August 02, 2016

Offshore Wind Blows Into The US: Seven Stocks To Catch The Breeze

Tom Konrad CFA

The Growth of Offshore Wind

Offshore wind has finally gotten a toe hold in the United States.  

The United States' first offshore wind farm, the 30 megawatt (MW) Block Island Wind Farm, is under construction.  A new project, the South Fork Wind Farm will be  three times the size of Block Island (90 MW), is set to be approved by the Long Island Power Authority.  This project will be located 30 miles East of Montauk, NY and Southeast of Block Island in a wind energy area designated by the federal Bureau of Ocean Energy Management (BOEM.)

BOEM also recently designated 81,130 acres of outer continental shelf off New York's Long Island and New Jersey as a new commercial wind energy area.  This area's proximity to some of the nations' most expensive and capacity constrained parts of the nations' electric grid make it an excellent site for relatively expensive but abundant offshore wind energy.

Both are projects of Deepwater Wind, the country's leading offshore wind developer.

Offshore Wind Stocks: Over The Horizon

Investors looking for a way to invest in offshore wind will be disappointed to note that Deepwater Wind is principally owned by the D.E. Shaw group, a privately held partnership.  The best investment opportunities in offshore wind stocks are, like offshore wind itself, often located beyond the horizon.

One place to look for stock market investments are the suppliers to wind farms.  Offshore wind turbine suppliers are a natural first choice.

GE (NYSE: GE) is supplying the turbines for Block Island Wind.  Again, this will be a little disappointing to stock market investors.  While GE is a publicly traded company, offshore wind turbines are not a significant part of its business.  The company's Renewable Energy segment accounts for less than 20% of total revenue, and offshore wind is a tiny fraction of that.

Offshore wind turbines tend to be larger and more rugged than their onshore counter parts.  The large size is due to the expense of foundations, making it important for an offshore farm to generate as much power as possible from each turbine.  A typical onshore wind farm uses turbines with peak power output of around 2 MW each.  Block Island is using just five 6 MW turbines.

These large sizes make it difficult for new entrants to challenge established manufacturers.  This means that offshore wind manufacturers a very elite bunch.  This is good for offshore wind investors because it means that industry incumbents (which are often public) are likely to remain leaders for far into the future.  But it is bad for investors looking for a pure-play exposure to offshore wind.  Offshore wind turbine manufactures simply do not exist without a large onshore wind business to support the investment in manufacturing and R&D.

Most wind turbine manufacturers serve both the onshore and offshore market, but the ones with the biggest names in offshore wind are European players Siemens AG (OTC:SIEGY) and Vestas (OTC: VWDRY). 

It's not particularly surprising that European manufacturers lead the offshore wind turbine market, since Europe has long been the leading offshore wind market.  Because offshore wind sites are almost by definition accessible by ship, I expect that the early dominance of European offshore wind manufacturers will prove to be more durable than the early dominance of European solar manufacturers proved to be in the early 2000s.

Wires

Another way offshore wind is different from its onshore cousin is the need for underwater electrical connection to shore.  Again, investors will not find pure-play offshore wind companies, but underwater cables need to be strong and durable enough to survive decades under salt water and the occasional encounter with a ship's anchor or other submarine hazard.

Submarine cables are expected to be the fastest growing segment for electrical cable manufacturers over the next five years.  US-Based General Cable (NYSE:BGC) and European Prysmian S.P.A. (OTC:PRYMF) both have large submarine cable businesses.

Owners and Developers

No article on offshore wind stocks would be complete without a mention of Danish energy giant Dong Energy A/S (Copenhagen:DENERG.)  Dong is a diversified energy developer and utility with a focus on sustainable energy.  The company has long pioneered new offshore wind technology, and is a leading European developer.

Foundations

Much of the investment in offshore wind is under the surface of the water, in the foundations.  Constructing these giant, incredibly strong structures under windy seas is also a technical feat requiring specialized equipment.  Holland's Sif Group (Amsterdam: SIFG) is the leader in this market, where it gets approximately two-thirds of its revenue.  This makes Sif the closest thing to a pure-play offshore wind company available.  The balance of its revenue comes from foundations for oil and gas.

Conclusion

Offshore wind is a rapidly growing and exciting form of renewable energy, and the established industry leaders have wide moats protecting them from startup competition.  This combination means that current leaders are likely to continue to lead, but it also means that pure offshore wind exposure is difficult, if not impossible to find.  The only stock that is more offshore wind than anything else is Sif Group, and that company's exposure to oil and gas may be too much for some investors excited about renewable energy.

This article was first published on GreenTech Media on July 19th.

Disclosure: Tom Konrad manages and invests in The Green Global equity Income Portfolio, which owns BGC.

DISCLAIMER: Past performance is not a guarantee or a reliable indicator of future results.  This article contains the current opinions of the author and such opinions are subject to change without notice.  This article has been distributed for informational purposes only. Forecasts, estimates, and certain information contained herein should not be considered as investment advice or a recommendation of any particular security, strategy or investment product.  Information contained herein has been obtained from sources believed to be reliable, but not guaranteed.

July 31, 2016

Ten Clean Energy Stocks For 2016: Quick July Update

Tom Konrad, Ph.D., CFA

My Ten Clean Energy Stocks for 2016 model portfolio had yet another strong month, as did my real managed portfolio, the Green Global Equity Income Portfolio (GGEIP.) 

The shorter-format of last month's update turned out to be popular, so I'm doing it again.


July Total Return
July Benchmark Return
YTD Total Return
YTD Benchmark Return
10 Clean Energy Stocks
8.5%
5.5%
15.3%
3.2%
7 Clean Energy Income Stocks
7.4%
6.5%
20.0%
12.5%
3 Clean Energy Growth Stocks
11.1%
3.4%
4.2%
-16.4%
GGEIP
6.8%
6.5%
19.7%
12.5%

See the previous update for a description of the benchmarks.

The strong performance of the portfolio continues to be driven by the flight to quality and lower interest rate expectations caused by the Brexit vote, as well as positive news for a couple holdings.

I've made some progress finding a socially responsible asset management company to help me turn GGEIP into a mutual fund.  GGEIP's outstanding performance last year and so far this year likely have a lot to do with that.  There are actually two versions of GGEIP, one which can use leverage and the other which can't. While I had never used leverage in GGEIP before the end of last year, long time readers will know that I became extremely bullish about the Yieldco space in late 2015 through February this year.  Because of my bullishness, I added leverage by selling uncovered puts on many Yieldcos, and the move has paid off.  For the year through the end of July, the leveraged version of GGEIP is up 32%, compared to 20% for the unleveraged version.

10 for 16 july.png

The chart above (larger version here) gives detailed performance for the individual stocks.  Selected news driving individual stocks is discussed below.

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. 
7/31/16 Price:  $24.37.  YTD Dividend: $0.671. 
Expected 2016 Dividend:$1.56 (6.4%) YTD Total Return: 23.1%

Wind Yieldco Pattern Energy paid its first $0.39 quarterly dividend.  On June 30, it agreed to buy another 324 MW wind farm from its sponsor, an accretive deal which can be financed using available cash and borrowing.  That said, the recent stock price strength makes me believe that at least part of this deal will be financed by selling some stock as well.

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. 
7/31/16 Price:  $21.82.  YTD Dividend: $0.97  Expected 2016 Dividend: $2.10 (9.6%) YTD Total Return: 25.8%

Wood pellet focused Master Limited Partnership (MLP) and Yieldco Enviva Partners was the only stock in the model portfolio to fall in July.  It dropped 4% because of a rating downgrade to "Outperform" from "Strong Buy" from Raymond James. 

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. 
7/31/16 Price:  $18.49.  YTD Dividend: $0.8075.  Expected 2016 Dividend: $1.62 (8.8%) YTD Total Return: 20.7%

Ethanol production Yieldco Green Plains Partners will pay a regular $0.41 dividend to holders of record on August 5th.

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. 
7/31/16 Price:  $17.18.  YTD Dividend: $0.455.  Expected 2016 Dividend: $0.94 (5.5%) YTD Total Return: 27.7%

Yieldco NRG Yield (NYLD and NYLD/A) did not report significant news, but continued its upward climb along with other Yieldcos.

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. 
7/31/16 Price:  $3.48.  YTD Dividend: $0.275.  Expected 2016 Dividend: $0.60 (17.2%). YTD Total Return: -30.6%

Yieldco Terraform Global released some preliminary financial data for fiscal 2015 and the first two quarters of 2016.  I used the data to perform two valuations of the company, one based on assets and the other on cash flow.  You can find the full valuation here; overall, I think it is worth $4 and $8.50 a share.  The company also announced that they are in active discussions with the Yieldco's bankrupt parent SunEdison (SUNEQ) about a "jointly-supported" sales process for SunEdison's stake in GLBL.

Sister Yieldco TerraForm Power (NASD:TERP) released similar financial information, which I also used for the valuation here.

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. 
7/31/16 Price:  $22.49.  YTD Dividend: $0.30.  Expected 2016 Dividend: $1.25  (5.6%). YTD Total Return: 22.3%

Clean energy financier and REIT Hannon Armstrong paid its regular $0.30 quarterly dividend in July.

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. 
7/31/16 Price:  C$14.09.  YTD Dividend: C$0.636  Expected 2016 Dividend: C$0.88 (6.3%) YTD Total Return (US$): 50.8%

Canadian listed Yieldco TransAlta Renewables did not release any significant news, but continued to hit new highs.

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. 
7/31/16 Price:  $9.75.    YTD Total Return: 5.0%

Advanced biofuel producer Renewable Energy Group finally seems to be getting some stock market traction from the recovering biodiesel market, possibly because of of an article that highlighted it as a possible beneficiary from a Clinton victory in November.

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.
7/31/16 Price:  $5.13 / R2.85.  YTD Dividend: R0.04/$0.076  Expected 2016 Dividend: R0.08 (2.8%)  YTD Total Return: 23.5%

Software as a service fleet management provider MiX Telematics will announce fiscal first quarter earnings on August 4th.

Ameresco, Inc. (NASD:AMRC).
Current Price: $6.25
Annual Dividend: $0.  Beta: 1.1.  Low Target: $5.  High Target: $15. 
7/31/16 Price:  $4.95.  YTD Total Return: -15.7%

Energy service contractor Ameresco did not disclose significant news.

Final Thoughts

2016 continues to be a great year for my stock picks, especially considering that most clean energy stocks have fallen this year.  The gains have made valuations less attractive than I felt they were in February and March.  Then, I wrote, "I can't say this enough: If readers have any cash still on the sidelines in this market, now is the time to buy.  Buy and keep reinvesting the extremely high dividends on offer until prices rise."

Today, I still feel that many of these stocks remain below fair value, but the screaming deals are gone.  I also don't trust the broad market rally we have seen in July, and if it reverses, even stocks with good valuations will likely give up some of their gains.  Hence, I've started taking some of my gains so that I will have cash to take advantage of future declines, but will still be able to profit if my picks continue to advance.

Disclosure: Long HASI, AMRC, MIXT,,  RNW/TRSWF, PEGI, EVA, GPP, NYLD/A, REGI, GLBL, TERP

DISCLAIMER: Past performance is not a guarantee or a reliable indicator of future results.  This article contains the current opinions of the author and such opinions are subject to change without notice.  This article has been distributed for informational purposes only. Forecasts, estimates, and certain information contained herein should not be considered as investment advice or a recommendation of any particular security, strategy or investment product.  Information contained herein has been obtained from sources believed to be reliable, but not guaranteed.

July 29, 2016

Tax On E85 Renewable Fuel Soars

Jim Lane

BD TS 072816 e85 smThe US passed a dubious and historic milestone this week. The tax rate on E85 renewable fuels now exceeds 100% in some formulations. By comparison, the tax rate on E10 renewable fuel is running at an estimated 41% and the tax rate on straight gasoline is running at an estimated 35%.

As Shakespeare observed in Measure by Measure, “some rise by sin, and some by virtue fall”.

Now, the idea of a carbon tax is that governments are supposed to collect more tax against high-carbon fuels. Yet, policy in practice works the other way. The less carbon you consume, the higher percentage tax you pay.

In fact, it gets worse, seen another way.

Because E85 has roughly 28% lower fuel economy than straight gasoline, the average person would use 20% more gallons driving on E85 in order to get to a given destination, compared to using straight gasoline. Yet, the taxes are applied not on a cents-per-mile basis, or a gallons of gasoline equivalent (as is the case for compressed natural gas) — they are applied on a gallon basis. So, not only does E85 suffer pay 100% tax rates compared to 35% for straight gasoline; drivers have to pay 28% more tax in driving the same miles.

How it works, the “taxing virtue as sin” system

Let’s look at how the US, state and local governments work together to hike the price of E85 renewable fuels through tax policy adds cost to lower-carbon fuels, and takes away the price incentive to switch to lower-carbon fuels.

First, let’s look at E85, E10 and gasoline prices as reported this week by the Iowa Renewable Fuels Association.

Screen Shot 2016-07-27 at 6.38.23 AM

The amazing news is that E85 fuel is available on a wholesale basis for 55 cents per gallon from The Andersons. Absolute Energy is not far behind, at $0.60 per gallon .On a wholesale mile-for-mile energy cost (BTU) basis, E85 is less expensive now than either straight gasoline or CNG (compressed natural gas), despite the collapse in oil & gas prices over the past 18 months.

In fact, E85 on a wholesale basis is up to 51% less expensive on a mile-for-mile basis, compared to gasoline. Here’s the hard data on that.

So, why aren’t E85 sales skyrocketing?

Partly due to there being 15 million flex-fuel vehicles on the road out of 300 million registered vehicles. Partly due to there being 3200 E85 outlets out of about 130,000 places to buy road fuel.

But that’s not the complete story. Some of it is contained in the retail discount to gasoline, as opposed to the wholesale discount.

Let’s look at that:

Here’s the retail comparison.

Screen Shot 2016-07-27 at 5.10.16 PM

Here’s the wholesale.

Screen Shot 2016-07-27 at 5.10.10 PM

How did a lower-carbon fuel that was 51% cheaper at wholesale become only 5% cheaper at retail?

In a word, taxes.

Here’s a breakdown of the fuel taxes imposed in California, as reported at CA.gov for branded gasoline. Note that wholesale costs have changed since CA.gov ran the numbers, but the taxes are imposed on a gallon basis not a price basis, and remain the same.

Screen-Shot-2015-12-16-at-8.12.02-AM.png

Your eyes can quickly do the math that there’s something like $0.56 in taxes per gallon, which means that E85 customers pay $0.78 in taxes per gasoline-gallon equivalent (GGE). And that means that, as fuel prices drop and the tax component (which is fixed) becomes a bigger part of the cost of fuel, it becomes almost impossible for renewable fuels to beat out gasoline on price, entirely due to tax policy.

The rapacious mark-ups in E85

Boy, are fuel marketers making out like bandits with E85. The mark-up from wholesale to retail, even after subtracting taxes, is 107%. Margins that even high-end brand marketers would be delighted with.

Screen Shot 2016-07-27 at 5.10.02 PM Screen Shot 2016-07-27 at 5.10.16 PM
Screen Shot 2016-07-27 at 5.10.10 PM

By comparison, gasoline is a tougher business. The mark-up from wholesale to retail is 22%, while CNG’s mark-up is 31%.

If you concluded that the overall impact of national E85 policy is to disincentive E85 through high taxes, and offer massive margins to the value chain (while denying value to the corn farmer, the E85 refiner, or the end-user), you would find real support in the hard data.

Solution, anyone?

The solution is not too hard, from a tax POV. Simply do what is done with Compressed Natural Gas and tax everything on a GGE (gasoline gallon equivalent) basis.

At the end of the day, it’s revenue-neutral — renewable fuel patrons would end up paying the same taxes as the patrons of gasoline on a mile-for-mile basis. But it removes an unfair burden that will stymie the adoption of high-blend renewable fuels by consumers.

From a wholesaling perspective, gas stations mostly sell gasoline (in terms of fuel), so 22% overall margins must be generally acceptable. Which suggests that someone could be buying E85 at $0.55 from The Andersons, and marking it up to $1.23 to provide the same margin as gasoline and pay for all those taxes. Even with the lower fuel economy, that would be a 31% discount to straight gasoline, and that would be a tasty incentive to switch to low-carbon fuels.

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


July 26, 2016

GlyEco Expands Antifreeze Recycling Footprint

by Debra Fiakas CFA

Glyeco recycles waste glycol into reusable antifreeze, windshield wiper fluid and air conditioning coolants for the automotive and industrial markets.   The used coolant and antifreeze liquids are frequently contaminated with water, dirt, metals and oils.  The company uses a proprietary technology at the foundation of its recycling system to eliminate contaminants.  The company focuses mainly on ethylene glycol in its six processing plants.

Last month chemical recycler GlyEco, Inc. (GLYE:  OTC/QB) acquired Brian’s On-Site Recycling, a provider of antifreeze and air conditioning coolant disposal services in the Tampa, Florida area.  The deal extends Glyeco’s market share and geographic footprint.  The company also gains expertise through the members of Brian’s management team who have agreed to join Glyeco to advance the Glyeco brand in Florida.  Terms of the transaction were not disclosed and Glyeco is keeping mum on the revenue and earnings contribution expected from Brian’s
Image result for glycol imageStill the idea of recycling a hazardous chemical is beguiling.  Ethylene glycol and propylene glycol are the preferred raw materials used for water-based antifreeze due to a mix of favorable properties:  high boiling point, low freezing point and thermal conductivity.  Glycol is typically made from natural gas or crude oil  -  non-renewable and polluting sources.    Glycol does breakdown in water, but it can deplete oxygen levels and kill fish and other aquatic life.  While propylene glycol is more or less non-toxic, it can be extremely corrosive when exposed to air.  On the other hand, ethylene glycol is decidedly poisonous.

The company is still struggling to get the business going.  In the twelve months ending March 2016, Glyeco reported $7.5 million in total sales.  Unfortunately, the antifreeze recycling business is not profitable.  The net loss in that period was $12.3 million or $0.16 per share.  The company had to use $1.3 million in cash to support operations.  With a cash kitty of $3.8 million at the end of March 2016, there is something of a cushion for the company until the business gains sufficient scale to generate profits.  The acquisition of Brian’s should contribute to that end.


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.

July 20, 2016

American Refining Group Joins Amyris And Cosan In Renewable Base Oil JV

Jim Lane
BD-TS-Novvi-060215-4
IIn California, American Refining Group has committed to a 33.3% equity investment into Novvi , a joint venture of Amyris (AMRS) and Cosan (CZZ). Both Amyris and Cosan will continue to hold share ownership stakes in Novvi, together with ARG.

It’s not a tiny market by any means.

The global markets for base oils and lubricants, are expected to reach $42 billion and $70 billion in size, respectively, by 2020, according to Amyris.

For ARG: Why Novvi, why now?

Think novel performance. It goes in two directions. First, there’s low-carbon performance — customers want sustainable solutions. Then, there’s product performance — customers are looking for increased durability in high-performance base stocks and lubricants. The new partners said that “a novel, performance-based, technology platform that couples segment-specific, top-tier performance with sustainable, bio-based feedstocks delivers against the needs of the industry today and in the future.”

For Amyris: why ARG, why now?

“This agreement is the first of several we expect this year where we are divesting from non-core marketing activity,” said Amyris CEO John Melo, “while remaining key technology developers and producers of high performance chemistry.”

Getting off a high-carbon product lifestyle

Those who follow consumer brand trends or discussions thereof, of who have run the Paris Climate Agreement numbers on a hand calculator, can tell you that carbon transition may be slow, it may be incremental, but it is coming and there is no turning back. The questions in low-carbon transition, today, are of speed, method, and which sectors go first.

Two options, generally. One is a mandate-led transition, like light bulbs, power and road fuels. The other is a brand-led transition, as happens with plastics, jet fuels and clothing. Amyris’ No Compromise branding encourage transitions not yet subject to mandates for high-margin, smaller-volume markets like flavors, fragrances nd lubricants.

Why No Compromise, instead of Less Carbon? Take, for example, a transition many are familiar with from the health space, reducing sugars out of a diet. Doesn’t change the need for finished foods for which sugar is a key ingredient. We might try the low-caloric sugars, such as Splenda or Equal. Generally, performance is incredibly important to us, and we’d like to get the same performance at the same price. But sweet must be sweet. Which is to say, the first step is performance.

It would be very intriguing to see branding that communicates hard targets on carbon transition — as well as they communicate performance targets through messaging like “No Compormise”. In the fuels sector, we’ve seen the emergence of the below50 brand, that communicates a hard target of 50 percent carbon reduction.

These are branding strategies that will drive faster transition and better results for the companies in the nearer term. If consumers opt for “higher carbon reduction numbers” like they opt for higher-performance sunscreen (see our chart below, on how higher SPF sunscreens are growing much faster than the low-SPFs) — why, that intensifies the speed of the carbon transition.

What does ARG do?

American Refining Group converts hydrocarbon feedstocks into high-quality waxes, lubricant base oils, gasoline and fuels, and specialty products.ARG’s Bradford, Pennsylvania refinery, founded in 1881, is the oldest continuously operating refinery in North America.  Base oils are blended with additives to make the engine oils and lubricants sold on the market today.

More on ARG here.

Reaction from the partners

“Our launch of Novvi’s synthetic base oils has been embraced by manufacturers in a range of top-tier lubricant segments, across both automotive and industrial applications,” stated Jeff Brown, Novvi LLC’s CEO. “Our partnership with American Refining Group will help accelerate our growth by providing the necessary resources to ensure manufacturing, supply, and delivery capabilities to scale our business for volume and to meet customer expectations.”

“ARG’s Bradford refinery was built on innovation and market leadership in 1881, and this is an opportunity for ARG to lead the market once again — this time with a renewable product,” stated ARG CEO Tim Brown.  “The potential benefits cut across our base oil, finished lubricants, solvents, and drilling fluids businesses.”

Comments from industry observers

“Renewable oils offer customization of specs and performance that differentiate them from conventionally produced oils,” said Pavel Molchanov, senior vice president and equity research analyst at Raymond James. “A renewable oil that competes on performance and price is well positioned for the multibillion dollar lubricant and base oils market.”

“If a company could make the same quality PAO with a different feedstock, they could dramatically change the market. Customers would run to them,” said Joe Rousmaniere, director of business development at Chemlube International.

The Novvi backstory

Last summer we reported that Novvi unveiled two new 100 percent renewable base oil products, a 100 percent renewable polyalphaolefin (PAO) Group IV and a 100 percent renewable version of its NovaSpec Group III+ base oil. Both will be manufactured at the company’s production facility in Houston. Specifically, according to Transparency Market Research, Group IV & V Lubricants (PAO, PAG and Esters) Market – Global Industry Analysis, Size, Share, Trends and Forecast, 2012 – 2018,” the Group IV & V lubricants demand was 624.6 kilo tons in 2011 and is expected to reach 752.9 kilo tons in 2018, growing at a CAGR of 2.76% from 2013 to 2018.

Novvi’s 100 percent renewable PAO is a clean, direct replacement for conventional Group IV PAO base oils derived from petroleum and natural gas.

Who’s the customer?

“We work with customer-facing strategic partners in both, the base oil business and the finished lubricant side,” Novvi CEO Jeff Brown told The DIgest. “We’re doing the manufacturing now but we have a variety of partnership structures with customers, and we will scale production through strategic industry partnerships.”

More about Novvi

The Digest’s 8-Slide Guide to Novvi is 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.

July 17, 2016

Microgrids: The Electric BTM Line


by Joeseph McCabe, P.E.

Which vendors at Intersolar 2016 in San Francisco supply the best behind the meter self generation microgrid solutions?  I’ve asked similar questions about utility owned inverters, storage, and microgrids at previous Intersolars. This year I looked into the microgrid highest value propositions for photovoltaics (PV).

What is a microgrid, and why they are coming of age now?

A microgrid is a distinct electric system consisting of distributed energy resources which can include demand management, storage and generation.  Loads are capable of operating in parallel with, or independently from, the main power grid. For this evaluation a microgrid is defined as an isolated circuit that can have a utility feed for battery charging only which provides a high value for a commercial or industrial electricity consuming facility. In this case a facility can receive energy, demand and power factor values from a self generating microgrid and use the utility to charge batteries in times when self generation may not be available. Self generation can come from many generating technologies including fossil fuels, biomass digesters, anaerobic digesters (like at breweries), wind and solar PV. Low cost solar and storage are driving new opportunities for these microgrids.

Microgrids are not new for the solar industry, which has been doing off grid and island systems since before grid interactive inverters were available in the 1990’s. If structured properly microgrids can provide clean, low cost, uninterruptible, reliable and resilient electricity.

Example behind the meter microgrid

Consider a server farm that needs to expand its capabilities with a new room of servers. The facility could pay the local utility to increase its electrical service capacity, and then pay a lifetime of additional $/kWh energy and $/kW demand fees. Or the facility could install a solar electric system with batteries and if it has natural gas, the facility can generate combined heat and power (CHP). The heat is used to air condition the servers with absorption chillers. Multi-port microgrid solutions are now being offered by multiple vendors for these purposes.

As a facilities decision maker, pick
a CHP that can supply your air conditioning requirements with absorption chillers. Add a PV system that supplies the electricity for your process for most of the year. My favorite flavor PV system would be integrated with a parking structure. Also pick an electrical storage system that can safely provide the power needed for times when the sun isn't shining and for when your CHP unit will not be in an economical operating zone. The microgrid will supply clean power and adjust for various loads turning on and off. They can even turn loads on and off for you in a scheduled energy/demand management function. Day and hour ahead weather forecasting can be integrated. A battery charging circuit tied into the local utility can put more DC electricity into the microgrid at the most economical times. In fact a microgrid can be all DC energy reducing conversion to AC losses. And of course any original utility circuitry feeds can remain as a backup to a new microgrid circuit.

Economic value

Energy economic evaluation is straightforward in today's PV market, coming in at an onsite cost of $0.06 to 0.10 per kWh for larger experienced installer systems (my own utility has a $0.056/kWh PPA system). This would be compared to the utility bill $/kWh which vary widely but are typically above $0.06/kWh for commercial and industrial accounts. April 2016 EIA average estimates are $0.101/kWh for commercial and $0.064/kWh for industrial across the USA. Demand charges ($/kW) can be reliably eliminated from utility bills with a microgrid. CHP systems typically achieve total system efficiencies of 60 to 80 percent. Expensive power factor charges ($/kVAR) can be reduced from utility bills by addressing the facility equipment that is is causing power factor problems, and isolating that/those circuits with a microgrid solution. Whole facility can address these expenses with power factor correcting capable inverters, often a standard function on newer inverters. 

beer


Power factor is a correction billed by the utilities for power delivered by alternating current. It varies when certain equipment causes the apparent power to differ from the true power, this difference is a measure of kVAR.
Power factor can be analogized with a mug of beer. The actual beer fluid represents the power in kW, and the foam represents the wasteful kVAR, the kVA being the actual amount of work the utility needs to provide in the form of the total volume. Reducing power factor is like reducing the foam in the mug of beer. I have seen power factor representing 50% of a hospital’s electric bill.

Regulation can also change economic value. The federal Investment Tax Credit (ITC) of 30% applies to the cost of storage, if and only if the storage is charged by the PV system. If you are interested, contact me for an industry white paper regarding these values. 

Utility regulations

The regulatory environment for microgrids is just beginning to be developed. It is a perfect time to explore microgrid opportunity with low cost PV and new battery solutions which were being discussed and demonstrated at the Intersolar event. Any microgrid solutions will most likely be grandfathered in before any new regulations. The California Energy Commission and the California Public Utilities Commission (CEC & CPUC) recently held a conference call to begin a microgrid workshop process. Regulators should keep behind the meter regulations to a minimum because they provide an excellent source of electricity for facilities. In other words, regulators should keep their hands off our collective BTMs unless invited.

The brand new
Rule 21 in California outlines functionality required for all new grid connected distributed generation. It is a tariff that describes the interconnection, operating and metering requirements for generation facilities to be connected to a utility’s distribution system. These same equipment standards enable a new class of products that are isolated, or strategically connected to the grid. I am choosing to look at non-exporting microgrid because it is easier from a regulatory environment. At some point I predict the utilities will be asking facilities for access to these isolated microgrids for addressing the utilities’ demand response programs. At which point it should be easier for the utility to pay for and certify the dispatching functionality.

Which companies will benefit?


Various support equipment and services are offered by vendors which are forming strategic relationships with system solution providers. Original equipment manufacturers are teaming with system suppliers along with boutique software companies to supply such systems to the electric utility industry and end commercial and industrial electric users.  A few vendors at Intersolar that seem well-placed to address the example scenario are Ensync, Greensmith, software company Geli, a multi-port microgrid company called Ideal Power (NASD: IPWR), and system integrators who take other vendor wares and integrate solutions like Gexpro (a part of Rexel (OTC:RXEEY)).

Photos below are from the 2016 Intersolar exhibits and should be self explanatory:

FJIMG_20160712_071901.jpg

IMG_20160713_112624 (1).jpg

FJIMG_20160712_071839.jpg

FJIMG_20160712_071952.jpg

New company relationship agreements were announced at this year's Intersolar event by Ideal Power and sonnen (European residential battery storage company new in the USA), as well as between Gexpro and Geli. Greensmith announced new products for pre-engineered packaged solutions under 1 MW with up to 4 hours of battery backup. Larger systems like a large 20 MW installations are still custom builds for Greensmith. Ensync is combining fast lithium-ion batteries with slower flow batteries to address both immediate intermittency and longer term demand reduction functions.


Facilities managers who want to save money on electric bills or are trying to meet environmental goals can begin an exploration into microgrids by choosing an existing or future electric service circuit for a microgrid.  To do this they need to determine the hourly, monthly and yearly load profiles on the circuit. Then start stacking the latest distributed generation options to determine if there is a viable behind the meter microgrid opportunity.

Conclusion


For the first time, this year Intersolar showed us behind the meter microgrids. In
this article we have defined an economical microgrid which can be used as an example to build your own microgrid solution and have presented a few of the companies supplying solutions in this space. Low cost solar and storage solutions have enabled this new class of on-site solution. Regulations are currently minimal for facilities to install self generation equipment. These behind the meter microgrids will become increasingly important for tomorrow's electricity industry because they have become cost effective for commercial and industrial electricity users.


No Disclosures

Joseph McCabe is an international renewable energy industry expert with 20 years in the business. He is a Solar Energy Society Fellow, a Professional Engineer, and is a recognized expert in developing new business models for the industry including Community Solar Gardens and Utility Owned Inverters. McCabe is a mechanical engineer, has a Masters Degree in Nuclear and Energy Engineering and a Masters Degree of Business Administration.

Joe is a Contributing Editor to Alt Energy Stocks and can be reached at energy [no space] ideas at gmail dotcom.  Please contact Joe for permission to reprint.

July 07, 2016

Broadwind: Major Order, But Still Looking For The Right Size

by Debra Fiakas CFA

Last month wind tower manufacturer Broadwind Energy (BWEN:  Nasdaq) announced a major new tower order from a major U.S. wind turbine manufacturer. The customer was not named, but the likely suspects are not hard to round up.  General Electric (GE:  NYSE) is the largest U.S.-based wind turbine producer with about 9.1% of the total world market according to BTM Navigant, an industry research firm.  While substantially smaller in size, Northern Power Systems, PacWind and Xzeres are also important competitors in the wind energy industry.   Clearly General Electric as a customer has the greatest financial strength and therefore more credibility  -  two traits that have been in short supply at Broadwind of late.

The company’s current chief executive officer, Stephanie Kushner was recently promoted to the post from the position of chief financial officer, a position held since 2009.  No new CFO has been named.  Broadwind also recently announced the resignation of the controller and intentions to “consolidate corporate financial functions.”  The C-suite at Broadwind is not well populated these days, leading some shareholders to question leadership and direction.  The big new order helps calm critics.

Valued at a total of $137 million, the recent wind tower order calls for deliveries over a three-year period ending in 2019.  That means roughly $45 million in additional revenue per year  -  a major win for the company.  In the twelve months ending March 2016, Broadwind reported a total of $196.7 million in total sales.  Thus the new order represents a 23% increase in incremental annual sales.

Broadwind reported a net loss of $10.1 million in the twelve months ending March 2016.  However, EBITDA (earnings before interest, depreciation and amortization) was near breakeven at $111,000 and operations generated $13.1 million in cash flow.  Barring poorly negotiated margins on the new contract, Broadwind should be able to at least post positive EBITDA if not a net profit as the company works through the new contract.  There is only a single analyst with a published estimate for Broadwind.  Surprisingly, that analyst reacted to the new contract announcement with even deeper quarter losses than before in 2016, as well as a deeper loss in the year 2017.

The forecast reduction was not encouraging for shareholders, but most appear to have shrugged off the opinion of a single analyst.  The stock had already been on an up-trend since February 2016, riding the wave of renewed interest in U.S. equities.  The stock gapped higher on the new contract announcement in early June 2016, but has since given up the entire gain.   

As encouraging as new business appears, the fact that Broadwind has not found an operating configuration that produces profits is of far greater concern.  The company recently decided to divest of its services division, retaining the towers and weldments businesses.  Eliminating the unprofitable services division will be beneficial, but it will not fix the problems in the remaining business that is also unprofitable.  Five years ago the company initiated a restructuring plan to right-size its manufacturing base and reduce fixed costs.  Two production facilities were idled and 10% of the workforce was laid off.  The efforts have led to positive cash flows in continuing operations, but net profitability remains elusive.  Indeed, the gross profit margin shrank to 9.2% in the year 2015.  

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.

July 06, 2016

Tesla and SolarCity: When Acquisition Strategies Run Amok

by Paula Mints

When two companies with negative financials and high debt marry a good response to the nuptials is … Huh?

When Toto pulls back the curtain in the Wizard of Oz to reveal that the Wizard is just a normal man with no special powers the Wizard says: Pay no attention to the man behind the curtain.

In the case of the proposed stock acquisition of SolarCity by Tesla pulling the curtain would reveal two debt ridden companies with cash flow problems.

Just the Facts Please

The facts are: two companies with high debt and consistent net losses have joined their net losses and debt to enjoy the synergies offered by Tesla’s (TSLA) electric car and Powerwall Lithium Ion battery technologies with SolarCity’s (SCTY) residential/commercial lease business model and its Silevo crystalline cell technology.

Other facts include that SolarCity has experienced setbacks with its module assembly/cell manufacturing ramp up and optimistic announcements aside are likely far away from com-mercializing its technology.

Once SolarCity’s PV cell/module technology is commercial it will be competing in a market with significant downward price pressure. Also, given that China’s PV cell/module manufacturers are ramping capacity in countries that are not subject to import tariffs competition on price will get a lot more painful in the near future.

Also to be considered is that with demand for solar leases slowing SolarCity has announced that it will compete in the highly competitive utility scale space, a segment of the PV market that is highly capital intensive on a much bigger scale.

Finally (or, really not finally) the company’s reliance on debt renders it highly vulnerable.

Now to Tesla: facts include consistent net losses, high debt and a residential/commercial battery product that is not widely deployed and is quite expensive.

Both companies have liability/asset ratios over .50, which means that a higher proportion of each company’s assets are financed by debt.
So … just where is the synergy in combining two companies into a massive, debt-laden, clean technology powerhouse?
The proposed acquisition DOES make sense for SolarCity, which can be viewed as the weaker party. For Tesla, it only makes sense when thought of as a lifeline for SolarCity.

Table 1 (click for larger version) offers total revenues, net losses and the Liability/Asset ratio for SolarCity and Tesla from 2010 through 2015.
Table 1
Tesla is not the only company to recently make interesting acquisition decisions. SunEdison, currently in bankruptcy, went on a buying spree with the goal of creating a massive clean technology powerhouse and now finds itself selling assets and seeking a busi-ness-savior-marriage of its own.

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 June  30 issue of  SolarFlare, a bimonthly executive report on the solar industry, and is republished with permission.

July 05, 2016

Amyris: Biochemical Bargain?

Industrial bio-chemical developer Amyris, Inc. (AMRS:  Nasdaq) has been in the headlines recently  -  some pointing to solid fundamental progress, others ‘not so much.’  Amyris recently announced a new relationship with Givaudan (GIVN: VX), a supplier of active ingredients for cosmetics.  The two have agreed to collaborate in research and development on proprietary fragrances.  Earlier this month Amyris announced the launch by Takasago International Corporation (TYO:  4914) of a new fragrance created with Amyris’ technology. Cosmetics and fragrances present large market opportunities and the strength of demand for personal care products supports strong profit margins.  The relationships are likely to lead to incremental sales for Amyris.
Yet it was just a week ago that Amyris announced the company was crosswise with Nasdaq.  Apparently, the bid price for AMRS shares has been below $1.00 for 30 consecutive trading sessions, violating a minimum listing requirement for the Nasdaq Global Select Market where AMRS trades.  There is no reason to panic just yet.  The company has six months to come into compliance.  Still the notice from Nasdaq puts a spotlight on the struggle that developing companies face  -  trying to get established in highly competitive markets for their products and technology while clinging to whatever access to capital they might establish.

Amyris has been able to build up revenue to $34.1 million in the most recently reported twelve months ending March 2016.  Of course, the company is still operating with a deep loss as research and development efforts still eclipse revenue.  The net loss during that period was $184.9 million or $1.26 per share.  More importantly the company used $105.6 million in cash resources during that period to support operations.
Since cash on the balance sheet was only $9.3 million at the end of March 2016, there is some real concern for Amryis’ future.  Granted the company executed a small private placement in May 2016, bringing in about $15 million in new capital net of fees.  That has provided some breathing room for the company.  Then, if Amyris is closer to selling its Biofene-branded farnesene chemical, the future might not see as bleak as suggested by the balance sheet.  Farnesene is a renewable hydrocarbon chemical that is the building block for a range of products such as cosmetics, detergents and lubricants.  It shows promise for high-volume applications and large market opportunities.  In May 2016, the company announced a new relationship with CJ CheilJedang Corporation (097950:  KS), a Korean contract manufacturer, to provide high volume production of farnesene for Amyris.  Unfortunately, it will take until at least the third quarter for the two to hammer out a definitive agreement, which suggests that revenue is not likely until well into 2017.

Priced at about $0.40 per share, AMRS appears fairly priced as an option on management’s ability to bring together the right elements of technology, commercial products and paying customers.  Until more commercial relationships are in place or the existing relationships begin producing revenue, there is probably no justification for a higher price.

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.

July 01, 2016

Ten Clean Energy Stocks For 2016: Quick June Update

Tom Konrad, Ph.D., CFA

 June was another good month (and capped a strong first half of the year) for my Ten Clean Energy Stocks for 2016 model portfolio.

This update's going to be a short one, but here are the basic stats:


June Total Return
June Benchmark Return
YTD Total Return
YTD Benchmark Return
10 Clean Energy Stocks
3.3%
0.6%
6.8%
-2.8%
7 Clean Energy Income Stocks
7.1%
1.9%
12.3%
5.7%
3 Clean Energy Growth Stocks
-5.7%
-2.3%
-5.8%
-19.2%
GGEIP
3.0%
0.6%
12.1%
5.7%

See the previous update for a description of the benchmarks.

The strong performance of the portfolio was driven mostly by the flight to quality and lower interest rate expectations caused by the Brexit vote and weaker than expected growth indicators in the US.  Lower growth expectations and the more uncertain global economy mean that the Federal Reserve will be raising US interest rates later than previously expected, or even begin to reduce rates again if another recession is on the horizon. 

Lower bond interest rates make my high yield clean energy stock much more attractive, hence the great performance for the income stocks, while the growth stocks, which are sensitive to a slowing economy fared relatively badly.

performance chart

The chart above (larger version here) gives detailed performance for the individual stocks.  Selected news driving individual stocks is discussed below.

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. 
6/30/16 Price:  $22.97.  YTD Dividend: $0.671. 
Expected 2016 Dividend:$1.56 (6.8%) YTD Total Return: 16.0%

Wind Yieldco Pattern Energy paid its first $0.39 quarterly dividend.  On June 30, it agreed to buy another 324 MW wind farm from its sponsor, an accretive deal which can be financed using available cash and borrowing.  That said, the recent stock price strength makes me believe that at least part of this deal will be financed by selling some stock as well.

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. 
6/30/16 Price:  $22.76.  YTD Dividend: $0.97  Expected 2016 Dividend: $2.10 (9.2%) YTD Total Return: 31.2%

Wood pellet focused Master Limited Partnership (MLP) and Yieldco Enviva Partners sold off sharply but then recovered on the Brexit vote.  Traders were probably worried because most of Enviva's pellet sales are to European and British utilities.  The stock then recovered when they realized that that most of these sales are under long term contracts and wood pellet demand is growing rapidly.  Both of these facts should significantly insulate Enviva from any European turmoil.

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. 
6/30/16 Price:  $15.55.  YTD Dividend: $0.8075.  Expected 2016 Dividend: $1.62 (10.4%) YTD Total Return: 5.0%

Ethanol production Yieldco Green Plains Partners entered a joint venture to build an import/export terminal on the Gulf coast.

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. 
6/30/16 Price:  $15.22.  YTD Dividend: $0.455.  Expected 2016 Dividend: $0.94 (6.2%) YTD Total Return: 13.2%

Yieldco NRG Yield (NYLD and NYLD/A) did not report significant news.

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. 
6/30/16 Price:  $3.26.  YTD Dividend: $0.275.  Expected 2016 Dividend: $0.60 (18.4%). YTD Total Return: -34.9%

Yieldco Terraform Global got a boost when it was reported that Brookfield Asset Management (NYSE: BAM) had taken a 12% stake in its sister Yieldco, Terraform Power (NASD:TERP) and had been in talks with bankrupt parent SunEdison (SUNEQ) about possibly buying its controlling class B shares.

This vote of confidence boosted Global because it implies that Brookfield sees value in their assets, despite all the uncertainty around the Terraforms.  If BAM were to buy TERP, many of the assets would likely be sold to Brookfield Renewable Partners (NYSE:BEP.)

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. 
6/30/16 Price:  $21.60.  YTD Dividend: $0.30.  Expected 2016 Dividend: $1.25  (5.8%). YTD Total Return: 15.9%

Clean energy financier and REIT Hannon Armstrong returned to the equity markets with a well-received secondary equity offering of 4.6 million shares priced at $21 a share.  Investors were clearly eager for this offering: The initial press release mentioned only 3.85 million shares on June 15th, with an additional underwriters purchase option of 577 thousand shares, for potentially only 4.427 million shares.  Later that same day, the number of shares was revised up to 4.6 million, including the underwriter's option.  When the sale closed a week later, the underwriters had already exercised their 30 day option.

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. 
6/30/16 Price:  C$13.36.  YTD Dividend: C$0.545  Expected 2016 Dividend: C$0.88 (6.6%) YTD Total Return (US$): 43.0%

Canadian listed Yieldco TransAlta Renewables hit a new 52-week high, and the stock was also helped by the strengthening Canadian dollar.

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. 
6/30/16 Price:  $8.83.    YTD Total Return: -5.0%

Advanced biofuel producer Renewable Energy Group fell a little amid the global uncertainty, but the lower price only served to make me more enthusiastic about this leading firm is the strongest biofuel markets.

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.
6/30/16 Price:  $4.68 / R2.68.  YTD Dividend: R0.04/$0.076  Expected 2016 Dividend: R0.08 (3.0%)  YTD Total Return: 12.7%

Software as a service fleet management provider MiX Telematics received a well deserved upgrade to Overweight from First Analysis, but the global uncertainty dragged the stock down anyway. 

Ameresco, Inc. (NASD:AMRC).
Current Price: $6.25
Annual Dividend: $0.  Beta: 1.1.  Low Target: $5.  High Target: $15. 
6/30/16 Price:  $4.37.  YTD Total Return: -25.2%

Energy service contractor Ameresco did not disclose significant news, but the stock was also dragged down by market trends.  Given that the company operates mostly in North America on contracts with government entities and other large domestic institutions, the decline has little if anything to do with the company's prospects.

Final Thoughts

The first half of 2016 has been a great start to a strong year, despite the generally unsettled nature of the stock market.  While broad clean energy ETFs like PBW have fallen sharply, I hope the performance of my opportunistic income investing approach shows that investing in clean energy does not have to be risky.

Disclosure: Long HASI, AMRC, MIXT,,  RNW/TRSWF, PEGI, EVA, GPP, NYLD/A, REGI, GLBL, BEP, TERP

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.

June 30, 2016

How Economics Finally Brought Community Solar to IREA

by Joseph McCabe, PE

My uber-conservative utility, Intermountain Rural Electric Association (IREA) has been against solar since before I moved into the service territory in 2007.  IREA's long-serving general manager, Stanley Lewandowski Jr., would include climate change denial leaflets in the envelope along with the monthly electric bills.

Now he is gone, and attitudes seem to be changing towards solar. With a new general manager, a couple of forward thinking board of directors and a handful of active IREA owners/members the solar landscape has changed and now includes a large solar project.

Currently IREA has 550 MW of installed electrical generating capacity, about 270 miles of transmission lines and many more of distribution.  Residential users account for about 65% of electricity demand. Like most rural electrical utilities, there are few customers per mile. At the end of 2014 there were 354 solar electric systems, end of 2015 had 1,087 and currently there are 1,250 totaling 7.1 MW out of 152,300 total customers. IREA’s perspective has been that net metering is a subsidy paid for by other ratepayers. Unfortunately, in a mis-guided attempt to recoup this perceived subsidy, since the beginning of the year IREA has placed a load factor adjustment (LFA) on all new customers including new PV.  I expect that many people will soon be clamoring as to their unfair bottom line monthly bills compared to their neighbors.

LFA is a penalty charged for periodic high demand. The LFA discourages both customer sited PV and electric vehicle (EV) charging.  It also presents further confusion to the typical energy consumer, a tower of babble. The new, much higher LFA rate is triggered if the average demand over the billing period divided by the peak demand over the same period exceeds 10% for residential service.  If triggered a peak demand charge is added to the bill. The typical load factor for an average residential IREA customer is about 20%. But EV charging and PV generators will almost certainly send customers into lower than 10% LFA; EVs because of higher peak demand and PV because of lower average demand. One more intelligent solution would be to incentivize EV charging at night, when IREA’s electricity supply from Xcel Energy’s (XEL) Comanche III coal plant output and wind power produce the cheapest electricity.

For the 8 years I have been an IREA member/owner I have been going to the microphone at the annual membership meetings and been a pebble in the shoe of my representative to try and implement community solar gardens (CSG, also known as community solar or shared solar). In parallel, I was helping the state of Colorado pass the first ever CSG legislation (House Bill 10-1342, Levy), and before that I invented and implemented the first large scale utility owned CSG located in Sacramento starting in 2005. It almost feels like the efforts of a few people are helping to change the attitudes of our utility towards cost effective solar.

The economics of CSG are supported by the Public Utility Regulatory Policies Act (PURPA) which encourages the development of renewable energy projects by requiring utilities to purchase energy and capacity from qualifying facilities if at or below avoided costs. In 2015 juwi, headquartered in Boulder Colorado, was able to propose a solar project at IREA’s avoided costs. IREA announced the groundbreaking has begun by juwi on the 13 MW CSG named Victory Solar. This is close to Denver in Adams County. It is unique in that it is 15.9 megawatt DC but 13 MW AC, a 1.3% DC overrating which should save on the overall project economics.  This project has a long-term power purchase agreement with an IREA purchase option in a few years.  IREA upgraded an underutilized substation for the interconnection at a cost of  $1.4M. The asset utilization for this project, the out of pocket expense for IREA, is fantastically low compared to ownership of other generation. Solar is now cost effective at this scale. Currently IREA is planning a portion or all of this project to be a CSG. I am excited to be able to charge my EV with solar electric power from my utility by the end of the year.

IREA obtained special approval from Xcel Energy to generate 15 MW of solar electricity in violation of their All-Requirements contract. Smaller utilities often have such All-Requirements contracts with larger utilities or with transmission organizations like Tristate. Recently, FERC has ruled against Tristate for imposing similar all-requirements on Delta Montrose Electric Association (DMEA). This is a major national tipping point for smaller utilities like IREA and DMEA to enable more distributed generation from renewable energy.
 
The next steps for the active IREA members are to correct the LFA to encourage EV and customer sited PV and to get an additional 2 MW CSG on disturbed or contaminated land in IREA territory. Electric Muni’s, Co-operatives and Associations are perfectly suited to reap the benefits of distributed generation, create local jobs, and revitalize land for local projects. A great example of such a project is located south of Boulder adjacent to the superfund Marshal Landfill site. EPA helped envision and spearhead this Community Energy Collective (First Solar FSLR has a 27% interest in CEC) project.

This large CSG by IREA is a watershed event, where like many conservative local utilities, IREA has been waiting for solar to be cost effective for their needs. That day has come, and will be showing up at many more utilities who are more focused on their customers than on stockholders. CSG’s are also well suited for rural utilities who have fewer customers per mile, justifying distributed energy from solar as opposed to central station generation from fossil fuels.

Disclosure: Joseph McCabe is a Xcel Energy stockholder.

Joseph McCabe is an international solar industry expert with over 20 years in the business. He is a Solar Energy Society Fellow, a Professional Engineer, and is a recognized expert in developing new business models for the industry including Community Solar Gardens and Utility Owned Inverters. McCabe has a Masters Degree in Nuclear and Energy Engineering and a Masters Degree of Business Administration.

Joe is a Contributing Editor to Alt Energy Stocks and can be reached at energy [no space] ideas at gmail dotcom.  Please contact Joe for permission to reprint.

Related article: Comparing Community Solar Subscriptions And Yieldcos




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