The Future of Green Tech Investment

green technology investmentAccording to a recent article in Green Technica by author Joshua S. Hill, green tech investment could “skyrocket” by 2030. Hill cites research from Bloomberg New Energy Finance, including a detailed analysis of three different potential scenarios. As their research shows, wind and solar could have the efficiency and popularity needed to bring the renewable energy industry into its own.

Although clean energy ETFs have been underperforming in an era where fossil fuels have largely recovered from recession-era prices, each of the three scenarios explored by Bloomberg New Energy Finance shows an increase in green technology investing. A 230% increase in annual investment by 2030 would mean increasing to a total of $630 billion per year. Bloomberg New Energy Finance largely attributes this to the decreasing cost of wind and solar technologies, as compared to fossil fuel alternatives. The report also shows increased use of hydro power, geothermal and biomass.

Michael Liebreich, Bloomberg New Energy Finance’s chief executive, believes that we have already passed the “tipping point” for clean energy technology. He points out that, even though most news coverage is discussing the future of fossil fuels, costs for green energy and implementation are falling. He says, “The news right now is dominated by stories of pain caused by overcapacity on the supply side of clean energy, and the lure of cheap shale gas, but this is playing out against the falling costs of renewable energy and of all the technologies required to integrate it into our energy system, and falling costs win. What it suggests is that we are beyond the tipping point towards a cleaner energy future.”

The three scenarios explored by Bloomberg New Energy Finance are “New Normal”, “Barrier Busting” and “Traditional Territory”. “New Normal” is cited as the most likely, and ends with a probable $630 billion per year in green tech investing. Each scenario calls for growth in the renewable energy sector, notably in solar and wind energy, along with decreases in fossil fuels. Even the modest “Traditional Territory” scenario shows green tech investment increasing to $470 billion by 2030.

Guy Turner, the head of economics and commodities for Bloomberg New Energy Finance, says that renewable technologies will be the “anchor of new generating capacity additions” in all scenarios. He points out, “The main driver for future growth of the renewable sector over this timeframe is a shift from policy support to falling costs and natural demand.” Read the original article.

When we last looked at solar energy in particular, we noted that 2013 is a slower year for installations due to an oversupply of solar panels. However, by bringing this technology to end-users more quickly and at lowered prices, we explored the idea that solar energy may be closer to being at parity with fossil fuel based energy. Also helping the situation is a budgeted increase in spending for the Department of Energy, including a 75 percent increase in spending on advanced vehicles to $575 million, and a 29 percent increase in spending on the ongoing effort to integrate solar and wind power into the national electric grid.

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Mary Lisanti: Continued Corporate Earnings Growth in 2013 (When the Federal Government Resolves the Budget)

Mary Lisanti is president and portfolio manager of AH Lisanti, an investment management company currently focused on small cap growth companies. She is a 33-year veteran of small cap growth research and investing. For the first 12 years she was a small cap analyst and strategist on Wall Street. During the past 18 years, she has managed small cap portfolios at premier asset management companies. As CIO of ING Investments LLC, (1998-2003) she was responsible for building the active equity management team, and assets under management in her area grew from several hundred million to several billion dollars. Prior to ING, Mary was at Strong Capital Management as Senior Portfolio Manager for both the Small Cap Growth and Mid Cap Growth Strategies and was Managing Director and Head of the Small/Mid Cap team at Bankers Trust Company. Mary was named Fund Manager of the Year in 1996 by Barron’s. She was named #1 small cap analyst in 1989 by Institutional Investor’s All-Star Research Team. In addition, she was ranked #2 and #3 in 1987 and 1986 respectively.

Mary-headshot

I had the pleasure of talking to Mary just before the New Year’s holiday at her office near Rockefeller Center.  We had first met in the late 1980s when she was interested in a technology company that proposed the radical idea of a keyless car ignition or computer security system using a fingerprint.  Interesting how what seemed futuristic now seems almost as old hat as, well, men on the moon.

JA:  How are you feeling about the year ahead?

ML:  Undecided.  I’ll give you some positives and some negatives.  One big positive is that corporate profit growth will still be decent.  Corporations are at very high profit margins, but when you break down what’s going on, there’s no reason they shouldn’t go higher.  Virtualization – the use of cloud computing, and other aspects of today’s high tech should help them cut costs.  For that trend to stop, two things would have to happen: a long period of negative revenue growth, accompanied by fast-rising wages.  Neither of those things is happening.

That will be a positive for the market.  Corporate profits are growing 8-10% and we believe that can continue, and that is widely dispersed across the board.  Small caps can grow even more,we believe, although again there will be wide dispersion in individual results.  This will be a classic stockpicker’s market.

The biggest negative for the market is that we cannot seem to govern ourselves.  That weighs on multiples.  That’s why, four years into this recovery, multiples are still low, particularly when you take into account where interest rates are and how  GDP growth, although below trend, continues to chug along at 2% or so.  In that scenario, logic would have it that multiples would be in the range of 18-19, but they are not.  Why not? I believe it is because of our inability to govern. Politicans are behind the curve;as they usually are, in addressing our structural issues to bring the long term deficit issues under control. Will they address the longterm issues or not?  If they do so now, it will require only modest changes to entitlements and spending. The extent to which we address those issues will affect the performance of the market going forward.

It is psychologically important to multiples: if you can slow the growth in spending at least a bit, you give people more confidence.  In the Clinton years they managed to slow the rate of growth in spending, and Clinton left office with a surplus.  I believe we will spend most of 2013 arguing about entitlements and other budget issues.  Next year it will be the Democrats saying no to entitlement reform, just like this year it was Republicans saying no to taxes.  I don’t know how much it is possible to get done, because it is being done in a fishbowl and from ideological positions that don’t accommodate compromise.

If they do not get something done, I fear that US debt will get downgraded again.

JA:  And would any of the DC politicians feel responsible if that happened?

ML:  I do not believe so, no.  Politicians, in my opinion, are in the business of passing the blame.  If there were another downgrade, it would affect President Obama’s legacy, and I don’t think he wants to be the president who oversaw two debt downgrades in his time in office.  Both sides will have an incentive to compromise and hopefully they will.  The biggest risk to all of us, and to the market, is that the dollar loses a bit of its luster as the currency of last resort.

When you look at Japan and China and Europe, they are getting their act together with regard to being attractive places to invest and could even potentially be attractive as reserve currencies in a few years.  My biggest concern is that we permanently change corporate behavior: if you have a climate of uncertainty for long enough you make people afraid.  Business overall has been clear with Washington that the uncertainty is damaging.  R&D tax credits, farm and agriculture bills, accelerated depreciation – Congress has been handling these as though they were annual issues, and they’re not.  They affect multi-year planning.  When the R&D tax credit was put in place in the early 1980’s, it was in place for 4.5 years.   That would be better—it would give businesses the ability to plan longer term..

These and other things are casualties of this ideological warfare in Washington.

JA:  What do you see as strengths in 2013?

ML:  It is an enormous positive that housing is recovering, and the recovery should continue, assuming Washington does not cut the mortgage deduction..  Unemployment is declining, although it is declining too slowly.  And we have cheap sources of energy.  . A number of industry sources believe that we will be energy independent in the next decade or so, which is a huge positive for our manufacturing competitiveness.

When you look at these things, once we make it through this budget and debt-ceiling problem, things look a lot better.

Governments all over the world have been spending money to fix the problems that caused the recession, and odds are that things will not fall apart again soon.  Over the past several years, we have had a major issue every year that has “terrified” us: last year it was the potential breakup of the Euro and Greek debt default, and this year it was the budget crisis in the U.S. Beyond the budget crisis, I do not see an issue that has the potential to scare investors as much as these two issues have. We should enter a period of more “normalcy,” where macro issues take a backseat to fundamental issues, and that change should allow multiples to increase. But belief in a more stable future will come slowly.

JA:  What should we look for in 2013 when we look at investments?

ML:  As small cap growth investors, we look for earnings growth.  But one of the great positives in this market is that there are many ways to make money in the market.  When I came into the business in the late 1970s, you could make get 7-8% returns several ways.  You could make money with yields –- those companies with no earnings growth offered very high dividend yields, say about 7%; those companies with earnings growth offered more modest dividends, say 2-4% dividends and 4-5% annual growth in earnings.  Growth stocks offered  very little in the way of dividends, but you could get capital appreciation as earnings would increase 10% to 15%.annually. Then, as we moved through the great bull market of the 1980’s and 1990’s, we got to the point where dividends were out of favor and capital appreciation was the only way to make money.. Now dividends are back and once again there are multiple ways to make decent returns in the stock market, depending upon one’s tolerance for risk..That is very, very positive for the equity markets.

JA: How about sectors?  Any of special interest, or any you would avoid?

ML:  There are good companies in every sector.  I would not recommend the utilities, but there are very good opportunities in materials, energy, consumer products and services, industrials and financial services,  In most of these the small caps usually have something unique about the way they do it, or the technology they apply to it.

Tech spending is not forecast to be up much in 2013.  There will be winners and losers.  We need to keep in mind that the corporate world is moving toward Software as a Service, which allows them to stop buying perpetual licenses, and to pay as they use software.  They are going from buying licenses and maintenance contracts, and now are basically paying just for what they use.  Same with cloud computing.  So they are going from spending $20,000 on software and a server to paying $1,000 month.  So even though tech spending is forecast to be close to flat, the companies that will be winners will have SaaS and cloud computing.  These trends will hold down spending.  It’s hard to see how the semiconductor companies are going to prosper in that environment, unless it is the specialty chipmakers who are specialized in populating ever-smaller chips with ever-larger amounts of circuitry for tablets and smart phones – or those companies that are specialized in the ability to manage the signals for those tablets and phones.  But other than those two, I don’t see a lot of growth there.  And I would be careful about traditional license-oriented software companies.  .

JA: What about healthcare companies?

ML:  Interesting.  It’s hard to guess how ObamaCare will play out.  There are some longterm secular trends in healthcare that are worth keeping in mind.  Keep your eye on the value proposition: better, faster, cheaper, more automated.  One of the most interesting areas is the second generation biotechs.  Think about AIDS, for instance.  Over the last 25 years it has become a livable disease – that is, we haven’t cured it, but we can make it possible to live with it, and to do well, not just to survive for a few more months.  Now the industry is working to make cancer livable in the same way; there are whole new classes of drugs that enable people to live with cancer, and not to just be blown away by it in a short time.  Possibly we are spending the same amount of money making cancer livable as we used to, but now we’re spending it over a longer period, and not all at the end of life.  Diabetes monitoring, for instance – the closer we get to continuous glucose monitoring, the better for diagnosis and treatment; One of our investments is Dexcom (DXCM), which has a promising technology for that.  All those big diseases are interesting, and medicine is getting its arms around them too.

JA: How about healthcare IT?

ML:  It has historically been mostly about billing and insurance, but now the future is to move on to quality of care.  Since we have had health insurance as a society, the focus has been on what you might call “industrial metrics,” such as how many patients you can process.  Now the quality of the outcome is more important, and best practices are more important.  There will have to be penalties for readmissions of the same patient.  Mobile apps for monitoring things like blood pressure, glucose, heart problems and blood gases – these things are going to become standard practice over the next 5 to 10 years.

JA:  You mentioned the impact of technology on industry.

ML:  There are lots of new beginnings now, along with outmoding of old things.  Software as a service and the use of the cloud – this is the biggest piece of cost to cut.  If you can cut your IT costs you have overall better margins, and better processes too.  And industrial automation is interesting too.  The first generation of automation concentrated on, for instance, lasers to cut steel.  Now automobiles are being made with lighter materials, so new lasers are needed, lasers to cut nonsteel materials.  Aerospace is an interesting area for this.  Two things that are driving aerospace are new materials that lower weight and cost, and a continuing cutback on oil-based materials.  There is a bit of a renaissance going on in aerospace.

One of our investments is IPG Photonics (IPGP) for the new lasers needed to deal with new lighterweight materials.  Another is Polypore International (PPO), which is making the membranes needed for new electric vehicles like the Chevy Volt and the Nissan Leaf. By the end of 2013, they are expected to be supplying membranes for 24 models of cars.  That goes back to the fact that fuel efficiency standards by 2025 will be at 54.5 mpg.

Another of our investments is Aspen Technology (AZPN), which basically supplies SaaS for factories and plants.  If you are a refinery, for instance, you are required by law to take your systems down every so often for maintenance and test for a number of things such as safety and pollution.  Doing that manually is difficult; it can be done, but it is hard, and if you are global it is harder.  Aspen automates all of that, and they are in a field by themselves basically.

JA:  And energy?

ML:  The shale revolution will be a big job creator, and the move toward natural gas for vehicles is important.  Fleets will be moving to Compressed Natural Gas (CNG), and we believe the infrastructure will be built out for CNG refueling.  Federal Express, UPS and the other big fleets will be the drivers.  We are interested in Westport Innovations (WPRT) for the CNG engines.  And we are watching Clean Energy Fuels Corp (CLNE) for the CNG supply chain, but big oil will be the installer.  We also believe solar will become economical to use, with panels on the roofs, for instance, of warehouses, and power being sold back to the grid when it is not needed.  Between the increased supply of natural gas, shale energy, coal, oil and renewable, we can get to be energy independent.

JA:  How about housing?

ML:  Housing is fascinating.  What happened with housing is what happened with autos.  Now after a period of low sales, we probably need as a nation to do some catching up.  We could need 1.7 million new housing starts for a couple of years.  That would double the current rate.  The Echo-boomers (who used to be called Generation Y) are starting to buy houses; their demand for houses is growing at 5% per year, and will grow at 10% per year soon.  My personal opinion is that this housing cycle will be a long one, similar to what we saw after the housing collapse in the mid 1970’s. In the first few years, we will see a catchup in pricing, but after that we believe housing prices will probably go up a couple of percentage points per year. If they implement the rules on mortgages that are being talked about, the housing market will become a lot steadier and more stable, more like the Texas market, where they tightened the downpayment requirement and favor 30-year-fixed mortgages.  That will be positive for the housing market and for consumer confidence.

There is nothing better for consumers than to have their biggest asset become more valuable every year.  Three years ago if you hadn’t already lost your job, you were still afraid you might lose it.  Your 401(k) and your house were devaluing.  This recovery is more like the late 1970s than the 1990s.  People got burned in the mid-70s and it took a long time to feel better.  When we are operating at full potential, we should have 3-1/2% to 4% GDP growth, and that will come eventually.

JA:  And in 2013?

ML:  I think GDP this year will be 2-1/2% overall because of federal and state problems, but corporate GDP growth will be a good bit better than that, assuming there is a budget deal at some point.  The first half of the year if we watch the government argue about spending, it could be a bit of a damper on growth.  If we regain faith that the politicians will be able to compromise and come up with some answers, the market will go higher.  Having our debt downgraded shook everyone’s confidence.    So the market is at 12-13 times earnings as a result.

If we get a budget deal we could get much stronger investor confidence, but in the short term, our ability to govern ourselves is the big issue.  Once that is resolved, the market will lift.

JA:  Thanks, Mary.

For AH Lisanti:  For financial intermediary use only.  Not for use with investing public.

The information provided should not be considered a recommendation to purchase or sell any particular security.  It should not be assumed that any security transactions, holdings, or sectors discussed were or will be profitable, or that the investment recommendations or decisions we make in the future will be profitable or will equal the investment performance discussed herein.  The views expressed reflect those of the portfolio manager as of 12/31/2012.  The portfolio manager’s views are subject to change at any time based on market and other various conditions. The performance reflected herein is not representative of performance of AH Lisanti individually managed accounts or comingled vehicles that AH Lisanti advises.

 

Bipartisan Support in Senate Points to Bull Market for Wind Power

Thanks to high-profile bankruptcies like Solyndra and Evergreen Solar, good news has been in short supply this year for companies in alternative energy. But the wind energy industry bucked that tide earlier this month.

On Aug. 2, the Senate Finance Committee voted to renew a tax credit for wind power for one more year, according to

Photo courtesy of Knowledge-Allianz.com

the New York Times (http://www.nytimes.com/2012/08/03/business/wind-industry-wins-senate-panels-support-for-a-tax-break.html). The provision to renew the tax break is part of a $200 billion package that still must be passed by Congress when it returns from summer break. Furthermore, the vote was bipartisan (19-5) with several Republicans from key wind power states joining the Democrats in favor.

While still not a done deal, it is clear that “the wind industry convinced a key Senate committee that green can be good politics in red states as well as blue states,” the Times noted.

A week after the vote, the American Wind Energy Association announced that the U.S. “hit 50 gigawatts of wind-powered electric capacity in the second quarter of this year.” Energy and Capital noted that so far in 2012, “the nation has had 2,800 megawatts and 1,400 wind turbines installed countrywide, chiefly across Nevada, Idaho, Iowa, Hawaii, Oklahoma and California.” A total of 39 states now have “utility-scale wind facilities” with most of the growth in the industry is coming from domestically manufactured turbines and materials, according to Energy and Capital.

Let’s take a look at a few randomly chosen small cap companies that are involved in wind turbines and wind power.

Newbury Park, CA-based Sauer Energy (OTC: SENY, http://www.sauerenergy.com/) is a development stage company developing vertical axis wind turbines for commercial and residential uses. Formerly BCO Hydrocarbon Ltd., the company disposed of its oil and gas interests and in July 2010 purchased Sauer Energy and in May 2012 purchased Helix Wind Corp. SENY currently has a market cap of $20.6 million and a 52-week trading range o $0.10-$0.95. It closed trading Aug. 27 at $0.26, up 2 cents on the day.

China-based China Ming Yang Wind Power Group (NYSE: MY, http://www.mywind.com.cn/) is a wind turbine manufacturer focused on designing, manufacturing, selling and servicing megawatt-class wind turbines. In July, MY announced it was considering a joint venture with China-based Huaneng Renewables Corp. to develop wind power and solar power projects in China and overseas markets. MY’s market cap is $147.5 million and 52-week trading range is $1.10-$3.73. It closed Aug. 27 at $1.21, down 4 cents for the day.

Chatsworth, CA-based Capstone Turbine Co. (Nasdaq: CPST, http://www.capstoneturbine.com/) develops and markets microturbine technologies, including technologies used to provide on-site power generation for wind power. On Aug. 23, CPST shares crossed their 50-day moving average and closed the day at $1.05 with 2.8 million shares sold. Its market cap is $302.6 million and 52-week trading range is $0.85-$1.53. It closed Aug. 27 at $1.01, down 1 cent for the day.

One company in the news lately is Italy-based Enel Green Power, which trades on the Milan Exchange (EGPW.MI) and is Italy’s biggest renewable energy company (http://www.enelgreenpower.com/) . EGPW announced in early August that it will partner with GE Capital to build the Prairie Rose wind farm in Minnesota, expected to have a total installed capacity of 200 megawatts. The farm is scheduled to commercially operational  in this year’s fourth quarter. This follows earlier announcements of other investments in wind farms in Oklahoma, Mexico, Denmark and Croatia.

Finally, Naperville, IL-based Broadwind Energy (Nasdaq: BWEN, http://www.bwen.com/) announced Aug. 23 that it was reducing its manufacturing footprint and shifting its “capacity and marketing focus to non-wind sectors.” In early August the company reported a $4.2 million loss for the fourth quarter. It also made a 1-10 reverse split of its common stock. BWEN closed Aug. 27 at $2, down 26 cents for the day.

Wind Power Market Expanding While Wind Power Stocks Weather the Storm

Of the alternative energy sectors, wind power seemed to be getting the best headlines in recent weeks. First came the report from Pike Research Oct. 3 that government incentives and “an expanded awareness of small wind technologies as an alternative source of electrical power” will help double the global small wind power market to $634 million by 2015. The report adds that the payback period for “a small wind system can be 5 to 10 years in a region with adequate wind resources.”

The came the report in the Los Angeles Times that “Kansas is to wind as Saudi Arabia is to oil,’ noted in a story focused on British Petroleum’s plans to build an $800 million, 252-turbine wind farm in the state (http://latimesblogs.latimes.com/nationnow/). The farm is called Flat Ridge 2 and will sprawl out on 66,000 acres. BP Wind Energy is expected to start constrution this year and complete the project by 2013. An estimated 500 construction jobs will be generated. The 200 landowners whose property will be part of the farm will get $1 million a year for 20 years. Local governments will also get funded.

More wind news came last Sept. 20 in the Wall Street Journal where it was reported that a Chinese wind turbine maker, Xinjian Goldwind Science and Technology Co. (China’s second largest wind turbine producer judging by new capacity sold, according to the WSJ), has plans to build a $200 million wind farm in Illinois. Gov. Pat Quinn’s office suggests that the project will generate more than 100 construction jobs and about 12 permanent ones (http://online.wsj.com/article/SB10001424053111904106704576579741179230646.html?KEYWORDS=brian+spegele+xinjiang).

Is this kind of good news doing anything to bolster smallcap wind power-related stocks? Like most small caps in this market, they’ve been beaten down, but at some point they will have bottomed out. We’ve been following a few (please send us any others you can suggest). They include:

China-based China Ming Yang Wind Power Group Ltd. (NYSE: MY, http://www.mywind.com.cn/) makes, services and sells wind power turbines in China. Formerly China Wind Power Equipment Group Ltd., the company has a market cap of $334 million and trades about 170,000 shares a day. Investopedia recently named it one of five wind energy stocks to watch. Its stock was more than $14 about a year ago but has dropped considerably, closing Oct. 7 at $2.45, down 21 cents on the day.

Ann Arbor, MI-based Kaydon (NYSE:KDN, http://www.kaydon.com/) makes parts such as custom bearings for windmills. In 2008 they built a manufacturing facility in Monterrey, Mexico devoted to servicing the wind energy industry. On Aug. 9 KDN was trading for $32.48. It closed Oct. 7 at $28.81, down 92 cents on the day. Its 52-week range is $26.45-$41.71.

St. Louis-based Zoltec Companies (Nasdaq :ZOLT, http://www.zoltec.com/) was also mentioned in the Investopedia article as another way to play the wind energy market. ZOLT makes carbon fibers used to reduce weight in turbine blades so they spin faster and recently won a $3.7 million grant from the US Department of Energy for carbine fiber research. Its stock closed at $5.93, down 28 cents on Oct. 7 but was a high as $16 in February.

Another way to play might be two ETFs that offer a group of wind energy companies to invest in. They include PowerShares Global Wind Energy (Nasdaq:PWND), which closed Oct. 7 at $7.09, down 15 cents (52-week range is $6.63-$11.76) and First Trust Global Wind Energy (NYSE: FAN) which closed Oct. 7 at $8.31, up 1 cent (52-week range is $7.59-$12.28).

Focus Is on the Future for Fuel Cell Followers

Remember when the fuel cell ruled the world of alternative energy? Remember visions of the hydrogen fuel cell-powered automobile? It seems like decades ago that companies like General Motors were talking about fuel cells, not lithium ion batteries, as the alternative energy of the future. Well, that was before the success of the Toyota Prius proved to the world’s automakers that batteries and hybrid vehicles were not only efficient but highly marketable.

Fuel cell lovers should not fret. The hydrogen fuel cell has not completely lost its luster in the world of automobiles, according to the Wall Street Journal. It may be down, and the Obama administration may want to cut spending on hydrogen technology by $70 million next year, but many experts believe that, ultimately, fuel cells will be the alternative of choice to replace fossil fuels. And car makers like Mercedes-Benz, Honda, Toyota and GM still have fuel cell-powered vehicles in planning stages. Mercedes promises to have a fuel cell car in production by 2015, according to the WSJ report.

The lure of hydrogen remains strong, according to the WSJ, because fuel cell technology, which combines oxygen from the air with hydrogen from the car to create electricity, has advantages:

  • Hydrogen-powered cars will be able to travel about 240 miles before refueling, compared to the about 100 miles for battery-powered electrical cars. 
  • It only takes about three minutes to refuel compared to much longer for plug-ins.
  • Fuel cells are more effective for bigger vehicles like SUVs or tractor-trailers.
  • Progress has been made in making fuel cells smaller; manufacturing costs are declining.

While some of the big name stocks (General Electric, United Technologies) are involved in the fuel cell business, several small cap companies remain focused on fuel cells in some capacity, including:

British Columbia-based Ballard Power Systems (Nasdaq: BLDP, http://www.ballard.com/) manufactures and sells fuel cells and fuel cell materials for the automobile and other markets. Revenue has been growing for Ballard (market cap now at $132 million), but the company still has a way to go to be profitable. The stock price ran up as high as $2.42 in April but has since dropped to about $1.56 with an average daily trading volume of 400,000 shares.

Danbury, CT-based FuelCell Energy Inc. (Nasdaq: FCEL, http://www.fuelcellenergy.com/) makes a variety of fuel cells and just received a $129 million order from POSCO Power, which is more than 1.5 times last year’s sales, according to The Motley Fool. That order, which came in late May, provided a jolt of energy for its stock, running the price up to $1.90 a share and it has been as high as $2.41 in the past year. It has since dropped down to $1.33.

New York-based Ener1 Inc. * (Nasdaq: HEV, http://www.ener1.com/) is focused on developing lithium ion batteries and battery systems, but also has a fuel cell subsidiary called EnerFuel. The idea is to ultimately create a hybrid system out of its fuel cell and lithium ion technologies for extended range electric vehicles or to provide back up power or point-of-use storage for homes and businesses. The stock has a 52-week range of $1.06 to $5.90 and is currently trading at about $1.13.

Lathan, NY-based Plug Power Inc. (Nasdaq: PLUG, http://www.plugpower.com/) manufactures fuel cell systems for industrial off-road markets and stationary power markets. The small ($30 million market cap) announced this week that it would supply 161 of its GenDrive fuel cells to Kroger for its fleet of electric lift trucks, which move products on facility floors. Also this week, Roth Capital cleantech analyst phillip Shen initated coverage of PLUG with a buy and a price target of $4. PLUG stock, which was as high as $9 in January, has dropped to $2.27.

* Denotes a client of Allen & Caron, publisher of this blog

1603 Babies: Another Year of Life

The so-called “lame duck” Congress has gotten itself into a productive fit over the last couple of weeks, and passed more important legislation than it had done all year long — much of it bipartisan.  In many ways nothing was more surprising than the action that preserved the “1603 Program” this morning.  Widely reported today, the 1603 Program (so-called because it was created as section 1603 of the American Recovery and Reinvestment Act of 2009 — or ARRA) will be extended by a year, allowing the clean and renewable energy industries to continue to be boosted by a 30% subsidy for qualifying projects.   Proponents of the program claim that it has been responsible for the creation of 100,000 jobs.  Here is a take on the news by Pete Danko of EarthTechling: http://www.earthtechling.com/2010/12/clean-energy-grants-get-another-year/.

Fellsmere FL large-scale Petroalgae R&D facility for algae-based fuels

The Treasury had doled out nearly half a billion dollars this year to solar projects alone: http://www.solarindustrymag.com/e107_plugins/content/content_lt.php?content.6920, and the support was very widespread, with 42 out of 50 states getting at least one grant.  Here is a brief summary from WilmerHale of the provisions of the program and related programs: http://www.wilmerhale.com/publications/whPubsDetail.aspx?publication=9682.

What does this mean for the renewables industry?  According to the American Wind Energy Association, the 1603 Program enabled the construction of 10,000 MW of new wind capacity in 2009, along with 10,000 construction jobs and 2,000 permanent jobs.  The solar industry grew by more than a third in 2009 and may grow by more than 50% in 2010 when the numbers are tallied: http://leadenergy.org/2010/12/the-importance-of-extending-the-1603-treasury-grant-program/.

What does that mean to investors?  Well, to begin with, many of the renewable-energy companies had seen their valuations whacked over the last several weeks as doubt mounted about whether 1603 would be extended.  So there may be some bounce-back profits to be made simply from that.  Look at the giants like First Solar (Nasdaq: FSLR; http://www.firstsolar.com/), whose shares have moved up nearly 10% over the last 2 weeks.  But since the trickle-down effect may not be either as fast or as efficient for the smaller companies and the supply chains, you may have more time to take a position.

Biomass

Biomass companies are definitely included in 1603 — and that includes companies that grow their own biomass (jatropha, algae) as well as companies that use decomposing waste to create fuels.  An article from Popular Mechanics talked about 5 of them: http://www.popularmechanics.com/science/energy/biofuel/4333722.  One of those is South San Francisco-based Solazyme (http://www.solazyme.com/company-profile), but the choice is not wide if you are looking for companies that trade on the stock markets.  The largest is Melbourne, FL-based Petroalgae Inc (EBB: PALG; http://www.petroalgae.com/), with a market cap of over $1.1 billion. 

Solar

 

Solar concentrator looking like a ferris wheel

There are as many solar companies as Arabian Nights in the story book, it seems, divided into those that make the gear (photovoltaic cells, thin film, solar concentrating devices, a myriad of different parts and pieces); those that install the gear, and those that generate electric power from the installations.  There seem to be many claimants for the title “Largest Solar Installation in the World,” but one of the most recent is due to be installed in the eastern Mojave desert near the California city of Blythe: http://www.renewable-energy-news.info/worlds-largest-solar-installation-blythe-ca/.  About 2 months earlier, First Solar announced its own “world’s biggest”: http://solarhbj.com/news/worlds-largest-solar-pv-power-plant-now-operating-in-ontario-canada-0989.  But the “dream team” solar project still has to be the electrification of the Sahara desert, even though it has no hope for 1603 funds: http://inhabitat.com/worlds-largest-solar-project-sahara-desert/

 
 
 
 
 

And pretty-made turbines all in a row (at sea)

Wind

Perhaps the most controversial renewable is one of the oldest: harnessing the wind.  When I was a kid I was taught that waterwheels and windmills were some of civilized man’s first non-combustible attempts to harness natural energy.  But as the applications have gotten bigger, the windmills and waterwheels have become gigantic — and some folks don’t like them one little bit.  The highest-profile new projects tend to be offshore these days, like the huge project planned for the area around Nantucket Island, described here: http://www.capewind.org/.  Wind farms are probably no larger than solar farms, but they stick up really high, and they create what some people see as visual pollution — “that big white thing with the rotating arms is ruining my view.”  Most of the big vendors are BIG, but there are a few smaller makers who might be good places to place a bet.  One is Irvine CA-based Composite Technology Corp (EBB: CPTC; http://www.compositetechcorp.com), founded in 1980, and with a market cap of about $66 million.  CPTC makes wind turbines for the electric utility industry, and so stands to be a fairly direct beneficiary of 1603.   Or there’s Hamburg-based REpower Systems AG (DAX: RPW; http://www.repower.de/), which just last week announced 51 additional MW for the US to be installed in PA, NY, OH and WA.  RPW is a much larger company, with a market cap in the range of 1.1 billion euros, and in the US there is an ADR, RPWSF.PK.

Hydro

Hydroelectric dam (best not to mention fish around them)

If there’s anything more picturesque than an old windmill (think Mykonos), it’s an old waterwheel, and if there’s anything more gargantuan than a big wind farm, it is the modern descendent of the waterwheel, a huge hydroelectric dam.  But if there is anything that is renewable it is mountain streams and the rivers they power, and from the time that Buffalo was electrified by Niagara Falls, the attempt to harness every fast-flowing river has been universal.  And when there are no fast-flowing rivers, we create artificial lakes to run the turbines.  Most big dams are owned or operated by utilities or groups of utilities, and many small dams are under the authority of the Army Corps of Engineers, with a popular estimate that there are 20,000 small dams in the US alone that do not yet generate any electric power. Thus the growing demand for what is called “small hydro” — miniturbines that can generate smaller amounts of electricity but that can also be installed with a minimum of environmental impact and capital expenditure: http://en.wikipedia.org/wiki/Small_hydro.  Earlier this year Russell Ray had a look at the regulatory and funding environment for small hydro: http://www.renewableenergyworld.com/rea/news/article/2010/04/regulating-small-hydro

It’s not easy to find a small hydro smallcap stock, because most of the hydroelectric stocks are big companies like Idacorp (NYSE: IDA) or AECOM Technology Corp (NYSE:ACM).  Smaller utilities in the northeast and northwest can be good places to look, and some very small nonpublic technology companies like Hydroring, a privately held Dutch company with an innovative “fish friendly” small turbine for riverine applications.  Very little data is available on Hydroring, based in The Hague, but there is a website at http://hydroring.nl/.

Storage: the 800-pound gorilla

One of the conundrums of renewables is that although they smile a lot, utilities frequently are not well-disposed toward renewables.  They present a lot of technological and cost problems.  They are frequently remote from the grid and very costly to build long lines to.  Talk to most utilities and you will quickly believe that the key to renewables is a way to store the energy generated until it is needed.  And that means batteries.  Some lithium-ion companies have major smart-grid initiatives underway, but they represent a super-expensive way to store wind-turbine energy.  Regular old lead-acid batteries are a heck of a lot cheaper, but they don’t charge up and charge down fast enough, and they wear out very quickly.  As with other areas of potential 1603 beneficiaries, there are a lot of energy storage companies, so you might look at NYC-based Ener1 Inc (Nasdaq: HEV; http://www.ener1.com/)  , which has a lot of Russian and Japanese lithium-ion technology know-how.  Another option would be Tyngsboro MA-based Beacon Power (Nasdaq: BCON; http://www.beaconpower.com/), which has a flywheel technology.  And the low-cost leader looks to be New Castle PA-based Axion Power International* (EBB: AXPW; http://www.axionpower.com), a company with a battery that is a relative of the lead-acid battery in your car, but turbocharged with nanocarbon to eliminate corrosion and increase the ability to charge/recharge.  It is worth saying that none of the 3 companies has been a mass manufacturer of their products to date, so all require due diligence with regard to their ability to scale up and serve the market.

*client of Allen & Caron, publisher of this blog.

Offshore Wind Energy Projects Generating a Buzz

Wind energy and its potential to power a large swath of the East Coast has generated a surge of news activity in recent weeks. First, in late September, conservation advocacy group Oceana released a study suggesting that offshore wind over the Atlantic Ocean could indeed power much of the East Coast and at the same time be much friendlier to the environment than other energy alternatives including natural gas, coal, oil or nuclear energy. The Oceana study (http://na.oceana.org/en/our-work/climate-energy/clean-energy/offshore-wind-report/report) came on the heels of a U.S. Department of Energy draft plan for creating a offshore wind energy program for the U.S.

Wind Turbines, photo courtesy of Western Wind Energy

Those studies were followed by a blockbuster New York Times piece on October 12 (http://www.nytimes.com/2010/10/12/science/earth/12wind.html?_r=1&scp=1&sq=matthew%20wald&st=cse) reporting that Google and two other companies, one a New York financial firm, have agreed to invest millions of dollars in a 350-mile underwater transmission “spine” cable along the Atlantic coast that would transfer the energy created by offshore wind turbines to what the Wall Street Journal estimated to be 1.9 million households along the East Coast from Virginia to New Jersey. Along with Google, the investment firm Good Energies and Marubeni, a Japanese trading company, have all agreed to invest in what is called the Atlantic Wind Connection.

As now envisioned, the five-phase project would begin in 2013, be completed in 2020 and be constructed 15 to 20 miles offshore, thereby eliminating much of the criticism of visual blight from the turbines that has plagued other high-profile wind turbine projects such as the country’s first offshore wind project called Cape Wind off Cape Cod.  The cable would have a 6,000 megawatt capacity, which The Times says is equal to the output of five large nuclear reactors.

Most experts agree that an offshore transmission line would spur the construction of various offshore wind farms since developers would not need to create their own individual transmission lines, according to the Journal story.

This has to be good news for the burgeoning smallcap companies involved in wind farms and turbines, but just who might capitalize is hard to say at this point. Here is a short list of some of those smallcaps:

Fergus Falls, MN-based Otter Tail Corporation (Nasdaq: OTTR, http://www.ottertail.com) is involved in wind energy transmission but is now focused soley on Minnesota and the Dakotas. The stock price ($21.27 this week) has rallied with the rest of the market since September but is still off its 52-week high of $52.39 set last January. Since wind energy is a small part of its business and its base is in the heartland, not the coast, this could be a stretch.

Vancouver-based Western Wind Energy (CDNX: WND.V, http://www.westernwindenergy.com) is also based far west of the Atlantic. It’s currently trading for about $1.20 but since it doesn’t trade on a U.S. exchange there is little news on progress. The last headline noted that the company had closed a $2 million corporate loan but otherwise there is not much to go on.

London-based Clipper Windpower (OTC: CRPWF.PK, http://www.clipperwind.com) is a pure wind energy play but is another small stock with very little trading. It seems to be sitting at about $0.78 with no recent activity. While it’s based overseas, it does have operations in the Americas.