Ocean Power Archives


May 15, 2017

Ocean Power’s Stock Offering

by Debra Fiakas CFA

The first two lines of the prospectus for the April 2017 public stock offering by Ocean Power Technologies (OPTT:  Nasdaq) say all investors need to know about the market opportunity for the company’s wave power generation products.  First, the earth’s surface is covered 70% by water.  Second, over 40% of the world’s population lives within 150 miles of a coastline.  If the earth is dominated by water and a good share of our energy-hungry population lives near that water, doesn’t it make sense to turn the ocean into a renewable energy source?
If market opportunity based on common sense was all required for a stock offering, Ocean Power might have been able to sell new shares nearer its 52-week high price of $15.65 rather than a penny below the 52-week low of $1.31.  In the final trading days leading up the pricing on April 27th traders paid as much as $3.67 for the shares.  However, underwriters were frightened off, setting the offer price at a NEW 52-week low.

Perhaps there is more to prove than market opportunity…or market opportunity is not what it seems.

One question mark could be the company’s flagship technology.  Ocean Power Technology is on the cusp of commercializing a line of ocean wave conversion systems branded PowerBouy.  The PB3 PowerBuoy is intended for use in remote locations off-shore and can generate up to three kilowatts of peak power.  It comes with an energy storage system that has a 150 kilowatt hour capacity.  As we have noted an earlier article in September 2016, “Navy Buoys Up Ocean Power Tech”, the U.S. Navy has been an early and loyal follower.  The Navy’s product development grant was on top of a deal discussed in an earlier article “Ocean Power Nets A Discerning Buyer” in June 2016, which described a lease of the PB3 by Mitsui Engineering and Shipbuilding.

Thus it seems PB3 PowerBuoy is likely a strong product, built on sound technology and delivering the performance its engineers have promised.  Testing by two high-profile customers provides strong endorsement.  However, the intended applications for the PB3 in remote locations are a long way from “the 40% of the world population that lives 150 miles from the coast.” If the intended market is only in remote locations, market opportunity might not be as suggested by the opening lines of Ocean Power’s prospectus.

Ocean Power has identified four different types of customers:  oil and gas, defense and security, ocean observing and communications.  The ocean is a busy place and there are numerous installations in each of the four categories.  On the plus side, potential customers would be easy to identify and target with marketing and sales campaigns.  Ocean Power is even narrowing its target markets to certain of plum geographies to make the most of its new capital resources.  Then again, demand, especially in the oil and gas sector, might be subject to periodic peaks and lows as each customer group contends with own business cycles.  Perhaps most important, the remote location market will be rife with competing energy solutions, such as solar power, fuel cells or systems using conventional fuel.  Management contends its solutions will be viewed as a cost-competitive solution, and this may be necessary to gain a place at the table.

Investors might now be getting a hint as to why the OPTT offer price was set at a record low level rather than at a high.  Even if market opportunity is not as significant as is implied by the ‘40% of the population’ opening line of the prospectus, Ocean Power may still have a place in the hydrokinetic energy industry.  The company will be among few bringing ocean power solutions to remote installations in those very waters.  That should provide some upside to the $1.30 follow-on offering price.

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

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

October 05, 2016

Navy Buoys Up Ocean Power Tech

by Debra Fiakas CFA

The last post, Grid Connected Ocean Power, highlighted the claim by the U.S. Navy of the first grid connected ocean power generator in the country.  Two wave power systems have been connected to the electrical system at the U.S. Marine Base in Kanehoe Bay, Hawaii.  The Navy is gathering performance data as part of its on-going program to support renewable energy to perfect system designs, installation strategies on-going maintenance.  That is apparently not enough for the nation’s sailors.  Last week the Navy announced an award of $250,000 to Ocean Power Technologies (OPTT:  Nasdaq) to support the design of a ocean power buoy especially suited for military needs.

Ocean Power Technologies (OPT) already has its PB3 system intended as a continuous power supply to ocean installations such as equipment anchored to the sea-bed or deployed from an ocean vessel’s deck.  Called the PB3, it is deployed near a point-of-use in depths up to one kilometer.  The wave energy is converted to electricity through a direct drive generator that charges an on-board battery pack.   The Navy has already had experience with the PB3.  It was in use off the New Jersey shore during Hurricane Irene in 2011 as part of a demonstration project run by the Navy.  Its power capacity is near 8,400 watt hours per day.

The Navy design contract will take OPT in a new direction.  The new design is to be self-contained and will have no external moving components.  The Navy is looking for a highly reliable renewable power source for mission critical sensors.  The first phase of the contract involves design and testing.  If this phase is completed successfully, the Navy has pledged an additional $500,000 for additional design and testing of the entire power conversion system.

In July 2016, OPT announced its first installation of a commercial version of the PB3 also off the New Jersey coast.  A month earlier the company had signed a lease agreement valued at $975,000 with Mitsui Engineering and Shipbuilding for deployment of a PB3 off Kozu Island in Japan.  Together the two developments bring OPT significantly closer to commercial stage with its ocean power technologies.

OPT is also known for its PowerBuoy system, which can produce output in a range of 350 watts to 15 kilowatts depending upon the installation characteristics.  The PowerBuoy floats on the ocean surface above a seabed anchor.  A float moves up and down with the waves along a central spar, driving a mechanical system that converts the up and down motion to a rotary motion in an electrical generator.  The company had earlier partnered with Mitsui in anticipation of deploying the PowerBuoy at Mitui’s Kozu Island project.  The two companies have been working on an advanced algorithm for assessing ocean wave capture.

The design contract with the Navy is most welcomed by a company that has yet to record product sales let alone profits.  OPT is financed by equity and recently raised $5.3 million in net proceeds from the sale of common stock at $6.75 per share.  At the end of July 2016, directly following the stock offering, the company had $9.1 million in cash in the kitty.  OPT has been using about $3.0 million per quarter to support operations, suggesting there is about nine months breathing room for management.

OPTT shares are among few pure plays on ocean power technology.  With advances in new product development and interest from high-profile prospects, the company might seem promising.  Still investors might be concerned about a $2.5 million contingent liability on OPT’s balance sheet related to settlement of a class action lawsuit.  Although the company expects liability insurance to cover as much as $2.5 million of the original $3.0 million settlement, the liability still casts a shadow across OPT’s balance sheet.

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

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

September 29, 2016

Grid Connected Ocean Power

by Debra Fiakas CFA

The U.S. Navy is laying claim to the first electric grid connected wave power generator in the country.  A test site has been set up near military facilities at Kaneohe Bay in the Hawaiian Islands, where wave activity is known to be exceptional.  Yes, Hawaii is part of the United States.  The project consists of two wave-power generation systems or ‘power buoys’ anchored about a half-mile off shore.  The two buoys are connected by undersea cable to the Marine Corps base at Kaneohe and ultimately to Oahu’s electric power grid.

The first of the two buoys is produced by Northwest Energy Innovations.  Its Azura wave energy device was first deployed at the Hawaii test site in June 2015.  The buoy sits atop the ocean with about 12 feet rising above the waves and another 50 feet extending below the surface.  The system weighs 45 tons and uses both up and down as well as side to side motions to generate electricity.  Northwest got help installing the Azura in Hawaii from a contractor, Sea Engineering, which also helped with the assembly and launch.  The Azura was developed in collaboration with Callaghan Innovation, a government agency of New Zealand and Energy Hydraulics Ltd., also located in New Zealand.

It seems that ‘takes a village’ to put a wave power buoy into the ocean.  The corrosive conditions of salt water and the dangers presented by the unpredictable waves and currents present significant challenges for engineers.  Device design, materials, anchoring and grid connections each present unique hurdles. 

The second buoy was developed by Fred. Olsen Ltd. based in Great Britain.  Its Lifesaver wave power system is a 50-foot wide and 3-feet thick doughnut-shaped device, which is anchored to the ocean floor by cables.  It is the action of the cables as the ocean moves that turns the generator.  The Lifesaver was put in place at the Hawaii site in April 2016, with help from Healy Tibbitts Builders and Sea Engineering, Inc.  The smaller of the two buoys, the Lifesaver is expected to generate about 4 kilowatts.

The Kaneohe projects is a first for the U.S., but not a first for the world.  The first grid-connected wave power station in the world was turned on in early 2015 of the coast of Western Australia by the device developer Carnegie Wave Energy Ltd (CWE:  AUS or CWGYF:  OTC/QB).  There are limited ocean power grid connections in the United Kingdom and Norway as well.  The U.S. has remained behind developers in these areas where the engineering community has been quicker to embrace innovation and where public policy has been supportive of alternative energy development.  Over the past decade the U.S. military has invested about $300 million in hydrokinetic research and development, well behind investments in the United Kingdom, Australia and northern Europe.  The Hawaii project has been made possible by financial support from the U.S. Navy, which has interests in reducing energy costs at Hawaii military installations.

The Navy will collect performance data from the Hawaii project in the coming months, which will be used to make adjustments to the power buoys installation as well as to the grid connections.  Northwest Energy Innovations also plans changes in its Azura power buoy to increase electric output from 20 kilowatts to 500 kilowatts.

For now the companies involved in the Navy’s project in Hawaii are all privately held and are beyond the reach of most individual investors.  Wave power is still in the nascent stages and few ocean power projects underway anywhere have reached the point of generating power on a consistent basis.  Some investors might remember solar energy in the 1980s, when solar cells had been proven capable of generating electricity but had not consistently generated profits for any company.  With practical knowledge of system design, construction and operation accumulated, the early companies were eventually able to achieve scale and then began generating consistent income streams.

The realization of a full and complete grid connection in Hawaii makes ocean power more certain for U.S. coastal markets.  In a study commissioned by the U.S. Department of Energy, RE Vision Consulting estimated that the theoretical ocean wave energy resource potential in the U.S. could satisfy more than 50% of the country’s annual demand.  This is a resource that cannot be ignored no matter how challenging the engineering work.   

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

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

August 02, 2016

Offshore Wind Blows Into The US: Seven Stocks To Catch The Breeze

Tom Konrad CFA

The Growth of Offshore Wind

Offshore wind has finally gotten a toe hold in the United States.  

The United States' first offshore wind farm, the 30 megawatt (MW) Block Island Wind Farm, is under construction.  A new project, the South Fork Wind Farm will be  three times the size of Block Island (90 MW), is set to be approved by the Long Island Power Authority.  This project will be located 30 miles East of Montauk, NY and Southeast of Block Island in a wind energy area designated by the federal Bureau of Ocean Energy Management (BOEM.)

BOEM also recently designated 81,130 acres of outer continental shelf off New York's Long Island and New Jersey as a new commercial wind energy area.  This area's proximity to some of the nations' most expensive and capacity constrained parts of the nations' electric grid make it an excellent site for relatively expensive but abundant offshore wind energy.

Both are projects of Deepwater Wind, the country's leading offshore wind developer.

Offshore Wind Stocks: Over The Horizon

Investors looking for a way to invest in offshore wind will be disappointed to note that Deepwater Wind is principally owned by the D.E. Shaw group, a privately held partnership.  The best investment opportunities in offshore wind stocks are, like offshore wind itself, often located beyond the horizon.

One place to look for stock market investments are the suppliers to wind farms.  Offshore wind turbine suppliers are a natural first choice.

GE (NYSE: GE) is supplying the turbines for Block Island Wind.  Again, this will be a little disappointing to stock market investors.  While GE is a publicly traded company, offshore wind turbines are not a significant part of its business.  The company's Renewable Energy segment accounts for less than 20% of total revenue, and offshore wind is a tiny fraction of that.

Offshore wind turbines tend to be larger and more rugged than their onshore counter parts.  The large size is due to the expense of foundations, making it important for an offshore farm to generate as much power as possible from each turbine.  A typical onshore wind farm uses turbines with peak power output of around 2 MW each.  Block Island is using just five 6 MW turbines.

These large sizes make it difficult for new entrants to challenge established manufacturers.  This means that offshore wind manufacturers a very elite bunch.  This is good for offshore wind investors because it means that industry incumbents (which are often public) are likely to remain leaders for far into the future.  But it is bad for investors looking for a pure-play exposure to offshore wind.  Offshore wind turbine manufactures simply do not exist without a large onshore wind business to support the investment in manufacturing and R&D.

Most wind turbine manufacturers serve both the onshore and offshore market, but the ones with the biggest names in offshore wind are European players Siemens AG (OTC:SIEGY) and Vestas (OTC: VWDRY). 

It's not particularly surprising that European manufacturers lead the offshore wind turbine market, since Europe has long been the leading offshore wind market.  Because offshore wind sites are almost by definition accessible by ship, I expect that the early dominance of European offshore wind manufacturers will prove to be more durable than the early dominance of European solar manufacturers proved to be in the early 2000s.


Another way offshore wind is different from its onshore cousin is the need for underwater electrical connection to shore.  Again, investors will not find pure-play offshore wind companies, but underwater cables need to be strong and durable enough to survive decades under salt water and the occasional encounter with a ship's anchor or other submarine hazard.

Submarine cables are expected to be the fastest growing segment for electrical cable manufacturers over the next five years.  US-Based General Cable (NYSE:BGC) and European Prysmian S.P.A. (OTC:PRYMF) both have large submarine cable businesses.

Owners and Developers

No article on offshore wind stocks would be complete without a mention of Danish energy giant Dong Energy A/S (Copenhagen:DENERG.)  Dong is a diversified energy developer and utility with a focus on sustainable energy.  The company has long pioneered new offshore wind technology, and is a leading European developer.


Much of the investment in offshore wind is under the surface of the water, in the foundations.  Constructing these giant, incredibly strong structures under windy seas is also a technical feat requiring specialized equipment.  Holland's Sif Group (Amsterdam: SIFG) is the leader in this market, where it gets approximately two-thirds of its revenue.  This makes Sif the closest thing to a pure-play offshore wind company available.  The balance of its revenue comes from foundations for oil and gas.


Offshore wind is a rapidly growing and exciting form of renewable energy, and the established industry leaders have wide moats protecting them from startup competition.  This combination means that current leaders are likely to continue to lead, but it also means that pure offshore wind exposure is difficult, if not impossible to find.  The only stock that is more offshore wind than anything else is Sif Group, and that company's exposure to oil and gas may be too much for some investors excited about renewable energy.

This article was first published on GreenTech Media on July 19th.

Disclosure: Tom Konrad manages and invests in The Green Global equity Income Portfolio, which owns BGC.

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.

June 06, 2016

Ocean Power Nets A Discerning Buyer

by Debra Fiakas CFA

Earlier this week shares of Ocean Power Technologies (OPTT:  Nasdaq) soared as the company announced its first commercial order for its PowerBuoy hydrokinetic devices.  The order represents a modest $975,000 in potential revenue, but the customer, Mitsui Engineering and Shipbuilding Co. Ltd., provides extra value as a discerning buyer.  PowerBuoys are built to capture the energy in ocean waves to drive an electrical generator.  Power output can be delivered to nearby ocean or terrestrial installations.  With worldwide interests in the numerous marine markets, Mitsui could develop into a large and long-standing customer.

OPTT traded as high as $6.79 in the first hours following the earnings announcement, representing a fourfold increase from the closing price the day before.  Since that first frenzied day of trading with unprecedented volume, things have settled down a bit.  However, it is clear the Mitsui opportunity has resent investors’ views on Ocean Power.

Quick to take advantage of the newly kindled fervor, Ocean Power announced the pricing of a registered offering of common stock.  A total of 417,000 shares with a warrant attached to each will be sold at $4.60.  Each warrant buys about a third of a common stock share at $6.04 per share.  A fortuitously planned shelf registration statement facilitated the fast response.

Ocean Power will take in about $1.6 million in net proceeds after the investment bankers get paid.  This is not a large offering, but just enough to top off the bank account without diluting current shareholders more than necessary.  Management appears to have the view that, even after the dramatic price increase, the shares still do not reflect the long-term earnings potential in Ocean Power’s technology.

powerbouyMitsui is leasing the PB3 PowerBuoy which has the capacity to generate 350 watts of continuous power.  The structure floats on the ocean surface from a tethered attached to the ocean floor. As the wave move the direct drive generator, the electrical charge is stored in an on-board battery pack.  Power can be delivered to a nearby marine installation such as an off-shore oil rig or to coastal installations such as a communications network.

Ocean Power expects more to develop in its relationship with Mitsui Engineering & Shipbuilding.  Mitsui is among the largest construction companies in the world, with interests in energy and environmental projects as well as shipbuilding and infrastructure construction.  Mitsui is expected to be a strong advocate for the PowerBuoy if it begins designing the ocean-based power source into its assignments.  Mitsui has recently been trusted to address customer problems in a wide range of projects involving underwater inspection, marine position keeping and deep-sea remote observation.

Indeed, the range of potential applications that Ocean Power sees for the PowerBuoy is as wide as Mitsui’s business interests.  In a recent investor presentation, management outlined multiple addressable markets:  ocean observing, communications, off-shore oil and gas installations, and off-shore wind energy projects.  Likely, the new capital going into Ocean Power’s bank account this week, will be used to reach customers in these markets.

It was impressive that Ocean Power was able to take in capital at a strong price  -  at least from the corporate perspective.  However, one lease to Mitsui  -  and it is a lease, not an outright sale  -  may not be sufficient to support the current price.  Effective execution on market penetration will be the key for OPTT valuation.  It is then important that Mitsui fulfills the promise so many have placed in that relationship  - bringing in a big catch of fish for Ocean Power.

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

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

March 09, 2016

Three Marine and Hydrokinetic Stocks

by Debra Fiakas CFA

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

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

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

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

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

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

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

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

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

Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein.  Ocean Power Technologies and Carnegie Wave Power are included in the Ocean Group of Crystal Equity Research’s Electric Earth Index of company’s developing power sources from the earth.

February 18, 2016

The Choppy Waters Of Ocean Power Investing

by Debra Fiakas CFA

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

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

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

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

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

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

Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein. DP Energy Ireland Ltd. is included in the Ocean Group of Crystal Equity Research’s Earth, Wind and Fire Index of companies using the power of the planet to generate energy.

Atlantis Resources: Pure Play Ocean Power

by Debra Fiakas CFA

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

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

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

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

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

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

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

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

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

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

June 29, 2015

Ocean Power Technologies Bobs Into The Big Apple

by Debra Fiakas CFA

Mid-June 2015, Ocean Power Technologies (OPTT:  Nasdaq) announced final permits had been secured to deploy one of its power buoys off the coast southeast of New York City.  The company has lost no time in laying down mooring lines for the buoy.  The next step is to watch the skies for the best weather conditions to deploy the buoy.  Over the next year, Ocean Power will collect data the power buoy’s performance.
Ocean Power Technologies is a developer of ocean wave energy technology.  The company has been working on its ‘power buoy’ for over fifteen years for off-grid as well as integrated network electricity generation.  The company’s website provides a concise description of how the power buoy works, using a mechanical system to drive electrical generators using wave motion.  Two different designs provide size and capacity alternatives.

In the twelve months ending January 2015, Ocean Power generated $4.0 million in total revenue with its power buoy technology.  That revenue level is not adequate to support development and other operating costs.  The net loss was $13.1 million.

For any company not yet generating profits, the first question has to be about the adequacy of cash resources to support operations until sales begin to ramp.  Operations used $13.2 million in cash during the twelve-month period ending January 2015.  With another $19.2 million in cash in the bank, it would appear Ocean Power has some time to keep working on its power buoys.  That said, we note that activity has been suspended under the company’s contract with Mitsui Engineering & Shipbuilding for the purposes of gathering and evaluating data needed in the next step of the project.  Work is expected to resume yet in 2015, but with a reduction in revenue in the quarter ending April 2015, it is not likely the company can report growth in sales over the prior fiscal year.
Investment in developmental stage companies like Ocean Power is fraught with risk.  What if the technology does not work?  What if management cannot develop a good strategy to commercialize its technology?  On and on it goes with problems and pitfalls.  With that practical view in mind, I note that Ocean Power has been making progress with each passing quarter, with management blocking and tackling each obstacle as it comes along.

OPTT looks over sold according to one of my favorite technical indicators, the Commodity Channel Index.  Granted this micro-cap stocks trades with so little volume technical indicators can be less than robust.  Earlier this year, the company has notified by Nasdaq that continued listing is in jeopardy if the price is not brought up above $1.00.  Unfortunately, the current price of OPTT is still just over two bits.  Nonetheless, at the current price level the stock is more an option on management’s ability to move the ball forward.  For investors with a tolerance for risk, a two-bit option on Ocean Power’s technology and management team could be an interesting play on renewable energy from the ocean.

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

Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein. OPTT is included in the Ocean Group of Crystal Equity Research’s Electric Earth Index.

September 15, 2014

Three Stock Alerts: CREG, EFOI, OPTT

By Harris Roen

Three volatile alternative energy stocks release earnings reports. Two of the stocks jump, one drops.

China Recycling Energy Corp (CREG)
More Info
Latest earnings report for China Recycling Energy Corp shows a huge jump in revenues and net income. Insider selling, however, has led to stock losses. CREG is down 75% from where it was trading just this March. Seeking Alpha
Energy Focus, Inc (EFOI)

Profits jump for Energy Focus Inc, up over 50% from the previous quarter. EPS losses collapse to near zero, and next quarter guidance is positive. EFOI has gained 24% in two days on very large volume. Reuters
Ocean Power Technologies, Inc (OPTT)

Ocean Power Technologies more than triples revenues from the previous quarter and year-over-year. Net income drops, but quarterly EPS losses narrow. OPTT popped up 15% Friday, but is still down for the year and almost 80% below its highs of 2010. CNN Money


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

About the author

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

April 04, 2014

Ocean Power Technologies Riding The Waves

by Debra Fiakas CFA

Shares of Ocean Power Technologies (OPTT:  Nasdaq) have traded off over the past two weeks, after setting a new 52-week high in early March 2013.  Investors had bid the stock up in the weeks before the fiscal third quarter earnings announcement, but those gains almost have been erased.  The new negative trend has put OPTT on our list of small-cap energy stocks sinking into oversold territory. 
Is the sell-off a chance to pick up shares of this ocean power developer at a bargain?  A better question might be what was in that earnings report that spooked investors into shedding the stock.

Ocean Power is trying to develop ocean power technologies.  The company’s PowerBuoy system is an ocean-going rig that is configured to capture and convert wave energy into electricity.  Ocean Power has managed to set up several demonstration projects around the world, supported by government grants and development contracts.    Ocean Power also has a contract with Mitsui Engineering for a deployment near the coast of Japan.

Still Ocean Power has to come up with matching funds.  In January 2014. the company raised $6.3 million through the sale of common stock.  The company needs the cash to support operations, which used $10.7 million in cash over the twelve months ending January 2014.  There is now $17.4 million in cash on the balance sheet, it appears the company has enough financial muscle to last about a year and a half.

Perhaps investors were looking for some evidence that Ocean Power would be able to reduce its cash burn.  However, the quarter results revealed management is still grappling with the nitty gritty of getting its projects off the ground and into the ocean.  Permitting and financing matters have delayed its projects in Oregon and Spain.  Consequently, reported revenue in the third fiscal quarter was significantly lower than expectations.  There is no hope for reduced cash burn when management reveals one delay after another.

Thus, after hitting a new high price, it should not be a surprise that OPTT shares weakened.  It might be a bit premature to begin buying at the current price near $3.50.  A review of historic trading patterns suggests there is a line of price support at near the $3.40 price level.  Should the stock test and fall through this level, it is quite possible the stock could fall considerably further, perhaps even to the $2.50 price level.

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

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

September 19, 2012

Incremental Advances in Wave Power Technology Not Enough to Temper OPT Q1 Losses

Marsha Johnston

OPTT logo.gif “We’re still at the point where the car industry was of not knowing whether the engine should be at the front or the back,” quips Christopher Barry, chair of the Ocean Energy Technical and Research panel at the Society of Naval Architects and Marine Engineers. “At least a dozen companies are looking into [wave power]…with at least half a dozen main ideas for getting the energy out that are distinctly different and many variants on those themes.  There are lots of opportunities and we don’t know which will be the winner.” 

In contrast, he notes, turbine technology being used for tidal power installations is well developed, with just some tweaking being done around the edges, such as creating floating versions.  “Wave is quite a distance back from that,” he says.  Indeed, tidal installations are beginning to deliver power to grids, such as Ocean Renewable Power Company’s (ORPC) Eastport, Maine deployment on September 13.

The lack of technological maturity hampers even the leaders in wave power, like Ocean Power Technologies, Inc. (Nasdaq: OPTT).  Despite some notable project advances and a 38% decrease in product development costs in its fiscal 2013 first quarter ended July 31, 2012, OPT reported Friday a net loss of $4.4 million. The loss was smaller than last year’s first-quarter loss of $5 million.

But even in the face of continued losses, both Barry and Dr. Paul Jacobson, water power program manager at the Electric Power Research Institute, agree that OPT is the leader in wave power. “In terms of wave power in the US, [OPT] are out in front of everyone else,” says Jacobson.

Specifically, says Barry, OPT is the leader in  “donut on a stick” technology that uses a “latching” technique to maximize the technology’s ability to generate electricity.  “Latching is being widely studied, but [OPT] are probably the only folks commercializing latching technology,” Barry said, adding “whether the donut on the stick technology is the right thing to do is not yet certain.”

OPT’s chosen technology is not the most efficient, he says, extracting only slightly more than 50% of the wave’s total energy because it captures only the up-and-down motion, but he acknowledges that robustness in the ocean environment could ultimately trump higher efficiencies.

In the meantime, the U.S. Federal Energy Regulatory Commission awarded OPT the first license to build a grid-connected wave power station in the U.S. The 1.5-megawatt power station off Reedsport, Oregon will be based on OPT’s 150-kw PowerBuoy (PB150), which is in final assembly and inland testing. OPT expects the PB150 will be ready for deployment in early October, with actual deployment dependent on weather conditions.  Following the Reedsport wave park, OPT says it intends to build up to 100 MW in Oregon. “It’s just a matter of scaling up. They will be gathering information as this first phase is deployed in order to support expansion,” says Jacobson.

OPT said its decline in product development costs was due primarily to the deployment of the PB150 off the coast of Scotland in 2011, and lower costs related to the Reedsport PB150 as it nears completion and deployment.  The firm also says it is undertaking “other initiatives” to reduce the costs associated with wave power – in particular, the Reedsport buoy’s new direct-drive power take-off system that will have lower maintenance costs that the previous hydraulic PTO.

The quarter also brought an agreement with Lockheed Martin to develop a 19-megawatt wave energy project off Portland, Victoria, Australia and a Cooperative Research and Development Agreement with the U.S. Department of Homeland Security to demonstrate the use of its Autonomous PowerBuoy for ocean surveillance. In Australia, the two firms are focusing on permitting activity and getting the financing necessary to secure a previously announced A$66.5 million (US$69.5 million) grant from the Commonwealth.

Barry said it is still not clear which business model OPT intends to adopt.  “Will OPT be a technology developer, build devices and lease them, or sell them to PG&E?  We don’t know,” he said.

Marsha W. Johnston is a freelance writer based in the DC area, specializing in all areas of sustainable development, from renewable energy to agriculture and wildlife conservation.
This article was originally published on RenewableEnergyWorld.com and was republished with permission.

July 02, 2012

Is Ocean Energy More Than "A Very Expensive Hobby"?

Jennifer Runyon
Powerful Ocean Wave photo via Bigstock
That was the question posed to industry experts at the EnergyOcean International conference and exhibition that took place in Danvers, Mass., this week. Referring to three levels of development — Epoch 1, 2, and 3 — Andrew Tyler, CEO of Marine Current Turbines (MCT), a company now owned by Siemens (SI), gave a few key pointers to companies interested getting beyond the “very expensive hobby” stage of ocean energy development.

While his tongue-in-cheek reference to marine and tidal energy development was sarcastic, the sentiment was real.  It’s a pricey endeavor.  The proof-of-concept stage will run about $1 million, he said.  The small-scale stage will run $2 miliion to $5 million and to get to the full-scale prototype stage, a company will need to have $15 million to $30 million at its disposal. Tyler said that for financing companies should look to venture capitalists or government because “banks won’t touch them” since the risk is just too high.

How Can Start-ups Get Funding? 

As with all renewable technologies, especially nascent ones like ocean energy, reducing costs is key to advancing the industry. Tyler said in order to attract any financing, technology risks must be as minimal as possible. Even venture capitalists “won’t touch a science experiment," he said.  He encouraged start-ups to focus on sites that will be easy to develop, instead of those that might be the “juiciest” in terms of energy potential. The ocean energy industry could learn from the offshore wind industry, which started going after resources that were easier to tap rather than deepwater sites that are more complicated to develop.

In order to get financing, start-ups must have an unrelenting focus on reducing the levelized cost of energy (LCOE) to the point where it is “at least in line with other renewable energy sources,” Tyler said. He also encouraged those interested in becoming part of the industry to focus on areas down the value chain where they could reduce costs.  He told me that he often gets calls from inventors who have a patent but no money and who would like Siemens to invest in them. Once in a while, he said he would take a meeting with them to see if the idea truly is a viable one.  And these days, he’s more apt to take those meetings if the inventor has an idea for how to make improvements lower down on the value chain. “There is plenty of room for innovation in the supply chain,” he said.

Partnering with the Big Boys and Reducing Risk

In addition, money for the right technologies can also come from bigger energy companies. Recently Siemens took a majority stake in MCT, showing to the world that it has confidence in the industry. About six months ago global power and automation group ABB (ABB) took a $20 million stake in Greenvolts to help advance its concentrating photovoltaics technology and about a year ago General Electric (GE) purchased small thin-film maker Primestar.  Tyler believes that this trend will continue as larger companies look for innovative technologies to build out their portfolios.

Even the most willing investor needs to feel confident that the potential gains outweigh the risks of losing money.  The ocean energy industry should also, therefore, focus on lowering the risks associated with investing in its technology. 

Amanda Forsythe, a tax attorney with law firm Chadborne and Parke, gave some examples of how the ocean energy industry could help reduce risk. In the U.S., she said, the government hasn’t been able to set a clear course for renewable energy development.  Forsythe explained that right now the biggest risk that companies face is the “change of law” risk, i.e., the expiration and non-extension of important tax incentives for developers.  She encouraged the industry to lobby for key enabling policies like RPS set-asides or “carve-outs” for certain technologies.  For example, if coastal states were to require that a utility meet a small percentage of its RPS with ocean hydrokinetic energy, it would go a long way towards helping the industry get off its feet. She also mentioned feed-in tariffs as a great enabler but pointed out that with the onset of the financial crisis in the EU, FiTs are losing their popularity even in Europe, the region that championed them to begin with.  Finally she said that government loan guarantees also help to reduce risk for investors and encouraged the industry to continue to fight for them in the U.S.

Fabrege Egg photo via Bigstock

MCT’s Tyler said that by 2020, his company would be building and placing in service 100-MW ocean energy facilities and that electricity costs will be in line with offshore wind. He expects to get there by going into large-scale manufacturing and mentioned plans to build a stand-alone facility in the future.

A large-scale manufacturing facility producing 100-MW ocean energy turbines is certainly more than a hobby.  For MCT, which started in 1999 and put its first commercial scale tidal turbine, the 1.2 MW SeaGen, in the water in 2008, the road was long and full of struggles but the payoff — producing cost-effective, clean renewable energy for generations to come — is worth way more than a huge collection of Faberge eggs.

Jennifer Runyon is managing editor of RenewableEnergyWorld.com and Renewable Energy World North America magazine. She also serves as conference chair of Solar Power-Gen Conference and Exhibition and Renewable Energy World North America Conference and Expo. 

December 25, 2010

Ocean Power Technologies Deploying Wave Power Device

by Donna Salmons

When we think of the ocean, it is often in the context of romantic travel and sand filled beaches. But the ocean, or more exactly the waves from the ocean, may soon be a source of power that a wave power device uses to create energy. At least that is the plan from Ocean Power Technologies [NASD:OPTT].

The Oregon Coast Project

OPTT is planning to deploy its PowerBuoy project in 2011. The 150KW device, known as the PB150, is slated to be launched off the coast of Reedsport, Oregon. In fact, the plan is to develop a total of 10 devices, for a total output of 1.5MW. If everything goes as planned, it will put OPTT as the first company to put a utility scale wave farm in US waters.

OPTT is also developing its PB150 device for use in Europe, where trials in Northern Scotland waters should start in the next few weeks. According to OPTT Chief Executive Officer Charles F. Dunleavy,
We are excited about the continued operation of our grid-connected buoy in Hawaii, and look forward to the completion of our first PB150 in Scotland, which we expect to be ready for ocean trials by the end of this month, and further progress with our autonomous PowerBuoy projects with the US Navy.
Construction on the power take off and control is currently on-going, and testing of that portion will initially be done on land the first half of 2011 before moving to the ocean trials.

Wave Power Device


The PowerBuoy system works by having a buoy tethered to the ocean floor. As the waves come in, the part of the buoy that floats works as a piston against the tethered portion, generating energy.

So far, a smaller version, the 40KW PB40, has seen a successful trial in Hawaii, where the technology will be used for an autonomous self-powered radar system for the US Navy.


While it would seem that wave power is a clean alternative to other forms of energy production, there are nonetheless certain challenges that the technology faces in becoming widely adopted. One of the most immediate problems is in the displacement of commercial and recreational fishermen from potential fishing grounds. This can impact the economy directly and hurt tourism.

Wave farms can also change the pattern of beach sand nourishment, further impact the marine environment, and even present itself as a hazard to established areas of safe navigation. Eventually they will no doubt incorporate wave farm information to help safely avoid such areas.

Development Grant

OPTT has secured $6.2 million in grant awards for the development of a big brother to the PB150, the PB500. That device, capable of generating 500KW of power, is in addition to the current trials scheduled for 2011 in Scotland and the U.S.

The current project involving the PB150 was made possible through signed agreements with 11 federal and state agencies.

Development Grant

The latest financials from OPTT show a 71% increase in the six months leading up to October 2010 when compared with the previous year. According to the company, the change was due to its US Navy contracts in place.

Overall the net loses were at 11.8 million, due to the development and impending deployment of the PB150 device.

Wave Power is a developing science, but one that has enormous future potential. It has been estimated that there is over 2TW of energy that can be collected from the Earth's oceans. And with OPTT producing the first wave farm for the US, it might make sense to weigh this stock as having some potential, as long as the issues are dealt with in a long term manner. One thing seems certain - 2011 is the year that wave power for the US can become an emerging reality.

About the Author: This is a guest post from Donna Salmons at TestFreaks.com, a gadget review site.  TestFreaks is the world's largest review comparison site with over 10 million reviews and 30 sites world wide. We help 6 million consumers every month find better product information at our TestFreaks sites.

Disclosure: None.

January 09, 2010

If I Could Own Only One Alternative Energy Stock, It Would Be . . .

Bill Paul

My friend Consuelo Mack, host of "Consuelo Mack's Wealthtrack" on PBS TV, asks her guests for their "one investment pick." What's my one alternative energy stock pick?

A year ago on Consuelo's show, I recommended LED lighting developer Cree Inc. (Symbol CREE), because the LED lighting market (part of the burgeoning energy efficiency sector) is expected to hit upwards of $5 billion by 2013 v. $600 million in 2008, according to investment banking firm Merriman, Curhan, Ford, and because Cree was then an attractive takeover candidate. It still is; however, since the stock has since risen something like 300% and its price-to-earnings ratio is now north of 100, it no longer warrants being my "one" investment pick, though it's still well worth having in a broad portfolio of alternative energy stocks that I think every investor should have.

If I were inclined to pick a stock I think could duplicate Cree's performance in 2010, it would be Ocean Power Technologies Inc. (Symbol OPTT). In my mind, wave and tidal power is the most overlooked, underrated green energy sector in the world. Pike Research said last summer that by 2015 wave and tidal power could be generating 2.7 gigawatts of electricity worldwide vs. just 264 megawatts in 2009.

Ocean Power is virtually the only publicly-traded firm in this sub-sector. (Look for a number of European firms to go public over the next couple of years.) The company is on the cusp of commercial operation and has a partnership with Lockheed Martin (Symbol LMT) that would seem to guarantee deep-enough pockets to survive any growing pains. And, like Cree, I see Ocean Power as a takeover candidate.

But while Ocean Power is also well worth having in a broad-based portfolio, since it still faces possible regulatory and other issues, it's just not enough of a sure thing to be my "one" pick. The same situation is true for wind and solar stocks, though for different reasons. Wind has an enormous future and several wind firms belong in your green portfolio. But the giant turbine manufacturers and wind-farm developers are becoming commodity firms; there's no obvious top pick right now. Solar too has an enormous future, but the technology is developing too quickly for any solar firm to be a sure thing right now, not even much vaunted First Solar (Symbol FSLR), though it too belongs in your green portfolio.

For my one investment pick, I choose a company without which solar and wind's potential can't be realized. It's also a company without which the energy-saving, blackout-avoiding potential of the "smart" grid can't be realized. The same company is spearheading monumental construction projects that will bring into Europe huge amounts of solar power from North Africa and wind power from the North Sea. The same company is developing rapid recharge infrastructure for electric vehicles and is quickly becoming a leader in demand response and energy management services. This company also is a - if not the - global leader in building and rebuilding thousands of miles of electric transmission lines around the world, a business that will require annual expenditures of $33 billion by 2014 vs. $12 billion in 2008, according to NextGen Research.

In January 2010, my one alternative energy investment pick is Siemens AG (Symbol SI).

DISCLOSURE: No position.

DISCLAIMER: This is a news article.  Please read terms and policy.

Bill Paul is Managing Editor of EnergyTechStocks.com.

October 17, 2009

Hydrogen Fuel Is Not Dead

John Lounsbury

With the furor over the potential for hybrid, plug-in hybrid and all-electric cars recently, one might think the hydrogen car was dead. Nothing could be further from the truth. Feasibility at an affordable price appears to be established and market availability of hydrogen powered cars may come sooner than you think.

Many issues remain to be addressed and this article will try to cover them. The problems to be overcome are not insurmountable, but are also not trivial. These problems include the economics of hydrogen production, transportation, distribution and storage systems, as well as safety issues for cars involved in collisions.

Alan Ohnsman, writing for Bloomberg, reports that GM (MTLQQ), Toyota (TM), Daimler AG (DAI) and other car makers want to start supplying car fueled by hydrogen as soon as six years from now. Quoting from the article:

"The advances that have been made by the automobile manufacturers are remarkable,” said Scott Samuelsen, director of the National Fuel Cell Research Center at the University of California, Irvine. “Infrastructure is the Achilles’ heel.”

The fuel cell center opened in 1998 and is funded mainly by the U.S. government and California Energy Commission. It has also received grants from Toyota and Royal Dutch Shell Plc’s hydrogen unit, said Kathy Haq, a spokeswoman for the center.”

Here is a picture of a Royal Dutch Shell (RDS-B) hydrogen fueling station in New York City, discussed in a Seeking Alpha Instablog in August


According to the Ohnsman article, the economic factors are starting to line up for hydrogen. He quotes a Toyota objective of a $3,600 price premium for a hydrogen fuel cell powered car. This compares to the current price premium for the Synergy Hybrid Drive system from Toyota, currently averaging around $4,000 for the Camry. This is quite a change from the $1,000,000 price tag estimated to build one of these vehicles just a few years ago.

Advantages of Hydrogen Fuel Cells over Batteries

To understand the significance of this topic, one must first recognize how the hydrogen fuel cell powers a vehicle. Hydrogen fuel cell powered vehicles are electric vehicles. Hydrogen is not burned like a hydrocarbon fuel. Hydrocarbons are storage media for thermal energy which is released for power in an internal combustion engine. The hydrogen fuel cell is a storage medium for electrical energy, which is released when hydrogen and oxygen are combined electrochemically to release electricity. The hydrogen fuel cell is conceptually a battery, providing electricity to power an electric car. Unlike other battery powered cars, the fuel cell uses an onboard source of energy (hydrogen “fuel”) to generate electricity and does not have to stop to be recharged. The advantage of hydrogen powered cars is basically a long driving range, requiring only a fuel refill like internal combustion cars do today.

The hydrogen powered car has advantages for long trips. For daily commutes under 100 miles round trip, the operational convenience of battery and fuel cell energy storage is similar. In fact, it could be argued that the convenience of plugging in within your own garage to recharge batteries is more convenient than finding a refueling station every few hundred miles. The ultimate decision for most commuters will be which power source is cheaper.

Fuel Cost

The most convenient metric to compare fuel costs across the ICE (internal combustion engine) – electric drive interface is the fuel cost per mile. Miles per gallon (mpg) becomes an awkward measurement. Consumers will be required to start thinking in cost per mile terms, because that will become the comparative price on the new car sticker. According to http://www.costpermile.org/, the electricity “fuel” cost per mile (CPM) for electric cars will be between $0.01 and $0.05. Currently electric utility charges per kWh (kilowatt hour) run between $0.10 an $0.15 in most of the U.S., so most of this large range in costs must be associated with the difference in engineering technology and size of the vehicle.

Since I like a larger car, my example will compare to a mid-size Toyota Camry Hybrid. The assumed cpm for an equivalent electric car will be $0.05. (Disclosure: I own a Camry hybrid.) At $2.50 per gallon (near the national average price as this is written), the Camry has a cpm of $0.07 at $3.50 per gallon, the cpm is $0.10. I have used 35 mpg for the Camry hybrid. This is 3% higher than the sticker and 10% lower than my actual experience.

For the standard Camry the cpm would be $0.08 and $0.11 (highway and city, respectively) at $2.50 per gallon and $0.11 and $0.16 at $3.50 per gallon. The sticker mileage numbers have been used for the ICE Camry. These fuel costs are summarized in the following table.

Estimated Cost per Mile (CPM)


Gas at $2.50 per gallon

Gas at $3.50 per gallon






Camry ICE





Camry Hybrid





"Camry"* Electric





*An electric car equivalent to the Toyota Camry.

Electricity cost assumption for Camry equivalent is $0.05 cpm

If the range available with an all electric car is sufficient, then customer acceptance will require that purchase costs (and maintenance costs, which will be ignored here) to be such that the purchase price difference is more than recovered in, say, 100,000 miles. The cost savings for city driving at $2.50 per gallon for gasoline is $6,000 per 100,000 miles of driving, compared to an ICE car. At $3.50 per gallon the cost savings would be $11,000. If two cars are available for our commuter and the electric car purchase cost difference is less than $5,000 more, there will be a big market. If the purchase price is $12,000 more, the market will be limited until the cost of gasoline exceeds $3.50-$4.00 per gallon.

In an August 6 press release, Toyota reported the results of a one-time driving test comparing a Toyota Hybrid Highlander with a new 4th generation fuel cell equipped Highlander Hybrid. In that test, the cpm for the production hybrid was more than double the cost for the fuel cell equipped model. I am taking this test result with a grain of salt because it was a one time test.

The remaining comparison to be made is hydrogen fuel cells to plug-in electric vehicles. Hydrogen requires power for production by electrolysis of water. If the same power is used that is available at the residential power plug, all the added costs of handling, storing, transporting and distributing hydrogen are added to the costs that one has at his own power plug. Hydrogen is very uncompetitive on a cost basis with other sources of power in this scenario. If the cost of gasoline goes much higher than the $3.50 we have in our examples, then hydrogen might compete there. But hydrogen can never compete with electricity for local driving (right now under 100 miles per day) if the same electricity source is used for both battery recharging and fuel cell operation.

Never forget that a hydrogen fuel cell is nothing more than another form of battery, wherein a chemical reaction produces electrical current. A hydrogen fuel cell car is an electric car.

Can Hydrogen be Produced with Cheap Power?

Do sources of electrical power exist that are cheaper than what we produce (or can produce in the future) for domestic consumption? The short answer is: Yes. (Well, maybe.)

One possible source of cheap electrical energy is from ocean currents that have a large temperature differential between the surface currents and those at depths of 1000 feet or so. This process is called OTEC, Ocean Thermal Energy Conversion.


The above graphic, from The World Energy Council 2007 Survey of World Energy Resources, shows that most of the areas with the largest thermal differentials occur in areas that are too far from populated shorelines to make feasible electricity generation for transmission into a power grid. Temperature differentials of 20o C or more are necessary for efficient power generation.

The cost estimates for power from OTEC are somewhat problematic. The World Energy Council estimates that a single 10MW demonstration plant would produce electricity at a cost somewhere between $0.14 and $0.21 per kWh, depending on factors such as recovery of potable water and marketable chemicals such as ammonia and various salts. The existence of carbon tax credits could lower the costs further by as much as $0.03.

It is only with the building of multiple plants of the same design that costs may come down below $0.12, the reference cost for existing electricity generation. For example, eight 10 MW plants could produce electricity at a cost between $0.098 and $0.119.

There is potential here, but the costs have to come down more to bring electricity from OTEC to a price to make hydrogen production economically attractive. Remember, we need to transport this hydrogen from the point of generation by ocean going tanker and distribute it by truck or rail tanker (or pipeline) to retail points.

Another potential source of electricity for hydrogen production is wave and tidal motion. To supply electricity for a power grid, the waves and tides must be close to populated shore lines. Wave motion can be used anywhere for hydrogen production, not just where is occurs close to populated shore lines. The same is true for tidal action in remote regions of the planet. The picture below, from New Scientist, shows a SeaGen tidal electricity generator, made by Sea Generation Ltd, in the tidal currents at Strangford Lough in Northern Ireland. Sea Generation is a division of privately held Marine Current Turbine Ltd.


Generation costs for electricity from capital costs alone will be about $0.07 per kWh for a 25 year depreciation. There will be additional unspecified maintenance and operation costs.

Wave action can also be used to generate electricity. The picture below (from New Scientist) shows a wave operated electrical power generator in a generation farm off the north coast of Portugal.


These generators are made by privately held Pelamis Wave Power Ltd. Each generator is a 150-meter-long steel jointed structure, which flexes to drive hydraulic generators and produce 750 kilowatts of power. The company claims electricity generation a competitive costs, but provides no specifics.

The reasons I selected these examples as potential hydrogen generation power sources are:

1. Potential for a lower electricity price point;

2. Electricity generated with plentiful raw material (water) present to produce hydrogen; and

3. With OTEC, the potential for additional revenue from side products.

Battery Costs vs. Fuel Cell Costs

The implications from currently available information are that the costs and durability will be similar. The current objective for Toyota is to have a price premium for hybrids less than the current price premium for a hybrid. The latest generation fuel cell engine is about the same size as a typical 4-cylinder ICE engine and contains about 30 grams of platinum. This is down from the previous generation fuel cell stack which was more than twice the size and contained 80 grams of platinum. The costs just for the platinum alone have been reduced from more than $4,000 in the previous generation to less than $1,500 in the current one. The final fuel cell structure is expected to use only 10 grams of platinum, the same amount as a typical catalytic converter today.

The dramatic change from the previous generation hydrogen fuel cell stack power system to the current generation is seen in the following picture from AutoBlogGreen.com, showing the latest fuel cell drive system on the left next to the drive system used in the past few years in the Chevy Equinox test vehicles that have been driven by volunteers in California, Washington, DC and New York. The power, range and performance of the two systems are the same. The horsepower rating is the equivalent of a current four-cylinder ICE.


Transportation of Fuel and Wholesale Distribution

The technology for distribution by tanker truck and railway car exists today. You can not spend a few hours on any interstate highway near a population center without seeing several pressurized gas tank transports sharing the roadway with you. Pipeline distribution for pressurized hydrogen gas may require different features than currently use for natural gas, but there is no reason to believe that the engineering and construction would present any more challenges or costs. Currently, there is no data reflecting transportation and wholesale distribution impediments to scaling up the use of hydrogen to higher volumes.

Retail Distribution

The cost to build a new gasoline station has been estimated to be in the $250,000 to $450,000, with the largest variable being land cost, using estimates obtained from national average costs at RS Means Cost Works. Obviously, where land costs are extremely dear, near the center of major cities, for example, the cost to build a gasoline station could be much higher, up to $1,000,000 or more.

The cost of building the first 32 hydrogen refueling stations in Southern California has been quoted as $32 million. As high as this cost projection is, it is less than the current cost for a hydrogen refueling pump in Los Angeles, according to Phil Baxley, President of Shell Hydrogen, quoted in the Ohnsman article. He said currently the cost is from $1 million to $5 million per pump, depending on capacity. Even the lower quoted cost, averaging $1 million each for 32 stations, seems to be more costly than all but the most expensive gasoline stations. However, there are three factors related to hydrogen refueling stations that mean this apparent current cost difference may decrease or even be reversed. These are:

1. externality cost exposures for gas stations;

2. lower costs for hydrogen stations in the future through economies of scale; and

3. lower costs to add hydrogen to existing gas stations than to build new.

There are major externality exposures for petroleum based fueling stations. The biggest exposure pertains to future liabilities for soil and ground water contamination by petroleum products and fuel additives. When these externalities are realized, they can be more than the original construction cost (even adjusted for inflation) and occasionally are many millions of dollars. Hydrogen refueling stations do not have these environmental cost exposures.

When the initial costs and the externalities are considered, the refueling stations for hydrogen have an original construction cost of the same order as petroleum fuel stations. Hydrogen refueling stations may decrease in construction costs from the estimates for the first 32 stations in Southern California when many hundreds are constructed per year. If hydrogen were to become ubiquitous, there might be a few thousand new stations per year for a couple of years. A more likely progression would be the modification of existing gas stations to also offer hydrogen refueling facilities at a fraction of the cost of building new stations.

Other countries have more advanced plans for infrastructure development.Both Japan and Germany are working to build large scale distribution networks, with over 1,000 stations on line for each county in five years.


To start with, we must recognize that hydrogen would not be replacing something that did not have an extremely high fire and explosion hazard. We have managed to live with the risks of gasoline for more than a century, with the material being stored in thin walled tanks that can easily rupture.

Hydrogen, a pressurized gas, would be stored in thick walled, virtually indestructible tanks. Pressurized gases are handled in such containers in a variety of industrial environments today and have been for most of the past 100 years. There are few examples of these tanks being breached. The risks have been associated with the pressure reduction valves (regulating the controlled release of the gas) being broken by impact damage. The major risk associated with using hydrogen will be the exposure to the fuel lines being damaged and allowing the tanks to lose pressure rapidly, turning them into jet propelled missiles.

The pressurized gas tank as a missile is the major safety hazard. It is not insignificant, but should not be an insurmountable problem.


There are still a lot of questions to be answered. But one thing is clear: hydrogen powered cars are not dead. In congested metropolitan areas where electrical costs are high, hydrogen may become widely utilized. The further advantage of much longer travel ranges may also give hydrogen an additional edge over plug in alternatives.

It is too early to make investment decisions trying to select eventual winners. It is not wise to assume there will not be a viable hydrogen car and hydrogen distribution systems during the next decade.

John Lounsbury, CFP, PhD is a financial planner in Clayton, NC. He has extensive experience in computer technology research and development both as an engineer/scientist and in corporate management with academic degrees in physical science. He is a regular contributor to Real Money at TheStreet.com and to Seeking Alpha. Dr. Lounsbury also has his own professional blog, PiedmontHudson. His articles are widely circulated on the internet.

July 09, 2009

$3 Billion For Cleantech & Alt Energy

Charles Morand

The DOE made public earlier today the amount of money that will awarded to clean power projects in lieu of the usual tax breaks: $3 billion.

This will allow project proponents to receive a direct cash grant now instead of a Production Tax Credit or an Investment Tax Credit later on. The guidance document notes the following:

"Section 1603 of the Act’s tax title, the American Recovery and Reinvestment Tax Act, appropriates funds for payments to persons who place in service specified energy property during 2009 or 2010 or after 2010 if construction began on the property during 2009 or 2010 and the property is placed in service by a certain date known as the credit termination date (described more fully below in the Property and Payment Eligibility section). Treasury will make Section 1603 payments to qualified applicants in an amount generally equal to 10% or 30% of the basis of the property, depending on the type of property."
This is the cherry on a sundae of cash handouts announced over the past few months for the alt energy and cleantech industries. Solar and wind installations - which account for the lion's share of alt energy investments - have yet to come back to life in any significant way. It is hoped by both government and industry people that this new measure will provide sufficient impetus in the near term to carry the sector through the remainder of the recession.

To be continued... 

January 01, 2008

Ten Alternative Energy Speculations for 2008: Geothermal, Wind and Wave, and Thin Film Hype

This article is a continuation of my Ten Alternative Energy Speculations for 2008, with picks #8, 9, and10 published last Thursday.  If you haven't already, please read the introduction to that article before buying any of the stock picks that follow.  These companies are likely to be highly volatile, and large positions are not appropriate for many investors.   My least risky picks are part of that same article linked to above; the moderately risky picks are here.  This article contains the most speculative three picks.

#3 Nevada Geothermal Power (OTCBB:NGLPF or Toronto:NGP.V) US$1.29 or CAD$1.26

Geothermal first started catching investors' attention about six months ago.  I went into detail as to the reasons for its appeal, and the factors bringing it to investors' attention in this profile of Geothermal power in October.  

Since then, we have been given an added reason to appreciate Geothermal in the United States.  While the recent energy bill did not contain a national RPS, nor tax credits for renewables, it did give the geothermal community much of what they were asking for since it contained the "Advanced Geothermal Energy Research and Development Act of 2007." 

There are three ways to invest in geothermal power: through the technology, through existing plant operators, and through resource explorers and developers.  The provisions relating to Enhanced Geothermal Power and Co-production in oil fields should help technology and service providers such as Ormat (NYSE:ORA) and United Technologies (NYSE: UTX) over the long term, since they will help open up new opportunities for Geothermal.  Over the short term, which is what this article is about, I expect the "Industry-coupled drilling" provision will be most important, and help explorers and developers of conventional geothermal resources.

According to the Geothermal Energy Association, the Industry-coupled drilling provision "pairs the federal government with geothermal developers to reduce drilling risks and improve drilling precision."  Geothermal exploration and development is a very risky process, so government risk-sharing should greatly increase the value of Geothermal prospects by lowering the effective discount rate at which they are valued.  Coming as it does early in the development process, a reduction in risk could easily be worth more to a company which owns the rights to develop an undeveloped geothermal resource than the later boost to income that would come from a Production Tax Credit, even though the industry-coupled drilling provision is likely to cost the government far less than a Geothermal Production Tax Credit.

US-based geothermal developers are most likely to benefit from this provision.  These include US Geothermal (OTCBB: UGTH, GTH.TO), Sierra Geothermal (OTC: SRAGF, SRA.V),  Raser Technologies, (NYSEArca:RZ), and Nevada Geothermal (OTC BB: NGLPF.OB, NGP.V)).  US Geothermal and Raser Tech are up over 3x from their 52 week lows, while Sierra and Nevada Geothermal are each up about 2x, although the Nevada Geothermal share price was stagnant for the previous two years, while Sierra Geothermal has been following a steady uptrend.

Comparing these last two with the least recent appreciation, Sierra Geothermal has many more early stage projects, while Nevada Geothermal has just four high quality projects nearer to production.  In fact, Nevada Geothermal owns Sierra Geothermal's most advanced project (Pumpernickel), and Sierra's exploration and development efforts will earn them at most a 50% share of the project.   This is only Nevada Geothermal's second most advanced project, after their wholly owned Blue Mountain project which is on track to begin producing electricity in 2009, and for which they have already completed a Power Purchase Agreement and an interconnection agreement with local utilities. Nevada Geothermal is currently funding development of its projects with loans from the likes of Geothermal specialist Glitner Bank and Morgan Stanley, while Sierra Geothermal is financing its exploration needs with dilutive private placements.

Because of the relatively small recent run-up for Nevada Geothermal, its strong financial position, and ownership of a late-stage project (as well as sufficient promising projects to keep them busy with development for many years to come), I see the most potential for robust returns in Nevada Geothermal among geothermal developers.   

#2 Finavera Renewables (TSX:FVR or FNVRF.PK) CAD$0.335 or US$0.3371

I chose to include Finavera in my Top Ten Speculations for 2008 for my own reasons, but AltEnergyStocks.com Editor Charles Morand has been following the company longer and more closely than I have myself, so I asked him to profile it.  You can read what he has to say about Finavera Renewables here or simply scroll down to the next post.

#1 First Solar (Nasdaq:FSLR) $267

When I disclosed that I was short First Solar in the first installment of this series, I received an incredulous comment soon after the article was syndicated on Seeking Alpha: "OUCH!! You have a short position in FSLR? I hope it doesn't come back and bite you!"  I'm sure the commenter is not alone in his conviction that First Solar's rise will continue.  The fact that First Solar has risen so far so fast only because people like the commenter have been purchasing the shares like hotcakes all year.

Shorting is inherently more dangerous than being long, because in a long position you can not lose more than you initial investment.  Shorting a momentum stock, even when it is overvalued, can be especially risky, because momentum tends to be a self-fulfilling prophecy, with more investors becoming interested and driving the price up as they try to buy the stock.  For all those reasons, shorting First Solar deserves to be the #1 riskiest of my 10 speculations for 2008. 

Why did I decide to short at all?  What makes me think that 2008 will be the year that First Solar's bubble pops?

First Solar's valuation seems out of line because of an inherent limitation on their profitability.  Their solar panels are based on Cadmium-Telluride (CdTe) thin film technology, and Tellurium (Te) is one of the scarcest elements in the Earth's crust.  In 2006, First Solar's 60MW of production consumed 4% of the world's annual supply of the metal.  In 2008, analysts expect revenues of approximately 4x the 2006 number, meaning they will need approximately 16% of new annual Tellurium supplies.  PrimeStar Solar, a private company is using a recent infusion of capital from General Electric (NYSE:GE) to quickly begin production of their own CdTe modules.  They do not disclose the timing of production "for competitive reasons," but their hiring and equipment orders speak of an aggressive schedule; I expect they will begin production in 2008.  

With this much demand on short-term Tellurium supplies, we can expect continued price increases.  First Solar cannot set the price of their product in the market, because they will be in direct competition with conventional solar modules as will as thin film modules based on CIGS and amorphous silicon technologies.  With the failure of the US Congress to extend tax incentives for solar or to pass a renewable electricity standard, demand for solar panels may not continue to grow as robustly as it it has in recent years.  If anything, this should cause prices per watt to fall somewhat in 2008.

Ethanol producers were caught in a commodity squeeze this year by using 25% of the United States corn supply.  In contrast to First Solar, ethanol production has only been growing 20-25% a year, much slower than the demand for Tellurium from CdTe cells, and corn production was artificially sustained at an uneconomically high level before the advent of corn ethanol by farm subsidies.  Hence, I would expect a commodity squeeze for CdTe producers at a lower percentage of supply.  My 16% projection for 2008 does not seem out of line to trigger a commodity squeeze, which could cause First Solar to miss (or at least cease to beat) earnings estimates in the coming year.  Missing or just failing to exceed earnings estimates almost always leads to quick price drops for high multiple companies.  According to Yahoo!, First Solar's trailing P/E is about 195.

If First Solar produces 240MW of panels in 2008, and Te prices remain at $100/lb, as they were in 2006, Tellurium cost alone would be $87 million [NOTE 3/8/08: I received a comment that I had lost a decimal in this calculation, with actual Te cost being only $8.7 million... don't take this as gospel, make sure to double-check if this makes a difference in your investment decision.], compared to First Call average estimated Revenues of $800M, and $146M estimated earnings.  I don't know what Tellurium prices were used in those estimated earnings, although I expect it was over $100/lb.  Whatever those estimates were, a $200/lb underestimate would completely wipe out earnings for 2008, and, as the oil price has shown us, even moderate increases in demand for a commodity with inelastic supply can create massive price rises.  What will new demand for Te rising from 4% of supply to 16% of supply in two years do to the price?

UPDATE 1/2/08: Ken Zweibel, President of PrimeStar Solar and former head of NREL's thin film partnership program, got back to me today on a research question for this article, now that the holidays are over.   He couldn't tell me much for strategic reasons, but did say that he isn't skeptical of First Solar's valuation, and "There is more Te from nontraditional sources than people are aware of."  I believe he is referring to Te from oceanic ridges, which I don't believe can be extracted in significant quantity within the next couple years, although a Tellurium price rise like the one I anticipate would lead to mining of oceanic ridges in the medium to long term.  Nevertheless, Ken is responsible for much of what we know about CdTe technology, so his comments should not be taken lightly, and there may be other nontraditional sources which can ramp up production more quickly. 

The other reason to believe that First Solar's meteoric rise might halt in 2008 has to do with investor sentiment.  An unscientific survey of sentiment among Seeking Alpha bloggers (myself excluded) has turned negative (as far as I can tell, only Andrew Ling is still writing positively about the stock), and the Tellurium problem is getting wide attention.  How long will it take the mainstream press to latch on to the Tellurium story?  It's impossible to say, and another run like last quarter could easily squeeze out the shorts.  

Taking this all into account, my short position is only about 0.1% of my portfolio, more of an intellectual experiment than a real bet.  As Keynes said, "The market can remain irrational longer than you can remain solvent."   I wouldn't advise anyone to take a short position in FSLR so large that they could not sleep through another doubling of the stock price. 

If any play is for gamblers, this is it.  But cards are stacking up against First Solar.

Links: Picks #10,9,8; Picks #7,6,5,4. Pick #2 Finavera Renewables

DISCLOSURE: Tom Konrad and/or his clients have long positions in UGTH, SRA, RZ,  NGP,  ORA, UTX, FNV, GE, and a short position in FSLR.

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.

#2 Finavera Renewables (TSX:FVR or FNVRF.PK)

When I first got wind (no pun intended) of Finavera Renewables (TSX:FVR or FNVRF.PK), I did not make too much of it because my view was that commercial exploitation of wave power - which is the banner under which Finavera has decided to promote itself to the investor community - was a few years away at best. Then, upon hearing that the company had managed to get a prototype in the water (PDF document), I decided to do a bit more digging.

After all, if the technology worked, the economics of the business model would closely resemble those of my uncontested favorite at the moment: wind power. Wave power also had the advantage of being more predictable than wind. With a proven technology, the firm could get itself into power purchase agreements, lever up to take advantage of the relatively lower cost of debt, and go on finding new sites to exploit while its existing operations generated steady cash flows. At some point in the perhaps not-so-distant future, the company could become an acquisition target, and yet more upside could accrue to equity holders. What's not to like for an investor who is in early?

Almost immediately I came across something that truly poked my interest: rights to develop wind assets in Germany, Ireland and the Canadian provinces of Alberta and British Columbia. Granted, there was no big secret here. This information was there all along for anyone who bothered to look. Finavera posted on its website research notes by two Canadian boutique brokerages that cover the stock: Haywood Securities and Dundee Securities (both PDF documents). Both notes confirmed my intuition at the time (this was in late October '07), namely that the bulk of near-term value rested with the wind projects, not wave energy. Although valuations differed, both reports had a much higher target than the C$0.40 the stock was trading at, and my own experience with renewables-focused Canadian independent power producers (IPPs) told me that they were likely right. I pulled the trigger and went long at C$0.40.

Shortly after, things turned ugly. First, Finavera's device sunk to the bottom of the ocean before tests were completed, compounding fears by environmentalists and fishermen that this idea may spell nothing but disaster for marine life. Second, when Q3 results (PDF document) came out, it became clear that things were a lot worse (PDF document) than just a sunken piece of steel and a few worried anglers: the company had a working capital deficit of C$4.1 million, it had to write down C$6 million in goodwill related to the very technology that had just sunk and on which it was banking its future, and it was abandoning its German wind farm plans, which would have generated much-needed cash in the near term. What's more, rough conditions in capital markets caused by the credit crunch prevented Finavera from moving forward with a critical round of financing.

The stock got killed, flirting with the C$0.10 mark. Ouch...but I hung on. Within a week, Finavera announced that it had secured about C$2 million in financing (down from C$23 million it was initially hoping to raise) and had restructured its board. New board members had weaker cleantech credentials but stronger acumen in financial and business matters. Not exactly great news but I decided to hang on until late December, when I was scheduled to get back from a trip to India - this would give me time to think things through, and it's not like I'd bet the house on this one anyways.

It was while sitting at a small internet cafe after visiting a tea plantation in Kerala that I got the good news: Finavera was at the center of the biggest ocean power news story I could recall. Shortly after, more good news came out related to the firm's wave power activities. Maybe there was value in wave after all. And this brings us to...

The reason why we selected Finavera as our #2 speculative pick for 2008. I still feel that viewed through the lens of a conventional valuation approach, wind is where most of the value lays. There is no doubt, however, that the succession of positive wave-related news has created something of a buzz, as evidenced by the stock rebounding to close at C$0.335 ($0.3371 in the US) on Monday on heavy volumes. Tom and I both agree that the PG&E deal could continue to generate significant investor interest in both wave energy and in Finavera in particular, and that the stock could see some strong upside as a result. I increased my position on Monday and my adjusted cost base now stands at $0.37. More good news on the wave front could spell good things for this stock in 2008.

There are, of course, a number of important caveats:

(A) Unless anything has changed, the company must still fill a working capital gap of around $C2 million. With 174 million shares outstanding, which is very large relative to sector comps (i.e. small earning-less IPPs), the risk of dilution looms large. On the positive side, the recent recovery in share price is good news from the point of view of seeking financing.

(B) Without the German wind farms, no company operation will generate revenue or earnings until 2009 at the earliest, which is assuming that Finavera can secure all the funding it needs to set up its Alberta wind farms. But liquidity is not the only thing in short supply at the moment; the market for wind turbines is currently incredibly tight and small wind farm operators are reportedly having a heck of a time getting their hands on turbines and turbine parts. Personally, I would feel reassured if I saw company management focus on executing on wind first, and worrying about wave once cash is coming through.

(C) Finavera wrote down all of the goodwill associated with its 2006 purchase of AquaEnergy (PDF document), which is how it initially got its wave technology. In fact, according to the company's Q3 2007 filings (PDF document), goodwill associated with the IP for the wave technology (called AquaBuOY) accounted for 97% of the value of all assets acquired in that transaction. While this write-down is more of an accounting formality than an indication that the technology is completely useless, as some may have thought, this still means that there were serious flaws and that Finavera's engineers must go back to the drawing board. In other words, this is not wind and the technology is far from ready for commercialization. Power purchase agreement or not, if Finavera wants to be a force to be reckoned with in ocean power it will have to have something to show for on the technology side before too long. Not to mention that if it doesn't soon the market will probably forget all about what just happened with PG&E and move on.

DISCLOSURE: Charles Morand has a long position in TSX:FVR.

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.

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