000 units.

Well, two out of three ain't bad!

A Sad Season for Solar

Toward the end of 2010, we saw the writing on the wall...

Inventories of solar modules and cells were piling up just as the world's strongest solar market, Germany, was chipping away at its very generous subsidy mechanisms.

The country's feed-in tariff did exactly what it was designed to do: accelerate investment into solar. It did that — and more.

The fact is Germany is responsible for launching the solar industry from niche player to multi-billion-dollar revenue generator.

And unlike some countries (this one in particular) where energy subsidies never seem get phased out, thereby putting a major burden on taxpayers and disallowing a free market to flourish, Germany stuck to its guns this year, told the lobbyists to stand in a corner, and began the process of phasing out those feed-in tariffs.

Of course at the start of the year, many analysts (including this one) believed that even with the phasing out of subsidies in Germany, the sector would continue to chug along.

You see, in an effort to move excess inventory out the door, solar manufacturers began to lower selling prices. The expected result was that this would allow for a pickup in demand.

That never happened.

Despite prices falling by as much as 50%, the hard truth is that it ain't easy selling cheaper solar panels to consumers when the entire global economy is going down the crapper.

This year, nearly every major solar stock has fallen by more than 60 percent. It was an absolutely horrible year for solar stocks.

Fortunately, most energy investors don't put all their eggs in one basket. And while I personally ate it on some solar stocks, my call on domestic oil and gas production more than makes up for it...

4.3 Billion Barrels

If you're a regular reader of these pages, you know I'm not a huge fan of the heavily-subsidized oil and gas industry.

The billion-dollar welfare check we hand the industry every year is a slap in the face to every real free market thinker.

No matter how the bureaucrats in Washington try to spin it, there is no justification for forcing hard-working taxpayers to foot the bill for a profitable and mature industry to do business.

That being said, I can't afford to buy a senator. I'm one guy without a K Street connection, and I don't expect many on the Hill to trade their campaign contributions for my vote. So while I would love nothing more than to see a real, honest free market in energy, I know it's not going to happen anytime soon...

And as a seeker of profits, I'll take my gains where I can get them.

Which is why we'll continue to play this angle in 2012.

Now we've been discussing domestic oil and gas production all year. We've covered the Bakken story dozens of times. And we'll continue to cover it. After all, we're talking about more than 4.3 billion barrels up for grabs.

That ain't chump change, my friend. And if you think for a second that every ounce of the oil won't be produced, you're out of your mind.

And don't forget, there's another 2 billion barrels sitting at the Three Forks location. Of the wealthiest investors I know, not a single one of them is ignoring this opportunity — and you shouldn't, either.

Not the Failure They Hoped For...

Dortmund iMiEV charging
By Rudko [CC0], via Wikimedia Commons
Throughout the course of 2011, I felt like I had become a representative for the electric car market, defending it from an avalanche of unfair attacks.

It still amazes me that at a time when we're trying to displace as much foreign oil as we can, there are so many knuckle-draggers cheering for the failure of a vehicle that doesn't need a drop of gasoline or diesel to operate.

I'm not going to sit here today and defend the electric car from all the bogus arguments we hear time and time again from the media whores and partisan slaves. (Feel free to check out this article I wrote back in 2010, where I responded to some of the more common criticisms.)

But consider my prediction from last year: With the introduction of the Chevy Volt and the Nissan LEAF, domestic sales of just these two electric cars will reach no less than 10,000 units.

Not including December sales (which we won't see until January), 8,738 LEAFs and 6,142 Volts have been sold in the United States.

That's nearly 15,000 electric vehicles — roughly 5,000 above my initial estimate. And this is just domestic sales. Globally, more than 20,000 Nissan LEAFs have been sold.

Just to put this in perspective, consider this: When Toyota first launched the Prius Hybrid in 1997, the Japanese automaker sold 3,000 units.

In 2011, the first year Nissan starting selling the all-electric LEAF, more than 20,000 will have been sold. Not too shabby — especially considering the LEAF carries with it the burden of range anxiety, something Prius owners have never had to deal with.

(I didn't include the Volt in this comparison because there is no range anxiety with that vehicle. Once the initial charge is depleted after 30 to 40 miles, the engine kicks in, and you can go another 300 miles or so.)

Yes, the electric vehicle market's best days are still ahead. And that brings me to the first of my...

Predictions for 2012

It is clear that Nissan has taken the early lead in electric vehicle development, much in the same way Toyota took (and maintains) the lead in conventional hybrid vehicles.

In fact, the company announced a couple of months ago it has set a goal of selling 1.5 million electric vehicles by 2016. That's only four years away.

As for next year, the major automakers will continue to produce and roll out their new electric offerings.

In addition to the Chevy Volt and Nissan LEAF, we'll start to see Mitsubishi's electric car — the “i” — hit the highways in 2012. Ford's all-electric Focus is also expected to make its debut. That particular vehicle looks like it could be a real crowd-pleaser.

Of course, it will still carry with it a price premium. And that will likely limit early sales to early adopters...

But most analysts know that this early round of electric cars is really only intended to serve as the building blocks for future electric offerings.

Because like it or not, electric vehicles are going to be part of every major automakers' lineup going forward.

I'm not saying electric cars will overtake the conventional internal combustion engine anytime soon. But from a growth perspective, the opportunities for investors are undeniable.

A recent Pike Research study showed there will be more than one million plug-in electric cars on the roads in just three years. And by 2017, just about five years from now, that number will grow to 5.2 million.

By the end of this year, total plug-in sales will be around 21,000.

Considering the overall vehicle market is expected to grow 3.7 percent between 2011 and 2017, this is a massive growth story.

But as I said, the conventional internal combustion engine will still own most of the auto market for decades to come. And that means our reliance on oil is not going anywhere. As a result, expect to see a continued run on domestic oil and gas production.

Where Natural Gas is King

Moving onto utility-scale power generation, natural gas will continue to pick up where coal leaves off.

The fact is conventional coal has reached the end of its usefulness — at least here in the United States. It simply cannot compete with low-cost natural gas, and as older plants retire, don't count on utilities building many new ones that'll comply with new regulations. It simply doesn't make economic sense.

No, the preference for utilities will be natural gas. Although many will continue to develop their wind holdings, too...

Just last week, Duke Energy Corp (NYSE: DUK) and American Transmission bought a $3.5 billion power line project that will move wind power from Wyoming to California and the Southwest.

Most of the wind action next year will happen in the Midwest, Texas (now the leader in installed wind capacity), and Hawaii, which is desperate to transition away from having nearly 90 percent of its power generation come from diesel generators.

So to recap...

2012 will bring us:

  • More domestic oil and gas production

  • More installed wind capacity

  • More electric car production and sales

Also worth noting:

  • We'll start to see significant depletion of the world's solar glut by Q2 or Q3. Solar stocks will remain risky, but many are trading so low that if you can stomach the risk, it might be worth picking up a few of the more solid players in the early part of the year.

  • Despite some obstacles, the Keystone XL pipeline is going to happen. Don't let these recent bumps in the road convince you otherwise. There's a market for Canada's dirtiest of oils, and it will be supplied.

  • The move to pony up more nuclear power in the U.S. will continue, although I'm not convinced it'll get very far in 2012. Regardless of your take on nuclear, it is prohibitively expensive without massive government support. And there ain't much of that right now. That being said, I remain bullish on new nuclear fuel technologies that enable lower cost production and safer power generation.

Overall, I'm cautiously bullish on 2012.

I don't buy for a second that we're going to have some miraculous recovery next year...

But I also don't believe we're going to be pushing wheelbarrows full of dollars and trading gold coins for bread, at least not yet.

Either way, don't let it weigh on you. Because regardless of how things turn out in 2012 — there's always a bull market somewhere!

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


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

December 01, 2011

Delusions: The Secret to Lost Opportunities

By Jeff Siegel

This past Thursday, as we sat down to yet another Thanksgiving feast, the obligatory What are you thankful for? question surfaced.

To be honest, I've never been a fan of playing this game.

After all, if you're thankful for something, why do you have to wait until November 24th to talk about it?

Nonetheless, I played along that afternoon and decided I was thankful for all the great thinkers over the years that enabled progress and allowed us to enjoy the many comforts and conveniences we take for granted today.

As well, I'm thankful that many of these great thinkers succeeded in the face of intense criticism and scrutiny.

After all, change is sometimes hard for the masses to accept — even if those changes are in our best interests and can instigate economic growth.

Look at rail travel, for instance. Think about the impact the advent of rail has had on this country...

The transcontinental railroad united the nation and allowed for the increase of commerce between states.

Think about all the freight we ship on our rail system: the coal, the grain, the chemicals, the scrap iron, and the thousands of other things that keep this nation fed, clothed, and operational.

Every dollar invested in freight railroads yields $3 in economic output. For every $1 billion of rail investment, more than 17,000 jobs are created. Freight railroads generate almost $265 billion a year in economic activity.

Railroads are four times more fuel efficient than trucks, and last year, U.S. railroads moved a ton of freight an average of 484 miles per gallon of fuel.

The importance of freight rail to our nation's economic health is undeniable.

So it's a pretty good thing rail travel didn't die on the vine when it was first being created, especially since there were quite a few folks who disparaged it in its earliest stages of development.

In fact, it was Dr. Dionysus Lardner, the famous professor of natural philosophy and astronomy at University College in London, who once said: “Rail travel at high speed is not possible because passengers, unable to breath, would die of asphyxia.”

That, my friends, is just one example of the ridiculous and irrational things “new” technologies often have to contend with in their early days of development.

Hell, back in 1903, the president of the Michigan Savings Bank told Henry Ford's lawyer, Horace Rackham, that the horse was “here to stay” and the automobile was only a novelty, a fad.

Fortunately, Rackham didn't listen. He invested $5,000 in Ford stock, which he later sold for $12.5 million.

A Clean Energy Illusion

As a long-time modern energy advocate and investor, I've heard every excuse in the book as to why things like solar, wind, and electric cars will never pan out.

Even some colleagues whom I find to be quite smart and successful have sunk to a level of irrationality by referring to solar and wind as “scams,” pushing the illusion that cleaner energy alternatives are inefficient and costly.

Of course, I hold no grudges. We all have an axe to grind. I'm just not a big fan of trashing something you don't fully understand in an effort to push something you do.

In other words, while I fully enjoy being a part of (and profiting from) the earliest developments in clean power generation and electrified transportation, you'll never find me cheering pipeline delays or second-guessing the role oil plays in the global economy.

Because as any right-minded objective capitalist will tell you, that pipeline's a done deal.

As well, the further production of domestic oil is lock.

But just as we will produce unconventional liquids in Canada and the United States, we will also continue to integrate more cleaner energy.

Irrelevant Perceptions Won't Help You Profit

While some like to subtly mock wind power by referring to wind turbines as “windmills,” it is very likely that by 2030, 20 percent of our power generation will come from wind.

The 20 percent by 2030 has actually been an industry goal since former president George Bush signed off on a DOE report detailing how the U.S. could achieve that kind of wind penetration, and do so without any major technology breakthroughs.

The cost: about 0.06 cents per kilowatt-hour of total generation by 2030, or roughly $0.50 per month, per household.

But again, that's based on no technology breakthroughs, of which there have been many over the past few years — including a few that have enabled increased efficiencies and lower production costs.

Even Bloomberg's New Energy Finance recently released a report indicating the best wind farms in the world already produce power as economically as coal, gas and nuclear generation, and the average wind farm will be fully competitive by 2016.

Here's what lead analyst Justin Wu had to say:

The public perception of wind power tends to be that it is environmentally-friendly, but expensive and intermittent. That is out-of-date – in the best locations, where generation is already cost-competitive with fossil fuel electricity, and that will be the case for the majority of new onshore turbines installed worldwide by 2016.
Wu also went on to say:
The press is reacting to the recent price drops in solar equipment as though they are the result of temporary oversupply or of a trade war. This masks what is really going on: a long-term, consistent drop in clean energy technology costs, resulting from decades of hard work by tens of thousands of researchers, engineers, technicians and people in operations and procurement. And it is not going to stop: In the next few years the mainstream world is going to wake up to wind cheaper than gas, and rooftop solar power cheaper than daytime electricity. Add in the same sort of deep long-term price drops for power storage, demand management, LED lighting and so on — and we are clearly talking about a whole new game.

A Bigger Piece of the Pie

Look, I get it. Some folks like to mock environmentalists.

They think all that “let's make sure our air and water is clean” rhetoric is just a recipe for economic disaster and socialist agendas... or they just need a villain to help them sell their wares.

Whatever it is, rest assured the integration of clean, modern energy technologies is not being facilitated by Greenpeace or a secret society of tree huggers worshiping at the altar of Al Gore...

It's being facilitated by nothing more than the quest for wealth and security.

The future of energy will not be one completely dictated by fossil fuels. Rather, it will be one that utilizes a variety of resources.

In 20 years, we will still be very much reliant on fossil fuels.

But don't kid yourself.

Because while natural gas will likely be our main source of power generation for decades to come, wind, solar, and geothermal will also be getting a bigger piece of that pie.

And while we'll suck every last ounce of oil from anywhere we can economically produce it, we are actively developing alternative modes of transportation right now that will either require less oil or no oil at all.

From natural gas trucks and buses to more efficient internal combustion engines to electric cars, this is happening right now.

And this is our opportunity to make a choice...

Either embrace it and profit from it, or miscalculate the enormity of the change that is about to take place — much in the way the former Michigan Savings Bank president did when he insisted the automobile was nothing more than a novelty.

When it comes to energy in the 21st century, the only novelty or fad is the outdated and delusional mentality that the world is not transitioning its energy economy to one that will rely less and less on finite resources.

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


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

P.S. For the sake of clarification, windmills are machines designed to mill grain or pump water. The word windmill is also used to describe a cardio exercise that requires you to swing your arms around in a circular motion. Wind turbines, on the other hand, convert wind energy to mechanical energy that is used to produce power. Just something an energy investor might want to know in case you encounter the incorrect usage of the word “windmill” in any past or future analysis you may read.

November 14, 2011

Feeling Feeling Blue About Green? Reasons for Cleantech Optimism...

David Gold

There are so many easy reasons to be a pessimist today:  the world financial crisis, the discord and dysfunction in Washington, and the almost certain doom that many scientists claim we are facing from global warming. With the first high profile cleantech company failures, the euphoria of the cleantech bubble has burst creating pessimism about the future of cleantech as a whole. 

I say, hogwash!  History says we have many reasons to be optimistic.  Just because things look bad today doesn’t mean the world is coming to an end!  We humans have a hard time stepping back and getting a perspective on things that span long periods of time and it’s easy to get lost in the fear and distress of the day.  But as a cleantech venture capitalist, I am almost required to be optimistic.  How else could I make high-risk investments in early stage companies?

With renewable energy representing only 8% of consumption in the U.S., no doubt there is work to do.  But I prefer to look at the cup as 8% full.  Consumption of renewable energy has been growing rapidly in the U.S. -- at an average rate of 7% the past several years.  At that pace, renewable energy consumption would double less than every 11 years.

Pessimists will point to forecasts such as those from the Energy Information Administration that project significantly slower growth.  The most recent of those very projections just three short years ago forecast consumption for 2010 that now, by EIA’s own numbers, are known to be about 17% low!  The problem with forecasts of these types is that they systematically fail to account for future disruptive technologies or significant changes to market conditions.

In 2001 it seemed like the days of the dot com were gone as the markets crashed and company after company went out of business.  Yet, the greatest value creation on the Web occurred after the dot bomb.  I don't believe we are doomed; I believe that technology innovation will enable disruptive changes in our energy production and consumption and I believe the greatest value creation for cleantech companies lies ahead.

So, to cheer you up, here are just a handful of examples in which past forecasts of doom were way off and whose combined legacy says, " Don't underestimate the power of human innovation and spirit!"...

We Never Had to Import Liquefied Natural Gas

Just a bit over six years ago our nation was facing an extraordinary natural gas crisis.  As utilities had shifted to gas-fired plants in the ‘90s to reduce consumption of coal, consumption of natural gas boomed.   As the cleanest and lowest CO2 burning fossil fuel, natural gas was (and is) being used as a critical bridge from coal and oil to renewable energy sources.  Yet natural gas production was on the wane because proven reserves couldn’t keep up.

In 2003, Alan Greenspan sounded the alarm to Congress about the potential impact on natural gas prices (which were already on the rise) if significant action to increase imports wasn’t taken.  The problem, though, was that natural gas can only be transported by pipeline or by container and only in a liquid form, but  the reserves were mostly overseas.  So, in 2005 there were plans for as many as 55 Liquefied Natural Gas (LNG)-importing facilities.  Only six were built, and most sit idle today.  Disruptive horizontal drilling and fracking technology opened up enormous reserves of previously unreachable natural gas in shale. Production skyrocketed and prices dropped by over 60%.  Current estimates place U.S. reserves at 100 years or more…without additional technology.

Disruptive Lighting

In the 1960s, Light Emitting Diodes began to come to market for niche applications.  The concept that they would someday disrupt the world of lighting seemed far-fetched.  They were dim, extremely expensive and incapable of generating pleasing white light. My, how the world has changed in just a few decades!  The brightness of LEDs has increased more than five orders of magnitude while, at the same time, their cost per lumen (a measure of brightness) has dropped by about four orders of magnitude.  And, to boot, pleasing warm and bright white light is now the norm.  What seemed impossible just a short time ago is now more than possible – it is changing the way the world thinks about lighting, and the exponential improvement in LEDs shows no sign of slowing down.   

The Population Bomb Didn’t Explode

In the 1960s predictions of world starvation by the 1980s were rampant in books like the best-selling The Population Bomb by Paul R. Ehrlich or theorists like Thomas Malthus.  After all, back then world population was going to double every 30 years or so, meaning we should have had over 11 billion people in the world today! Yet, world population just reached 7 billion. 

World population growth rates are now less than half what they were in the early ‘60s and continuing to decline.  Based on today’s population growth rate and the continued forecasted decline, it will take about 100 years for human population to double again.

OK, you say, but that still means having 14 billion people on the planet in a hundred years!  True, but in the 1960s another reason population doom was the rage was an assumption that agricultural production couldn’t keep up with the exponential growth.  Yet, dramatic agricultural technology innovation that improved crop, soil, water, nutrient, and pest management has enabled the amount of food production per capita to increase by over 30% during that timeframe in spite of a more than doubling in population!  Hunger still haunts parts of the world, but the pessimistic doom predicted in the ‘60s was far from today’s reality, in which the amount of food per capita has increased.  One can only imagine where our technology will be in another century.

200 Countries, 200 Years…

Pessimists will surely find reasons to pan this article… for example, concerns about fracking fluids or the disparity in food distribution around the world.  A pessimist sees these as reasons to stay pessimistic.  An optimist sees them as new areas where we as humans will work to improve because there is rarely a penance for a problem.  So, if you are still feeling depressed and pessimistic, I will leave you with one of the more profound and optimistic views on world progress that I have seen.  Hans Rosling is a professor of International Health at Karolinska Institute in Stockhom and his video 200 Countries, 200 Years is a sure cure for any pessimistic day. 

David Gold is an entrepreneur and engineer with national public policy experience who heads up cleantech investments for Access Venture Partners (  This article was first published on his blog,

November 05, 2011

Could The G20 Deliver A Growth and Clean Energy Pact?

by Clean Energy Intel

It is becoming increasingly clear that the international community fully recognizes the need to ensure that the global economy does not become engulfed by another financial crisis at this critical juncture. Developments with regard to the referendum question in Greece and the fate of MF Global make this issue particularly pressing. There is therefore significant rationale for some kind of coordinated G20 action out of the coming Cannes Summit on November 3-4th.

In an article in early October, I argued that it was clearly in the interests of countries like China to aid the work-out process in Europe:

'....At that point, any discussion of negotiations on a potential deal on European debt at the G20 summit could help the market higher. There is certainly room for such a development and my read of the political tea leaves is that it may well involve a significant commitment from China. If that looks likely to be the case, it should again help the market towards a recovery...'

You can read the original article here and a more detailed assessment of the rationale and likely path forward here and here. That overall assessment looks generally to have been proven to be correct, with China’s willingness to support the EFSF mechanism in some manner now more or less clear (though any significantly negative political developments in Greece could obviously put that support on hold).

Interestingly, another reading of the political tea leaves suggests that the G20 may well decide to announce a further coordinated program – to convince the markets that they can act to sustain global growth. This could involve:

  • An overall stimulus commitment from a number of member countries  - and particularly those currently running current account surpluses
  • In particular, a deal on investment in clean energy (expect a lot from Germany, China and Japan on this) 

How to judge the market’s likely response is difficult in the midst of its confused reaction to both the MF Global and Greek referendum issues. However, four points seem reasonable:

  • If the price action continues to be negative on the S&P and the Euro going into the G20 an announcement of something like the agreement discussed above (or initial talk about it) could produce a decent dead cat bounce of significant proportions at least. Both the SPY and FXE ETFS could bounce sharply.
  • We should also be getting further confirmation of the commitment of China and other BRICs to the EFSF story. 
  • In clean energy, wind and solar and the like would get a decent leg up. Solar has been destroyed in the last few months and a basket of solar players could do very well on an announcement such as that discussed above. First Solar (FSLR), SunPower (SPWRA), Suntech Power (STP) and Yingli Green Energy (YGE) for example together look interesting as an announcement play at current prices. Alternatively, purchasing a solar ETF such as TAN also makes sense. In wind, exposure to market bellwether Vestas (VWDRY.PK) or simply FAN, the best wind ETF probably makes most sense. 
  • In terms of electric vehicles, the most interesting play remains Tesla (TSLA). For a broader discussion see here

The bottom line is that the G20 member countries know that both the global economy and the markets are at a critical juncture. They are therefore likely to pull out all the stops in order to convince the markets that they can prevent a financial crisis of global proportions. And some stimulus from a push on clean energy is entirely possible.

Disclosure: I am long SPY. I intend to purchase a basket of clean energy stocks over the next 24 hours.

About the Author: Clean Energy Intel is a free investment advisory service (available at, produced by a retired hedge fund strategist who also manages his own money inside a clean energy investment fund.

September 26, 2011

Top 5 Things Cleantech Entrepreneurs Fail to Understand About Raising Capital

David Gold

After decades of venture capital investment, growth and exit, the traditional focus areas of venture capital (such as IT, web and software) have developed strong entrepreneurial ecosystems. A high percentage of start-ups in these traditional areas come to market with one or more experienced entrepreneurs or with a strong and active network of investors/advisors who have “been there, done that.”   They know what it takes to raise capital and to build a great fast-growing business.  Cleantech companies, however, are much more likely to be led by first-time entrepreneurs who often struggle to create an ecosystem of experience people around them.

As a venture capitalist, I review hundreds of business plans each year and physically meet with roughly a hundred entrepreneurs seeking capital.  I have the advantage of doing this through the eyes of someone who has been on the other side of the table, having raised venture capital for my own start-up before becoming a VC.  And while there are certainly numerous exceptions, there are themes I see across cleantech start-ups that are not specific to their technology or market but which nonetheless impede their ability to raise capital.  Here is the top five…

Technology is necessary, but not sufficient.

Many cleantech entrepreneurs are engineers or scientists.  Although not the result of a formal survey, my perception is that many more have PhDs than what you find in internet start-ups.  I don’t know if it’s a symptom of having achieved such a lofty degree, but many seem to believe that their phenomenal technology and their outstanding technical skills alone should justify an investment in their company.  It isn’t.  Weak entrepreneurs can take the most game changing technology in the world and drive it into the ground.  Conversely, outstanding ones can take a good, but not great, technology and make a world-class business out of it (anyone heard of Microsoft?).  So… in scientific terms, having compelling technology is a necessary but not sufficient condition for entrepreneurial success.  Human capital must always precede venture capital.

Your 50-page business plan is a waste of time.

Will someone please tell all the college business professors that the traditional business plan is a dinosaur!  No VC has time to read such a tome.   Nothing ever turns out completely as expected, so writing a long document as if it will prescribe the future is silly.  And by the time you finish investing the time to create such a detailed document it is most assuredly out of date.

Conversely, too little time is invested into building a robust spreadsheet financial model.  Not a static five-year P&L – that is almost useless.  Rather, what an early stage company needs is a financial model that can be used to run “what-if” scenarios, e.g. “What if our margins are less?”  “What if it takes us a year longer to get to market?”   A tool like this accepts that the future is uncertain and that entrepreneurship is about taking risk.  As an entrepreneur, which would you rather have, a 50-page wish or a model of your potential risks?

The thought process that goes into fleshing out the basic elements of a business plan (e.g, market, competitive advantage, go-to-market strategy, financial model, etc.) is what is paramount.  Entrepreneurs that recognize this look at their business strategy and financial model as planning tools more than as fund-raising tools.  And they realize that communicating the results of that thinking must be done concisely.

Eisenhower once said, “In preparing for battle I have always found that plans are useless, but planning is indispensable.” Start-up businesses are no different.

A real advisory board isn’t just a list of cool names.

Some cleantech entrepreneurs get advice along the way that they should form an advisory board:  Get some people with cool experience and ask them if you can slap their names in your business plan.   That’s not an advisory board – it’s just a list of cool names. 

 A real advisory board not only has relevant experience and business contacts but also is actively engaged in the business, albeit on a very limited basis.  They meet regularly with company leaders, have provided concrete material assistance to the company and they have a specific personal interest in the company.  Such personal interest can take many forms, such as a stock option, a direct investment, a future executive role, prior significant personal relationship with a founder or clear strategic interest for their current employer. 

 Volunteer advisors who have no economic, business or personal connection to the company are cute.  They are like the parsley on your breakfast plate – they make it look nice, but add little substance and… at least for this VC… leave a bad taste in my mouth!

25% gross margins and growth to $20M in seven years aren’t exciting

At the highest level, there are three types of start-up companies.  There are high-growth businesses with venture potential.  There are downright bad businesses.   And there are steady growth businesses, which are not “bad” businesses – they just aren’t great venture investments.  
Venture capital funds are mostly 10-year partnerships.  We need to target businesses that we believe can generate huge multiples (typically 10x or more) on our investment in less than that timeframe so we get both liquidity and sufficient returns to make up for those investments that aren’t as successful.  That means companies that can use our capital to drive extraordinary growth, unfair competitive advantages and healthy margins yielding an exit return far beyond a simple discounted cash flow analysis on the business.

My second cousins are billionaires.  They built one of the first mail-order office supply companies to a dominant leader in its industry over 40 years (you can read their story in this book).  They never raised a penny of equity capital.  It was a great steady growth business that made them extraordinarily wealthy. Steady growth businesses can lead to phenomenal personal wealth, but that doesn’t make them good venture capital investments.

Last, but by no means least…raising capital is a social sport.

Quick quiz:  What is the single most important element of raising venture capital?  Your pitch deck?  Your technology?  No, no… your management team’s experience, right?  Wrong… it’s your relationships with potential investors.  Who you know is often more important than what you know in business.

The classic fund-raising mode for most cleantech entrepreneurs is to send their business plan to lots of funds, pitch at various cleantech business plan events and then wait to see who pursues them.   They let the VCs drive the process.  Few look at this as the sales process that it is.  Don’t spam slews of potential investors.  Rather, identify the funds that should be your top targets based on the investment interest they describe on their website.  Pursue them like you should a prospective customer: qualify them, identify their hot buttons and always be closing on a time-bounded next step with them.  And, as all great sales people know, getting an introduction is infinitely better than a cold call.

So, does that mean that only entrepreneurs who already have VC relationships can get funded?  No, but that sure as heck helps a lot!  And in this day and age, if you can’t get an introduction to me or another VC, you then you aren’t a very good entrepreneur.  There are almost 500,000 people who know somebody who knows me on LinkedIn and can get you an introduction.  Many VCs are equally well-connected – it’s part of what we do.  So, which business summary do you think I take more seriously -- the one that comes in from our website without an introduction or the one referred to me by someone I know?

And with that, you now have as a perk for reading my blog, a free roadmap for increasing your odds of raising capital from me!

David Gold is an entrepreneur and engineer with national public policy experience who heads up cleantech investments for Access Venture Partners (  This article was first published on his blog,

September 08, 2011

Chaos Theory, Financial Markets, and Global Weirding

Tom Konrad Ph.D. CFA

In my bio, I usually state
My study of chaos theory led to my conviction that knowing the limits of our ability to predict is much more important than the predictions themselves, a lesson I apply to both climate science and the financial markets.
Despite having written about financial markets and clean energy stocks regularly since 2006, I have never before explained in print what I meant by that.  This summer's heat wave and stock market turbulence illustrate how my intuition about chaos theory informs both my understanding of the climate and the stock market.

Chaotic Systems and Feedback

Poisson Saturne AttractorThe definition of a chaotic system I use is any system in which a tiny change in initial conditions can lead to a large change in results.  Most chaotic systems are chaotic because they contain positive feedback.  Positive feedback tends to amplify trends over time, while negative feedback tends to reduce trends over time.  Complex systems such as climate and the financial markets have both positive and negative feedback. 

In the weather, we can see positive feedback when a series of hot, sunny days create a static high pressure system which keeps storms from moving in to cool things off.  When a storm does move in, you can get positive feedbacks cooling things off.  National Weather Service forecaster Daryl Williams said the following about a storm which broke the summer heat wave in Oklahoma: “It's kind of feeding on itself, cloud cover and rainfall cools the air and the ground.” (italics mine.)

In stock markets, financial bubbles grow with the help of several types of positive feedback.  One such is "The specious association of money with intelligence," as John Kenneth Galbraith described it in his short and very readable book on bubbles, A Short History of Financial Euphoria: Financial Genius is Before the Fall.  When we see others make money in a stock market rise, we tend to think they must have been smart to have known when to get in.  If we made money recently by buying stocks, we tend to think we are smart for having done so.  In both cases, we're more likely to think that buying stocks is a smart thing to do, even if the profits were just dumb luck.  Collectively, this leads to more buying, which further raises prices.  Even if those price rises are justified in the beginning, the positive feedback can carry them up far beyond any level justifiable by the value of the underlying companies.  Many other positive feedbacks such as the wealth effect, relative valuation methods, and the increased ability to borrow against inflated asset prices operate in financial bubbles and bull markets.  In contrast, fundamental and value investors produce negative feedbacks by buying when prices have fallen and selling when prices have risen.

As with weather, external shocks to the system can reverse even these self-reinforcing trends, as we recently saw when the US's political paralysis around the debt ceiling debate and Europe's inability to effectively deal with their debt crisis recently ended the two year bull market in July.

Lorenz AttractorStrange Attractors and Regime Change

Highly complex systems which have both positive and negative feedbacks tend not to be chaotic all the time, but rather exhibit chaotic behavior only some of the time.  The system will behave quite predictably in a deceptively regular fashion for a while, but then shift with little warning into another mode of behavior that is also regular and predictable, but seems to follow a different set of rules.

Such behavior can be mapped with simple chaotic systems and often exhibits a pattern called a Strange Attractor, tow of which are pictured with this article.  As the system moves through such a strange attractor, it will often stay in one set of the rings curves shown for an extended period, before jumping to another set after an unpredictable period.

In the weather, we see this sort of behavior with extended heat waves, cold spells, or periods when it is hot in the morning followed by an afternoon thunderstorm.  Such patterns persist for days or weeks, but then quickly end to be replaced by a new pattern or a period of less predictable weather.

In the stock market, we have bull and bear markets.  In bull markets, good news is greeted with euphoria and strong stock buying, while bad news is discounted or ignored.  In bear markets, the opposite is true: good news is often ignored, while bad news leads to repeated bouts of selling.  In his excellent but somewhat inaccessible book, The Alchemy of Finance, George Soros describes how he tries to spot such tipping points or regime changes as they happen.  Much theoretical work has been done to understand and model such changes, but the lesson I draw from chaos theory is that recognizing such changes in hindsight may be simple, but predicting them in advance is and will continue to be extremely difficult.  That's probably why Soros did a much better job describing market regimes than explaining how to spot them. 

Nassim Taleb also addresses regime change in chaotic systems in his book The Black Swan.  His Black Swans are events which cannot be predicted solely by studying the past.  Such events occur, he says, because the rules we infer from the observation of events never contain the full range of possibilities.  He applies this lesson to societal events, personal experiences, and financial markets-- all of which are chaotic systems.  There are also climatic Black Swans.

Global Weirding

If you accept that the world's climate is a chaotic system characterized by a strange attractor and a large number of climate regimes such as ice ages and warm periods, you should also accept that the relatively small changes we are making to the atmosphere have the potential to shift the world's climate into a new regime where the weather patterns humanity is familiar with are replaced with a new set of patterns that we've never seen before in human history. 

We are already aware of a few positive feedback mechanisms with the potential to amplify the effects of climate change, such as the ability of a release of methane from arctic permafrost and clathrates to rapidly accelerate global warming, or the disruption of the North Atlantic current due to melting polar glaciers.  Such scenarios are chilling enough, but the knowledge that climate and weather are a chaotic system raises the possibility of yet unknown mechanisms that might create rapid climactic shifts.  In a chaotic system, the past is not always a reliable guide to the future.  Climactic past performance is no guarantee of future climactic results.

"Global Warming" can sound somewhat comforting.  "Climate Change" can sound clinical and distant.  A better description is "Global Weirding:" the climate is not becoming a warmer version of what we're used to, it's becoming an entirely new system, with a new set of patterns that will surprise anyone expecting a version of the old climate regime.


There is only one climate, while there are hundreds if not thousands of financial markets operating at any one time.  Financial markets also operate on a much more compressed time scale, with bubbles and busts compressed into a few short years or decades.  Ice Ages, on the other hand, last tens of millions of years. 

This difference financial markets and climate in number and scale means that we know much more about the chaos of financial markets than the chaos of climate.  We've probably already seen most possible financial market regimes in at least one of the thousands of financial markets, from tulip bulbs to CDOs, that have operated over the course of human history.  Although the rules of markets change with new technology and communication, the basic rules of human psychology which govern these regimes have not.  To paraphrase Mark Twain, financial history may not repeat itself, but it does rhyme. 

Climactic history may also rhyme, but we've not yet read a full line of the poem: We don't know what it will rhyme with.  Ice ages and warm periods often last tens of millions of years.  Given the infrequency of shifts between one climactic regime and another, it's quite likely that the new climactic regime we are heading into will be unlike anything that has prevailed during human history, and possibly unlike anything in the geologic record.

The benefit of the slow pace of climactic history is that we do have a few years or decades during which we will be able to influence the path of global weirding. 

In a chaotic system, a tiny change today can lead to a large change in future outcomes. 

What tiny change are you making?

July 29, 2011

Are the Declines in Solar and Wind Stocks Structural, or Cyclical?

Tom Konrad, CFA

Last week, I asked three green money managers if they thought cleantech stocks, especially solar and wind sectors were near a bottom.  While they did tell me about eight cleantech value stocks, they were not ready to call the bottom.

Commoditization in Clean Energy

In response to my questions, Rafael Coven, the manager of the Cleantech Index (^CTIUS), which is the index behind the Powershares Cleantech Portfolio ETF (PZD,) told me that he and his colleagues at the Cleantech Group
"are continually reminded how fast certain sectors have product commoditization, where intellectual property isn’t strong enough to differentiate products sufficiently, then prices have been collapsing  even faster than we had anticipated.  This is true for smart power meters, solar panels, wind turbines, and most lighting products – especially LEDs. ... Sector growth doesn’t necessarily mean that many companies will make economic profits in LED lighting or solar PV."
In other words, Coven sees the decline in solar PV stocks to be a consequence of changing market structures.  If he is right, there is no reason to expect investors in sectors which have experienced the rapid commoditization to ever recover their losses.  Just because these stocks look cheap based on historic earnings, they could easily continue to fall.

Spencer Hempleman, a partner and clean energy portfolio manager at Ardsley Partners in Stamford, CT thinks similarly.  He says,
"[S]olar and wind have underperformed the more broadly defined cleantech sectors because China is subsidizing the manufacturing ramp of those industries and creating overcapacity.  Commensurate with pricing pressure due to the supply and demand imbalances are raising commodity costs like steel, silver, copper etc which pressures margins for solar and wind manufacturers throughout the value chain."
Other Structural Problems

Commoditization is not the only potential structural problem in clean energy.  I also corresponded last week with Robert Wilder, the manager of the Wilderhill Clean Energy Index (ECO) and the Wilderhill Progressive Energy Index (WHPRO).   The largest clean energy ETF, PBW is based on ECO, while the Powershares Wilderhill Progressive Energy Portfolio (PUW) is based on WHPRO.  Wilder and I were discussing why broad-based ETFs such as PUW and Coven's PZD had outperformed narrower clean energy indexes like PBW recently.  Wilder says,
"Indexes capturing broader themes simply had been able to avoid the narrow, sharp drop. A wider Index for say, cleaner technology with lesser green energy weightings would in a sense do 'better' the past couple years, while Progressive energy emphasizing efficiency and the smart use of dominant energy would do even 'better' than that."
In addition to the quick commoditization arising from the rise of Chinese manufacturers, Wilder and Hempleman also see structural problems for solar PV and wind in the reduction of subsidies.  Wilder says that the paring back of subsidies has quickened recently as "several governments are suddenly fiscally flat on their back. ... One-off events like Japan's nuclear crisis, or sharp doubling in oil prices, spotlight moves to new energy in places like Germany, but that alone is not enough to offset these partly structural near term structural forces."  Hempleman adds that "this is a major structural issue as many of the companies that compete in these sectors are highly levered and the barriers to entry are fairly low."

The Cyclical Case

While Wilder and Hempleman see the recent decline as mostly structural, Wilder also sees some cyclical causes.  He sees an analogy to semiconductor makers, which go through boom and bust as wafer makers over-expand, and then are forced to contract, but he sees the forces driving down solar, wind, LEDs, and geothermal in recent times as much more powerful than those in the semiconductor industry.

Garvin Jabusch, manager of The Sierra Club Green Alpha Portfolio, emphasizes more cyclical causes.  He sees a big driver of the decline in the solar and wind stocks to be the political shift against pricing in fossil fuels' externalities, such as the effects of global warming, increased health care costs caused by pollution, and the costs of going to war for oil.  He says "These costs have not been accounted for in the economics of fossil fuels, but if the international political economy is ultimately rational, sooner or later (preferably sooner) they must be. ... [E]merging scale and accurate pricing of combustion’s externalities will inexorably reverse this trend."

Hence, if politics is cyclical (i.e. mean-reverting or "ultimately rational") then political drivers for renewable energy will be cyclical as well.  And right now he sees the political pendulum swinging to the extreme detriment of renewable energy due to disinformation.  "Polls show that (in the U.S. anyway), this [disinformation] is working. Except for a very recent rebound in belief in global warming, the last two years have seen a general decline in belief in warming science among Americans, particularly but not exclusively among conservatives.  It’s hard not to notice that this period of declining belief has approximately corresponded to the period of declining valuation, and increasing short interest (some solar companies have had short interest as high as 30-40% of total float), among renewables."

Jabusch also scoffs a bit at the commoditization argument.  He says that, as the price of solar declines to the point where it becomes competitive with fossil fuels such as coal, "some of the same analysts who derided renewables’ expense now deride their inexpensiveness as 'commoditization' and 'margin squeezing' that means solar companies can’t make much money going forward. To me these guys are missing the point that the rapid, large reductions in the price of solar, which by the way show every sign of continuing, mean that solar will now begin to supplant coal far faster than anyone could foresee even five years ago."  
Gas and Oil vs
ECO and HAUL.png

I think it's fairly safe to conclude that both structural and cyclical factors have been at work in the recent declines of solar, wind, LED, and geothermal stocks.  For the investor, the question should be, "Have the structural factors and most of the cyclical factors been fully priced in?"  If so, these stocks will benefit as cyclical factors begin to reverse themselves.  If, however, the full effects of the structural problems in these industries have yet to be felt, then even a political and cultural shift back towards pricing in the full costs of fossil fuels may not be enough to make the current batch of solar and wind stocks profitable again.

For myself, I find the bears' structural arguments more convincing.  While I think Jabusch is right that the political pendulum will swing back in favor of the recognition of the very real harm done by the use of fossil fuels, the resurgence of the solar and wind industries in terms of volume may be a great boon to society yet still fail to return great profits to the current shareholders of solar and wind companies.  This is because a new, more clean-energy friendly political environment may draw in new competitors into these industries, further increasing pricing pressure, and preventing solar and wind companies from "more than mak[ing] up in volume what they’re losing in margins," as Jabusch predicts.

It is possible to do well by doing good.  As Rob Wilder points out, "an Index capturing global energy efficiency in transportation is well up" over the same period solar and wind have been down.  I think that's probably due to the fact that transportation efficiency competes with oil, and the price of oil is up 50% over the last two years. 
Solar, wind, geothermal, and electrical efficiency technologies such as demand response and LEDs compete with the marginal supplier of electricity, which in most of the developed world is natural gas, and the natural gas price has been very low since early 2009 compared to 2004-2008.  This is why many renewable developers are now focusing more on developing countries where it is possible to displace oil in electricity generation.

Fossil fuel prices are far from the only factor influencing clean energy stocks, but they seem significant.  If we want to know if the current price trends for renewable electricity and electricity efficiency technologies are structural or cyclical, we also need to know if the price trends for natural gas are structural or cyclical, which in turn depends on our assessment of the long term course of the shale gas boom.  If we want to know if the recent positive trends in transportation efficiency will continue, we need to decide if recent oil price trends are structural or cyclical.

Unfortunately, as with the trends in renewable energy, I think the recent trends in oil and natural gas have both structural and cyclical factors.  Which of those factors will dominate over the next two years is beyond this analyst's expertise to predict.  Over the long term, though, the trend for fossil fuel prices is likely to be up.

DISCLOSURE: No positions.

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.

July 01, 2011

Growing Clean Energy Through Business Model Innovation

David L. Levy

Boston-based Zipcar (ZIP) raised $174 million from its Initial Public Offering in April 2011. It already has operates in 14 big cities and 230 college campuses around the United States, Canada and the UK, and is planning to use the new capital for market expansion. Zipcar is not a high tech business, and its success is not due to sophisticated technological innovation; rather, it’s an example of business model innovation. Zipcar reinvented the traditional car rental business by simplifying and reducing the costs for short-term rentals, and rebranding the service as green car sharing. They developed a distributed model of rental locations, an annual membership system, an all inclusive by-the-hour pricing structure, and online booking. Together these greatly reduce the cost and time needed to rent a car, while maximizing convenience. Indeed, most of the people I know who use Zipcar’s service are not ardent environmentalists, but enjoy the hassle-free approach and the easy parking.

While public policy and the media tend to focus on technological innovation as the key to addressing climate change and boosting clean energy, business model innovation (BMI) offers a path to rapid deployment of existing technologies. The concept was popularized and given its current acronym by Mark Johnson, Clayton Christensen, and Henning Kagermann in their Dec. 2008 Harvard Business Review article “Reinventing Your Business Model.” They point out that “Low-cost U.S. airlines grew from a blip on the radar screen to 55% of the market value of all carriers. Fully 11 of the 27 companies born in the last quarter century that grew their way into the Fortune 500 in the past 10 years did so through business model innovation.”

The potential for BMI in the development of the cleantech sector is only just beginning to be appreciated. Rob Day, a partner with Black Coral Capital in Boston, recently wrote about a new wave of startups that run lean and require less capital to scale up, so are less likely to founder in the infamous Valley of Death: “Some of this next wave of startups will be hardware, but many will be software and/or services…  Business model innovation will often be stressed over technological innovation.  They will sometimes marry energy-related market opportunities with Web2.0 and social media business models and platforms.”

A closer look reveals that BMI holds particular promise for unlocking the potential of clean energy and promoting economic competitiveness, investment and employment in high-cost regions. In addition to helping keep startups lean and capital efficient, BMI can develop systemic solutions that overcome some of the many market failures and institutional barriers to energy efficiency and clean energy. McKinsey’s famous Marginal Abatement Curve heralds the good news that about one-third of needed emissions reductions appear to have positive ROI with current technologies. The bad news is that about one-third of needed emissions reductions appear to have positive ROI – yet the necessary investments are not happening, due to these many hurdles. As with Zipcar, BMI provides ways to monetize the ancillary benefits of cutting emissions, and create business models that focus on features that people are willing to pay for.

BMI-based cleantech businesses are also more likely to keep jobs in high wage regions such as the US Northeast and California. Clean energy manufacturing jobs have been moving astonishingly quickly to China, even while there is still rapid technological evolution. Evergreen Solar (ESLR) and A123 Systems (AONE), both based here in Massachusetts, are cases in point. Business model innovation often focuses on software and services, developing strong relationships with customers and building on existing capabilities in the region, so jobs are more likely to stay local. These factors also help to create barriers to entry, protecting the business model. Zipcar’s network of parking spots, for example, negotiated over several years with hundreds of companies and local authorities, would not be easy to replicate.

Better Place is a powerful example of how BMI can overcome systemic barriers to technology deployment. The company is developing a national replaceable battery infrastructure for pure electric vehicles in Israel, Denmark, and elsewhere that transforms the business model for car ownership and fuel supply. Consumers buy a car without the expensive batteries, then contract with Better Place for battery replacement as a service, which is done in just a few minutes at a network of service stations. This model overcomes the physical limitations of batteries, in terms of range and charging time, and dramatically reduces the cost of new cars for consumers. As with Zipcar, governments are willing to subsidize the operation because it contributes toward reducing congestion and greenhouse gas emissions – again, monetizing ancillary benefits.

Energy efficiency and smart grid provide many opportunities for BMI. EnerNOC’s(ENOC) core business model, for example, is demand response and energy management, using sophisticated software and remote monitoring and control. Enernoc links the utilities, who are willing to pay for energy efficiency and for peak-period demand reduction, to a network of customers. Energy service companies like Ameresco (AMRC) are increasingly offering turnkey projects and performance contracts that reduce risks, capital requirements, and uncertainty for customers. Similarly, companies like Nexamp, Tioga Energy and Borrego offer renewable power purchase agreements based on DBOOM services – a complete package where the company designs, builds, owns, operates and manages the renewable energy installation, while the customer only pays for power.

Not surprisingly, then, these BMI-based companies are among the fastest growing businesses in the cleantech sector. Kevin Doyle, a Principal of Green Economy and Co-Chair of the New England Clean Energy Council’s Workforce Development Group, has pointed to the large number employment opportunities at a range of cleantech companies, a number of which are in energy services and software. As a result, they are not just looking for engineers, but also for a range of business and professional skills and expertise – which highlights the purpose of our new clean energy programs at the University of Massachusetts, Boston!

David L. Levy is Chair of the Department of Management and Marketing at the University of Massachusetts, Boston, where he teaches courses in international business, strategy, and business and climate change. He recently founded and is now Director of the Center for Sustainable Enterprise and Regional Competitiveness, which engages in research, education and outreach to promote a transition to a clean, sustainable, and prosperous economy. David’s research examines corporate strategic responses to climate change, the growth of the clean energy business sector, and the emergence of carbon disclosure as a form of governance. He was recently PI on a grant from the Massachusetts Clean  Energy Center to develop sustainability education programs. He edits the blog Climate Inc. on business and climate change.

May 22, 2011

Japan Wants to be World Leader in Rare Earth Recycling

by Kidela Capital Group

[ED Note: This ties in well with John Petersen's article last week about Lithium-ion battery recycling.  In both cases, it's about price, and China's actions are making Rare Earths expensive.]

Necessity is the mother of invention and Japanese industry is discovering just how true that old saying is. Last year, a diplomatic spat between Japan and China led the world’s largest supplier of Rare Earth Elements (REEs) to suspend exports of Rare Earth oxides and other critical metals to its largest single client.

Japan, like the rest of the world, is almost totally reliant on Chinese Rare Earth (RE) exports and the China’s action, which came as a shock to Japanese industry, is a sentient warning for the rest of the world.  But just as Japanese industry parlayed the oil shortages of the 1970s into the development of a new world leading, fuel efficient automobile industry, Japan hopes to use this supply disruption as a catalyst to take the global lead in Rare Earth recycling.

There is some suggestion that Japanese industry anticipated supply interruptions and stockpiled Rare Earths and other critical metals as an ameliorative measure. This has muted the immediate impact of the short term shortages. Over the long term, Japanese industry has partnered with RE miners around the world to ensure a more reliable supply. But in the medium term, Japan is looking to cover shortfalls through improved technology and recycling.

Recycling proves expensive but profitable

Recycling is, however, extremely expensive. But, the irony of Chinese export restrictions is that it has driven up world RE prices to such an extent that alternate mining sources and recycling have become  viable. To be feasible on a large scale, however, the price of REEs may have to rise even more than we have seen over the last year.

“It is very costly to collect and accumulate scrap for recycling. Merits of scale don’t work with these metals.”
The Japan Metal Economics Research Institute

The government of Japan has been instrumental in getting the recycling of REs underway and has both instituted subsidies and facilitated inter-industry cooperation. The Japanese Ministry of Trade has provided a third of a billion dollars in subsidies, which has been used as seed money for some 160 projects worth $1.34 billion. That number will increase as the Japanese government is offering another 8.9 billion yen in subsidies in the next fiscal year. The Japanese have set a goal of reducing the amount of REs imported by its domestic industry by one third.1

Japan is also investing heavily in research. Scientists at the University of Tokyo recently succeeded in separating REEs from neodymium magnets through a new, much cheaper recycling process. And a joint project by Morishita Jintan Company and Osaka Prefecture University has created a recycling process using microbes to recover rare metals such as palladium and indium. There is some hope it can be used for REs as well.2

Rare Earths from old air conditioners to computers

A number of noted Japanese companies have taken on different challenges in the recycling of REEs. Shin-Etsu Chemical is working on new systems to recycle these elements from old air-conditioners. The company is also negotiating contracts with electronic appliance suppliers to set up ways of recovering used and old appliances.3

Hitachi is recycling RE magnets from hard disk drive motors, air conditioners and compressors. Typically, recycling REEs was performed manually using acids and other chemicals, which created its own set of environmental issues. But Hitachi has recently announced a new “dry” process, which relies on a new extraction material with a high affinity for Rare Earths.  Hitachi hopes to commence full recycling operations by 2013.4

Tokyo-based Showa Denko KK recently opened a plant in Vietnam to begin recycling dysprosium and didymium. The company, the world’s biggest producer of some components used in hard disk drives, makes 8,000 tons of Rare Earth alloys a year and has plans to output 800 tons at the recycling factory.5

Other companies have formed cooperative arrangements to take on the recycling test. Mitsubishi Materials has initiated recycling ventures with Panasonic Corp. and Sharp Corp., to examine the extraction of neodymium and dysprosium from washing machines and air conditioners.6

A revitalizing new industry

Dowa Holdings, one of Japan’s oldest mining companies, recently built a large recycling plant in Kosaka in order to extract REs and other critical and valuable metals from melted down electronics components. The company has been successful in reclaiming gold, indium and antimony and is hoping to soon have processes in place to capture neodymium and dysprosium.

Dowa is more open than many other few companies about its REE recycling processes. And its disclosures give some insight into the challenges facing recycling. Every day, Dowa’s plant at Kosaka takes 300 tonnes of recyclable materials that it sources from all over the world — computer chips, cell phone speakers and other vital parts from electronics – crushes them, and then incinerates them in a furnace. From that, only 150 grams of Rare Earths are recovered. Despite this meager recovery rate, Dowa claims it still makes a profit.7

Right now, this recycling plant is also providing jobs for Kosaka, a town that has seen its metal processing business dry up in recent years. From a wider perspective, both industry and government see recycling as valuable new industry, one that Japan can exploit and one in which it can become a world leader.

“It’s about time Japan started paying more attention to recycling Rare Earths. If we can become a leader in this field, perhaps China will be the one coming to us to buy our technology.”
Utaro Sekiya, Manager, Dowa RE Recycling Plant


1 Japan seeks to cut rare earth usage by a third
Japan, Germany seek rare earth recycling as hedge
3, 6
New Push to Recycle Rare Earth Minerals
Hitachi Leads Rare Earth Recycling Efforts as China Cuts Access to Supply
New Push to Recycle Rare Earth Minerals
Japan Recycles Minerals from Used Electronics

May 17, 2011

If Energy Were Free and Unlimited…

David Gold

As soon as gas prices rise, our nation becomes focused on energy.  When they drop again, it falls off most consumers’ radar.  Yet the importance of energy goes way beyond the cost of filling up your gas tank or paying your electric bill.  In often-extraordinary ways, energy is interwoven into absolutely everything that we need to live or that we love to do.  One of the most useful tricks I learned in engineering school is that to put any problem in perspective, it helps to ask what if things were at zero or infinity.  So, to put things in perspective, let’s ask the question…

 “What if energy were free and unlimited?”

·      People would be able to travel at bargain-basement rates.
Yes, the cost of land vehicle transportation, which is so much of the focus in the press, would drop by 25%-35%[i].  But, in addition, airline costs would plummet as much as 50%.  With this would come increased commerce and maybe even greater worldly understanding, as more people are able to travel.

·      The world’s growing shortage of fresh water would largely disappear.
A huge amount of energy is expended on the conveyance, pre-treatment, distribution and wastewater treatment.   Energy represents 30% or more of a typical municipal water facility’s expenses.[ii]  With free energy, water could affordably be produced in abundance through the highly energy-intensive processes of desalination, wastewater purification or even direct extraction of water out of the air.

·      Few in the world would go hungry.
Today, energy represents roughly 30-45%[iii] of the cost of the food we put in our mouths.  Farming, transporting, processing, packaging and retailing all consume tremendous amounts of energy.   The price of food would drop and the availability of food would skyrocket.  With free and unlimited energy, food could be grown affordably just about anywhere, given that water would be readily available and, where necessary, climate-controlled growing facilities would become inexpensive to operate.

·      Economic prosperity would reign.
The correlation between energy consumption and standard of living is strong.[iv]  Everything that we use consumes energy to be produced and transported.  For example, energy represents roughly 50% of ocean shipping cost and 40% of aluminum production cost. Impoverished people would have more food to eat and cleaner water, their homes would become more comfortable, and the price of almost everything they buy would go down instantly, boosting their quality of life.  

So, the next time you hear complaints about high gas prices for our cars, remember that energy affects much more than just the cost of your ride to work or trip to the beach.  With this perspective in mind, it doesn’t take much to figure out what things would look like in the opposite scenario, where energy becomes extremely expensive and scarce as fossil fuels diminish.  It isn’t a matter of whether we will move away from fossil fuel consumption; it’s a matter of over what time period and with how much economic, national security and environmental pain along the way.
The free market will most assuredly create more alternatives as energy prices rise.  If we could be confident that future increases in energy prices would be gradual over a long period of time and that global warming was not a concern, there would be little reason to take any particular action.  But history has already shown us that changes in fuel prices are unlikely to be gradual.  And the growing industrialization of major portions of the world such as China and India mean that world energy consumption is likely to grow roughly 50% over the next 20 years.
 This leaves little doubt about the direction of energy prices in a world dependent mostly on fossil fuels. From a venture capital perspective, it is this type of disruption that makes cleantech a compelling area for investment.  From a policy perspective, if we are faced with high energy prices for an extended period of time or if global warming creates environmental chaos, the negative impacts could be extraordinary and would impact virtually every part of our lives.   But, on the positive side, an expensive gas tank fill up would soon be the least of our concerns!

David Gold is an entrepreneur and engineer with national public policy experience who heads up cleantech investments for Access Venture Partners ( This article was first published on his blog,

[i] Transportation:
o    Fuel costs alone are roughly 45% of airline operating expenses and that doesn’t include energy costs incurred for ground support vehicles or buildings used by airlines.
o    Driving a car would cost 25%-35% less per mile. (@ $3.50/gallon gas cost).
[ii] Water:
·       3% of all energy consumption used to move, treat water30% of municipal water agency expenses are energy.
[iii] Food:
·       17% of all energy consumption goes to creating and getting food to the grocery story.
·       As a result, roughly $240B per year is spent in the U.S. on energy costs related to food.
·       This equates to roughly $2,000 per family unit per year
·       Those same family units spend roughly $6,400 per year on food.
·       Thus, if energy were free, food could cost roughly 31% less.  Then there is the energy cost of getting the food home, preparing it, clean dishes and disposing of waste.
[iv] World Prosperity
·       Correlation to standard of living.
·       Shipping costs.
·       Aluminum costs.

May 13, 2011

The Rare Earth Supply Chain: Ores, Concentrates, Compounds, Oxides and Metals

REE Refining 101
by Kidela Capital Group

“There is a reason why the Rare Earths are called rare. They’re not called rare because they’re truly rare. They’re called rare because it’s very difficult to isolate these elements individually and it takes a lot of skill to do that.”
Constantine Karayannopoulos, chief executive of Neo Material Technologies1

Rare Earth Elements have become an indispensable part of modern life, found in everyday items like computers, camera lenses and high efficiency light bulbs to complex, emerging technologies in the optics, medical and defence spheres. But before these elements end up in your smartphone, they need to be transformed into highly processed, high-purity compounds, oxides and metals.  This is an expensive, time-consuming, and arduous process.  One of the consequences of having one country – China – holding a near monopoly on Rare Earth production over the past two decades is that around the world there is a general lack of processing expertise or knowledge on how to do this.

Here is a brief overview on what is involved in converting the raw material that comes out of the ground, into usable Rare Earth (RE) products.

Step 1: Mining the Ore

The first step is to mine the ore. These ores contain RE bearing minerals like bastneasite and monazite, but generally contain very low concentrations of the Rare Earth Elements (REEs) themselves.

Even a relatively high grade ore only contains about two percent Rare Earth Oxides (REOs),2 which at this stage are undifferentiated groupings of REs combined with oxygen. Depending on the grade, it can take anywhere from 6 to 86 tons of ore to produce a single ton of RE mineral product.3

Step 2: Producing RE Concentrates

The next step is to mill the ore, a process otherwise known as beneficiation or mineral dressing. Here, the ore is ground up to form fine particles (usually less than 1 mm or even less than 0.1 mm) using crushers and rotating grinding mills.4 The valuable minerals are then concentrated using such separation techniques as froth flotation, magnetic separation, and gravity or electrostatic concentration.5

The milling process produces a concentrate of RE minerals, which usually contains five or more times the original RE concentration in the mined ore.  The milling equipment – the crushers, grinding mills, flotation devices, and magnetic, gravity, and electrostatic separators – all have to be configured in a way that suits the type of RE ore being mined. No two ores respond the same way, which means every RE milling plant is different.6 And because transporting large volumes of RE concentrate is so expensive, the mineral dressing plant is almost always located very close to the mine where the ore is mined.7

Step 3: Producing RE Compounds

At this stage, the RE concentrate contains Rare Earths at a higher grade than the raw ore (up to five times as much), but it is still in the form if the original natural minerals.8 These minerals have to undergo chemical treatment to allow further separation and upgrading of the REEs.  This process – called cracking – includes techniques like roasting, salt or caustic fusion, high temperature sulphation, and acid leaching which allow the REEs within a concentrate to be dissolved.9

Because REEs are so similar to one other, what’s often produced initially is an undifferentiated REO product with large amounts of Light Rare Earths like cerium and lanthanum, and smaller amounts of the others according to their proportions in the ore mineral.

Processing techniques such as selective precipitation, ion exchange, and solvent extraction technologies are now required to remove most of the impurities and produce the desired combinations of RE compounds.

Once produced, these mixed RE compounds can be used on their own, for applications where any one of the REEs has the desired effect – for example, in the production of steel alloys, in catalysts, or as an abrasive for glass polishing.10 Alternately, they continue on to the next stage in the RE processing chain, as a higher grade, intermediate chemical compound that is now ready for additional refining. The nature of the final product of the chemical upgrading process depends on the exact composition of the mineral concentrate, market demands, and the size of the operation.11

The equipment used here – sophisticated analytical devices, furnaces, filters, and the vast array of collection, evaporation and clarification tanks required in ion exchange and multi-stage solvent extraction technology – are usually configured in a way that best suits a particular RE concentrate.12 Because each concentrate has a different combination of minerals, each RE workflow –– and a result each chemical upgrading plant – is typically unique.13

The chemical upgrading process generally eliminates most impurities and produces one or more kinds of mixed RE concentrate. If it contains a generally high amount of REOs (say, 50%), this product can transported fairly long distances without adding a great deal of cost to the commodity.14

Step 4: Producing RE Oxides

The major value-add relative to RE processing lies in the production of high purity RE oxides and metals.  But creating the 99.9% purity (or even higher) REs15 required to make phosphors, lamps, magnets, batteries, and other products that need REs to function efficiently, is not simple – far from it. Separating the REEs into their individual oxides may take 50 chemical tanks to separate Light Rare Earth Elements (LREEs), and up to 1,000 tanks of sequential solvent extraction to properly separate Heavy Rare Earth Elements (HREEs).16

The typical RE refinery uses ion exchange and/or multi-stage solvent extraction technology to separate and purify the REEs. These processes break the mixed RE compounds down through the exploitation of the subtle differences between the REEs.  It`s done by atomic weight­ – cerium, the first of lanthanides on the periodic table and the most abundant of the Rare Earths, is separated first. To get the more valuable HREEs like dysprosium, terbium and yttrium other REEs on the periodic table must be separated out beforehand.17

The refinery plant can be combined with the chemical upgrading plant described earlier, or it can be a stand-alone facility. As in the case of the other plants, the RE refineries are sized and configured to suit the unique composition of the feed material.18 For this reason, a plant designed to purify LREE compounds would normally have difficulty handling an increased proportion of HREEs.19

High purity Rare Earth Oxides are one product of the refining process. The composition of these REOs can vary greatly, since they are generally designed to meet the specifications laid out by end product manufacturers.20 A REO that suits one customers needs may not suit another.

Step 5: Producing RE Metals

The rapid advance of science and technology has led to some RE applications that require very high purities of individual REEs – as much as 99.99999 percent.21 For these applications,  multi-stage solvent extraction is generally used to refine the REOs into their essential metal form.  These Rare Earth Metals (REMs) can used on their own in end products, or combined with other elements to form alloys for advanced technology applications. Techniques such as optical or mass spectrometry are commonly used to help assess the purity of RE products.22

Upgrading Rare Earth ores to high-purity metals adds orders of magnitude to their value. For this reason, prices for mixed RE concentrates are generally much less expensive than for high purity Rare Earth metals.23

RE metals, or earlier stage products like an REO concentrate or mixed element compound, are now ready for use in the end product, be it a hybrid car, a BlackBerry, or the permanent magnet of Magnetic Resonance Imaging machine. It’s important to remember that it’s by no means a simple path from Rare Earth ore to any of the growing number of Rare Earth applications that we’ve come to depend on in this green, information age.

1, 3, 17 From mine to wind turbine: the rare earth cycle
2, 4, 5, 6, 7, 8, 9, 11, 12, 13, 14, 15, 19, 21 Extracting & Refining Rare Earths… Can some processes be centralized
10, 18, 22 Rare earths from supernova to superconductor
16 Critical Times for Critical Metals
20 From mine to wind turbine: the rare earth cycle
23 Rare Earth Processing in Malaysia: Case Study of ARE and MAREC Plants

May 11, 2011

Carbon War Room CEO: "Radical Incrementalism Will Fail"

Tom Konrad CFA

The Richard Branson-backed nonprofit, the Carbon War Room is a group that thinks big in the battle against catastrophic climate change.  They're only interested in attacking problems with the potential to reduce carbon emissions on the gigaton scale, that is reducing emissions by a trillion tons a year. 

No one nonprofit or even one multinational company can deploy the necessary capital to seize a fraction of the opportunities on this scale.  An annual gigaton of carbon emission reductions requires between $300 billion (Energy Efficiency) and $2 trillion (Solar PV) in up-front investment, according to Jigar Shah, the Carbon War Room's CEO and a solar business model innovator in his own right.

Instead, the Carbon War Room looks for overlooked opportunities to effect market transformation which will allow green entrepreneurs to thrive and rapidly scale profitable business models that also have the effect of reducing carbon emissions at the gigaton scale.  As these new opportunities grow and prove themselves, large companies and capital providers can step in to take advantage of the new profit opportunities, displacing less forward thinking incumbents as they go.

One such example of the Carbon War Room's efforts at shaking up old industries is their initiative.  This site gives businesses shipping goods an idea of how efficient various ships are, so they can make their decision of which ship to use based not only on price, but on emissions.  Even though the ratings currently available are not perfect, with big shippers like WalMart (WMT) taking an increasing interest in the environmental impact of their supply chains, the greater transparency can only help the shipping industry to clean up its act. 

The Carbon War Room chose to work on catalyzing improvements in shipping in part because the sector had so far received very little attention, there is a suite of mature technologies for improving ships' efficiency with quick paybacks, and those solutions can potentially be deployed quickly to reduce carbon on a gigaton scale.

The Investing Angle

The Carbon War Room's criteria to choosing projects also make a lot of sense for a stock market investor trying to pick stocks.  Looking at sectors that other investors are ignoring is a good way to find undervalued stocks.  Focusing on technologies that are deployable today is a good way to avoid stocks about to head into the Valley of Death.  And quickly deployable technologies mean there is a large potential for profit growth.

I just returned from the Carbon War Room's Creating Climate Wealth conference in DC.  It was a working conference, where the attendees collaborate across disciplines to find new ways to catalyze profitable carbon reduction, and I've come back with a few ideas about how to create a little carbon wealth in the stock market.  I plan to share them with readers in future articles.

But first, a note about what to avoid.

Radical Incrementalism

I sat down for an interview with Jigar Shah on the second day of the conference.  One thing he told me should be taken to heart by all investors hoping to make a difference on climate change: "Radical incrementalism will fail."

What does he mean by the oxymoronic phrase "radical incrementalism"? Doing the same thing we've been doing all along, but in a slightly more efficient manner.  This simply does not produce the climate gains we need. 

In transport, the highly flawed CAFE standards are the best tool we have to increase vehicle efficiency, but more efficient vehicles (even if we ignore Jevons' Paradox) may reduce emissions per mile, but they don't get us anywhere as long as miles driven are rising.  The greatest potential lies in alternative transport: bike sharing, car sharing, and transit.

In agriculture, it has been extremely difficult to make even the smallest changes in how monoculture farms are run.  The greatest potential lies in containerized farming, which can produce fresh vegetables on the roof of the very same supermarket in which they will be sold, while lowering cost, reducing food-miles, and increasing freshness.

Trying to fit new technologies into old ways of doing things seldom works as well as we would hope.  The strongest force holding back a new, low carbon economy is our attachment to legacy business processes, not any lack of technology.  By catalyzing changes in business processes, low carbon technologies can be unleashed, creating wealth for the companies who embrace them while reducing greenhouse gas emissions.

You can't create great climate wealth without breaking a few paradigms.

April 17, 2011

Who's Winning the Clean Energy Race?

Tom Konrad CFA

Highlights from a report on Clean Energy investments from the Pew Charitable Trusts.

The Pew Charitable Trusts just released their report on Clean Energy, finance, and investment in the Group of Twenty (G20) economies in 2010 [pdf].

I had the opportunity to review a pre-release version of the report. Some 2010 trends they discovered were encouraging or exciting, some were disappointing. I also had the chance to speak to the director of Pew's Clean energy Program, Phyllis Cuttino, about the report. Here are the highlights from the report and our discussion.

Clean Energy Sectors

  • Total Clean Energy investment in 2010 was $243 billion.

    • Up 30% over 2009

  • Solar Photovoltaic (PV) installations grew 53% over 2009

    • 17 GW of solar was installed in 2010

    • Distributed solar (defined as installations smaller than 1 MW) doubled to $56 billion, accounting for 26% of MW installed

    • PV hit grid parity in southern Italy due to high electricity prices and good insolation.

  • Wind grew 34%

    • 40 GW added in 2010

  • Biofuels slumped

    • Lowest investment since 2005

    • Some markets are oversupplied with conventional biofuels

    • Next generation biofuels are not ready

  • Solar thermal was not tracked by the report.

    • Concentration Solar Power (CSP) and direct use solar thermal (for water, space, and process heating) were not included

    • I mention this because these are much more significant sectors than marine power, which was included in the report, and given the Pew center's goal of providing information to policymakers to help them make better informed decisions, I'm hoping they will take the hint and include these important sectors in their next report update.

  • Energy Efficiency and Transportation spending did get some mention in the report, but the numbers were incomplete

    • Energy efficiency is hard to track because it's difficult to determine what is efficiency spending, and what would have been done in the normal course of business.

    • The report only covered Transportation stimulus spending, not private sector investment.

  • Geothermal Power was also not tracked. Again, I hope they correct this oversight in next year's report. What is not measured is often ignored.

Country Rankings

  • China took the lead in clean energy investment in 2010, displacing Germany.

    • China led in public financing (stock market) of clean energy companies.

    • Accounted for 50% of all manufacturing of solar modules and wind turbines.

  • Germany retained second place, mostly due to strong performance in installations of distributed solar.

  • The United States fell to third in total investment.

    • Investment in wind power dropped 50% from 2009 levels

    • Retains lead in venture capital and private equity investment, accounting for 73% of the G20 total

    • Accounted for 2/3 of all identifiable investment in Energy Efficiency, but this number is not particularly meaningful due to the difficulty of tracking energy efficiency spending. According to Cuttino, this is probably in large part due to the US playing catch-up. I think it is also due to the differences in how energy efficiency is implemented around the world, with the US putting more emphasis on incentives while other countries rely on regulation and higher energy prices to drive investment. The US model results in a higher level of identifiable investment, but has been less effective at driving overall efficiency.

  • Italy was in fourth place, because of a large rise in distributed solar projects

    • I expect PV growth in Italy should be expected to remain robust because they have hit grid parity, as mentioned above

  • Japan was much farther down the list in 11th place, almost entirely based on PV installations. As the Japanese understandably question their dependence on nuclear, they will want to accelerate their adoption of clean energy, in order to produce as much domestic energy as possible without the risks of nuclear power.

    • Over the last 5 years, clean energy capacity in Japan has grown at a 45% annual compound rate.

    • Small distributed installations grew at a 69% annual rate.

    • A 25% annual growth rate in investment was all that was needed to achieve 45% annual capacity growth because of falling prices.

    • Solar PV dominated Japanese clean energy investment in 2010.

    • Japan has ambitious targets to source 28 GW of solar and 5 GW from wind by 2020. I expect them to adopt even more ambitious targets as a result of the nuclear crisis.

    • With 3.5GW of installed solar, it would take 3 years for Japanese solar installations to grow enough to produce as much energy as the 2.8 GW of damaged nuclear reactors at Fukushima Daiichi at current growth rates, even after assuming an 18% capacity factor for solar.

    • If all clean energy continues to grow at the current 45% compound rate, Japan will add 11.7 GW of capacity in 2011. Much of this will likely be biomass and wind, so the average capacity factor will be considerably higher than for clean energy just from solar, meaning that this new clean energy generation should be enough to replace the electricity from damaged reactors more than twice over in just one year. Those who think clean energy cannot replace nuclear power should reconsider.

What I Hope For in the 2011 Report

  • Tracking Solar Thermal and Geothermal investment.

  • More complete tracking of investment in alternative and efficient transportation

  • Some measure of the effectiveness of clean energy investment

  • A better methodology for tracking energy efficiency, perhaps by tracking how quickly a country's energy intensity falls.

I also asked if they were looking into what makes an effective clean energy policy in more detail, and Cuttino told me they are working on a report on the non-financial barriers to clean energy investment. I'm very much looking forward to that.

Lessons Learned

  • Feed-in Tariffs are one of the most effective methods of both encouraging Clean Energy installations and developing a clean energy industry.

  • If a country wants to develop clean energy manufacturing, it should first develop a domestic market.

  • Germany, China, and India have all successfully followed this model.

  • The United States is failing badly largely because of inconsistent government support for clean energy.

  • Research and development follow manufacturing. There has been an increasing stream of clean energy engineers migrating to the opportunities in China.

  • Transportation investment has largely been ignored in the past, but Cuttino believes that the current administration understands the importance of this critical sector.

    • Cuttino had recently attended CERA Week, and told me that even oil executives who would not utter the phrase "Peak Oil" were calling for increased vehicle efficiency and incentives to reduce oil consumption. John Hess of Hess Corp. (HES) was calling for a $1 per gallon gas tax and a $10 per ton carbon tax.

Clear and consistent policy support for clean energy have long been lacking in the United States. Until we make a firm commitment to the energy of the future, we will continue to be trapped by our addition to the energy of the past. Our dynamic Venture Capital helps incubate world-beating technology, which US companies would have the opportunity to commercialize, building new, world-beating industries if they had a reliable domestic market to sell into. As it is, the United States is simply the source of the great ideas behind the products that the rest of the world will be selling to us for decades to come.

This article was first published on Tom Konrad's Green Stocks blog.

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.

April 14, 2011

How to Measure the Next Economy?

Garvin Jabusch

In search of a sucessor to the Global Industry Classification Standard

The Global Industry Classification Standard (GICS) is the framework within which finance types organize companies and their stocks into industries and sectors. You've heard the names for these groups many times: energy, transportation, materials, commercial services, etc. These divisions have been useful in attempting "to enhance the investment research and asset management process for financial professionals worldwide" (, 3/2010). And, for a while, GICS did a decent job of keeping portfolio managers, investment advisors and their clients reasonably well organized in their thinking about diversification and risk.

But that was then.

GICS was created by S&P and MSCI Barra to reflect their indices (such as the S&P 500), but, since these indices are largely comprised of companies created during the late 19th- and 20th-century economies, GICS, perhaps understandably, defines energy essentially as "burning something to get power." There are other legacy issues with GICS as well but, for now, I'll focus on energy.

Here at Green Alpha ® Advisors, in addition to managing the Sierra Club Green Alpha Portfolio, we manage a Next Economy (green) index of public equities we call the Green Alpha Next Economy Index or GANEX. Take a look at our old GICS based sector weights in this table:

Green Alpha Advisors ® Next Economy Index, GICS based sectors, 12/31/10

GICS Sector Average Weight

These are important because the way GICS forces us to classify our holdings is pure 19th century. Notice there's nothing in our energy sector. Our published top 25 holdings as of 12/31/2010 included such names as First Solar, Inc. (FSLR), and Vestas Wind Systems (VWDRY.PK). And the unpublished part of the portfolio contains many more companies in solar, wind, wave, turbine, and geothermal power. Yet, according to GICS, we have no exposure to the energy sector at all. None. All our power-related holdings fall under either "industrials" or "information technology." Really? I get how some of these could be manufacturing but, come on, these days there's so much more to power than burning fossilized hydrocarbons. (In addition, this skewing of reality means the "industrials" and "information technology" sectors in our index now appear more weighted than they really are.)

So, for a next-economy index, using GICS sectors actually misrepresents portfolio characteristics, completely contrary to the stated goals of the GICS. Some portfolio managers have addressed this problem by artificially classifying their renewable energy holdings under "Oil and Gas." This approach makes it clear that there is energy representation in a portfolio, but it's clearly a temporary fix for a deeper, structural problem.  

We launched the Green Alpha Next Economy Index (GANEX) largely because there was no economy-wide, cross-sector, cross-industry, all cap index that reflected the true state of what we call the "next," or eco-efficient economy. There was no way to accurately measure the alpha (outperformance) of a green portfolio, because there was no systemic beta (recognized representation of the green economy as a whole). Before we founded Green Alpha Advisors, during the years we ran the Sierra Club Stock Fund (a large cap green portfolio), we had to benchmark ourselves against the S&P 500. And for most of our tenure there, we did outperform that index. But the question was put to us again and again by institutional prospects: "Okay, you're beating the S&P 500, but what about other green portfolios? What about performance versus a benchmark that isn't overrun with hydrocarbons and legacy manufacturing?" It's a good question and it ultimately led to the genesis of our firm and the GANEX. The GANEX, in turn, can and does serve as an indicator of the performance and progress of the next economy.

So, when it came time to present a sector breakdown for our portfolios, we found ourselves in the familiar place of having no way to accurately compare our portfolio to the world at large. We were stuck using legacy tools in a new world. Put simply, GICS regards "energy" as the combustion of oil, coal, and natural gas, and subsequently its schema lacks accuracy and depth. So, in addition to attempting to define the next economy with our index, we now find ourselves needing to define new sectors by which the new economy (and energy in particular) can be better evaluated.

It's time to move on, so, presented herewith: our first shot, back-of-the-bar-napkin attempt at a new paradigm: New sectors, next-economy classification.





  • Renewable energy
  • Energy storage
  • Solar thermal, wind
  • Generators, turbines
  • Batteries, PVs and UPS

Legacy Energy

  • Hydrocarbon-based fuels for electricity and transport
  • Oil, coal


  • Raw, sustainably harvested materials
  • Recycled and otherwise repurposed materials
  • Raw data
  • Recycled wood, steel, paper, waste water
  • Food
  • Livestock feed
  • Satellite data feeds


  • Man-made materials
  • Technology, R&D
  • Pharmaceuticals
  • Nanotechnology
  • Smart Glass
  • Building materials


  • Networks
  • Telecom
  • Distribution
  • Transportation
  • Smart grid
  • Data transmission and management
  • Mail delivery


  • Components
  • Equipment
  • Machinery
  • Hardware
  • Meters, sensors, controls
  • LEDs and light systems
  • Electric motors, cars
  • Consumer electronics


  • Systems
  • Education
  • Finance
  • Retail
  • Software
  • REITs
  • Hospitals
  • Media

Clearly this has to be developed further, notably with a lot of subgroups. But we think it's a good first step toward reflecting the next economy as it is and as it will become. We also like to think it's a little closer to plain English than the current system and can therefore help demystify finance and close the gap between advisor and client.

Garvin Jabusch is the cofounder of Green Alpha Advisors, LLC and manages The Sierra Club Green Alpha Portfolio -- a unique blend of Green Alpha Advisors' Next Economy universe and the Sierra Club's proprietary green-investment guidelines.

April 13, 2011

The Water Food Energy Climate Nexus (Pt. 1)

by Eamon Keane

“Before the world’s fossil fuels are finally exhausted, it is likely that their extraction will require an unimaginable amount of water”

Gérard Velter, general manager of Veolia Water for Africa, Middle East and India


“When measured in calories, the energy market is twenty times the food market. So if governments would replace only 10% of global energy consumption with first-generation biofuels, they in the same stroke would double agricultural water withdrawals”

Peter Braebeck-Letmathe, Chairman, Nestle Group


“The share of biofuels in total use of coarse grains is projected to increase until 2015, reaching 13%”

UN FAO Agricultural Outlook 2010-2019


“The area currently under cultivation is 1.5 billion hectares, so if all that extra land could be used it would represent an increase of one-third. In fact a lot of it either should be left alone for environmental reasons or would be too expensive to farm.”

The Economist special report on feeding the world

Given the above quotes, it is a wonder that most energy outlooks pay only cursory attention to the interrelationship between water, food, energy and climate.  Signs of stress in the water-food-energy complex are visible in the record high food prices, dropping water tables and the need for cooling in power plants is on vivid display in northern Japan. Do you know how/if it will affect your investments? Maplecroft's water security index shows nearly the entire Middle East and North Africa, the origin of much of the world's oil, as under extreme risk of water scarcity. There’s a nice graphic in the World Economic Forum’s Global Risks 2011 which highlights some of the water-food-energy interactions in Figure 1.  I’ll try to concisely address them in this series.

energy water food nexus

Energy-Water Nexus

Figure 2 shows the water required to extract and refine energy, while Figure 3 shows the energy required to make different forms of electricity. The water needed in primary extraction of oil, gas and coal is not that significant, however it depends on local availability. For instance in China’s Shaanxi Province, the coal reserves cannot be tapped due to lack of water. The plan is to desalinate sea water and pump it uphill for 600 km: “We need water, and the sea can provide it”. 

The oil industry uses some 220 mb/d of water for enhanced oil recovery, for an average of about 3 mb/d water per mb/d oil. This is about 0.3% of global water use (4,500 bn m3/year or 77,500 mb/d). In some cases this will be the reinjection of the water cut, however where steam injection is used, the quality is required to be higher. For fossil fuel extraction, the issue is not the absolute volume of water but the environmental pollution that inadequate environmental care can cause. An estimated 12,000 miles of waterways are adversely affected by abandoned coal mines in the US. Shale gas uses relatively low volumes of water, but a few cowboy fraccers could lead to the contamination of rivers or groundwater and so close regulation is required.

The elephant in the energy-water nexus is biofuels, with irrigated corn requiring up to 100,000 litres per GJ. Converted to oil, this is an impressive waste of 3687 mb/d water per mb/d of oil equivalent, or 4.8% of the world’s water consumption. This is the number one reason why first generation biofuels are doa once governments recognise water constraints.

water for energy

Power generation uses significant quantities of water. Due to the massive volumes of water used in open loop cooling in old designs of nuclear and some fossil fuel power plants, in 2005 41% of American water abstraction (withdrawal from a water source) was used to cool power plants. The operation of open loop nuclear plants requires this steady flow of water, or else they must shut down. Only 3% of US water is actually consumed by power plants, the rest returned to rivers slightly warmer. Hydro plants evaporate large quantities of water/MWh. New power plant designs can significantly reduce power generation water consumption through a range of technologies, such as hybrid cooling systems. This has significantly reduced the water requirement of the 100 MW Tonopah solar tower plant in Nevada that recently got the go-ahead, with water consumption a key constraint.

water for electricity

Part 2 will look at the food-water nexus.

March 30, 2011

Clean Energy M&A: Is the Glass Half-Empty or Half-Full?

Dana Blankenhorn

Some reporters are calling the latest PwC Renewables Report a sign of a “renewables frenzy,” in that the number of merger deals in the space climbed to 530 last year, from just 319 in 2009.

But is it?

The total value of all deals in the space, according to the same report, actually fell sharply, to $33.4 billion from $48.8 billion. Major indexes like the Wilderhill New Energy Index and the PowerShares Global Clean Energy ETF (PBD) both fell in value last year, even while the average stock was rising in value.

There are many reasons for doing a deal. Growth is one, scale is one, fear of failure another. And lumping co-generation, biomass, wind, solar, and hydro deals into one pot called “renewables” is a big mistake, in my view, because each of these sectors faces its own challenges and has its own outlook.

The market for wood pellets from Confluence Energy, just acquired by Viridis Energy (VRD.V) in Canada, is very different from the markets served by the coming Alterra Corp. (MGMXF.PK), a merger I covered early this month.

Similarly, the environment faced by a solar energy acquisition outfit like Principal Solar (KPCG.PK), which just went public through a pink sheets merger, is nothing like that faced by Next-Alternative, a maker of carbon-nanotube batteries, controllers, and a fuel emulsifier which just trumpeted an offer of $100 million (which it rejected).

Fact is, renewable energy is a whole collection of sectors, each with its own dynamic, each at a different stage of its market development. Wind turbines, for instance, are clearly understood, not highly subject to disruptive entrants (someone who can double the wind's output), and so fairly mature. Solar energy is much less so. There are a whole related set of industries – materials and tools and sales channels – that is each unique unto itself.

The PwC report, and the way it was released (sent via email to clients with no press release posted on the company Web site as of this morning), seems designed to feed the hype. “Deals up 66%,” “confidence returns” and “strong year” are the words I'm reading in the headlines.

But is that the reality? Personally, I don't see this as an M&A business right now. I see a lot of opportunity for financing, I see a lot of new investments in untried technology, I see a lot of contracts connecting projects to the grid, most of them based on some sort of guarantee.

What do you think? Does the industry really need a hot M&A pipeline to make money? Or do the investment bankers need us more than we need them?

Dana Blankenhorn first covered the energy industries in 1978 with the Houston Business Journal. He returned after a short 29 year hiatus because it's the best business story of our time. In between he covered PCs, the Internet, e-commerce, open source, the Internet of Things and Moore's Law. It's the application of the last to harvesting the energy all around us he's most excited about. He lives in Atlanta.

March 24, 2011

Clean Energy Stocks to Fill the Nuclear Gap

Tom Konrad, CFA

If the Japanese use less nuclear power, what will take its place?

I'm astounded by the resilience and discipline of the Japanese people in response to the three-pronged earthquake, tsunami, and nuclear disaster, perhaps in large part by my cultural roots in the egocentric United States, where we seem to have forgotten the virtue of self-sacrifice for the greater good. 

Yet while Japanese society has shown itself to be particularly resilient, the Japanese electric grid is much less resilient.  According to International Energy Agency statistics, Japan produced 258 TWh of electricity from nuclear in 2008, or 24% of total production. 

The situation seems to be mostly stabilized at the Fukushima Daiichi reactor complex, but according to the March 23rd update on the reactor status at Fukushima from the Japan Atomic Industrial Forum, Reactors 1, 2, 3, and 4 have all suffered damage, had their fuel rods exposed for some period, and/or had seawater pumped in for cooling.  It seems unlikely that any of these reactors, with a 2.8GW total generation capacity will ever be returned to service.  Assuming that these reactors normally operate at a 90% capacity factor, these four reactors would have accounted for an annual electricity production of approximately 22 TWh, or 2.5% of total production. 

At the very least, these 22 annual TWh will need to be replaced with other sources or by improved energy efficiency, and the disaster will likely shift Japan (and much of the rest of the world) slowly away from nuclear power, with fewer new plants built, and fewer old ones being granted extensions in their permits to operate.

Outside Japan, regulators are likely to require additional safeguards on new nuclear generators, as well as be more strict when considering the extension of operating permits for existing older plants.  This will increase the already high cost of nuclear power, and further slow the construction of new plants. 

Energy efficiency, conservation, and other forms of energy generation will have to fill the gap.  Which will benefit most?

The Conversation So Far

Over the last few weeks, I have read innumerable prognostications about how Japan and the rest of the world will fill the energy gap.  I asked several clean energy money managers for their top post-Fukushima stock picks, which are published on my Green Stocks blog at Forbes.  I also posted a quick poll to see what sectors readers thought would benefit (see chart.)Poll results

Opinion is strongly divided, especially among my poll respondents, perhaps in part because I allowed respondents to vote for as many as three sectors, since I'm fairly confident that more than one sector will benefit.

Perhaps the most vocal contingent is the group that is arguing that solar will benefit.  Two of the green money managers I asked for stock picks chose solar stocks (MEMC Electronic  Materials [WFR] and LDK Solar [LDK].)  Among the pundits, AltEnergyStocks' solar expert Joe McCabe was quick to see benefit for solar.

Yet even our own bloggers can't agree.  A few days after McCabe's post, our battery expert John Peterson wrote,

The nuclear reactors that have recently gone off-line in Japan and Germany accounted for roughly 125 TWh of electricity production last year. In comparison, global electricity production from wind and solar power in 2009 was 269 TWh and 21 TWh, respectively. In other words, we just lost base-load power that represents 43% of the world’s renewable electricity output. The gap cannot possibly be filled by new wind and solar power facilities.

John thinks oil, natural gas, and coal are the only energy technologies able to take up the slack. 

John Segrich, manager of the Gabelli SRI Green Growth Fund (SRIGX) also told me "The big beneficiary in the aftermath of the Japan nuclear crisis will be natural gas related companies."  (His stock pick is Capstone Turbine (CPST), because the company's microturbines can provide immediate, clean, and efficient distributed generation.

Market Reaction

The market seems to think solar, natural gas, and wind will all benefit.   While the natural gas exchange traded notes (ETNs) are based on baskets of commodity futures, while the solar and wind exchange traded funds (ETFs) are baskets of stocks, the gains in all three over the 10 days following the crisis are surprisingly similar (see chart.)
ETF returns 3/10 thru 3/21

Can the solar bulls and the natural gas bulls both be right?  Yes.  As John Petersen pointed out, the amount of nuclear power going offline is large compared to the current installations of renewable energy.  Hence, if renewable energy were to fill only part of this gap, it would still amount to significant industry growth, while leaving a lot of room for growth in fossil fuels.

Linear vs. Geometric Growth

However, I fell John is far too dismissive of the growth potential of renewable energy, while he completely neglects the potential of energy efficiency to fill part of the gap. 

First, he compares the nuclear generating capacity going off-line to current installations of renewable energy, noting that it is half of current installed capacity.  If renewable energy were on a linear growth curve, such a comparison would be valid.  However, renewable energy installation has often grown exponentially in the past, and can still do so.  While it takes ten years or more to permit and build a nuclear reactor, utility scale wind and solar farms are typically built in three to 18 months. 

Between 2004 and 2009, grid connected PV capacity increased at an average annual rate of 60%.  Over the same period, wind installations grew at the relatively leisurely but still impressive compound annual rate of 26% (see chart.)
World wind installed capacity

If we assume that combined wind and solar capacity continue to grow at a (slower) annual 25% rate, then replacing 43% of the world's current renewable output will take all of 19 months.  Replacing that capacity with nuclear or coal would take much longer, because nuclear and coal plants take so long to construct.


While Petersen's critique of renewable energy installation rates are not supported by the facts, his later points regarding wind and solar variability are salient.  He points out that energy storage is currently well suited to smoothing minute-to-minute variation, an important function because it greatly reduced the strain on the rest of the electric grid.  He is also correct that batteries cannot cost-effectively provide the tens of hours of storage that a wind or solar facility would need to mimic a baseload or dispatchable resource.

Geographic Dispersion

Perhaps because Petersen is a battery expert, he missed non-storage solutions to the variable output from wind and solar farms.  The most important of these is geographic dispersion.  Geographic dispersion in solar and wind is akin to diversification in a financial portfolio, but much more effective because of much lower correlation in electricity generation, and because correlation falls with distance.

First, wind and solar power tend to be negatively correlated simply because, in most locations, wind tends to be strongest when the sun is weak (early morning, late evening, during storms, and at night.)   In finance, there are very few negatively correlated asset classes, and those assets that are negatively correlated with the market tend to produce minuscule or negative returns, which would be the equivalent of an electrical load in the grid analogy.

Hence, there are great benefits in diversification, and long distance transmission is the key to supplying these benefits.  This idea is backed up by numerous studies demonstrating the benefits of geographic diversification, and also widely acknowledged by experts in the field, as I discussed in a recent article on ABB Ltd. (ABB).

While geographic dispersion cannot produce baseload power, baseload power was always an artificial construct in the first place.  An ideal power source would produce power that corresponds to demand: Electricity production would fall at night and peak on hot sunny afternoons (as it does from geographically dispersed solar arrays), not stay at a constant rate.

The Japanese Grid

For such a small country, the Japanese grid is not well interconnected.  The Northeast and West of the country operate at different frequencies, and are connected only by two relatively low capacity frequency converter facilities.  This is a large part of the reason that Tokyo (in the Northeast, as are Sendai and Fukushima) is suffered rolling blackouts after the quake: the relatively unaffected West was unable to supply the Northeast with significant electricity through these two weak links.

In order to benefit from the geographic dispersion which makes high wind and solar penetrations practical, Japan will need a more robust electric grid.  It would be an incredibly daunting task to build significant new transmission in densely populated Japan, if it were not for a state of the art technology ideally suited to both transmitting large amounts of electricity over long distances with low line losses, and for running those links underwater.  This technology is High Voltage DC (HVDC) transmission.

Japan currently has two underwater DC links, and the two frequency conversion stations using similar technology.  These facilities were built in the late 1900s, with technology provided by Japanese companies such as Mitsubishi.  The leading providers of modern HVDC are ABB Ltd. (ABB) and Siemens (SI), two companies that might stand to benefit if the Japanese decide to learn the lessons of the Sendai/Fukushima tragedy and build a more resilient grid based on strong links and safe, diversified electricity generation.

The First Fuel

Wind, solar, natural gas, and new grid links will take at least a year or three to replace the lost generation at Fukushima, and in the meantime, there is only one energy resource that can take up the slack.  That is energy efficiency and conservation, often called the first fuel because it is the least expensive resource available. 

Japan is already a leader in energy efficiency, but the discipline with which they are handling the disaster convinces me that they are ready to "renew their commitment to energy efficiency," as Nobel Prize winning economist Joesph Stiglitz said in a March 19th interview with Barrons.  Deployment and grid stability of energy efficiency and conservation can be enhanced with the use of smart grid technology.  Smart grid technology (such as demand response) can also aid in the integration of variable resources such as wind.

Filling the Gap

Much depends on how Japan decides to rebuild, but whatever they do their priorities will probably be:
  1. Quick to deploy
  2. Low cost
  3. Improve grid safety and stability
  4. Not greatly increase reliance on foreign imports
Energy Efficiency meets all four goals.  Many energy efficiency stocks are local operations, but suppliers of highly energy efficient components, such as Power Integrations (POWI) should be well placed to benefit.  Investors' focus should be on companies with industry-leading technology that the Japanese will not be able to source locally.

Wind is quick to deploy and inexpensive when compared to natural gas generation based on expensive liquified natural gas (LNG), but there will be a limited number of sites available in densely populated Japan.  Most likely, we will see an acceleration of Japanese plans for offshore wind power.  This should help wind companies with offshore turbines, and possibly integrate nicely with a build-out of a Japanese underwater HVDC grid, similar to the proposed Atlantic Wind Connection for the US.

An underwater HVDC grid makes sense, and if Japan sees this sense, ABB and Siemens are the most logical beneficiaries.

Solar power is not cheap, although it is much less expensive and faster to deploy than new nuclear power, and the high prices of imported LNG should not make it cost prohibitive as a solution.  Global suppliers of PV should all benefit, as the increase in demand allows them to charge somewhat higher margins than they would otherwise.

Grid Based Energy Storage will need to increase along with wind and solar to help accommodate local fluctuations in power output, but it is easy to overestimate the market for this.  It's typically not low cost, but grid based storage (at least when it takes the form of batteries) is quick to deploy, improves grid safety and stability, and does not greatly increase the reliance on foreign imports. Petersen just published a good overview of grid based storage applications here, including the US-listed stocks he thinks are well positioned for this opportunity.  One Japanese company he does not mention is NGK Insulators Ltd. (NGKIF.PK), a vendor of the Sodium sulfur batteries, the technology which currently has the greatest installed capacity for battery-based grid storage.  This was my top pick for a stock to benefit from the rebuilding of the Japanese grid.

It might make sense to build some grid based storage at the sites of existing Japanese nuclear reactors.  When the grid and back-up generation gave out at Fukushima, the battery backup kept the plants safe for 8 hours.  Grid based storage systems cycle their state of charge over time, so if a future disaster knocked out both grid power and backup generators at a nuclear plant co-located with grid based battery storage, most of the time the grid based storage would be able to supply some extra power to the nuclear plant, and keep the cooling systems operating longer than it could with dedicated battery backup alone.

Natural gas will also see a boost, especially in the short term, now that Japan must run existing gas fired generation harder to make up for the loss of the nuclear plants.  In the longer term, suppliers of gas turbines will probably see some increase in demand.  Given the high price of LNG, there will be an emphasis on particularly efficient means of converting natural gas into electricity.  Segrich's Capstone Turbine (CPST) is one, especially when used in combined heat and power operations.  For even more efficient conversion of natural gas to electricity, the Japanese may turn to solid-oxide fuel cells, such as those sold by FuelCell Energy (FCEL). Both these companies' products can be used in natural gas powered buses, and so may benefit if bus buyers shift away from diesel in favor of natural gas.

Geothermal Power has, as usual, received some lip service as a possible beneficiary.  Japan is on the ring of fire, with good geothermal potential.  The country already had 547MW of installed geothermal generation in 2000.  Geothermal also has the advantage of being baseload, often operating with capacity factors of 95%, even higher than nuclear.

However, geothermal plants take four to six years to construct, which means that new geothermal (unless it involved installing upgraded turbines or bottoming cycles at existing plants) will only make a small contribution to fill the gap left by lost nuclear generation in the near term.  Companies that might possibly benefit in the short term are vendors of binary cycle turbines (i.e. Ormat (ORA) and United Technologies (UTX)) to be used as bottoming cycles at existing plants.


DISCLAIMER: The information and trades provided here are for informational purposes only and are not a solicitation to buy or sell any of these securities. Investing involves substantial risk and you should evaluate your own risk levels before you make any investment. Past results are not an indication of future performance. Please take the time to read the full disclaimer here.

February 20, 2011

Still Renewable, Still Paying Good Dividends

Tom Konrad CFA

Income investors can also invest in clean energy.

Over the past four years, changes in Canadian tax law have led the renewable energy income trusts I introduced investors to in March 2007 to either be bought out like the Boralex Power Income Fund (bought by manager Boralex [BLX.TO, BRLXF.PK]) or convert to corporations like Algonquin Power and Utilities [AQN.TO, AQUNF.PK].

Those that converted to corporations are still out there, and still paying good dividends.  And while a few are gone because of mergers, there are also a few new ones that I did not mention in my 2007 article.  They are a great place to start for investors who want a green portfolio, but need income or can't handle the stomach-turning gyrations of the solar or wind stocks.

I've listed the funds I know of in the table below, along with their current dividends and the sectors they invest in.

Company (Canadian ticker, US Ticker)
Mkt Cap
Algonquin Power and Utilities (AQN.TO, AQUNF.PK) C$4.95
Elec, Nat Gas,&Water distrib, cogen, biomass, hydro
Brookfield Renewable Power Fund (BRPFF.PK,BRC-UN.TO) C$21.41
Conventional and run-of-river hydropower
Innergex Renewable Energy Inc. (INGXF.PK,INE.TO) C$9.74
Run-of-river hydro and wind
Macquarie Power & Infrastructure Corp. (MCQPF.PK,MPT.TO) C$8.43
Cogen, Wind, Hydro, Biomass, Solar, District heating
Northland Power Inc. (NPIFF.PK,NPI.TO) C$15.81
Nat Gas, Wind, Biomass

As you can see, although these companies have become corporations, the yields will appeal to income investors. 


DISCLAIMER: The information and trades provided here and in the comments are for informational purposes only and are not a solicitation to buy or sell any of these securities. Investing involves substantial risk and you should evaluate your own risk levels before you make any investment. Past results are not an indication of future performance. Please take the time to read the full disclaimer here.

February 14, 2011

The Renewable IPO

By Greg Pfahl

Renewable IPOs in 2010

2010 proved to be a much better year for the initial public offering and renewable energy companies, perhaps surprisingly, saw their share of activity. In 2010 there were more than double the number of initial public offerings than in 2009, and we also saw a significant increase in secondary offerings as well.

Worldwide public investment in renewable energy increased 21 percent last year, with China representing 20 percent of the 2010 market, according to VB/Research of London. The REW 40 Index is up 15 percent over the past year at this writing. While it’s hard to predict if 2011 will be a frothy IPO market for renewable companies, it is clear the public’s appetite for risk in renewables is growing. Despite what you may hear about the effect of lower natural gas prices on renewables, we believe that it is public market performance and availability of willing investors, not commodity prices, that drives the IPO market.

The renewable IPO field saw a series of fits and starts. There were some fits: Solyndra, PetroAlgae (PALG.OB), Trony Solar and Gevo (GEVO) withdrew or reduced their IPOs. But there were some starts as well. Even though Codexis (CDXS) didn’t raise the $100 million it had hoped for last April, it still pocketed $78 million from public investors with its IPO. And Amyris is trading at the $30 level, nearly double the IPO of $17.20.

Codexis and Amyris (AMRS) both succeeded on their IPOs because despite the fact they are money-losing early stage companies, they have proven technology and real revenues and contracts, with potential high-revenue products in the pipeline. Codexis, which develops custom enzymes and catalysts for industrial chemical production, has a project going with Shell, a major investor, to speed up production of biofuels from nonfood sources. Codexis had revenues of $101.5 million last year.

Amyris had revenues of $68.5 million for its synthetic biofuels technology. The company has been well-funded by venture capital investors as it tries to show it can be "the leading provider of renewable specialty chemicals and transportation fuels worldwide." The company’s Biofene yeast-based chemical takes Brazilian sugarcane and ferments it into a petroleum replacement into several different applications, including diesel and jet fuel. Amyris has benefited from consistently telling its story in a convincing way to investors and the public.

California-based photovoltaic maker Solyndra withdrew its IPO in late June citing “ongoing uncertainties in the public markets,” opting for a $175 million private placement and a $535 million loan guarantee from the federal government instead. The Solyndra withdrawal was described by some observers as “muddying the waters” for other solar panel makers to hit the markets, but considering the company had private and government options, it was only prudent for management to pull the $300 million public offer until a better time.

PetroAlgae, on the other hand, is an example of what not to do. The VentureBeat website cited PetroAgae as one of its worst clean tech investments of 2010. The site said most analysts said the company "jumped the gun" because it has burned through $58 million the past three years and has no revenues. Worse, it has a complex corporate structure and has already restated its financial statements. Companies need their investors to understand their story in order to buy into it, including the management, technology, corporate structure and business and financial plan. Complex is bad; simple is good.

How to Plan an IPO

The decision to go public is complex, situational and a big step for any company. Not all IPOs are huge. According to Keating Capital/Capital IQ, 85 percent of NASDAQ companies have market caps less than $1 billion and 40 percent of listed companies are unprofitable. About 10 percent had revenues less than $10 million. If your company determines that an IPO is the correct decision, companies should know what to expect and how to prepare for an IPO, because it isn’t all about the money.

Start early

This is not a fast process. If you are operating on a shoestring budget and have three months worth of cash, the IPO is not for you because an IPO will not get done in three months. Going public can take six months but more likely will take a year. So if funds are dear, consider government grants or loan guarantees, selling tax credits, selling to private institutional investors,  bank financing if you have assets that can be used as collateral, licensing your technology or other fundraising activities.

Still interested? Here are some issues that could trip you up on your way to watching the closing hit the bank if not accomplished at least six months prior:  

Solid financials - You might expect an auditor and CPA to say you need quality financial reporting, but you’ll hear the same thing from underwriters, securities attorneys and investors. The smarter clients considering either an IPO or even a private sale get us involved several years before the deal. Renewable companies are in their early stages. Investors understand that there will be losses until a profit is made, but audited financials by a reputable firm give you better leverage. Generally, when filing your initial registration statement with the SEC, you will need to include the most recent two years’ balances sheets and the most recent three years’ income statements, statements of equity and cash flows, all audited by an independent audit firm registered with the PCAOB. In addition, if the age of the audited financial statements is more than 129 days old, then you will need to file stub period financial statements which are required to be reviewed by your independent audit firm.

Management – A year in advance, evaluate your existing management team and assemble the best team you can, preferably one with transactional or public company experience.

Board of directors – You should begin assembling a strong, independent board and a complete set of corporate minutes and any governance records. Most private companies operate with a board of directors consisting primarily of management and friends or family members. However, most stock exchanges require that the majority of the board of directors of a company traded on their exchange be independent. In addition, the SEC requires an independent audit committee.  

Compensation Disclosure and Analysis – Compensation disclosures have been one of the SEC’s hot buttons over the past several years and as a public company you will need to provide extensive disclosures in your periodic filings. So get the policies and contracts in place prior to going public.

Document material agreements – As part of their due diligence process, the underwriter and their team will be requesting and reviewing all of your material agreements. In addition, you will be required to file as exhibits with the initial registration statement all material contracts outside of the ordinary course of your business. This is where your legal counsel fits in.

Protect your intellectual property – Investors these days need to know what it is you truly own and can defend in court if necessary from patent infringement.

Play defense – This includes anti-takeover provisions and poison-pill takeover measures.
Do a risk assessment – Identify any issues that could affect your company and prepare measures to deal with them. This could vary from legal, market, commodity and political