Interviews Archives


October 27, 2015

US Yieldcos Will Survive

by Susan Kraemer

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

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

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

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

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

“What yieldcos need to be is boring”

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

August 29, 2014

Interview With Nathaniel Bullard On Fossil Fuel Divestment

by Tom Konrad CFA

Renewable Energy World asked me to write a commentary on Bloomberg New Energy Finance's recent report on the difficulties institutional investors are likely to have divesting from fossil fuels.  The report details how the scale, yield, liquidity, and historic growth of the oil and gas sector are impossible to match with any other investment sector.

While this is quite true, much of the other coverage has missed the point.  Ironically, I thought Bloomberg News' coverage was some of the worst, because it focused on the least important aspect of fossil fuels as an investment sector: historical growth.  While a sector's yield, liquidity, and especially scale generally persist for decades, growth trends are prone to sudden reversals.  The fact that oil and gas stocks have done so well over the last five years should prompt all wise investors to start taking some profits, regardless of their attitudes towards the environment.

Instead, I focus on likely future trends for oil and gas stocks, and consider how fundamental factors and the potential growth of the divestment movement may affect the potential future growth of the oil and gas sector.  The prognosis is not good.

You can read the whole commentary here: Divesting from Fossil Fuels: Last One Out Loses.

I interviewed the report's author, Nathaniel Bullard, for the piece.  He had some interesting points that did not fit into my commentary, so I include the whole transcript below.

Nathaniel Bullard Interview

Conducted via email, 8/28/2014

TK: Why do you focus on past performance in your analysis?
NB: The past is where the data are available for analysis (as opposed to forecasts and predictions) and I think this is particularly applicable to older, established sectors such as fossil fuels.

TK: Do institutional investors generally believe past performance is a reliable indicator of future returns?
NB: I do think that oil and gas dividend yields in particular will be viewed in a "past performance is a reliable indicator of future returns" paradigm. US coal, however, has had clear indicators of future change in place for a while, in particular cross-state air pollution regulations, so companies such as Bloomberg have been able to analyze the number of plants which are likely to be removed from market, therefore lowering coal demand.

TK: If you had done this analysis in mid 2011, how would that have changed your conclusions?
NB: US Coal would have performed relatively better if we used the original start position of mid-2009, largely because the US shale gas boom was not yet depressing gas prices and leading to massive fuel switching -  though prices began slipping in 2011. Chinese coal stocks were higher and stable, but would later be hit with overcapacity concerns.  Clean energy equities were in the midst of overcapacity depressing margins and share prices, in particular solar stocks.

TK: Do you have any thoughts on why Coal has so greatly underperformed other fossil fuels over the last 4 years?
NB: In the US in particular, natural gas prices (but also to some extent the price of wind power) have moved coal from the bottom of the merit order.  In China, coal is quite oversupplied and many of coal companies are heavily indebted, often with local debt that is a bit opaque.
China has lots of particulate emissions laws in place around coal, and it's making them more stringent - but 1) they're not always enforced and 2) they're not really making a major dent in coal demand...yet. They are, though, shaping our expectation of future demand.  While China does not have the strong and proximate regulations in place to shift demand away from coal, environmental concerns in China's major cities are forcing coal production to move out of urban areas and there are efforts underway to ramp up domestic gas production (and gas imports) as a substitute.

TK: If coal stocks had not declined so drastically in the last couple years, would they be as easy to divest from now?
NB: In a word, no. Some US coal equities have lost 90% of their value since 2011 (Arch Coal, for instance).  This much-diminished size means that all other things being equal, or not equal in a stock market that is performing well, coal stocks are underperformers and the same number of shares will represent a much smaller portion of an investor's overall portfolio relative to 2011.

TK: If or when one of more of the paradigm shifts you discuss in section 7 take place and the divestment movement reaches scale, what would be the effect on the portfolios of investors who choose not to divest?  What would be the effect on the portfolios of those who are divesting today?
NB: I think we can expect some oil and gas stocks to still generate dividends, meaning that the yield attribute they carry is still in effect and attractive to some investors.  Using the Fossil Free Index which I mentioned in my white paper, historical data suggests that removing fossil fuels from a broad portfolio should not adversely impact returns and could in fact be slightly positive.

TK: Do you have any other thoughts you'd like to add?
NB: I wrote this paper because divestment is a fast-moving idea with the first signs of traction outside of its motivated core of intellectual founders.  The sectors it touches upon are essential parts of our physical energy system, at least today, and are almost as deeply embedded in our financial system due to their scale. I thought that divestment deserved a thought exercise, passed without judgment: if divestment is to occur at scale, what shape might it take?

January 12, 2013

Three Green Money Managers; Six Green Stocks for 2013

Tom Konrad

When I asked my panel of green money managers their predictions for trends 2013, I got enough material for four articles: On where the cleantech sector is heading in 2013, as well as on Solar, Smart Grid, and LED technology.

I also asked them for stock picks, some of which I included in the previous articles.  Several had opinions about EnerNOC (NASD:ENOC), which I wrote about here, and two picked LED stocks Veeco Instruments (NASD:VECO) and Universal Display Corp. (NASD:PANL), which I discussed here.

Since I just published my annual model portfolio of Ten Clean Energy Stocks for 2013, I thought it would be interesting to compare the performance of their six picks as well, especially since there is absolutely no overlap.   It’s not exactly an apples-to-apples comparison, since I did these interviews before the holidays, but I still expect it to be interesting.

Here are the rest of their picks.

Shawn Kravetz: Amtech Systems

Shawn Kravetz is President of Esplanade Capital LLC, a Boston based investment management company one of whose funds is focused on solar and companies impacted by the emergence of solar.  Kravetz likes Amtech Systems (NASD:ASYS), a maker of capital equipment for the semiconductor and solar industries.  He likes Amthech because it is

Image representing Amtech Systems as depicted ...

 Currently trading at a 40% discount to the cash on its balance sheet as their business has deteriorated sharply, they are managing cash superbly and have significant business opportunities should there be any activity whatsoever in solar manufacturing in 2013.

Kravetz made these comments when Amtech was trading at $3.10.

Sam Healey: Hudson Technologies

Sam Healey is a portfolio manager at Lamassu Capital.  He likes Hudson Technologies (NASD:HDSN), saying:

Hudson is a refrigerant technology/reclamation company.  For the majority of the past years they have served as a refrigerant re-seller, selling R-22 and other refrigerant gases.  With the EPA currently cracking down on its R-22 phase out and severely limiting the virgin R-22 production, R-22 prices tripled in 2012 and will likely move up materially again in 2013.  Hudson has the ability to reclaim used R-22 (it is illegal to vent though many do it) and clean it up and resell in.  Prior to the EPA phase out the economics were not attractive enough to promote wide spread reclamation   Despite the fact that it is illegal, many many contractors would and did vent the gas into the air rather then capture and reclaim it because in many cases they would have to pay to get rid of the dirty gas.  With the R-22 price spike HDSN can now pay contractors for the dirty gas thereby getting supply to clean up and decreasing the amount of gas that gets into the atmosphere.  The demand for R-22 will last years beyond the allowed period of virgin production.  If one uses the R-12 phase out as a template, R-12 prices went from 3$ per pound to 20$ per pound.  R-22 went from $4  up to $9 last year, and now I think is moving into the low double digits.  HDSN also has R-Side technology which they use to enhance/diagnosis large cooling units and make them much more energy efficient   The R-side product, though not materially significant in Revenue right now, I think gets this company into a clean energy universe as an energy efficiency play.  I like HDSN, think it has the right product at the right time and has a large upside potential.

Sam made these comments when HDSN was trading at $3.31.

Garvin Jabusch: First Solar

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 PortfolioHe also authors the blog ”Green Alpha’s Next Economy.” Among renewable energy companies, he likes First Solar (NASD:FSLR).  He says,

GM logo

They’re the global thin-film leaders, to the extent that they’ve even been invited to bid and work on projects in China, where the state is aggressively trying to support its domestic PV manufacturing players. Yet, where thin film is the appropriate approach, FSLR gets the call. FSLR will continue to be strong in the U.S. as well since it’s not subject to tariffs imposed on Chinese solar makers. First Solar – and solar in general – have been so unfairly maligned that the stage is set for an upside surprise as the reality of how we need to power the global economic production function sets in.

Jabusch made these comments when FSLR was trading for $32.56.


I find other manager’s picks particularly useful because they give me new companies to consider.  Of these, I find Amtech and Hudson Technologies particularly interesting, and will be keeping an eye out for a stock pull-back to possibly acquire one or both.

Disclosure: Kravetz has along position in ASYS, and Healy owns HDSN.  I have no positions in these stocks.

This article was first published on the author's blog, Green Stocks on January 2nd.

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.

January 06, 2013

A Clean Energy Inflection Point in 2013? The Best ETF to Play the Trend

Tom Konrad

In 2007, it seemed like clean energy was finally becoming mainstream.  Both candidates for the US Presidency accepted the need to act on global warming, even if they did not agree on the degree, and clean energy stocks were rising even faster than the broad stock market.

Then came the 2008 financial crisis, and many Americans discovered they had much more immediate worries than the slow but inexorable warming of the planet.  Fossil fuel interests and the politicians who benefited from their donations  played to the new mood by providing a worried populace with the excuse they wanted not to worry about the lumbering menace by denying it’s existence.

Always Darkest Before the Dawn

Fast forward to 2012.  Leading clean energy stock indices continued to decline while the broader market staged a recovery.  A solar company became the poster boy for why government should not meddle in the energy market (despite the reality that energy is the most-meddled-in sector of the entire economy.)  The Doha round of climate talks concluded with no progress, and only the possibility of more progress in the future.

I started writing this article on the last day of the Mayan Calendar, I recall that it always seems darkest before the dawn.  Contrarian investors also know this, and know that the best time to buy is when other investors are running in terror.  The fact that you are reading this article means that we survived the winter solstice and the end of the Mayan calender.  (Incidentally, the world also survived the much more momentous end of the entire Mayan civilization, a fact that seems lost in the apocalyptic kerfuffle.)

In this apparent darkness, my panel of green money managers finds reasons to hope for a much better 2013.  Here is what they have to say:

Garvin Jabusch: Climate Changes Get Noticed

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 PortfolioHe also authors the blog ”Green Alpha’s Next Economy.” 

Jabusch says,

[T]he green economy is finally showing signs of approaching a meaningful inflection
point into mainstream acceptance.

Sandy, in slamming into the geographical and symbolic hearts of finance and policy in this country has brought climate risks and costs into popular discussion, but even before that, there were indications of a cultural tipping point. PricewaterhouseCoopers, McKinsey, the World Bank, the National Academy, Berkshire Hathaway, the Center for American Progress and the Clinton Global Initiative (among many others) have all recently issued strongly worded statements and reports about looming climate risks and also opportunities to mitigate and adapt. This year saw polar ice and also snow reach an all time minimum, and the drought in America’s heartland has only worsened as we’ve headed into winter. For example, fully 100% of Kansas was this week named to be in at least “severe drought” stage.

All these things do not go unnoticed, and people understand the need for an economic transition to put society on a more sustainable footing more than they ever have, in spite of efforts from some quarters to convince them otherwise. Lester Brown and his team at Earth Policy Institute have we believe correctly identified the weakest link in global economics with respect to climate: food security. What this means is that there is no disambiguating the energy-water-food nexus if we want to have a thriving civilization going forward. An investment manager who works hard to identify and buy the best mitigation and adaptation solutions delivered by the smartest companies in the most profitable ways now has almost an embarrassment of options for his clients’ portfolios. A carefully selected
basket of companies across various green energy and green economy applications should have an excellent chance to provide competitive returns.

Rob Wilder: A Conservative Surprise

Dr. Rob Wilder is Index Committee Chair for WilderHill Clean Energy Index (ECO), the first to capture and track this sector.   ECO underlies the PowerShares WilderHill Clean Energy ETF (NYSE:PBW.)

Dr. Wilder thinks Jabusch could be right.  He says,

Perhaps what might truly surprise and impact clean energy stocks the most, could be Conservative Republicans beginning to embrace renewable energy. So that American patriotic, Renewable resources which give independence and free us from reliance on foreign oil, are seen as a good thing. Right now it’s this political opposition to U.S. technologies that could grow fast like American-made electric cars, solar homes and businesses, offshore wind, and energy efficiency etc has most held us back.

Break that logjam and huge progress could be unleashed. For conservatives to embrace green as good in itself, or appreciation for emerging forces like climate change and new polls showing Americans accept the science here, would be compelling because it’s such a surprise.

Jan Schalkwijk: A Year of Triage

Jan Schalkwijk, CFA is a portfolio manager with a focus on Green Economy investment strategies at JPS Global Investments in Portland, OR.

Schalkwijk takes a more nuanced view, but is still optimistic about the prospects of stronger green companies.  He predicts that 2013 will be “a year of triage,” by which he means “investors will become more discriminating in evaluating which companies are terminally ill and which have just caught the flew from exposure to their sickly brethren. … stocks with the prospect of earnings, healthy gross margins, and positive cash flow should do better than science project stocks with low quality fundamentals.”

He continues,

I think 2012 might have marked the beginning of a reversal of fortunes for some clean energy stocks and the beginning of the end for others. It is my prediction that this process of triage will build steam in 2013. If we look at how the performance of the Wilderhill Clean Energy ETF (PBW) and Market Vectors Global Alternative Energy ETF (NYSE:GEX) differed in 2012, we get a glimpse of what might lie ahead. The former fund, which has a seat for almost any publicly traded green stock, is down nearly 22% year-to-date, whereas the latter, which has size and liquidity requirements, is flat for the year. In 2011 the two funds moved down in tandem.

Schalkwijk’s ETF Pick

Schalkwijk thinks the best ETF to play the triage trend is  PowerShares Cleantech (NYSE:PZD).  He says, “Over the last 5 years, PZD has “only” lost 35% of its value vs. 85% for the WilderHill Clean Energy ETF (PBW). The Fund’s strengths are its inclusion of larger diversified industrials that are building a lot of the clean energy infrastructure (Schneider (PA:SU, OTC:SBGSF), Siemens (NYSE:SI), ABB Group (NYSE:ABB)) as well as its underweight to the more speculative corners of the cleantech and alternative energy space.”

Rafael Coven: In His Own Words

Rafael Coven is Managing Director at the Cleantech Group, and manager of the Cleantech index (^CTIUS) which underlies the Powershares Cleantech ETF (NYSE:PZD.)

Given Schalkwijk’s endorsement, it’s no surprise that he sees 2013 in a similar way.  While he picks stocks for longer than one year, he expects a “Greater focus on generating cash flow and ability to be profitable without relying on subsidies and government largess” in 2013.  He expects the overall number of cleantech companies to contract, “as the best ones continue to get snapped up by old-line industrial players that can buy cheaper than innovate.”


Even if politicians tackle US Fiscal Cliff and Europes ongoing woes do not lead to outright crisis, it’s almost certain that 2013 will not be a repeat of go-go years like 2006 and ’07.  Hence, while the optimists may be right that climate events will be noticed, perhaps even by conservative Republicans, even a more favorable political climate will continue to test companies’ financial strength and business models.

Hence, even a year of inflection will probably also be a year of triage.  If I had to pick an ETF to play the trend, I’d go with the one that discriminates between strong and weak cleantech companies: Coven’s PZD.

Disclosure: I have no position in the ETFs mentioned, and a long position in ABB.

This article was first published on the author's blog, Green Stocks on December 27th.

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.

December 30, 2012

Three Money Managers See LED Industry Shining in 2013; Their Stock Picks

Tom Konrad

Xmas LEDs.jpgLED lights on an outdoor tree. Photo by author
This is the third article in my series based on my panel of green money managers’ predictions for 2013.  The first article looked at what they expect 2013 holds for the Solar industry, and the second looked at their predictions  for the Smart Grid.  This installment focuses on the LED industry.

Jeff Cianci: Faster than Anyone Expects

Jeff Cianci is Chief Investment Officer at equity investment fund Green Science Partners.

Cianci says “The trend toward LED lighting for energy efficiency will move more quickly this year than anyone expects, driven by cost declines, regulatory incentives and rapidly increasing consumer awareness.”   He thinks the place to be is Organic LEDs (OLEDs), and thinks OLED research and intellectual property license shop Universal Display Corp. (NASD:PANL) “Could double from here.  The launch of OLED TVs will complement rapid growth in smartphone and tablet screens.  PANL is a high margin royalty play on all of this surface ‘real estate’.  Everyone will want an OLED screen as the costs come down.”

Rafael Coven: Building Momentum

Rafael Coven is Managing Director at the Cleantech Group, and manager of the Cleantech index (^CTIUS) which underlies the Powershares Cleantech ETF (NYSE:PZD.)

Coven expects “Stronger momentum into LED Lighting especially as the economics improve enough that it can start really challenging replacing T8, T5, and other fluorescent lighting applications.   This should help LED manufacturers such as Cree (NASD:CREE), Philips (NYSE:PHG), and component makers such as Advanced Energy Industries (NASD:AEIS) and Rubicon (NASD:RBCN) but really punish the old line lighting companies that haven’t kept up in the space such as Siemens (NYSE:SI) and General Electric (NYSE:GE), among others.”

Jan Schalkwijk: A Cyclical Bottom

Jan Schalkwijk, CFA is a portfolio manager with a focus on Green Economy investment strategies at JPS Global Investments in Portland, OR.

Schalkwijk thinks the adoption of LED lighting has yet to take off, but he sees its acceleration will help Veeco Instruments (NASD:VECO.)  Veeco makes LED manufacturing equipment tools, and he thinks it is currently cheap because “A pending reassessment of revenue timing has delayed its quarterly filing, and orders last quarter came in low. The latter I believe is more a cyclical bottoming out than an indication of poor future orders.”

He adds a note of caution, saying Veeco is volatile and “Wall Street does not always know what to make of it.”

Bottom Line

The future of LEDs is bright, and these three experts think 2013 could be the year when they really take off.  I tend to be cautious when there seems to be an investment concensus for a sector, because it means that the stocks are unlikely to be cheap.  That’s certainly true for Cianci’s pick PANL, which trades for 32 times expected 2013 earnings.  Analysts’ prediction of 25% expected growth over the next five years isn’t enough to justify that valuation.

Even while Schalkwijk’s Veeco is trading 22% off its 2012 high because of the uncertainty surrounding the stock, it’s still priced at 22 times expected 2013 earnings.  That might seem a relative bargain compared to PANL, but not if you believe analysts’ predictions that the company will shrink an average of 4.6% for each of the next five years.

To own either of these stocks, you need to believe that Cianci is right and LEDs will light up “faster than anyone expects.”  For “anyone” read “most other investors,”  and hope that the investor who sells the stock to you is one of the most surprised.

Disclosure: I have no position in any of the stocks mentioned.  Green Science Partners owns PANL and Schalkwijk and his clients own VECO.

This article was first published on the author's blog, Green Stocks on December 19th.

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 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 21, 2011

Eight Cleantech Value Stocks

Tom Konrad CFA

Three professional Cleantech money managers' top stock picks.

On Tuesday I published Money Managers See Value in Clean Energy Sector, but Hesitate to Call the Bottom based on my correspondence with Rafael Coven, manager of the Cleantech Index (^CTIUS), Garvin Jabusch, manager of the Sierra Club Green Alpha Portfolio, and Sam Healy, a portfolio manager at Lamassu Capital.  These three professionals were in strong agreement that many cleantech stocks are currently excellent value plays, even if cleantech and the market as a whole may have farther to fall, especially if the broader market continues to decline.

They like well capitalized stocks in sectors not prone to commoditization, that are not too dependent on government spending and incentives and which are currently trading at great values by traditional discounted cash flow measures.  Perhaps most surprising is that value investors can now find stocks worthy of their attention among stocks normally considered for their growth potential.

Here are their picks:

Solar Stocks

Although solar panel prices have been collapsing from the pressures of commoditization, Jabusch thinks several individual names are great values.  Here is what he says about three of his picks:

1. "LDK Solar (LDK) remains very cheap. It’s a profitable company ($2.28 earnings per share (EPS) last year) with above average long-term growth prospects but currently trading at only 70% of its book value, 80% of cash, and just 31% of its annual sales. Numbers like these are usually the domain of companies losing money that are likely to burn through their assets before reaching profitability, so it’s surprising to see this.

2. "Canadian Solar (CSIQ) is profitable ($1.27 EPS) and growing, but trading at 85% of the cash it has in the bank, 78% of its book value and only 23% of its annual sales.

3. "Renesola, Ltd. (SOL) trades at 68% book, 89% cash and 31% sales, yet is profitable (2011 EPS $1.28)."

Energy Services Stocks

I've been recently focusing on demand response and energy services companies in a series of articles based on CEO interviews. Sam Healy also likes the space.  He says,

4. "I think some of the demand response names, EnerNOC (ENOC) in particular, may be near its bottom, considering the cash on the balance sheet and the revenue visibility the equity price is low. Add in the increasing geographical diversification and increasing traction of the Energy Management businesses and you have a compelling growth story at a reasonable price. ENOC has acquisition integration risk, lingering FERC headline risk, and business risk as it expands its offerings, but at 15- 16 dollars per share I think that risk is already in the price creating an attractive risk reward story."

I recently wrote about EnerNOC here.  The other "demand response name" Healy is probably referring to is Comverge (COMV), which I recently looked at here

One future name I plan to cover in my series of CEO interviews is Ameresco (AMRC), but that may have to wait until the fall, as the CEO travels in the summer.  Coven likes

5. "Ameresco, because the market for energy-efficiency performance contracting is increasingly the only alternative that the MUSH market (Municipalities, Universities, Schools, Hospitals) have for energy efficiency improvements given limited state and local budgets. It’s an expensive way to achieve energy efficiency, but the customers have few alternatives."


Coven's also says he's particularly bullish on

6. "Enersys (ENS) – still the best company worldwide for motive power batteries. Enersys is making progress in lithium batteries, but its lead-acid batteries are the best and proving far tougher to beat than most people expected."

Water Stocks

I don't generally follow water stocks, but these cleantech managers do.  Jabusch likes

7. "Chinese clean water play Tri-Tech Holdings (TRIT), trades at only two times cash, 92% of book, 77% of next year’s sales, has $1.53 EPS and is reporting 80% sales growth. Access to safe, clean water in China, and everywhere else for that matter, is a big deal and only getting tougher as populations increase and snowpacks decrease. It’s hard to see where TRIT isn’t far too cheap."

while Coven prefers

8. "Kadant, (KAI) a world leader in paper-recycling systems and technologies as well as industrial process water and energy efficiency is also well positioned to take advantage of Asia’s unquenchable demand for fiber."


I also asked if they had any recommendations for possible shorts.  None of them were willing to name names, but Coven did say, "I think that there are a number of solar PV companies, “clean coal”, grain-based ethanol, and smaller LED companies that will wither away soon. These sectors are capital intensive, have cut-throat pricing, and the products are rarely sufficiently better than the competition. There are major consolidations coming in the wind turbine and solar PV markets to consolidate capacity and push down turbine costs – the market isn’t growing fast enough to support all the production capacity and the IP [intellectual property] and know how is spreading (legally and illegally) at great speed in Asia."

That perhaps explains the great values Jabusch sees in the solar names.  When it comes to traditional stock valuation, what matters are not the recent earnings and cash flows, but the future ones.  The near future for solar profits looks grim, the only question is if the current stock prices are even more grim than the future will be.


While there are great values currently to be found in cleantech and clean energy, it's also quite likely that a general market decline will produce even more great values.  I think it makes sense to start buying opportunistically, since many individual names have probably already seen their lows.  For instance, from my own list of ten clean energy stocks I thought were great buys last month, my long-time favorite New Flyer (NFYIF.PK/NFI-UN.TO) seems to have formed a bottom, and has risen from $7.69 when the article was published to $8.45 at the close on July 20.  Ambient Corporation (ABTGD.OB) has completed their expected reverse stock split in preparation for the NASDAQ listing which should allow a large number of new investors to consider the stock.  Comverge and EnerNOC, mentioned above, were also on the list, and have advanced 8% and 6%, respectively.

Just because these money managers are too cautious to call a bottom, that does not mean we have not already seen one.  Given the difficulty of timing the market, it makes sense to buy great values whenever they appear.  Yet it also makes sense to keep some cash on the sidelines, as more stocks will fall to great values if the recent decline continues. 


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 19, 2011

Money Managers See Value in Clean Energy Sector, but Hesitate to Call the Bottom

Tom Konrad CFA

Three green stock specialists see individual stocks at attractive values, but think it's too soon to call the bottom for the sector as a whole.

Last month, I wrote that I'm again finding clean energy stocks that I think are bargains, and listed ten.  I was not ready to call a bottom for clean energy, and in fact said I expected the market to get worse before it gets better, so investors should keep some money on the sidelines to wait for more opportunities to emerge.

In a little over a month since then (June 16 to July 18,) those stocks are up, on average, by 5.6% in dollar terms, while the largest clean energy ETF, the PowerShares Wilderhill Clean Energy Portfolio (PBW) is down 1.5% over the same period.  The top performer has been Alterra Power (MGMXF.PK), which is up 24% and the biggest loser has been Ambient (ABTG.OB), which is down 10%.  It's far too soon to declare victory, and I continue to feel all those stocks are cheap today, and that there is plenty of room on the downside for clean energy as a whole. 

But given that I can only follow a small fraction of the hundreds of clean energy stocks out there, I thought it would be interesting to see if other money managers who specialize in clean energy see the current market the same way I do, and what bargains they are finding, in the spirit of my article looking at clean energy money manager's top picks in the wake of the Fukushima disaster.  I intend to continue to do articles like this one based on other money managers' views, so if you are a professional money manager or analyst specializing in green stocks and would like to participate in the future, send me an email and I'll add you to my list.  You can also reply to the questions here by leaving your comments at the bottom.

This article is the first of a two part series looking into what they had to say.  This first article is about where they see the clean energy sector as a whole, and the second one will take a look at their picks. 

I corresponded with three money managers for this article.
Sector and Market Outlook

All three agree that it's too early to call a bottom.  They raise two basic concerns. 

First, it's simply very difficult to ever time the market.  As Jabusch puts it, "Even when industries become very undervalued, they can remain stubbornly low for some time," while Coven finds it hard to say due to "volatile overall market conditions." 

Coven went on to say "The correlation with global equity markets is still the [strongest driver] of stock performance and I certainly don’t think that global markets have bottomed nor are cleantech stocks as a whole independent from overall macro economic conditions." 

I think Coven's latter comment is interesting because we really have not seen a lot of correlation between the overall market and clean energy over the last couple years, with clean energy trending flat to down even as the market as a whole has risen.  If the overall market heads down from here, will clean energy stocks follow suit, or will they remain mostly decoupled?  I'm inclined to agree with Coven, which is why I have been focusing my picks on small and microcap stocks.  Recent research has shown that portfolios of small and microcap stocks have been better behaved during broad market declines than larger capitalization stocks, so I hope my move towards smaller stocks will somewhat insulate me from an overall market decline.

Healey echoes Coven's concerns about how the larger economic picture might affect cleantech.  He said many cleantech subsectors "have revenue generation that is tied in one way or another to government spending/incentives.  Until investors have better clarity as to what the government spending/incentive picture will look like after the European debt Crisis and US deficit plans have been worked out I can not confidently say any equity that benefits from government actions, either policy or financial incentives, has bottomed."

Finding Value

Despite the cautious tone, all three seem enthusiastic about the values now available in specific stocks and subsectors.   

Jabusch said, "we do believe that just as surely as all bubbles must eventually burst, all unreasonably oversold stocks must some time come back to their fair valuation. By "fair valuation" we mean at least to the old-school Benjamin Graham definition of net present value of the probable future stream of cash flows discounted at a reasonable rate, plus the property plant and equipment. We understand that this valuation method seems very conservative and even quaint by current thinking, but surprisingly, there are a lot of cleantech companies that look very cheap right now, even against this standard."

Coven went into more detail about how he would pick stocks in the current climate. 
We are also much more comfortable with well-capitalized companies, with broad product lines and strongly prefer those that can flourish with diminished government incentives which are bound to fall further.  This of course has us steering clear of all fuel cell and most biofuel companies for the moment.

We continually are reminded how fast certain sectors have product commoditization.  Where intellectual property isn’t strong enough to differentiate products sufficiently, prices have been collapsing  even faster that we had anticipated.  This is true for smart power meters, solar panels, wind turbines, and most lighting products – especially LEDs.  The LED market is going to be massive, but the number of new entrants and (particularly in China) and increased production capacity (mostly in China) has grown so much faster than demand, that prices are falling faster than they did for solar panels.  This will be good for adoption, but the LED market for general illumination (non-consumer electronics) is still nascent and won’t really takeoff until LED prices drop further.   Sector growth doesn’t necessarily mean that many companies will make economic profits in LED lighting or solar PV, but probably those with really great I.P. or the lowest cost manufacturing will.  The rest will die or struggle to survive.
Stock Picking Guidelines

Which clean energy stocks will
  • have strong intellectual property or other advantages that help them avoid commoditization of their products,
  • have great net present value of future cash streams, and
  • aren't tied to government spending/incentives? 
Stay tuned for these three managers' stock picks later this week. 

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.

December 05, 2010

How the Gabelli Green Growth Fund Got Its Five Stars

Tom Konrad, CFA

An interview with John Segrich, CFA, portfolio manager at the the Gabelli Green Growth Fund (SRIGX).

When I did my recent past performance comparison of clean energy mutual funds, I found that the Gabelli Green Growth Fund (SRIGX and SRICX) beat all its rivals by a long shot over the last three years, earning a coveted five-star rating from Morningstar.  In general, I'm a skeptic about short-term past performance: If you look at enough funds, sooner or later you'll find one that has had great performance by sheer luck.  Even when a few years' out performance is not luck, it may be the result of a fortuitous alignment: the fund's strategy could be particularly suited to recent market conditions.  When those conditions change, so will fund performance.

Nevertheless, I do believe that some managers can consistently beat index funds, especially in an emerging and little-understood sector like clean energy.  I manage clean energy portfolios myself, and if I didn't think that I could do better than indexing, I'd just buy an ETF, and spend the rest of my time more productively by taking up calligraphy. 

Unless you're reading this article in elegant script on a rice paper scroll, you can assume that I have not taken up calligraphy.  I believe some portfolio managers can consistently beat the market. 

How can we tell which money mangers are skillful, and which ones are just lucky?   The only way I know is to understand their investing process.  Which is why I asked John Segrich, CFA, the lead manager for the top-performing Gabelli Green Growth Fund, to submit to an interview.  In our interview, I try to understand his investing process, and if he has been benefiting from a temporary alignment of the (Morning)stars, or if there is some lasting advantage that future investors in his fund can take advantage of.

Our interview follows:

TK: Please tell us a little about your background and why you manage a sustainable mutual fund.

JS: While in college I interned at Gabelli & Company and upon graduating was offered a position as a full time analyst. I spent the next two years looking at emerging internet companies while at Gabelli. I then spent another two years on the buyside as a technology analyst. I moved to London with Goldman Sachs in 2000 and headed up their European Internet and then software research teams for a few years. I remained in London with JP Morgan as the head of their European sell side technology research team. In 2008, I moved back to New York and back to Gabelli & Company to head up their green research efforts. The firm then refocused an existing SRI mutual fund on sustainability in 2009. I also manage a hedge fund with a similar sustainability strategy.

The reason for my interest in managing a fund focused on sustainability is two-fold. First, I believe that by managing a portfolio of investments focused on sustainability, I can have a positive impact on the world with regard to these pressing issues. Secondly, we believe that by investing in these companies, we can achieve superior returns in the long run.

TK: Who are your investing role models?

JS: Mario Gabelli, our Chief Investment Officer, has been and remains my mentor over the years. His approach to investing is rooted in deep, fundamental research and in understanding the entire value chain on a global basis. He taught me to dig deeply into the numbers, read the footnotes, and ask the tough questions. He also is able to take a longer term view of companies and industries, and look through the short term fluctuations to identify value.

George Soros, a fellow philosophy major, also influenced my investment process through some of his writings, in particular in identifying the perception gap within an investment and understanding how the closing of this gap creates value.

I also admire some of the more visible hedge fund managers such as David Einhorn at Greenlight Capital or Bill Ackman at Pershing Square who relentlessly pursued their investment views even when the whole market was telling them they were wrong. They performed their own analysis and were firm in their conclusions despite the market telling them otherwise. Too often there is not enough analysis and many investors just take management’s view as the truth without testing those assumptions. The assumptions need to always be tested.

TK: What factors do you consider when deciding if a company is sustainable?

JS: Sustainability for us is to understand the impacts, opportunities, constraints, and issues that emerge as the world population grows from 6.8bn people. If we take that lens, and overlay it on any traditional sector, it helps us identify where we should look to find investment opportunities.

The starting point for us is to understand the industry on a global basis, analyze supply and demand, and then determine if the economics “make sense.” Can the companies and the industry survive on its own, or do they depend on the handouts of governments? If the industries are subsidy driven, we tend to look for wider margins of safety when investing and may be shorter term investors. If the industry is “sustainable”, then we can invest in solid business models for the long run.

TK: Do you believe sustainability confers a long term advantage to companies?

JS: By definition yes, since companies that do not embrace or understand sustainability issues that impact their business will likely not survive. In addition, we believe that the companies we are investing in are exposed to higher growth drivers due to their focusing on solving sustainability issues and therefore likely offer better investment opportunities combined with secular growth themes than those that are less exposed.

TK: Please describe your stock selection process.

JS: We start with the industry and attempt to understand the entire value chain. For example as we look to invest in the wind industry we start by identifying the companies that own and operate wind farms (typically renewable utilities). We identify all the turbine manufacturers, then break down the turbine into its components and identify all the companies that make blades, bearings, even the carbon fiber that is used in the blade. Through this process we look for areas of constraint in the value chain as investing in those often is quite profitable due to better pricing, margins, and profits. We then establish where we want to have exposure on a global basis – maybe we want exposure to the Chinese wind market but not the European market. After that, stock selection comes down to fundamental analysis and valuation. We also try to incorporate issues such as regulation, currencies, and other macro issues like credit availability.

TK: Recently you have been trading much more than the other fund managers I follow, holding your average position only about 6 months, while most funds I follow hold positions on average about two years. Is frequent trading intrinsic in your strategy?

JS: Yes, at the moment, as many of these industries are still heavily dependent on subsidies for survival. As those subsidies change, we may need to change our outlook on the industry. We have also been through several rounds of sovereign debt concerns, which have a broad impact on many companies in the investment universe. Over time, as the industries mature we would expect to be able to have longer holding periods. In some industries, we can already identify what we believe are long term investments.

TK: Your track record over the last three years has been excellent. The Gabelli SRI Green Fund is the only one I follow that is up since the start of 2008, and you're up 21% since then, while the next best performing fund is down 17% over the same period. Why do you think you've been so successful?

JS: We have deliberately attempted to be global in our understanding of the value chain. Often, we can gain exposure to an investment theme in a less obvious way – sort of the picks and shovels approach to investing. We also have decided that we do not need to maintain exposure to all areas of sustainability and when subsidies are in flux, we might reduce our solar or wind exposure to zero.

TK: Your fund is still quite small. What are the advantages and disadvantages of the small size?

JS: Certainly a smaller fund size helps us in terms of being able to enter and exit positions more rapidly if needed. Hopefully, as more investors realize the opportunities of investing in this manner, the fund will continue to grow. We do not foresee growth in the fund size as a barrier to achieving returns. Moreover, as the fund grows in size, the expense ratio will become less of an issue.

TK: Have you seen a substantial increase in investor inflows now that you've achieved Morningstar's highest five-star rating due to your track record?

JS: Yes, it has helped. I know that we have been on the radar screen of many advisors, and getting the five star rating often marks the trigger point for their investment process.

TK: Let's switch gears and talk about the market. What do you expect the next year to bring to the market as whole and sustainable companies in particular?

JS: I suspect that the market will remain choppy as many of the issues we are grappling with, such as European sovereign debt and even the debt that is mounting here in the US, will not be easily solved. Subsidies are under pressure and while some nations, such as Germany and China, have made strategic decisions to embrace sustainability issues, others, such as the US, have not. As countries continue to compete with each other for leadership in these industries (the space race of our generation), we expect a new engine of job creation and growth to emerge.

TK: Are there any sustainable sectors you expect to do particularly well in the coming year? Why

JS: We are generally cautious on the renewables at the moment as we believe overcapacity will lead to dramatic price declines which in turn will eventually lead to accelerating growth. That growth comes in waves; we believe third quarter 2010 was the peak. We will spend our time looking for the next entry point, when we believe shares have bottomed. We continue to focus on materials and commodities that will benefit from global growth. Industrialization and urbanization of the developing world remain important themes. We also continue to focus identifying companies that have exposure to longer term secular growth drivers, but that make simple products which will benefit if the industry takes off rather than by having to identify an individual company. Again, we often follow the picks and shovels approach to investing. Several battery and materials companies fit this approach.

TK: What are your top holdings right now? Why do you expect them to do well?

JS: Some of our holdings at the moment include Sino-Forest (TRE.TO), Umicore, Polypore (PPO), Globe Specialty Metals (GSM), Duksan High-Metal, GCL Polysilicon, Mead Johnson (MJN), and Novozymes (NVZMY.PK). Most have high exposure to stronger secular growth drivers and are strong beneficiaries of the growth in emerging markets. They also may benefit if the US dollar continues to weaken.

TK: What have you sold recently and why?

JS: We have sold most of our exposure to renewable, in particular solar, as we believe the market is entering a period of overcapacity and that margins have peaked. Additionally, market expectations have caught up to our view and the valuation gap had closed.

TK: Is there anything else you'd like to say?

JS: Just that we believe we are at the beginning of a significant investment opportunity that has only recently shifted from marginal to mainstream. We are looking at issues that could unfold over the next 10, 20, even 50 years and we believe there is still substantial value to be created by investing in the companies that are leading this change.

TK: Thank you for sharing your insights with us today.

JS: You are welcome. Anytime.


In general, I like what John had to say.  His process starts with understanding the value chain.  Because Clean Energy is such a new field, understanding the value chain is something many investors do not bother to do.  Until  Clean Energy becomes mainstream, this should be a lasting source of advantage.  He trades frequently, but with good reason: in reaction to the quickly shifting structure of subsidies that currently supports most clean energy technologies.  This should also be considered an advantage, at least until subsidies are not longer such a major factor in the profitability of many clean energy companies.

I would not be as complacent as he is about the costs of fund size... as assets under management grow, opportunities to invest in microcap companies disappear, as the money the fund would need to invest quickly dwarf's the stock's liquidity.  However, the advantages of fund size in the ability to spread management costs over a greater number of assets will probably be more significant than increasing liquidity costs for quite a while to come.

Would I invest in the Gabelli Green Fund?  The short answer is "yes."  If you agree with me that active mangement pays in alternative energy and climate change funds, then you should choose the fund that can make the best case for having the best manager.  If you're not convinced, you probably should not choose clean energy the mutual fund with the lowest costs, since you can acheive much lower costs with an ETF.  But if you want to hedge your bets, the two funds that seem to have a good balance of low cost, strong sector allocation, and past performance are the Winslow Green Growth Fund (WGGFX), and the New Alternatives Fund (NALFX).

Not convinced? Next week I'll take a look at the Clean Energy ETFs,


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.

October 02, 2010

Interview: Jeff Siegel's Predictions for Renewable Energy and Solar Stocks

by Garfield Hodgson

Jeff Siegel, a top renewable energy investor recently took time out from his very busy schedule to grant an interview with Garfield Hodgson of Total Solar Energy (TSE). If you don't know Jeff, he runs the newsletter Green Chip Stocks, an independent investment research service that focuses primarily on renewable energy and organic & natural food markets.

TSE: Hi Jeff. Thanks for your time. Can you tell me when you first got started in solar stocks?

Jeff: I had actually been an advocate of solar energy ever since I did a high-school project on it back in 1987. I just found it so fascinating that we could power our homes and our lights and our appliances with these little devices. And I found it frustrating that more attention wasn't being paid to it.

My interest in solar never waned, and as I started working in the world of finance, I made it a point to focus on investment opportunities that would not only pay off for investors – but for the global community as well.

TSE: Given the current economic and volatile stock market situation, would it be wise to invest in solar stocks right now?

Jeff: Well, with any investment, there is always risk. That includes renewable energy. Yes, the future of solar is very bright. Going forward, solar will be a significant piece of our new energy economy. But at the end of the day, any time you invest, you are taking on some risk.

That being said, I think at this time, a lot of quality solar stocks are undervalued. Some of this is because of the euro (so many solar manufacturers are heavily exposed to the euro), some of this is because of the broader market pulling these stocks down, and some of it is because there are a lot of people that are counting solar out because of the German feed-in tariff cut. The latter makes no sense. The future of solar is NOT in Europe, but rather the U.S. and China.

I think the solar market will still struggle this year, but once we have some more clarification on China and U.S. solar support, we're going to see the launch of one of the biggest solar bull markets ever. So those in it for the long haul, I've been recommending picking up some of the stronger solar stocks on those big dips. We are, however, going to have to exercise a little patience.

TSE: How would you evaluate the year 2010 for the solar industry up to now?

Jeff: Lots of irrational thinking this year. Again, there's too much focus on Europe. Aside from a slide in the euro, long-term investors know that the payoff will come from the U.S. and China market. But until we stop focusing on tariff cuts and the misconception that there's an oversupply of product (which is absolutely false), then the market will be quite shaky. We've seen that this year, and I think we'll probably continue to see this.

TSE: Where and when to do you expect to see parity with fossil fuels? And what effect will this have on solar stocks?

Jeff: You could actually make the case that they already are. Assuming of course, you strip ALL subsidies for fossil fuels, and take into account the liquidation of natural capital associated with the production, distribution and consumption of fossil fuels.

In other words, if utilities that operated coal-fired power plants had to pay for carbon, had to pay for mercury pollution and had to pay for any other damage done to ecosystem services (things like the regulation of climate, cycling of nutrients and water, pest control, etc), solar would be significantly cheaper than coal. But what we do is use a baseline for energy costs that are simply incorrect.

Back to the real world, however, where we continue to subsidize fossil fuels and turn a blind eye to the trillions of dollars of damage done to our natural capital every year – I imagine we could see grid parity within 10 years in most parts of the world where there is a strong solar resource.

TSE: What are the major threats to the growth of the solar industry at the moment.

Jeff: Lack of leadership and support. I absolutely hate the idea of subsidizing anything. But the only way solar can compete is for it to get the same generous subsidies that the fossil fuel industries have received for years. And we need to end the debate with the naysayers.

The technology exists, the proof exists, the data is conclusive – we can power a significant portion of our world with solar. I no longer even entertain those who want to continue throwing up roadblocks. They are no more than minor bumps that I'm happy to roll over. This is going to happen. You can either be part of the solution, or you can step aside.

TSE: Do you see the UK feed-in tariff having the same effect on share prices as it did when it was introduced in Germany?

Jeff: Hard to say. Every government operates differently. Spain had a great plan, but its execution was horrible. These tariffs have to be monitored and phased out sooner than later. Otherwise, you create a bubble that's bad for everyone.

TSE: Do you feel the US would benefit from a nationwide feed in tariff?

Jeff: Not necessarily. I think this needs to be done on a regional basis. An FIT in California, Arizona, New Mexico, Texas, Colorado, Utah – these would be great because you have such a strong solar resource in these states. But if you try to force a FIT for the whole country, you'll get a lot of backlash, and in some areas, it probably won't be nearly as effective.

TSE: How do you think the solar industry will look in 5 years?

Jeff: I think the leading solar companies today will be some of the biggest corporations in the world. I think the technology will be much more advanced, production costs will decrease and there will be more policy support. The costs for consumers will be much less, and I think we'll see a lot of companies offering solar leasing programs.

TSE: Once again Jeff, thanks for your time. I certainly hope you are right.

Garfield Hodgson is the owner of the website Total Solar Energy were you can find all the latest news and views on the world of solar energy. Started over 3 years ago to help people find cheaper ways of installing solar energy, the site has now become one of the most visited in the UK.

November 13, 2009

Interview with Ray C. Anderson, of Interface Inc.

Tom Konrad, CFA

Ray Anderson, the pioneering founder and Chairman of Interface, Inc. (IFSIA) was an early pioneer of sustainable enterprise.  We recently had the opportunity to interview him on the benefits he sees for investors from corporate sustainability (full transcript follows.)


I've recently been thinking about corporate sustainability (in the green sense) and how it relates to  corporate sustainability (in the business survival sense.)  Since I expect business conditions to be more difficult in the coming years than they have been in the past, any edge in resilience a company might gain from pursuing sustainability may be useful, both on the long and short side.

As you can see from the stock chart, Interface had a wild ride through the financial crisis, losing as much as 85% of its pre-crisis value in early March 2009, but has since rebounded strongly.

Is the depth of the fall an indicator that the company's sustainable culture was not enough to ensure its corporate survival, or does the recent rebound show that most investors do not yet recognize the value of corporate sustainability in a crisis, and such crises present buying opportunities in uniquely resilient sustainable companies?

Read what Ray Anderson has to say about sustainability at Interface, and decide for yourself.

Interview Transcript

AES: Can you please define for our readers what your vision of a sustainable enterprise is?

Anderson: At Interface, we’ve defined our vision as follows: To be the first company that, by its deeds, shows the entire industrial world what sustainability is in all its dimensions: People, process, product, place and profits — by 2020 — and in doing so we will become restorative through the power of influence. For us, as a manufacturer, it means primarily focusing on processes and products that move us away from petrochemicals and towards renewables, to create a closed loop via which our products are born and re-born, again and again, and reinventing commerce so that we move away from “stuff” and towards a service economy.

AES: What drives you to want to be sustainable? Do you do it because it’s the “right” thing to do? Is it primarily about controlling your costs and finding new sources of revenue? Is it all of the above?

Anderson: We’ve learned that it is indeed all of the above – so right, so smart. Over 15 years we’ve demonstrated that sustainability is a better way to a bigger and more legitimate profit. I’m driven by a personal sense of legacy, to be sure, but also to the entrepreneurial opportunity that preserving our world for future generations represents.

AES: In your experience, how does the financial community view corporate sustainability? Does anyone outside of the Socially Responsible Investment community care? Have you encountered much skepticism?

Anderson: In the early days of our journey, we definitely experienced skepticism from the financial community. In fact, our former CFO Dan Hendrix (who is now the Interface CEO) was asked on more than one occasion if I had “gone ‘round the bend.” I explained that as a leader, that was my job, because ‘round the bend is where our future lies. I went around the bend once before and found carpet tile technology, and that worked out pretty well for us.

Today, skepticism has given way to a high regard for Interface’s leadership in sustainability. Rather than bury it in a product brochure, we lead with it, on Wall Street, in our annual reports, and with our customers.

AES: The financial crisis we’re going through has led many investors to focus more heavily on risk management than they might have in the past. In this brave new world we live in, do you believe that sustainability can help decrease risk?

Anderson: Absolutely! What company can run without air, without water, without the capital that nature provides? Managing risk in the future means managing – and limiting – our dependence on dwindling natural resources and increasing our capabilities in terms of true, closed loop recycling. Managing risk also means moving away from the dwindling availability and volatile pricing of oil and other natural resources, and increasing our capability to reuse and recycle.

AES: What other investor benefits do you see in corporate sustainability?

Anderson: At Interface, the business case for sustainability has manifested itself in four key ways:

  1. Costs are down, not up, dispelling the myth that sustainability is expensive. Our first initiative, a zero-tolerance waste initiative, has netted us over $400 million in saved or avoided costs, more than paying for any capital intensive or R&D costs associated with sustainability.
  2. Products are the best they’ve ever been. Sustainability is a well-spring of innovation, and our product designers have been particularly successful using biomimicry (the study of nature’s design principles) as a guide. 
  3. Our people are galvanized around our mission, owing to a sense of higher purpose and self-actualization that comes when you focus on something bigger than yourself. Academics and experts who have studied the cultural transformation at Interface say they’ve never seen the type of top-to-bottom and bottom-to-top alignment that sustainability has helped foster at Interface.
  4. The goodwill of the marketplace is tremendous, winning business for Interface because customers want to be aligned with a company that is trying to do the right thing by our environment. No amount of marketing, no clever ad campaign could create the kind of customer loyalty that we have experienced. It makes sense, given that the whole journey began for us when our customers started asking, “What is Interface doing the for the environment?”

AES: How does sustainability help returns for investors and over what time horizon?

Anderson: As with any new thinking there’s a time lag between early adoption and mainstream acceptance, and that naturally influences the return horizon for investment in new products, processes and technologies. I believe there are new fortunes to be made as we define this, the next industrial revolution. I also believe that part of what needs to change is our focus on short time horizons, i.e., the focus on the next quarter, for both companies and for their investors. Sustainability by its very nature requires a long view on the future as we consider the impact of our decisions today on future generations.


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.

September 01, 2009

Live Interview/Call in on Denver PBS Station KBDI 12

A quick note to Denver area readers: Analyst Tom Konrad will be a guest on local PBS show Studio 12 from 8-9PM CDT Wednesday, September 2.  This will be a panel discussion on Alternative Energy, and other guests are likely to be a representative of the natural gas industry, and one of the authors of Energy Sprawl or Energy Efficiency: Climate Policy Impacts on Natural Habitat for the United States of America from the Nature Conservancy.  They're also trying to get local environmental bête noire, Stan Lewandowski.

Viewers will be able to call in and ask questions of their own.

April 02, 2008

Current Picks: Busses and Energy Efficiency

Over the weekend, EnergyTechStocks published two articles based on an interview with me.

The first was about my conviction that Peak Oil induced rising gas prices is going to lead to a rush into mass transit building by cities, or investing in mode-shifting last September.  I've since written about opportunities in rail transit stocks, (P.TO, TRN, PRPX, and WAB), and more recently Hedging your peak oil risk with your lifestyle.  However, I have been frustrated until now that the only pure play bus stock I've been able to find is Firstgroup PLC (FGP.L, FGROF.PK), the British based owner of Greyhound and owner or operator of many other UK and North American transit services (both bus and rail.)  Back in September, Firstgroup seemed very expensive after a prolonged run-up, but it is now looking more reasonably valued.

Two weeks ago, however, I found a pure-play North American Bus stock, which I will be writing about this weekend.  I'm not ready to reveal the name, because I still have an account which has not yet bought the stock.  This is the company I was not ready to reveal in the EnergyTechStocks interview.

The second part of the interview referred to my conviction that lean economic times will benefit Energy Efficiency over other forms of clean energy.  I highlighted two of the stocks from the 10 Solid Clean Energy Companies to Buy in a Downturn series.

DISCLOSURE: Tom Konrad and/or his clients have long positions in TRN, PRPX, WAB.

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.

January 07, 2008

Commodities Specialists Ask About Alternative Energy

Commodities investing site HardAssetsInvestor has published an interview with me from the start of December.  We covered a broad swathe of the clean (and not so clean) energy.  

If you're wondering why my top stock pick from the article was ABB, and not one from my recent 10 Speculations series, it's because all of those are too risky to be my top picks.  I like risk, but not with the largest part of my portfolio... stocks like ABB that let me sleep at night.

Major topics we touched on:

  • Ethanol (both corn and cellulosic)
  • Cost comparisons in electricity generation technologies, and in liquid fuels.
  • Electric Demand Side Management.
  • Electric Transmission
  • Plug-In Hybrid vehicles
  • The expected effects of CO2 pricing
  • "Clean Coal" and Nuclear power.

You can read the full interview here.

DISCLOSURE: Tom Konrad and/or his clients have long positions in ABB.

DISCLAIMER: The information and trades provided here and in the interview 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.

November 06, 2007

Alt Energy Stocks Analyst Tom Konrad On PBS's WealthTrack

Alt Energy Stocks Analyst Tom Konrad will join a televised roundtable discussion with EnergyTechStocks' Managing Editor Bill Paul and Ardour Global Indexes' Joseph LaCorte this Friday. The discussion will center around the topic of investing in alternative energy. The program, entitled WealthTrack with Consuelo Mack, will air on PBS between November 9th and 12th, after which it will be available for online viewing here.  You can find a listing of stations carrying the show with airtimes at the end of this article.

Bill Paul may be familiar to our readers because of the series of articles he wrote following an interview with Tom in August. Topics ranged from utility scale batteries (currently getting a great deal of attention because of AES recent purchases), batteries for vehicles, Tom's ambivalence about biofuels and his enthusiasm for transmission, top picks in the energy efficiency space, why forestry companies are a good way to play cellulosic ethanol (because wood will be the feedstock of choice for cellulosic plants such as Range Fuels' in Georgia), and why Alcoa is green.

Joseph LaCorte, while perhaps less well known to our readers, is also a significant player in alternative energy investing sector. The Global Alternative Energy ETF (NYSE: GEX) is based on the index Mr. LaCorte manages, and is currently Tom's favorite Alternative energy ETF, at least for people not yet ready to manage an individual stock portfolio.

All and all, this promises to be a very insightful discussion and is a must-see for serious alternative energy investors.

Continue reading "Alt Energy Stocks Analyst Tom Konrad On PBS's WealthTrack" »

August 28, 2007

They'll Put the Cellulose in Cellulosic Ethanol

One of the keys to staying ahead of the game in money management is lateral thinking.  I start with the trend, and then try to think of industries or companies that might benefit, but are not on everyone else's radar.  With Peak Oil-driven demand for biofuels, regular readers know that I consider the people who produce the feedstock (farmers, and industries whose waste can fairly easily be converted into biofuel) to be the most certain winners. 

One direction this chain of logic has taken me is to forestry companies.  I'm far from a forestry analyst, so I decided to take small stakes in a few of the more sustainable forestry companies.  When it comes to wood products, the gold (or is it green?) standard for sustainable certification is the Forest Stewardship Council's.  Do not be fooled by watered down industry sponsored pretenders like the Sustainable Forestry Initiative.  Last year, to find sustainable companies, I went to the FSC's list of certified forests, and looked for large numbers that were owned by public companies.

The companies I came up with: Domtar (NYSE:UFS), Tembec (TMBAF.PK), Cascades, Inc. (CADNF.PK), and Potlach (NYSE: PCH).  I later added Catalyst Paper (CTLUF.PK) to my list when reading a news story that, as an aside, mentioned them as a sustainable leader in the Canadian wood and paper industry.  

Scientific?   Not at all.  I consider my investments in sustainable forestry as a diversification with an interesting alternative energy long term upside.  Needless to say, my investments in each company are small.  The ones that didn't make it into the Energy Tech Stocks Interview were ones that had slipped my mind.  I did not end up purchasing them due to the price movements at the time (i.e. my other limit orders executed first.)

I'd love to see comments from readers who know more about sustainable forestry than I do... I'm sure that there are some stand-out forest stewards that I missed when I put together this little diversification.  I personally expect the subprime mess to lead to a prolonged housing slump, at which time even further depressed forestry companies may be excellent bargains... if they are not bankrupt.

DISCLOSURE: Tom Konrad  and/or his clients have positions in the following companies mentioned here: UFS, PCH, CTLUF.

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.


ETS Interview: LEDs and Energy Efficiency

Today, Energy Tech Stocks has the fifth installment from our interview, outlining my LED stock picks.  He quotes me at the start saying that it's "going to be a gigantic market" about LEDs.  It is, but only when compared to the current size of the market... you can ramp up a lot from a very small base.  

LED bulbs are increasing in brightness and decreasing in price rapidly.  It's these quickly improving economics that make me bullish about LEDs.  

Unlike many energy efficiency technologies, LEDs are a product that a business can sell.   Much of energy efficiency involves a complete revamping  of our ways of doing things.  The truly gigantic market is the whole energy efficiency space, but it is much more difficult to invest in behavior change than it is to invest in product.  Nevertheless, there are ways, such as with performance contracting companies, more efficient transmission, or smart metering.   

Before we get carried away looking at the sheer size of the potential energy efficiency market (as measured by the cost of wasted energy that could be saved), we need to remind ourselves that just because a market inefficiency exists does not mean that anyone has yet invented a business model which can profitably exploit it.  The fact that energy efficiency is so much cheaper than new generation is, to me, a priori proof that the market is inefficient.

LEDs have a simple business model that is likely to capture a rapidly growing proportion of the lighting market... but lighting is only a small part of the energy we use (and waste), so I'm always looking for other practical business models that can help to make something we do more energy efficient, and capture enough of that value to make the business self sustaining and, we hope, a good investment.

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.

August 23, 2007

Hither and Yon: Transmission and Biofuels

In the most recent two installments of Energy Tech Stocks' interview with me cover my views on transmission stocks, and biofuel stocks.  Readers of AltEnergyStocks know that I am a big fan of electricity transmission, a theme I keep coming back to.  You also know that I have a very ambivalent relationship with both ethanol and biodiesel.  So I liked Bill's transmission article, but I just wasn't able to convey to him the subtleties of how I feel about biofuels.  But he got one thing right: the owners of biofuel feedstock are likely going to be the biggest winners.

Relevant articles on Biofuels

Competition in Ethanol

An Insider's View of the Ethanol Industry

Let Them Eat Grass

Blue Sun Biodiesel

Biodiesel's Competition

My Biodiesel Jeep

The Answer is Trading in the Wind

While you're on the Energy Tech Stocks site, read a little about trading of wind power futures (here and here.nbsp; While I personally have no interest in speculating in wind futures, I predict this will be a great boon to wind farm owners and climate scientists everywhere.  I also predict hedge funds which will use strategies based on emerging inverse correlations between wind power futures and natural gas futures, probably sooner than anyone might guess. 

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.

August 21, 2007

ETS Interview: The Will the Real Transportation Fuel of the Future Step Forward

For macro reasons, I think that the next generation liquid fuels may be cellulosic ethanol and biodiesel or renewable diesel from algae.  But those fuels will increasingly be sharing the roads with the long term transportation fuel of the future: electricity from renewable sources, especially wind.  Wind will be important for electric transportation and electric transportation will be important for wind because, when you're already going to be charging batteries, you may as well do it when the electricity is cheap, which will be when the wind is blowing..  

Plug-in hybrid vehicles (PHEVs) neatly solve the main barrier to getting increasing amounts of wind on the grid: the  fact that it often blows in the middle of the night, when electricity demand is lowest (and when PHEVs would be charging), and wind solves one problem for the long term future of PHEVs: where do we get an abundant source of inexpensive electric generation for powering our vehicles?

What's the missing link?  Batteries that are light, have a long recharge life, and can sustain a long series of quick, deep discharge cycles without significant degradation.  And don't catch fire.  Combined with a better control system, and perhaps ultracapacitors.

In one sense, current battery shortcomings don't matter: rising oil prices will make even today's batteries practical as an alternative to $10 gasoline... we just don't know when that $10 gas price will hit us.  When it does, more and more battery types will be practical in PHEVs.  A battery pack ready for a PHEV is a moving target... but this is one moving target that gets closer every time the oil price increases.

In the second installment of my Energy Tech Stocks interview with Bill Paul, he talks about my battery technology "picks" which aren't so much as a representative cross section of the sector.  I'm currently working on differentiate the good with the bad; I just set up a phone conference with a couple of battery industry insiders so I can get their perspectives on which battery companies have well run research operations, as well as which companies will be able to deliver the volume of batteries we're going to need as we shift our transportation system away from a reliance on liquid fuels and towards a greater reliance on electricity.

Watch this space for a more in-depth look into the advanced battery industry in a few weeks.

One other thing in Bill's article: I don't think GM "gets it" when it comes to peak oil.  That's because of their continued insistence that E85 is a valid way to get from here to energy independence.  Earth to GM: there isn't enough feedstock to make that much ethanol. Energy efficiency must come first.  Nice talk about the Volt, but I won't believe it until you stop blathering about ethanol.

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.


August 20, 2007

Energy Tech Stocks Interview- Utility Scale Batteries

Two weeks ago I did a phone interview with Bill Paul of Energy Tech Stocks.  Bill's a long time WSJ reporter who got out in time before Rupert Murdoch swooped in, as well as a long time environmental journalist.  As such he interviews those of us whose job it is to have views about what's going on in Cleantech and presents those opinions in a readable and engaging way.  He also has this addictive trick of breaking up interviews into several parts and leaving you with a cliffhanger. 

Bill's first installment showed up in my feed reader last night.  He had some nice things to say about me and AltEnergyStocks, followed by a short recap of some ideas for investing in utility scale batteries which I go into in more detail here.

He got a few choice quotes out of me showing just how rabid I am about global warming and peak oil.  “We’re out of time for dealing with the effects of climate change," for instance. Traditional reporters still have a few tricks we bloggers with opinions could stand to learn, such as getting interviewees to open up.

July 27, 2007

Interview with Dr. Mike Gallagher, President & COO of Westport Innovations

One of the companies I have followed for some time is Westport Innovations, Inc., (TSX:WPT or WPIVF.PK) out of Vancouver. The technology and product suite allows large diesel trucks to run standard diesels on a 95% natural gas mix, enabling fuel switching as well as significantly improved NOx and PM, as well as CO2 emissions. The company's rapid expansions date from a late 1990s joint venture with Cummins (NYSE:CMI), and Westport has led this market sector since then.

I had the opportunity at the recent Greenvest 2007 Conference I chaired in San Francisco to hear the talk of my friend Dr. Mike Gallagher, President & COO of Westport, and asked him to share a few thoughts for Cleantech Blog based on his conference presentation.

A few quick quotes from their website on the technology (you'll see why I like it so much):

“Westport™ HPDI (High Pressure Direct Injection) natural gas engines on the road are producing approximately 50% less nitrogen oxides (NOx), 80% less particulate matter (PM), and 20-25% less carbon dioxide (CO2) emissions than equivalent diesel engines.” - These are the regular diesels running on 95% natural gas.

Westport has also been developing a Compressed Natural Gas Direct Ignition technology that basically similarly enables a straight natural gas engine to run direct injection like a diesel. The benefits include:

"- near-zero emissions of particulate matter
- 20% less greenhouse gas emissions (mainly carbon dioxide) than equivalent diesel engines
- 25% increased fuel efficiency over current spark-ignited natural gas engines"

Mike, before we go into your thoughts on Westport, let me lay out some of your background in energy engineering. Mike was previously Senior Vice-President, Americas, for Fluor Corp, and held executive officer positions with the Bechtel Group in San Francisco and London-based Kvaerner Group. He also has PhD from Stanford in Mechanical-Nuclear Engineering. So Mike, thanks for the time today.

Mike, I know Westport makes products to run diesel engines on natural gas – how exactly does this work?

Westport’s LNG System for Heavy-Duty trucks uses a small amount of diesel pilot fuel for robust ignition and then allows the truck engine – we’ve based our technology on the Cummins ISX diesel engine platform – to operate using approximately 95% natural gas for high duty cycle applications. The combustion approach uses a high pressure direction injection of natural gas into the diesel combustion chamber.

Can you tell us about the greenhouse gas impact of your products? That’s such a hot topic these days.

Emissions regulations are the norm now, particularly in California where we are actively pursuing opportunities for the use of our heavy-duty product. The Westport LNG system truck produces 15-20% less greenhouse gas emissions, compared to an equivalent diesel engine.

Our joint venture company, Cummins Westport Inc., offers mid-range products for medium-duty truck and bus applications. CWI’s advanced ISL G engine produces 7-13% less greenhouse gas than the equivalent diesel.

As you just alluded to, and for those who haven’t followed the company, Westport has a major joint venture with engine company Cummins. How does this arrangement work and what’s in it for Westport?

Cummins Westport Inc., or CWI as we call it, is a 50:50 joint venture between Westport and Cummins Inc. The JV company is headquartered right here in Vancouver with us, it has a dedicated management team and a dedicated Board of directors.

Profits (and losses) are shared equally by the two parent companies. CWI Cummins Westport Inc., a joint venture of Cummins Inc. (NYSE:CMI) and Westport Innovations Inc. (TSX:WPT), manufactures and sells the world's widest range of low-emissions alternative fuel engines for commercial transportation applications such as trucks and buses. Cummins is a global power leader in engines, electrical power generation systems and related technologies. Westport Innovations is the leading developer of technologies that allow engines to operate on clean-burning fuels such as natural gas, hydrogen, and hydrogen-enriched natural gas (HCNG).

Revenues grew approximately 40% from 2006 to 2007, to $60 million Canadian, what were the major drivers – and is that growth expected to continue? Where should investors expect the growth from?

The 39% increase in annual revenues was driven by increased CWI engine shipments (up 50%) and the delivery of our first Westport LNG systems for heavy-duty trucks. Product sales growth which we measure in Canadian dollars was actually offset by a 5% decrease in the US dollar exchange rate. In US dollar terms, revenue growth was 44%. Growth for the next couple of years is expected both from CWI global sales growth around the launch of its new ISL G, and from sales of Westport’s new LNG systems for heavy duty trucks.

And the company turned a profit for, I believe, the first quarter ever in this last quarter. Does this mean Westport has turned the corner? The company has a fairly large retained deficit – and I know investors have been looking for profits to begin erasing it.

We are pleased about this last quarter’s results for sure. We have a solid history with CWI and a new HD product now and the markets are responding. The profitability for this recent quarter was driven by a number of fortuitous events that occurred during the quarter on a one time basis. So we will continue to push for improved profitability on a recurring basis.

Perseus, one of your major shareholders (who has had two seats on the board) recently sold a large amount ($50 million worth) of shares. What was the story there? Didn’t Perseus loan money to the company just last year? Should existing or prospective investors be worried?

No, certainly no cause for worry, quite the reverse actually. In fact, the sale erased planned interest payments by Westport to Perseus which is a positive for us, and Perseus elected to capitalize on a a very attractive financial opportunity available to them based on our significant share price increase in recent months.

The stock price has tripled in the last year – what were the drivers and are you worried the run up was too steep?

It’s always hard to know exactly what is going on out there in the marketplace, but we think the market has responded primarily to two things: our CWI business is demonstrating strong and growing profitability, and our heavy duty LNG truck business has launched with some early sales and big opportunities at the Port of LA and others.

We think we are now being valued more broadly for our expertise, we are meeting expectations, and the regulatory system is catching up with our technologies, opening the door for more sales. CWI has an engine offering available now that is certified to 2010 emissions standards – that’s 3 years ahead of schedule! And Westport is positioned to provide LNG systems in trucks in California now, where they have approved a five year Clean Air Action Plan at the Ports of Los Angeles and Long Beach to replace up to 5,300 older diesel trucks with LNG trucks in five years

Do you have any plans to list on Nasdaq in the future to make it easier for US investors to buy in?

We are always looking at listing alternatives and have expanded our communications with US institutions and investors. But we don’t have any immediate plans to do a US listing.

You personally came to Westport from big corporate engineering - what had attracted you to the company?

That’s true, I had spent 25 years and grew into senior executive positions with the pre-eminent engineering and project management companies in the world- well known names like the Bechtel Group and the Fluor Corporation. Within those companies though I had dedicated a fair piece of my career to development of alternative energy technologies- particularly alternatives to oil- and to environmental cleanup technologies. And to the entrepreneurial creation and growth of new businesses. And of course I had my Stanford and MIT engineering and technology roots to draw from. So when the Westport opportunity came along almost five years ago, I felt it was a great way to take everything I had learned and apply it to a fast-growing technology company. A place where I could work with some of the brightest young talent around to transform Westport from an R&D company to a full commercial company, making a serious contribution to solving some of the world’s oil, energy, and environmental challenges.

If you had to give an investor three reasons to like Westport – what would you pick?

Real and growing sales, short term commercialization opportunities, and a technology right in the wheelhouse of current world needs around oil, energy, environment, and climate change.

For more information, you can visit the Westport website.

Neal Dikeman is a founding partner at Jane Capital Partners LLC, a boutique merchant bank advising strategic investors and startups in cleantech. He is founding contributor of Cleantech Blog, a Contributing Author for Inside Greentech, and a Contributing Editor to Alt Energy Stocks.

July 10, 2007

Interview with Tom Konrad on the CleanTech Show

An interview with our analyst, Tom Konrad, with Nick Bruse of The Cleantech Show is now available. In it, they discuss various strategies and the outlook for the Cleantech investment space, as well as some of Tom's ideas on industry regulation.

You can download or listen to a podcast of the interview here.

May 03, 2007

Cleantech Venture Capital - Still Rising

As part of our ongoing series on stories on investment in the cleantech sector, we had a chance to discuss the sector with one of the venture capitalists at Emerald Technology Ventures.

Scott MacDonald is an Investment Director with Emerald Technology Ventures, a global leader in cleantech venture capital. Founded in 2000 under the name SAM Private Equity, Emerald is a pioneer in this rapidly emerging sector and is focused on innovative technologies in energy, materials and water. With offices in Zurich, Switzerland and Montreal, Canada, Emerald manages three venture capital funds and two venture capital portfolio mandates totaling over US$380 million. Scott currently serves as Chairman of RuggedCom and as a Director of Solicore and SoftSwitching Technologies. Prior to joining SAM, Scott held the position of Managing Director at OPG Ventures Inc., the venture capital subsidiary of Ontario Power Generation. Previous to OPG Ventures, Scott worked for ACF Equity, an early-stage venture capital company focused on investing in information technology companies. Scott graduated with a Bachelors degree from McMaster University and an MBA from Dalhousie University. He is a member of the North American Advisory Committee of the CleanTech Venture Network.

I know a bit about the history of SAM and Emerald Technology Ventures, and as one of the oldest cross-border investment groups in the cleantech area, I am very curious to get the Emerald Technology take on a number of issues. So we put to Scott a few thoughts and questions to get their take:

Emerald sponsored the San Francisco GreenVest 2007 conference I am chairing in June, and you are speaking there – can you share a few of your insights on the future of the cleantech area as an investment asset class?

I think we are in the early days but there is certainly an element of notoriety that the sector has attracted over the past 12 months with scientists, politicians and venerable VCs claiming action is required now to save the planet from global warming. A reputable and experienced LP in the venture asset class told me just last week that every generalist fund they speak with mentions an initiative in cleantech. I think the great generalist funds will invest in the sector (as you know a few already are) and they will likely be successful. The specialist funds like Emerald will continue to map out and invest in innovating technologies because of our technical expertise and experience. Based on a number of successes exits to date in our first funds (Evergreen, Schmack Biogas, Pemeas), the specialization strategy seems to be working well. A really exciting development is that we are starting to see repeat entrepreneurs. Cleantech entrepreneurs that have successfully exited and are looking to try it again – and we couldn’t be happier. This was a key factor in the growth of the IT sector in the late 80s and 90s.

And can you fill me in a bit on the ins and outs of the recent fund history – the mandates with CDP and Ontario Power, your fund raise last year, and the subsequent MBO to form Emerald?

In 2000, SAM Group (Sustainable Asset Management), a leading asset management company specializing in sustainability investments and headquartered in Zurich, launched SAM Private Equity as its venture capital arm. That same year SAM Private Equity closed the SAM Sustainability Private Equity Fund and the SAM Private Equity Energy Fund with a combined EUR 90 million in commitments from leading institutions and strategic corporations. Both of these first funds are fully invested. In 2004, SAM Private Equity was awarded the portfolio management mandate from la Caisse de Dépot et Placement du Québec (CDP), a large Canadian-based pension fund, to manage its direct energy technology venture capital portfolio. Following the awarding of this mandate, SAM Private Equity increased its North American presence with two former members of the CDP team and established a North American office in Montreal, Quebec. In 2005, SAM Private Equity was awarded its second portfolio management mandate from Ontario Power Generation, a large Canadian electric utility, to manage its direct energy technology venture capital portfolio. To further strengthen its North American investment focus, two members of the former venture capital arm of Ontario Power also joined the team.

In March we announced the final close of our latest cleantech focused venture fund with commitments of EUR 135 million (US$180 million). We are going through a name change but the fund will be renamed Emerald Technology Ventures Fund II. Strong investor demand helped us exceed our original target for the new fund of EUR 100 million. Investors in the new fund are leading investment companies, financial institutions and multinational corporations from around the globe including: GIMV - Belgium, Rabobank - Netherlands, Caisse de dépôt et placement du Québec - Canada, Axpo Holding - Switzerland, Springbridge Limited (Advised by Consensus Business Group – UK), Credit Suisse - Switzerland, Deere & Company - USA, DSM Venturing - Netherlands, The Dow Chemical Company - USA, KPC Energy Ventures, Inc. - Kuwait, Piper Jaffray Private Capital - USA, Suncor Energy Inc. - Canada, Unilever Corporate Ventures and Volvo Technology Transfer AB - Sweden.

I have to ask, the name change – Sustainable Asset Management was an old brand in the cleantech investment sector, why the name change to Emerald?

Following the buy-out we are a private independent VC manager now and as such can no longer use the SAM brand. The SAM brand is powerful but it also was the source of some market confusion for our venture capital division. It’s clear now that Emerald is an agile and independent global VC manger with in-house expertise in the cleantech sector focused on investing exclusively in the cleantech sector and we have a new fund to do deals.

How many deals have you done from the new fund, how much capital have you employed, and what are you expecting to do over the next 12- 24 months?

We have made three investments out of the new fund and are closing on two more which should be announced within the month. We have only announced two of the investments to date – Vaperma and Identec (details of each is on our web site) I would expect we will invest in about 6 portfolio companies in total this year. We like to invest between US$2 -5 million in the first round depending on the opportunity and the stage. Technology, market and management are what’s important to us – we will consider all stages. Well…if it’s just a conceptual idea on a bar napkin we need to know the entrepreneur has made himself and others very wealthy in the past (preferably us – back to the serial entrepreneur comment).

What’s your passion these days? What technologies are you focused on?

I think there is an incredible opportunity for new technologies to help upgrade the antiquated electricity grids in Europe and North America and to leap frog into the incredible build-out that is going on in countries like India and China. China last year built an average of five 300 megawatt electricity plants a week and energy consumption is expected to continue rising fast as China aims to quadruple the size of its economy by 2020. This means a lot of new grid infrastructure technology will be deployed. We have a number of portfolio companies in the “smart Grid? space and will continue to seek out investments in this space.

You’ve had a couple of recent exits in fuel cells – what fund were they from, and has that changed your appetite for similar technology areas in the future?

We have had recent exits in this area: Pemeas which we sold to BASF and Cellex which we sold to Plug. We still have an number of other FC investments in our portfolio that we are bullish on – Angstrom Power and PolyFuel. I would say we have learned a lot about the general FC market and understand many of the technology challenges and market adoption risks much better. We are still interested in the FC space – I would just say we are a more sophisticated FC investor now.

What does Emerald see as the main differences between investing in cleantech in Europe versus the US?

The topic of an article in itself but quickly: Deal structure, Corporate governance model, Company history (many family business in Europe), labour laws, language, proximity and access to stock exchanges which are more accommodating to VC backed companies (Frankfurt Prime Standard, AIM), valuations (typically more favourable than the US – comparable to Canada where we are also very active). The short answer is lots but both regions provide great opportunity to generate investor returns. Again or investment thesis is based on the fact that unlike IT, cleantech is a global business and as such, investment opportunities are not limited to Silicon Valley or any other specific geography. At Emerald Technology Ventures we have taken a distinctive approach to addressing the challenges associated with technology specialization and geographic diversity. Our approach includes having technically competent people in-house and locating our Partners and Technology Specialists in two of the most important Cleantech markets in the world: North America and Europe.

We have done a lot of writing at Cleantech Blog on topics including ethanol, solar – so I’d like to get your 1 sentence rapid fire take on a couple of always topical cleantech investment debates:

Thin film vs. Conventional PV
Thin film if you have deep pockets and patience

Solar concentrators vs. Flat Panel
No comment, yet.

Cellulosic vs. Corn Ethanol
Science project vs. commodity. I’m a VC…science project always wins.

Cleantech vs. Greentech
Make great products, build great businesses and provide great returns to investors (and hopefully help out our world along the way) and no one will care what you call it.

Thanks Scott. Especially with those last comments, you've provided some good food for thought. The venture capital sector is built around high risk, high reward, and you guys are certainly in the mix. We continue to keep our fingers crossed that cleantech sector can deliver on the rewards side. You can find more on Emerald at And don't forget to visit GreenVest on June 25 in San Francisco.

Neal Dikeman is a founding partner at Jane Capital Partners LLC, a boutique merchant bank advising strategic investors and startups in cleantech. He is founding contributor of Cleantech Blog, a Contributing Author for Inside Greentech, and a Contributing Editor to Alt Energy Stocks.

March 24, 2007

Fuel Tech - Driving Profits by Cleaning up Coal

Fuel Tech (Nasdaq: FTEK) is one of the fast growing public greentech / cleantech companies focused on cleaning up dirty coal.

I have known John Norris, the CEO of Fuel Tech, and his family for years, and have had the pleasure of following his career for some time. He's one of the many former nuclear engineers that grew up in the electric utility industry. He has held utility executive positions including CEO of Duke Engineering & Services, SVP and CEO of Duke Energy Global Asset Development, and Senior Vice President, Operations and Technical Services, at American Electric Power (NYSE: AEP).

He took the reins at Fuel Tech early last (the stock promptly started climbing), and when I ran into him at a recent conference, filled me in on the goings on at this cleantech company that I not previously followed. I had a chance to chat with John for the record on Cleantech Blog about Fuel Tech in specific, and his thoughts on emissions technologies, carbon and greenhouse gases, and cleaning up electric utilities. I hope you enjoy.

You are relatively new to Fuel Tech, what compelled you to join the company?

I started with Fuel Tech as an Executive Consultant in April of 2005 to try to open doors with utility execs. When the Board approached me late that year about becoming the CEO, I thought about what I had seen over that last 8 months and really liked the prospects for growth. I have had the opportunity in the past to build high growth, highly profitable enterprises including one the most fun periods in my life in leading Duke Engineering & Services. This reminded me a lot of that experience, although I think Fuel Tech has even better prospects than DE&S had when I first got there.

What are the key drivers an investor should understand for the recent and continuing growth of the business?

There are several. On the Air Pollution Control (capital projects) side, investors should watch for market penetration of Ultra systems in the China/Pacific Rim market as well as a broader acceptance our all our NOx reduction technologies in the US market. They will be able to track this by watching for our announcements regarding contract wins. On the Fuel Chem (specialty chemical) side, the key driver is market acceptance by utility coal units. Again they can track this through our announcements.

And in short - what did cause the recent revenue growth?

I tend to credit the good looks of the CEO, but others do not necessarily support that conclusion. [Note to readers: John's picture is on their website, so you can judge his conclusions for yourself!] --- I think the real reason is that we have better defined our products and services and have recognized a much broader market for those services. We have a more focused R&D effort to bring solutions to client problems quickly. And it doesn’t hurt that customers are looking more earnestly for ways to reduce pollution and increase efficiency. All of these have come together for us in sort of a “perfect storm?. Still, we have to deliver results for our customers and for our investors.

Do you view Fuel Tech as part of the emerging cleantech investment theme?

Very much so, but also maybe with an important difference. Too often the greentech sector has, in my opinion, over-promised and under-delivered for clients and for investors. We aim to be a different breed in those regards.

If I understand correctly, Fuel Tech has long been a leader in post combustion pollutant reduction systems, and pre-combustion technologies are a newer business for you. Is this correct? What does the future hold? Where is the industry going?

Fuel Tech has long been a leader in post-combustion NOx control as you mention. Our Fuel Chem product line is really a combustion/post-combustion technology that helps reduce slag problems, dramatically reduce SO3 emissions (both in the boiler and across an SCR), and improve plant efficiency thus reducing CO2 emissions in the process. These latter two items have only recently (in the last few years) become important to customers. I think in the future clients will much more strongly focus on all these and other environmental and operational issues, both domestically and internationally.

Can you give us some color on the overall direction and key issues in the regulatory environment for these pollutants?

For all air pollutants the direction is towards dramatic reduction. You can sense that the whole world is looking to clean up the environment and they are not so much focused on CO2 but rather all the more serious pollutants (SOx, NOx and Hg especially).

You reported all time high international sales for 2006. How much of the business do you expect to be from overseas in the next 2 to 3 years? What has happened on that front? Has the growth been because it is a newer area of focus for the company, or because the overseas markets are growing? And how does China play into the company plan?

Our dramatic international revenue growth in 2006 really came from our projects in China. I expect China and the Pacific Rim to become a much larger part of our business going forward. China consumes more coal today than we do in the US and within a decade they will be using about 3 times the coal we use. The Chinese have now recognized the pollution issues of smog and acid-rain (from NOx and SOx emissions) and are working hard to do something about that. The upcoming Olympic games has heightened the sense of urgency to clean up the air and water. We have worked hard for a number of years to establish our credibility there and to demonstrate our technologies. In 2005 we won two major contracts to demonstrate our NOxOut SNCR and eventually our NOXOUT Cascade technologies and then earlier this year we won two major contracts to install our NOxOUT ULTRA urea to ammonia system on new plants who have the catalyst NOx control technology installed (SCR). Those wins position us well to really make this a major and growing part of our business going forward.

What about C02? In a Kyoto world, is Fuel Tech looking at C02 reduction, sequestration, or capture technologies? If so, what can you share about that?

Our Fuel Chem targeted injections can typically reduce CO2 emissions by 1 to 1.5% for coal utility plants, while dramatically reducing slag and SO3 operational issues and emissions. That may not sound like much but it very hard to make any significant CO2 reductions in plants and our reductions can be achieved while actually REDUCING plant costs. A 1.5% CO2 reduction for a 500 MW plant would be a reduction of about 8 tons/hr or about 65,000 tons per year of CO2 emissions. That is not insignificant and there is much interest in this in China and India especially where we can sell the emission reduction credits on the European Kyoto market (if done thru our Italian subsidiary).

A large portion of your business has been focused on cleaning up NOx or other pollutants at coal fired power plants. With low-carbon power likely to be a larger and larger portion of the global generation mix, what does this mean for the coal-fired pollution control sector?

While I strongly support the push for more renewable energy sources and a renewed push for nuclear power (I am a nuclear engineer as you know), the reality is that for our lifetimes and beyond fossil fuels will supply most of our energy needs. I think our company has a long and exciting future in making those energy sources cleaner and more efficient and thus making this planet a better place.

You announced not to long ago a series of company firsts, among others:
- Installation of a NOx Out Cascade System on a Coal fired boiler
- Commercial SNCR/RRI project
- SNCR lignite fired application
What does this actually mean for company?

We are looking with great haste and much effort for ways we can provide a much broader array of solutions for clients in pollution control, efficiency gains, and operations and maintenance cost reductions. We have a dedicated R&D team of our best and brightest folks focused on this effort and their work has paid off. One technology that you did not mention is our Targeted Corrosion Inhibition Program was introduced in 2006 and which is aimed at helping municipal solid waste plants dramatically reduce the corrosion rates in their boilers. Our patent in this area was but one of 7 patents applied for or granted here in the US and another 12 internationally. We are on the leading edge of technologies in these areas and we intend to stay on that leading edge.

Revenues are obviously up, and you’ve said you expect revenues to increase 20-27% in 2007, with growth from both technology segments. What about 2008, 2009 and beyond, what markets and which products do you expect to deliver the longer term growth?

We do intend to grow but have provided no guidance beyond 2007.

In 2006 compared to 2005, the gross margins were down in the NOx Reduction business, but up in the Fuel Treatment business. Net income for the 4th quarter was down year over year, even though 2006 vs 2005 was up significantly. Can you talk a little about this, as well as tell us what the long term margin objectives are for the company?

First, our revenue for 2006 was up 42% over 2005 and our pre-tax income in 2006 was up 64% vs 2005. (These results were above our guidance.) The net income (after tax) blip you mentioned is that in 2005 we recorded $4.3 million in non-cash tax benefits related to the anticipated utilization of new operating loss and tax credit carryforwards. So we believe our performance in 2006 was considerably better than 2005 and has positioned us to do even better in 2007.

You keep a healthy amount of cash and no debt on your balance sheet. What is your view on the company’s capital structure?

I love our capital structure---lots of cash, no debt, unsecured borrowing ability and a business model that is delivering rapid growth in revenues, profits and cash.

And I know you’ve had to discuss this a lot lately, but the stock price has doubled in the last year, and P/E and valuation metrics are looking rich. What is your view on how the capital markets should look at the stock and valuation?

Personally I think this is a great buying opportunity (and I just recently did so in my personal accounts). If you believe that we can and will execute our business plan and grow this company rapidly and profitably then today’s stock price is not over-valued at all. If you don’t believe that we can and will execute and achieve the results, then the stock price is already too high. It all depends on what you believe about the Fuel Tech team.

And if I was an investor interested in the company, what should I be looking for over the next 6 to 12 months?

You should be watching for contract announcements to see if we are winning in the market-place. The first quarter will be the hardest for us from a results point of view but the orders need to come over the next 6 months if we are going to deliver this year’s revenue and profit results. We are working hard to make that happen, but until the contracts are in hand it is just talk.

Neal Dikeman is a founding partner at Jane Capital Partners LLC, a boutique merchant bank advising strategic investors and startups in cleantech. He is founding contributor of Cleantech Blog and a Contributing Editor to Alt Energy Stocks.

January 05, 2007

The Biggest Unheard Boom of 2006 in Cleantech, Smart Metering, and Energy

Author Neal Dikeman is a founding partner at Jane Capital Partners LLC, a boutique merchant bank advising strategic investors and startups in cleantech. He is the founding contributor of Cleantech Blog, and a Contributing Editor to

In one of the less talked about cleantech mergers and acquisitions of 2006 (but one I think will have a deep impact on alternative energy and the smart metering and AMI market for years to come), First Data recently acquired Peace Software, an early provider of IT, billing, and CRM software to the deregulated utility sector, in a bid to get into the energy market. First Data [NYSE:FDC] is one of preeminent transaction processing firms in the world, and by acquiring Peace, has made its first foray into energy.

We have felt for some time that the financial products surrounding payments can be a very major driver for technologies like AMI, BPL and smart metering, and products like green power marketing, RECs, and carbon trading. Bottom line, if you can't measure and charge for it fast and cheap, you can't make and sell innovative electric retailing products. And conversely, if they can, they will.

I think the hurdles to overcome to get adoption of next generation IT and smart metering in the electric utility sector are hugely underestimated. But by the same token, I think the windfalls both the companies and consumers will see long term from those platforms once they are in, are also hugely underestimated.

I want to welcome Dean Cooper, Vice President at the newly formed energy & utilities division, First Data Utilities, and get his take on the merger, smart metering and information technology in the energy and power sector, and the future trends in AMI.

Dean, please give us a bit of background on yourself, and First Data Utilities.
My role at FDU is Vice President - Asia Pacific, which means I am responsible for business in the APAC region. The majority of this is Australia/New Zealand at this point. Prior to that I was with a venture management firm where we had a portfolio of renewable energy and biotech businesses with the most notable being a lithium battery and power device product that was destined for the NASDAQ IPO market in the go-go nineties. The prior venture was with McKinsey & Co, looking at establishing a global forest products trading system out of New Zealand.

Your firm, Peace Software, was recently acquired by First Data to form First Data Utilities. What was the rationale for the acquisition?
First Data Corporation has been involved in outsourcing for 35 years predominantly in the financial services space and credit card processing. They had built a business of some 33,000 people and an $US11bn revenue line (before spinning off Western Union late 2006) and were looking for verticals that mapped to their expertise of high volume, complex transaction processing and settlements with an annuity revenue stream. The energy sector was acknowledged as being ripe for the outsourcing model and expertise that FDC offers as utilities worldwide recognise the criticality of reducing their cost to serve in deregulating markets.

For an interesting take, check out the FDU backed research project on hottest customer switching markets for electricity. According to this, right now it’s Great Britain and Victoria, at 20% per year.

So if you had to choose the top 2 synergies that First Data was looking for in the acquisition, what would they be?
The key synergies were to blend the utilities domain expertise of Peace Software with the outsourcing and transaction processing capability of First Data. Whereas Peace contributes the software intellectual property, First Data would add the hosting and application management capability. This is a new business model for the energy markets and moves away from the traditional model of a systems integrator installing and hosting the intellectual property of the software provider, to a model where the one entity (FDU) owns both the IP and the implementation and hosting expertise. This new model is anchored on delivering a lower cost structure for utility companies.

Not many people know that New Zealand, where Peace originated, was the first major electricity market to deregulate. What impact has that had on Peace's history?
You’re right - the New Zealand market led the worldwide movement by government to deregulate energy markets to provide greater competition and lower costs for consumers. Our founder, Brian Peace, was a computer science lecturer at Auckland university at the time the New Zealand energy markets deregulated, which inspired his entrepreneurial crusade to build a software product specifically to service the deregulating energy markets worldwide. Resultingly the heritage of Peace was as a dereg software play for large and small utility (electricity, gas, water) companies initially in New Zealand and subsequently in Australia, Canada, USA, and Europe.

Adding to that, deregulation in some Australian states is now 10 years and running. How has the deregulation changed the investment behavior of the utilities?
Deregulation in Australia and beyond has altered utility behaviour from initially being dominated by engineers with a focus on the poles and wires (distribution) business to an entity focused more on the consumer, where reducing consumer costs and providing increased consumer choice is a key driver to energy retailer success in a competitive market.The larger utilities that had been operating in Australia since the mid 1800’s and then emerged as leaders in the deregulated market of Victoria in the late 1990s were and still are carrying a higher cost to serve than necessary, due to a legacy of disparate systems that come from M&A.

This provided a great incentive for “challenger brands? and new entrant retailers to enter the market in the last 3 years with a point of difference around low-cost, green energy, or tailored customer offers.

How have these entrants fared, and what role (if any) has cleantech information technology played in their bids for market share?
New entrant brands have appealed to many consumers by the nature of their fresh branding, tailored product offerings, and lower cost structure. In comparison it is more difficult for incumbent utilities to offer a new approach through the inertia of their operations. Information technology plays a key role in a new entrant solution offering a lower operational cost to customers. This begins from the time a customer is acquired through to its energy consumption, billing, and customer management activities. Traditional energy companies would have to integrate this information across a number of disparate systems, yet new entrant retailers are able to work with one technology company to provide a seamlessly integrated solution to manage their business. This has had a dramatic effect on costs and therefore appeal to consumers.

I'd love to get the FDU take on the future of demand response programs (in both deregulated and regulated markets). What is the state of the art now, both in the programs and the technologies powering them? How is this tying in with the rise of smart metering?
Demand response is proving to be a very trendy area globally in energy, with Australia being a leading market worldwide on this topic with legislation mandated in Victoria to implement a smart metering program as one means of managing demand response. There are many alternatives to demand response including price incentivisation through pricing monitors installed in households, peaking generation plants, time-based pricing mechanisms such as a smart metering program (such as the telco industry where we pay varying usage rates depending on the time of day – peak/off peak), and suchlike.

One of the major reasons for demand response is the growing age of electrification that we live in where households consume a lot more power due to home appliances, that the network assets were originally built to accommodate. It is very expensive to replace ageing network assets or build generation plants, (along with the debate over environmentally friendly generation assets) meaning a demand response program may be a better means to the consumption/generation imbalance by focusing more on the consumption part of this equation.

Can you give us some ideas of the technology changes that will need to happen? What's going to get commoditized, and where are the key technology areas to watch?
The areas of commodisation are likely to be meter hardware, remote communication, data acquisition, and data management. Because we will be looking at an order of magnitude increase in data volume from smart metering programs you get a sense for the size of the technology challenge. In a situation today where we may have 3 million consumers who have their energy consumption measured on a bi-monthly or quarterly basis. With a smart metering program we would move to 30 minute measurements which would be approximately a 4,000 fold increase in data volumes.

Already players that are grabbing a foothold in this space include Bayard Capital, run by Cameron O’Reilly for meter hardware along with GE, the comms companies, and all IT vendors for the data component, which is where FDU also fits in.

Are we going to see the rise of major IT giants in the smart metering sector, like we did in supply chain IT in other areas?
Good point, we could very well see this happen as the smart metering sector emerges and grows worldwide - smart metering measures consumption on a more granular level (30 minute intervals vs monthly intervals). We are still in the early stages of market trials and legislation worldwide yet already a number of sizeable markets are embarking on smart metering programs such as Australia, New Zealand, Canada, parts of the US, Italy, and Scandinavia. As standards are established for communication, data acquisition, and reporting we will see solutions to these markets develop. As is typical of emerging markets, suppliers are cautious of over-investing until regulators confirm market standards.

All major energy sector IT giants are poised to invest in the smart metering sector and you will see the leaders emerge once standards are confirmed in the leading markets of Australia, New Zealand, and Canada.

Have any IT players started this move? I’ve noticed IBM’s name on some press releases in North America.
Many players are establishing “thought leadership? positions in smart metering. IBM certainly have a large pool of resources dedicated to this space so expect them to feature in most smart metering roll outs.The majority of IT players are also positioning themselves but refraining from significant investments until market standards are set.

Who are some of the market leaders in this game, and where do FDU's products fit in?
In the meter hardware hardware frame Bayard Capital have amalgamated a strong set of assets and are the leader at the front end of the value chain. There is no clear leader in the remaining part of the value chain but FDU believes our business model and company heritage for large scale transaction processing globally puts us in good stead to make a compelling over to the market place.

FDU would therefore be able to continue its meter-to-cash outsourcing business model to include both basic and smart metering worldwide – with the scalability and complexity challenge involved there are not many competitors that would be able to make a similar claim.

“Meter-to-cash? – I like that phrase, can you elaborate on what that means?
Essentially it means the process whereby consumption data from the household meter is acquired, through to the billing and exception management process, and on to collections and credit checks. Effectively the engine room of an energy company’s customer management function.

Obviously, First Data is a financial services and transaction processing giant. Where (and when) do you see the convergence between financial services and areas in energy and electricity retailing like bill payment, smart metering, demand response? I would imagine that improving bill payment is one of the first areas. I know I can't even use my debit card to pay my personal utility bill, because my electricity provider does not accept debit cards from the two major banks in my region - so I use online bill pay. What's your take on what happens next?
Already the integration and convergence of these facets are underway and working in the market place today. Not being able to pay your electricity bill with a debit card is probably more a deficiency in the system capability of your utility than what the market (and FDU) can deliver on. End to end integration of energy services to consumers is part and parcel of a competitive deregulated marketplace, and part of the new behaviour of utilities in liberalised markets.

Modern systems and processes certainly can handle “mass customisation? of consumer needs and you will see significant positive change in utilities of the future as they become more consumer focused rather than solely on poles and wires.

If you had to pick the top 3 differences the consumer will see from all of this, what are they? And when do you see most of us as getting them?
Top 3? My best Top 3 are probably:
1. Consolidated billing and convergence;
2. Responsiveness;
3. Targeted campaigning and messaging in the same manner cellular and telco’s have been operating.

Customers in the advanced Australian energy markets are getting these benefits already, so it won’t be long before all global energy markets are experiencing a greater level of service.

Dean, thanks for the time today. I am really excited about the IT moves in the energy sector, and I think the play FDU is making to combine CIS solutions and financial payments has been a long time in coming.

You can find more information on FDU at

December 02, 2006

A Conversation with Ambassador Sklar on Solar in San Francisco

By Neal Dikeman, Partner, Jane Capital Partners LLC, Founding Contributor,, and Contributing Editor,

This week I had an opportunity to have a conversation with Ambassador Richard Sklar, the President of the San Francisco Public Utilities Commission, on renewables and solar power in San Francisco. This is his second stint at the SF PUC, and besides a time in politics, Ambassador Sklar has served as an executive in and advisor to private manufacturing and engineering firms. I had met him and several of the top SF PUC team at Solar 2006 in San Jose, and had been extremely impressed with the SF PUC, both in their commitment of senior people to a solar initiative, and the diligence with which they were approaching the issues. So I was certainly curious to hear what he had to say.

For those of you that do not know, the SF PUC is the San Francisco owned power, water, and sewage provider for much of the municipal facilities in San Francisco.

From their website: "The San Francisco Public Utilities Commission (SFPUC) is a department of the City and County of San Francisco that provides water, wastewater, and municipal power services to San Francisco. Under contractual agreement with 28 wholesale water agencies, the SFPUC also supplies water to 1.6 million additional customers within three Bay Area counties. The SFPUC system provides four distinct services: Regional Water, Local Water, Wastewater (collection, treatment and disposal), and Power. "

I asked Ambassador Sklar about the SF PUC sustainability plan, found here, and what that meant for San Francisco power.

He asked me to consider that the SF PUC does 3 things - supplies water, cleans dirty water, and supplies power to San Francisco. As far as sustainability? According to Ambassador Sklar, San Francisco makes a concerted attempt to do the job with no more harm than necessary, and to be as clean as possible while doing it. After all, this is San Francisco.

On the power side, the SF PUC definitely thinks sustainable and green, and if Ambassador Sklar and his team are any indication, very, very big. They actually have established a network of solar monitoring stations around the city to measure our solar resource. Their primary source of power is the Hetch Hetchy hydroelectic power system. The SFPUC also owns a number of photovoltaic solar installations around the city, the largest of these is the marquee 675 kW system on Moscone Center. They also have 255 kW of solar and operate a waste gas cogen facility at the Southeast Waste Water Treatment Plant, and have a 283 kW solar project going in at Pier 96.

Ambassador Sklar shared that they are expecting to shortly launch solicitations to buy solar power from private producers (unlike private parties, the SF PUC has been unable to take advantage of state and federal rebates and tax incentives) - which is quite exciting, and like Moscone Center will be a marquee event for solar in California.

I did ask about the Moscone Center project, after all solar is not exactly a low cost resource, and 675 kW is not much of a power plant to get excited about in the grand scheme of things. But it seems the SF PUC certainly understands this, and is thinking much longer term. Ambassador Sklar was quick to answer that Moscone Center is just a demonstration project - nothing more, simply a first step in turning San Francisco power greener. The quote I liked, "we'll be serious about solar in San Francisco when we cover the airport and all of our reservoirs in solar cells." According to Ambassador Sklar the Moscone Center and other solar PV installations are just toys, demonstrations to say, in San Francisco we believe in green power, and we're here to stay in solar, so pay attention. That being said, they are also serious about delivering economic power to our city, and have no intention of igorning the cost side of solar - hence the intensive efforts by the SF PUC team in demonstration projects and analysis to understand what it will cost before they make a big plunge.

[I do find it mildly humorous that while the SF PUC may understand that their solar install is just a demonstration - the solar industry considered the Moscone RFP the biggest thing to hit it in years. Obviously the industry still has a lot of maturing to do.]

We also had a chance to talk about what the end game might be for San Francisco solar and renewable power - where exactly this first step was taking us. I have to say, these guys have much bigger ideas longer term; they are not sitting still. Throughout the discussion Ambassador Sklar described his vision of green power in San Francisco, and I left the meeting thinking seriously about the series of "What ifs" that he posed in our conversation?

What if we mandated that every new building in San Francisco must include solar panels?
What if we cover the aiport and our physical city owned infrastructure in solar panels?
What if we build our own wind farms in Northern California, and expand Hetch Hetchy hydro power?
What if we do put tidal power under the Golden Gate (San Francisco already announced in September that it is going to explore tidal power potential under the Golden Gate).
What if we just make ourselves go green?
But I'm not sure that Richard Sklar and San Francisco consider these to be "what-ifs", but more like "whens". They've got millions invested into green power already, and show no signs of stopping.

Note: If you want to hear it for yourself, Ambassador Sklar is scheduled to speak at the upcoming GreenVest 2007 Conference in San Francisco.

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