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.

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A Week’s Worth of News Items from the Alternative Energy Front

There was a scattershot of interesting news this week on the alternative energy front. A sampling includes:

  • A123, a lithium-ion battery maker characterized as “shaky” in a New York Timesheadline this week because it

    Chevrolet Spark photo courtesy of leasetrader.com

    has been running short of money, recalling batteries and has failed to complete its new Livonia, MI factory, announced on June 12 a “breakthrough” in its technology which the Times said could “well determine the fate” of the company. The breakthrough is “a new chemistry that could permit the creation of a simpler, lighter, longer lasting battery pack that does not require a system to cool or heat it.” (http://www.nytimes.com/2012/06/12/business/energy-environment/a123-us-backed-battery-maker-claims-breakthrough.html?ref=a123systemsinc). General Motors still believes in A123 and selected it to supply the batteries for the all-electric Chevrolet Spark minicar expected to debut in 2013. A123 traded for 98 cents on June 8 and closed June 15 at $.

  • As usual, there was good news and bad news for the solar panel business. The good news, as reported in the Wall Street Journal, citing a study released June 12 by the Solar Energies Industry Association and GTM Research: The market for solar panels in the U.S. should double in 2012. About 3,300 megawatts of solar panels are expected to be installed in 2012, making the U.S. the world’s fourth largest with a 11 percent share of the global market, according to the WSJ. The bad news: the new tariff is expected to be installed on panels imported from China will slow growth in 2013.
  • Also on the solar energy front, the California Energy Commission unanimously approved new guidelines requiring new homes and commercial buildings to have “solar ready roofs.” That doesn’t mean the roofs will all need to have solar panels installed, only that they need to be designed to accommodate a solar power system installation.  According to reports on AOL.com, citing the Los Angeles Times and the Sacramento Bee, the new rule won “begrudging approval” from the commercial building industry, but was applauded by utilities and environmental groups.
  • Because a federal tax credit that subsidizes the wind industry is expected to end at the close of 2012, many of the small companies in the various facets of the wind turbine industries (makers of towers, blades, gearboxes, etc) could find themselves in dire straits, according to Bloomberg BusinessWeek. The story cites a report by the American Wind Energy Association that suggests an estimated 10,000 workers in the U.S. will be terminated “in anticipation of the slowdown,” according to the story. GE, the market leader in the wind energy business, is already closely scrutinizing its business partners to see which might be winners or losers that won’t be around next year.

We have covered both solar power and wind power in recent weeks. Looking back at the companies we mentioned, here are the biggest gainers in each since we last checked:

For wind power, which we last covered on June 1, the winner is St. Louis-based Zoltec Companies (Nasdaq :ZOLT, http://www.zoltek.com/ which makes carbon fibers used to reduce weight in turbine blades so they spin faster. ZOLT closed at $7.95 on June 1 but then moved up to close at $8.36 on June 15. 

For solar power, which we last covered on May 18, the winner is Ontario, Canada-based Canadian Solar (Nasdaq: CSIQ, http://www.canadian-solar.com/ ), which sells a variety of solar products. Last summer CSIQ traded for over $12 but by late August it had dropped to about $6.75. It closed May 18 at $2.70, down 25 cents on the day. On June 15 it cloased at $3,49, up 22 cents on the day. Its market cap has jumped from $117 million to almost $151 million.

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.