July 10, 2015

How Much Can YieldCo Dividends Grow?

Tom Konrad CFA

U.S.-listed YieldCos seem to offer the best of two worlds: high income from dividends, combined with high dividend per share growth.

YieldCos are listed companies that own clean energy assets, and like the real estate investment trusts (REITs) and master limited partnerships (MLPs) they are modeled after, they return almost all the income from their investments to their shareholders in the form of dividends. Unlike REITs and MLPs, however, U.S.-listed YieldCos have management targets to deliver double-digit per-share dividend growth.

Historic and target growth

YieldCos shown are NRG Yield (NYLD), Abengoa Yield (ABY), TerraForm Power (TERP), NextEra Energy Partners (NEP), Hannon Armstrong (HASI), Pattern Energy Group (PEGI), Brookfield Renewable Energy (BEP), and TransAlta Renewables (TSX:RNW, OTC:TRSWF).

Historic growth rates are not shown for some YieldCos because they have only been paying dividends for less than a full year. Dividend growth targets are not shown for TransAlta Renewables because the company's management has not issued explicit targets. The data shown is drawn from company financial filings.

In contrast, growth rates above 10 percent for REITs and MLPs are virtually unheard of, but they are the norm for U.S.-listed YieldCos. 

Sources of dividend growth

Companies can achieve per-share dividend growth in a number of ways: normal increases in income from existing business; reinvesting money generated by the business; and investing money from new share issuance.

In the case of YieldCos, income from existing clean energy facilities can increase because of inflation escalators built into the power-purchase agreements (PPAs), or if the YieldCo invests to increase power production. PPA escalators tend to be low (2 percent or less.)  

Aside from the natural increase in cash flow from escalators in existing PPAs, a YieldCo can raise its cash flow available for distribution (CAFD) per share by increasing invested capital per share. Companies often increase invested capital per share by investing some available cash flow. This increases future dividends at the expense of current yield. Since most YieldCos distribute nearly all of their available cash flow, this is not a significant contributor to dividend growth.

Instead, YieldCos typically issue new shares to pay for new investments. Because most YieldCos have seen significant price appreciation since their IPOs, new shares can be sold for higher prices than previous shares.  Share issues always provide more capital for a company to invest. When those shares are sold at higher prices, they also increase the per-share capital.

The following chart shows how the three oldest U.S. YieldCos have been able to increase the issue price of secondary offerings over time.

Yieldco Share Issuance

By selling new shares to the public, many YieldCos have been able to achieve the high per-share dividend growth rates shown in the first chart.

High dividend growth

In theory, as long as their share prices keep rising, YieldCos will be able to maintain their historic high dividend growth rates forever. 

In fact, recent price rises mean that dividend growth can continue for some time even without further share appreciation. The chart below shows the expected per-share dividend increase which would arise from investing the proceeds of a share issue at the current stock price, along with the YieldCos' stated growth targets. 

In the chart, a “percentage share increase” means issuing a number of shares, which is the percentage of the shares currently outstanding. For instance, if a YieldCo has 10 million shares outstanding, issuing 2 million shares would be a 20 percent increase, 5 million new shares would be a 50 percent increase, and 10 million new shares would be a 100 percent increase.

The effects of larger-percentage stock issues are not shown in the chart if the YieldCo is already so large that the new issue would exceed $2 billion. This is because investors would not be willing to buy so much new stock quickly, and the YieldCo would have trouble finding so many attractive projects to invest in quickly.

The $2 billion number is arbitrary, but I chose it because the largest YieldCo acquisition to date was TransAlta Renewables purchase of $1.78 billion worth of assets in Western Australia from its parent company TransAlta. Most YieldCo acquisitions are much smaller, and no YieldCo has bought more than $2 billion worth of assets during its history as a public company.

Yieldco distribution growth

As you can see in the chart above, the U.S.-listed YieldCos NRG Yield, Abengoa Yield, TerraForm Power, and NextEra Energy Partners have the greatest potential for percentage increases in their per-share dividends. 

The U.S.-listed REIT Hannon Armstrong, which is very similar to the YieldCo despite its REIT structure, and the dual-listed YieldCos Pattern Energy Group and Brookfield Renewable Energy Partners also have good potential and target percentage growth rates. From the perspective of growth potential, the Canadian-listed YieldCo TransAlta Renewables is far behind. It also lacks specific per-share growth targets.

Not high yield

These impressive per-share growth rates disguise the vulnerability of relying on new share issuance for new investment. The share price increases necessary to perpetuate rapidly growing distributions also reduce the yield.  This is because yield is simply distributions per share divided by the share price.

Unless the share price falls, the amount of invested capital from share issuance will never exceed the share price, and so the dividend yield will remain below the YieldCo's cash-on-cash returns from new investments. 

As we have seen here and in the chart below, YieldCos' new investments have cash-on-cash returns in the 7 percent to 9 percent range.

Despite the potential for rapid percentage dividend growth, the 7 percent to 9 percent range for YieldCo returns on investment will also cap future yields. No YieldCo can have a higher distribution yield unless its price falls, or it starts to reinvest some of its cash flow into the business, which would cause its yield to fall in the short term.

This final chart is similar to the Model Growth In YieldCo distributions chart above, except that here the dividends are shown as a yield on the current share price.

From the perspective of current and potential future yield at the current share price, the U.S.-listed YieldCos suddenly seem much less impressive. In fact, the previous apparent laggard, TransAlta Renewables, already has a current yield as high as the yield which the best other YieldCos hope to achieve after two more years. 

Even if their impressive dividend growth rates continue, the U.S.-listed YieldCos are many years from achieving yields comparable to TransAlta Renewables' yield today.

More bad news

The illusion of rapid dividend growth is not the only bad news. TerraForm Power, NextEra Energy Partners, and Brookfield Renewable have incentive distribution rights (IDRs) which give the YieldCo's parent company (General Partner) a growing percentage of distributions when those distributions exceed certain levels per share. TerraForm's IDR will begin to take effect when the quarterly dividend hits 34 cents per share (it's currently 32 cents), and it will rise to 50 percent of distribution increases when it hits 45 cents.

NextEra Energy Partners' IDR Fee will begin to take effect when quarterly dividends reach 21.6 cents (currently 19.5 cents).  It will rise to half of distribution increases when dividends reach 28.1 cents.

Brookfield's incentive distributions are currently in effect, with the parent Brookfield Asset Management currently receiving 15 percent of quarterly distributions in excess of 37.5 cents. This incentive will soon rise to 25 percent when quarterly dividends exceed 42.25 cents per share. Dividends are currently 41 cents, so the 25 percent threshold will likely be met soon.

YieldCos' parent companies justify IDRs because they supposedly align the parents' interests with the YieldCos' shareholders. Since the parents have complete control, and are often the sellers of the clean energy facilities which YieldCos buy, this is not an unreasonable argument. On the other hand, as long as YieldCos are using new share offerings at ever higher prices to increase distributions, IDRs are essentially an incentive to just do more deals using other people's money.

IDRs would do a much better job of aligning the parties' interests if they were defined in terms of distributions as a percentage of the average price at which shares had been issued.  As it is, IDRs create a perverse incentive to issue more shares whenever the stock price is high relative to previous issuance.

IDRs will reduce potential yields at these three YieldCos.


Investors have been seduced by rapid percentage dividend growth targets at the U.S.-listed YieldCos NRG Yield, NextEra Energy Partners, TerraForm Power, and Abengoa Yield. 

It is likely that these YieldCos will continue to meet, and sometimes exceed, these impressive targets; the growth will be fueled in large part by new share issuance at higher prices. Such share issuance allows dividends to rise while placing a cap on yield. In the case of YieldCos with IDRs, it also allows the YieldCos' parents to “earn” an incentive by spending other people's money.

Investors considering the purchase or sale of a YieldCo today should care more about current and future yield than they do about yield growth rates. Another way to think of yield is as the number of dollars of annual income for each $100 you invest in the YieldCo. Assuming distribution growth targets are met, the following chart shows how much income each YieldCo will produce over the next three years.

(Since TransAlta Renewables does not publish dividend growth targets, the corresponding numbers are the modeled dividend growth from issuing 20 percent and 50 percent more shares.)

If the investment objective is long-term income, it is clear which YieldCos are the most attractive.

Invest accordingly.


Tom Konrad is a financial analyst, freelance writer and portfolio manager specializing in renewable energy and energy efficiency. He's also an editor at AltEnergyStocks.com.  He will be an instructor at EUCI's "The Rise of The YieldCo" workshop on July 30th and 31st.  This article was first published on GreenTech Media and is reprinted with permission.

Disclosure: Tom Konrad and/or his clients have long positions in PEGI, HASI, RNW, and BEP. They have short positions in NYLD-A.

Disclosure: Long 

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 08, 2015

Are YieldCos Overpaying for Their Assets?

Tom Konrad CFA

YieldCos buy and own clean energy projects with the intent of using the resulting cash flows to pay a high dividend to their investors. 

Several such companies, often captive subsidiaries of listed project developers, have listed on U.S. markets since 2013. So far, YieldCos have been a win-win: The developers that list YieldCos have gained access to inexpensive capital, and income investors have gotten access to a new asset class paying stable and growing dividends. 

So far, they have also gained from significant stock price appreciation. The seven U.S.-listed YieldCos are up between 21 percent for Abengoa Yield (ABY) and 136 percent for NRG Yield (NYLD) since they were listed.

However, some experts believe YieldCos are overpaying for projects. “We've seen them purchasing at prices we think don't make sense," said Chris Francis, the founder of Seven Waves Corporation.

Francis describes Seven Waves Corporation as a private YieldCo. Like its publicly traded cousins, Seven Waves invests in solar projects. The publicly traded YieldCos are his direct competitors, and their access to cheap capital “has made us adjust the prices” that Seven Waves pays for projects. 

Seven Waves has to meet the return objective of its investors, and the competition from YieldCos has made it “a very slim business, with not much meat left on it.” It is still possible for Seven Waves to acquire projects. It has had to adapt to a much more difficult environment, but Francis expects to close on the purchase of a 76-megawatt solar farm in the next few weeks.

What they are paying

Francis, like most financial professionals, evaluates the value of a solar project using the metric internal rate of return. IRR gives an interest rate or yield, which allows a project with cash flows that vary over time to be compared to a simple-interest-bearing investment like a CD or a bond.

Not all public YieldCos announce their acquisitions, and none of the ones that do have disclosed the IRRs for the projects they are investing in. TerraForm Power's recent announcement of its purchase of 23 megawatts of solar from Integrys is typical. 

It says, “These plants are expected to generate average levered CAFD of approximately $5 million annually over the next 10 years. The equity consideration to be paid for the acquisition is $45 million. In addition, TerraForm Power will assume $10 million in project debt. This represents an expected levered cash-on-cash return of greater than 9%.”

“Levered cash-on-cash return” is a lot less useful than IRR, in the same way that “payback” is a less-than-ideal way to evaluate the value of an investment in solar for your home. Payback is just the inverse of cash-on-cash return. In this case, payback is 11 years ($55 million cost / $5 million CAFD, also equal to 1 divided by the cash-on-cash return). Both payback and cash-on-cash return fail to account for inflation, depreciation, project lifetime, or anything that happens after the payback period. 

In the case of TerraForm's announcement above, we are told, “The assets were placed into operation between 2008 and 2013, and are contracted under long-term power-purchase agreements (PPAs) with a variety of commercial and municipal entities having a weighted-average credit rating of Baa2. The contracts have a weighted average remaining life of 15 years.” 

But the payback and cash-on-cash return would be the same if the projects had just been built and had PPAs that had a remaining life of 20 years or more, making them more valuable. Cash-on-cash return would also not change if the PPAs only had 10 years to run, and the solar farms were at the end of their useful lives.

Despite the weaknesses of the metrics cash-on-cash return or payback, these measures do not require assumptions about the long-term value of a wind or solar farm, and the truth is, no one really knows what that is. We don't know what the electricity market will be like in 15 years.

Will TerraForm be able to sign new PPAs at that time, and at what price? Francis says that YieldCos seem to be “very aggressive” about their assumptions about future electricity prices. Historically, electricity prices typically have always risen, and YieldCos seem to be assuming that they will continue to do so. Francis, on the other hand, thinks that the large-scale deployment of renewable energy will cause prices to fall, at least in the middle of the day when solar is operational, and at times of strong wind in areas that have significant wind penetration.

He says he sees YieldCos getting 4 percent to 6 percent IRRs. That corresponds to the range of IRRs I compute from the 7 percent to 10 percent cash-on-cash returns from YieldCo announcements (see charts below). The TerraForm acquisition referenced above is one of the better ones; it has an IRR between 5 percent and 7 percent depending on the assumptions made about revenue after the PPAs expire. 

The following chart shows a compilation of cash-on-cash returns gathered from YieldCo announcements where they can be calculated. Note that these numbers are not strictly comparable from one YieldCo to the next because of slightly different assumptions about how to treat assumed debt and what expenses are deducted from the project's expected cash flow. 

TERP's Integrys acquisition is shown at 11 percent, not the 9 percent cited in the press release, because I judged that removing the assumed debt from the purchase price made it more comparable to previous TERP announcements.

According to Francis, some unannounced acquisitions have even worse IRRs. One had an IRR of 1 percent when evaluated using Seven Waves' assumptions. He thinks that such purchases could only be justified if the buyer assumes a 10 percent to 15 percent increase in electricity selling prices for the second PPA, with ongoing 2 percent annual price increases after that. 

Such assumptions imply that utilities would be willing to pay far more for a PPA with an old solar farm than they would have to pay to construct a new one, given the widespread consensus that the price of new solar installations is likely to continue to fall, not rise. Francis observes that we have already seen some utilities trying to get out of PPAs in court. That does not bode well for their willingness to sign even more generous PPAs in the future.


Despite widespread talk that the market for clean energy projects is getting more competitive, I was not able to find a long-term trend of cash-on-cash returns over time. While some YieldCos such as TerraForm and Pattern Energy Group (PEGI) seem to be getting better returns than other YieldCos, most of the highest returns are on the smallest investments, as shown in the chart below. The labels and bubble sizes show the size of the purchase, not including assumed debt.

What we can see is that the pace of deals has been picking up. More of the deals shown in the chart closed in the first half of 2015 than in all of 2013 and 2014 combined.

Francis believes that this level of frenetic deal-making may soon come to an end. He thinks that when the federal Investment Tax Credit (ITC) falls at the end of 2016, it may lead to a short burst of deal-making as project developers leave the industry and sell off their existing farms. Some developers will continue to build farms, but at a more sedate pace, because it will be less lucrative without the ITC.

The effects on YieldCos

YieldCos can only raise dividends by acquiring more projects, or making the projects they have more productive. Both require cash to invest. Paying high prices (and getting low IRRs) for projects means that they have little or no money to invest after they pay their dividends. 

So far, rising share prices and secondary stock offerings have provided the funds for these investments, but this will only work if investors' giant appetite for YieldCo shares continues. That appetite for YieldCo shares depends on their expectations for continued dividend increases. 

Anything that disrupts either investor demand or rising YieldCo dividends will feed back to disrupt the other in a vicious cycle. Stagnating dividends will attract fewer new investors, and fewer new investors will be able to fund fewer of the acquisitions the YieldCos need to keep raising their dividends. 

In recent weeks, rising interest rates have begun to dampen investor demand for YieldCo shares. Will that or some later event like the ITC's sunset trigger the vicious cycle? We will only know in hindsight. 

As for Francis, rather than continuing to try to compete with YieldCos' cheap stock market capital, he's hoping that he can get access to some of his own by possibly taking Seven Waves public through a reverse merger with a listed company.


Tom Konrad is a financial analyst, freelance writer and portfolio manager specializing in renewable energy and energy efficiency. He's also an editor at AltEnergyStocks.com.  He will be an instructor at EUCI's "The Rise of The YieldCo" workshop on July 30th and 31st.  This article was first published on GreenTech Media and is reprinted with permission.

Disclosure: Tom Konrad and/or his clients own shares of Pattern Energy Group (PEGI) and TransAlta Renewables (TSX:RNW), and short positions in NRG Yield (NYLD).

Disclosure: Long 

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.

Where Are The Cellulosic Ethanol Gallons?

Jim Lane 

We've seen a number of high-profile cellulosic projects open in recent years, and not much ethanol being produced? Wondered why? Here are answers to your questions.

As Jack Webb used to say on Dragnet, just the facts, ma’am.

Fact one. There’s not much ethanol being produced at the new generation of cellulosic projects.

Fact two. We have seen significant changes in senior leadership at a number of key developers.

Industry rumor going around: Psst! These facts are linked!

For sure, Dorio Giordano has been appointed CEO at Beta Renewables, Dan Cummings has been tapped as president of POET-DSM, Abengoa (ABGB) Bioenergy CEO Javier Garoz has moved over to become CEO of Abengoa Yield, and this week former Segetis CEO Atul Thakrar was selected as the new President of DSM Bio-Based.

And it’s true, we’ve seen elongated commissioning periods for some cellulosic ethanol projects.

Officially, there’s no confirmation of a linkage. Every company loyalist denies it, every company cynic whispers it. Anything to it? Some, not as much as you’d think. There’s frustration around pace, that’s for sure.

The numbers

Officially, by the way, the outlook on cellulosic biofuels is relatively bullish in 2015 compared to 2014. Last year, there were 33.0 million RINs generated for cellulosic biofuels; this year, we’ve seen an impressive jump — in all, 36.9 million RINs for cellulosic biofuels as a whole.

But almost all of the production is Renewable Compressed or Liquified Natural Gas — last year 32.6 million RINs in all, compared to 728,000 RINs for cellulosic ethanol. This year, 668,940 RINs for cellulosic ethanol, through May.


So, with four projects open in the US (INEOS Bio, Abengoa, POET-DSM and QCCP — not to mention Beta’s Crescentino project, and GranBio and Raizen in Brazil), you might have found yourself wondering of late, where is all the cellulosic ethanol? What’s taking so long?

Let’s take you through a quick Q&A.

Q: What is the official explanation for the slow production rates?

A: If you should inquire, you’ll be told “de-bottlenecking”.

Q: What exactly does that mean?

A: It will differ from project to project, but it generally means that some aspect of the final design has proven troublesome at scale, and is causing any or all of: a material shortfall in the rate of production, low titer (that is the concentration of fuel alcohol in the broth), excessive or noxious byproducts, the yield in terms of gallons per ton of biomass, excessive rates of catalyst destruction, or in the cost or yield in separating the product from catalysts, by-products, or catalysts.

Q: How long can de-bottlenecking take?

A: In a practical sense, anywhere from a handful of months to several years.

Q: Are multi-year de-bottlenecking periods usually expected?

A: If you speculated that a number of projects were expected by their parents to be producing by this time at significant volumes and generating cash, you would not be wrong.

Q: If there was one phrase you could offer to sum up the troubles, would it be “core technology failure?”

A: No. But we have heard “pre-treatment” frequently, though not universally.

Q. What about pre-treatment?

A: A few months before he died, Beta Renewables CEO Guido Ghisolfi spoke at length about “the front end problem,” as he called it, with The Digest. He pointed out that the bales of cellulosic material were coming in “dirtier” than had been expected. In Beta’s case, literally — dirt, rocks, mice, farm tools — a lot of junk was sneaking into the bales, and they installed a washing system to clean the biomass more throughly, as the debris was causing, at a minimum, reductions in productivity.

Q: But what about the entire pre-treatment approach?

A: We’ve heard grumbling about pre-treatment systems (that begin the process of liberating sugars from biomass). Specifically, that the new generation systems — which have, as examples, the promise of high sugar yields at lower enzyme loadings, less conversion of sugars to furfural and HMF, and lower capex and opex — are not producing the front-end results that are expected. But it generally it is all coming back, we hear, to higher degrees of biomass contamination than expected.

Q: You’ve mentioned a new system put in place at Beta Renewables? Any other delays at the other projects for retrofits like that?

A: INEOS Bio put in a new system last year, a hydrogen sulfide scrubber, when higher than expected rates of H2S were materially affecting the production organism.

Q: What was the word about that?

A: Last September, we wrote:

“According to the project team, “INPB has implemented a pilot project at the Fayetteville, Arkansas, facility to test the sensitivity of the fermentation process to HCN concentration. The pilot project involved installation of HCN scrubbing and water regeneration unit to prove that the concept of HCN removal and regeneration can be successful at full scale.

The Fayetteville, Arkansas, system proved that fermentation is operable on mulch syngas after removal of HCN and provided design data for the proposed HCN removal and control system at the Vero Beach facility. The Vero Beach system requires a third column to remove the HCN from the air used to regenerate the recirculated scrubber water.

According to INEOS Bio management, the scrubber technology will be installed and commissioned by October and the plant should be resuming normal operations by the end of the year.”

Q: How confident should we be that these technology problems will be solved?

A: Given that we have heard no clear indications of “core technology failure” from any party (from bullish company operatives to cynical industry observers), we can be reasonably confident that the companies will “figure it out” and reach the intended productivity levels, though actual timelines would be not much more than pure speculation at this stage.

Q: Why aren’t the companies more up-front and transparent about the difficulties? Don’t they see the risks in going stealthy during periods of adversity?

A: First of all, they see intransigence on the part of obligated parties relating to infrastructure, not stealthy cellulosic projects trying to reach steady-state operations, as the #1 risk factor for the RFS. #2 is the Obama Administration’s lack of faith in the RIN mechanism for getting round E10 saturation.

Secondly, corporate candor is one of those attributes, like greenhouse emission reduction, where they create a public benefit but not always a benefit that accrues directly to the corporation.

Q: We’ve seen a lot of biogas projects pop up, including the afore-mentioned compressed natural gas for CNG vehicles technologies, which have experienced fewer technology hassles and issued millions of RINs — will that trend continue?

A: For the time being, yes. And it shows the benefit of a technology and feedstock-neutral RFS. No one saw it coming that landfill gas CNG would outsell cellulosic fuel ethanol in 2015, but that’s the beauty of the market that RINs create.

Q: In his presentation on timelines to bring up new systems from installation to expected rates of productivity and uptime, what did Iogen CEO Brian Foody have to say?

A: He didn’t encourage thinking along the lines of “6 months or less to full production”, that’s for sure.

Q. In his presentation at ABFC 2015, Foody discussed the timelines to reach target production uptime in detail, for Iogen’s R6, R7 and R8 technology releases, right?

A. Yes. The R8 technology was the release eventually commercialized at Costa Pinto, Brazil in the Raizen project.

Q. How long did the de-bottlenecking take?

A. According to Foody, “expect everyone to struggle to achieve highly reliable commercial operation.” Specifically with the R6 release, the company took 10 months to reach 10% uptime, and peaked at 40 percent uptime one year after start-up.


Q. Issues?

A. A lot of unexpected results in the impact of handling large amounts of biomass — blockages and corrosion among them.

Q. Did results improve with the R7 release?

A. Yes, and you can see the tale of the tape, below. The project ultimately hit its “asset utilization” target of 80%, but it took a full 21 months to get there. A year beyond start-up, R7 was still at around 50% uptime.


Q. So, R8 was commercialized, so it must have gone much better, right.

A. Relatively so. Here’s the data, below. Hit the 80 percent uptime target in 10 months, and stayed there. But still, 10 months of struggle.


Q. What happens if you plot actual cellulosic ethanol production, as seen in the EPA’s RIN date, against the production capacity out there?

A. Iogen has conveniently done that for us. Here’s the data, below. What you can see is an industry moving along roughly the same performance timeline as Iogen’s R6 release.


Q. Suggesting that immature technology is in the field?

A. Possibly. But just as likely, that these companies experience steep learning curves as they seek steep increases in month-to-month production uptime.

Q. Bottom line?

A. It could be another year, or more, before we see anything like targeted uptimes at all of these projects.

Q. What can I do about it?

A. Preach patience. These are complex technologies, be generous in your assessment.

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 06, 2015

Brew-ha-ha: Is Amyris' Brazillian JV Over?

Jim Lane amyris logo

In a Brazilian securities filing, with respect to the Joint Venture between São Martinho and Amyris (AMRS), Sao Martinho reports “the non-achievement of certain contractual targets by Amyris, impacting the viability of the project. Thus, Sao Martinho decides not to approve the continuation of the Joint Venture Plant construction with the US company Amyris Inc. and its Brazilian subsidiary Amyris Brazil Ltda.”

The company did not elaborate as to which contractural targets were not achieved by Amyris. In the filing, Sao Martinho added:

“Amyris may provide new information regarding the project feasibility in order to discuss a new deal potential. However, the Joint Venture and other contracts between the parties will be automatically terminated on August 31, 2015, if such date is not entered into a new agreement at the discretion of São Martinho.”

“Sao Martinho clarifies that the company did not make investments in the joint venture, which were scheduled to take place only after the start of plant operation.”

Amyris fired off a “clarification” shortly afterwards “regarding its inactive manufacturing joint venture with Usina Sao Martinho”, stating:

“[The] existing Brotas facility is exceeding targets and provides adequate capacity to meet its near and mid-term business needs. Amyris has been in discussions with Sao Martinho and is considering how the joint venture could best benefit Amyris’s future production capacity and achieve investment returns comparable to or better than Amyris’s best-in-class fermentation plant in Brotas. Based on these discussions, Amyris and Sao Martinho have agreed to explore, over the next 60 days, the best options for the joint venture.”

“We are excited about the continued strong performance and our ability to exceed our production and cost targets at Brotas,” said Amyris CEO John Melo. “Current production capacity at our Brotas facility meets our near- and mid-term growth plans and we have better economic options than our agreement with Sao Martinho initially contemplated. We are engaged in working towards a mutually beneficial agreement with Sao Martinho over the next 60 days. We continue to enjoy a strong presence and relationships in Brazil, including our more than 150 employees, our collaboration with Cosan, and our growing sales in personal care and industrial products for the Brazilian market.”

Amyris noted that the flexibility at the Brotas plant and space available potentially allows the company to double the capacity of this plant when required. In addition, the company is evaluating with Sao Martinho the best investment options available to determine which scenario would provide the best returns and balanced economics for both parties.

The Sao Martinho project

The joint venture dates some ways back, predating Amyris’ April 2010 IPO filing. in which the company stated:

“We plan to commence commercialization of our products starting in 2011 using contract manufacturers, and to have our first capital light production facility, our joint venture with Usina São Martinho, operational in the second quarter of 2012. As we commence commercial production of our initial molecule, farnesene, we expect to target specialty chemical markets.”

The company’s stock was upgraded to a $31 target by Raymond James in April 2011, citing amongst other factors the “company’s first large-scale production plant in Brazil – the joint venture with Grupo São Martinho – which should drive positive companywide EBITDA upon start-up in 2Q12.”

By Q1 2012, Amyris had reciognized “the operational challenges of translating yields in the lab to commercial-scale production,” and said that “following completion of the 50 million liter facility at Paraiso, it would focus on completing its 100M liter San Martinho project.” In late 2012, Cowen & Company was modeling “$146MM additional debt to fund losses and Sao Martinho capex in 2013-15.”

Meanwhile, Sao Martinho has downshifted its own emphasis this year on fuels. Last week, the company reported that “it will turn its attention to sugar production. It’s crushing ratio will be 52% for sugar and 48% for ethanol of 19.5 million metric tons of sugarcane, compared to 49% for sugar and 51% for ethanol during 2014/15.”

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 05, 2015

Blue Sphere's First Revenue

by Debra Fiakas CFA

Blue Sphere (BLSP:  OTC) is continuing to make progress in its strategic plans to build and operate biogas power plants.  The company is initially targeting the largely untapped supply of organic wastes from food processing and table to meet growing demand for renewable, no– or low-carbon emission energy sources.  A year ago, the company’s portfolio consisted of a string of projects all in the planning stage.  Management has pushed two food waste-to-energy projects in the U.S.to the construction stage and closed on the first four acquisitions of fully operational agriculture-waste biogas power plants in Italy.  This progress has brought Blue Sphere to the cusp of revenue generation. 

We estimate the company could record first revenue from its Italy acquisitions in the third fiscal quarter beginning July 2015.  All four biogas plants are in operation and sell electricity to the country’s electric grid.  Each has a rated capacity of one megawatt power production through anaerobic digestion of agriculture waste to biogas that powers an electric generator.  The $1.3 million purchase price for each of the facilities will be paid in two installments.  Financing arrangements have been made through an Israel-based investment fund.  We expect final closing requirements to be completed by near the end of June 2015.   Another three deals are in the pipeline in Italy.

After several challenging months of negotiation Blue Sphere management has arranged financing and commenced construction on a 5.2 megawatt biogas power plant in North Carolina and a similar 3.2 megawatt facility in Rhode Island.  The Company has entered into joint ventures with investment fund York Capital, which is funding construction and working capital.  Blue Sphere will lay claim to 25% and 22.5% of the North Carolina and Rhode Island joint ventures, respectively.  Construction has begun on both projects with completion time within approximately twelve months.  We expect both plants to be operational in 2016.

The company is pushing forward with two additional ‘greenstart’ biogas plants.  Management is working to secure a power purchase agreement for a 5.2 megawatt plant planned near Middleboro, MA, where local governments are keen on keeping food waste out of landfills.  Another waste-to-energy biogas plant is planned near Ramat Chovav, Israel.  The project would for the first time give Blue Sphere an operating presence in its home country.
Shares of Blue Sphere traded off in recent weeks, most likely in response to the dilutive impact of note conversions to common stock.  Another element frustrating investors may be the joint venture arrangement for the North Carolina and Rhode Island biogas power plant projects that leaves the assets unconsolidated.  Shareholders will have to wait until those projects are fully operational to see earnings contributions to Blue Sphere’s financial reports.

On the brighter side, BLSP is trading under dramatically higher volumes than six months ago, suggesting that the market is clearing out share supply underpinning bearish sentiment in the stock.  Management clearly thinks the stock is undervalued after instituting a share repurchase plan and engaging a strategic investment advisor.
A report published by Crystal Equity Research published on June 18th,  indicated that BLSP is viewed as a speculative security and appropriate only for those investors with the highest tolerance for risk and volatility.

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.  Crystal Equity Research has published research on BLSP with generally favorable commentary.  Please read the important disclosures related to sponsorship and subscriptions in the final pages of all reports.

July 04, 2015

Alternative Energy Mutual Funds and ETFs Go In All Driections

By Harris Roen

Alternative Energy Mutual Funds, Solid Long-Term Gains

Alternative Energy Mutual Fund Returns

Returns for alternative energy mutual funds are virtually flat on average for the past three months, down slightly at a loss of 0.3%. The best short-term performer is Pax World Global Environmental Markets (PGRNX), up 2.1%… Over the longer term, returns for alternative energy mutual funds remain very strong. MFs are up 14.7% on average, with all companies showing double-digit gains on an annualized basis…

Returns for ETFs are ranging widely

Alternative Energy ETF Returns

Returns for ETFs are ranging widely, both in the short and long terms. The top performing alternative energy ETF over the past three years is Guggenheim Solar (TAN), up an impressive 34% on an annualized basis. In the short term, though, TAN comes out as the worst performing green ETF, down over -12% in the past three months… The wide variation in returns for these and other ETFs reflect both the volatile and promising nature of alternative energy investing…


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

About the author

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

Ceres Focuses On Food & Feed After Bioenergy Disappoints

Jim Lane

Ceres logoIn California, Ceres (CERE) announced the a realignment of its business to focus on food and forage opportunities and biotechnology traits for sugarcane and other crops. As part of the realignment, the company will restructure its Brazilian seed operations and is exploring discussions with additional local partners and collaborators to support the continued development and commercialization of its technology in Brazil.

Earlier, the Company announced that due to the economic challenges faced by the Brazilian ethanol industry as well as changes in the global energy market, it had expanded the number of market opportunities available for its technology and products and began prioritizing its working capital in additional areas beyond Brazil.

The news may come as a surprise to the broader community, since in March 2015 the company signed a multi-year collaboration agreement Raizen, a joint venture of Royal Dutch Shell and Cosan, to develop and produce sweet sorghum on an industrial scale.

Also, in July 2014, Ceres was selected for a competitive grant and a multi-year credit facility to fund a product development project for sorghum and sugarcane for up to approximately 85 million reais, or 27.1 million U.S. dollars, under the Brazilian government’s PAISS Agricola program.

Going forward

The Company indicated that its Brazilian operations after implementation of this aspect of the restructuring plan would be focused primarily on sorghum breeding and sugarcane. In particular, the company plans to expand its sugarcane trait development activities for the Brazilian sugarcane market, which Ceres expects to fund, in part, under a grant available from the Brazilian government.

The restructuring of the Company’s Brazilian seed operations, which is expected to be substantially completed by October 31, 2015, includes, among other actions, a workforce reduction that will impact 14 positions in Brazil primarily related to administration, operations and manufacturing as well as 2 support positions in the United States. Ceres estimates that it will incur total charges of approximately $0.6 million over the next five months with respect to these workforce reductions in Brazil and the U.S., including $0.1 million in continuation of salary and benefits of certain employees until their work is completed and their positions are eliminated, and $0.5 million of one-time severance and other costs, all of which will be cash expenditures.

“These changes represent an important step in the transformation of our business as we refocus on our strengths in agricultural technology and direct our attention to markets being fueled by global prosperity growth,” said Ceres President and CEO Richard Hamilton.

He noted that bioenergy markets have continued to face serious near-term challenges due to low oil prices, the struggling Brazilian economy, delays in second generation refining technology and unfavorable government policies, among other headwinds. “If these challenges can be surmounted then I believe the market for bioenergy feedstocks can reemerge as a global opportunity for agricultural technology companies like Ceres.”

The long timeline to Brazilian ethanol success

In April, the company wrote in its quarterly report: “With industrial processing of sorghum feedstock generally well established in Brazil, we believe that field performance – primarily yields of sugars that can be fermented to ethanol – will largely determine the scale and pace at which our current and future sweet sorghum products will be adopted. Based on industry feedback, we believe that minimum average yields in the range of 2,500 to 3,000 liters of ethanol per hectare will be necessary to achieve broad adoption.

“While we achieved yields in this range in the 2013-2014 growing season in Brazil with multiple products in multiple regions, the 2014-2015 growing season in Brazil will be necessary to validate results. Additional growing seasons beyond the 2014-2015 season may be required to fully demonstrate this yield performance across numerous geographies and for our products to gain broad adoption.

The company added in April that, “Since 2010, we have completed various field evaluations of our sorghum products in Brazil with approximately 50 ethanol mills, mill suppliers and agri-industrial facilities. During this time, our sorghum seeds were planted and harvested using existing equipment and fermented into ethanol or combusted for electricity generation without retrofitting or altering the existing mills or industrial facilities.

On to brighter horizons

Ceres advises that “Our strategy is to focus on genes that have shown large, step increases in performance, and whose benefits are largely maintained across multiple species. Trait performance is evaluated in target crops, such as corn, rice and sugarcane, through multi-year field tests in various locations. In addition, we are deploying a new multi-gene trait development system internally and believe there may be opportunities to out-license the system, known as iCODE, to other crop biotechnology companies. To date, our field evaluations have largely confirmed earlier results obtained in greenhouse and laboratory settings…At this current pace, commercial sugarcane cultivars with our traits could be ready for commercial scale-up as early as 2018.

Blade Forage Sorghum Seed and Traits

In 2015, the company expanded its sorghum offerings to include hybrids for use as livestock feed and forage. In addition to direct sales efforts, Ceres entered into a distribution agreement with Helena Chemical Company, a leading distributor of crop inputs and services. Under the agreement, Helena will provide sales and customer support for our forage sorghum in the southeastern U.S.

The current hybrids, which are traditionally bred and do not yet contain biotech traits, have performed well in numerous commercial and multi-hybrid field trials. In a 2014, in a U.S. field evaluation, one of our leading biotech traits provided a greater than 20% biomass yield advantage in a commercial-type sorghum. In 2014, we received confirmation from the U.S. Department of Agriculture (USDA) that our high biomass trait was not considered a regulated article under 7CFR 340 of the USDA’s mandate to regulate genetically engineered traits.

The Bottom Line

NexSteppe has been reporting strong momentum in Brazil and there simply may have not been room enough for two companies in Brazil, given the slowdown in the ethanol industry.

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 03, 2015

Total Doubles Down On Amyris' Jet Fuel

Jim Lane amyris logo

In California, Amyris (AMRS) announced that it has agreed on key business terms with Total for restructuring its fuels joint venture to open the way for proceeding with commercialization of its jet fuel technology over the coming years. Following the restructuring, Total would own 75% of the joint venture with Amyris.


In conjunction with this transaction, Amyris has also agreed on terms with Total and Temasek, another major stockholder of Amyris, under which, and as part of a plan to strengthen the balance sheet, these stockholders would exchange an aggregate of $138 million of convertible debt for Amyris common stock at a price of $2.30 per share, with an additional $37 million of outstanding convertible debt being restructured to eliminate Amyris’s repayment obligation at maturity and provide for mandatory conversion to Amyris common stock.

Customers, ASTM on board

In September 2014, KLM tipped that it intended to fly on Amyris-Total renewable jet fuel, as soon as it receives favorable advice from their independent Sustainability Advisory Board. Amyris noted that is producing commercial product “for our launch partners (which include GOL), and that a 10% blend of Amyris-Total jet fuel can reduce about 3% of the particulate matter from aircraft engine exhaust.”

Last November, news filtered out of California that ASTM has revised the D7566, the Standard Specification for Aviation Turbine Fuel Containing Synthesized Hydrocarbons to include the use of renewable farnesane as a blending component in jet fuels for commercial aviation.

With that news, Amyris and Total said that they will now prepare to market a drop-in jet fuel that contains up to 10% blends of renewable farnesane.

Reaction from The Street

Cowen & Company’s Jeffrey Osborne wrote:

This conversion has a tangible effect on the ownership stake that both Total and Temasek has in the company. According to Thomson the companies own a combined ~24 million shares, which is around 30% of current shares outstanding. With the creation of 60 million additional shares, the combined ownership of Total and Temasek would be 84 million, or 60% of AMRS’ post-converted outstanding shares. We see this as confirmation that both companies see strong long-term potential for Amyris.

The reduction of convertible debt also improves Amyris’ balance sheet. Total debt, including a current portion of $18 million, was $242.5 million as of March 31, 2015. Upon the conversion of $175 million in debt the company will have reduced its total debt by 72% to $67.5 million. This should give Amyris greater flexibility as the commercialization of its various products continues to gain traction.

We see both of these updates as signaling a strong fundamental change in the company’s financial standing, as well as a solid validation of the viability of its jet fuel bioproduct. The terms of the restructuring are subject to standard closing procedures, including any approvals from the board or other internal requirements, as well as regulatory approvals.

Raymond James’ Pavel Molchanov wrote:

In aggregate, [it’s] $175 million of debt relief, equating to 72% of the company’s total debt burden as of 1Q15. If only Greece was able to get a deal like that! Naturally, there is no free lunch, and Amyris is giving up some future project economics. Specifically, Total will own 75% of the fuels joint venture with Amyris, up from the previously envisioned 50/50 split. But since this JV does not entail any meaningful revenue now, or even for the foreseeable future, Amyris gets the full deleveraging benefit upfront, with reduced JV economics only out in the distant future.

* In conjunction with this, Total has confirmed that it will proceed with commercialization of jet fuel under the JV. There is no real detail yet as far as the timetable, capital investment plans, or what the target economics might look like – all of those remain important question marks that will need to be addressed by management in due course. But it’s still a surprising move on the part of Total – surprisingly bullish, that is – considering the context of the oil and gas industry’s current period of austerity…Nonetheless, as a practical matter, we wouldn’t expect any production scale-up until around 2020, so it’s far too early for us to change estimates.

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 02, 2015

Ten Clean Energy Stocks For 2015: Riding The Storm

Tom Konrad CFA

The first half of 2015 saw a mild advance in the broad market, but concerns about rising interest rates and the ongoing Greek debt drama sent income stocks, clean energy, and most non-US currencies down decisively.  My Ten Clean Energy Stocks for 2015 model portfolio has heavy exposure to not only clean energy, but income stocks (6 out of 10) and foreign stocks (4 out of 10.)  Despite this the stormy market for all three, the portfolio delivered admirably.

The model portfolio ended the second quarter up 9.7%, compared to its broad market benchmark, which was up only 4.4%.  Its clean energy benchmark is a 40/60 blend of its growth oriented benchmark and its income-oriented benchmark, matching the 4/6 ratio of growth and income stocks in the portfolio.  These two benchmarks are discussed below.  The blended benchmark fell 5.1%. 

For the month of June, the portfolio gained 3.1%, compared to only 0.8% for the broad market IWM and a 6.2% decline of the blended benchmark.

Value/Growth and Income Sub-Portfolio Performance

The four stock value and growth sub-portfolio reversed most of its previous losses in June,  up 7.4% for the month to end the first half down only 0.4% for the year.  Its benchmark, the Powershares Wilderhill Clean Energy ETF (NASD: PBW), fell 3.8% for the month but remains in the black with a 2.3% gain for the first half.

The six stock income sub-portfolio inched up another 0.3% on top of its already impressive gains, ending up 16.4% year to date, despite rising interest rates.  The income benchmark fared much worse.  This benchmark was The Global Utilities Index Fund, JXI for the first 5 months, replaced by the more clean-energy oriented Global X YieldCo Index ETF (NASD:YLCO) when that began trading at the end of May.  It dropping 5.3% for the month for a loss of 7.7% year to date, despite the fact that YLCO fared better than JXI in June.

The chart below (click for larger version) gives details of individual stock performance, followed by a discussion of the month's news for each stock.

10 for 15 Performance

The low and high targets given below are my estimates of the range within which I expected each stock to finish 2015 when I compiled the list at the end of 2014.

Income Stocks

1. Hannon Armstrong Sustainable Infrastructure (NYSE:HASI).
12/31/2014 Price: $14.23.  Annual Dividend: $1.04.  Beta: 0.81.  Low Target: $13.50.  High Target: $17. 
6/30/2015 Price: $20.05. YTD Dividend: $0.52  YTD Total Return: 44.6%.

Sustainable infrastructure financier and Real Estate Investment Trust Hannon Armstrong started the month strong, and I hope some of my readers took the opportunity and followed my lead by taking some gains as it briefly rose above $21.  At that point, Bank of America broke it's long climb by lowering its rating to Neutral based on valuation.  This is in-line with my own assessment: I like Hannon Armstrong for the long term, but, because of its much higher price than when it began the year, no longer feel that it deserves to be such a large part of my managed portfolios.

2. General Cable Corp. (NYSE:BGC)
12/31/2014 Price: $14.90.  Annual Dividend: $0.72.  Beta: 1.54.  Low Target: $10.  High Target: $30. 
6/30/2015 Price: $19.73. YTD Dividend: $0.18  YTD Total Return: 33.6%.

International manufacturer of electrical and fiber optic cable General Cable Corp. rose strongly on the news that it had sold the rest of its Asia Pacific operations for $205 million.  This was a significant step in its ongoing reorganization, which has the goals of simplifying its geographic portfolio, reducing debt, and improving profitability.

3. TransAlta Renewables Inc. (TSX:RNW, OTC:TRSWF)
12/31/2014 Price: C$11.48.  Annual Dividend: C$0.84.   Low Target: C$10.  High Target: C$15. 
6/30/2015 Price: C$12.36. YTD Dividend: C$0.39  YTD Total C$ Return: 11.1%. YTD Total US$ Return: 3.3%.

Unlike most of the other income picks, Yieldco TransAlta Renewables fell 2% in June, deepening the undervaluation which made me predict it would rise in the last update.  The decline was likely in sympathy with the larger, interest rate related, decline of Yieldcos and utilities in general (down 5.3% and 7.7%, as discussed above.)

4. Capstone Infrastructure Corp (TSX:CSE. OTC:MCQPF).
12/31/2014 Price: C$3.20. 
Annual Dividend C$0.30.  Low Target: C$3.  High Target: C$5.  
6/30/2015 Price: C$2.99. YTD Dividend: C$0.15  YTD Total C$ Return: -1.9%.  YTD Total US$ Return: -8.8%.

Canadian power producer and developer (Yieldco) Capstone Infrastructure also declined 2.3% despite my prediction for this stock.  As with TransAlta Renewables, I believe the decline was industry related, not specific to Capstone.  In fact, the company announce progress with its wind projects in Ontario, where it received a final Renewable Energy Approval from the Ontario Ministry of the Environment and Climate Change for the 10-megawatt Snowy Ridge Wind Park.

New Flyer Industries (TSX:NFI, OTC:NFYEF)

12/31/2014 Price: C$13.48.  Annual Dividend: C$0.62.  Low Target: C$10.  High Target: C$20. 
6/30/2015 Price: C$15.48.  YTD Dividend: C$0.30  YTD Total C$ Return: 17.1%.  YTD Total US$ Return: 8.8%.

Leading North American bus manufacturer New Flyer got a very favorable write-up at Seeking Alpha, including speculation that its Brazillian partner, Marco Polo, might acquire the 80% of the company it does not already own in a buy-out.  I'm a little skeptical about such buy-out speculation- I think both companies seem to be benefiting well from the alliance as it is, but I agree that New Flyer remains an inexpensive company with a dominant position in the North American bus industry, which continues to rebound from a long slump. 

6. Accell Group (XAMS:ACCEL, OTC:ACGPF).
12/31/2014 Price: €13.60. 
Annual Dividend: €0.61.  Low Target: 12.  High Target: €20.
6/30/2015 Price: €16.65. YTD Dividend: 0.61  YTD Total Return: 26.9%.  YTD Total US$ Return: 16.8%.

Despite Greek wobbles, bicycle manufacturer Accell Group, which makes most of its sales in Europe, maintained its balance with the stock up 2% for the month and 17% for the first half.  The company is a leader in e-bikes, and introduced its own "mid-motor" (i.e. near the pedals so that the motor can take advantage of the bike's gears) with hardware supplied by Yamaha.  Mid-motors are a premium option, offering better balance, efficiency, and handling than the more common hub motors, but are more complex and come with a higher price tag.

Value Stocks

7. Future Fuel Corp. (NYSE:FF)
12/31/2014 Price: $13.02.  Annual Dividend: $0.24.   Beta 0.36.  Low Target: $10.  High Target: $20.
6/30/2015 Price: $12.87 YTD Dividend: $0.12.  YTD Total Return: -0.2%.

Alone among my three predictions for stocks to perform well in June, biodiesel producer FutureFuel did not disappoint.  The company gained 8% for the month on the EPA's proposed biomass-based diesel volumes for 2014-2017, which were announced on the last trading day of May.  I predicted that the targets, which were good news for biodiesel producers, would continue to propel the stock upward in early May.  That turned out to be the case, and the stock stayed above $13 for most of the month before giving back some of its gains in the recent market turmoil. 

8. Power REIT (NYSE:PW).
12/31/2014 Price: $8.35
Annual Dividend: $0.  Beta: 0.52.  Low Target: $5.  High Target: $20.
6/30/2015 Price: $5.80. YTD Total Return: -30.5%.

Solar and rail Real Estate Investment Trust Power REIT's stock fell briefly below $5, a price at which I think it represents a good buy despite the negative summary judgement in March. 

The two remaining issues in the lessee's civil case against it will go to trial in August.

The lessees, Norfolk Southern (NSC) and Wheelling and Lake Erie (WLE) claim that Power REIT and its CEO, David Lesser, acted fraudulently when Power REIT was created and the Pittsburgh and West Virginia (P&WV) (which owns the leased property) became its subsidiary through a reverse merger.  They are claiming damages in the amount of approximately $140 thousand based on interest on funds withheld by third parties, which NSC and WLE claim is due to Lesser's actions.  It seems to me that if interest is owed, it would be by the third parties.  But, given my track record predicting the court's rulings, readers should form their own opinions.

9. Ameresco, Inc. (NASD:AMRC).
12/31/2014 Price: $7.00
Annual Dividend: $0.  Beta: 1.36.  Low Target: $6.  High Target: $16.
6/30/2015 Price: $7.65. YTD Total Return: 9.3%.

Energy service contractor Ameresco released the usual press releases about new contracts.  Given the timing of the rally, my best guess is that the company attracted the interest of one or more institutional investors by presenting at ROTH London Cleantech Day.

Growth Stock

10. MiX Telematics Limited (NASD:MIXT).
12/31/2014 Price: $
6.50Annual Dividend: $0.  Beta:  0.78.  Low Target: $5.  High Target: $20.
6/30/2015 Price: $7.77. YTD Dividend: $0.  YTD Total South African Rand Return: 26.3%.  YTD Total US$ Return: 19.8%.

Vehicle and fleet management software-as-a-service provider MiX Telematics published its annual report, which seems to have boosted the stock slightly.  The annual report does not contain information which was not included in its annual results, published at the end of May, but could have drawn the attention of investors to its long term progress.  As I discussed last month, the annual results were very encouraging, and MiX continued to trade at a fraction of the valuation of its developed-market peers.

The Annual General Meeting was also set for September 11th.


Last month, I predicted TransAlta Renewables, Capstone Infrastructure, and FutureFuel would advance in June.  The sharp decline in utility and Yieldco stocks prevented the advance and led to a small decline in the first two, but FutureFuel advanced strongly, pulling the average gain to 1.1% for the three stocks.  Over the past four months, I've managed to pick 7 out of 9 monthly winners, my average pick has advanced each month. 

While I'm satisfied with both my overall track record and my monthly picks, I don't encourage readers to trade based on my monthly hunches: Transaction costs would probably cost more than my market timing would help.  That said, for readers new to the list, these monthly picks have so far proven to be among the best stocks to buy if you have new money to invest.

Since the monthly picks have so far seemed useful, I'll continue my predictions.  Although it did not work out last month, I'll be sticking with Capstone and TransAlta Renewables.  Despite rising interest rates, both are trading at excellent valuations.  Also, I feel the rapid decline of income stocks over the last couple months is due for a pause or even a small rebound.

Disclosure: Long HASI, CSE/MCQPF, ACCEL/ACGPF, NFI/NFYEF, AMRC, MIXT, PW, PW-PA, FF, BGC, RNW/TRSWF, REGI.  I am the co-manager of the GAGEIP strategy.

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 01, 2015

Chinese Solar Turmoil Brings Crowdfunding and Internet Interlopers

Doug Young 

Bottom line: Yingli’s use of crowd-funding to finance a small project and the bargain sale price of a small polysilicon maker reflect continuing struggles at second-tier solar companies and the need for more consolidation.Yingli logo

Two solar energy stories are showing how overcapacity continues to haunt the sector 2 years after it began to emerge from a major downturn. The first involves a desperate-looking fund-raising plan from the struggling Yingli (NYSE: YGE), which is trying to use crowd funding to pay for a new solar plant. The other news involves another slightly bizarre investment in the space, with Internet titan Tencent (HKEx: 700) and real estate giant Evergrande (HKEx: 3333) paying a bargain price for Mascotte (HKEx: 136), a money-losing Taiwanese maker of polysilicon, the main ingredient used to make solar panels.

Both of these deals look strange for different reasons that reflect the lingering state of turmoil in a solar panel sector plagued by excess capacity. Many of the weakest players have closed or been purchased over the last 2 years, with names like Suntech and LDK disappearing as independent companies. But a relatively large field of second-tier players like Yingli still remain in business and probably need to either close or get acquired before the industry can truly return to health.

Let’s start with Yingli, which proudly proclaims in its latest announcement that it is bringing solar financing to the masses by giving average people the chance to invest in a small new solar power plant. (company announcement) The plant is based in Yingli’s home province of Hebei, hinting that it used its local connections to get the project build. The plant has a modest capacity of 4 megawatts, and was funded with the sale of 20 million yuan ($3.2 million) in bonds.

Two Chinese companies provided the project’s original financing, but now it appears they want to sell their stake to average consumers via an online platform that resembles the popular crowd-funding model. The fact that these big investors are looking to sell their stake to unsophisticated consumers shows their own lack of confidence in the project, and the overall move really looks like desperation.

Yingli is the weakest of China’s major solar panel makers to survive the downturn so far, and this kind of move shows just how shaky its finances are. The company shocked investors in May when it said it was in danger of going out of business, even though it later said its statement was misinterpreted. (previous post) This kind of move to raise money through crowd-funding certainly won’t help to restore confidence in the company, and it’s still possible we could see Yingli ultimately fail this year or next.

Next there’s the other deal that has seen Tencent and Evergrande take a majority 75 percent stake of Mascotte for HK$750 million ($100 million). (company announcement; English article) The purchase price represents a whopping 97 percent discount to Mascotte’s last stock price before the announcement, which actually came last week.

A quick look at Mascotte’s latest financial statement, which was released after announcement of the Tencent and Evergrande investment, shows why the company so desperately needed the new money. Mascotte lost HK$129 million last year, which was actually an improvement over the $547 million it lost the previous year. Still, so many losses over consecutive years meant the company was probably out of funds and unable to find anyone to lend it new money to continue its operations.

The involvement of Tencent in this transaction looks a bit strange, as the company has never invested in this kind of new energy deal before. But that said, big tech names like Apple (Nasdaq: AAPL) and fast-rising online video firm LeTV (Shenzhen: 300104) seem to be suddenly piling into the space, perhaps as a form of public relations to show their commitment to environmental protection. Such investments have so far been quite small, and in this case Tencent won’t feel too much pain if Mascotte fails, which looks like a strong possibility over the next year or two.

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.

June 30, 2015

Leather Without The Cow

Flokser launches Artificial Leather based on DuPont Tate & Lyle, BioAmber ingredients

Jim Lane

In Canada, BioAmber (BIOA) announced that the Flokser Group has successfully developed an innovative artificial leather fabric using bio-based materials supplied by DuPont (DD) Tate & Lyle Bio Products and BioAmber.

Flokser has launched this new synthetic leather fabric under its SERTEX brand. The novel fabric comprises a polyester polyol made from BioAmber’s Bio-SA bio-based succinic acid and DuPont Tate & Lyle Bio Products’ Susterra bio-based 1,3-propanediol.

Flokser’s artificial leather fabric has 70% renewable content and delivers improved performance. It provides better scratch resistance and has softer touch than current synthetic leather fabrics made with petroleum derived chemicals. The global addressable market opportunity for these bio-based polyester polyols in artificial leather is estimated to be 330 million pounds per year (150,000 metric tons); a 165 million pound market for bio-succinic acid and a 165 million pound market for bio-1,3-propanediol.

The background on biobased artificial leather

Historically, artificial leather has been popular with cows, but not always with consumers or environmentalists. Brands abound, including Biothane, Birkibu, Birko-Flor, Clarino, Kydex, Lorica, Naugahyde, Rexine, Vegetan, and Fabrikoid. Most include petroleum-based ingredients such as polyamide, acrylic, and polyvinyl chlordie.

Back in May 2014, BioAmber CEO Jean-François Huc tipped the new work then underway on artificial leather, stating: Huc comments: “Over the past year we worked with a number of innovative companies that validated our Bio-SA in several new applications. For example, in artificial leather they demonstrated that the polyester polyol made with Bio-SA offers better aesthetics including softer touch than the polyols made with adipic acid. This market reportedly consumes 150,000 tonnes of adipic acid annually.

Back in December 2013, Green Dot announced developed a compostable synthetic leather made with the company’s Terratek Flex bioplastic. The new synthetic leather combines the look and feel of high quality leather with a lighter environmental footprint compared to traditional leather tanning or synthetic leather manufacturing. The material can be returned to nature if placed in a composting environment when its useful life is over. Initial trials have been completed with manufacturing partners in the U.S.. The new synthetic leather can be made in a wide range of colors, textures and thicknesses with a variety of naturally biodegradable backings.

In June 2012, Suzanne Lee has developed a “vegetable leather” fabric made using bacteria, green tea, sugar and yeast. The material can be cut, dried, molded and sewn. The product has a life expectancy of five years, at which point it will rot and harden, but not to worry, as it can be composted with a standard home garden composting system.

Reaction from the stakeholders

“We have been working over the years on sustainability and have made remarkable steps, including producing first in Turkey phthalate free artificial leather polyurethane systems. We strive to work with global best in class companies to shape the future. Working with BioAmber and DuPont Tate & Lyle has helped us to generate fresh ideas and develop new products that offer a unique combination of performance and sustainability for our industry,” said Ekin Tükek, Flokser Group board member.

“This new eco-friendly artificial leather fabric from Flokser demonstrates the performance that bio-based materials can offer in technically challenging applications. The artificial leather made with our Bio-SA™ and DuPont Tate & Lyle’s Susterra® outperforms standard products, bringing better abrasion resistance and softer touch,” said Babette Pettersen, BioAmber’s Chief Commercial Officer.

“We are pleased with this new product launch in a major industrial segment of the polyurethane market, and we believe that working with Flokser, an industry leader, will drive market adoption. This new artificial leather fabric is a unique product, combining renewable content with the highest standards of performance and quality”, said Steve Hurff, VP Marketing and Sales, DuPont Tate & Lyle Bio Products.

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.

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