April 07, 2015

Green Mutual Funds and ETFs Show Signs of Life in 2015

By Harris Roen

Alternative Energy Mutual Fund Recovering

Alternative Energy Mutual Fund Returns

Alternative energy mutual funds are continuing to recover from a slump which started in fall 2014. Annual returns range greatly, though, from a high of 15.6% for Brown Advisory Sustainable Growth (BIAWX), to a low of -15.8% for Guinness Atkinson Alternative Energy (GAAEX). The large 12-month drop by GAAEX was precipitated by painful losses in some of its top weighted holdings…

Alternative Energy ETFs Remain Volitile

Alternative Energy ETF Returns

Green ETFs are showing a wide variety of returns, reflecting the volatility of the renewable energy sector. Less than 20% of ETFs have had gains in the past 12 months, with returns ranging from a gain of 28.5% for iPath Global Carbon ETN (GRN), to a loss of -48.1% for First Trust ISE-Revere Natural Gas Index Fund (FCG). ETFs have fared much better over the past three months. A little more than half of the funds ended in the black, averaging a gain of 3.8%…


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.

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Oil and Gas

April 06, 2015

Bank of America's call on Tesla is Foolish

Tesla's "Long Shot" Could be a Game-Changer

By Jeff Siegel

TESLABOA“It's a long shot at best.”

That's what Bank of America analyst John Lovallo recently said regarding Tesla's new stationary battery packs being designed for individual homes.

While we know Lovallo is incredibly bearish on Tesla (NASDAQ: TSLA) – locking in a sell rating and a $65 price target on the stock – he is right. Such an ambitious goal is a long shot. But you know what else is a long shot? The existence of a superior electric car that can travel 200 miles on a single charge. Oh, wait. No, that's not a long shot, anymore. It actually exists. It's called the Tesla Model S, and it's received some of the highest ratings of any vehicle – internal combustion or electric – ever offered.

I'm not saying to run out and buy shares of Tesla, but this negative attitude of crapping all over anything that even remotely smells like a long shot bores me. Why reach for the stars when you can just sit in a comfy chair and cradle your nuts?

Instead of burying our heads in the sands of disbelief, maybe we should consider rooting for the guy that's looking to make the world a better place.

Although I understand Lovallo's analysis, it stinks of the same kind of pessimism we've seen in the past regarding other game-changing technologies that ultimately proved to be grand slams. Here are some of my favorites …

History is full of bad calls

This telephone has too many shortcomings to be seriously considered as a practical form of communication. – Western Union internal memo, 1878.

Radio has no future. - Lord Kelvin, British mathematician and physicist, 1897.

[Television] won't be able to hold on to any market it captures after the first six months. People will soon get tired of staring at a plywood box every night. - Darryl Zanuck, head of 20th Century Fox, 1946.

Rail travel at high speed is not possible because passengers, unable to breathe, would die of asphyxia. - Dr. Dionysus Lardner, Professor of Natural Philosophy and Astronomy at University College, London, 1823.

Airplanes are interesting toys but of no military value. - Marshall Ferdinand Foch, French military strategist, 1911.

There is no reason for any individual to have a computer in their home. Kenneth Olsen, president and founder of Digital Equipment Corporation, 1977.

I don't know what the outcome will be with Tesla's new stationary battery. But what I do know is that if it does prove successful, Tesla will rapidly become one of the most profitable companies on the planet. And I'm rooting for Elon Musk all the way. Anything less would be an act of defeatism, and quite frankly, just uncivilized.

And by the way, any individual who can build a re-usable rocket and a top-notch electric car that can travel in excess of 200 miles per charge can probably figure out how to build a stationary battery pack for somebody's house. Think about it.


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

April 05, 2015

More Gevolution

Jim Lane

gevolution-2014The results from Gevo’s (GEVO) 4th quarter are in, and a worth a look-see, not only for fans of isobutanol and its prospects.

Also for a look at how this member of the 2010-12 IPO group of companies is crossing the multiple Valleys of Death that have arrayed before it.

In the fourth quarter of 2014, Gevo continued to progress the commercial operation of isobutanol at Luverne under the Side-by-Side mode of production (SBS), meeting its stated milestone in December 2014 of producing greater than 50K gallons of isobutanol in one month. This achievement, Gevo notes, “was a result of the introduction of Gevo’s second-generation yeast biocatalyst at the plant, as well as significant process improvements learned by Gevo since switching the plant to SBS production earlier in 2014.”

The good news there is well highlighted by Gevo. We’ll note that, ultimately, the Luverne facility has a 15 million gallon or so theoretucal capacity for isobutanol, based on the guidance we’ve had from experts over the years. Right now, one production train out of four is engaged in isobutanol, so the company could be producing at a 200K gallon/month rate, or 2.4M gallons per year. So. there’s a ways to go.

Where do you get in the end?

Gevo says: “The data generated at the Luverne plant and in the labs in Denver continues to support ultimate, optimized isobutanol production costs that would support EBITDA margins for isobutanol of $0.50-$1.00 per gallon. In the fourth quarter, Praj Industries, a global leader in process engineering and equipment manufacturing for the ethanol and brewing industries, conducted extensive due diligence at the Luverne plant, and has confirmed these cost projections.”

And it’s worth noting that Praj subsequently signed a memorandum of understanding (MOU) wherein Praj will undertake to license up to 250 million gallons of isobutanol capacity for sugar-based ethanol plants over the next ten years — so, that’s a pretty strong affirmative although 10 years could be read as “not tomorrow, bub.”

The licensing expands

After a long couple of years of optimization, Gevo’s focus has turned decisively towards licensing. In addition to the Praj MOU, Gevo signed a letter of intent (LOI) in the fourth quarter to license its technology to Highland EnviroFuels’ sugar cane and sweet sorghum project based in Florida. These supplement the LOIs that were previously entered into with IGPC Ethanol Inc.based in Canada, and Porta Hnos S.A. based in Argentina.

What’s the conversion rate of LOIs and MOUs into actual biding agreements that will be inked in 2015. Gevo says it is is targeting “at least one licensee” this year.

Expanding partner set, especially in fuels

In Q4, Gevo highlighted partenrships with Brenntag Canada, who began sales of isobutanol to the specialty chemical markets, and Gulf Racing Fuels who have introduced isobutanol for use in off-road applications, including sales to retail consumers through NAPA Auto Parts in North Dakota.

The testing was performed in collaboration with the National Marine Manufacturers Association, the American Boat and Yacht Council and several engine and boat manufacturers across the industry, and was also supported by The US Department of Energy, the Office of Energy Efficiency and Renewable Energy and Argonne National Laboratory.

Expanding product set

Gevo announced the introduction of a new technology it has developed to convert ethanol into a tailored mix of end-products, including propylene and renewable hydrogen. “Preliminary technical and economic analyses indicate that the products, sourced from renewable feedstock, would be cost competitive with traditional petrochemical approaches,” we

Partnership we didn’t hear as much about

The Coca-Cola partnership, subject of a paraxylene pilot in Texas — nary a reference to Coca-Cola in the latest word from Camp Gevo.


You can’t sell a fuel if it’s not registered and certified. How’s it going there? “Gevo anticipates achieving both ASTM and MIL-SPEC certifications for its jet fuel in 2015,” which it says “would help accelerate the commercial adoption of Gevo’s product in both the commercial and military jet markets,” and there’s no disagreement there, although any expectations on specific volumes and timings for those segments should be marked “speculative grade” for the moment.

Plus, a consortium of “leading organizations from the recreational marine industry” announced the completion of more than four years of testing of Gevo’s isobutanol for use in boat engines, and gave isobutanol a thumbs-up.

Capital calls

Speaking of “gas in the tank” how much does Gevo have?

The company “Ended the fourth quarter with cash and cash equivalents of $6.4 million,” had Q4 revenues of “as compared to $1.7 million for Q4 2013. No doubt there are going to have to be more debt-raising or equity-raising activities, and relatively soon, with a net loss of $11M for Q4.

“The conversion of alcohols to hydrocarbons is also generating significant interest from potential strategic investors,” noted Gevo CEO, Pat Gruber, perhaps tipping the direction the company will take for capital raising. “The ability to produce cost competitive renewable propylene, which is used in a multitude of consumer products, as well as renewable hydrogen, have been “holy grails” of the bio-based economy. We believe that we have an effective proprietary technology to do this based on feedback from partners and potential strategic investors.” he added.

Jeffrey Osborne at Cowen & Co writes: “Gevo’s revenue ramp continued in 4Q14, bolstered by Side-by-Side operations at the Luverne facility. Management focused on ethanol production at the plant to generate additional cash. Isobutanol production continues on a limited basis to support and seed customer demand as well as validate the technology. Looking forward, Isobutanol licensing could be an important revenue stream for Gevo.”

Osborne also noted that “Ethanol production at the Luverne facility is generating the cash flows necessary to support the business as isobutanol continues to mature… [and] the isobutanol produced at the Luverne facility helps not only to meet existing customer demand, but also increases the products visibility and seeds new markets.”

Three good items in Gevo’s favor, in Osborne’s analysis. An enterprise value of $62M vs market cap of $37M, suggesting that Gevo is substantially undervalued. Net debt is shown at zero. and short interest at a not-so-high 6.5%.

The final word

We’ll give the final word to Praj CEO Prahmod Chaudhari, who says:

“Praj has conducted significant diligence on Gevo’s corn starch-based isobutanol technology and we believe in the technology. Isobutanol has a substantial market opportunity given that isobutanol is a high performance biofuel that can solve many of the issues of 1st generation biofuels. It also enables a true biorefinery model wherein a number of specialty chemicals and bio-products can be produced using isobutanol as a feedstock. We look forward to creating a new opportunity for 1st generation sugar-based ethanol plant owners, as well as accelerating the use of 2nd generation cellulosic feedstocks to produce isobutanol.”

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.

April 03, 2015

The Tesla Home Battery Pack Will Change The World

By Jeff Siegel

On the 30th of April, everything is going to change...


Because Elon Musk says so.

OK, maybe he didn't actually say that, but he did recently reveal that on April 30th, he'll be making a major announcement about a new product that is NOT an electric car.

Most analysts have suggested that the announcement is regarding the release of what could ultimately be a game-changer for the solar industry — a game-changer that, if it delivers the way the Tesla Model S has delivered on performance, design, and efficiency, could catapult Tesla (NASD:TSLA) into one of the most powerful companies in the world.

Because if this product release is what so many Elon Musk worshipers expect it to be, Tesla could actually end up being the biggest energy company on the planet. Bigger than GE, Duke Energy, and Exelon combined.

That's not to say these companies would go belly-up anytime soon. But their death knells will be ringing.

Like a Piece of Art

Here's the tweet Musk put out on Monday:


Following this announcement, Tesla jumped about 3%.

Now check out what Musk said during an earnings conference call last month:

We're going to unveil the Tesla home battery, the consumer battery that would be for use in people’s houses or businesses, fairly soon. We have the design done, and it should start going into production in about six months or so. We probably got a date to have sort of product unveiling, it’s probably in the next month or two.

Now, I suppose there are any number of applications for a home battery that could run your entire house for days at a time. But mark my words: This is aimed at the solar market, which is growing like a beautiful, unstoppable weed.


Although solar can save you a boatload of cash over the life of the system, in most cases it's still tied to the grid. This means that if the grid goes down, your power still goes out.

But what if you could harness that power during the day, then utilize that power after the sun goes down?

Essentially, with such a system, your utility would become superfluous.

Now, it's not as if this option doesn't exist now. But in order to store your own power, you need lots of batteries and lots of storage space. It's very expensive, not particularly efficient, and aesthetically offensive.pvstorage

But the way Musk describes it, the new Tesla home battery pack would be similar to the Model S pack: something flat, five inches off the wall, wall-mounted, with a beautiful cover, an integrated bi-directional inverter, and plug and play. This is a far cry from what you see to the right.

I can just imagine something attached to a wall, almost like a piece of art. Because that's how Musk thinks.

But forget the aesthetics for a moment. Think about what this would do to the solar industry.

All of a sudden, all those people with solar, or about to go solar, can disconnect from the grid. They can turn their homes into their own power plants. This is huge, and solar providers would have one more selling point to offer customers. A big selling point!

I suspect SolarCity (NASDAQ: SCTY) would benefit first, as the company is genetically tied to Tesla. The company's CEO, Lyndon Rive, is Elon Musk's cousin, and Musk himself is the chairman of SolarCity.

But this is good all around, as any solar producer would see yet another increase in consumer demand. SunPower (NASDAQ: SPWR), First Solar (NASDAQ: FSLR), and SunEdison (NYSE: SUNE) will all drink from the same fountain of fortune.

I'll be there with my straw, too!

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


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

April 02, 2015

Tesla's Chinese Reboot Complete, But Questions Remain

Doug Young

Bottom line: Tesla’s China reboot appears to be complete, paving the way for it to gain some traction in the market by year end if it can effectively target the nation’s wealthy, image-conscious trend setters.

Nearly a year after driving into China on a wave of fanfare and big hopes, electric vehicle (EV) superstar Tesla (Nasdaq: TSLA) is pressing the reset button on a market that has huge potential but also some major obstacles. This particular reset has been in the works for the last few months, but appears to be near completion with indications that the company has discarded its previous short-term aggressive sales targets for the market.

The reboot to Tesla’s China business is discussed in a series of interviews by Zhao Kuiming, its head of China sales, who was on a PR offensive following the recent overhaul. (Chinese article) It’s unclear from the reports if Zhao is new to Tesla, but he appears to be the company’s new public face after previous China President Veronica Wu resigned in December after just 9 months on the job. (previous post)

In one of the interviews, Zhao points to China’s lack of infrastructure as a major obstacle for the company in the first year since it entered the market. Previous reports had indicated Tesla believed that China could quickly become one of its top global markets, with annual sales of 4,000 to as many as 8,000 EVs possible as quickly as this year. But the most recent reports have said the company only sold 120 cars in China in January, showing just how difficult those lofty targets would be to attain.

The headline on Zhao’s latest interview says the company has temporarily put aside any short-term sales targets, and instead is focusing on building up the foundation it will need to support customers over the longer term. Zhao never actually addresses the issue of specific sales targets in the body of the article, though the tone does seem to indicate that Tesla is focusing on other matters for now.

The fact that Tesla is now going on a PR offensive appears to show that its China overhaul may be complete. The lack of figures in Zhao’s first interviews is also striking, and seems like a smart tack even though it will inevitably leave investors hungry for a clearer picture of how the company sees the market. Tesla’s shares surged last year, partly on unrealistic expectations for China, and have lost about a third of their value since last September as reality has set in.

I can’t comment on Tesla’s situation in the US, but China is clearly a market that isn’t quite ready for EV prime time. Billionaire Warren Buffett has made a similar discovery with his investment in the sputtering BYD (OTC:BYDDF; HKEx: 1211; Shenzhen: 002594), which has also struggled after its big bet on the China EV market failed to materialize as quickly as the company had expected.

Tesla zoomed into China with big hopes last year, and its charismatic chief Elon Musk personally presided over the company’s first high-profile local sale last April. (previous post) But since then Tesla has struggled to meet the high expectations it set for itself. It has blamed the problems on lack of infrastructure, though that’s probably only part of the problem. After all, the company was never targeting a mainstream audience with its high-end cars, and anyone who could afford a Tesla was probably more interested in being a trend-setter without too much worries of where to find a charging station.

Instead, Tesla’s problems are probably due to a combination of factors, including management and marketing teams that failed to understand the complexities and unique features of the China market for luxury cars. As a result of those stumbles, Tesla has cut about a third of its China workforce, with media reporting earlier this month that the company had laid off about 180 of its 600 locally based workers.

It’s good to see that the overhaul appears to be in the rear view mirror, and also that Tesla is tamping down expectations to avoid a similar disappointment with its relaunch. The company’s previous moves to develop infrastructure look like a good start to building up a solid platform for long-term growth in China. But Tesla will also have to show it can manage in the tough market, which will only become clearer in the year ahead as we get a better glimpse of the new team that will lead its reboot into China.

Doug Young has lived and worked in China for 16 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.

April 01, 2015

Ten Clean Energy Stocks For 2015: Marching Ahead

Tom Konrad CFA

 My Ten Clean Energy Stocks for 2015 model portfolio added a second month to its winning streak, with a 6.1% gain for the month and a 5.7% gain for the year, despite a continued drag by the strong dollar.  If measured in terms of the companies' local currencies, the portfolio would have been up 7.5% for the month and 10.5% for the quarter or year to date.  For comparison, the broad universe of US small cap stocks rose 1.5%  for the month and 4.0% for quarter, as measured by IWM, the Russell 2000 index ETF.

The six income stocks continue to lead, with a gain of 5.9% for the month and 10.2% for the year.  This compares to a miserable performance by my income benchmark of global utility stocks (JXI), which was down 3.1% for the month and 5.5% for the year.  The fossil free Green Alpha Global Enhanced Equity Income Portfolio (GAGEEIP), which I co-manage, also outperformed the global utility trend and turned in a 0.6% gain for the month, and 5.3% gain for the year to date.

The four growth and value stocks gained 6.3% for the month, but remain down 1.0% for the year.  This compares to their clean energy ETF benchmark (PBW), which rose 1.6% for the month and is up 5.9% for the year.

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

10 for 15 February.png

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. 
3/31/2015 Price: $18.28. YTD Dividend: $0.26  YTD Total Return: 30.3%.

The stock of sustainable infrastructure financier and Real Estate Investment Trust Hannon Armstrong continued its impressive advance. 

The market price is now above the $17 "High Target" I gave it at the start of the year.  That means that it is higher than I expected it to go by the end of 2015, and while I revised my expectation upward when Hannon Armstrong increased their core earnings per share growth target from its previous 12% to 15% range to its current 14% to 16% range, I now feel the company is near its fair valuation.  While I am happy to hold the company for its dividend and dividend growth prospects, I have begun trimming my position for rebalancing.  It was already my largest holding at the end of 2013; it's time to bring the stock back in line with the rest of my positions.

Although I am trimming my holdings, I think HASI retains significant upside potential.  While I feel it is near its fair valuation now, there is no reason to believe it cannot become overvalued.  That has certainly happened with many of the conventional YieldCos: NRG Yield (NYSE:NYLD) and NextEra Enegy Partners (NYSE:NEP), for example.  These boast similar growth prospects to HASI, but much lower dividend yields.  To bring HASI's yield down to 4%, which is in the middle of the range for YieldCos today, the stock would have to rise to $26.  While I believe many YieldCos are overvalued at current levels, I see no reason why Hannon Armstrong can't join them.

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. 
3/31/2015 Price: $17.23. YTD Dividend: $0.  YTD Total Return: 15.6%.

International manufacturer of electrical and fiber optic cable, General Cable Corp.'s stock spiked on March 17th based on rumors that it might be bought by larger Italian rival Prysmian (OTC:PRYMF).  Prysmian later said in a statement that it had consulted with its advisors about the possibility of buying General Cable or France's Nexans, but had had no direct discussions with either company.  General Cable's stock held on to most of its gains as investors revalued the company as a possible acquisition target.

3. TransAlta Renewables Inc. (TSX:RNW, OTC:TRSWF)
12/31/2014 Price: C$11.48.  Annual Dividend: C$0.77.   Low Target: C$10.  High Target: C$15. 
3/31/2015 Price: C$12.55. YTD Dividend: C$0.19  YTD Total C$ Return: 11.0%. YTD Total US$ Return: 1.6%.

Canadian yieldco TransAlta Renewables, agreed to invest C$1.78 billion in a portfolio of Western Australian assets owned by its parent, TransAlta (NYSE:TAC), with the purchase funded mostly by issuing stock on the public market and to TransAlta at C$2.65 a share.  TransAlta will own 76-77% of the yieldco after the transaction closes.  TransAlta Renewables will use the increased cash flow per share enabled by the acquisition to increase its monthly dividend to C$0.07 (an increase of 9%) and intends a further 6% to 7% increase after the completion of the South Hedland gas power plant, which is part of the acquisition.  After the first dividend increase, the annual dividend will be C$0.84, or 6.7% at the current price.

Although I'm a fan of dividend increases, and think this is a good transaction for current shareholders, the gas pipeline and gas power plant included in the transaction mean TransAlta Renewables will no longer be completely fossil fuel free.  That means that all the accounts I manage with Green Alpha Advisors using the Green Alpha Global Enhanced Equity Income Portfolio will need to sell TransAlta Renewables when the deal closes or soon after, which I expect in May.  We will be holding on to the stock for the now, however, because I expect the dividend increase should increase the share price once the market absorbs the stock from the secondary offerings.

In fact, I bought the company in some accounts which are managed to a green, but not strictly fossil fuel free, mandate.  For my non-fossil fuel free accounts, I consider a company to be green if it would benefit from increased action to combat climate change and other environmental problems.  I believe this will still be the case for TransAlta Renewables after the transaction closes. In practice, I tolerate some natural gas assets in managed accounts which are not strictly fossil fuel free as long as they are not large compared to the clean energy assets of the same company.

For readers who do not follow a strict fossil fuel free mandate themselves, I consider the pull-back caused by the secondary offering to be a buying opportunity.

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.  
3/31/2015 Price: C$3.55. YTD Dividend: C$0.075  YTD Total C$ Return: 13.6%.  YTD Total US$ Return: 4.0%.

Canadian power producer and developer (yieldco) Capstone Infrastructure lost ground gained in January, and is now down almost 7% in US dollar terms, although all of that decline is due to the weakness of the Canadian dollar.  I continue to think that this 9%+ yield company remains one of the best values among clean energy income stocks: it's high yield and low price are entirely due worries about a very disappointing decision by the regulator of its British water utility subsidiary.  Capstone is appealing that ruling, but management has stated that the dividend is not at risk even if the appeal fails.  Insiders has put their money where their mouths are by buying the stock on the open market.

In addition to the high yield (which alone seems sufficient reason to own the stock), there is potential for upside if the Bristol Water appeal is successful. Even if this appeal fails, I expect the high yield to cause the stock to appreciate as investors gain confidence that the dividend will not be cut.

5. New Flyer Industries (TSX:NFI, OTC:NFYEF).
12/31/2014 Price:
C$13.48.  Annual Dividend: C$0.585.  Low Target: C$10.  High Target: C$20. 
3/31/2015 Price: C$14.08. YTD Dividend: C$0.15  YTD Total C$ Return: 5.5%.  YTD Total US$ Return: -3.4%.

Leading North American bus manufacturer New Flyer report 2014 fourth quarter and full year results on March 18th.  Revenue and Adjusted EBITDA were up for the year, but earnings lagged slightly because of a number of low margin contracts which had been negotiated during the industry downturn.  The company is currently focusing on consolidation of its model line after the acquisition of NABI last year.  When this consolidation of models is complete, New Flyer will have more free cash flow to return to shareholders or make additional investments. There was some interesting discussion about this at the end of the Q&A part of the conference call.  CEO Paul Soubry said:

[W]e continue to look at opportunities where we can acquire and/or invest in new programs. And so we have done that very aggressively and very prudently to look at scenarios that makes sense for us, some inside our space, some adjacent to our space. So as we evaluate some of those scenarios as we look at the leverage of the business, as we execute now on [the consolidation of bus models] for the first part of this year, it's not out of the realm that we would look at shareholder value enhancement, right now we want to get through this next chapter before make a decision on that. But, we are in a way better place as you know to be able to have that conversation today than we were two years ago than we were six years ago. So that one is a little bit of kind of wait and see for a little bit, but very, very pleased about our ability to have the conversation.

I take this to mean that the board is thinking about dividend increases or share buybacks.  Nothing is going to happen until the business consolidation is complete; we could hear more on this in the second half of the year.

Overall, I liked what I heard on the conference call.  I wasn't the only one.  New Flyer had its price traget raised by analysts at National Bank and BMO Capital Markets.  Canaccord Genuity upgraded the stock to "Buy" from "Hold."

6. Accell Group (XAMS:ACCEL, OTC:ACGPF).
12/31/2014 Price: €13.60. 
Annual Dividend: Varies: at least 40% of net profits. €0.55 in 2014.  Low Target: 12.  High Target: €20.
3/31/2015 Price: €17.31. YTD Dividend: 0.  YTD Total Return: 27.3%.  YTD Total US$ Return: 12.9%.

The stock of bicycle manufacturer Accell Group continued to advance, although US investors will not see as much of an increase because of the declining euro, which had its worst quarter against the dollar in the 12 years it has existed. Part of Accell's appreciation may in fact be due to the declining euro, since the strong dollar may help sales in North America, where Accell has its greatest growth potential.  But the rising Euro is mixed news for the Netherlands based bicycle manufacturer, which had to raise prices 5% in its core European market because of higher Euro import prices for components. 

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.
3/31/2015 Price: $10.27 YTD Dividend: $0.06.  YTD Total Return: -20.7%.

Specialty chemicals and biodiesel producer FutureFuel, has been hit hard over the last few days since it revealed that Proctor & Gamble had given notice that it would terminate its contract with Future Fuel at the end of 2015.  FutureFuel makes a bleach activator for P&G: The little blue specks (NOBS) in Tide detergent, which accounted for 13% of 2014 sales.

Sales to P&G have been declining over the last few years because of the overall decline in the market for dry laundry detergents.  2014 sales of NOBS had already declined 27% in 2014 compared to 2013.  This announcement is more an acceleration of the existing timeline for FutureFuel to find replacement products than a bolt out of the blue.  FutureFuel's chemical business has a natural churn.

The 18% sell-off in the four days since the termination was announced is far out of proportion to the damage to FutureFuel's future prospects. Although the current agreement was terminated, the two companies are in talks about a new agreement going forward. It's likely that FutureFuel will continue to supply some bleach activator to P&G in 2016 and beyond, if at reduced volumes, while it is also likely that FutureFuel will find other products to fill much of the chemical capacity not being used for the bleach activator.  I added to my position on the decline.

8. Power REIT (NYSE:PW).
12/31/2014 Price: $8.35
Annual Dividend: $0.  Beta: 0.52.  Low Target: $5.  High Target: $20.
3/31/2015 Price: $8.65. YTD Total Return: 3.6%.

Rail and solar investment trust Power REIT filed its annual report on March 31st.  I have not yet had time to review it, but a first glance shows core FFO per share growing to $0.49 in 2014 from $0.41 a year earlier.  FFO is a non-GAAP measure of recurring cash flow used by many REITs as a measure of cash available for distribution to shareholders.  Net losses, however, were substantial because of litigation costs, property acquisition expenses, and an unrealized loss on an interest rate swap which is part of the financing for one of its solar farms.

As far as I can tell, there was nothing unexpected in the annual report, and the future value of the stock continues to hinge on the outcome if its civil case with its railway lessees.

9. Ameresco, Inc. (NASD:AMRC).
12/31/2014 Price: $7.00
Annual Dividend: $0.  Beta: 1.36.  Low Target: $6.  High Target: $16.
3/31/2015 Price: $7.40. YTD Total Return: 5.7%.

Energy service contractor Ameresco released fourth quarter and full year 2014 results on March 5th.  Once again, management was upbeat about the improvement of its industry.  To quote from the press release, "We anticipate that our traditional U.S. energy services segments, which have tempered our financial performance the past few years, will experience broad-based revenue growth in 2015." 

The market failed to react to the news, but Obama's executive order on March 19th for Federal agencies to greatly increase their efforts to reduce Greenhouse Gas emissions seems to have galvanized investors.  The stock gained 18% for the month, with almost all of the gain coming after the executive order.  Much of Ameresco's business comes from cost-effectively helping government agencies meet goals like these.

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.
3/31/2015 Price: $6.98. YTD Dividend: $0.  YTD Total South African Rand Return: 12.9%.  YTD Total US$ Return: 7.4%.

Vehicle and fleet management software-as-a-service provider MiX Telematics turned in a very strong month.  I'm not sure what drove the rise other than the extreme undervaluation I discussed in detail last month.   Despite the rise, it's still quite cheap, in my opinion.

There was one interesting news story about how many companies struggle to make use of the data collected by the spread of telematics devices to more vehicles.  MiX is a leader in providing the sort of sophisticated solution which helps customers with this problem, and its relatively inexpensive South African software engineers should enable MiX to keep its lead in this area.


Last month, I used this section to comment that "Capstone Infrastructure and MiX Telematics look particularly attractive at their current prices.  Ameresco also looks quite attractive, but its near term performance will hinge on the March 5th earnings announcement and management's outlook for the rest of the year."

I was wrong about the reaction to Ameresco's earnings announcement. It was exactly what I hoped for, but the market was unimpressed.  Instead, it took Presidential action to get the stock moving two weeks later.  But move it did, and Capstone, MiX, and Ameresco were up 11.6%, 23.5%, and 18.2% for the month in dollar terms, and even more for MiX and Capstone in terms of their local currencies.

I should probably quit while I'm ahead, but this month's losers, TransAlta Renewables and Future Fuel both look to me like they have fallen too far.  I think it would be too much to ask to expect them to do in April what the three stocks above did in March.  That said, these two are the stocks I'm buying now.

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

March 31, 2015

China Puts The Brakes On New Solar Production Capacity

Doug Young

Bottom line: New signals indicate Beijing plans to move aggressively to prevent solar panel makers from adding unneeded new capacity to help their local governments meet economic growth targets.

A new low-key announcement from Beijing is hinting at a quiet struggle taking place behind the scenes in China’s promising but embattled solar panel sector, with the regulator saying it will stop the building of most new manufacturing capacity. On one side of this struggle are local government officials, who may be encouraging solar panel makers in their areas to add capacity that will benefit their local economy but is the last thing the industry needs. On the other side of the battle is Beijing, which is trying to show the world it doesn’t unfairly subsidize its solar panel sector as it also tries to rationalize a bloated domestic industry that is stifling global development.

We’ll return to the bigger picture shortly, but first let’s focus on the latest industry development that comes in a low-key announcement from the Ministry of Industry and Information Technology (MIIT), which oversees the solar panel sector. The announcement on the MIIT’s website is quite brief (announcement), but media are saying the move will effectively forbid most panel makers from adding new capacity to their production lines. (English article; Chinese article)

The broader idea seems to be that Beijing wants solar panel makers to boost the efficiency of their current operations by focusing on quality over quantity. The government will demand that producers spend more money to upgrade production lines, and that they spend more money each year on new product development.

The reality is that most of China’s solar panel makers are quite cash poor, following a prolonged sector downturn that has only begun to ease over the last year. But in a country like China, being cash-poor doesn’t necessarily prevent companies from building new capacity that they individually can’t afford and that the bloated sector hardly needs.

That’s because local governments often have access to resources that can assist in the building of new capacity even when it isn’t necessary. Such resources include easy access to cheap financing from state-run banks, government-owned land that can be used for new factories, and control over local tax policies that can help manufacturers lower costs.

So why would these government officials want to promote development of unnecessary new capacity that’s likely to lose money? The reason is simple. Local governments in China get annual economic growth targets from Beijing, and are punished if they fail to meet those targets. Expanding their local solar panel output is one way to help them meet their targets, since the panels are a relatively mature product with a well-established market. Thus as China’s broader economy shows signs of a major slowdown, these local governments could easily use their resources to push local solar factories to boost production to help them meet their growth targets.

Worried about that possibility, Beijing appears to be taking preemptive action to halt a building wave of new capacity that will only further stifle development of the global industry. We’re already seeing recent signs that the sector could be slipping back into a rut, as 2 of China’s larger firms, Yingli (NYSE: YGE) and ReneSola (NYSE: SOL), slipped back into the loss column in their latest quarterly reports. (previous post)

All that said, the bigger question is whether Beijing will succeed in this potential struggle with local governments, and prevail in preventing manufacturers from boosting capacity. This message from the MIIT appears to show that it will be watching all of the country’s solar panel makers very closely, and will aggressively move to shut down any expansion plans that it detects. That should be good news for the global sector, and ultimately prevent a new downturn just as manufacturers start to recover from the last one.

Doug Young has lived and worked in China for 16 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.

March 30, 2015

Why This German Solar Executive Is Skeptical About American YieldCo Assumptions

by Tom Konrad CFA

Ever since the first YieldCo, NRG Yield (NYSE:NYLD), went public in 2013, it and other similar YieldCos have been reshaping the market for operating renewable energy assets, especially wind and solar PV farms. 

A YieldCo is, to put it simply, a publicly traded subsidiary of a developer and operator of clean energy farms that uses the cash flow from its assets to return a high current dividend to shareholders. Most large, publicly traded clean energy developers have already launched or are preparing to launch a YieldCo. The current crop includes NRG Yield, Pattern Renewable Energy Partners (NASD:PEGI), NextEra Energy Partners (NYSE:NEP), Abengoa Yield (NASD:ABY), TerraForm Power (NASD:TERP), and TransAlta Renewables (TSX:RNW, OTC:TRSWF). First Solar (NASD:FSLR) and SunPower (NASD:SPWR) are jointly planning the IPO of a YieldCo to own PV farms to be called 8point3, after the time it takes the sun's rays to reach the Earth.

This rush to launch YieldCos is unsurprising, given that investors can't seem to get enough of them. Since their IPOs, the YieldCos listed above have advanced between 15 percent (Abengoa Yield) and 127 percent (NRG Yield), while at the same time paying dividends and selling large amounts of stock in secondary offerings to fund their growth plans and raise cash for their sponsors.

The new kids on the block

YieldCos were not the only, or the first, publicly listed companies to use clean energy assets and pay a dividend. Long before they came along, there were the Canadian Income Trusts, many of which were focused on clean energy. The tax advantages that first made Canadian Income Trusts a tax-favored structure have since been changed, but several of these trusts survive in a similar form, the most notable being Brookfield Renewable Energy Partners (NYSE:BEP / TSX:BEP.UN), which differs from the YieldCos only in that it develops some projects internally, rather than buying them from a sponsor.

Another is Capital Stage AG (XETRA:CAP), the largest operator of solar PV parks in Germany. Capital Stage also has large holdings of PV in Italy and France, and wind in Italy and Germany, and is in the process of acquiring PV parks in the United Kingdom. It bought its first PV project in 2009.

German skepticism

In an interview, Felix Goedhart, Capital Stage's CEO, expressed mixed feelings about the YieldCo phenomenon. “We like having peers,” especially highly valued peers like the YieldCos, but they are also competitors for buying PV and wind projects. Many such projects do not even make it to the market, since they are sold directly by developers to their captive YieldCos. 

Goedhart is confident, however, that Capital Stage will continue to find attractive deals at after-tax internal rates of return well in excess of what is available to “anyone with a pot of money” who takes part in solar and wind mergers and acquisitions. 

He says that his firm's experience and reputation for reliability allow it to find special situations that less experienced players are not able to touch. When Capital Stage finds such deals, it can act quickly because it does due diligence internally, and can handle “complex situations” such as the current acquisition of solar in the U.K. 

He said some investors new to the business would have backed away from that deal because it looked complex. Capital Stage, on the other hand, knows “basically everything” about the deal and has “seen so many things [that] we know what to do to take on these challenges.”

Goedhart's skepticism of YieldCos centers on their accounting practices, and the inherent conflict of interest when they purchase assets from their sponsors. He asks, “Are you worried by the fact that [developers] and some 'independent' decision-making body decides which asset goes at which price?”

This conflict of interest has not worried investors yet, but it will doubtless begin to worry them if purchasing overpriced assets from their sponsors keeps YieldCos from producing the long-term dividend growth they currently expect.

A kind of Ponzi scheme?

Goedhart's other point of skepticism lies around the source of YieldCo dividends. He contrasts Capital Stage's own dividend, which is “paid out in cash, not paper, not on a business plan, [but] real money operationally earned. Not in a kind of Ponzi scheme where you're raising real funds and taking parts of the funds to pay out a dividend which you haven't earned operationally.”

Do YieldCos pay out dividends in a kind of Ponzi scheme as he claims?

In 2014, NRG Yield produced $223 million in cash flows from operations (CFO), and paid out $122 million in dividends to shareholders and distributions back to its parent, NRG. Cash flow from operations is a very broad measure, and does nothing to account for cash needed to replace its assets at the end of their useful lives. Actual income, which does include depreciation, was only $16 million, far below what would be needed to pay its current level of dividends and continue as a viable business beyond the useful life of its current assets.

Other YieldCos operate in a similar fashion. Abengoa Yield paid $24 million in dividends, created $44 million in CFO, but produced a net loss in 2014. Although their track records are short, most YieldCos seem similar: they have cash flow from operations to comfortably pay their dividends in the short term, but insufficient earnings to both pay a dividend and invest for the future.

Is Capital Stage any different? The company has not yet released its 2014 results, but in 2013, it earned €14 million from which it paid €7 million in dividends in 2014. Its dividend is easily covered by both earnings and cash flow. 

Summing up

YieldCo dividends are not supported by earnings, and so they are not sustainable in the long term unless the companies continue to raise capital to re-invest. Further, there are reasonable questions about the conflicts of interest when YieldCos purchase assets from their controlling sponsors.

While the YieldCo model is valuable in that it matches the strong cash flow producing characteristics of operating clean energy projects with the cash flow needs of income oriented investors, dividends from YieldCos are not directly comparable to dividends from operating companies which have earnings, not just cash flow, sufficient to replace their assets over time. 

Instead, investments in YieldCos should be viewed as amortizing assets. Over the 15- to 30-year typical remaining life of YieldCo assets, the value of those investments will slowly be paid out as a dividend, causing the share price to fall when aging assets are no longer able to support the dividend, or because early investments become diluted by the capital needed to invest in newer assets.

That does not make YieldCos any sort of Ponzi scheme, but it does mean that YieldCo dividends is not worth as much as dividends from operating companies that can fully cover their dividends with earnings.


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.

Disclosure: Tom Konrad and/or his clients have long positions in PEGI, FSLR, ABY, RNW, BEP, and a debt investment in GridEssence, a private company which Capital Stage AG is in the process of buying. They have short positions in NYLD and TERP.

This article was first published on GreenTech Media, and is republished with permission.

March 29, 2015

US Geothermal: Wringing Profits From Hot Rocks

by Debra Fiakas CFA

Last week I spent the better part of a day listening to presentations of energy companies at the Wall Street Analyst Forum in New York.  Although I had heard the management of  US Geothermal (HTM: NYSE) tell the company’s story before, I was impressed to hear about the progress the company has made in squeezing profits from electricity produced with turbines run by underground steam.  Management called it gratifying!

The company reported $31 million in sales in the year 2014, delivering $14.9 million in net income to the bottom line.  That is something to celebrate!

Sales in 2014 grew 13.1% year-over-year compared to $27.4 million.  Production profits also increases to 48.5% of sales, up just a pinch from the year before when profits were 48.3%.  Unfortunately operating expenses rose during the year leaving profits at that level at $4.6 million or 14.8% of sales.  What really drove net income in 2014 was a $12.0 million tax benefit as the company amortized tax assets built up in previous years when the company experienced losses.

As is almost always the case with young companies, even ones that have achieved profitability, it makes sense to look carefully as the company’s ability to generate cash.  As confusing as US Geothermal’s profits and loss profile might be, its report of operating cash flow is illuminating.  In 2014, the company’s operations generated $12.8 million in cash, which tops 2013 cash generation of $10.6 million.

It is exciting seeing cash in the bank and even more gratifying when management finds something productive to do with it.  US Geothermal has a history of buying up thermal assets.  The company acquired new leases for its Vale project, but the real excitement has been in two other acquisitions.
In 2014, the company bought the WGP Geysers project from Ram Power (RAMPF: OTCBB)for what appears to be a very attractive price of $6.4 million.  WGP Geysers is a developed site with four wells in the larger Geysers project in California.  A recent engineering report suggests the project can generate 30 megawatts annually.   The company has received approval to build a 38.5 megawatt power plant.

Then in December 2014, US Geothermal issued stock to acquire Earth Power Resources, which included geothermal assets in Nevada that could give rise to three power projects.  A third party has estimated there is sufficient heat in place to generate 71 to 186 megawatts of power.  The company began drilling the first production well in December 2014.

The company is projecting nearly 200 megawatts of power by 2020 from the current 45 megawatts.  Management has told analysts who follow the company that it can generate $100 million in EBITDA (earnings before interest, depreciation and amortization).  Against such a prognosis, HTM shares appear grossly undervalued.  Unfortunately, investors are unconvinced.  A review of recent trading patterns found in a point and figure chart suggests a very bearish sentiment prevails in trading of HTM shares.  An investor taking a bull case position in the stock may have some time to wait for appreciation of the shares.

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.

March 27, 2015

Yingli Joins The $1 Club; China Solar Slows

Bottom line: A new second wave of consolidation is likely to occur in China’s solar panel sector later this year, with money-losing companies like Yingli and ReneSola as the most likely acquisition targets.

Looming signs of new trouble are brewing in the solar panel sector, with shares of Yingli Green Energy (NYSE: YGE) taking a bath after the company reported widening losses and slowing revenue growth. The 15 percent sell-off saw Yingli’s shares re-approach an all-time low from just 2 and a half years ago, as the company joined a small but growing club of US-listed solar panel makers whose shares now trade in the $1-2 range.

Yingli’s announcement makes it the last of China’s major solar panel makers to report their fourth-quarter results, painting a picture that hints of more consolidation on the way for a sector that has already undergone a painful restructuring over the last 2 years. Two camps are emerging: One that is profitable, including names like Canadian Solar (Nasdaq: CSIQ) and Trina (NYSE: TSL); and one that is losing money, which includes Yingli and ReneSola (NYSE: SOL), which became the charter member of the $1 club when its shares sank below $2 last November.

The broader solar sector took a beating in the latest trading day on Wall Street, with Yingli and ReneSola leading the downward charge with the 15 percent and 7.5 percent declines, respectively. Shares of both companies are now near all-time lows. The profitable Canadian Solar and Trina were both also down, but by smaller amounts in the 3-4 percent range. Both of those companies’ stocks still trade well above their all-time lows, and don’t appear to be in danger of joining the $1 club anytime soon.

Investors were clearly spooked by the bottom line in Yingli’s latest results, as it reported a net loss of 609 million yuan ($100 million) for the quarter. (company announcement; English article) That figure was actually an improvement over the company’s 806 million yuan loss for the fourth quarter of 2013, but it also marked a 4-fold increase from its loss of 138 million yuan in the third quarter of last year.

All of China’s solar panel makers, and most of the global industry in general, fell sharply into the red at the height of a sector downturn that began in 2011 and didn’t really start to ease until 2013. Companies like Canadian Solar and Trina were some of the first to return to profitability, and the pair have just reported relatively solid profits in their latest quarterly results.

In terms of top line, all of the companies are reporting that revenue growth is slowing sharply as prices start to decline after a relatively long period of steady gains during the recent recovery. Yingli predicted its shipments in terms of production capacity would only grow 7-16 percent this year. But if prices fall, that means actual revenue could grow by much less or even start to fall. ReneSola has forecast similar anemic growth this year, while Trina and Canadian Solar have forecast much stronger gains.

All of this brings us back to the question of whether a new shake-out is looming for the industry, and whether money-losing companies like ReneSola and Yingli might become attractive takeover targets. The recent sell-off of both companies’ shares has made each a relative bargain for any interested buyers. ReneSola’s current market value stands at just $150 million, while Yingli’s is about twice that amount at $360 million.

The bigger question is whether anyone would want to buy these companies, since such money losers aren’t exactly that attractive. I suspect the answer to that question is “yes”, as Beijing and local governments could provide some incentives to spur more consolidation that is still needed to put the sector on a longer-term sustainable footing. Accordingly, I would expect to see at least 1 or 2 mid-sized players to disappear later this year, most likely through acquisitions, before the sector returns to more solid footing in 2016.

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.

March 26, 2015

Who’s on First, What’s on Second and Why It Does and Does Not Matter

by Paula Mints

Sizing the supply side of the global PV industry has never been easy. As annual shipments grew to gigawatt heights outsourcing increased in tandem making it almost impossible to settle on a reliable number for the size of the industry in any given year.

Outsourcing, a common practice in all industries, takes place when one manufacturer buys a product or component from another manufacturer.  In the PV industry, manufacturer A buys cells from manufacturer B, assembles the cells into modules and includes these modules in its in-house production.  When both manufacturers report the resulting megawatts as their shipped product, the industry is instantly oversized. Since most manufacturers engage in outsourcing, the practice compounds and obscures the real capacity of the industry.

Figure 1 (below) provides an example of how easily the PV industry can be made instantly bigger by double counting.  In Figure 1, Trina, Canadian Solar, Jinko, Renesola and Yingli have a combined 9.1 GWp of c-Si cell manufacturing capacity and a combined 15.3 GWp of module assembly capacity for an excess of 6.2 GWp of module assembly capability.  These manufacturers will buy cells from other sources and include them in their production.

In contrast, NeoSolar, Gintech, TopCell, E-Ton and Inventec have a combined c-Si cell manufacturing capacity of 6.3 GWp and a combined module assembly capacity of 2.1 GWp for excess cell manufacturing capability of 4.2 GWp.

The manufacturers with excess cell capacity ship cells to the manufacturers with excess module assembly capacity and everyone reports everything. And thus the PV industry has been oversized on an annual basis for decades.

Figure 1: Select Manufacturer 2014 Crystalline Cell and Module Assembly Capacity

One misunderstanding that contributes to the annual oversizing concerns what should be counted.  A cell without a module is not going to be mounted on a rooftop, but a module without a cell can’t generate electricity.  This is not a chicken and the egg conundrum. The size of PV industry shipments (or sales) annually is limited by its semiconductor — that is, crystalline cell or thin film panel capacity. 

Unfortunately, there is still a misunderstanding about the difference between module assembly capacity and cell manufacturing capacity.  Twenty years ago almost 100 percent of the crystalline manufacturers assembled their internally manufactured cells into modules.  Currently, manufacturers, particularly in China, are adding significantly more module assembly capacity than cell manufacturing capacity.  In the case of China, given the tariff constraints its manufacturers face globally, it makes sense to include production that allows for the acquisition of cells from other regions such as South Korea and Malaysia.  Figure 2 presents module assembly capacity shares by region for 2014.

Figure 2: Global Module Assembly Capacity Shares 2014

Figure 3 presents 2014 module assembly capacity (100 percent dedicated to c-Si), crystalline cell manufacturing capacity, thin film manufacturing capacity, announced shipments, cell/thin film shipments from 2014 production, shipments plus 2013 inventory and 2014 inventory. 

Figure 3: PV Industry 2014 Supply Statistics

In Figure 2, there are 51.3 GWp of announced shipments and 40.2-GWp of shipments from in-house c-Si cell and thin film production plus the previous year’s inventory. The reason for the 11.1-GWp difference is this: manufacturers bought cells and/or modules from other sources and included the acquired product in their shipment announcement, while the original manufacturer also reported the product in its shipment numbers. 

Does It Matter Who’s on First?

The annual lists of the top ten PV manufacturers becomes irrelevant if the origin of the product being reported becomes so convoluted that no one knows the genesis of anything.  The lists are typically comprised of the same manufacturer names, but, as these lists are based on different methodologies, the names are almost never in the same order. Some specificity concerning what is being ranked is necessary in order to give these lists meaning. Without specificity the lists just do not matter.

As the module without cells is an empty frame, it is important to know who manufactured the cell in the first place. One reason that this is important is quality. A photovoltaic module is an electricity producing product that is expected to reliably generate electricity for at least 25 years.  Products that carry this responsibility for reliability and longevity need to be clear about their pedigree.  This should be a matter of pride, but if quality issues arise it may be a matter of necessity.

The fact is that once the module is assembled it is very hard to know who the original cell manufacturer was unless, of course, the module assembler reports these statistics. 

Who’s on first does not matter as much, frankly, as who’s cells are inside of whose modules. 

Why We Like Big Numbers

Constant growth has been the PV industry mantra for years even though, slower stable and profitable growth is a better path. The desire for ballooning growth is one reason that double counting of shipments is tacitly accepted by everyone. After all, referring to the previous example, 51.3 GWp is more impressive than 40.2 GWp (shipments from annual production plus previous year inventory) despite the fact that it was arrived at by counting the same cell once, twice, maybe three times.  Considered through the lens of bigger-is-better, the 38.9 GWp of shipments from 2014 production (not counting inventory) is downright penurious. 

That the annual celebration of ever bigger numbers has come hand in hand many years with low to negative margins is typically ignored until blatant — and never mind that it is almost impossible to figure out the real cost of producing anything in the PV industry.

We like big numbers because they symbolize success. Unfortunately, big numbers are often a façade obscuring failure.  The real success is the ability to point to PV modules that have been in the field for over 30 years reliably generating electricity.  This sort of success offers proof that photovoltaic technologies are not the future, this technology is the electricity generating technology of now.

The real danger of big numbers is that they are both addictive and self-fulfilling.  Addictive because the attention they garner feels good, self-fulfilling because of the tendency of people to look for data to support their beliefs.

So, who’s on first, what’s on second matters less these days primarily because the numbers have been combined and recombined often enough to render them meaningless.  The same confusion exists on the demand side of the industry, where multi-megawatt projects are sold and resold and therefore counted and recounted, while the difference between a grid connection and an installation is sometimes misunderstood.  The point is — and should be — quality up and down the value chain. 

Paula Mints is founder of SPV Market Research, a classic solar market research practice focused on gathering data through primary research and providing analyses of the global solar industry.  You can find her on Twitter @PaulaMints1 and read her blog here.

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

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