November 06, 2016

Election Jitters Spell Opportunity: Ten Clean Energy Stocks For 2016

Tom Konrad, Ph.D., CFA

This October saw falling leaves and falling stocks. Then came the first week of November with its election jitters and stripped the trees of the rest of their leaves like a fifty mile an hour wind sending stocks flying as well.

While Donald Trump's unpredictable performance has the whole stock market rattled (at least when it looks like he might win), his anti-environment and pro fossil fuel rhetoric have had stocks in the sector quaking like the leaves on an aspen.

Although all its benchmarks were decidedly in the red for October and the first week of November, my Ten Clean Energy Stocks for 2016 fared relatively well.  Although the portfolio, its growth and income subportfolios, and my privately managed Green Global Equity Income Portfolio all fell, their declines were smaller than their benchmarks.  For the year to date, their out-performance ranged from 11% to 31% over their benchmarks.

Detailed performance for the growth and income subportfolios, my Green Global Income Portfolio, and their various subportfolios can be found in the chart below.

2016 ovt nov composites
See the original 2016 article for a description of the benchmarks.

The chart below and the following discussion gives detailed performance and discussion for the individual stocks.  Click for a larger version.

10 for 16 OctNov.png

Income Stocks

Pattern Energy Group (NASD:PEGI)

12/31/15 Price: $20.91.  Dec 31st Annual Dividend: $1.488 (7.1%).  Beta: 1.22.  Low Target: $18.  High Target: $35. 
10/31/16 Price:  $22.35.  YTD Dividend: $1.171. 
Expected 2016 Dividend:$1.58 (7.1%) YTD Total Return: 12.9%
11/4/16 Price:  21.62 .  YTD Total Return: 9.3%

Wind Yieldco Pattern Energy will release its third quarter earnings on November 7th.  Wind speeds were a little disappointing in the first half of the year because of El Nino.  Investors will be watching for higher revenues from wind generation now that El Nino is no longer affecting wind patterns.  This seems likely, considering that other companies (see NRG Yield and TransAlta Renewables, below) have been reporting strong wind production for the quarter.

Enviva Partners, LP (NYSE:EVA)

12/31/15 Price: $18.15.  Dec 31st Annual Dividend: $1.76 (9.7%).  Low Target: $13.  High Target: $26. 
10/31/16 Price:  $27.25.  YTD Dividend: $1.495  Expected 2016 Dividend: $2.10 (7.7%) YTD Total Return: 49.9%
11/4/16 Price:  27.00 .  YTD Total Return: 58.9%

Wood pellet focused Master Limited Partnership (MLP) and Yieldco Enviva Partners announced its earnings on Thursday, November 4th.  The company agreed to terms with its sponsor for its second drop-down acquisition which should allow the cash flow and dividend per share growth to continue in 2017.  This particular drop-down also has the effect of increasing Enviva's number of customers, helping to diversify the partnership's future revenue streams.

Enviva forecasts a per share distribution in 2017 of $2.35 per a share, which would amount to an increase of approximately 12% over 2016.

Green Plains Partners, LP (NYSE:GPP)

12/31/15 Price: $16.25. 
Dec 31st Annual Dividend: $1.60 (9.8%).  Low Target: $12.  High Target: $22. 
10/31/16 Price:  $21.25.  YTD Dividend: $1.218.  Expected 2016 Dividend: $1.64 (7.7%) YTD Total Return: 41.8%
11/4/16 Price:   18.60.  YTD Total Return: 24.1%

Ethanol production Yieldco Green Plains Partners also announced 3rd quarter results.  The partnership increased its quarterly distribution to $0.42 per unit, and reported $0.43 in per unit income for the quarter.  It's parent company, Green Plains (GPRE) produced a record volume of ethanol in the second quarter.  Revenues increased due to a reviving ethanol market and new ethanol storage acquired out of the Abengoa (ABGB) bankruptcy.

However, the stock's strong performance so far this year led analysts at Stifel Nicolaus to downgrade the stock from "Buy" to Hold. That and the general election jitters caused the partnership's units for fall more than 10% in the first week of November, although it still shows significant gains for the year to date.

NRG Yield, A shares (NYSE:NYLD/A)

12/31/15 Price: $13.91.  Dec 31st Annual Dividend: $0.86 (6.2%). Beta: 1.02.  Low Target: $11.  High Target: $25. 
10/31/16 Price:  $14.73.  YTD Dividend: $0.695.  Expected 2016 Dividend: $0.96 (6.5%) YTD Total Return: 11.2%
11/4/16 Price:   $14.75.  YTD Total Return: 11.3%

Yieldco NRG Yield (NYLD and NYLD/A) announced 3rd quarter results on November 4th.  Revenues were strong, in large part due to good production from the company's wind farms.  It increased its quarterly dividend to $0.25 (16% year over year growth.)  The strong quarter is doubtless why the stock made a slight gain in the first week of November despite the market turmoil.

The company released guidance for 2017, and re-affirmed its targeted 15% annual dividend per share growth of 15% through 2018.

Terraform Global (NASD: GLBL)

12/31/15 Price: $5.59.  Dec 31st Annual Dividend: $1.10 (19.7%). Beta: 1.22.  Low Target: $4.  High Target: $15. 
10/31/16 Price:  $3.75.  YTD Dividend: $0.275.  Expected 2016 Dividend: $0.60 (16.0%). YTD Total Return: -25.2%
11/4/16 Price:  3.75.  YTD Total Return: -25.2%

Yieldco Terraform Global has still not released its much delayed financial statements (although some preliminary information was released in July.)  The stock's decline in October has been mostly driven by rumors about the possible sale or non-sale of its much larger sister Yieldco, Terraform Power (TERP.)  These included rumors that SunEdison intended to keep its stake in Terraform Power and restructure the company around that holding, as well as Brookfield ruling itself out as a buyer for Terraform Power.

Hannon Armstrong Sustainable Infrastructure (NYSE:HASI).

12/31/15 Price: $18.92.  Dec 31st Annual Dividend: $1.20 (6.3%).  Beta: 1.22.  Low Target: $17.  High Target: $27. 
10/31/16 Price:  $23.86.  YTD Dividend: $0.90.  Expected 2016 Dividend: $1.25  (5.5%). YTD Total Return: 26.0%
11/4/16 Price:  $19.96 .  YTD Total Return: 10.0%

After clean energy financier and REIT Hannon Armstrong reported second quarter core earnings in August, I wrote:

Hannon Armstrong has a target of paying out 100% of core earnings in dividends and a policy of increasing the dividend once per year in the fourth quarter.  Since Core Earnings have historically always increased or held constant from quarter to quarter, they typically lag the dividend in the first two quarters, but exceed them in the second half of the year. 

I expect this year to be different.  Results in the first half of the year were boosted by a larger securitizations (selling assets to third parties rather than keeping them on the books.)  While producing strong earnings in the quarter when they happen, securitizations produce no ongoing income.  After raising $91 million in equity in June, the company will again return to placing more transactions on the balance sheet, a change which I expect to reduce core earnings in the third quarter before returning to growth in the fourth quarter. 

I expect my anticipated decline in third quarter earnings in early November to catch some investors by surprise.  Investors looking to buy the stock should wait until then.  Investors considering taking some gains may want to sell before the November announcement.

My prediction was on the mark.  Core earnings fell from $0.32 per share in the second quarter, to $0.29 this quarter.  The stock decline was compounded by the company issuing an additional 3.5 million shares in a secondary offering priced at $20.  I remain confident that earnings growth will resume in the fourth quarter and that the company will again raise its quarterly dividend in December to at least $0.34.

The current price of $19.96 seems an excellent and likely fleeting buying opportunity.

TransAlta Renewables Inc. (TSX:RNW, OTC:TRSWF)
12/31/15 Price: C$10.37.  Dec 31st Annual Dividend: C$0.84 (8.1%).   Low Target: C$10.  High Target: C$15. 
10/31/16 Price:  C$14.81.  YTD Dividend: C$0.733  Expected 2016 Dividend: C$0.88 (5.9%) YTD Total Return (US$): 56.2%
11/4/16 Price:  C$14.26 .  YTD Total Return: 50.6%.

Canadian listed Yieldco TransAlta Renewables' third quarter  results showed expected growth due to previous acquisitions, and the construction of the company's Australian South Hedland facility continues as planned.  Like NRG Yield, the company had a strong quarter of production at its Canadian Wind farms.

Growth Stocks

Renewable Energy Group (NASD:REGI)

12/31/15 Price: $9.29.  Annual Dividend: $0. Beta: 1.01.  Low Target: $7.  High Target: $25. 
10/31/16 Price:  $8.75.    YTD Total Return: -5.8%
11/4/16 Price:   8.40.  YTD Total Return: -9.6%

Advanced biofuel producer Renewable Energy Group reported strong earnings growth in the third quarter, but not as strong as many analysts had been expecting.  This combined with the inclusion of REGI in The Street's "Clinton Portfolio" sent the shares tumbling in the first week of November.  I personally think  that the "Clinton Portfolio" was very badly designed, and would have weighted such a portfolio much more heavily towards solar installers and manufacturers, rather than biodiesel which has much stronger bipartisan support than solar. 

I continue to think REGI is an excellent buy at the current price of $8.40, even if Trump wins the election.

MiX Telematics Limited (NASD:MIXT; JSE:MIX).
12/31/15 Price: $4.22 / R2.80. Dec 31st Annual Dividend: R0.08 (2.9%).  Beta:  -0.13.  Low Target: $4.  High Target: $15.
10/31/16 Price:  $6.29 / R3.35.  YTD Dividend: R0.06/$0.101  Expected 2016 Dividend: R0.08 (2.1%)  YTD Total Return: 52.6%
11/4/16 Price:  $6.05 / R3.23.  YTD Total Return: 46.7%

Software as a service fleet management provider MiX Telematics announced the results for the second quarter of its 2017 fiscal year, which starts in April.  Subscriber growth remained weak (8% year over year) due to the depressed energy sector, but showed signs of acceleration late in the quarter.  The company is continuing to make progress in its long term strategy of steering customers towards its bundled offerings, which improve margins in the long term at the cost of greater up-front investments.

Ameresco, Inc. (NASD:AMRC).
Current Price: $6.25
Annual Dividend: $0.  Beta: 1.1.  Low Target: $5.  High Target: $15. 
10/31/16 Price:  $4.80.  YTD Total Return: -8.7%
11/4/16 Price:  4.95 .  YTD Total Return: -18.0%

Energy service contractor Ameresco's third quarter results continued recover.  The company is also increasing its project backlog and investments in owned renewable energy facilities (mostly landfill gas), both of which increase the level and predictability of its future earnings.  Giving the company's improving results and prospects, Ameresco would be a highlight of my own "Clinton Portfolio" if I were to construct one (see comments on Renewable Energy Group, above.)  Because Ameresco does much of its business with the federal government, the stock would likely suffer under a Trump administration.

Final Thoughts

The possibility of a Trump victory on Tuesday has many clean energy investors running for the hills.  This creates buying opportunities among stocks that are relatively immune to decisions in the White House, such as Pattern, Renewable Energy Group, and Hannon Armstrong, both of which should advance no matter who is in the White House.  Ameresco is my top pick to benefit from a Clinton victory.


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.

November 03, 2016

The Dangers of PR Driven Solar News

by Paula Mints

Few people understand the time, money and effort required to develop and manufacture high quality solar technologies.  We can blame this fact on a reliance on press releases for news about the solar industry.

Manufacturers drive these misunderstanding by not properly explaining that champion results are not analogous to or in many cases near commercial viability. The PERC, passivated emitter rear contact solar cell, now gaining market traction began its long trudge to commercial competitiveness in the mid-1980s. When manufacturers announce results without fully ex-plaining these results the effect is misleading and also furthers the illusion that breakthroughs are imminent.

Elon Musk’s recent announcement about his new and innovative solar roof – which turned out to be a fact-lite announcement of a solar tile product – is another example of press that calls attention to nothing that is either new, innovative or that deserves much press coverage in the first place.

Waiting for the next technology breakthrough is like Waiting for Godot, the play by Samuel Becket about the meaningless of life and where Godot never arrives. The definition of breakthrough in the solar industry is amorphous and essentially meaningless. In reality the many profound breakthroughs that have inched the photovoltaic industry forward to where it is today – undervalued for the very technology crucial to it, the solar cell – have taken decades.

Beware of company press releases announcing future plans or stating that a company is the leader in a space. For one thing there may be only one company in the space.

There is a lot of precedent for announcing future manufacturing capacity building and for referring to the future as if it were a fait accompli. In 2014 SolarCity (SCTY) announced to great fanfare its plans for the largest solar manufacturing facility in the US, a1-GWp c-Si facility in New York. Many industry participants and observers took the announcement as proof of a US manufacturing renaissance.

Blast from the past: In April 2011 GE bought PrimeStar, a 30-MWp, pre-commercial CdTe manufacturer based in Colorado for $600-million. In its announcement GE stated that they would build the nation’s largest manufacturing facility, a 400-MWp CdTe facility in Colorado. In 2013, after failing to commercialize PrimeStar’s CdTe technology, GE sold the startup’s technology assets to First Solar in a stock deal valued at $82-million. The moral of this example is that though planning for the future is crucial, announcing these plans as fact is most often a huge mistake.

Misleading PR driven solar news has trained readers to expect a constant stream of advancements and dulled the senses to the true nature of advancement. Technology breakthroughs are, as previously indicated, years and potentially decades from idea to prototype to champion result to pilot scale production to commercial competitiveness. Advancement is driven by repeatability that is, doing the same experiment or test again and again and again and again until an average result is achieve and can be repeated – again and again.

For example, in the mid-2000s companies such as Applied Materials (AMAT), Oerlikon and others tried to leapfrog over the historic development timeline by offering turnkey manufacturing so that new entrants eager to make a buck in the photovoltaic industry could avoid years of trial and error and jump almost immediately into commercial production. Years of announcements later the turnkey PV manufacturing model is rarely mentioned.

Solar conferences compound the problem by providing little in the way of education or actual facts about technology development. Better information is available at the scientific conferences such as the IEEE PVSC but at the 2016 PVSC in Portland, Oregon an executive from Solar Frontier spent fifteen minutes describing the history of the company and leaving out salient facts such as current production costs, average prices and the commercial efficiency of its commercial CIS modules.

At the 2016 Solar Power International Conference in September during a focus group several people said that they were bored with the solar cell, referring to it as a commodity and wondering when the next breakthrough would be announced.

PR driven news cycles train us to expect giant breakthroughs where we should expect hard work.  That leaves us bored even when that hard work is paying off.

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 in the October31st issue of  SolarFlare, a bimonthly executive report on the solar industry, and is republished with permission.

November 02, 2016

The Commoditization of the Solar Industry

by Paula Mints

Philosopher, essayist, poet and novelist George Santayana said: Those who cannot re-member the past are condemned to repeat it.
The solar industry is expert at repeating its behavior and justifying the often devastating results by referring to them as the solar rollercoaster or, the solar coaster.

To be clear, the industry’s behavior is closer to a Shakespearean tragedy than it is to a carnival or theme park ride. People choose to ride rollercoasters because once the ride begins they lose control for a brief period. They can enjoy the feeling of being safely out-of-control for a brief time. On a rollercoaster the thrills and chills are temporary.

In the solar industry a downward swoop typically means lost money, lost jobs as well as the lost dreams of the solar workforce from one end of the value chain to the other. On the manufacturing side most participants have been in low to negative margin territory for far too long and this situation is not going to right itself in the current pricing climate.

Polysilicon manufacturers, under pressure for years, are unlikely to get relief. Manufacturer components and materials outside of China such as backsheets and EVA are giving up and exiting. Cell manufacturers and module assemblers are pressured to exit or cut corners.
The downward slope of the solar rollercoaster is not a fun ride.

Problems with margin squeeze and poor quality components are not new. When prices for modules began crashing years ago the industry as a whole had an opportunity to point out the effect this margin squeeze would eventually have on quality and competition. Instead, crashing prices were celebrated as progress.

To correct a situation wherein low margins affect buying decisions – polysilicon, consumables, backsheets, etc. – buyers need to be aware that their choices will eventually affect the quality of the modules and Balance of Systems (BoS) they buy and install.

Whether it is demand side participants buying components at prices that are too good to be true or it is supply side participants choosing to sell product at prices with razor thin or negative margins, choices are being made. Solar participants are not giving up control of their future, they have abdicated it.

The Commoditization of the Solar Industry

Solar panels are widely considered commodities these days. This is a misunderstanding of what a commodity is and is linked to a misunderstanding of the time, effort, science and engineering required to develop photovoltaic thin film and crystalline cells. It also misunderstands the nuance of module assembly.

In general, a commodity is a product that is produced and sold by many companies and that has no differentiating features. Electricity is a commodity. Copper and aluminum are com-modities. Ammonia is a commodity. Oil is a commodity. Shoes, purses, jeans and solar panels are not commodities.

Unfortunately as CdTe, CIS, CIGS, n-type monocrystalline and p-type multi and monocrystalline solar panels may or may not look different from each other the assumption is that there is no differentiation and they are thus commodities. The belief that the solar panel is a commodity is what led Applied Materials (AMAT), Oerlikon and others to assume that solar cells could be rapidly mass produced just like any other diode and panels churned out like so many LED television screens. Note again that those who believed this are no longer selling the concept of turnkey solar cell manufacturing lines.

Again, the assumption that solar cells – thin film or crystalline – are commodities ignores the science and the nuance and the decades of effort as well as the decades of experience re-quired to produce a commercial product.

The industry has effectively, though not correctly, commoditized itself by agreeing by virtue of its behavior to compete almost solely on price and by celebrating unreasonably low prices as progress. Industry participants have created the myth that the solar panel is a commodity simply by repeating that it is one and assuming that repetition alone renders something a fact.

Repeating something ensures that it will become repetitive, it does not confer legitimacy on the statement that is being repeated.

The Current Module Pricing Situation – Abandon All Hope, Those Who Manufacture Here

The reasons for the rapid decline in module prices globally are very clear and they are not based on progress in either cost reduction or conversion efficiency increases.
  1. China’s market out performed all estimates and manufacturers in China and Taiwan planned production around a 30-GWp market instead of a 15-GWp market. It is worth noting that the FiT had been paid slowly if at all and curtailment in China is high and thus PV deployment is not profitable.
  2. China’s government effectively slammed the door shut (as have other governments) to slow out-of-control building.
  3. As a result, between 3-GWp and 5-GWp of cell and module production was stranded in manufacturer and developer inventory.
  4. As a result a flood of low priced cells and modules are available.
  5. As a result of what is now overproduction prices are highly competitive and margin pressure is extreme.

Unlike the mid-to-late 2000s current low prices are not the result of an aggressive pricing strategy to capture share. The current low prices are the result of production to meet China’s ballooning market, the government abruptly let the air out of the balloon, and the cell and module inventory stranded in the wake of high levels of production and government actions to slow the domestic market.

Prices are falling daily and will continue to fall until the production that was meant to be in-stalled in China is worked down. Meanwhile, manufacturer capacity expansion plans are being pulled back and layoffs have begun.

The only manufacturers for whom this is good news are those who were not yet commercial. These manufacturers have been offered a face-saving way to shutter capacity. For commercial manufacturers – even in China – the pricing slide is akin to being a passenger in a plane that hits a never ending air pocket. Prices are plummeting, taking jobs, quality and future plans with them.

Forgetting high efficiency manufacturers such as SunPower (SPWR) and LG – though make no mistake these manufacturers are also feeling price pressure – the current average price for modules in the US is $0.48/Wp. The range, including high efficiency monocrystalline modules, is $0.35/Wp to $2.25/Wp.

The figure below offers price and shipment history from 2006 through a 2016 estimate. The global average is a weighted average all prices in a market throughout the year and is based on a representative global sample. Concerning the average price estimate for full 2016, it is the estimate based on the current situation and given the pressures could be $0.02/Wp to $0.04/Wp lower. Remember, price and costs are different beasts.

module prices and shipments 2006-16Meanwhile, Back on Planet Margin

Many people are working overtime to tie the current situation of low pricing and strained margins to the early 2000s. The situation today is, as previously discussed, different.

In 2004, the global PV industry entered a period of prolonged accelerated growth stimulated by the European feed in tariff incentive which spread quickly from Germany to other countries. In its early iterations, this incentive was simple and profitable and as such invited investors to take risks on non-commercial technologies. The utility scale (multi-megawatt) application was an outgrowth of investor interest in seemingly stable FiT returns.

During the early 2000s capacities to produce technology increased significantly while prices decreased significantly; for example, prices decreased by 42% in 2009 over the previous year, by 16% in 2010, by 23% in 2011 and by 45% in 2012.

Unfortunately, these price decreases were misunderstood as a sign of economies of scale and it was widely assumed that the industry had reached grid parity. This assumption was largely based the misunderstanding that price was closely correlated with cost and that price decreases represented progress. During this period of strong activity, manufacturers in China entered with aggressive pricing strategies that rapidly drove PV manufacturers into a pro-longed period of negative margins, company failures and consolidation.

As a result of this long period of price declines tariffs, domestic content requirements and minimum import prices were established in the EU, the US, India and Canada. These measures were unsuccessful in that these methods misunderstood the marketplace for solar PV cells and modules and did not take under consideration grey market activity.

Currently, module buyers are able to buy product at ever lower prices and enjoy some (probably brief) margin relief. This is particularly important for developers bidding into the highly competitive PPA market. The downside will be – again – loss of manufacturers who cannot withstand the current period and all the expertise that goes with them. Product quality may also suffer as manufacturers look to preserve what margin they can.

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 in the October31st issue of  SolarFlare, a bimonthly executive report on the solar industry, and is republished with permission.

November 01, 2016

What The US Election Will Mean For The Global Solar Industry

by Paula Mints

The endless and endlessly not amusing US presidential election is thankfully wrapping up in November and there is a lot at stake for solar – globally. This is because the market for solar components and systems is global. Even the smallest installer buys imports. Even the smallest component manufacturer has the potential to ship product into any global market. A hiccup in one market (China, for example) reverberates throughout the entire global market for solar components and systems.

A hiccup in the US market for solar deployment would affect business plans and forecasts for all participants and observers – globally.

Currently the US market for commercial installations is stable. The US market for residential installations is currently less stable. Manufacturers, developers, scientists, engineers, teach-ers, insurance firms, law firms, consultants and others from around the world look to do business in the relatively stable climate for solar deployment in the US.

The following presents US solar market growth in the aggregate from 2006 through 2016.

 Aggregate US Solar PV Market Growth, 2006-2016
US Solar market growth 2006-16
In this US presidential election, one presidential candidate has tweeted that climate change is a hoax "invented by the Chinese to make U.S. manufacturers noncompetitive."

The other presidential candidate will make the climate a key part of her agenda and will follow through on many of President Obama’s mandates concerning it.

Like it or not, the 2016 presidential election is crucial to solar – and wind and other renewable electricity generating technologies – momentum in the US and elsewhere. Here are a few of the reasons why:

The Supreme Court

The Supreme Court should have nine justices, thus ensuring no tie decisions. Currently there are eight justices on the US Supreme Court, which opens the possibility of a tie instead of a majority decision. A tie is a stalemate that allows decisions rendered by lower courts to stand. The Clean Power Plan is currently being legislated in at least 24 states. The new president will appoint (or attempt to appoint) at least one justice, maybe two, to the court. As justices serve for life or until retirement the direction of the US will be affected for decades by whatever happens with the US Supreme Court. Should the Republicans lose control of the House or senate, or, should numbers tighten in the House, the current historic refusal to give President Obama’s nominee Merrick Garland a hearing would pass into painful US history, the stalemate would be broken and congress would (potentially) finally do its job. This means that the current congressional election is almost as important as the presidential election in that both affect the future of the Supreme Court.

The Clean Power Plan

Secretary Clinton has said that she will uphold the CPP. Mr. Trump has promised to repeal it. Despite filing lawsuits states are making plans to install and integrate renewables. Even if the CPP is repealed some of these plans will go forward (in California for example) though some will be scaled back and many will be scrapped.

Florida Constitutional Amendment

This is specific to Florida and so this one is on the voters. Should this constitutional amend-ment succeed look for something similar to pop up on ballots in other states. Deceptive language used for a constitutional amendment that is on the ballot in Florida backed by its biggest utilities claims to promote solar when it would actually allow utilities to raise fees on solar customers. If approved it would take effect immediately and an already underperforming market would be unlikely to become a highly performing one.

The DoE

The president appoints the Secretary of Energy. The Secretary of Energy is the head of the DoE and determines its direction. A climate change denier as head of the DoE would be disastrous for the solar budget and the budget for renewable energy technologies develop-ment and deployment.


A budget squeeze at the DoE would affect NREL’s funding and perhaps defund it altogether.


The ITC was a bipartisan agreement – not all conservatives and republicans are climate change deniers. It would take an act of congress to overturn the ITC and this is unlikely.

The Environmental Protection Agency, EPA

Mr. Trump would like to eliminate the EPA (and other consumer and climate protections). Secretary Clinton holds Obama’s view on the EPA’s direction.

Paris Climate Change Agreement

The Paris Climate Change Agreement commits countries to take action to slow the rise in global temperatures and to offer voluntary plans in this regard. The Paris Agreement relies on nations to behave in their own and the climate’s best interest and to act as though the agreement were binding – which it is not. Secretary Clinton will not only uphold the Paris Climate Agreement, she will act on it. Mr. Trump has loudly and proudly said that he will pull out of the agreement.

The US Oil, Gas and Coal Industries

A big winner if Trump is elected but likely to not suffer terribly under a Clinton administration.

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 in the October31st issue of  SolarFlare, a bimonthly executive report on the solar industry, and is republished with permission.

October 24, 2016

Four Clean Green Dividends

by Debra Fiakas CFA

The recent pullback in stock prices in the U.S. equity market has opened the door to some interesting dividend yields.  Investors with a taste for environmentally-friendly businesses have some particularly interesting alternatives that can pump up the purse as well as protect Mother Earth.

AES Corporation (AES:  NYSE) is a world-class power generator from mixed portfolio of conventional and renewable power sources.  About 28% of its 29,352 megawatts of generation capacity is from renewable fuel sources, including hydro, biomass, solar and wind, and another 33% from plants using natural gas.  The balance of AES’s power still comes from fossil fuel, including a good amount from coal-fired plants.  Indeed, AES just recently commissioned a new 1,240 megawatt coal-fired power plant in Vietnam.

In the twelve months ending June 2016, AES also generated $2.9 billion in operating cash flow on $14.1 billion in total revenue.  Cash flow helps cover the interest burden from $20.8 billion in debt as well as dividend commitments.  The current dividend rate is $0.44 per share, providing a dividend yield of 3.8% at the current price level.

Among other real estate investments, Brookfield Asset Management (BAM:  NYSE) holds interests in hydroelectric power plants and transmission facilities in the northeastern part of the U.S.   As an asset management company Brookfield provides investors with consistent income stream without the technology risks of most renewable energy stocks.  Brookfield owns 200 hydroelectric power generation facilities in North and South America, 35 wind power projects on three continents, and four biomass plants in Brazil. Additionally, Brookfield has invested in a 600-megawatt pumped storage facility in Massachusetts.  The Brookfield portfolio also includes gas and electric utility services with over 2.6 million connected customers.  The company generated $2.8 billion in operating cash flow on $23.4 billion in total sales in the twelve months ending June 2016.

Brookfield shares are trading at 32.8 times the consensus estimate for 2017.  That might seem pricey in comparison to the utility industry that is trading closer to 18 times forward earnings.  However, Brookfield is also generating double digit growth.  Shareholders are also getting 1.5% dividend yield at the current price level.

For those investors who are not bothered by expensive valuation metrics, Covanta Holding Corporation (CVA:  NYSE) is trading at 185 times projected earnings.  Operating 25 waste-to-energy and materials processing facilities across the country, Covanta represents the twenty-first century sustainable enterprise.  Although its metals recovery business has struggled against low selling prices, Covanta’s position in the waste handling industry remains solid.  The company earned $45 million in net income on $1.7 billion in total sales in the twelve months ending June 2016.  Covanta shares offer a 6.6% forward dividend yield at the current price level.

A better bargain can be found in ethanol fuel producer Green Plains, Inc. (GPRE:  Nasdaq), which trades at 15.6 times forward earnings.  Unfortunately, the company’s financial profile is much less appealing.  In the twelve months ending June 2016, the company incurred a net loss of $13.4 million on $3.1 billion in revenue from ethanol and corn by-products.  The half dozen analysts who cover the company apparently believe the bad times are only temporary and have projected $1.72 in adjusted earnings per share on $4.0 billion in sales in fiscal year 2017.
Green Plains is the third largest ethanol producer in the world, operating seventeen plants in the U.S. that have the capacity to produce 1.5 billion gallons of ethanol per year.  A meaningful stake in ethanol production in the world requires a position in Green Plains.

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.

October 18, 2016

Amyris' Mysterious Partner

Jim Lane

In California, Amyris (AMRS) has a new partner, described fetchingly yet with near-to-complete vagueness as a “a leader in food ingredients and nutraceuticals” which is roughly as helpful as describing a person as “someone who enjoys ice cream”.

Some ice cream there is, nevertheless, in this agreement, which will bring a short-term collaboration investment of $10 million, an equity investment of up to $20 million at $1.40 per share, and $100 million in annual revenue starting in 2017 connected to the production and cost improvement of fermentation molecules. One thing, and the only one, we discover about the identity of this partner, is that they maintain (presumably extensive) industrial fermentation facilities in Asia. The collaboration is subject to completion of definitive agreements and the obtaining of required approvals. Amyris expects this to be completed by the beginning of December 2016.

Striking as this is, let’s make sure that we separate this from the “expanded partnership” announced with a separate global nutraceuticals market leader on September 30, which included the addition of a new nutraceutical target, a credit line of up to $25mm with a five-year maturity, an option for a $5mm strategic investment, and a material expansion in expected revenue.

Kudos, says The Street, but we’ll wait to revise our earnings targets

Of the agreements, Jeffrey Osborne of Cowen & Company wrote: “We are encouraged by these recent announcements which provides visibility into collaboration funding for the next few years in an end market that has historically carried higher margins relative to other end markets in the space. We are leaving our estimates unchanged at this time given the limited amount of details provided in the release. Amyris expects completion of the definitive agreements and to obtain the required approvals for the collaboration by the beginning of December 2016.”

Amyris’ John Melo was in a bullish mood as well. He said, “We’re very pleased with the opportunity to partner with one of the leading nutraceutical and food ingredient suppliers in the world. Our current annual revenue run rate of over $100 million combined with the $100 million of annual revenue we expect from this partnership starting in 2017, should help us deliver stronger than expected growth in 2017 and beyond.”

The Farnesene Bulls are running

By the way, writes:

“The thing to recognize here is that demand for farnesene is increasing dramatically (analysts expect the market to grow more than 27% CAGR to 2023, from its 2015 levels of 8 kilo tons in 2015) and Amyris is the only company in the world that can produce it the scale required (we could be even stricter here and say it’s the only company that can produce it full stop) to meet this demand.”

If those numbers hold, that’s good news for Amyris, and investors such as Kuraray and Total. But also let’s not overlook Intrexon. Or even Chromatin.

Back in 2014, the lab geniuses of Chromatin announced that it had created sorghum plants containing elevated levels of the energy-rich compound farnesene. The milestone was supported in part by the Department of Energy’s ARPA-E program Plants Engineered To Replace Oil (PETRO). “We have demonstrated that sorghum can be modified to produce significantly elevated quantities of farnesene relative to commercial inbred sorghum lines, a molecule that can be used to create energy-rich biofuel,” said Chromatin CTO Ken Davenport at the time.

Keep a sharp eye on Intrexon

Over on the low-cost feedstock front, keep an eye out for Intrexon. They tipped two summers ago that they had demonstrated bioconversion of methane to farnesene in the lab. This was the second product, following isobutanol, which Intrexon has upgraded from natural gas employing its unique cellular engineering capabilities.

Intrexon is developing microbial cell lines genetically enhanced to convert methane to higher carbon content compounds at ambient temperatures and pressures, thereby reducing the significant expenditures compared to standard gas-to-liquid processes. In theory, you get low capex — and you get access to that deliciously low-cost feedstock, our friend methane.

The 8 Rays lighting Amyris’ Golden Lamp

In August, we highlighted 7 rays lighting Amyris’ Golden Lamp, in our story “The New Colossus”, here.

We’ll add the pair of nutraceutical deals and name that Ray #1. The other 7?

#2. Gingko. Entered into an Initial Strategic Partnership Agreement with Ginkgo Bioworks to accelerate commercialization of bio-based ingredients and establish clear leadership in industrial biotechnology with a combined offering that we consider unparalleled. In connection with the agreement, a license fee of $15 million was paid on July 25, 2016, to Amyris in exchange for use of certain Amyris technology and the parties agreed to pursue the negotiation and execution of a definitive partnership agreement that includes significant value sharing. The partnership is expected to deliver more new ingredients into the global market over the next three years than the entire industry has achieved in the last 10 years.

Melo pointed to the company’s DARPA collaboration which has identified 400 different molecules, “all of which we can commercialize at our discretion.” Also, 5th. Additional with Gingko, “we are already collaborating to align R&D and take 70 products to the world’s leading brands.”

Melo said that critical to Amyris growth will be “more capacity” and the Amyris potential to “accelerate products”. Meanwhile, “the Brotas plant is running flat-out with farnesene production”, the North Carolina facility too. The company has plans to double capacity at Brotas and is speaking with potential collaborators about potential expansions to increase capacity for 2017.

#3. Cosmetics and personal care. Announced multi-year, multi-million-dollar collaboration in cosmetic active ingredients with Givaudan to engineer and produce cosmetic active targets for global commercialization by Givaudan. Amyris sees this partnership delivering an annual run rate $50M per year

#4. Fragrance & flavors. Began commercialization of novel fragrance product with Takasago International Corporation. The company said that it had greatly expanded in F&F novel fragrance ingredients, partnered with 4 of the top 5 companies, and is “on track to become one of key suppliers.”

#5. Jet fuel. Jointly announced with Cathay Pacific a two-year biojet agreement supporting continued strong farnesene demand and the future of sustainable air travel; initial flight on May 12, 2016 using the biojet blend was the longest flight using a renewable jet fuel to date. This fuel is supplied through the Amyris Total partnership that is dedicated to making BioJet an industrial reality.

#6. Novvi. Announced American Refining Group’s 33.3% equity investment in Novvi LLC, a joint venture of Amyris and Cosan S.A., enabling market access and acceleration in revenue growth of Novvi’s high performance, sustainably sourced, renewable lubricants.

#7. Janssen. Entered into research agreement with commercial license option with Janssen Biotech, facilitated by Johnson & Johnson Innovation, to use Amyris’s µPharm platform for rapid integrated discovery and production of therapeutic compounds thereby opening a new area of compounds previously not accessible for new drug discovery. “We expect to sign one more collaboration by the end of the year, ending at the high-end of our range, to develop a library of natural and natural like of therapeutic compounds, which nature has the potential to provide and we have the ability to produce.”

#8. Biogen. Amyris announced a partnership with Biogen, Inc. to develop alternative cell lines supporting production of therapeutics, marking second major partnership in biopharma market, which is now positioned to become Amyris’s largest opportunity for collaborations. The Biogen partnership is the most exciting of all,” CEO John Melo said,. With it, Amyris he said would make “ a transformative change to biopharma where partner would be able to employ [Amyris biotechnology] instead of using cells from mammals. Others have attempted and failed, but we are positioned to deliver life saving therapeutics and make them more widely available. This could be game changing for biopharmaceuticals, and Biogen will fully fund the development.”

Amyris – time to expand capacity?

At some stage Amyris, which is essentially sold out at Brotas, will have to bite the bullet and expand capacity instead of engaging in margin-munching tolling arrangements. We’ll stand by for that.

When will the stock take off?

Two milestones to watch.

1. If Amyris reaches $100 million in revenue for 2016, that’ll be a milestone we’d expect investors to note and re-value the company at. Identifying at least a couple of these nutraceutical partners wouldn’t hurt either. The company says it has hit the $100M “annual revenue run rate” mark, so that day should not be all that far out ahead, assuming that, when the dust has settled, these revenues are coming in at normal margins and don’t represent giveaway deals to sell out the production volume at the plant.

The average price-to-sales revenue ratio on NASDAQ is 3.2. That would put Amyris around the $330M mark in terms of market cap when it hits $100M in revenues — and the company is at $183M right now. There’s around $100M in debt on the books, but with the NASDAQ debt/equity average hovering around 0.65, the debt level doesn’t appear to be a drag on share prices.

2. Break-even on operations. Fear of dilutive capital raises appears to be on investors’ minds, especially given the potential need to expand capacity soon. The double whammy of raising money for a second plant and to fund continuing operations from the first plant appears to be a factor. Can Amyris reach cash break-even off the first production plant? We’ll probably know when we reach the end of the year — so, somewhere between December and February (when earnings are presumably announced), expect that Amyris investors will substantially and upwardly revise the value of the company, or sigh and settle in for the long-haul of dilutive capital raises until he second plant is constructed and the offtake is sold.

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.

October 14, 2016

Biochar and Activated Carbon Markets

Hugh McLaughlinBiochar and Activated Carbon Markets

by Hugh McLaughlin, PhD., PE

Biochar is an emerging market; growing rapidly, still in its infancy, but with gigaton market potential when we, as in humanity, start addressing the climate crisis. Activated carbons are a mature market of about one million tons annual production, which is growing slowly. They are basically like fraternal twins; they have a lot in common, they share the same world, and they are different.

First, let’s explain the basic difference between THREE materials: activated carbon, charcoal and biochar. Activated carbon, also known as activated charcoal and several other ‘active/activated source-material’ names, all come down to the implication of the modifier ìactivatedî. When used in conjunction with adsorbents, ‘activated’ refers to a small set of processing techniques that increase the internal microporosity of the original carbon-rich source material. All ‘activation’ processes remove individual carbon atoms and create individual nooks and crannies in the carbon-rich material, which are the adsorption sites. The key to activated carbon is that it is optimized for specific adsorption application (water, vapor, certain adsorbates, etc.) and the adsorption capacity is packed into as dense a material as possible to minimize the volume of adsorbent necessary. In the end, activated carbon is an adsorbent ñ intended to remove something, typically organic compounds, from either vapor or liquid streams.

Biochar vs charcoal

In contrast, Charcoal is a fuel that is used for cooking and other heat generating applications and created by heating biomass, typically wood, under conditions of limited oxygen. In general, charcoal burns hotter and with less smoke than the starting biomass, and also can convert mineral ores to the corresponding metals, inspiring a series of ages: bronze, iron, etc.

Biochar is made in the same manner as charcoal, but it is intended for utilization as an adsorbent and/or a soil amendment. Basically, the key is the end use of the material. It is charcoal if it is intended to be used as a fuel; hence it is manufactured with optimal fuel properties. In contrast, if the intended use is adsorption or as a soil amendment, then it is manufactured to a different set of properties and labeled biochar. As a result, biochar shares properties with activated carbon and charcoal, but has a few unique features that distinguish it from both.

While biochar shares adsorption properties with activated carbon, it also exhibits a significant amount of ion exchange capacity, a property that is minimal or absent in traditional activated carbons. The ion exchange property, which is usually measured and reported as ‘cation exchange capacity’, is due to residual carboxylic acid functionalities on the biochar graphitic backbone. Since activation removes any residual side chain aliphatic groups, activated carbons have reduced ionic interactions.

The other big differences between biochar and activated carbons are bulk density and mechanical hardness. Activated carbon is intended for applications where packing as much adsorption capacity into a fixed volume is paramount, like gas masks and fixed-bed adsorbers. In addition, activated carbon can be regenerated and reused in many applications, so mechanical hardness (also known as the lack of friability) allows the carbon to be moved without falling apart or breaking down in particle size.

If one combines the lower adsorption per unit weight of biochar with the lower bulk density, the resulting adsorption capacity on a volume basis is 1/6th to 1/12th that of high quality activated carbons. For this reason, biochar is typically used in applications where the material is spread out on the ground, so low density is not a disadvantage. In fact, in soil applications, where an important property is the ability to capture excess precipitation and retain it, the low density of biochar translates into additional voids that can fill when it rains.

Unique properties

Biochar is a material that is preferred when several of its unique properties can be exploited in the same application. The unique properties of biochar include low density (providing additional voidage and aeration in the soil), significant adsorption and cation exchange capacity, and the ability to promote living microbiology in the soil, enhancing the ìSoil Food Webî. Combining these properties leads to a predictable selection criteria for when to consider activated carbons versus biochar.

As noted earlier, activated carbon is intended and optimized for adsorption applications, and is available in many physical forms and grades that are specialized to the end use. The market has been growing steadily for the past 50 years, driven by specific purification processes in some industries and many applications involving removal of organic compounds from air and water streams prior to discharge into the environment. Indeed, most of the activated carbon demand has been created by a series of environmental regulations that have been enacted over the years, including the Clean Water Act and the Clean Air Act.

Production and markets around the world

The current world production of activated carbon products is approximately one million tons per year, with most production in Tropical and Asian countries. The majority of activated carbon production is exported to developed countries in North America and Europe, where it is used in environmental and processing applications. The activated carbon marketplace is dominated by a relatively small number of international companies that have both production and marketing capabilities.

Over the past few years, the developed countries have been enacting new regulations requiring the removal of trace mercury from industrial emissions, principally impacting the coal-based electric power industries in North America and Europe. This has created an additional market for specialized powdered activated carbons that serve to capture mercury from the flue gases of power plants. The potential market demand for these MATS = Mercury and Air Toxics Standards activated carbon is several hundred thousand tons per year if the entire industry used the technology, but the combination of aging coal plants and cheap natural gas has resulted in significantly lower actual market requirements for mercury-capture activated carbons.

Mercury capture is one of very few market applications where biochar products might complete with traditional activated carbon products, with the other being those remediation applications where soil decontamination due to legacy pesticides or ordnance residues are preventing significant plant growth. In the mercury marketplace, biochar is at a disadvantage due to the presence of established suppliers from the activated carbon producers. In contrast, in remediation, biochar has the advantage that it can provide the initial detoxification requirements, followed by providing the added benefits of improving the soil as a growing medium for all forms of vegetation.

The biochar marketplace is nascent and suffering from ìthe chicken or the egg syndrome. To date, there have not been sufficient reliable suppliers of biochar products to allow the demonstration of the at-scale value propositions in specific biochar markets. Thus, the issue of how cost-effective is biochar in reducing water and fertilizer requirements in specific markets such as corn cultivation is basically unresolved, although credible studies are accumulating in the literature and within individual industrial demonstrations. Furthermore, in the absence of specific market opportunities that demonstrate the value of biochar, financing biochar production capacity is stymied. The development gridlock is slowly being resolved and rapid growth in biochar capacity and adoption is anticipated over the next decade.

External drivers

There are some external drivers that are also promoting biochar adoption, including atmospheric carbon dioxide levels and concerns driven by consequences of climate change. Since biochar is produced from biomass that was created from carbon derived from carbon dioxide from the atmosphere as the plant grew, the carbon in biochar is viewed as ‘carbon-negative’. As such, it represents carbon removed from the air and converted into a form that will remain in the soil (and out of the atmosphere) for centuries or longer.

Unfortunately, to date, the direct financial incentives for sequestering carbon dioxide have been insufficient to significantly stimulate biochar production. With the adoption of the Paris Climate Accord, biochar has become recognized as one of the most viable and accessible methods for reducing a nationís carbon footprint and meeting future emission reduction obligations. This trend will play itself out in many versions in individual nationís public policies for managing the requirements of utilizing fossil fuels and achieving reduced overall climate impact goals.

Frankly, it is impossible to predict how the climate driver will or will not stimulate the future biochar production and utilization patterns. Additional, and equally powerful, drivers for the adoption of biochar are the documented improvements in water requirements in agriculture due to improved moisture retention and management by biochar-enhanced soils. With the improved water retention, the concurrent phenomenon of loss of soluble soil nutrients by leaching, when excess precipitation extracts nutrients out of the soil, is suppressed. It is the combined improvements in water and fertilizer efficiency by an existing growing method, coupled with the potential benefits of enhanced soil health due to improved soil microbiology, that create a powerful economic argument for the widespread adoption of biochar.

However, only time will tell how it will all play out.

 Hugh McLaughlin is a member of Lee Enterprises Consulting. Lee Enterprises Consulting is the worldís premier bioeconomy consulting group, who have consultants and experts worldwide, including in the technologies discussed in this report.† The opinions expressed in the report are those the author, and do not, necessarily, express the views of Lee Enterprises Consulting.

Hugh has a B.S. in Chemistry from Harvey Mudd College, an M.S. in Chemical Engineering from the USC, and a Ph.D. in Chemical Engineering from Rensselaer Polytechnic Institute. He is a registered professional engineer in Massachusetts. Hugh is a recognized technical/technology expert in biochar and activated carbon, having designed and commercialized patented technologies for their production. He is a leading authority on biochar properties and characterization.

October 12, 2016

Ten Clean Energy Stocks For 2016: Just The Numbers (9-1 to 10-11-16)

Tom Konrad, Ph.D., CFA

I missed my regular monthly update of my Ten Clean Energy Stocks for 2016 model portfolio at the start of October due to vacation.  This mini-update will just give the numbers through October 11th, without the regular discussion of company events.  I'll follow up in early November covering highlights for the full two months.  As you can see from the chart below, the portfolio and all sub-portfolios did very well by outperforming their benchmarks by 3% to 12% for the six week period.

10 for 16 September - Oct 11 composites.png

See the May update for a description of the benchmarks.

Individual stocks

Growth stocks led the way, especially MiX Telematics Limited (NASD:MIXT; JSE:MIX).

10 for 16 Aug.png

At the time of the last update, I said "the three growth stocks remain extremely cheap, especially REGI and MIXT."  Readers who bought these two stocks at that time should have seen an average 16% return on the investment over the past 6 weeks, almost all of it attributable to MIXT, which was up 32%.  The big gains for this vehicle tracking stock seem mostly due to the completion of the previously announced repurchase of stock. 

I've been very bullish about the effects of this repurchase in previous updates.  I only wonder why it took so long for the market to notice.  The stock has been so undervalued I believe it still has plenty of room to run.


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.

October 06, 2016

Clean Energy Finance Experts United Against Trump

by Tom Konrad, Ph.D., CFA

This website,, endorsed Barack Obama for President in 2008 and 2012.  In those two elections, we based our endorsements on a point-by-point analysis each candidates' energy policies, favoring the candidate who expressed the strongest support for policies to transition our economy away from its dependence on fossil fuels.

This year, the comparison is so stark a point-by-point comparison hardly seems worth the exercise. Here are a few quotes from the candidates' websites that drive the difference home:

On Climate Change

Trump: "I think it's ridiculous, we've got bigger problems right now."
Clinton: "I won’t let anyone take us backward, deny our economy the benefits of harnessing a clean energy future, or force our children to endure the catastrophe that would result from unchecked climate change."


Trump: Accuses Obama of attacking coal, natural gas, and oil industries. Will "save the coal industry" and rescind Obama's Climate Action Plan.
Clinton: Says she will:

  • Generate enough renewable energy to power every home in America,
  • Cut energy waste in American homes, schools, hospitals and offices, and
  • Reduce American oil consumption through cleaner fuels and more efficient vehicles

on "day one".

In short, the contrast is stark.  Clinton makes promoting clean energy and reducing waste a high priority whileTrump wants to revive coal, natural gas, and oil extraction.


Much criticism of both candidates revolves around their personalities.  As an investment manager, I'm used to making high stakes decisions about the future actions of a class of people not known for their morals or honesty: CEOs and other high level company management.  I deal with this credibility gap by looking at manager's incentives, especially their ownership and recent purchases of company stock.  A manager with plans to swindle shareholders will not be a net buyer stock on the open market, which is why I put so much emphasis on insider buying in my stock selection process.

When it comes to selecting a President, it's possible to take a similar approach.  Do we see signs that a candidate is interested in personal enrichment at the expense of the American people? 

The questions about Clinton center around her concealing information (private email server, etc.) and donations to the Clintons' charity.  At worst, this seems to imply to me that she is willing to stoop to underhanded methods for personal power and influence.  The Clintons can't spend charitable money (beyond some publicly disclosed perks and salaries) on themselves, although the charity clearly increases their public profiles and influence.  Why does Hillary Clinton want personal power?  To do what she's been trying to do all along: Use it to make the world a better place, at least as she sees it, and perhaps ensure a place for herself in history.

Trump, in contrast, seems mostly motivated by personal wealth and fame.  Helping people (other than himself and his family) has never been something he even claimed to be interested in before this election.  As with any other CEO, I'm a lot less interested in what he says he is going to do than where I think his incentives are.  In Trump's case, that is almost certainly the pursuit of additional wealth and fame, and I see no evidence that he is likely to treat the American people any better than the many contractors who worked on his projects and never got paid.  Trump is proud that he was able to use the tax code to avoid paying tax.  Taking advantage of the tax code is something we all do, but few of us are proud of it.  The fact that Trump is proud, perhaps even enjoys taking advantage of the tax code, tells us that he is likely to take every opportunity to make sure as much money goes into his own pocket as possible.

The choice seems simple: Do we want a President who wants to make the world a better place and be remembered in the history books, or do we want a president who wants to get richer and increase his personal fame right now.

The Clean Energy Finance Experts

Perhaps you see it differently than I do, so I thought I'd share the opinions of some other financial and clean energy experts.  I sent a note to's regular contributors asking for their opinions.  Some prefer to stay out of politics, but most expressed horror at the prospect of a Trump presidency, even those who have doubts about Clinton.

Here's what they had to say, in order of brevity:

Sean Kidney, CEO, Climate Bonds Initiative

"Electing Trump would be akin to climate suicide."

"If Trump gets elected there goes US climate change policy and US clean energy policy. I'm for Hillary 100% and happy to say so in any way available. The alternative is akin to climate change suicide."

Joe McCabe, P.E., Renewable Energy Champion

"As a registered Republican, I can't support [Trump]."

"As a registered Republican I cannot endorse this candidate who my party has put forward. Donald has repeatedly indicated that climate change is a "hoax", both on Twitter and in media interviews. He does not possess the minimum requirements for the position of President of the United States. Hillary Clinton gets my vote this time."

Garvin Jabusch, Chief Investment Officer at Green Alpha Advisors

"There really is only one choice this November"

"Hilary Clinton for President. In the critical climate and economic growth topic of renewable energy, the contrast between Clinton and the GOP nominee could not be more stark.

"Trump has called climate change a hoax, vowed to revitalize coal, promised to break the US' commitment to the Paris Climate Accords and, perhaps most tellingly, has selected North Dakota Congressman Kevin Cramer as his energy adviser and probable Secretary of Energy. Representative Cramer is an oil and gas industry lapdog and a proud climate skeptic.

"Clinton, meanwhile, has made actual energy expert Trevor Houser her energy advisor (Houser is co-author of Economic Risks of Climate Change: An American Prospectus). Clinton has a policy goal of deriving enough electricity from solar PV to power every home in America within 10 years of her inauguration. She says that's about half a billion panels or approximately 150 gigawatts' worth, which is more than three time the capacity the US has installed, ever, up till now. Clinton has said  'someone is going to become the clean energy superpower of the 21st century. It's going to be China, or it's going to be us.'

"If you care about having a shot at avoiding the worst outcomes of climate change, there really is only one choice this November. "

Debra Fiakas, CFA, Managing Director of Crystal Equity Research

"Trump is willing to swindle... our country... with a hollow promise of ‘return to greatness.’"

"While I am not necessarily a fan of Hillary Clinton, the choice in this election is clear.  Despite her weak understanding of truth, her persistent lack of good judgment and sometimes sloppy execution, I will be voting for Clinton.
"About ten years ago I heard Donald Trump described as a “preening egotist with a muskrat on his head.”  At the time I thought it was a bit harsh and expressed this view to my daughter.  Her response was “he is grotesque.”  As I look back on Trump’s conduct over the past months, it is clear that egotist and grotesque are quite appropriate descriptions.   A vote for Donald Trump is a vote for an opportunist and a bully who has artfully used bigotry to garner support from those who truly do feel left out of the election process.  They are left out for good reason  -  their ideas are contrary to our democratic ideals and otherwise foolish economically.    
"Reports that Trump expressed intentions to move forward with a reality TV program from the White House are more than likely true.  Trump is willing to swindle the most vulnerable people in our country  -  unemployed, poor, uneducated and emotionally unstable  -  with a hollow promise of ‘return to greatness’ just for the sake of an elaborate brand building scheme.  It is shameful.  What is even more shameful is that so many people in this country have been willing to support him just for the sake of gaining power.
"Three paragraphs and not one word about the environment or energy!  So sad that this election has put the most critical problems before us on the back burner while we debate the history of weight gain and loss by a Miss Universe contest winner from a two decades ago.  Most likely those who want to see change in the stewardship of the environment will need to take the more costly and time consuming approach of working with each state government." Endorses Clinton

For many of my colleagues, and doubtless many readers, this election seems to be about choosing the lesser of two evils.  That said, it's pretty clear which candidate is playing the role of Satan, and which is just the black sheep in-law. 

For myself, the decision is even easier than that.  I believe that Hillary Clinton has the skills and motivation to be a good or even great President.  She may not be totally honest or have perfect judgement as Debra Fiakas says, but she does know our imperfect political system from many angles and has shown herself willing to reach across the aisle for the greater good.  In my opinion, her goals for the country are (in stark contrast to her opponent) mostly the right ones, and I hope her long political experience will help her be much more effective at accomplishing those goals in spite of a highly dysfunctional Congress.

Tom Konrad, Ph.D., CFA

DISCLOSURE: It's also worth noting that our holdings of clean energy stocks will perform better under a Clinton presidency than under Trump.  I would not be surprised if a Trump presidency sent the whole stock market downwards, and not just clean energy stocks. Coal companies might benefit, if that's your sort of thing.

October 05, 2016

Navy Buoys Up Ocean Power Tech

by Debra Fiakas CFA

The last post, Grid Connected Ocean Power, highlighted the claim by the U.S. Navy of the first grid connected ocean power generator in the country.  Two wave power systems have been connected to the electrical system at the U.S. Marine Base in Kanehoe Bay, Hawaii.  The Navy is gathering performance data as part of its on-going program to support renewable energy to perfect system designs, installation strategies on-going maintenance.  That is apparently not enough for the nation’s sailors.  Last week the Navy announced an award of $250,000 to Ocean Power Technologies (OPTT:  Nasdaq) to support the design of a ocean power buoy especially suited for military needs.

Ocean Power Technologies (OPT) already has its PB3 system intended as a continuous power supply to ocean installations such as equipment anchored to the sea-bed or deployed from an ocean vessel’s deck.  Called the PB3, it is deployed near a point-of-use in depths up to one kilometer.  The wave energy is converted to electricity through a direct drive generator that charges an on-board battery pack.   The Navy has already had experience with the PB3.  It was in use off the New Jersey shore during Hurricane Irene in 2011 as part of a demonstration project run by the Navy.  Its power capacity is near 8,400 watt hours per day.

The Navy design contract will take OPT in a new direction.  The new design is to be self-contained and will have no external moving components.  The Navy is looking for a highly reliable renewable power source for mission critical sensors.  The first phase of the contract involves design and testing.  If this phase is completed successfully, the Navy has pledged an additional $500,000 for additional design and testing of the entire power conversion system.

In July 2016, OPT announced its first installation of a commercial version of the PB3 also off the New Jersey coast.  A month earlier the company had signed a lease agreement valued at $975,000 with Mitsui Engineering and Shipbuilding for deployment of a PB3 off Kozu Island in Japan.  Together the two developments bring OPT significantly closer to commercial stage with its ocean power technologies.

OPT is also known for its PowerBuoy system, which can produce output in a range of 350 watts to 15 kilowatts depending upon the installation characteristics.  The PowerBuoy floats on the ocean surface above a seabed anchor.  A float moves up and down with the waves along a central spar, driving a mechanical system that converts the up and down motion to a rotary motion in an electrical generator.  The company had earlier partnered with Mitsui in anticipation of deploying the PowerBuoy at Mitui’s Kozu Island project.  The two companies have been working on an advanced algorithm for assessing ocean wave capture.

The design contract with the Navy is most welcomed by a company that has yet to record product sales let alone profits.  OPT is financed by equity and recently raised $5.3 million in net proceeds from the sale of common stock at $6.75 per share.  At the end of July 2016, directly following the stock offering, the company had $9.1 million in cash in the kitty.  OPT has been using about $3.0 million per quarter to support operations, suggesting there is about nine months breathing room for management.

OPTT shares are among few pure plays on ocean power technology.  With advances in new product development and interest from high-profile prospects, the company might seem promising.  Still investors might be concerned about a $2.5 million contingent liability on OPT’s balance sheet related to settlement of a class action lawsuit.  Although the company expects liability insurance to cover as much as $2.5 million of the original $3.0 million settlement, the liability still casts a shadow across OPT’s balance sheet.

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.

October 02, 2016

What Obama Did To Coal Investors, What The Next President Might, And How Investors Can Survive

by Tom Konrad Ph.D., CFA

Investing in the past is a good way to lose money.  Just ask anyone who has been investing in coal stocks since Obama we re-elected.
Obama bump.png

A glance at the chart above shows that the VanEck Vectors Coal ETF (KOL) is down about 50% over the last four years, even while the broad market (as represented by the SPDR S&P 500 ETF (SPY)) has gained almost 50%.  But even if we knew this was going to happen, should investors have rushed into the energy sectors most loved by liberals: That is, Wind, Solar, or Clean Energy Stocks in general?

Hindsight says "Yes, No, and No," which is hardly a comforting response to a an investor looking to understand what might happen over the next four years.  Wind stocks were up 90%, as shown by the First Trust ISE Global Wind Energy ETF (FAN).  Solar stocks were volatile, and ended basically flat, significantly lagging the market as a whole, as embodied in The Guggenheim Solar ETF (TAN).  Finally, the PowerShares Clean Energy (PBW), a widely held basket of clean energy stocks.

What Obama Did

Shortly after the election in 2012, a reporter with USA Today called to ask me why wind and solar stocks had not taken off.  As you can read in his article, I told him that essentially, one presidential election would not transform the economy.  I predicted legislation promoting alternative energy or attacking coal was off the table- an easy prediction to make, given Republican control of Congress.  I also predicted that Obama would continue doing "Pretty much what he [had] been doing for the" previous three years: doing what he can through rule-making.  Which is what he did. 

What many may find surprising is that Obama's rule-making was only a minor factor in the recent decline of coal stocks.  His administration's most important energy policy, the Clean Power Plan remains tied up at the Supreme Court.  True, coal advocates like the Institute for Energy Research (IER) will point at two other regulations, the Mercury and Air Toxics Standards (MATS) and the Cross State Air Pollution Rule (CSAPR.)

What Obama Didn't Do

The coal industry is like a coddled child sent out into the world: It's not flexible or tough enough for a real-world job, it's bankrupt from credit card debt, and it still has not learned to clean up its room.

The coal industry's problems with MATS and CSAPR hint at the underlying cause of the industry's troubles.  The industry is like a coddled child sent out into the world: It's not flexible or tough enough for a real-world job, it's bankrupt from credit card debt, and it still has not learned to clean up its room.

Take these points in reverse order.  MATS, CSAPR, and even the Clean Power Plan are regulations telling coal plants to be a little less dirty than they are, but not nearly as clean as any of their power generation siblings: natural gas, nuclear, wind and solar.  Like any wayward child, coal promised to clean up its room... remember "Clean Coal?"

Fantasies like Clean Coal and hiring a professional housekeeper to keep a child's room tidy might have been affordable before technology innovation in natural gas drilling, solar, and wind started cutting into the price of power. 

But even without affordable clean coal, MATS is not causing the wholesale closure of coal plants, according to the nonpartisan Energy Information Administration.

EIA coal closures MATS

Technology has recently been sending the price of power in the opposite direction: down.  Ten years ago, coal power could legitimately call itself a source of cheap (if not clean) power.  Now, technology innovation have left coal choking on its own fumes, while clean coal (a.k.a. IGCC) and nuclear as simply too expensive to compete without subsidies, as shown by in this 2015 analysis by financial advisory firm Lazard.

Lazard LCOE.png

Lazard found that, without subsidies, the cheapest sources of power were:

  1. Energy efficiency, at $0 to $50 per MWh
  2. Wind, at $32 to $77 $ per MWh
  3. Utility scale solar, at $43 to $70 per MWh and
  4. Combined Cycle Gas, at $52 to $78 per MWh

Coal was far behind, with the cheapest coal costing almost as much as the most expensive wind, solar, and combined cycle gas at $65 per MWh.  The cheapest nuclear and clean coal (IGCC) were far behind, at $97 and $96. 

Keep in mind that these are unsubsidized numbers.  If the Obama Administration declared a war on coal, it's the invisible hand of economics that won all the battles.  And that is why new capacity additions are overwhelmingly wind, solar, and natural gas:
Source: GTM Research / SEIA U.S. Solar Market Insight, Q2 2016

Adding to the poor economics of coal power, the coal mining industry racked up debt like an irresponsible teenager with a credit card at the worst possible time.  Arch Coal borrowed heavily to fund acquisitions in 2011, Peabody borrowed to fund acquisitions in Australia.  And these are just two in a string of bankruptcies that have left nearly every big coal firm in bankruptcy or emerging from it.  They also play back into the theme of coal not cleaning up its own room: Coal producer bankruptcies are shifting the costs of cleaning up mines to the states.

Baseload: An Unwanted Suitor

Coal advocates like to point out that "the sun does not always shine and the wind does not always blow." They then go on to call solar and wind power "unreliable" and claim that the grid cannot operate without backup power always at the ready. Coal and nuclear power plants are what is called "baseload" power: they run at a near constant level.  That's not the same as being reliable: Reliable people show up when they say and do what they say they are going to do. 

A person who is always there, never goes away even when you want a little privacy, and is always doing things for you even when you don't want anything is more likely to be called an unwanted suitor than "reliable."

We're actually pretty good at predicting the weather, especially over large areas and a few days or hours in advance.  While wind and solar power on the electric grid does vary over time, it's usually there in approximately the quantity we expect.  It would be a great complement to say that a large coal or nuclear power plant was "as reliable as the sun coming up in the morning."  The "Equivalent Forced Outage Rate- Demand" (EFORd), a measure of how often a power plant is out when it's needed, is about 4% for nuclear, 7.5% for coal, and 10% for gas plants [pdf, 2008-2012 data].  So coal power is there most the time (even producing power at 3am when everyone is asleep and it may not be needed.)  Yet even this unwanted suitor fails to show up about one time in 13 when he's really needed.

Solar arrays and wind turbines also go down unexpectedly, but the small size (relative to coal) of solar arrays and individual wind turbines means that they don't all go out at once.  A single 250 MW coal plant produces approximately the same amount of energy as 400 typical 1.5MW wind turbines, or 100,000 to 200,000 home solar arrays.  Some of these will be down at any time, but they won't all go down at once, especially if they are scattered over a wide area.

In this sense, solar and wind are far more reliable than coal.  It's true that solar and wind need to be supplemented with more flexible generation, energy storage, or flexible demand response in order to match the patterns of electricity demand.  But baseload power also needs flexible power resources to match the normal fluctuations of demand, and to stand by at the ready for that one time in 13 when you're hoping it will be there, but it isn't.

What The Next President Can't Do

The heated rhetoric from fossil fuel advocates and environmentalists alike served to hide the very real economic problems coal power has had in adapting to the new reality of falling technology costs for solar and wind and falling fuel prices for natural gas generation. 

The continued decline in the cost of wind and solar generation guarantee that these technologies will continue to be the leading forms of new power on the electric grid.  In turn, their variability will make it more expensive to run baseload power stations such as coal and nuclear, making them even less economic than they already are.

The free market is much more powerful than any president.

Donald Trump has repeatedly promised to 'save' the coal industry.  If elected, he is certain to be even less effective at reviving coal than Obama was at killing it.  The free market is much more powerful than any president, and coal simply cannot compete in a free market. 

If Hillary Clinton is elected, she will almost certainly be accused of putting more coal miners out of work as she tries to promote renewable energy, but she will not deserve the blame or the credit any more than Trump or Obama.

The true blame and credit for the changes in the way we produce and use electricity fall squarely on technological progress and market economics.

How Investors Can Survive and Even Thrive in the Future of Energy

Investors who observed the gridlock in Washington, D.C.four years ago, and rightly concluded that Obama would be ineffective at reigning in fossil fuels were correct.  Nevertheless, they have lost most of the money.

Would they have done better if they had plowed their money into solar and wind?  Not if they bought a solar ETF like TAN or a clean energy ETF like PBW.

Conservative investors (in the financial sense of the word: risk-averse) investors had an additional problem.  The future of energy may lie in solar, wind, and other energy technology, but technology companies are not conservative investments.  The technological innovation driving the rapid price declines for wind and solar is a problem for incumbent companies as well.  Today's leading solar manufacturer is tomorrow's has-been, a fact I pointed out in 2009. In the same article, I also said my top pick at the time was a company that few people would think of as "green:" a Toronto-listed bus manufacturer called New Flyer (NFYEF.)  At the time, New Flyer was trading at C$9 and paid a C$0.62 (7%) annual dividend.  Today, seven years later, the stock trades at C$43, the dividend has been maintained and recently increased, and my readers and I still own it.

In 2012, I could not give the USA Today reporter a similar conservative income pick in what I told him was my favorite energy sector at the time, energy efficiency: Such stocks did not exist.  That changed in early 2013 with the IPO of Hannon Armstrong Sustainable Infrastructure (HASI.)  After interviewing the CEO of Hannon Armstrong, I said, "I can't help but be enthusiastic about the company," which was then trading at $11.75, slightly below the IPO price.  HASI was about to start paying an annual dividend which I estimated would exceed 15 cents a quarter (5%). The company quickly increased its dividend to $0.22 a quarter that December, than to $0.26 in 2014, and $0.30 last year.  I expect it to increase the quarterly dividend to at least 34 cents this year, or 5.9% at the current price.  Did I mention the stock price has doubled?

How do I find conservative income stocks that double or quintuple in a handful of years, while solar and coal investors are losing their shirts?  Not just by understanding the technology.  Anyone who understood solar technology in 2009 would have rightly predicted the enormous growth of the industry - from 2% of new generation capacity in 2010, to 64% in the first quarter of 2016.  But if they had taken that prediction, ignored my warning and bought the Guggenheim Solar ETF (TAN), they would have lost 77% of their money, despite Obama's attepts to promote the solar industry.  Even coal investors would have done better with the VanEck Vectors Coal ETF (KOL): It "only" fell 64% over the same period.

It takes knowledge of economics, technology, and the whole energy system to successfully navigate the Future of Energy.  Knowing who is going to win the election in November might help on the margin, but neither Trump nor Clinton can roll back the progress of technology nor battle with Adam Smith's Invisible Hand of the market.

Disclosure: Long NFYEF, HASI

Tom Konrad Ph.D., CFA is a freelance writer and portfolio manager specializing in income stocks positioned to benefit from ongoing changes in the energy economy.

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