A train, loaded with coal, crashed into the back of a passenger train in Czechloslovakia in 1868.

Securities of fossil fuels firms, as an economic sector, may soon be on the decline. Predictions as to when oil, gas and coal will become a smaller part of the investment society makes into its total energy mix in favor of renewables (such as solar, wind and ocean energies) vary, ranging from 2060 on the long side (this prediction from oil industry powerhouse Shell) to 2030 or even sooner on the shorter side (as reported by Bloomberg). But so far, markets appear to be mispricing the risk this presents to fossil fuels companies, and their share prices for now remain stable. In our opinion, it’s not too soon to consider divesting from fossil fuels while one might still recover significant value.

Coal, oil, and natural gas, though, are the main sources of energy that have gotten civilization this far (at least since the late 1700s, or the entire industrial revolution), so why are many expecting them to so quickly diminish in importance? 

Mostly because of recent innovation and renewable energies’ efficiency and cost gains. Our ‘next economy’ thesis asserts that the energy and material resources we need to host an indefinitely thriving economy exist in more than sufficient quantities (particularly energy), if we would only collect and use them in smart and efficient ways. The innovations required to put world economies on a long term sustainable path largely exist today. For example, the various forms of solar energy collection have become so efficient over the last 20 years that all of civilization’s energy requirements could presently be met by covering 0.3% of the earth’s land surface with solar panels and concentrated solar thermal systems. Our models insist that through promoting true sustainability solutions in materials and energy, we can indeed maintain a healthy, thriving biosphere, all while growing our economies and improving standards of living potentially everywhere, for everyone.

This in mind, we put together 10 primary reasons why fossil fuels investments, in next economy terms and indeed in general economic terms, no longer appear to be the attractive source of risk-adjusted returns they have historically been.

Fossil fuels are economically becoming subprime because:

1. Fossil fuels have the capacity to threaten basic systems.

Warming and its sequelae such as severe weather, droughts, floods, more frequent and intense storms and attendant uncertainties all undermine our basic economic foundations. A recent World Bank report conceded that “There is … no certainty that adaptation to a 4° C world is possible,” referring to a global average temperature increase of 7.2 degrees Fahrenheit from pre-industrial times that is considered likely by scientists over the next few decades if fossil fuels’ use is not soon severely limited. To rephrase what this means, the traditionally conservative World Bank believes that human economies may not be able to adapt to a world that has on average warmed four degrees Celsius or more. Note that the global temperature has risen nearly one degree Fahrenheit since 1975.

Millions of pages have been written on the underlying reason for the unsustainability of fossil fuels. Their power to disrupt basic climate and therefore world societies is vast, complicated and is a topic best left to our best specialists. I suggest to the interested reader the works of more qualified practitioners including Dr. James Hansen, Lester Brown and Bill McKibben.

2. Fossil fuel assets present abandonment risk.

Fossil fuels companies are now confronted by the risk that many of the still-in-the-ground assets they count on their balance sheets and/or in their future revenue projections may never be recovered or realized. As this becomes the apparent, their asset valuations and revenue guidance may be revealed as currently far too high, and the values of their companies and stocks overvalued. Citing abandonment risk, Bloomberg recently reported that “Investors in carbon-intensive business could see $6 trillion wasted as policies limiting global warming stop them from exploiting their coal, oil and gas reserves.”  Carbon Tracker reports that “Between 60-80% of coal, oil and gas reserves of publicly listed companies are ‘unburnable’ if the world is to have a chance of not exceeding global warming of 2°C.”

The press down under is reporting that “Australian based analysts at Citigroup say fossil fuel reserves in Australia face significant value destruction in a carbon constrained world, with the value of thermal coal reserves likely to be slashed dramatically if governments get serious about climate action…Fossil fuel asset owners could be best advised to dig the resource up as quickly as they can.”

Over at HSBC they recently pushed up a similar report, encompassing a global scale, essentially saying we can’t count all the fossil fuel reserves on firms’ balance sheets because we cannot burn them all and therefore “Oil and gas majors, including, BP, Shell and Statoil, could face a loss in market value of up to 60 percent should the international community stick to its agreed emission reduction targets.” (As reported by GreenBiz.com.) (I don’t believe most policymakers in governments around the world currently have the wherewithal to honor their various carbon reduction treaties, but I also don’t believe that matters. Peak oil demand is upon us because the alternatives are simply becoming far more competitive and because awareness of fossil fuels’ dangers is rapidly advancing.)

What Bloomberg, Citi and HSBC are saying, in sum, is that infinite growth of a known harmful asset – in this case an asset with the ability to disrupt climate and civilization – must come to an end, and soon.  And shares of the firms exploiting this asset are at risk.

3. Renewables are becoming too competitive for fossil fuels.

Forbes has quoted Rick Needham, director of energy and sustainability at Google saying, “While fossil-based prices are on a cost curve that goes up, renewable prices are on this march downward.” That pretty much sums it up. In just the last five years, solar photovoltaic module prices have fallen 80 percent and wind turbines have become 29 percent less expensive. Moreover, after the initial investment, renewables such as wind and solar, having no cost of fuel, will prove far too competitive for fossil fuels no matter how cheap those may appear to be. Cheap fuel is still more than free fuel.

One of the first major investors to recognize this was Warren Buffett. Via his MidAmerican Energy subsidiary, he has quietly made Berkshire-Hathaway America’s single largest owner of both solar and wind electrical power generation capacity. Patrick Goodman, Buffett’s CFO of MidAmerican said simply “we believe renewables is the better investment right now.” Warren Buffet, who believes that once a good investment has been identified it’s time to “back up the truck,” is showing no signs of giving up his leader status on solar, having just begun construction on the “largest solar plant in the world.”

All this is happening now, today, with today’s technologies and today’s economics. That the smart money already sees renewable energies as more competitive long term than fossil fuels is obvious. The ‘smart money,’ by the way means individuals as well as institutions. Solar crowdfunding pioneer Mosaic in April of this year sold out the first tranche of $100 million in solar project investments to Californians in just hours.

Further technological advances aren’t required to make renewables competitive, but advances are occurring. Fossil fuels will represent only a small percentage of all energy investments in just a few years for a simple reason: few will want to invest in the less profitable technologies of the past.

4. Fossil fuels firms are beginning to have to pay for their externalities.

Fossil fuels companies have never had to pay for their economic externalities such as pollution, warming, health effects and contaminated water and farmland. There are signs that this is beginning to change, and firms will increasingly be liable for damages in the tens if not hundreds of billions. The highest profile example is BP’s Deepwater Horizon spill, the worst oil spill in U.S. history. BP has already been required to set up a US$20 billion fund to cover cleanup and damage costs, and perhaps far more significantly, is facing potentially “tens of billions” in additional damage payments pending the outcome of what the Financial Times is (in a dedicated section) calling the “trial of the century,” now underway in Louisiana. The FT is also reporting that BP is facing an additional 2,200 lawsuits related to the spill. Even if BP should prevail in most or even all of these suits, the massive costs of these litigations will start to become a drag on the firms’ traditionally easy profitability. Newsweek has a longform piece covering many details including additional BP liabilities such as: “that BP lied about the amount of oil it discharged into the gulf is already established. Lying to Congress about that was one of 14 felonies to which BP pleaded guilty last year in a legal settlement with the Justice Department that included a $4.5 billion fine, the largest fine ever levied against a corporation in the U.S.” BP’s continuing potential liabilities from this one incident, including “uncapped class-action settlements with private plaintiffs” and “civil charges brought by the Justice Department” and “a gross negligence finding [that] could nearly quadruple the civil damages owed by BP under the Clean Water Act to $21 billion,” show the danger to shareholders. Any representative of an asset class carrying this kind of risk can justifiably be labeled a subprime investment.

Other firms facing liability issues surrounding the dangerous nature of their products include Chevron, which has had to abandon Ecuador altogether to avoid paying a $US19 billion settlement there in a “nightmare case” that threatens to drag on around the world as Ecuador seeks payment via Chevron’s assets in other nations.

5. Fossil fuels are likely to have to face carbon taxes.

There will be carbon taxes in many if not most countries that will directly impact the profit margins of fossil fuels firms. The New York Times Op-Ed framed the argument like this:

“Substituting a carbon tax for some of our current taxes — on payroll, on investment, on businesses and on workers — is a no-brainer. Why tax good things when you can tax bad things, like emissions? The idea has support from economists across the political spectrum, from Arthur B. Laffer and N. Gregory Mankiw on the right to Peter Orszag and Joseph E. Stiglitz on the left. That’s because economists know that a carbon tax swap can reduce the economic drag created by our current tax system and increase long-run growth by nudging the economy away from consumption and borrowing and toward saving and investment.”

A carbon tax is good for everyone but fossil fuels companies, who will see their profits reduced (or attempt to pass the costs on to consumers, reducing demand for their products further). So far, several nations, provinces and individual municipalities have implemented a carbon tax, and many others have carbon trading schemes (the Carbon Tax Center is a good resource for keeping up with these). Carbon taxes can raise revenues, shrink deficits, and move tax burden away from citizens, all while slowing the worst effects of warming. Look for their implementations to continue to spread.

6. Fossil fuels will soon face diminishing governmental subsidies and benefits.

Fossil fuels have received as much as half a trillion dollars per year in subsidies from the U.S. alone. To the extent that austerity or desires to balance budgets, combined with legislation to limit greenhouse gas emissions, reduce the scale of this windfall, the seemingly easy profitability of these companies will be undermined. This point, as well as point five above, is more fully developed in point seven.

7. There is growing global institutional belief that transition to renewables solves climate AND economy.

We’ve already seen the dire warnings about warming coming from the World Bank, and discussed the positions of Bloomberg, Citi and HSBC. These institutions are far from alone. The International Monetary Fund, in calling for “Energy Subsidy Reform,” recently calculated that between directly lowered prices, tax breaks, and the failure to properly price carbon, the world subsidized fossil fuel use by over $1.9 trillion in 2011 — or eight percent of global government revenues, representing a huge drag on economies. The United States taxpayer is fossil fuels’ largest benefactor at $502 billion in 2011. China came in second at $279 billion, and Russia was third at $116 billion. For perspective, that $502 billion is just over 3% of the US economy, currently being given away to big fossil fuels companies.

The IMF concluded that the “link between subsidies, consumption of energy, and climate change has added a new dimension to the debate on energy subsidies.”  The IMF’s solution to both economic and climate risk (as reported by The Hill) is in two simple parts: “end fossil fuel subsidies and tax carbon.”  The solution to both climate and economy is worldwide conversion from fossil fuels to renewables.

8. Fossil fuels are the ultimate non-circular: they’re completely consumed upon first use, so more primary source extraction is required.

As I mentioned above, to get global economies on an indefinitely sustainable foundation, we need to make far more efficient use not only of energies but also of raw materials. Fossil fuels represent both raw resources and energy sources, and they represent the worst of both. Smart, efficient use of materials means reusing nearly everything at the end of its lifecycle to repurpose into something else we need. For a thriving, sustainable long-term economy, we need to get close to perfect recycling of resources of all kinds so we can minimize our depletist impacts on earth and avoid the basic environmental degradations that go along with those.

This approach of course excludes fossil fuels and other resources that are consumed entirely on their first use. Raw materials can keep economies growing for a long time if we preferentially mine our huge stockpiles of already extracted resources and minimize extraction from primary, geological sources. But fossil fuels, unlike materials used to make solar panels and wind turbines, don’t work like that. Since they are consumed entirely on their first use, reuse is impossible and we have to literally go back to the well for more. This means ever more greenhouse gasses in the atmosphere, ever more degrading of the local environments where extraction takes place, ever more risk of accidents, and the possibility of eventually exhausting the resource completely (although on this last point I personally believe we will – for the reasons presented here – reach peak demand far before we fully exhaust fossil fuel reserves).

9. Distributed renewable energy grid is more secure than traditional hub and spoke systems, even those powered by domestic fossil fuels.

FERC Chairman Jon Wellinghoff has recently said, “It wouldn’t take that much to take the bulk of the power system down. If you took down the transformers and the substations so they’re out permanently, we could be out for a long, long time,” and “A more distributed system is much more resilient…Millions of distributed generators can’t be taken down at once.”

This is common sense. And short of equipping every home and business with its own diesel or natural gas generator – which of course would be disastrous for local areas’ air quality – fossil fuels can never offer anything like the kind of security and resilience that distributed renewables like rooftop solar can.

10. Renewables will counter fossil fuels’ endless ‘boom and bust’ economic cycles.

As I’ve posted before, the price of oil and other fossil fuels has, at least since World War II, been the main control knob permitting expansion and causing contraction of world economies. It’s widely known that 10 of the last 11 major recessions were preceded by peaks in oil prices. Rising oil prices are inflationary, adding to the costs of almost everything from transportation to fertilizers to plastics, and they therefore cause demand for all these affected items to become depressed, slowing economic production.  Renewables, relying as they do on free fuels like sunlight, present no such economic pressures, and as they become an ever larger percentage of our energy mix, fossil fuels’ huge GDP drag will begin to disappear.

Conclusion                                                              

What then is the future for fossil fuels versus renewables? Fossil fuels have already begun to rapidly lose market share. In 2012, most new electricity generating capacity brought online in the United States was from renewables, and in January and now March 2013, all new U.S. electrical generating capacity was provided by renewables. So where is this headed?

Image courtesy BNEF

Bloomberg New energy Finance (BNEF) has calculated that “70% of new power generation capacity added between 2012 and 2030 will be from renewable technologies (including large hydro). Only 25% will be in the form of coal, gas or oil.” BNEF CEO Michael Liebreich has said "I believe we're in a phase of change where renewables are going to take the sting out of growth in energy demand," which goes to our thesis that we can both lighten our ecological footprint and increase our standards of living.

So add Bloomberg to the growing group of financial analysts warning that fossil fuel investments are poised to become a bad bet. 

Citi bank, in its note about the Australian coal industry, went as far as to warn investors that it will be difficult to extract value from their still-in-the-ground resources as action on climate change advances, stating, "If the unburnable carbon scenario does occur, it is difficult to see how the value of fossil fuel reserves can be maintained, so we see few options for risk mitigation." (Italics added; Source.)

Well, with all due respect to Citi, I can think of one option: we, like Buffett and Google, can instead invest in civilization’s non-carbon sources of power. As the IMF pointed out, the solution to both climate and economy is worldwide conversion from fossil fuels to renewables. This massive conversion program will lead to powerful economic growth, less economic drag from energy costs, higher revenue for treasuries, and strong employment drivers.

If we fear for the future, it is paradoxical to attempt to mitigate risks by remaining invested in fossil fuels. What we do now will bring about the future for better or worse. If we’re to emerge from our 19^th century energy system, it must be us, now, today, who set that emergence in motion. Leave fossil fuels for those who prefer to look backwards.

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

SolarCity (SCTY) has been one of the hottest alternative energy stocks since its Initial Public Offering five short months ago. Yesterday it shot up 24% in one day, on the largest one-day volume since it opened, in anticipation of its quarterly earnings release. It is up 95% in the past three months, and has more than tripled from its initial trading price. As of this writing SCTY has given back about a third of yesterday’s stratospheric gains.

Now that earnings have been released, let’s take a grounded-in-reality look at this innovative solar company.

SolarCity’s earnings results were mixed, showing steady revenues, but also a net loss for the first quarter of 2013 (chart above). It’s disconcerting that net income has been negative for the past four quarters, and on a per share basis, the most recent losses were 28% greater than analyst expectations. Revenues, on the other hand, came in ahead of analyst estimates, but just barely.

If SolarCity is to make it as a company, it needs to successfully implement a business plan that grows its customer base in a big way. It therefore makes sense to look at data relating to its clients. The chart below shows data for each of the past four years, and compares it to the most recent quarter.

Customer growth remains robust for the first quarter of 2013. 2012 was off the charts, with SolarCity adding on 30,950 new clients. The first three months of 2013 added close to a quarter of that number, which is good news for FY 2013 projections.

Total revenue per customer is declining steadily, but that is to be expected as the number of customers dramatically increases and the price of solar panels falls. What is occurring though (and what we want to see) is that the net loss per customer is steadily decreasing. It has changed from a low of around $5,000 in 2010 and 2011, to about $500 in the most recent quarter. If SolarCity can keep that trend going then the company will soon be in the black again. Another important metric is the acquisition cost per customer, which has remained steady at 2012 levels.

I also find it encouraging that SolarCity’s debt levels remain reasonable, just about the same as 2012 levels. It is important to understand that in many ways SolarCity is a financial company, crafting and offering creative finance options to allow clients to get solar done with minimal up-front costs. As with other financial firms, debt is a big part of SolarCity’s business, so it must be analyzed under that spotlight.

Though I still view SolarCity as an investment for the speculative portion of a portfolio, the long-term prospects for this company are very compelling. For example, SolarCity recently announced its biggest project to date—a 24 megawatt, 6,500 Homes in Project at Navy and Marine Bases in Hawaii. Investors that are willing to ride the SCTY stock price rollercoaster are likely to be rewarded in the long term.

About the author

Disclosure

If you want to profit from solar, the money is in installation and technology.

Certainly SunPower (NASDAQ: SPWR) knows this to be true. One of the few U.S. solar plays still around, SunPower surprised analysts with a narrower Q1 loss and sales that exceeded estimates. This, by the way, was due to an increase in installations. No surprise there.

And certainly those of us who regularly monitor installation data, which is not hard to come by, have been quietly picking up shares since the start of the year.

The result? Take a look:

This isn't to say SunPower is in the free and clear; the solar business remains a tough one with nearly impossible margins.

But those still in the game are stronger today compared to where they were last year — and the year before that.

With global installations continuing to soar — especially here in the United States — installers are busier and more profitable than ever. Certainly the only publicly-traded solar installer and leasing company SolarCity (NASDAQ: SCTY) is proof of that. Just look at this chart:

Of course, you may want to wait for these to cool off a bit for jumping on for the ride.

But there are still other solar plays that you can get into now and turn a very nice profit over the next six months or so...

$8.6 Billion Worth of Product

As you saw, there's big money in solar installation these days. And investors who have taken advantage of this reality and invested accordingly have done quite well.

But the second opportunity for solar investors is actually much more impressive than installation...

I'm talking about solar technology. The top-notch solar tech plays of today will be the gatekeepers of the industry tomorrow. And that's why we're loading up the boat while they're still insanely cheap.

We're most impressed with two specific solar tech angles right now: The first is through a new solar material that's currently being perfected at the University of Manchester and the National University of Singapore. I won't dive too far into the particulars, as you'd need a few chemistry books to even attempt to understand it. (I even needed to run this one by my old chemistry professor to get a handle on this thing). But here's the basic idea...

As explained by research reps from the University of Manchester, this particular materials discovery could lead to entire buildings being completely powered by sunlight, which is absorbed by its exposed walls.

Antonio Castro Neto from the National University of Singapore said, "We were able to identify the ideal combination of materials: very photosensitive TMDC and optically transparent and conductive graphene, which collectively create a very efficient photovoltaic device."

While some of that may sound like scientific mumbo jumbo, the only thing you need to know here is that the key element is graphene.

Graphene is what makes this entire process possible.

As you know, we've been singing the praises of graphene for years. And nearly every week we discover a new use for this miracle material.

From advanced desalination systems and high-powered supercapacitors... to cellphone touchscreens and bulletproof vests... graphene will be found in nearly every commercial and industrial application in just a few short years.

And this is why it's so important that you load up on quality graphene plays NOW — before the herd rushes in and jacks the price up. That, by the way, will be when we cash out.

Solar in the Black

A more direct way to play the solar tech angle is through manufacturing systems and tools.

The interesting thing about solar is that over the years, it's been the suppliers of these “tools” that have benefited the most. Applied Materials (NASDAQ: AMAT) actually made a sizable chunk of change in this space back in 2006-2007.

But like most solar manufacturing processes, what's hot today is nearly useless tomorrow.

That being the case, we're always on the lookout for the next big thing in manufacturing technology. And right now, the next big thing coming around the bend is “black solar.”

You may have read about black solar before, as it's long been a sort of dream deferred for solar manufacturers. It's essentially a specialized chemical coating that allows solar panels to trap ten times more light than what's available today.

A great idea in theory, but in practice, hard to prove...

Well, those days are over. Not only has black solar been proven effective and completely doable on a commercial scale, but there's a conga line of solar manufacturers looking to license this technology right now. Because the end result of having this technology in place is a 50% cost reduction and a full doubling in efficiency.

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

The sector’s perennial hottest company strikes again — with “potentially disruptive” new technology to change the positioning and performance of triglyceride oils.

What exactly is a structuring capacity in triglyceride oils?

What does that mean in terms of everyday applications?

Financial results for Q1

Building capacity

The AkzoNobel agreement

Reaction from Solazyme and AkzoNobel

A dissident voice

More on the story.

Raises $80M at $10 per share; becomes first new industrial biotech company to complete IPO in more than a year.
What went right and how? Is the IPO window re-opening?

What went right: the structure

What went right: the company

Biggest risk left?

Bottom line – is the IPO window re-opening?

Will BioAmber complete its IPO?
As the industry waits, fingers crossed, the biosuccinic developer sweetens the pot with warrants, lower share prices.

JOBS Act.

Complete coverage

Since the start of March, when shareholders would reasonably have expected to have heard an announcement of the meeting date and the circulation of proxy materials, Finavera’s stock had drifted down 15% (from C$0.20 to C$0.17.)  Some of investors’ worries seem to have been justified, in that the original agreement outlined in December had been for the purchase of all four projects.

Meet The New Deal. (Pretty Much) Same as the Old Deal

I spoke to Finavera’s CEO, Jason Bak, to try to better understand the changes.

A view of Finavera's Miekle Wind Energy project.  Photo Source: Finavera

Despite this change, the most important aspects (for Finavera and its shareholders) of the December agreement remain in place:

• Pattern will still forgive Finavera’s C$9.3 million in debt when Finavera’s shareholders ratify the agreement at a shareholder meeting to be scheduled before the end of June.
• Pattern will provide Finavera with a credit facility at a 10% interest rate to cover its liquidity needs until the end of 2013.
• Finavera will receive 70% of the compensation originally envisioned in exchange for only 54% (on a per-MW basis) of the projects.

Most importantly, the revised deal alleviates the liquidity problems which forced Finavera to seek a deal to pay off an overdue loan to GE late last year.  With the ability to repay outstanding liabilities and still put cash in the bank, Finavera will be in a much stronger position when it comes to acquiring attractive development projects, or even returning some cash to its long-suffering shareholders.  Bak says the use of the funds will be put to a shareholder vote after the cash is in hand and Finavera has potential projects to present to shareholders.

Timeline

Finavera still expects to receive approximately C$9.4 million for bringing its Cloosh wind project in Ireland to financial close in the fourth quarter of this year.  This, along with the C$9.3 million of debt forgiveness from Pattern upon shareholder and exchange approval of the deal should be enough to cover Finavera's outstanding liabilities.

The Tumbler Ridge project already has completed environmental and construction permits, and Finavera will submit Meikle for environmental permitting later this year.  Bak expects both projects will achieve financial close in the second half of 2014, at which point Pattern will pay the approximately C$19 million balance.

Bak says that Finavera will issue an information circular with details on the agreement in the next couple of weeks, after which he will hold a shareholder conference to address shareholder questions.  A shareholder meeting and a vote on the contract will take place by the end of June.

Valuation

In the press release, Bak said, “Based on the Pattern transaction and the value of the Cloosh Valley Wind Project assets, and using a set of conservative working assumptions, Finavera estimates the Company’s net asset value to be $0.41 per share.”  I asked him to walk me through the calculation, in order to assess if I also felt he was being conservative.

• C$28 million from Pattern
• C$19 million in debt
• C$10 million payment for Cloosh
• C$3 to C$4 million residual value for 10% interest in Cloosh.
• No value attributed to Wildmare or Bullmose projects.
• Minus ongoing expenses to achieve the payments listed.

That sums to about C$22-3 million in net cash and assets expected before the end of 2014.  Finavera has 39.6 million shares outstanding after a debt-for-share swap announced in March.  Management and the Board have options exercisable at C$0.205 a share for an additional 1,783,800 shares.  After exercise, Finavera would have 41.4 million shares outstanding and an additional C$365,679 in cash.

At 41.4 million shares, Bak’s C$0.41 per share comes to a net asset value of C$17 million, compared to my C$22 to C$23 million, minus the time value of money and two years of operating expenses.   Finavera’s free cash flow in the first 9 months of 2012 was an outflow of C$1.6 million, so two years of operations and project development should easily be covered by the C$5 to C$6 million difference in Bak’s C$0.41 per share estimate and my back-of-the-envelope calculations.

While less attractive as the original deal, the finalized agreement with Pattern still relieves Finavera’s liquidity problems, and Bak’s reasonably conservative valuation for the company at C$0.41 a share should still produce decent upside for investors who buy today at C$0.17 a share, or even investors who bought at the C$0.225 the stock was trading at when I analyzed the original deal in December.

The 24% decline in price since then more than compensates for not selling Wildmare and Bullmoose.  If Pattern eventually exercises its option to buy those projects as well, that will just be gravy.

Disclosure: Long Finavera

This article was first published on the author's Forbes.com blog, Green Stocks on April 30th.

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.

Trade War. photo via Bigstock

Wall Street Journal reports that the tariffs will affect more than 100 companies, and be implemented at a range from 37.3 to 67.9 percent at an average of 47.6 percent, close to projections earlier this week. Companies will face tariffs as follows:

• Suntech (STP) and its subsidiaries: 48.6 percent
• LDK Solar (LDK): 55.9 percent
• Trina Solar (TSL): 51.5 percent
• JA Solar (JASO): 58.7 percent

Other companies that cooperated with the investigation will likely be hit with a 47.6 percent tariff, while those that did not cooperate will face a 67.9 percent tariff.

China strongly opposes the tariffs and is calling for extended dialogue to resolve the situation, according to Bloomberg. The Alliance for Affordable Solar Energy (AFASE) also expressed its concern in a statement, claiming that punititve tariffs at any level will cause "irreversible damage to the entire European Photovoltaic value chain."

Last November the U.S. handed down antidumping and countervailing duties. Europe already was eying actions against China's solar manufacturers in motion for more than a year, before the U.S.' own trade case was finalized, though presumably the U.S.' decision provided momentum.

The EC's preliminary decision on antidumping was scheduled for early June, followed by a preliminary ruling on antisubsidies in August. Both are expected to be finalized in December.

In recent weeks the EC has further tightened the screws on Chinese solar imports, first requiring registration of panels, and more recently initiating antisubsidy and antidumping investigations into solar glass from China. The latter, spawned by a complaint by EU ProSun Glass, is a distinct investigation from the Chinese solar panel investigation, and is said to be not formally affiliated with the SolarWorld (SRWRF)-led "EU ProSun" coalition which launched the broader solar complaint a year ago.

Not all of Europe is united in this solar dispute. The Solar Trade Association (STA), a collection of EU national industry associations — UK, Italy, Romania, Poland, Hungary, Sweden, and Slovakia — has expressed "deep concerns" and "overwhelming opposition" in an open letter to European Trade Commissioner Karel De Gucht, arguing that the EC's investigation into Chinese solar manufacturers already has been damaging. "The impact on employment and EU value added will far outstrip any impact that the duties may have on EU photovoltaic producers, particularly because these producers are struggling with structural issues that cannot be efficiently addressed through the imposition of duties," they say. "Duties at any level are already having a significant impact, dwarfing any possible benefit for European solar producers and setting back the objective for grid parity for years." Meanwhile, China and France have been formally discussing broader "economic relations and the cooperation of common interest," including having the French urge the EU "to cautiously utilize trade remedy measures" regarding the PV investigations.

And China has repeatedly suggested it might retaliate with its own probe into US and European polysilicon suppliers. "I continue to not understand the logic" of a retaliatory Chinese penalty on silicon imports, said Thomas Gutierrez, president and CEO of GT Advanced Technologies (GTAT), which makes equipment for producing the silicon starting material for solar cells and modules, days ago during the company's quarterly results conference call. "China can't support itself in high-quality production of polysilicon. And if they put tariffs on polysilicon, they're going to increase the cost of their already profitless wafer and cell manufacturing industry."

Among the arguments lobbed in the EU/China trade dispute is the issue of jobs at risk, as it was in the U.S./China dispute. A report earlier this year suggested nearly a quarter of a million jobs might be at stake across several European countries, potentially wiping out €18.4-€27.2 billion of market activity. Chong Quan, deputy international trade representative with China's Ministry of Commerce, has suggested 400,000 Chinese workers could be affected by Europe's solar trade decision. The STA acknowledges the European Photovoltaic Industry Association's calculation of a €39.4 billion value in the PV value chain and "no less than 265,000 jobs — but that the companies behind Europe's antidumping investigations "represent no more than a maximum of 8,700 jobs," or at most 3 percent of all jobs in the PV value chain, according to the STA.

Both types of trade disputes have dangerous consequences on the overall global market. "If domestic requirements are forced to be abandoned and incentive policies changed radically, that would change demand in specific countries," explained Michael Barker, senior analyst at Solarbuzz. The upstream trade disputes, meanwhile, could change supply arrangements across key regions; placing duties on products "could change investments going forward and short-term supply."

"Trade issues are big — but PV demand is driven more by local policy and regulatory movements than by cost," Barker said. As costs come down, so do incentive policies — even down to the city level. "While the cost portion is certainly very important, it's also what countries are doing at the local level to make it easier, or harder, for PV to be competitive or get ample returns," Barker said. "Local regulations and policies will be the ones enabling end-market demand, or hindering it."