July 19, 2014

Bumpy Uphill Road For BYD EVs

Doug Young

Electric vehicle maker BYD (HKEx: 1211; Shenzhen: 002594; OTC:BYDDF) has been zipping in and out of the headlines this past week, including its latest announcement that it will open a manufacturing plant in Brazil to service the BRICS country and the broader Latin American market. The company’s EV business, a major factor that attracted billionaire investor Warren Buffett as a major backer, also got good news from Beijing this week with word of a major government drive to boost new energy vehicle buying.

Despite those positive moves, the company still has yet to received its first major overseas order, though it has certainly set up many pilot programs. Such programs make good headlines, even though they result in very limited actual business. And those programs receive far less attention when they end in failure, which is what recently happened to a high-profile trial in a city near Los Angeles.

Despite the rocky road these last few months, investors seem to be turning bullish on BYD once more after a prolonged slump for its stock due to tumbling profits and poor performance for its older gas-powered car and battery businesses. The company’s shares have more than tripled over the last 2 years, and are up more than 20 percent this year as optimism returns to its EV business.

In its latest piece of upbeat news, BYD announced it will open its first factory in Brazil, with an investment of about $90 million and 450 workers. (company announcement) Operations will begin next year at the plant, which will have an initial capacity to produce 1,000 electric buses each year. BYD made a similar investment announcement for a plant in nearby Argentina in 2011. (previous post)

The bigger news that got investors excited came earlier this week when Beijing announced a major drive to promote EVs through strict quotas for government vehicle buying. Under those quotas, China will require that new energy vehicles account for 30 percent of all government vehicle buying by 2016. (English article) Beijing has also announced a wide range of other new incentives recently, including cheap or free licenses for such vehicles and low tax rates.

China has announced similar incentives in the past, though few have had much effect among the broader consumer market. The mandating of such high quotas for government vehicle buying looks a bit more promising, as it relies on non-negotiable directives rather than financial incentives. But governments can always find ways to get around such quotas, for example by buying cheap electric motorcycles or other cheap low-tech EVs to meet their government targets.

Anyone looking for a better indicator of the longer-term viability for BYD’s EV business would be better to focus on the company’s international programs, which are truly market driven. A company spokesman recently told me BYD is on track to deliver around 4,000 electric buses this year, though it may have to delay some deliveries due to constraints in its manufacturing capacity. The company has 3 pilot programs going in California, and a number of programs in Western Europe and other markets scattered around the world.

But its drive into California also received a major setback earlier this year when the city of Long Beach canceled a high-profile pilot program for the company’s buses. That program had been the subject of previous controversy over accusations of labor law violations, though the spokesman said the cancellation was due to lack of funding rather than labor or technology issues.

Loss of that contract highlights the very real possibility that some or perhaps even many of BYD’s overseas pilot programs could end without any big orders. We’ll have to wait and see if and when any of the pilot programs finally results in one such big order, though I’m sure BYD will make sure that everyone knows when that finally happens.

Bottom line: A string of positive developments could help maintain a rally for BYD stock, but the real sign of long-term viability for its EVs will be a big order from one of its global pilot programs.

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

advertise here


Oil and Gas




July 18, 2014

Rulings Boost China Wind, Solar In US

Doug Young

In a quirk of timing, 2 completely unrelated rulings are boosting the outlook for Chinese new energy firms from the wind and solar sectors in their complex relationship with the US. The 2 cases are quite different, but each reflects the wariness Washington feels towards these Chinese firms due to their government ties. In the bigger of the 2 cases, a World Trade Organization panel has ruled that US anti-dumping tariffs against Chinese solar panel makers violate WTO rules. In the second case, a US judge’s ruling has given a boost to a Chinese firm that planned to build a wind farm in the state of Oregon, only to get vetoed by Washington over national security concerns.

Neither of these rulings is the end of the story, and it’s still quite possible that Washington could prevail in one or both cases. But the WTO ruling in the solar case could be a tough one for Washington to fight, for reasons that I’ll explain shortly. That could be good news for the entire solar panel sector, as it could force Washington to seek a negotiated settlement in the matter. Such a deal would benefit nearly everyone by maintaining strong global competition, which is a critical element to foster rapid industry development.

All that said, let’s start with a look at the WTO ruling, which was part of a broader series of decisions critical of Washington’s anti-dumping duties. (English article) Washington had argued that Chinese solar panel makers received unfair government subsidies in a number of ways, from subsidized use of government land, to cheap loans from state-run banks, and tax incentives. The US conducted its own investigation 2 years ago, which ended with its decision to impose punitive tariffs against the Chinese firm.

The WTO’s ruling doesn’t dispute Washington’s premise of unfair state subsidies, but rather finds fault with part of the process. Put simply, the WTO’s rules say countries can only impose such anti-dumping penalties if they can prove the guilty companies are wholly or at least partly state owned. That’s a bit problematic in this instance, since many of China’s biggest solar panel makers started out as venture-backed private companies that are now big publicly-traded firms.

In my view the WTO ruling seems based on a technicality, since China clearly subsidizes all domestic solar panel makers due to Beijing’s decision to aggressively promote the industry. But rules are rules, and Washington and everyone else needs to respect the WTO’s guidelines. Washington could still try to prove that private Chinese panel makers like Yingli (NYSE: YGE) and Canadian Solar (Nasdaq: CSIQ) are somehow partly state-owned; but I’m hopeful that maybe the Obama administration will use this moment to re-examine its stance and try to seek a negotiated settlement in the matter.

Meantime on the wind front, a US judge has ruled the Obama administration wasn’t transparent enough when it cited national security concerns as its reason for vetoing a planned wind farm being built by construction equipment maker Sany Heavy (Shanghai: 600031). (English article) This particular case dates back nearly 2 years ago, and reverses a previous ruling by a lower court that had sided with the Obama administration.

In this latest ruling, the judge said the Obama administration was too secretive about its reasons for vetoing the plan, which denied Sany the right to defend itself or seek modifications that might placate the government. Previous reports had speculated that Washington was worried about spying, since the wind farm’s location was near a defense plant making high-tech drone aircraft. I would agree with the judge in this matter, and say that Washington needs to provide at least some of the evidence behind its decision that is likely to cost Sany millions of dollars in lost investment.

Bottom line: A WTO ruling against US anti-dumping tariffs on Chinese solar panels could force Washington to re-think its stance in the matter and seek a negotiated settlement.

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

July 16, 2014

Fifteen Clean Energy Yield Cos, Created Unequal

Tom Konrad CFA

Renewable Energy Investing Grows Up.

In January I predicted 2014 would be the year "renewable energy finance comes of age."  Here's how Jennifer Runyon quoted me on Renewable Energy World:

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

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

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

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

Renewable Energy Investing's Awkward Teens.

It now looks like just "a few" yield cos may be an underestimate. Last month, Abengoa (ABGB) and NextEra (NEE) launched yield co spin-offs Abengoa Yield (ABY) and NextEra Energy Partners (NEP), respectively.  Both IPOs were oversubscribed and priced at the top end of their expected range.  Along with NRG Yield (a spinoff of alternative energy assets from NRG Energy (NRG) from last year) and Pattern Energy Group (PEGI), launched by privately held Pattern Development, these are all up substantially (38% for ABY to 131% for NYLD) from their offering price.  In fact, they are up so substantially that their yields have fallen so far as to lend the very term "yield co" a hint of irony. 

The only real US-listed exceptions are Hannon Armstrong Sustainable Infrastructure (HASI) and Brookfield Renewable Energy Partners (BEP,) which still offer yields of 6.6% and 5.5%, respectively.  I suspect their relatively high yields arise from two factors, a rational one having to do with tax treatment and an irrational one having to do only with investor perception (or lack thereof.) 

With regards to tax, BEP is organized as a partnership and HASI is organized as a REIT, meaning that distributions from HASI are taxed as income, not at the lower rate for qualified dividends, and some investors may not want to bother with the added complication of receiving an annual K-1 from BEP.  Certain institutional investors such as many index funds also avoid there less usual corporate structures. 

While differential tax treatment of dividends can have a significant impact on high income investors, possible investor aversion to the partnership structure has not put investors off NextEra Energy Partners' stock because that company will be taxed as a corporation.  At most, these factors might justify a 20% to 40% discount for HASI, and a 10% to 25% discount for BEP.  Yet even after such discounts, they both trade at about two-thirds of the prices which would put them on par with the typical US-listed yield co.

I think the part of the discounts on BEP and HASI which is not accounted for by their tax structures can be ascribed to the immaturity of yield co investing.  To extend my coming of age metaphor, renewable energy income investors are acting like teenagers: they're a little new to the dating scene, and are more concerned about getting a date for the prom (yield co investment) than they are about the long term viability of the relationship.

Finding An Adult Relationship

I've been managing money professionally as long as many teenagers have been alive, and at this point I'm more interested in a stock's long term potential for total return than dating stock market prom queens. This article is the first in a series which will compare the fifteen publicly traded stocks in the US, UK, and Canada which meet my definition of yield co: a company which owns primarily clean energy assets for the purpose of generating income which is mostly returned to investors in the form of distribution.

For a taste, the following chart shows the types of assets and the portion of the market capitalization not currently owned by the company's sponsor ("market float.")  The numbers for Terraform Power (TERP) are based on the assumption that, like ABY and NEP, the offering will price at the top end of its range ($21) and that the underwriters exercise their full over allotment option.

UPDATE: The next two installments are here and here.

Yieldcos by fuel.png

Disclosure: Long HASI, BEP, PEGI, RNW, CSE, INE, PRI, TRIG.  Short NYLD Calls.

DISCLAIMER: Past performance is not a guarantee or a reliable indicator of future results.  This article contains the current opinions of the author and such opinions are subject to change without notice.  This article has been distributed for informational purposes only. Forecasts, estimates, and certain information contained herein should not be considered as investment advice or a recommendation of any particular security, strategy or investment product.  Information contained herein has been obtained from sources believed to be reliable, but not guaranteed.

July 14, 2014

The Story Is Storage

by Joseph McCabe, PE

Walking into the 2014 Intersolar North America San Francisco exhibit it became apparent there was a story embedded in the products and services displayed on the three different floors of the Moscone Center West. The third floor of the exhibits was dominated by PV structure companies which have entered into a competitive blood bath since our last report. Dominating the first floor were Chinese PV manufacturers Jinko Solar (NYSE: JKS), Canadian Solar (NYSE: CSIQ), Trina Solar (NYSE: TSL) and Yingli (NYSE: YGE) all sharing the center exhibit space. Although Chinese solar is a popular topic due to newly imposed import duties, and the PV racking industry is highly competitive, the dominant story of this year’s event was storage which dominated both the conference and the second floor 2014 Intersolar NA exhibits. On-going storage side-sessions were held adjacent to the storage focused exhibits.

Storage Role in the PV Industry

Storage has become such a hot topic because consumer, commercial, industrial and utility PV installations can now benefit from electrical storage. Storage is important for maintaining consistent electrical output from PV due to clouds; enables PV systems to store energy in the morning for dispatching during later hours of the day when the sun has gone down, when the electricity is more valuable; and allows for other high value grid related support functions.

Storage is becoming more prevalent in today’s PV industry for at least two reasons: 1. Because of lower PV installation costs, there are more and more PV installations. Higher amounts of PV, and a higher percentage of PV on the grid requires storage to smooth out drops in PV power output due to clouds, called intermittency (especially important in isolated grids with lots of PV such as in Hawaii).   2. Lower electrical storage costs from batteries, driven by the electric automotive industry, are enabling lower costs and more functionality for PV combined with electrical storage. These factors combined with the now available advanced functionality from PV inverters are opening up new markets for storage. New policies, new electrical tariffs (the way utilities charge customers) and new storage use cases are creating profits for both the PV industry and the utilities. There are many different types of electrical storage which are used for different reasons, some of which are discussed in a previous article. The different kinds of storage will play out in the industry for their particular functionality, cost advantages and reliability.

Eaton booth

Electrical storage requires integration with inverters; in a PV system an inverter with storage produces a more complete, reliable energy solution. Big industrial electronics players like ABB (NYSE: ABB, formerly Power-One inverters), EATON (NYSE: ETN), TMEIC, Bonfiglioli, Advanced Energy (NASDAQ: AEIS) and Solectria Renewables were exhibiting larger and larger inverter solutions including ones integrated with storage.

Solectria booth

ABB booth

There were inverter company exhibits from Outback Power, SolarEdge, Chint Power and Magnum Energy. Kaco, Fronius and SMA (XETRA: S92.DE) have announced US consumer grid tied inverters integrated with electrical storage, similar to those currently offered in Europe. Those companies did not have exhibits but SMA did have a van parked outside displaying their smaller technologies.

sma van

Storage companies like Bosch Energy Storage, JuiceBox Energy, Ideal Power (NASDAQ: IPWR), Princeton Power Systems, Energy Toolbase, Sonnenbatterie GmbH, Hoppecke, Rolls Battery of New England, S&C Electric Company, VARTA Storage, American Vanadium (CVE: AVC.V) and Stem filled up a major portion of the second floor exhibit space.

Aquion storage

Aquion Energy 7 kW, 22 kWh (at 20 hours and 30 degrees C) pallet of storage weighs 3,175 lbs and has a more than 3,000 cycle life. This particular technology doesn’t have chemical fire safety issues inherent with other technologies.

Vanadium redox batteries were discussed in sessions and displayed at this years exhibit. Vanadium redox is an interesting storage technology because in addition to the fast response time for dispatching electricity, it has an end of life value; vanadium is used for strengthening steel for rebar and other stronger, lighter materials when converted to ferrovanadium for use as a steel additive.

Policy leads to profits diagramMany policies are driving storage including California’s AB514, Self Generation Incentive Program, and Electric Program Investment Charge, ConEd’s Demand Management, NYSERDA PV Incentive and Reforming the Energy Vision, Massachusetts Community Resiliency Technical Assistance, New Jersey Storage Incentive, and Rule 21. If storage is positioned correctly with PV it can obtain the federal investment tax credit (ITC). Storage projects are beginning to be implemented with request for offers (RFO) and request for proposals (RFP) for storage at Hawaiian Electric Company (HECO), Southern California Public Power Authority (SCPPA), Southern California Edison (SCE) and Long Island Power Authority (LIPA).

Valuing Storage, Rule 21

What wasn’t being discussed very much at the 2014 Intersolar meeting and relates directly to storage was Rule 21.  Rule 21 is the new utility tariff in California which will be driving the values from/for these electronics and storage solutions. July 18th 2014 is the current deadline for submission of new Rule 21 tariffs by the California Investor Owned Utilities (IOUs) to the California Public Utilities Commission (CPUC). New functions including storage will be implemented, and paid for by these new tariffs.

The proposed first seven functions to be implemented by Rule 21 are Anti-Islanding Protection, Low and High Voltage Ride-Through, Low and High Frequency Ride-Through, Dynamic Volt-Var Operation, Ramp Rates, Fixed Power Factor and Soft Start Reconnection. Some of these functions enable greater PV on the grid, while others provide higher values from PV systems to the grid. Benefits to the utility from, for example, distributed power factor correction (reactive power correction) include but are not limited to increasing available grid capacities, reducing grid losses, and decreasing grid congestion.  These functions help to set the stage for greater amounts of storage + PV on the grid. For example, Anti-Islanding Protection is needed if there are many storage units connected to PV systems. The communications for all these smart grid and advanced functions are being developed by industry players like SunSpec Alliance; communications are the second phase of Rule 21. Storage plays a dominant role in the third phase where scheduling of energy services will become implemented. All these phases will play out in California in the next few years.

Turn-key Storage Solutions

I particularly impressed by a company named Greensmith. They are currently a privately held company with a reported $14M private investment and offices in Maryland and California. The history of this company dates back to 2008 with software development. Finding it easier to do the front and back end hardware themselves they became a turnkey solution for grid support and energy storage. They have a chemistry-neutral battery management system which makes them relevant to the whole storage landscape. The functions being provided by Greensmith are finding utility markets with New Jersey’s PJM frequency response, New York’s energy arbitrage (example: pumped storage resources can arbitrage price by purchasing lower priced off-peak power and selling power during peak hours of the day along with demand management due to Indian Point shut down) and the previous mentioned California Rule 21 tariff. These functions also include ramp rate control, smoothing, peak shaving and capacity shifting. CEO John Jung provided a presentation to the sessions held at the Intercontinental. They have 30 systems installed at 9 utilities with experience in 8 batteries and 6 inverter technologies. The largest of which is a 20 MW turn-key system. Systems include a 500 kW / 1.5 MWh storage system in San Diego and EV Charge + PV in Brooklyn, NY and Honolulu, HI.

greensmith booth

Conclusion

PV combined with storage is becoming more important in the PV industry because of lower costs and greater monetizable values for increased electrical services. Energy, demand, power factor and frequency response are just some of the utility values driving the increased attention for storage when combined with PV.  Turn-key system solutions that address specific use cases for storage will be driving the near-term markets for grid connected storage in the PV industry.

Disclosure: No positions. Photos were taken before exhibits opened.

Joseph McCabe is an international solar industry expert with over 20 years in the business. He is a Solar Energy Society Fellow, a Professional Engineer, and is a recognized expert in developing new business models for the industry including Community Solar Gardens and Utility Owned Inverters. McCabe has a Masters Degree in Nuclear and Energy Engineering and a Masters Degree of Business Administration.

Joe is a Contributing Editor to Alt Energy Stocks and can be reached at energy [no space] ideas at gmail dotcom

This article was first published on AltEnergyStocks.com.  Joe will attempt to answer any comments left on the original article [link].

July 10, 2014

Tesla Faces Costly Trademark Headache

Doug Young

Tesla Logo
Tesla trademark
dispute resurfaces.

After zooming into China with a slick publicity campaign earlier this year, electric car superstar  Tesla (Nasdaq: TSLA) has run into a major new roadblock in one of its most promising markets over a trademark dispute. Tesla thought it had settled a matter that jumped into the headlines last summer as it was preparing to formally move into China. But apparently the trademark squatter who purchased the Tesla names in English and Chinese wasn’t satisfied, and has formally sued the company. Based on past cases, this one could be costly for Tesla, forcing it to pay tens or even hundreds of millions of dollars if it wants to reclaim its name in China.

I’ve previously said that China needs to be more business friendly in this kind of dispute, where opportunistic buyers often hold big corporations hostage. But China seems determined to uphold its laws that often seem to favor those opportunists, not only hurting big foreign names like Tesla but also harming homegrown companies. This kind of opportunism is in the same spirit as many of the less ethical business practices that are common in China landscape, ultimately slowing or stalling the development of new industries.

Tesla thought it had settled its trademark dispute with businessman Zhan Baosheng, who purchased the company’s trademarks in both English and Chinese back in 2006. (previous post) But Zhan didn’t see things that way, and has now sued Tesla for trademark infringement, demanding the company stop using the trademarks in China and pay him 23.9 million yuan ($4 million) in damages. Zhan is also demanding that Tesla cease all marketing activities, shut down its showrooms and also stop development of its national network of charging stations.

The Beijing court has agreed to hear the case on August 5. That means it believes that Zhan may have some legal grounds for his actions, since Chinese courts typically refuse to hear such cases if they believe the plaintiff has no chance of winning. In this instance it’s hard to know what exactly happened, as neither Tesla nor Zhan is publicly commenting about the case. Tesla had said early this year that the matter was settled and delivered its first cars in China in April in a series of high-profile appearances by the company’s charismatic founder Elon Musk. (previous post)

The case looks quite similar to another high-profile dispute in 2012 involving Apple (Nasdaq: AAPL) and its iPad name. In that case, a bankrupt firm named Proview bought the name a decade earlier for a product that never found a market and ceased manufacturing long before the rise of Apple’s popular tablet PCs. Apple even thought it had legally purchased the name from Proview, but a technical glitch meant the transfer was never completed. Rather than honor the spirit of its earlier agreement to sell the name, Proview took the matter to court and Apple was ultimately forced to pay $60 million for the trademark.

The businessman in this latest case probably won’t stop Tesla’s drive into China, but he could easily slow things down with this major distraction. One element in Tesla’s favor is Beijing’s strong desire to promote electric cars as it looks to clean up the nation’s polluted air. There was no such element in the Apple story. To the contrary, Apple may have even gotten harsher treatment than most other companies due to its perception as arrogant by some in Beijing.

While politics could help in this situation, Beijing leaders in the past have shown a surprising lack of willingness to get involved such matters where opportunists attempt to manipulate the law. That’s certainly a desirable attitude in a country where the legal system is mature and independent. But China’s courts don’t really posses either of those qualities, and are likely to end up causing Tesla to lose valuable time and forcing it to pay a hefty settlement in its drive into China.

Bottom line: Tesla’s trademark infringement dispute is likely to delay the company’s drive into China by up to half a year, and cost it tens or even hundreds of millions of dollars to settle.

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

July 09, 2014

BioAmber Goes Ballistic

Jim Lane

Word arrived from Minnesota that BioAmber has signed a 210,000 ton per year take-or-pay contract for bio-based succinic acid with Vinmar International.

Explaining why BioAmber (BIOA) stock shot up nearly 17% in today’s trading despite a global equities pullback that affected almost everyone else in industrial biotech.

Under the terms of the 15-year agreement, Vinmar has committed to purchase and BioAmber Sarnia has committed to sell 10,000 tons of succinic acid per year from the 30,000 ton per year capacity plant that is currently under construction in Sarnia, Canada.

Bottom line, BioAmber continues to roll and roll. We looked at a number of the drivers in May, in “Why are all the traffic lights turning green for BioAmber?” There, we noted:

BioAmber is avowedly pursuing a strategy based in careful aggregation of strategic partners that bring investment and offtake as well as financing relationships, while building further applications for their molecules in work with R&D partners that could be expected to translate into commercial partners down the line. Which is to say, starting with an economically and environmentally advantaged molecule and then working in partnership with downstream customers to establish markets for that molecule.

“It’s very different than the conventional biobased fuels strategy, which has been to set mandates to create market certainty, and use that to create a favorable financing environment, and encourage engagement with incumbents.”

Expansion at Plant #2

As part of the new succinic acid master off-take agreement, this second plant will be expanded to an annual capacity of 100,000 tons of bio-BDO and 70,000 tons of bio-succinic acid. Vinmar plans to make a 10% or greater equity investment in the expanded plant and has committed to off-take and BioAmber has committed to sell a minimum of 50,000 tons per year of bio-succinic acid for 15 years following the plant’s start-up date. Vinmar also has the option to secure additional bio-succinic acid tonnage under the take-or-pay contract if BioAmber has not committed the remaining volume at the time the plant’s financing is secured.

Building a plant #3

Vinmar also committed to off-take and BioAmber committed to sell a minimum of 150,000 tons per year from a new, third plant following its financing, construction and commissioning. The plant would be dedicated to bio-succinic acid production and would have an annual capacity of 200,000 tons per year. Vinmar plans to invest at least 10% of the equity in this third plant, which BioAmber expects to start up in late 2020, based on the projected development of the succinic acid market.

Expanding the BDO deal

In a related announcement, BioAmber and Vinmar also broadened the scope of their previously announced 100,000 ton per year 1,4 butanediol (BDO) plant, which the parties currently plan to start up in late 2017. Under that agreement, following the financing, construction and commissioning of the BDO plant, Vinmar has committed to purchase and BioAmber has committed to sell 100% of the BDO produced for 15 years.

More than 100% of capacity sold out

The Vinmar take-or-pay contract, together with the take-or-pay agreement signed in April 2014 with PTTMCC Biochem (a joint venture between Mitsubishi Chemical and PTT of Thailand), guarantees the sale of 50% of Sarnia plant capacity during the first three years of operation and 33% of plant capacity for the following 12 years.

In addition, BioAmber has signed 19 supply and distribution agreements and seven MOUs to date, and the cumulative volume of these contracts exceeds the available capacity for sale in Sarnia. BioAmber has been selling bio-based succinic acid for over four years and to date 38 customers have qualified the company as a succinic acid supplier and purchased product from the existing production facility in France.

Jim Lane is editor and publisher  of Biofuels Digest where this article was originally published. Biofuels Digest is the most widely read  Biofuels daily read by 14,000+ organizations. Subscribe here.

July 08, 2014

RGS Energy: Troubling Inconsistencies

Garvin Jabusch

About three weeks ago, I posted a piece called "RGS Energy, Tempered, Opportunistic Growth," an optimistic bit of coverage on one of our holdings,  (RGSE), that included an 18-month price target of $10.00 per share. Since then, several developments and pieces of information have come to light that have caused us to revise our assessment of the company.

Thursday, July 3, a quiet half-market day, RGS Energy released a statement announcing plans to monetize its previously filed potential shelf offering; "RGS Energy (NASDAQ: RGSE) has entered into a definitive agreement to raise approximately $7.0 million in a private placement financing transaction. Under the terms of the agreement, RGS Energy will issue units consisting of an aggregate of 2,919,351 shares of its Class A common stock and warrants to purchase up to 1,313,708 additional shares of Class A common stock, at a price of $2.40 per unit." This deal has been offered to and accepted by as yet undisclosed buyers at well below RGSE's market price in the $2.90s on July 3. The market reacted unfavorably to this low self-valuation from RGSE, driving the share price down approximately 16 ½ percent in the two market days that have followed the announcement, but even so, the private placement valuation remains below market as of this writing.

It gets more interesting. Not only do participants receive this fire-sale valuation, but also, "[e]ach unit consists of one share of Class A common stock and a warrant to purchase 0.45 shares of Class A common stock at an exercise price of $3.19 per share. The warrants are exercisable beginning six months after issuance and for a period of five years thereafter." So participants are buying already in-the-money shares, and also getting up to 5 ½ more years to watch the company grow, risk free, before deciding whether to buy more shares at $3.19. Frankly, I'm surprised that management thinks little enough of their firm that they felt the need to offer such a cheap price and also such a fantastic sweetener to raise equity capital. Not knowing all the deal details, I may be missing something, but if this was the best valuation RGSE could get for equity, why didn't they use low-interest debt instead? As of last report, the company had zero long-term debt, a perfect position for a cash-flow positive business to fund operations on the cheap with some kind of note offering.

All in then, up to 6,137,936 dilutive RGSE shares may be sold at $2.40 and $3.19 per share, representing up to 13.65 percent dilution to the existing shareholders of the previously outstanding 44.97 million shares. This is in exchange for $6.4 million (net: of the $7mm raise, close to 8.6 percent, or $600,000, is going to fees and expenses) in "operating capital," and "debt repayment," and not necessarily so much for expansion, except a vague statement about proceeds "to support the launch of its residential leasing platform."

When we met with RGSE's CEO Kam Mofid on May 22, 2014, we asked him about the shelf filing that made this transaction a possibility. That day, he told us that a "shelf offering is filed, but it is to be used only opportunistically for tactical expansion." We understand that business needs can change -- even in just a six-week period -- but the terms of the execution of the shelf offering and the uses of capital as represented in the press release don't seem to agree with Mofid's in-person confidence in opportunistic growth via smart use of his war chest. And Mofid represented to us that RGSE has no debt except for a revolving credit line with Silicon Valley Bank (SVB), which in late May he told us they pay off in full every quarter. So in what sense can their press release be accurate about using proceeds to pay down debt? Only in the sense that they will pay off the SVB line -- something they were already doing with cash flow -- with the new capital. On the contrary, now would have been the time to take on debt rather than issue new equity, thus providing the opportunity to grow the firm to the point where they could get a much better valuation for its shares upon exercising the shelf offing in another year or two.

In the end, we can't help but feel that RGSE's newly announced sources and uses of capital conflict with the business approach as articulated to us by the firm's CEO less than two months before.

In the last post, I wrote that RGSE had every chance of hitting $10 per share by the end of 2015. That was based partially on the rapid growth of the solar installation industry, on our confidence in management ability to execute, and also partly on my assessment of RGSE's value relative to the total market capitalization of SolarCity (SCTY). Since that post, SCTY has announced plans for massive vertical integration of PV panel manufacturing of the most technologically advanced panels and at prices competitive with any panels out there. This has changed the fundamental nature of SCTY and renders moot my comparison of two installation-only firms.

Where SCTY has added a high-tech manufacturing firm to its business, RGSE has signed a supply agreement with SolarWorld to source panels for installation. We can't help but notice that it was SolarWorld that persuaded the Commerce Department to levy tariffs on Chinese solar panels imported into the U.S., thus doing more to slow the growth of RGSE's core business than has any other single entity. According to Forbes, SolarWorld has been called "a crazed agent provocateur" and "[a]t a recent dinner in San Francisco, Suntech chief technology officer Stuart Wenham, an Australian, was just as blunt. 'SolarWorld is a pariah…No one wants to deal with them.'" SolarWorld's continuing efforts to undermine the economic competitiveness of solar PV in the United States would seem to fly in the face of RGSE's long-term business interests.

Finally, then, we have to revise our price target. To external appearances, it seems RGSE may not be acting entirely within the best interests of the firm or its existing shareholders. Eschewing presumably cheap debt in favor of expensive, dilutive equity fundraising, and offering a sweetheart deal to get it done, seems to show an internal lack of confidence in the firm's valuation and near-term prospects. Nevertheless, the simple fact that RGSE finds itself in one of America's fastest-growing industries still bodes well for growth, and with the low current valuation, for the possibility of a takeover. We're lowering RGSE from "buy" to a "hold" rating, and lowering our 2015 price target to U.S. $5.00. While we're disappointed with current events, and we don't presently intend to accumulate more shares, we are not planning to immediately exit our position in RGSE, since, as our price target indicates, we do think there's upside potential from the current $2.53.

Disclosure: Green Alpha Advisors presently holds both RGSE and SCTY. 

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."

July 06, 2014

June Bloom: Ten Clean Energy Stocks For 2014, Q2 Update

Tom Konrad CFA

After two weak months, June brought a strong recovery to clean energy stocks and the market in general.  The broad market benchmark IWM put on 7.2%, reversing its previous loss for the year to enter the 4th of July holiday up 4.7%.  My clean energy benchmark PBW shot up 8.6%, for year to date gains of 9.9%. Meanwhile my relatively conservative 10 Clean Energy Stocks for 2014 model portfolio rose 3.6%, retaining its lead on the broad market with a 7% gain so far this year, but falling back behind more volatile clean energy stocks. 

Performance details are shown in the chart below, as well as in the individual stock notes which follow.  Note that the chart is click-able for a larger version.  The numbers to the left of the blue diamonds are US$ returns since the last update, those on the red bars are returns so far this year.

10 for 14 Q2

Individual Stock Notes

(Current prices as of July 3rd, 2014.  The "High Target" and "Low Target" represent my December predictions of the ranges within which  these stocks would end the year, barring extraordinary events.)

1. Hannon Armstrong Sustainable Infrastructure (NYSE:HASI).
12/26/2013 Price: $13.85.     Low Target: $13.  High Target: $16.  Annualized Dividend: $0.88.
Current Price: $14.59.  YTD Total US$ Return: 8.5% 

Sustainable Infrastructure REIT Hannon Armstrong paid a second quarter dividend of $0.22.  I had hoped for a small dividend increase, but given that the company's policy is to pay 100% of core earnings in the form of dividends, I will place more importance on the company's soon-to-be announced second quarter core earnings than on the dividend payment.  I hope to see core earnings on track for the 15% annual increase management has said to expect through the end of 2015.

2. PFB Corporation (TSX:PFB, OTC:PFBOF).
12/26/2013 Price: C$4.85.   Low Target: C$4.  High Target: C$6. 
Annualized Dividend: C$0.24.
Current Price: C$4.83. YTD Total C$ Return: 2.1%.  YTD Total US$ Return: 2.7%

Green building company PFB Corp did not release any news.  The stock's partial reversal of earlier gains may have been the result of weaker numbers in the US housing market.

3. Capstone Infrastructure Corp (TSX:CSE. OTC:MCQPF).
12/26/2013 Price: C$4.05.   Low Target: C$3.  High Target: C$5.  
Annualized Dividend: C$0.30.
Current Price: C$4.35.  YTD Total C$ Return: 28.9% .  YTD Total US$ Return: 29.7%

Independent power producer Capstone Infrastructure announced its regular quarterly dividend of C$0.075, payable to shareholders of record as of July 31st.  After the stocks' recent gains, RBC Capital lowered its rating to "sector perform."  I also think we have seen most of the gains we can expect from Capstone stock this year, but continue to hold my position.  I think the 7.4% current yield remains quite attractive and could lead to additional small capital gains while affording significant downside protection.

4. Primary Energy Recycling Corp (TSX:PRI, OTC:PENGF).
12/26/2013 Price: C$4.93.   Low Target: C$4.  High Target: C$7. 
Annualized Dividend: US$0.28. 
Current Price: C$5.45.  YTD Total C$ Return: 13.2% .  YTD Total US$ Return: 13.9%

Waste heat recovery firm Primary Energy posted significant gains in June after confirming market rumors that it "is engaged in a strategic review process to generate shareholder value," although no agreement has been reached.  The possibility that Primary Energy might be for sale was part of the reason I included the company in the portfolio at the start of the year.

5. Accell Group (Amsterdam:ACCEL, OTC:ACGPF).
 
12/26/2013 Price: €13.59.  Annual Dividend €0.55 Low Target: 11.5.  High Target: €18.
Current Price: €13.90. YTD Total  Return: 6.3% .  YTD Total US$ Return: 7.0% 

Bicycle manufacturer and distributor Accell Group paid its 2013 annual distribution of €0.55.  The dividend is set on an annual basis based on last year's profits.  Since sales have been better so far this year, I expect next year's distribution to be higher.

6. New Flyer Industries (TSX:NFI, OTC:NFYEF).
12/26/2013 Price: C$10.57.  Low Target: C$8.  High Target: C$16. 
Annualized Dividend: C$0.585.
Current Price: C$12.33.  YTD Total C$ Return: 19.0% .  YTD Total US$ Return: 19.7%.

Leading transit bus manufacturer New Flyer announced it would consolidate its transit bus and bus rapid transit models around its Xcelsior platform.  Production of the LFW and BRT models acquired last year with the purchase of rival NABI would be phased out in the second half of 2015.  The Excelsior's BRT styling options would be enhanced by building on NABI's BRT experience.  Cannaccord Genuity reaffirmed its hold rating on New Flyer, but upped its price target to C$11.75 from C$11.50.

7. Ameresco, Inc. (NASD:AMRC).
12/26/2013 Price: $9.64Low Target: $8.  High Target: $16.  No Dividend.
Current Price: $7.19  YTD Total US$ Return: -25.4%.

Ameresco CEO and founder George Sakellaris added another 50,000 shares to his already large stake in the energy performance contracting firm. This and previous insider purchases discussed last month pushed the stock over $7, well above the low of $5.59 seen in early May.

8. Power REIT (NYSE:PW).
12/26/2013 Price: $8.42Low Target: $7.  High Target: $20.  Dividend currently suspended.
Current Price: $9.11 YTD Total US$ Return: 8.2%

Solar and rail real estate investment trust Power REIT paid the first quarterly dividend on its preferred shares (NYSE:PW-PA).

9. MiX Telematics Limited (NASD:MIXT).
12/26/2013 Price: $12.17Low Target: $8.  High Target: $25.
No Dividend.
Current Price: $10.25. YTD Total ZAR Return: -13.7%. YTD Total US$ Return: -17.1%

Investors seemed unimpressed with the full year results of global provider of software as a service fleet and mobile asset management, MiX Telematics at the start of June.  While I found the report in line with the company's business plan and mildly encouraging overall, the stock continued to fall after the announcement. 

Company insiders seemed to share my positive sentiments, and began purchasing the stock on the open market.  MiX CEO Stefan Joselowitz bought the equivalent of 26,000 shares at $9.77 [pdf] while a company director bought the equivalent of 4,844 shares at $9.40-$9.50 [pdf].   This news seems to have reversed the stock's decline, and MIXT ended the month up by 1.6%.

I also added to my positions  in the $9 range during the month.

10. Alterra Power Corp. (TSX:AXY, OTC:MGMXF).
12/26/2013 Price: C$0.28. Low Target: C$0.20.  High Target: C$0.60. No Dividend.
Current Price: C$0.34   YTD Total C$ Return: 21.4% .  YTD Total US$ Return: 22.2%.

The stock of renewable energy developer and operator Alterra Power gained over 12% in June, but without significant news.

Two Speculative Clean Energy Penny Stocks for 2014

Ram Power Corp (TSX:RPG, OTC:RAMPF)
12/26/2013 Price: C$0.08.  Low Target: C$0.00.  High Target: C$0.22. No Dividend.
Current Price: C$0.03   YTD Total C$ Return: -62.5% .  YTD Total US$ Return: -62.3%
Terminal US$ Return -57% (when I said to sell on June 3rd.)

So far, the decision to sell geothermal power developer Ram Power last month seems to have been a good one.  I am no longer following the stock.

Finavera Wind Energy (TSX-V:FVR, OTC:FNVRF). 
12/26/2013 Price: C$0.075.  Low Target: C$0.00.  High Target: C$0.22. No Dividend.
Current Price: C$0.10   YTD Total C$ Return: 33.3% .  YTD Total US$ Return: 34.2%.

Wind project developer Finavera gained on the issuance of an Environmental Assessment Certificate to the Meikle Wind project recently sold to Pattern Energy Group (NASD:PEGI.)  This brings Finavera one step closer to receiving the approximately $19 million which will be due from Pattern upon the arrangement of project financing. 

Nevertheless, the stock remains in the doldrums due to lack of promised announcements regarding Finavera's future renewable energy development ventures.  The press release included some familiar boilerplate "With proceeds from the sale, Finavera plans to aggressively reduce short and long term debt and focus on another fast growing area of renewable energy development.  Finavera is working on transactions to put forward for shareholder approval at our AGM," but the lack of detail is clearly frustrating to shareholders.

Final Thoughts: The Yieldco Boom

Valuations of alternative energy "Yeildcos" such as NRG Yield (NYSE:NYLD) and the recently launched Abengoa Yield (NASD:ABY) have risen rapidly in recent months, to the point where there is little more yield in many "Yieldcos" than in traditional utility stocks.  (NYLD and ABY currently pay 2.7% and 2.8% on an annual basis.)

These and other Yieldcos are creating a large pool of low cost capital available to finance alternative energy infrastructure.  Demand remains strong: NextEra Energy Partners (NYSE:NEP) rose 38% to $34.61 in the first day of trading on July 3rd.  At the initial dividend rate of $0.75 annually, the yield is only 2.2%, below even the parent company NextEra Energy's (NYSE:NEE) 2.9% yield.

The Yeildcos themselves may have trouble advancing from their current lofty valuations, but the low cost capital they bring is likely to raise the price and of existing alternative energy infrastructure, and make new alternative energy projects easier to finance.  While the Yieldcos' parent companies are the most obvious beneficiaries, all current owners, developers, and suppliers to renewable energy projects are likely to feel its effects.  In this list, those include Hannon Armstrong, Capstone Infrastructure, Primary Energy, Ameresco, and Alterra. 

It's entirely possible that Primary Energy's "strategic negotiations," discussed above, are with the sponsor of a current or future Yieldco.  At Yeildco prices, the stock would be worth US $7 or C$7.46 a share (based on a 4% yield and the current annual dividend of $0.28.)

Disclosure: Long HASI, PFB, CSE, ACCEL, NFI, PRI, AMRC, MIXT, PW, AXY, FVR, PEGI.  Short NYLD Calls.

DISCLAIMER: Past performance is not a guarantee or a reliable indicator of future results.  This article contains the current opinions of the author and such opinions are subject to change without notice.  This article has been distributed for informational purposes only. Forecasts, estimates, and certain information contained herein should not be considered as investment advice or a recommendation of any particular security, strategy or investment product.  Information contained herein has been obtained from sources believed to be reliable, but not guaranteed.

July 05, 2014

A Deal A Day At Renewable Energy Group

They are hoopin’ it up in Ames, Iowa these days.  Local producer Renewable Energy Group (REGI:  Nasdaq) completed the acquisition of Dynamic Fuels, Inc., one of the first renewable diesel biorefineries in the country.  The Dynamic Fuels facility located in Geismar, Louisiana has 75 million gallon annual nameplate production capacity. Renewable Energy Group (REG) already had eight other fully operational biorefineries with a nameplate production capacity near 250 million gallons per year.  REG also has a demonstration plant in Oklahoma for renewable chemicals.

It was a two-part deal.  First REG struck a deal with for most of the assets of Syntroleum Corporation for 3.5 million shares of REGI common stock.  The deal included a 50% ownership interest in Dynamic Fuels.  Shortly after the Syntroleum acquisition in early June 2014, REG paid $18 million in cash to Tyson Foods for the remaining 50% interest.  Tyson may also be paid up to $35 million over the next decade depending upon production volume.  REG will also repay Tyson for $12 million in debt owed by Dynamic Fuels.

REG is not only on the prowl for production capacity.  The company has used the acquisition strategy to build out its technology portfolio.  Earlier this year REG paid $40 million in cash and stock for LS9, Inc., a developer of renewable industrial chemicals.  REG may pay an additional $21.5 million over the next five years if certain milestones are reached.  LS9’s technology relies on the fatty acid metabolic pathway of microorganisms, which are used to transform a variety of feedstocks into detergents and other renewable chemicals.  Included among those feedstocks is glycerol, which is a by-product of REG’s biodiesel production processes, making for very nice synergy between the two companies.

Investors responded warmly to the LS9 acquisition, driving REGI shares from a price near $9.75 in early February 2014 to just over $12.50 in early May.  Unfortunately, mixed signals from the first quarter 2014 financial results reported in early May, were fodder for some disappointment and the stock began a slide back down to the $10 price level.  Perhaps investors also began anticipating potential dilution from  the company’s $125 million convertible note deal that was completed in late May 2014.  The Dynamic Fuels to near a key line of resistance near the $11.50 price level.

The question for investors is whether the stock has sufficient momentum to break through and remain above the resistance line.  Based on the Average Directional Index, a trend indicator, the stock is indeed trending higher and the signal is  relatively strong.  Let me also note that the Moving Average Directional Index is quite favorable and is currently signaling higher prices ahead.

What is less clear for REGI is an absolute value for the stock.  Technical indicators are silent on just how far the stock might go.  From a fundamental standpoint, it is not very difficult to come up the raw data for an earnings forecast.  The consensus estimate for the year 2015, is for $0.82 per share on $1.13 billion in sales.  At a multiple of 20 times earnings, a price of $16.40 seems justified, given the company’s improved competitive position.  Only one of the analysts has a price target of $16.00 while the mean price target is $13.67.

It seems prudent to accumulate shares of Renewable Energy Group at price levels below $11.50.  For those with long positions at lower prices levels, that will ensure a profit in the long-term.  The stock closed out trading last week with a strong volume and the engulfing pattern that formed at the week-end suggests the climber higher will continue in the new week.  However, given the volatility in REGI shares, it seems more likely than not the the stock will again present a strong buying opportunities from investors.

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.

July 04, 2014

Will Tesla's Next Car Cost you $25,000?

By Jeff Siegel

While I've long been an outspoken supporter of Tesla (NASDAQ:TSLA), as well as a huge fan of both Elon Musk and the Model S, it is the company's smaller version of the Model S that gets me most excited.

The bottom line is that cost will be the determining factor for most Americans considering electric cars. After all, you'd be hard-pressed to find many folks who wouldn't love to own a Model S. But at around $75,000, few can afford it.

Of course, the vision of Tesla is not one based solely around supplying high-end vehicles to high-net worth individuals. Although the Roadster, Model S and Model X are out-of-reach for most, it could be Tesla's smaller, yet more affordable electric sedan that will bring in the masses. Not just to look and crave, but to buy.

An Affordable Tesla

According to Tesla VP of engineering Chris Porritt, Tesla's new, smaller sedan will be “realistically” priced against the likes of Audi A4 and BMW 3-series. So we're talking about $35,000 on the low-end.

35,000 is still a lot of scratch to pony up for a vehicle, but over the course of seven years (the average length of car ownership for a single vehicle in the U.S.), customers could end up saving about $15,000 on “fuel” costs (based on data from the Michigan Transportation Research Insitute), as home-grown electricity will always be cheaper than 87 octane. Of course, those savings will vary from state to state.

But even if customers only saved $10,000 on fuel costs over the course of seven years, that's a pretty significant savings that ultimately deducts one-third off the cost of the vehicle. A smaller, Tesla Model S for $25,000? Yes please!

 signature

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

July 03, 2014

Chinese Remain Skeptical of Domestic EVs

Doug Young

Chinese local media were trying to accentuate the positive when they reported that China’s new energy vehicle sales rose 10-fold in the first 4 months of this year. (Chinese article) That figure caught my attention, but then I read further into the reports and saw that even after the huge jump just 10,000 new energy vehicles were sold in China in January through April, averaging a meager 2,500 per month.

Adding further gloom to the picture, the vast majority of vehicles were purchased by fleet operators of taxis and buses. Within the larger figure, half of all sales were for buses, while another 40 percent were for taxis. Only 1,000 vehicles sold in the first 4 months were for consumer-use plug-in electric models. That doesn’t bode well for the mass consumer market, which will need to improve significantly for China to meet its ambitious goals for new energy vehicle sales.

The electric vehicle (EV) market has received some good news in the last few months, mostly from US hotshot Tesla (Nasdaq: TSLA), which has energized the sector with several sharp publicity campaigns and other new initiatives to popularize its technology. (previous post) But Tesla’s cars are squarely aimed at the very high end of the market, and its initiatives are unlikely to boost the broader market where mainstream consumers are still highly skeptical of the technology. These latest figures show the industry isn’t going anywhere quickly in China, and it could still be years before the market finally starts to take off.

Bottom line: New energy vehicle sales figures for the first four months of 2014 show electric cars continue to struggle to find an audience.

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


Site Sponsors





Oil and Gas



Share Us






Subscribe to this Blog

Enter your email address:

Delivered by FeedBurner


Subscribe by RSS Feed



Search This Site


Certifications and Site Mentions


New York Times

Wall Street Journal





USA Today

Forbes

The Scientist

USA Today

Seeking Alpha Certified

Twitter Updates