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.

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Oil and Gas




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!

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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.

July 02, 2014

The Bull Market For Alternative Energy Funds Continues

By Harris Roen

Robust Alternative Energy Mutual Fund Returns

MF_returns_20140630[1].jpg

Alternative energy mutual funds remain a strong investment sector, showing extremely robust returns in June. On average, MFs gained 28.1% for the year, and every fund posted double digit returns. Also without exception, all funds are up for the past three months.

More importantly, long-term returns for alternative energy mutual funds have greatly improved in the past year. In June 2013, the average three-year return was 3.0%, with three out of 10 funds showing losses.

Green ETFs Increase Gains

ETF_returns_20140630[1].jpg
Green ETFs have significantly increased their gains since May, up 37.6% on average for the year. This is substantial improvement compared to the 25.7% average annual gain a month ago.

There is only one fund showing a loss for the year, Market Vectors Rare Earth/Strategic Metals (REMX). Otherwise all ETs have returned near 20% or better for the year. The two solar ETFs, Guggenheim Solar (TAN) and Market Vectors Solar Energy ETF (KWT) show the greatest gains by far.


DISCLOSURE

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.

July 01, 2014

Chinese Commercial Solar Group Formed To Tackle Trade Wars

by Doug Young

Chinese solar panel makers have taken an important step to solving their ongoing trade spat with the west by formally launching a private sector trade association to speak on their behalf. The move gives the panel makers their first truly commercial representative to discuss the matter with peers in the US and Europe, providing a better alternative to the government-backed groups that previously spoke for them.

This kind of step is long overdue, and should help to de-politicize and hopefully solve what is largely a commercial matter, involving western claims of unfair state subsidies. China should encourage and support the formation of more such independent industry associations led and run by actual companies as an important tool to reduce broader frictions with its major trading partners.

China’s solar panel sector has been locked in a dispute with the west for much of the last 3 years, following a prolonged industry downturn that has led to numerous bankruptcies worldwide. The west argued that China helped to create the huge oversupply that sparked the downturn by giving unfair subsidies to homegrown companies through policies like tax breaks and low-interest loans.

Amid the turmoil, the US last year imposed punitive tariffs against Chinese panels and is now on the verge of implementing a second round of penalties to close a loophole in the earlier ruling. The European Union also threatened to impose its own tariffs, but reached a last-minute settlement last year after negotiating an agreement with a group representing the Chinese panel makers.

Now that settlement is also in danger of unraveling, following recent allegations by European panel makers that the Chinese firms are not honoring the agreement.
In the EU case, the Chinese panel makers were represented in negotiations by the Chamber of Commerce for Import and Export of Machinery and Electronic Products, a government-backed industry group. Such government-backed groups have traditionally been the main spokesmen for various Chinese industries, mostly for historical reasons. But due to their government connections, they often carry strong political overtones that sometimes hinder realistic, commercially-based discussions.

In a bid to break that cycle, the solar panel makers recently formed their own industry association, the China Photovoltaic Industry Association (CPIA). Last week the group elected the CEO of Trina Solar (NYSE: TSL), one of the industry’s largest players, to become its first president for the next 5 years. (company announcement)

The CPIA’s includes most of the sector’s major manufactures, such as Trina, Yingli (NYSE: YGE), Canadian Solar (Nasdaq: CSIQ) and JA Solar (Nasdaq: JASO), meaning it can truly represent the entire industry when dealing with issues like the current trade wars. Equally important, the group has also committed to maintaining close ties with the Chamber of Commerce for Import and Export of Machinery and Electronic Products, ensuring that Beijing will remain informed on all the latest developments in industry issues.

This kind of independent trade group formed and run by actual companies is quite common in the west, where governments realizes that such independent associations can best represent the interests of their individual members.

In a bid to solve the clash in the US, the locally based Solar Energy Industries Association (SEIA) offered up a plan last year suggesting the Chinese manufacturers set up a fund that could help to compensate US rivals for some of their losses due to unequal state support. (previous post) The SEIA is one of several private groups representing the sector in the US, and its plan has yet to gain any traction, at least not publicly.

But the group’s proposal shows that private industry organizations can often propose innovative plans that are better suited to solving trade disputes than those offered by governments that are less familiar with individual issues. By comparison, China’s deal with the EU deal resulted in a plan for Chinese companies to voluntarily raise their prices to be on par with European rivals. The EU plan’s current troubles hint that the Chinese manufacturers were never fully committed to the proposal, perhaps because of their limited participation in the negotiations.

The formation of the CPIA could provide some fresh new impetus to solve the current disputes, since the Chinese panel makers now have their own group that can directly speak on their behalf. The creation of more such groups could help to reduce China’s trade frictions with the west in other areas by providing creative solutions crafted by companies themselves, which are always the biggest losers when such disputes result in unilateral punitive actions.

Bottom line: A new private solar industry association could bring fresh impetus to solving an ongoing trade dispute between China and the west over state subsidies.

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 26, 2014

The Safest Alternative Energy Yieldco

By Jeff Siegel

If you're a regular reader of these pages, you know I'm bullish on alternative energy yieldcos.

In fact, I've covered Pattern Energy Group (NASDAQ:PEGI) and NRG Yield (NYSE:NYLD) at length.

The way I see it, yieldcos are the next big alternative energy investments for retail investors. They enable regular investors to buy into multiple alternative energy assets that produce steady cash flow. For those not particularly keen on risk, but still want exposure to the burgeoning alternative energy space, this is a great way to do it.

The bottom line is that the alternative energy market continues to grow rapidly. Even those who are loyal oil & gas investors must admit that the growth potential in the alternative energy space – particularly solar and wind – is absolutely astounding. And this is not a trend that will peter out any time soon.

In fact, according to Bloomberg's New Energy Finance, 70 percent of new power generation capacity added between 2012 and 20130 will be from alternative energy technologies. This is huge.

Point is, there is no reason for you to not have at least a small portion of your portfolio dedicated to the alternative energy space. So you might want to take a look at the latest alternative energy yieldco to go public.

Strong Debut for Abengoa Yield

The company is Abengoa Yield (NASDAQ:ABY). This is a unit that was formed to serve as the primary vehicle through which Abengoa, the Spanish energy behemoth, will own, manage and acquire renewable energy assets. Conventional power and transmission assets are also included in the yieldco.

The IPO surged nearly 30% on its debut. Initially priced at $29 a share, it's now trading around $39. Of course, it's only been a week, and certainly the initial enthusiasm of the offering likely pushed the price up. But overall, I actually like ABY.

Abengoa is actually one of the strongest alternative energy players in the world. It has first-mover advantage in certain areas, and has well-diversified coverage across the globe with revenue-generating assets in North America, South America and Europe.

Currently, ABY owns 11 total assets which include 710 megawatts of renewables, 300 megawatts of conventional generation and 1,018 miles of transmission.

I didn't jump in early on the IPO, but will be looking to pick some up on a shake-out. The lockup doesn't end until December 10, too. So that should allow for some wiggle room throughout the summer and fall.

Of all the alternative energy yieldcos trading publicly right now, I foresee the most safety with ABY.

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

June 25, 2014

Is Clean Water Always Green? Why I <3 NY

By Bridget Boulle and Sean Kidney

Helping to push along the green muni space, the New York State Environmental Facilities Corp (EFC), rated AAA, has issued a USD 213 million green / water bond. There were 30 bookrunners on this bond with JP Morgan and LOOP Capital Partners co-leads - see prospectus.

The proceeds will be used to provide financial assistance to local governments to finance and refinance drinking water projects as well as to refund certain bonds previously issued. They expect to support 128 drinking water and wastewater infrastructure projects across the State.

Qualifying projects will be chosen based on their adherence to various state water and pollution legislation. Although the third party verification was not supplied, EFC promised to post semi-annual updates regarding such projects on their website.

Water is a complex area for green bonds as projects can have conflicting environmental and social outcomes. For example, the provision of clean water has obvious social benefits, but there are lots of good and bad choices that can be made towards that end. Water-provision investments can range from building a new reservoir and long aqueducts for transporting water, to reducing pipeline leaks (which can be vast in old and leaky city systems) and introducing better demand management measures.

The wrong decisions can end up over-using limited water resources in areas beginning to suffer decreased or more volatile rainfall as a result of climate change - and can lead to spikes in energy consumption just as we need to cut back to reduce emissions. Water infrastructure is a huge consumer of electricity - for example 17% of California's electricity is used to shift water around the State. Yes, that's right, 17%!

Water investments that don't take into account climate and energy issues can end up being positively harmful, even as they deliver nice clean water.

From a creditworthiness perspective, as our friends at Ceres have shown, the level of climate-preparedness in water utility and water-dependent companies should be seen as a key risk signal.

That means it would be foolish to see water projects as green by default. At minimum investors should be asking for evidence that asset management and capital expenditure plans have robust climate adaptation and mitigation thinking behind them.

The good news is that we know New York has done this! It makes me love New York. For EFC's next bond we would ask that relevant plans be specifically linked to the projects in the bond.

On the broader issue of being able to better recognize good and not so good water investments from a climate change perspective, we're working with Ceres, the World Resources Institute and CDP to make it easier for investors by developing clear criteria for water related investments. They will become part of the Climate Bonds Standard.

——— Bridget Boulle is Program Manager and Sean Kidney is Chair of the Climate Bonds Initiative, an "investor-focused" not-for-profit promoting long-term debt models to fund a rapid, global transition to a low-carbon economy. 

June 23, 2014

Vornado Realty Green Bond Boosts US Market, But Lacks Ambition

By Bridget Boulle and Rozalia Walencik

Last week BBB-rated Vornado Realty (NYSE:VNO) became the second US real estate investment trust to issue a corporate green bond, following the Regency Centres (NYSE:REG) bond late last month. The 5 year, $450 million bond was structured by Bank of America Merrill Lynch. Pricing was in line with non-green bonds.

Investors included asset managers, pension funds, insurance companies and governments, of which some were regular investors and others had a specific green interest. Some non-US investors also came in.

According to the prospectus, the proceeds will be used to fund buildings and retrofits that meet the following criteria:

  1. New building developments: LEED Silver, Gold or Platinum certification
  2. Existing buildings: any LEED certification level
  3. Tenant improvement projects: any LEED certification level
  4. Capital projects that “enhance energy efficiency, at buildings which currently are LEED certified at any level”
  5. Capital projects at buildings not yet certified by LEED but “which improve, based on a third-party engineering study, the operating and energy efficiency of a building by a meaningful amount.”

So where does it sit on the green spectrum? It’s certainly a good start - but perhaps we need a little more ambition to have a real impact.

A green building is one that’s “environmentally responsible”, which generally means resource-efficient in terms of energy, water, and other resource usage and in waste management.

What we’re especially concerned about is energy and emissions. The most important environmental reason to cut energy use in buildings is to reduce greenhouse gas emissions from fossil-fuel-based power grids (we’re not as concerned, for example, if energy consumed is 100% on-site solar).

The International Energy Agency (IEA) allocates some 40% to emissions avoided from reduced energy consumption; buildings are the largest consumers of energy worldwide and so the biggest contributors to emissions from energy.

The IEA tells us that deep cuts in building emissions are needed to head off catastrophic climate change, and that: “Deep renovation of inefficient existing buildings is a crucial way to achieve a much more sustainable future.” However, only “about 1% of buildings are renovated each year … the overwhelming majority of these renovations do not lead to deep energy-use reduction”.

Impact investments, from our perspective, are those that lead to those needed deep cuts in emissions.

LEED certification is a flexible environmental standard that provides many ways to achieve certification, with energy efficiency one of many priorities.

But using LEED basic ("any LEED Certification") as a criteria is not contributing much to emissions reduction. In terms of greenhouse gas emission reductions, the USGBC actually recommends that a 30% energy efficiency design goal relative to its ASHRAE 90.1, as used in LEED v2009.

As we wrote in a commentary on the recent Regency green property bond, because a retrofit only happens every few years, a “shallow” or low-ambition retrofit may mean we put off, for many years, the opportunity to make the sort of deep emission cuts we need to get out of buildings if we’re to achieve deep emission cuts. Yes that’s right: shallow retrofits can save energy and money, but may be counter-productive in terms of addressing climate change. If every building in the world aimed for LEED basic certification, we wouldn’t stay within 2 degrees global warming.

In the absence of a more comprehensive energy standard at the time of issuance, targets for % reduction in emissions/energy should demonstrate actual reductions. This could be where clause v. on the use of proceeds in of Vornado’s prospectus comes in (that's the one quoted above). We’re not exactly enthused with their use of the term "meaningful amount" (talk about "open to interpretation"), but if a percentage were specified and applied across retrofits, this could be a good way on ensure both the energy efficiency and the wider environmental benefits of LEED.

Vornado haven’t done this at this stage, but it’s possible that it will be part of the comprehensive annual reporting that they have committed to (which includes detailing LEED certification of projects funded and annual updates on a dedicated page of the website). If a third party has been used to review the bond, such an approach may have been recommended.

In summary: good start, but we need to up the ambition by raising the bar on those lower level retrofits currently allowed.

The issues we’re raising here are of course why we’ve just released new Climate Bonds Green Property definitions. These were developed with an international expert group that included folks from the US Green Buildings Council (who developed LEED). The definitions are now open for public consultation - read more here.

———  Bridget Boulle is Program Manager and Rozalia Walencik is Communications Officer at the Climate Bonds Initiative, an "investor-focused" not-for-profit promoting long-term debt models to fund a rapid, global transition to a low-carbon economy. Bridget has worked in sustainable investment for 6 years, most recently at Henderson Global Investors in the SRI team.  Rozalia an holds MA in Public Relations from University of Westminster and BA in Journalism and Mass Communication from Jagiellonian University in Cracow. 

June 22, 2014

Utility Expects Growth From Green Consulting

by Debra Fiakas CFA

Middlesex Water Company (MSEX: Nasdaq) has been providing the good people of New Jersey and Delaware with water services for a long time.  Its longevity in the marketplace is probably one of the reasons, Middlesex can claim a string of successive revenue and earnings increases.  The company achieved a net profit of $16.4 million on $115 million in total sales in the most recently reported twelve months.  More importantly, Middlesex turned 27.7% of those sales into operating cash flow, an achievement that helps support the company’s investment plans and dividend.
Like any other water company Middlesex makes a living delivering water to residential and commercial customers.  They also handle waste water.  The water business requires heavy investment in infrastructure  -  miles of pipes and valves.  Over the last three years Middlesex has invested an average of $21.7 million per year in capital expenditures.  Those water system investments have driven growth by 7.6% annually over the past five years.

Middlesex leadership thinks there is more than water in the company’s future growth.  A frugal operating culture has made it possible to leave an average of $6.0 million per year in free cash flow after covering capital spending.  The company is deploying that capital in industries where its water and flow process knowledge can make a difference  - namely biomass recycling and renewable energy production.

Teaming up with Natural Systems Utilities, a private consulting firm, Middlesex has carved out new niche business, advising waste water treatment plants on energy efficiency.  Its first project is in The Village of Ridgewood, New Jersey.  The waste water treatment plant will divert methane gas emissions into anaerobic digesters rather than burning it off into the atmosphere.  Using a biogas-drive generator, the plant will produce enough electricity to run the entire plant. A net grid agreement with the local electricity generator means the waste water treatment plant can maximize the value of its equipment investment.  Middlesex management sees its new service as a smart way to leverage its expertise without the capital costs usually associated with expansion of its water distribution business.

Apparently, the few analysts who follow Middlesex are not quite on board just yet with the new business plan.  The compound growth rate projected for the company over the next five years is only about 3%, suggesting those analysts who have published estimates for Middlesex see slowing growth in profits for the company.  Still in an industry beset by rising capital and operating costs, slow growth is an achievement.

MSEX shares have appreciated in recent trading sessions, but the stock still offers an attractive dividend yield of 3.7%.  I would wait for a pullback in price to accumulate shares.  That said, a review of recent trading patterns suggests a line of support may have developed in the $20.00 price level.  So it does not seem likely that a major price decline will occur unless macroeconomic or market conditions lead to a correction in equity prices across the board.

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. Solar Wind Energy (SWET) is included in the Wind Group of Crystal Equity Research’s Electric Earth Index of company exploiting earth’s natural formations to create energy.

June 18, 2014

SolarCity Buys Silevo for $200 Million, Plans GW Factory in NY

Meg Cichon

Triex.jpg
Silevo's Triex Solar Technology
In an effort to further streamline its solar business and lower the overall cost of solar energy, SolarCity (SCTY) announced today that it would acquire high-efficiency cell manufacturer Silevo for $200 million. In an effort to scale up the technology, SolarCity plans to construct a 1-GW manufacturing facility located in Buffalo, New York within the next two years.

The solar leasing company acquired mounting company Zep Solar in late 2013 in an effort to further vertically integrate its business. Now, chairman Elon Musk explained SolarCity’s imminent need for more, and cheaper, solar panel production, which he expects to reach “tens of GW” annually. “We thought that there was a risk of not being able to have the solar panels we need to expand [SolarCity] long-term…[When considering] the rate at which solar power is advancing, the amount of panels that are being made at a large scale today is really not fast enough,” he said during a conference call.

Musk emphasized the need for not only increased panel production, but a focus on advanced panel technology, which is what SolarCity believes that Silveo has to offer. A combination of higher volume and increased efficiency will “have a dramatic impact on solar and in particular be able to have solar power compete on an unsubsidized basis with the fossilized grid,” said Musk. “It is critical that you have high-efficiency solar panels and a total installed cost as low as possible.” 

The Technology

After reviewing dozens of companies, SolarCity ultimately decided to pursue Silevo due to its proven technology and manufacturing success. Silevo uses what it calls “triex” technology to create a crystalline-amorphous hybrid cell, which creates a tunneling oxide and amorphous silicon layer. These layers allow increased temperature tolerance and lead to a high efficiency that currently stands at 21 percent, but SolarCity hopes to reach 24 percent within the next couple of years. The manufacturing process also uses copper electrode metallization rather than silver, which leads to lower costs.

Watch Ucilia Wang discuss Silevo’s technology with then-vice president of business development and marketing Chris Beitel at the 2012 PV America Conference here.

SolarCity co-founder and chief technology officer Peter Rive explained during the conference call that the Silevo technology compares well to standard cells in the 17-18 percent efficiency range and thin film in the 13-14 percent range. While SolarCity’s goal is to eventually reach 24 percent, Rive also noted that 26.4 percent is possible with ground-mounted and tilted flat roof systems due to the technology’s bifacial nature, which means it can absorb sunlight from both sides of the panel.

Rive explained some of the advantages of higher efficiencies with a common residential rooftop system comparison: “Consider a typical 6-kW system with standard efficiency panels and then picture that same system with 24 percent efficiency tri-cell,” he said. “Currently the system requires 24 panels, but the triex-module will require 18 panels. So it requires less labor, less mounting, less wiring, and so on.”

Big Manufacturing Plans 

SolarCity is currently in discussions with the state of New York for its manufacturing facility. According to Rive, its initial target capacity is 1 GW within the next two years, making it one of the single largest solar panel productions in the world, creating thousands of local jobs. Groundbreaking is expected to happen very soon, according to Musk. Silevo currently has a 32-MW factory in China.

When comparing the relative costs of domestic vs overseas manufacturing, said Rive, “we believe that at scale we can achieve a competitive cost domestically as a result of having lower energy costs, avoiding import tariffs, a highly automated manufacturing facility and the fact that the triex cell has less labor content per module due to higher efficiency.”

The Silevo technology can be manufactured with off-the-shelf equipment from the semiconductor and flat-panel display industries and standard wafers, according to Rive. SolarCity also plans to open a research facility in silicon valley to ensure that it meets and even exceeds its efficiency targets.

When all is said and done, SolarCity will be one of the most vertically integrated solar companies in the world, spanning module manufacturing, installation, operations and maintenance, and energy sales. “What I am excited about is when we combine engineers at Silevo, Zep, and SolarCity to tailor manufacturing for all solar panels so they are specifically ready for installation,” said Rive.

Though the company does not have current plans to pursue any of the missing pieces to its vertically integrated puzzle, such as inverters or power optimizers, Musk said that they are open to suggestions and constantly looking to pursue the ultimate goal of the industry — to lower the cost of energy.

“We intend to put a lot of effort R&D on the panel side, into the hardware that we already own, and into inverter and battery technology to provide an overall solution to provide electric power at a price less than fossil fuels that are burdening the grid – that is the key threshold,” said Musk. “The demand grows exponentially as price drops, and it will grow at an enormous pace if we compete with grid electricity with no incentives. That is and has been the goal in order for the world to have sustainable energy."

Meg Cichon is an Associate Editor at RenewableEnergyWorld.com, where she coordinates and edits feature stories, contributed articles, news stories, opinion pieces and blogs. She also researches and writes content for RenewableEnergyWorld.com and REW magazine, and manages REW.com social media.  Formerly, she was an Associate Editor of ideaLaunch in Boston, MA. She holds a BA in English from the University of Massachusetts and a certificate in Professional Communications: Writing from Emerson College.

This article was first published on RenewableEnergyWorld.com, and is republished with permission.

SolarCity Soars On Silevo Aquisition

Triex.jpg
Silevo's Triex Solar Technology
By Jeff Siegel

DISCLOSURE: Long SCTY.

SolarCity Corp. (NASDAQ: SCTY) has signed a deal to acquire Silevo, a solar panel technology and manufacturing company on June 16th.

With Silevo now in the fold, SolarCity is in discussions with the state of New York to build a new manufacturing plant with a targeted capacity in excess of one gigawatt – within two years. Upon completion, this will be one of the largest solar panel production plants in the world.

Although there are plenty of manufacturers in the marketplace today, this exclusive deal gives SolarCity access to a wealth of standardized product at a very attractive cost.

Here's what SolarCity reps had to say. . .

Given that there is excess supplier capacity today, this may seem counter-intuitive to some who follow the solar industry. What we are trying to address is not the lay of the land today, where there are indeed too many suppliers, most of whom are producing relatively low photonic efficiency solar cells at uncompelling costs, but how we see the future developing. Without decisive action to lay the groundwork today, the massive volume of affordable, high efficiency panels needed for unsubsidized solar power to outcompete fossil fuel grid power simply will not be there when it is needed.

SolarCity was founded to accelerate mass adoption of sustainable energy. The sun, that highly convenient and free fusion reactor in the sky, radiates more energy to the Earth in a few hours than the entire human population consumes from all sources in a year. This means that solar panels, paired with batteries to enable power at night, can produce several orders of magnitude more electricity than is consumed by the entirety of human civilization.

Even if the solar industry were only to generate 40 percent of the world’s electricity with photovoltaics by 2040, that would mean installing more than 400 GW of solar capacity per year for the next 25 years. We absolutely believe that solar power can and will become the world’s predominant source of energy within our lifetimes, but there are obviously a lot of panels that have to be manufactured and installed in order for that to happen. The plans we are announcing today, while substantial compared to current industry, are small in that context.

Clearly, the market was pleased with SolarCity's announcement. The stock soared more than six percent in morning trading. Of course, the stock is also down considerably from its March, 2014 high of more than $77.

I actually commented on this about a month ago, noting that it was time to buy shares. I remain bullish on SolarCity and continue to stand by my one-year price target of $85.

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


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