February 09, 2015

Cosan's Crush

by Debra Fiakas CFA

Last week Cosan Limited (CZZ:  NYSE) revealed a decision to delay the spin-off and recapitalization of its natural gas distribution network, COMGAS.  Management cited unfavorable capital market decisions.  Cosan has a mix of businesses, of which we have been most interested in its Raisen Energia sugar cane agriculture and ethanol production.  Raisen is a joint venture with Royal Dutch Shell that was initiated in 2011.  The operation squeezes over four million tons of sugar from cane grown in its fields and two billion liters of ethanol each year. The ethanol is sold through Shell’s network of gas stations in Brazil.  Raisen has also become player in electricity generation from sugar cane bagasse with 900 megawatts of installed capacity.
CZZ shares have been in a steady decline over the past two years, with only a couple of short-lived attempts at price recovery.  There is a good reason for Cosan management to look for strategic solutions.  In combination Cosan businesses command a market value of $1.8 billion.   I imagine that we were not the only Cosan watchers who wondered whether the sum of the parts might worth well more than the whole.
Perhaps part of the problem is the erosion of Cosan’s image as a ‘clean’ energy company.  Cosan shares first began trading on the NYSE in late 2008 and investors warmed immediately to the mix of sugar cane agriculture and ethanol production.  The market capitalization of Cosan at the close of trading that first day was $912 million.  The company had already achieved profitability and staged its U.S. equity market debut on a strong sales growth and profitability in the year 2007.  Sugar and ethanol sales represented 94% of Cosan’s business back then.
Fast forward to present time, Cosan has given up 50% portion of the sugar cane and ethanol operations to shell in the Raisen Energia joint venture and acquired the COMGAS business.  Based on the sales Cosan reported in the first nine months of 2014, Raisen’s sugar and ethanol sales fell to 77% of Cosan’s reported revenue and the natural gas distribution business had stepped up to 16% of the mix.

There are of course other factors that could be irritating investors.  Cosan’s net profits were dramatically higher in the first nine months of 2014 compared to the same period in the prior year.  However, cash operating earnings (EBITDA) grew by only 5.6% year-over-year in large part because Raisen Energia only managed to contribute half of the company’s cash earnings despite being over three quarters of the sales mix.  COMGAS on the other hand delivered a 23.8% operating margin in the first three quarters of 2014.

It seems Cosan’s ‘green’ business has given the company a black mark.  Management move to break up the company is probably more for the sake of getting its highly profitable (and valuable) natural gas operation out on its own than in burnishing its image as a ‘green’ company.

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. CZZ is included in Crystal Equity Research’s Beach Boys Index of companies developing alternative energy using the power of the sun.

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Oil and Gas

February 08, 2015

Sol-Wind: A Unique Yieldco

By Jeff Siegel 

President Obama gave renewable energy investors a very nice gift this week...

As a part of his new budget proposal, the president is seeking a 7.2% increase in funding for “clean energy.” As well, he is asking for a permanent extension for the solar investment tax credit (ITC) and the wind energy production tax credit (PTC).

The solar ITC is set to expire at the end of 2016, and the wind energy PTC has already expired.

I can pretty much guarantee that a permanent extension of these tax credits is not going to happen. However, because so many red states generate an enormous amount of tax revenue and jobs from solar and wind, it is likely that both sectors will be thrown some sort of bone — particularly solar, as the industry now supports nearly 174,000 jobs

That data does not fall on deaf ears, despite the dog-and-pony show some lawmakers will put on during election season.

No, solar is the real deal. The market is booming, and cost reductions continue to make it more and more affordable for homeowners and businesses.

Which is why I hope you've been taking some of my advice over the past couple of months and taken a position in some of the more impressive solar names, like SunEdison (NYSE: SUNE), SunPower (NASDAQ: SPWR), and Canadian Solar (NASDAQ: CSIQ). 

Canadian Solar absolutely crushed it yesterday after announcing its acquisition of Sharp Corporation's Recurrent Energy. Check it out...


Recurrent has a massive utility-scale project pipeline that's scheduled to be built before the planned date of the solar ITC expiration. This is a huge win for Canadian Solar, representing an estimated $2.3 billion in revenue.

Going forward, I remain bullish on these major solar stocks, as well as the alternative energy yieldcos.

Year of the Yieldco

Back in November, I wrote in my yearly alternative energy predictions report that 2015 will be the year of the yieldco.

Yieldcos essentially allow retail investors to buy into multiple alternative energy assets that produce steady cash flow. For those who are not particularly keen on risk but still want exposure to the burgeoning alternative energy space, this is a great way to do it. Some of the bigger names include:

  • Hannon Armstrong Sustainable Infrastructure (NYSE: HASI)
  • Brookfield Renewable Energy (NYSE:BEP)
  • NRG Yield (NYSE: NYLD)
  • TerraForm Power (NASDAQ: TERP)
  • NextEra Energy Partners (NYSE: NEP)
  • Pattern Energy Group (NASDAQ: PEGI)

And next week, we'll be adding a new one to this list: Sol-Wind (NYSE: SLWD).

MLP for You and Me

As we wrote to our Green Chip readers earlier in the year, Sol-Wind will be the eighth yieldco to debut since 2013. However, this one is a bit different in that it seeks to utilize a master limited partnership (MLP) structure, so it'll actually be taxed differently from other yieldcos.

Now, because federal law does not currently permit MLPs for renewable energy companies (although oil and gas companies are permitted), Sol-Wind must utilize an exemption that allows certain publicly traded master limited partnerships to be taxed as partnerships instead of corporations.

It's a tricky arrangement that's often used by private equity and hedge funds to avoid taxation. A blocker corporation is set up to absorb the 35% corporate tax that would otherwise be applied to the partnership's assets. However, the corporation makes nothing, and any income made by the MLP is taxed only at shareholder level.

Back in 2012 and 2013, several bills known as the MLP Parity Act (MLPPA) were submitted to Congress, seeking to amend the tax code for publicly traded partnerships to treat all income from renewable and alternative fuels as “qualifying income.” The Senate bills and House resolutions known as the MLP Parity Act died in committee.

However, if an MLP Parity Act is enacted, the company could then be able to use a normal MLP structure, thereby allowing it to dodge extra corporate-level tax.

Long story short, Sol-Wind found a way to utilize an MLP structure despite the fact that renewable energy is still technically not invited to the MLP party.

$400 Million

Sol-Wind management describes the company as a growth-oriented limited partnership formed to own, acquire, invest in, and manage operating solar and wind power generation assets that generate power for retail, municipal, utility, and commercial customers under long-term power purchase agreements.

Following the completion of the IPO, Sol-Wind will acquire from its general partner equity and debt interests in an initial portfolio that represents 184.6 MW of nameplate capacity solar and wind power generation assets in the United States, Puerto Rico, and Canada.

Currently, the company is planning to issue 8.7 million shares at between $19 and $21 a share. At the high end, this would give it a fully diluted market value of $401 million.

Although it's still yet to be seen how Sol-Wind will compare to other alternative energy yieldcos, it'll be interesting for investors to see how the MLP model performs in this particular case.

Definitely keep a close eye on this one.

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


Jeff Siegel is managing editor of Energy and Capital, where this article was first published.  He is also contributing analyst for the Energy Investor, an independent investment research service focusing primarily on stocks in the oil & gas, modern energy and infrastructure markets.  He has been a featured guest on Fox, CNBC, and Bloomberg Asia, and is the author of the best-selling book, Investing in Renewable Energy: Making Money on Green Chip Stocks .

February 07, 2015

Earnings Round-Up: ADM, Green Plains, Syngenta

Jim Lane

Green Plains

In Nebraska, Green Plains (GPRE) announced net income for the quarter was $42.2 million compared to net income of $25.5 million for the same period in 2013. Revenues were $829.9 million for the fourth quarter of 2014 compared to $712.9 million for the same period in 2013.

Net income for the full year was $159.5 million compared to $43.4 million for the same period in 2013. Revenues were $3.2 billion for the full year of 2014 compared to $3.0 billion for the same period in 2013. Fourth quarter 2014 EBITDA was $90.7 million compared to $63.9 million for the same period in 2013. For the year ended December 31, 2014, EBITDA was $350.7 million compared to $156.6 million for the same period in 2013.

Green Plains had $455.3 million in total cash and equivalents and $187.5 million available under committed loan agreements at subsidiaries at December 31, 2014. Green Plains reduced term debt outstanding by $100.8 million and invested $85.4 million in capital expenditures and acquisitions during 2014.

During the fourth quarter, Green Plains ethanol production totaled 246.6 million gallons, or approximately 96% of its daily average production capacity. Non-ethanol operating income from the corn oil production, agribusiness, and marketing and distribution segments was $23.9 million in the fourth quarter of 2014 compared to $28.2 million for the same period in 2013. Non-ethanol operating income for the year ended December 31, 2014 was $103.8 million compared to $80.9 million for the same period in 2013.

“We continue to focus on profitable growth opportunities within and adjacent to our value chain,” said CEO Todd Becker,. “This year gave us the opportunity to demonstrate the capability of the large diversified platform we have been building over the last 7 years. We produced a record 966 million gallons of ethanol, processed 10 million tons of corn, and earned over $100 million of non-ethanol operating income in 2014. We are also close to achieving our goal of zero net term debt.”

“U.S. ethanol margins have been volatile during the first part of this year. Demand for the product at these lower price levels remains robust, both domestically and internationally. We expect the industry will continue to adjust to lower energy prices and remain optimistic we will perform well over the coming year,” added Becker. “Green Plains just completed its sixth consecutive year of profitable operations, a testament to the resiliency of our people, our assets and our strategy.”

More on the story.


In Illinois, Archer Daniels Midland Company (ADM) reported net Q4 earnings of $701 million and segment operating profit of $1.26 billion.

After adjustments, Oilseeds operating profit of $395 million decreased $107 million from excellent year-ago results. Crushing and origination operating profit decreased $46 million to $206 million. Higher capacity utilization and improved margins helped drive record soybean crushing results in North America and very strong European crushing results. Results in South America were significantly lower, due to reduced crush margins, continued slow farmer selling, and weaker fertilizer results. Refining, packaging, biodiesel and other generated a profit of $99 million for the quarter, down $69 million. Overcapacity pressured margins in European biodiesel during the quarter, while year-ago North American biodiesel results benefited from a surge in demand ahead of the expiration of the U.S. blender’s credit.

“The Agricultural Services team executed well to capitalize on strong conditions, while international merchandising continued to show year-over-year recovery,” said ADM Chief Executive Officer Juan Luciano. “In North America and Europe, Oilseeds showed strong year-over-year growth, offset by weaker results in South America. Looking ahead in North America and Europe, solid crush margins and export opportunities have carried into the first quarter. Market conditions in South America Oilseeds should improve with the large harvest, and we are working toward higher returns throughout 2015 in this key geography. While U.S. ethanol demand was seasonally strong, boosted by the domestic response to lower gasoline prices, high industry production has built excess inventories. Margins in this industry should remain challenged until supplies are better aligned with demand. We will continue our work to optimize cost and product mix in the Corn business to maximize profitability.”

Bioproducts results increased from $134 million to $217 million, driven by favorable ethanol results. In addition, animal nutrition results improved on better margins and solid demand.

More on the story.


In Switzerland, Syngenta AG (SYT) reported earnings per share of $19.42, up 0.6% from $19.30 reported in 2013. Sales in 2014 lifted 3% year over year to $15.1 billion. The company noted that, at a constant exchange rate, revenues increased 5% on the back of price and volume gains. EAME (Europe, Africa, the Middle East), Latin America and Asia Pacific witnessed a healthy performance with sales growing 11%, 7% and 5% year over year to $4,547 million, $4,279 million and $2,033 million, respectively, on a CER basis. Growth in sales, across all these markets, was driven by Syngenta’s new product innovations and market expansion programs. However, revenues slid 7% in North America to $3,582 million. The year-over-year decline was primarily attributable to low regional temperature and reduced sales of non-selective herbicides and corn.

As of Dec 31, 2014, Syngenta had cash and cash equivalents of $1,638 million compared with $902.0 million on Dec 31, 2013. Financial debt and other non-current liabilities were $1,329 million, down from $1,591 million on Dec 31, 2013. Syngenta generated cash flow from operating activities of $1931 million in 2014, compared with $1,214 million of cash generated in 2014. Capital expenditure stood at $600.0 million, down from $625.0 million incurred in 2013. During the reported period, Syngenta paid dividends totaling $921 million and repurchased shares worth $176 million.

CEO Mike Mack said “Syngenta reached $15bn of sales for the first time. Our integrated sales were up by 6% on a constant exchange rate basis. EBITDA was 7% on a constant exchange rate basis and of course it was impacted by currency. EPS at $19.42 was up 1% and we had strong free cash flow generation during the year, $1.2bn. We had growth in three out of the four regions of the Company on a constant exchange rate basis. Headlining it was Europe, Africa, Middle East where we had 11% growth, which was particularly pleasing given the political upheaval we had in Russia and the CIS early in the year where our leaders got after price increases in local currencies to respond to the situation there.

“Turning to North America, the other big Northern hemisphere region, it was a difficult year in 2014. We got off to a late start with the late spring and that depressed some of the sales of our leading pre-emergent herbicide line and corn acres themselves were down of course and we’ve got a very strong corn portfolio. Then we didn’t get any help from Canada where we experienced some flooding. That said, we’ve got some terrific products in the pipeline and 2015 is right around the corner.”

More on the story.

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.

February 06, 2015

Solar: Energy, But Not Oil

by Garvin Jabusch

Solar photovoltaic (PV) as a means of deriving energy is fundamentally different from fossil fuel-based commodities (oil, coal, and gas). Consider: A solar PV panel can be thought of as nothing more than a hugely oversized computer chip -- a bunch of circuitry embedded in a silicon wafer. Indeed, in most economic sector classification schemes (GICS, etc.), PV manufacturers are defined as "semiconductors," which is basically true (if misleading in other ways).  So different are the driving economics behind tech-based and commodities-based means of deriving energy, that we at Green Alpha are recommending to Standard & Poor's and MSCI that they consider formally separating the two into distinct subsectors.

Recently, though, the two types of energy -- oil and solar -- have been trading in tandem, both falling significantly since mid-2014. Traders by and large seem to be thinking "energy is energy." But this "energy-as-monolith" view is not appropriate to the reality of the economics, nor is it supported by the fundamentals.

To illustrate what I mean, a more valid comparison is that a solar PV company like First Solar, Inc. (ticker: FSLR) should trade more like a chipmaker, such as NVIDIA Corporation (ticker: NVDA) or Advanced Micro Devices, Inc. (ticker: AMD), than like West Texas Intermediate Oil. If we're going to treat similar investments as groups, then computer-processing power makes a better analog for solar modules than oil does.


Exhibit 1: Costs of Computer Processing Power, Electricity from Solar PV, and Oil Price per Barrel, 1976-2014[i]

In my sole exhibit here (above), it's difficult not to notice the similar and similarly dramatic price declines in solar PV in cost per watt (green line) and computing power in cost per GigaFLOP (blue line) over the last 37 years. Solar-PV–derived power has fallen some 170 times over that period. Computer processing power has declined in cost at many times even solar's rate, owing to huge demand and massive scaling. Meanwhile, Oil (red line) has done what commodities do: fluctuate in price according to demand and supply factors. Oil gets expensive when economies are growing, when there's geopolitical risk, when some nation or supra-national organization decides it wants it to be expensive, and so on.

Technology like computer chips and solar panels, in contrast, nearly always go down in price as demand goes up. Think about the price declines in computers and televisions over just the last five years -- and the simultaneous improvement in the products. But now the global economy can apply that same technology cost dynamic beyond goods to the energy that we use to power those goods and everything else.

Imagine what that means for world economies. When we grow and use more fossil-commodity–based energy, that energy becomes more expensive -- and economic growth is thwarted. But as we grow with technology-based energies, the increasing power demand decreases the cost of that energy and further stimulates economies! Put another way, consider the simulative effects as we realize the IEA's estimate of "over USD 115 trillion in fuel savings"[ii] by 2050 as the transition to tech-based renewables, chiefly solar, advances. Solar, although already grid-competitive in many areas, is just getting started. The blue line in the exhibit suggests what may yet be possible as solar technology evolves to enjoy the same level of scale and investment as semiconductors. Even with using current solar technology, though, $115 trillion is a heck of a liquidity injection.

Solar will become so inexpensive that it will inevitably continue to gain market share from fossil fuels, starting with those used to generate electricity (coal, then natural gas), and then, as the global economy adapts to make better use of renewable electricity in more sectors (think electric cars), it will displace oil. The popular current question "when will renewables reach grid parity?" will seem quaint and even funny in less than a decade. As one report has revealed, "a recent sign of the progress that solar is making in taking over the world: In 42 of the 50 biggest U.S. cities, home to about 21 million single-family homeowners, solar power is now cheaper than electricity from the power grid."[iii] This is happening because, again, as demand increases, so does scale, investment, R&D advances, and declines in installation expense, all of which lead to fast-falling overall costs. Solar PV module costs have declined "75 per cent since the end of 2009 and the cost of electricity from utility-scale solar PV falling 50 per cent since 2010."[iv] Now, reasonable estimates predict that "Solar Costs Will Fall Another 40% in 2 Years."[v]

Like a pundit in the 1960s or 70s predicting that the computers of 2015 would fill entire rooms and be capable of hundreds of calculations per minute, today's observers who believe solar is still an expensive, niche energy source will be proven badly mistaken.

Meanwhile, back in fossil fuel land, costs of production aren't getting any cheaper, even if barrel and pump prices (temporarily) have. Oil is expensive to find and to extract. That's why oil companies were cutting their exploration budgets long before the current oil price decline began in mid-2014. Unfortunately, a decline in oil prices does nothing to lower the costs of exploration and production --  meaning that  oil's margins get squeezed.

No one has written more clearly on this than investor Jeremy Grantham: "As a sign of the immediacy of this problem, we have never spent more money developing new oil supplies than we did last year (nearly $700 billion) nor, despite U.S. fracking, found less -- replacing in the last 12 months only 4 1/2 months' worth of current production! Clearly, the writing is on the wall. It is now up to our leadership and to us as individuals to read it and act accordingly." In a sidebar, Grantham goes on: "The only longer-term price relief and net benefit to the economy will come when either we reverse recent history and start to find more oil more cheaply, which will be like waiting for pigs to fly, or when cheaper sources of energy displace oil."[vi] As economist Gregor MacDonald recently tweeted: "Sorry, did everyone forget Majors started cutting capex in Q1 of 2014, because $100 not enough to outrun declining ROI on runaway costs?"[vii]

In the end, no producer can sell oil for less than it costs to recover it. And those costs are high -- too high to compete in the long run. As Stanford lecturer Tony Seba recently said, "Put these numbers together and you find that solar has improved its cost basis by 5,355 times relative to oil since 1970...traditional sources of energy can't compete with this"[viii] [italics added]. A nexus of effects is arising from the interplay of tech and commodity energy dynamics, and few if any of them are favorable to fossil fuels.

Solar PV is a technology, and its past and future cost dynamics will behave like those of a technology -- becoming ever cheaper. Oil is a finite commodity that is expensive to locate, extract, refine, and ship; it and other fossil fuels have had and will continue to have cost dynamics to match: economically volatile and forever affected by the cost of extraction.

Today, solar competes mainly with the other means of making electricity: coal, natural gas, and nuclear (more on how those stack up in my next post). In the long run, though, as our economy and infrastructure make more and better use of renewable electricity, oil and solar will compete directly in a way that they currently don't . By then, though, renewables, led by solar, will be so inexpensive that cost comparisons with oil will no longer spark argument.[ix] For now, suffice it to say that inexpensive oil can't and won't prevent the solar boom from continuing, because solar and oil, economically, scarcely share the same world.

Garvin Jabusch is cofounder and chief investment officer of Green Alpha® Advisors, LLC. He is co-manager of the Shelton Green Alpha Fund (NEXTX), of the Green Alpha Next Economy Index, the Green Alpha Growth & Income Portfolio, and of the Sierra Club Green Alpha Portfolio. He also authors the Sierra Club's green economics blog, "Green Alpha's Next Economy."

Disclosure: Green Alpha Advisors is long FSLR, and has no positions in NVDA, AMD or Oil.

[i] Exhibit by Jake Raden, Green Alpha Advisors, LLC

Data sources:


  1.   "Cray-1". http://www.cray.com/company/history
  2. "Hardware Costs" http://en.wikipedia.org/wiki/FLOPS

Oil Data:

  1.   Bloomberg Historical Oil Prices; 1976-2014
  2.   Crude Oil Prices from 1861. https://www.quandl.com/BP/CRUDE_OIL_PRICES-Crude-Oil-Prices-from-1861.

Solar PV Data:

  1. Bloomberg New Energy Finance. http://www.economist.com/news/21566414-alternative-energy-will-no-longer-be-alternative-sunny-uplands

[ii] IEA, "Energy Technology Perspectives 2014 Harnessing Electricity's Potential," Global Outlook, 2014. https://www.iea.org/media/ETP14_factsheets.pdf

[iii] Richard, Michael Graham, "In 42 of the 50 biggest U.S. cities, rooftop solar is now cheaper than the grid!" TreeHugger, January 27, 2015.  http://www.treehugger.com/renewable-energy/42-of-50-biggest-us-cities-rooftop-solar-now-cheaper-grid.html

[iv] Parkinson, Giles, "Graph of the Day: The plunging cost of renewables," RenewEconomy, January 19, 2015. http://reneweconomy.com.au/2015/graph-day-plunging-cost-renewables-49704

[v] Parkinson, Giles, "Solar Costs Will Fall Another 40% In 2 Years. Here's Why.", CleanTechnica, January 29, 2015. http://cleantechnica.com/2015/01/29/solar-costs-will-fall-40-next-2-years-heres/?utm_source=dlvr.it&utm_medium=twitter

[vi] Grantham, Jeremy, "The Beginning of the End of the Fossil Fuel Revolution (From Golden Goose to Cooked Goose)" GMO Quarterly Letter Third Quarter 2014. https://www.gmo.com/America/CMSAttachmentDownload?target=JUBRxi51IICva8EQo4wdFQADWV9wEmzLzeD%2fGf9Lvs9eioH3K0LxNpPNgOFRVI8cwSP%2bAMJGLMAyxMzMVtpN8J49yf%2f%2bWX0Iv0NKRoYDe6hfhF3WeEjFuA%3d%3d

[vii] MacDonald, Gregor, Twitter, December 22, 2014. https://twitter.com/GregorMacdonald/status/547171901227798528 

[viii] Ahmed, Nafeez, "How Solar Power Could Slay the Fossil Fuel Empire by 2030", Motherboard, December 10, 2014. http://motherboard.vice.com/read/how-solar-power-could-slay-the-fossil-fuel-empire-by-2030

[ix] Jabusch, Garvin, "Cheap Oil and the Next Economy," Green Alpha's Next Economy, December 24 2014. http://blogs.sierraclub.org/gaa/2014/12/cheap-oil-and-the-next-economy.html

February 05, 2015

Amyris' Missing Magic

by Debra Fiakas CFA

Since the end of August last year shares of renewable chemicals developer Amyris (AMRS:  Nasdaq) have been in a steady decline.  Since falling through a line of price support near the $2.50 price level in early December 2014, it appears there is no safety net for AMRS.  The stock set a new 52-week low in the third week in January 2015.  Unfortunately, a popular technical indicator, the average directional index, is providing a very strong indication that the stock could fall even further.   With its stock chart providing no hints at a reversal in trend, Amyris could use a bit of fundamental magic.

The company has made some progress in its plan to commercialize its renewable chemical innovations.  The company has developed a line of industrial solvents based on a renewable hydrocarbon called farnesene.  Amyris is selling the line of solvents under the brand name Myralene. Just the day before the stock set that 52-week low price, management announced arrangements to market Myralene through two automotive and industrial distributors with access to over 35,000 points of sale.  Apparently there is no magic in distribution partnerships.

In early December 2014, Amyris received approval for its renewable jet fuel by regulatory authorities in Brazil.  The approval makes it possible for Amyris to sell jet fuel made from its proprietary biofene hydrocarbon.  Amyris also reported that a study completed by a scientific journal has proved Amyris jet fuel has a 90% smaller carbon footprint than fossil fuel.  News that Amyris was prepared to save the world from greenhouse gas emission one flight at a time, did impress investors enough to create a very bullish ‘engulfing’ pattern in AMRS trading the day after the Brazil regulatory announcement, but the bullish sentiment was short lived.  Evidently, not enough fundamental magic is conjured up through saving the planet.

Amyris is selling its jet fuel in Brazil on its own.  For the world jet fuel market, the company has entered into a partnership with Total S.A. (TOT:  NYSE) , a world leader in energy production.  Air France is among the first to order the Total/Amyris biojet fuel.  Air France will use the fuel for its Lab’Line for the Future project, which involves weekly flights between Paris and Toulouse powered by biojet fuel.  The flight-by-flight switch to renewable fuels for commercial aircraft is thought to facilitate chemistry development and production capacity expansion by innovators like Amyris. AMRS has lost 9.5% of its value since the Air France announcement, making it clear there is little to no magic in a world class customer relationship either.

What might be putting a damper on investor enthusiasm is the Amyris balance sheet.  In the twelve months ending September 2014, the company used over $100 million to support operations.  Amyris has been relatively well fortified with cash resources by its various venture investors.  However, the bank book is looking a bit thin.  At the end of September 2014, Amyris reported a total bank balance of $68.6 million.  At the rate Amyris management had been going through cash, its cash hoard will last until about June 2015.

The dark threat of dilution is often exposed by dwindling cash resources as investors fret over the time line to breakeven and whether cash can last to that point.  Dilution anxiety can dampen even the most impressive magic show.

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. AMRS is included in Crystal Equity Research’s Beach Boys Index of companies developing alternative energy using the power of the sun.

February 04, 2015

Ten Clean Energy Stocks: A Rocky Start To 2015

Tom Konrad CFA

2015 got off to a rocky start for both the broad market in general, as well as clean energy.  My Ten Clean Energy Stocks for 2015 model portfolio dd not fare any better, since the main bright spots for the portfolio were its three Canadian stocks, but these were dragged down by the 9% decline in the Canadian dollar for the month.

For the month, the model portfolio was down 3.6% in local currency terms, but fell 7.2% in dollar terms.  For comparison the broad universe of US small cap stocks was down 3.3% (as measured by IWM, the Russell 2000 index ETF), and the most widely held clean energy ETF, PBW, was down 6.6%.

This year I split the model portfolio into two sub-portfolios of six income stocks (NYSE:HASI, NYSE:BGC, TSX: RNW, TSX: CSE, TSX:NFI, and XAMS:ACCEL) four value and growth stocks (NYSE:FF, NYSE:PW, NASD: AMRC, and NASD:MIXT). 

PBW (-6.6%) is a good benchmark for the value and growth stocks, which fell 6.6% in local currency terms and 6.8% in dollar terms.  The six income stocks fell 1.6% in local currency terms and 7.4% in dollar terms. 

All three of the Canadian stocks mentioned above are income stocks, as is the lone European stock, which was hurt by the 6.8% decline in the Euro compared to the dollar.  I have searched in vain for good benchmarks for equity income portfolios, but have not found any that do not contain some aspect of active management, making them poor benchmarks for differentiating between category performance and stock picking skill.  The best I could come up with are JXI, the iShares Global Utilities index, since many income stocks are also global utilities.  Global utilities are a very defensive sector, with JXI rising 1% for the month. 

To date, there are no income oriented clean energy ETFs or mutual funds, so I instead settled on the Green Alpha Global Enhanced Equity Income Portfolio (GAGEEIP), a fossil-free equity income strategy which I co-manage.  GAGEEIP fails several tests of a good benchmark.  Most importantly, it is actively managed in large part by me, meaning I'm simply comparing one of my strategies to another. It also is not a pure equity strategy, in that covered call options are used to reduce risk and increase income.  The best benchmarks are easily investable, and GAGEEIP is not yet available to investors except as separately managed accounts through Green Alpha Advisors.  For January, GAGEEIP fell 0.7%.  The large difference between its performance and the income stocks in the model portfolio is mostly due to better diversification, and the advantage of the covered call strategy in a down market.

The chart below gives details of individual stock performance, followed by a discussion of January company news for each stock.

10 for 15 Jan.png
The low and high targets given below are my estimates of the range within which I expect each stock to finish the year.

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. 
1/31/2015 Price: $13.70. YTD Dividend: $0.  YTD Total Return: -3.7%.

Sustainable infrastructure financier and Real Estate Investment Trust Hannon Armstrong did not announce any significant news for the quarter.  Analysts at Roth Capital initiated the stock with a very bullish "buy" rating and a $19 price target.  Zacks upgraded the stock from "underperform" to "neutral," and now has a $14.60 price target on HASI.

2. General Cable Corp. (NYSE:BGC)
12/31/2014 Price: $14.90.  Annual Dividend: $0.72 (4.8%).  Beta: 1.54.  Low Target: $10.  High Target: $30. 
1/31/2015 Price: $11.44. YTD Dividend: $0.  YTD Total Return: -23%.

International manufacturer of electrical and fiber optic cable, General Cable Corp. was already cheap as the month began, and sold off by more than a quarter in mid-January before staging a slight recovery to a loss of 23% at $11.44 at the end of the month.  The decline seemed to halt when S&P removed its negative credit watch for the company's bonds.  Stock analysts were more bearish.  Analysts and Longbow Research downgraded BGC from buy to neutral, those at DA Davidson dropped their price target from $14 to $12, while Stifel Nicolaus cut its price target to $13 from $17.

The company will release fourth quarter earnings after market close on February 4th.

3. TransAlta Renewables Inc. (TSX:RNW, OTC:TRSWF)
12/31/2014 Price: C$11.48.  Annual Dividend: C$0.77 (6.7%).   Low Target: C$10.  High Target: C$15. 
1/31/2015 Price: C$12.74. YTD Dividend: C$0.064  YTD Total C$ Return: 11.0%.  YTD Total US$ Return: 1.2%.

Analysts at Scotiabank increased their price target on Canadian yieldco TransAlta Renewables from C$13 to C$14, and this may have contributed to the stock's 11% local currency gain for the month.

4. Capstone Infrastructure Corp (TSX:CSE. OTC:MCQPF).
12/31/2014 Price: C$3.20. 
Annual Dividend C$0.30 (9.4%).  Low Target: C$3.  High Target: C$5.  
1/31/2015 Price: C$3.37. YTD Dividend: C$0. 
YTD Total C$ Return: 5.3%.  YTD Total US$ Return: -4.0%.

Insiders at Canadian power producer and developer (yieldco) Capstone Infrastructure continue to purchase the stock on the open market.  Their conviction, along with the generous dividend yield make me consider this the best risk-adjusted stock value available in the market today.

5. New Flyer Industries (TSX:NFI, OTC:NFYEF).
12/31/2014 Price:
C$13.48.  Annual Dividend: C$0.585 (4.3%)  Low Target: C$10.  High Target: C$20. 
1/31/2015 Price: 13.72$. YTD Dividend: C$0.04875 
YTD Total C$ Return: 1.8%.  YTD Total US$ Return: -7.2%.

Leading North American bus manufacturer New Flyer announced its fourth quarter deliveries and backlog.  Orders remain strong, and the company continues to rebuild its backlog of firm orders as the industry recovers from a prolonged downturn, and management expects that recovery to continue.

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 (4.0%).  Low Target: 12.  High Target: €20.
1/31/2015 Price:
13.50. YTD Dividend: 0.  YTD Total Return: -0.7%.  YTD Total US$ Return: -7.4%.

The main news for bicycle manufacturer Accell Group was the decline of the Euro, which not only hurt the returns of US shareholders, but may eventually lead to price hikes from some of its European customers due to the increased price of parts sourced from Asia when bought in Euros.  The flip side of this coin is that the strong dollar may help the company in its efforts to spread the adoption of e-bikes on this side of the Atlantic.

Value Stocks

7. Future Fuel Corp. (NYSE:FF)
12/31/2014 Price: $13.02.  Annual Dividend: C$0.24 (1.8%).   Beta 0.36.  Low Target: $10.  High Target: $20.
1/31/2015 Price: $10.99. YTD Dividend: $0.  YTD Total Return: -15.6%.

Lee Mikles  resigned as President of specialty chemicals and biodiesel producer FutureFuel, but will remain as a member of the board, and the retirement was not the result of a dispute, but for personal reasons.  Analysts at Roth Capital maintained their $19 price target and buy rating.

8. Power REIT (NYSE:PW).
12/31/2014 Price: $8.35
Annual Dividend: $0.  Beta: 0.52.  Low Target: $5.  High Target: $20.
1/31/2015 Price: $9.58. YTD Total Return: 14.7%.

Rail and solar investment trust Power REIT posted the transcript of the oral argument for summary judgement in its civil case with its lessee Norfolk Southern Corporation (NYSE:NSC) and sub-lessee Wheeling & Lake Erie Railway (WLE) to its website.  This argument did not seem to include anything which was not already in the written arguments, but the stock has rallied.

9. Ameresco, Inc. (NASD:AMRC).
12/31/2014 Price: $7.00
Annual Dividend: $0.  Beta: 1.36.  Low Target: $6.  High Target: $16.
1/31/2015 Price: $5.83. YTD Total Return: -16.7%.

Analysts at Northland Securities began coverage on energy service contractor Ameresco with an outperform rating.  The stock's decline seems to be due more to the general market decline than news.

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.
1/31/2015 Price: $5.87. YTD Dividend: $0.  YTD Total South African Rand Return: -9.0%.  YTD Total US$ Return: -9.7%.

Vehicle and fleet management software-as-a-service provider MiX Telematics did not release any significant news.


In January, we saw a number of already very cheap stocks get even cheaper.  I thought the start of the year an excellent time to initiate a position in any of these, and now I'm even more convinced.

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.

February 03, 2015

Water Stocks: Better Than Oil Or Smartphones

By Jeff Siegel

I've never understood it, but no one really gives a damn about water.

Sure, it's the foundation of life. But what does that matter when we can get cheap smartphones and Internet-connected washing machines? Those things are exciting, and there's proverbial gold in those silicon hills.

Don't get me wrong; I love technology and continue to profit handsomely by devoting a small portion of my portfolio to tech stocks. My point, however, is that while technology is great, without water, we die.

It's pretty simple, really. Yet when it comes to investing, few investors take the time to realize just how lucrative water is. Well, except for all those farmers out in California.

But who cares about that, right? I mean, it's not like California feeds most of the country.

Sarcasm aside, I've long been bullish on opportunities in the water space. Some of my favorites in this space include Xylem, Inc. (NYSE: XYL), Calgon Carbon (NYSE: CCC), and Aqua America (NYSE: WTR), which actually pays a nice little 2.4% dividend.

As we move forward, I'm confident that water will prove to be one of the most highly valued commodities on the planet. You know, because we need it to live.

Water Bulls

Aside from my passive-aggressive diatribe about how ridiculous it is that we don't value clean water more than we do, I'm not the only water bull in the arena.

In fact, the CEO of Abengoa subsidiary Abengoa Yield (NASDAQ: ABY), Santiago Seage, recently suggested to Forbes reporter Ucilia Wang that the yieldco is looking to get into the water game as a way to capitalize on increased drought conditions and global population growth.

Seage is enthusiastic about adding water delivery and treatment projects, such as desalination plants, given the growing public worries about drought and depleting groundwater resources in the U.S. He pointed to a 30-year contract totaling $3.4 billion that an Abengoa-led consortium won last year to build and operate wells, collection stations, and pipelines to deliver water from two aquifers to San Antonio. Abengoa expects the project to come online by 2020.

Aside from the San Antonio project, Abengoa also announced last week that it was building the world's largest solar desalination plant in Saudi Arabia. When completed, the $130 million project will desalinate 60,000 cubic meters of seawater a day.

Abengoa Yield took a bit of a tumble last September, falling from around $40 a share to about $25 a share (although it should be noted that the company's only been public since last June).

That being said, over the past month, this young yieldco has started to swim back upstream. The stock has actually gained about 30% within the past 30 days:


Abengoa (NASDAQ: ABGB) has also climbed about 30% over the past 30 days:


I don't really think you can go wrong with either one, but I do like the 3% dividend on Abengoa Yield.

I also remain quite bullish on renewable energy development companies and yieldcos this year. Hannon Armstrong (NYSE: HASI) and Pattern Energy (NASDAQ: PEGI) continue to be two of my favorites.

Lots of Potential

Of course, there are any number of ways to play water. Infrastructure, wastewater services, and water reclamation are just a few. And all of these water-related industries have a lot of potential.

However, you're probably not going to get stinking rich with water stocks.

Over the long term, water is a solid play, particularly if you can collect a nice dividend. But these are definitely not the types of stocks you want to jump in and out of, at least if you need a little stability in your life.

No, these are the long-term investments that, over time, will prove to be more valuable than gold, oil, and smartphones.

Because, well, none of that other stuff matters if you don't have clean water to drink.

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


Jeff Siegel is managing editor of Energy and Capital, where this article was first published.  He is also contributing analyst for the Energy Investor, an independent investment research service focusing primarily on stocks in the oil & gas, modern energy and infrastructure markets.  He has been a featured guest on Fox, CNBC, and Bloomberg Asia, and is the author of the best-selling book, Investing in Renewable Energy: Making Money on Green Chip Stocks .

February 02, 2015

FutureFuel's Future

by Debra Fiakas CFA

Last week the president of renewable chemicals producer FutureFuel Corporation (FF:  NYSE) turned in his resignation.  Lee Mikles is around sixty and seems a bit young for retirement.  He had been with the company from day one and served as the chief executive officer through the end of 2012.  He owns 2.3 million shares of FutureFuel stock or about 5% of the outstanding shares. 

Maybe Mikles is just looking for a better paycheck.  The last time the company disclosed compensation, Mikles was down for $36,000 in compensation as a director.  Along with the CEO and COO, Mikles has not been drawing a salary and receive no cash or stock bonus from FutureFuel. However, looking closer in the fine print of the footnotes, the company discloses that an affiliate of Mikles was paid $132,491 in 2013 related to his services to the company, an arrangement that was followed in all the years he worked for FutureFuel.  Similar arrangements were made for the company’s other officers.

Clearly, Mikles and his colleagues were not draining the FutureFuel bank accounts.  FutureFuel reported $378.9 million in total sales in the twelve months ending September 2014, providing net income of $49.5 million or $1.14 per share.  Operations generated $31.7 million in cash during the same period, implying that for every $1 of sale the company keeps 8 cents.  This is not a remarkably high rate, but given that FutureFuel is fairly consistent in generating profits and free cash flow, it takes the company’s cash conversion rate looks impressive.

At the end of September 2014, FutureFuel held $88.6 million in its bank accounts and held another $106.2 million in short-term investments.  The company has no long-term or short-term debt.  FutureFuel’s financial reports are so impressive it is hard to understand why Mikles would not want to hang around longer and just wallow in the flow of money.  Granted it was his name in the press release in December 2014, that announced the company’s intention to reduce the quarter dividend by 50%.  The dividend will be $0.24 this year, down from the $0.48 paid in 2014.

Still Mikles has helped preside over strong financial performance.  The company sells biodiesel and byproducts of the biodiesel process.  There is additional revenue from the sale of ‘renewable identification numbers’ associated with its renewable diesel.  FutureFuel turns about about 59 million gallons of biodiesel per year using a mix of oils, tallows and lards as feedstock at a plant in Arkansas.  The biofuel segment accounted for about 56% of total sales.  The other 44% of revenue comes from sales of specialty chemicals.  FutureFuel will produce chemicals to order, but mostly they just sell a line of performance chemicals like solvents, polymer additives, herbicides and bleach activator.   

The sales mix has been changing in favor of chemicals as price weakness and reduced demand for biodiesel in 2014, led to a decline in sales value and volume in that segment.  Fortunately, some products in chemicals segment have been gaining market share.

What is not growing at FutureFuel is profits.  EBITDA adjusted for non-cash expenditures declined to 15.4% of sales in the most recently reported quarter ending September 2014, compared to a much richer 23.3% in the same quarter of the previous year.  Both biofuel and chemicals segments have been hit by eroding profit margins.  Some might expect the biofuel division to experience a boost if policy makers in the U.S. re-establish a renewable fuel volume obligation and provide some clarity on credits to fuel blenders for using biofuel.

FutureFuel’s future appears to depend upon some serious blocking and tackling to maintain the company’s history of profits.  Perhaps it is this daunting task that has Mikles heading to the sidelines – at least in terms of operations.  Mikles will remain as a director, but all the troublesome day-to-day decisions for FutureFuel’s future will be someone else headache.

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.

January 30, 2015

Terraform Power Issues $800m High Yield Green Bond

by the Climate Bonds Team

This week the yieldco TerraForm Power (TERP) issued a huge high-yield green bond; seeing more high-yield bonds is a sign that the green bond market is continuing to mature. In addition to TerraForm, more green bonds from repeat issuers OPIC, World Bank, IFC and Credit Agricole have been announced and will be closing in the coming weeks. For today, let’s dig deeper into the latest green high-yield offering.

The US-based renewable energy company TerraForm Power Operating has issued US$800m of senior unsecured green bonds (debentures), making it the largest green bond of 2015 so far. TerraForm Power Operating is a subsidiary of TerraForm Power Inc, a yieldco, spun out from the renewable energy developer SunEdison (SUNE), meaning its fully focused on operating renewable energy assets.

The bond has 8-year tenor and fixed coupon of 5.875%. The bond issuance is sub-investment (junk) grade, with Moody’s rating the offering as B1 and S&P rating as BB-. The lead underwriters were Barclays Capital, Bank of America Merril Lynch, Citi, Goldman Sachs, Macquarie Securities and Morgan Stanley.

Terraform will use the proceeds in part for the acquisition of wind and solar power generation assets from First Wind. Proceeds will also service existing debt used to purchase or develop other renewable energy projects. The acquisition from First Wind will make the asset base 2/3 solar and 1/3 wind, totalling 1503MW - mainly located in the US, but also in Canada, Chile and the UK.

TerraForm provides a good level of transparency as a yieldco disclosing asset level information on their existing portfolio and the First Wind acquisition on their website. It would be good to see a commitment to report on use of proceeds of the bond, though investors can take comfort in knowing that all TerraForms assets are renewable energy.

Great to see that pure play renewable energy companies decide to add the green bond label on to their issuances. The larger investment universe provided by the green label is beneficial both for discovery and liquidity in the market. The potential for pure plays to label their bonds as green is still massively untapped: we estimated in June last year that the total outstanding bond issuances for climate solutions stands at US$502.6bn - a magnitude of difference from the labelled green market. So, here’s a challenge for the pure plays out there - get on labelling your bonds as green.

——— The Climate Bonds Team includes Sean Kidney, Tess Olsen-Rong, Beate Sonerud, and Justine Leigh-Bell. 
 The Climate Bonds Initiative is an "investor-focused" not-for-profit promoting long-term debt models to fund a rapid, global transition to a low-carbon economy. 

January 29, 2015

Gevo Raises Money After Win At Supreme Court

Jim Lane
gevo logo

Following just one day after a big win in the Supreme Court and a corporate update last week, Gevo (GEVO) announced that it intends to offer and sell, subject to market and other conditions, common stock units.

Each common stock unit will consist of one share of common stock, Series A warrants to purchase a certain number of shares of common stock and Series B warrants to purchase a certain number of shares of common stock. The units are to be sold by Gevo subject to market and other conditions in an underwritten public offering.


Gevo announced this morning (Jan 29) that it has priced the public offering. The Series A warrants will have an exercise price of $0.27 per share, and the Series B warrants will have an exercise price of $0.20 per share, be exercisable from the date of original issuance and will expire on August 3, 2015.

The gross proceeds to Gevo from this offering are expected to be approximately $6.6 million not including any future proceeds from the exercise of the warrants.

How much runway?

Not much. Although Gevo slashed costs in the past few weeks, and reduced the average monthly corporate-wide EBITDA burn rate to $1.50-1.75 million in 2015 — this offering buys Gevo roughly 4 months of extra runway for its efforts — and came at a cruel cost to current investors. The Gevo share price dropped after the pricing (morning of Jan 29) to $0.14 in early trading.

More detail on the offering

Gevo currently intends to use the net proceeds from the offering, excluding any future proceeds from the exercise of the warrants, to fund working capital, potential capital optimizations at its Luverne, MN facility and for other general corporate purposes.

In connection with the offering, Cowen and Company, LLC is acting as sole manager.

A shelf registration statement relating to the shares of common stock and warrants to be issued in the proposed offering was filed with the Securities and Exchange Commission (SEC) and is effective. This press release does not constitute an offer to sell, or the solicitation of an offer to buy, these securities, nor will there be any sale of these securities in any state or other jurisdiction in which such offer, solicitation or sale is not permitted.

A preliminary prospectus supplement and accompanying prospectus describing the terms of the proposed offering will be filed with the SEC.

Here’s a link to the Gevo IR site with the SCOTUS win, the corporate update and the filing.

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.

Supreme Court Sides With Gevo In Patent Dispute

Jim Lane

gevo logoIn Washington, the U.S. Supreme Court ruled in Gevo’s (NASD: GEVO) favor and overturned an earlier Federal Circuit Court of Appeals ruling on the interpretation of key patent claims.

On April 11, 2013, the Delaware District Court (District Court) entered a final judgment of non-infringement in Gevo’s favor following the acknowledgment by Butamax Advanced Biofuels LLC (Butamax) that Gevo does not infringe Butamax’s asserted patents under the District Court’s construction of a key claim term in Butamax’s Patent Nos. 7,851,188 and 7,993,889.

At the time, Butamax appealed Gevo’s victory, and a US Court of Appeals in February 2014 vacated the District Court’s prior rulings, and ordered the District Court to reconsider issues related to infringement and invalidity.

In turn, Gevo asked the Supreme Court to vacate the Appeals Court’s de novo nterpretation of a disputed claim term. Today, the Supreme Court granted Gevo’s petition and vacated the decision of the Appeals Court.

According to Gevo:

“The result is that Gevo’s victory in the Delaware District Court is reinstated, and that the case has been remanded back to the Appeals Court for consideration in light of the new standard of appellate review that was decided in the Teva Pharmaceuticals USA, Inc., v. Sandoz, Inc. (Teva) case last week.”

The Teva case

In Teva, the Supreme Court ruled 7-2 that the Appeals Court must apply a more stringent “clear error” standard of review, rather than a “de novo” standard of review. In Gevo’s case, the Appeals Court must now apply the “clear error” standard of review and cannot set aside the Delaware District Court’s (District Court) findings of fact in Gevo’s favor (including interpretation of patent claims) unless they were clearly erroneous.

And you might wonder, what has this to do with the advanced bioeconomy and, in particular, the world of fuels and chemicals.

Turns out, a lot, particularly in the ongoing dispute between Gevo and DuPont over intellectual property used to convert sugars into isobutanol, a higher-density alcohol fuel that has immense promise in circumventing the “blend wall” that bedevils renewable fuels deployment. Not to mention isobutanol’s potential as a chemical blendstock.

Here’s the essence of the case. Teva holds a bunch of patens, which it sued Sandoz over, claiming infrigement. It won a judgement in District Court, but lost in the Court of Appeals when the appellate judges threw out some key elements relating to Teva’s case and the patent claim construction and conducted it’s own “de novo” review, leading it to side with Sandoz.

Now, claim construction is a matter of law and is subject to appelate review — but what about certain key elements that underlie a claim construction? Are they a matter of law and subject to higher review — or are they facts which are tried in a lower court (either by judge or jury), not subject to review?

One of the most perplexing questions has been the reasonableness of a patent claim — would someone skilled in the art understand the claim as written? Is that a fact, not subject to apelate review once found by the lower court or jury — or is that a matter of law.

Well, the Supreme Court has ruled now. Those underlying elements — they are facts. Not subject to de novo review by a Court of Appeal. Meaning that biotech companies, once they have faced their jury or judge on those facts, doesn’t have to worry that a Court of Appeal might conduct a top-to-bottom wholly new review and perhaps, without the benefit of expert witnesses, go another way.

The Supreme Court’s decision effectively reinstates Gevo’s victory at the District Court where a final judgment of non-infringement was entered in Gevo’s favor following the acknowledgment by Butamax Advanced Biofuels LLC (Butamax) that Gevo does not infringe Butamax’s Patent Nos. 7,851,188 and 7,993,889.

The Gevo-DuPont dispute

Gevo and Butamax fell into the Teva orbit last February, when the U.S. Court of Appeals, in a patent case involving Butamax’s Patent Nos. 7,851,188 (‘188 Patent) and 7,993,889 (‘889 Patent). The appeals court offered a new interpretation of a disputed claim term.

Gevo writes, “On remand, two issues remain to be determined: 1) whether the patents are valid; and 2) whether Gevo infringes them under the new claim interpretation. The claims of the two Butamax patents at issue are currently under reexamination at the United States Patent and Trademark Office (USPTO), which has declared them unpatentable. Gevo believes that it does not infringe any valid claims, and at this time maintains freedom to produce and sell isobutanol worldwide and into all markets. “

In a filing for Supreme Court review, Gevo wrote:

“Indefiniteness calls into question additional considerations of whether a claim is ‘insolubly ambiguous, Here the dispute is plainly and cleanly an issue only of the proper construction of the disputed term.”

It comes down to whether an enzyme known as KARI is dependent on a co-enzyme. If yes, then Gevo is in the clear. If not, then it could be found in violation of a Butamax patent. The District Court ruled yes, the Court of Appeals ruled no. Gevo said the Court of Appeals should not have conducted such a broad de novo review.

“In this case, the district court conducted a painstaking claim construction, carefully reviewing voluminous evidence and testimony presented by the parties, including detailed expert declarations, and held multiple days of hearings. The Federal Circuit gave no deference to those findings when it reviewed the district court’s construction de novo, and issued a new construction that changed the outcome of the case.”

More on the story

The Supreme Court’s docket for the case can be found here.

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

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