Like most conglomerates, United Technologies Corporation (UTC), (NYSE:UTX) won't be found in any of the Clean Energy indices, but its growing portfolio of clean energy businesses makes it fit well into a diversified portfolio with a clean energy tilt.  A conservative capital structure and solid earnings and cash flow, and a decades long history of constantly increasing dividends make this a company that I'm comfortable holding for the long term.  

In terms of sustainability, the company has been recognized by Dow Jones as in the top 10% of the world's most sustainable companies.  Long before it became fashionable for companies to greenwash by reducing their environmental impacts, UTC pledged in 1996 to reduce their power and water usage by 25%, and they have met these goals while growing their business.  Their long track record of reducing their energy usage gives them a significant head start against rivals who have only recently jumped on the climate change bandwagon.

Of the company's eight major business units,  UTC Power and Carrier are both crucial to how we generate electricity and how we use it.  Carrier has a history of pushing for more stringent energy efficiency and environmental standards for air conditioning, a strategy which helps their business strategy since UTC's scale and research allow them to remain on the technological forefront.

UTC Power has a large portfolio of products which will help modernize our energy infrastructure.  They supply microturbines and Solid Oxide fuel cells, as well as integrated combined cooling, heating, and power products, which I feel are likely to become much more popular as more companies seek ways to lessen their environmental impact and energy bills at the same time.

With their PureCycle binary cycle turbine, UTC introduced the benefits of volume production to geothermal power by making slight modifications to an existing line of Carrier's industrial chillers which allow them to operate in reverse.  Raser Technologies (RZ) plans to use this technology in their aggressive plans to develop a large number of lower temperature geothermal resources throughout the Southwest.  According to a personal conversation I had with a Raser employee. UTC's ability to deliver the turbines quickly, and willingness to guarantee performance was key to Raser's selection of that technology in preference to rival products.

One other technology likely to be of great interest to clean energy investors is their molten salt storage technology, which provides a rare opportunity for a US-based public investor to participate in what I consider to be one of the most promising solar technologies: Concentrating Solar Thermal Power (CSP).  The thermal storage provided by molten salt gives CSP the potential to provide power on a dispatchable basis, allowing it to compete directly with expensive electricity from natural gas turbines.

Other divisions of UTC, such as the Sikorsky helicopter division, are major military suppliers, so traditional socially conscious investors may wish to avoid UTC.  On the other hand, the short supply of helicopters needed in modern warfare (as well a a large backlog in their Otis elevator division) have propelled strong earnings growth, while even relatively efficient air conditioners could not prevent Carrier from being hurt by the housing slowdown.  Such are the benefits of diversification.

At roughly $74, and a 17.3 P/E, UTX is not currently cheap.  I currently have only some out-of the money short puts on the company, but it's one that I intend to continue writing puts on until the stock falls and I'm assigned shares.

Click here for other articles in this series.

DISCLOSURE: Tom Konrad and/or his clients have long positions in UTX, RZ.

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.

Posted by Tom Konrad at 05:07 PM | Permalink | Comments (4) | TrackBacks (0)

Regular readers know I'm a big fan of wind power, especially in North America. I like the fact that the technology and business model are well understood, that most wind projects have good forward revenue visibility, and that wind is close to being competitive with conventional power generation without subsidies. Wind combines the best of both worlds: stable cash-flows and rapid growth.

Over the past few months, concentrating solar power (CSP), a form of energy that is about as ancient as humanity, has begun appearing in the media and across the blogosphere with increasing frequency. What's the hype all about? CSP has all that wind does plus one important characteristic: it's ability to store energy makes it viable as a source of baseload power. This gives CSP a big edge over wind and solar, for which variability and thus reliability are important concerns. It's no wonder, then, that we like CSP at AltEnergyStocks.com.

A New Study

On Tuesday, Emerging Energy Research (EER) released a study on CSP (this is a link to the press release's PDF - the actual study must be purchased). EER argued that CSP is now the fastest growing utility-scale alternative energy source after wind, and expects US$20 billion to be poured into the sector over the next 5 years.

The 2 hottest markets at the moment, according to the study, are the Southern US and Spain. These 2 markets alone will install about 7,500 MW of CSP between now and 2020, while other southern European nations will install about 3,200 MW over the same time period.

In the US, c consortium of southwestern electric utilities recently put out a Request For Proposals for what would be the largest CSP facility in either Nevada or Arizona. On the federal side, the DOE recently announced a $5.2 million investment in CSP.

Much potential also exists in North Africa and the Middle East. As a matter of fact, it has been argued that the Maghreb region could help meet a significant portion of Europe's electricity needs cleanly and renewably through CSP. This could also be an attractive means for Israel and other middle eastern nations to generate the power needed to de-salinize large amounts of sea water.

The Competitive Landscape

Two main types of players are currently hustling it out in this space, according to EER. First, CSP pure-plays (for lack of a better term...) that are seeking to leverage their technological advantages. Second, established electric utilities with good access to prime sites and plenty of capital. Here we find the usual suspects: Iberdrola (IBDRY.PK) (which is looking to partially spin-off its renewables unit), FPL (NYSE:FPL) and Acciona (ACXIF.PK) Looking out a few years, I wouldn't be surprised if once credit markets are back on their feet the latter looked to gobble-up some of the former. For a list of the biggest players in the US, Spain and the rest of the world, have a look at the table at the bottom of the press release.

For those looking for more background into the technology itself and how investors should think about the market, Tom wrote a useful piece this past September comparing CSP and solar PV.

DISCLOSURE: The author does not have a position in any of the firms discussed in this article.

Posted by Charles Morand at 08:42 PM | Permalink | Comments (3)

Acciona's financing of Nevada Solar One, and a recent series of a financing, a prominent hire, and a big announcement from Concentrating Linear Fresnel Reflector (CLFR) developer Ausra has been keeping long-underappreciated Concentrating Solar Power (CSP) technology in the news recently.  I consider this great news, because the potential for cheap thermal storage of CSP and the gigantic size of the available resource means that CSP is likely to provide the backbone of reliability for any future decarbonized electric grid [Word Doc] where the clear skies which it requires to operate properly and sufficient transmission are available.

But CSP is only one of a broad range of Solar technologies, and here I will outline the framework which helps me understand and predict which ones are likely to be most successful.

To understand the future of any technology, you first need to understand its applications, which will lead to an understanding of the characteristics necessary to meet them.  Broadly, solar power is used to produce heat for climate control and process heat, and for electricity, both on the grid and off.

Daylighting

The oldest solar application is daylighting, the use of windows and other means allowing indirect sunlight to provide effective internal illumination inside buildings.  For individual homes, window and skylights are usually sufficient for the job, but there also exist architectural features such as light shelves and even active sun tracking systems which combine with fiber optics or mirrors [pdf]  to provide light to the interior of large buildings.  Such systems can provide significant energy and maintenance cost savings, as well as increase worker productivity.  They are particularly popular in schools because of studies which show enhanced student learning under natural light.

Thermal Applications

Solar thermal, when used for space heating is needed mostly in the winter in cold and temperate climates.  Because of the fact that it is only useful for part of the year, it needs to be simple and inexpensive to be practical.  Here, passive solar design and proper orientation of buildings is the hands down winner, because passive solar measures are inexpensive to free, with one of the most expensive steps being adding extra thermal mass, something which greatly enhances performance where daily temperature swings are large, and tends to remain fairly inexpensive given its low tech nature.   Passive solar design is almost certain to be a long term winner, although it is unlikely to be a big winner for investors because it does not require special products or materials.   Active solar thermal systems are typically too expensive to economically be used for only the part of the year when the heat is necessary, although when the heat from the system can be switched between multiple applications, such as domestic hot water or electricity generation, it can be economic for an active solar thermal system for at least part of a building's space heating load.  

For process heat, which includes solar domestic hot water, as well as heat for industrial processes [pdf], the active solar thermal systems shine because year round usage can make these still relatively inexpensive systems easily economic.  These systems tend to be either flat plate collector systems, which circulate a working fluid under a black heat collector, or evacuated tube systems, which are somewhat more expensive, but can reach higher temperatures because the heat collector is a solid wire, which avoids problems with boiling the working fluid.  Solar parabolic trough systems are also sometimes used in large scale, high temperature industrial applications.

Electricity Generation

With electricity generation, both time and location become important.   Electric transmission is constrained by infrastructure, and and electric storage is often more expensive than the power being stored, leading to large price premiums for power delivered where and when it's needed most.

The right place

For off-grid applications flat plate photovoltaic (PV) panels, which can be either thin-film or the more traditional crystalline silicon with a battery backup tend to be suitable despite the relatively high cost of power because of the scalability, relative simplicity, lack of moving parts, and low maintenance of the systems.  Concentrating photovoltaic (CPV) is seldome used in off grid homes to reduce up-front costs, because it tends not to work as well as flat plate collectors when there are clouds, and the need for a solar tracking system adds to maintenance costs which can be especially critical in the remote locations where off grid power is usually needed. Another form of practical off grid application is small scale power for lighting or equipment in areas where the grid is available but where the savings from avoided wiring make an investment in PV and a battery pack economical.  A common example of this are the now ubiquitous solar garden lights.

Photovoltaic technologies also have an advantage in distributed generation: placing the power source at the point of use.  The main advantage here is in their simplicity (which allows for low maintenance) and scalability, allowing the sizing of the power source to fit the need.  For instance, an electric utility might place west-facing PV on a transmission base station which is near capacity during times of peak load, thereby meeting a portion of that load and avoiding an expensive upgrade to the base station.

The right time

Since electricity typically requires expensive batteries for storage, technologies which can have inexpensive, built in storage have a cost advantage over ones that only produce power when the sun is shining.  Most solar electric technologies conveniently produce power on sunny summer afternoons, a time which normally corresponds to peak load in climates where air conditioning drives peak load.  This effect can often be enhanced by orienting the panels towards the west or southwest so that they are producing their greatest output in the afternoon.  This produces intermediate power, which is available when electric demand is high, but is also often available at non peak times, such as during the day in the winter.  Although such power is more valuable than other forms of intermittent power generation, which often have no correlation with the load profile, they also cannot be relied on to be available when needed, and are less valued by utilities which are responsible for providing power whenever customers want it. 

Dispatchable power is the most valuable form of generation (per kWh) on the electric grid, because the utility can use it only when demand is high and cannot be met with cheaper resources, while utilities also value base load power, which is almost always available and can be relied on at any time.  Since the sun is not always shining, these forms of power require some form of storage, and this means that they are best met with Concentrating Solar Power, which can be built with thermal storage, a much less expensive way to store power than batteries and other forms of electric storage (with the possible exception of Pumped Hydro, which is limited in its available capacity and location.)

Thin film vs. CPV

The incumbent photovoltaic technology, crystalline silicon is typically very expensive per watt, and there are two approaches currently being taken to cut costs: thin film and concentrating PV.  Thin film is another form of flat plate PV that requires much less and less specialized materials but typically has lower conversion efficiencies and durability than crystalline PV, which makes it inappropriate for applications that require a large amount of power generation in a small area, while concentrating photovoltaic (CPV) uses lenses or mirrors in to focus sunlight on small but very high efficiency cells to generate power at a lower cost.  CPV usually requires the ability to track the sun and few clouds, which means that it is unlikely to be as economic in distributed applications, although some companies are working to overcome these limitations.

Central Power Generation

For central power generation, the main factor in choosing between technologies is cost.  Here, the concentrating technologies (CSP and Concentrating PV) tend to have the advantage, and the ability to use transmission to bring the power to the point of use means that the generation can be placed in areas with a lot of sun and very few clouds where these technologies perform best.  The need for additional maintenance for solar trackers is less of an issue at a central solar plant, and this also give and advantage to the concentrating technologies.

Concentrating Parabolic Trough plants, Solar Tower, and Concentrating Linear Fresnel Reflector generators need large scale (in the hundreds of megawatts) to achieve their superior economics, while Dish Stirling and Concentrating photovoltaic (CPV) technologies achieve their economies of scale at less than a megawatt.  The superior scalability of Dish Stirling and CPV is largely negated by the cheap thermal storage (referenced earlier) available with the first three technologies which is not available with Dish Stirling or CPV.

Conclusions

Whenever a company announces a new technology with higher efficiency, lower cost, or better storage, it's easy to get carried away and think that that one technology is destined to win out over all the others.  I hope you now appreciate that there are as many or more applications as there are technologies, and which technology has the upper hand will depend on the intended use.  When evaluating companies, it's most important to consider the target market, and compare the technology to its true competitors.  This article and the following tables should provide a useful cheat-sheet when you do so.

If You Want to See it in Action

Next Saturday (October 6) is the National Solar Tour in the US.  Click here to find a tour near you and see many of these technologies in people's homes.

Application Table

Electric Generation Technology Table

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.

Posted by Tom Konrad at 12:55 PM | Permalink | Comments (0) | TrackBacks (0)

On August first, Acciona Energy closed financing on Nevada Solar One, in the first leveraged lease structured financing in the United States.

This begs two questions:

1. What in the world is a leveraged lease structured financing?
2. Why do we care?

What in the World?

An in-depth analysis of the economics of leverage leasing for all three parties involved is available here.  Structured financing is a generic term for any form of financing more complex than a loan or a rental.  For those of you who need to remain awake, here's the short version: a leveraged lease is a way of obtaining financing that allows the three parties (lenders, equity investors, and lessee) involved to parcel out the risks, tax benefits, and income streams in a way that suits each of their needs.

Why We Care

While using structured finance can lead to substantial financial benefits for the parties involved, the deal can only be done if the lenders believe that the cash flows from the underlying asset, in this case Nevada Solar One, a Concentrating Solar Power (CSP) plant, are sufficiently reliable that they are willing to loan money in exchange for  a share of those cash flows.

In other words, the lenders believe that Acciona (ACXIF.PK) will be able to operate the CSP plant with sufficient reliability to earn enough money to eventually pay off the $266 million they put up for the deal.  The equity investors believe that the CSP plant will retain some value at the end of the lease, so they will not be left holding the bag.

The completing of a leveraged lease is implicit proof that all the financial institutions involved have a degree of confidence in CSP technology, which they would not have in a development stage technology.  By their actions, lenders Spain-based Banco Santander and BBVA, and Portugal-based CAIXA Geral de Depositos and equity investors JPMorgan Capital Corp., Northern Trust (NTRS) and Wells Fargo (WFC), are all saying, "Concentrating Solar Power is a main-stream technology, and we are confident of its predictable operation for the lifetime of the lease."  Just as important, they're putting their money where their mouths are.

When lenders believe in predictable cash flows, they reduce the interest rate they charge to finance a project, just as a mortgage company will charge a lower rate of interest to a married couple with steady jobs than they would to a single man who has never worked in his life (if he could obtain a loan at all.)  A lower interest rate translates into a lower discount rate when calculating the Levelized Cost of Energy which a technology can produce.  

With financial innovation, a group of Iberian and American financial institutions have reduced the cost of energy which will have to be paid by this plants and future CSP plants in the United States just as surely as any technical innovation would.  Everyone who wants clean energy at affordable prices should care.

UPDATE: 9/13: In this article on CSP by Fortune/CNN columnist Marc Gunther, he quotes an executive at CSP developer Ausra, saying "As soon as we can build solar power projects with the same cost of capital as building conventional coal or natural gas plants, we'll deliver electricity at the same cost as coal."  (emphasis mine.)

DISCLOSURE: Tom Konrad  and/or his clients do not have positions in any of the companies mentioned here.

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.

Posted by Tom Konrad at 01:17 AM | Permalink | Comments (5)

Bribing and Pressuring Fissile Regimes

On July 25th, France offered to build a nuclear reactor for Libya to power a water desalinization plant.  Russia is delaying the delivery of  nuclear fuel for Iran's nearly completed Bushehr to help pressure them to comply with UN Security council demands for less secrecy.  South Korea, Japan, China, Russia, and the United States promised to provide 950 thousand tons of oil or equivalent aid to North Korea in return for permanently disabling all its nuclear facilities.

I'm not going to argue about whether using energy aid is the best way to influence this country or that; the fact is that no matter what you or I think about it, the carrot will always be part of international diplomacy, as well the stick.  I want to talk about what form that carrot takes.

This map shows the amount of solar energy in hours, received each day on an optimally tilted surface during the worst month of the year.
Image Source: Sunwize.  

Both Iran and Libya are well suited for concentrating solar power (CSP), and the declared purpose of the reactor for Libya is desalinization, an excellent application for CSP.  Iran has a wind resource as good as the American Midwest (although CSP may be a better choice due to sandstorms.)  While North Korea has only moderate insolation, US non-governmental organizations were already working to help North Koreans with wind power in 1999.  North Korea has a high quality wind resource all along its Western coastline in Korea Bay, which is shallow and well suited to offshore wind, and also nearest the capital, Pyongyang.

Intermittent Electricity would be an Improvement

The strongest objection to wind power (and to a much lesser extent solar) is that these are intermittent resources.  Yet all these countries already have problems with persistent power outages.  Iran already has problems meeting demand during peak summer hours, and CSP is better suited for meeting peak summer loads than nuclear power, which is a baseload resource, which operates at its worst on hot summer days due to its cooling requirements.  

Power utility time of use for California CSP Plants.  Source: San Diego Renewable Energy Study Group, 2005 [.pdf, page 15.]

In Libya and North Korea, the electricity situation is even worse.  Libya's utility vows to reduce power rationing, and provide more hours of electricity, while in North Korea the entire nation, with the exception of Pyongyang, is switched off at night.  Providing North Korea with intermittent wind power rather than fuel oil for dispatchable power plants might lessen Kim Il Sung's incentive to give his capital such favorable treatment compared to the countryside, and do more to help the populace, rather than giving the regime another lever for control.

Technologies for Peaceful Applications

Iran and Libya claim that they want nuclear power only for peaceful applications.  Concentrating solar power is better suited to enhance their energy security than nuclear because it does not rely on imported uranium.  If that is what they want, CSP seems just as well suited for their purposes, and would give them greater energy security since it does not rely on imported fuel.  With North Korea, supplying wind turbines would be even simpler politically, because the existing agreement already allows for equivalent energy aid.  If we in the West are worried about the additional security renewable energy might give to these unpredictable regimes, shouldn't we be even more worried about providing them with nuclear material?

This same line of thought applies to President Bush's possibly Nuclear Non-Proliferation Treaty-busting deal with India.  Regions of Southern and Western India also have excellent solar resources (see map).  India may already have the bomb, but that is no excuse for eviscerating one of the few (and already weak) safeguards the world has against nuclear proliferation.  It might be argued that India does not need our help to take advantage of their renewable energy resources, but, if so, why do they need our help with their civilian nuclear industry?

Posted by Tom Konrad at 03:26 PM | Permalink | Comments (3) | TrackBacks (0)