Report: Investments in Smart Grid Technologies to Reach $200 Billion by 2015

New investments to so-called Smart Grid technologies to replace the current decades-old electrical grid technology will total $200 billion worldwide by 2015, according to a recent research report by Pike Research, a market research firm that specializes in global clean technology markets (http://www.pikeresearch.com/newsroom/smart-grid-investment-to-total-200-billion-worldwide-by-2015).  While smart meters are “the highest-profile component of the Smart Grid,” the investments will mostly go to “grid infrastructure projects including transmission upgrades, substation automation and distribution automation,” said Clink Wheelock, Pike’s managing director.

If accurate, that opens up a whole lot of potential revenue for a wide variety of companies large and small. Some of the bigs include Qualcomm, Duke Energy and JDS Uniphase, just to name a few. But several small caps are thriving in different niches of the market. Here are a few randomly chosen companies involved in this market.

Newton, MA-based Ambient Corporation (Nasdaq: AMBT, http://www.ambientcorp.com/) provides utilities with solutions for Smart Grid initiatives. It has designed a secure, flexible and scalable smart grid platform called the Ambient Smart Grid communications and applications platform. Ambient announced Oct. 4 that it was establishing a European subsidiary to focus on the “growing and vibrant” European market. AMBT has a market cap of $83 million and a 52-week trading range of $4-$9.75. It closed Oct. 9 at $4.89, down 11 cents on the day.

San Jose, CA-based Echelon Corporation (Nasdaq: ELON, http://www.echelon.com/) is an energy control networking company. Echelon technologies currently connect more than 35 million homes, 300,000 businesses and 100 million devices to the smart grid. ELON offers a wide variety of products focused on smart buildings, smart cities and the smart grid and it recently announced that two of its products were granted China State Grid approval. ELON’s market cap is currently $166 million and its 52-week trading range is $2.50-$7.43. It closed Oct. 9 at $3.88, down 5 cents on the day.

Irvine, CA-based Lantronix (Nasdaq: LTRX, http://www.lantronix.com/) makes products that make it possible to access and manage electronic products over the Internet or other networks. The company offers smart machine-to-machine connectivity solutions and other miscellaneous products that offer remote access, control and printing for data center, enterprise manufacturing, branch office and home applications. LTRX has a current market cap of $27 million and a 52-week trading range of $1.15-$3.40. It closed Oct. 9 at $1.82, down 12 cents for the day.

Calabasas, CA-based National Technical Systems * (Nasdaq: NTSC, http://www.nts.com/) is a diversified engineering services company, providing a wide range of testing and engineering services to the aerospace, defense, automotive, telecommunications and energy industries worldwide. NTSC now offers a comprehensive certification program for Smart Grid devices that includes areas identified by major utility companies as vital for new products in Smart Grid networks. NTSC’s market cap is now $86 million and its 52-week trading range is $4.02-$8.80. It closed Oct. 9 at $7.48, down 8 cents for the day.

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

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‘Try It, You’ll Like It’ Is Hope of Non-Profit Group Backing Plug-In Electric Vehicles

Much has been made about the relatively weak sales of electric and plug-in hybrid vehicles, particularly the Chevrolet Volt. The Volt received good reviews for its pep, its seamless operation and design when it first debuted in December 2010 (http://www.nytimes.com/2010/12/26/automobiles/autoreviews/26volt.html?pagewanted=all). But then it was priced at $41,000 (before a $7,500 federal tax credit) and initially sold in only six states (California, New York, New Jersey, Texas, Connecticut and Michigan) and Washington, DC. By last March, General Motors announced it would suspend production of the Volt for five weeks because inventory had built up faster than sales.

Many electric car/plug in hybrid advocates have suggested that the real reason car buyers are not choosing these

Chevy Volt photo courtesy about.com

vehicles is that they haven’t driven them. To that end, a nonprofit group called Plug In America has organized National Plug In Day on Sept. 23, a celebration taking place in 60 U.S. cities that allows people to drive these cars. Cars available for driving include the BMW ActiveE, Chevy Volt, Coda, Fisker Karma, Honda Fit EV, Mitsubishi iMiEV, Nissan Leaf, Plug In Prius, Tesla Roadster and Toyota Rav4 EV.

On Sept. 18, Pike Research issued a report tracking factors like age, race, gender and income, among other determinants, that indicate the likelihood of a North American consumer to buy a plug in electric vehicle (PEV). One of the most important indicators is geography and the report concluded that that state with the highest PEV sales for the remainder of this decade will be California. The report, titled “Electric Vehicle Geographic Forecasts,” notes that PEV sales “roughly correspond to population but other factors, including demographics, socioeconomics and public policy have a strong influence as well.” The report including an executive summary is available for free at the Pike Research website.

We last covered a random variety of small caps related to the PEV and hybrid automobile markets, including battery companies, last March.  Here’s a look at what has happened to these stocks in the meantime.

Santa Rosa, CA-based ZAP (OTC: ZAAP.OB, http://www.zapworld.com/) makes a variety of all-electric vehicles including trucks, motorcycles, shuttle buses and sedans and was formerly known as ZAPWORLD.COM. Most of its business at this point is with government or military customers. Its stock has been on a gradual downturn since it sold for 90 cents in early 2011. It sold for 20 cents last March 13 with a market cap of $45.25 million. ZAAP closed Sept. 19 at $0.13. Its market cap is now $38.7 million.

Waltham, MA-based A123 Systems (Nasdaq: AONE, http://www.a123systems.com/) makes lithium ion batteries based on its proprietary Nanophosphate technology. It stock was a high flier back in the fall of 2009 when it traded for about $26 but those days are long gone. Last March 13 the stock closed at $1.69. AONE closed Sept. 19 at $0.32 cents. and market cap is now $54.4 million.

Austin, TX-based Valence Technology Inc. (Nasdaq: VLNC, http://www.valence.com/) manufacturers energy systems based on another phosphate-based lithium ion technology. Its products are used in a variety of applications in addition to all-electric vehicles, such as wheelchairs, robotics and remote power devices. VLNC stock has come way down in value from $5 in 2008. Last March it traded for 88 cents and its market cap was $150 million. VLNC closed Sept. 19 at $0.019 with a market cap of $3.2 million. It is currently facing a variety of class action shareholder lawsuits.

San Diego-based Maxwell Technologies Inc. (Nasdaq: MXWL, http://www.maxwell.com/) was formerly known as Maxwell Laboratories. The company manufactures ultracapacitors that are energy storage devices and power delivery systems for use in transportation, automotive, IT and industrial electronics, as well as microelectronic products including single board computers and high-density memory and power modules for satellites and spacecraft applications. Last March 13 MXWL stock was trading near the top of its 52-week range at $18.69 with a market cap of $522 million. The stock took a hit when management cut back on its revenue guidance in August. MXWL closed Sept. 19 at $8.54, down 31 cents for the day. Its market cap is now $249 million.

San Carlos, CA-based Tesla Motors (Nasdaq: TSLA, http://www.teslamotors.com/) manufactures the Tesla Roadster and other electric vehicles and electric powertrain  components. Its market cap of $3.3 billion puts it out of our smallcap focus but its stock hit a 52-week high of $36.29 March 12, which put the stock up more than 30 percent in the past five months. By Sept. 19 it had dropped down to $31.05.

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).

Research Report: Wind Power Capacity to Triple by 2017

The wind energy industry may have experienced a slowdown in 2010, due largely to the recession, but the future remains healthy and overall wind power capacity is expected to “rise at a healthy pace” and triple by 2017. That’s among the conclusions contained in a comprehensive report prepared by Pike Research (http://www.pikeresearch.com/research/global-wind-energy-outlook).

When we last took a look at wind energy and smallcap companies in May, Google had just plunked down $55 million for a major wind farm venture in Central California, which directly followed Google’s $100 million investment in what is called the world’s biggest wind farm–the 845-megawatt Shepherds Flat Wind Farm now being built near Arlington, Oregon scheduled to be finished in 2012.

The Pike Research report includes a forecast that total wind generation capacity will jump from 194.3 gigawatts (GW) in 2010 to 562.9 GW by 2017 when wind power installations will be a $153 billion industry, compared to $56 billion in 2010. China, of course, is expected to continue to lead in wind energy deployment with Europe a technology leader and the most expansive explorer of offshore deployment.

While the future looks bright, according to Pike, the small caps we have been following were beaten down in early August, along with the rest of the market, until they joined the big rally on Aug. 9. 

Ann Arbor, MI-based Kaydon (NYSE:KDN, http://www.kaydon.com/), like many small caps recently, has seen its market cap drop from $1.2 billion in May to $989 million Aug. 8. The company 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. In 2010 the stock was trading for $45; in July its price was nearly $36. At the end of trading Aug. 8 KDN was trading for $30.60 but rebounded with the Aug. 9 rally to $32.48.

Fergus Falls, Minn-based Otter Tail Corp. (Nasdaq: OTTR, http://www.ottertail.com/) is an electric utility ($674 million market cap) that manufactures and markets wind towers and also distributes electricity in Minnesota, North Dakota and South Dakota. On May 25 the stock was trading at about $21.39. On Aug. 8, after dropping $1.28 on the day the market was pummeled in all directors, OTTR closed at $18.70. But it rallied on Aug. 9 to $21.44.

Canada-based Western Wind Energy (TSX:WNDEF.PK, http://www.westernwindenergy.com/) is a small company ($82 million market cap) that owns and operates wind and solar farms in Southern California and Arizona. About 15 months ago their thinly-traded shares were selling for $1.52 and the price hasn’t changed much since. In late May the shares were trading for $1.63. They largely escaped the market onslaught in early August and closed Aug. 9 at $1.39.

In our previous posts on wind power we have also mentioned two other non-U.S. companies. Japan’s Loopwing (http://www.loopwing.co.jp/) has created a design to greatly reduce vibration and noise compared to more traditional designs. And across the pond, privately-held, Suffolk-based Wind Power Ltd. (http://www.windpower.ltd.uk/) develops large scale vertical axis wind turbine technology. The company began as a small research group but now offers a range of products and services

The LA Auto Show, Hybrids, and a Bit on Micro & Mild Hybrids

What makes this year different from all others at the LA Auto Show, which runs December 4-13?  Well, for starters, there are 49(!) hybrids and alternative-energy models being shown (http://www.laautoshow.com/AlternativeFuelVehicles.aspx).  The Auto Show’s website lists the following automakers as showing such vehicles: Audi, BMW, Cadillac, Chevrolet, Fisker, Ford, GMC, Honda, Lexus, Lincoln, Mercedes-Benz, Mercury, Mitsubishi, Porsche, Subaru, Toyota and Volkswagen.   For once US carmakers were getting a lot of the buzz; people are talking about the Ford Fiesta and the Chevy Volt of course.

Fisker Karma -- being shown at LA Auto Show

And then there is the keynote address, delivered by GM’s Bob Lutz, who said, in part, At GM, we deeply believe that, in an energy-constrained world marked by dramatic growth in developing markets, it is critical that the global automotive industry – as a business necessity and as an obligation to society – develop alternative sources of propulsion based on diverse sources of energy. … Going forward, the automobile industry simply can no longer rely on oil to supply 98 percent of the world’s automotive energy requirements.” (quoted in AutoBlogGreen’s coverage by Sebastian Blanco: http://green.autoblog.com/2009/12/03/la-2009-bob-lutz-keynote-the-automobile-industry-simply-can-n/).

Bob Lutz -- Keynote Speaker at LA Auto Show

At the same time, GreenCarCongress reports that Pike Research has predicted 10-fold growth in lithium-ion batteries by 2015, up from $878 million to $8 billion annually in that period.  That is in spite of the novelty and relatively untried technology involved.  They quote John Gartner, the senior Pike analyst as saying: “Just as Li-ion batteries are relatively untested in real-world transportation applications, plug-in hybrid and all-electric vehicles are an unknown as a mass consumer offering. ” (http://www.greencarcongress.com/2009/12/pike-liion-20091203.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+greencarcongress%2FTrBK+%28Green+Car+Congress%29)

That constitutes quite a leap of faith, especially when at the same LA Auto Show, the “Green Car of the Year” (as named by a panel of experts and Green Car Journal) is not a hybrid but a diesel: the Audi A3 TDI.  According to Wired Autopia, “The A3 diesel is powered by a 2.0-liter direct-injection turbocharged engine that puts down 140 horsepower. It delivers 30 mpg in the city and 42 on the highway.”  (http://www.wired.com/autopia/2009/12/audi_a3_tdi_green_car_of_the_year/?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+wired%2Findex+%28Wired%3A+Index+3+%28Top+Stories+2%29%29)

Green Car of the Year -- Audi A3 TDI

 At the same time, there may be a growing consensus, at least in Europe, that the bridge from oil-powered to electric vehicles (BEV, PEV, EV, whatever you call them) may well be what are called “micro” or “mild” hybrids, rather than what the public knows as Prius-type HEVs.  That would not sit well with the lithium-ion crowd, because it’s unlikely that micro and mild hybrids will be made using li-ion batteries, which do seem to be the current candidate for pure EVs, although as we reported recently, the Nissan Leaf, set for introduction in 2015, will use a more exotic battery with a new-fangled cathode: lithium nickel manganese cobalt oxide, referred to as a Nissan Super Battery.

In fact, most micro and mild hybrids today are using a variation of the traditional lead-acid battery, variously called a VRLA or AGM battery — much less expensive than a comparable NiMH or Li-ion version.  Interestingly the micro and mild hybrids can achieve pretty good improvements on mileage and on carbon emissions, which is the key to the technology.  The EU has carbon limits it will impose, backed by draconian fines on automakers, on 2012 fleets.  Those limits can be reached with full hybrids like those being shown in LA, or with EVs like the US-based privately held Fisker and Tesla vehicles, or the Norwegian Th!nk Electric mini-cars, and a variety of other fairly uncommon passenger vehicles.  The EVs have no carbon emissions at all, so they are a bull’s-eye for carmakers looking to comply with the 2012 bogey.  And, as we reported recently, there are several candidates for no-emission winners among commercial vehicles.

According to some estimates,  10-13 million vehicles will be outfitted as micro hybrids within a couple of years, affording improvements in carbon emission or mpg of up to 15%.  A micro hybrid assembly assists the gas-driven engine only (there is no electric drive train, and they never power the car solo), and some use the friction of regenerative braking to recharge themselves.  On the other hand, they are mostly a drop-in or clip-on technology that is relatively easy for a carmaker to implement.  Mild hybrids, which offer even more efficiency, may follow along behind, but are anticipated to be slower off the block than the micro assemblies.

The sticking point is the energy storage device.  Even “advanced” lead-acid batteries face classic problems: corrosion and sulfation on the poles, slow re-charging, and limited life expectancy.  All the newer, more exotic batteries face cost issues, and some may face safety issues as well.  What is needed is a battery that combines the cost and easy of manufacturing of lead-acid with the better performance characteristics of higher-priced batteries.  The difference may lie with a relatively cheap ultracapacitor: carbon.

Several companies have been developing lead-acid batteries with new, potentially game-changing technologies.  Peoria IL-based privately held Firefly Energy (http://www.fireflyenergy.com) offers its Microcell(TM) foam grid technology.  With a strong scientific background, the Firefly battery is being tested by the US Army and by a small number of others, but does not seem to be in mass production.  Lyon Station PA-based privately held East Penn Manufacturing (http://www.eastpenn-deka.com) , a major supplier of lead acid batteries) is working with Japanese developer Furukawa on an UltraBattery with an enhanced negative electrode that also seems not to be ready for prime time yet.  And New Castle PA-based Axion Power International* (OTCBB: AXPW; http://www.axionpower.com) has introduced its PbC battery technology, being commercialized in a supply agreement with global battery giant, Alpharetta GA-based Exide Technologies (Nasdaq: XIDE, http://www.exide.com/).  The PbC battery may be the closest to the finish line with a multi-patented nanocarbon electrode that maximizes performance and minimizes lead-acid downsides such as corrosion and sulfation, while preserving its price advantage and ease of manufacturing and recycling.   One of these may be the winner of the micro hybrid sweepstakes.

Meanwhile, the King of the Hybrids, Toyota, is showing the 2010 Prius at the LA Auto Show — this time with a Panasonic lithium-ion battery instead of the NiMH batteries of the first two generations of Prius (http://www.greencarcongress.com/2009/12/prius-phv-20091202.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+greencarcongress%2FTrBK+%28Green+Car+Congress%29).  Hyundai is showing the 2011 Sonata hybrid, with its own li-ion battery pack (http://www.greencarcongress.com/2009/12/hyundai-introduces-2011-sonata-at-la-auto-show-with-4cylinder-gdi-engine-gdi-turbo-and-hybrid-powert.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+greencarcongress%2FTrBK+%28Green+Car+Congress%29). 

At the LA Auto Show it is clearly the Year of the Hybrid, and it is clearly the year of the Asian-made li-ion battery, which must be a bit of a trial for the US-based li-ion giants: Johnson Controls/Saft, Ener1 Inc, and A123 Systems.  Go see all the hybrids, see the future of vehicle transportation — and have fun!

Please do your own diligence before buying stocks — we don’t make recommendations; we just write on interesting companies.

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