AlternativeEnergyandTech

Can Investors Recover Faith In Energy Recovery?

Sun, 13 Aug 2017 16:16:12 +0000

by Debra Fiakas CFA

Despite reporting the highest gross profit margin in Energy Recovery's (ERII: Nasdaq) history, investors were sorely disappointed with financial results in the Company’s second quarter ending June 2017. On the first day of trading following the earnings release the share price gapped downward and closed even lower under above average trading volume. This is likely because there was some expectation that Energy Recovery could finally report a net profit in the quarter as sales of the Company’s flagship PX Pressure Exchanger to the desalination market had appeared to pick up in recent months. Unfortunately the Company reported a net loss of $500,000 or $0.01 per share on $12.2 million in total sales.

During the earnings conference call management took some pains to defend its business model focused on successive product innovations based on the Company’s core pressure exchange technology. The plan has been under execution for several years now with the first example in the VorTeq hydraulic fracturing system for use in pumping fleets at oil or gas wells. The VorTeq was expected to gain rapid acceptance in the oil and gas industry that experiences high costs and frequent delays with conventional hydraulic facturing systems. The VorTeq hydraulic pumping system is designed extend the life of pumps by re-routing the abrasive proppants away from the high-pressure pumps and allowing only pure water to touch the pump.

In October 2015, Schlumberger (SLB: NYSE), a leader in the oil and gas servicing sector, licensed the technology VorTeq technology, but has yet to place units in the market. Energy Recovery has had to make design changes to the VorTeq in order to deal with vibration problems that surfaced as Schlumberger and Energy Recovery tested a prototype system. Energy Recovery has been working with a leading value designer Kemper Value and Fittings Corporation (division of Caterpillar; CAT: NYSE) to develop a second generation manifold for the VorTeq. The company has also made improvements to the ceramic cartridge that is the key to proppant-water separation. Full-scale testing of the improved VorTeq is scheduled for the month of October 2017. Management still expects to meet milestones set down in this agreement with Schlumberger before the end of 2017.

The effort has given rise to yet another product featuring Energy Recovery’s pressure pumping technology that is called MTeq. The oil and gas recovery involves is a messy business especially when using a process called ‘mud pumping’. Drilling mud is circulated from a mud pit through the well borehole to lubricate the drill bit and clean-up cuttings. Conventional pumping equipment is subject to extreme wear as drilling mud with debris and sand comes in contact with the pumps. MTeq serves as a barrier between the mud pit and the hydraulic pumps, extending the life of the expensive pumping system.

Energy Recovery has as high hopes for the potential of the MTeq to revolutionize oil and gas well operations - the same kind of promotion that accompanied introduction of the VorTeq system. The apparent endorsement of the VorTeq by Schlumberger sent Energy Recovery’s stock to historic high prices in the year 2016. The delay in reaching the market with the VorTeq has left investors a bit more cautious relative to the MTeq.

The shares sank even further in the final day of trading this week, plunging into oversold territory. We believe a candlestick chart for ERII provides key insight into current sentiment toward this perennially struggling energy technology company. The candlestick that formed up in trading today resembles a cross with no body and long upper and lower shadows. This candlestick results when neither the bullish nor bearish view is able to dominate the day even as there is buying that drives the stock above the open as well as selling that drives the stock in the opposite direction below the open. The stalemate suggests that the bearish view that had tried to take over immediately following the earnings report is well matched by continued interest in the Company. The stock set a new 52-week low in the most recent day of trading and that must have been compelling for investors with a long-term view on Energy Recovery’s underlying pressure pump technology.

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.

Ten Clean Energy Stocks For 2017: Summer Harvest

Mon, 07 Aug 2017 14:16:37 +0000

Tom Konrad Ph.D., CFA

Colossal Fossil Failure

With a president actively hostile towards renewable energy and focused on promoting fossil fuels, it would be easy to think that clean energy stocks would underperform their fossil cousins. The exact opposite has been true. Despite the administrations' efforts and tweets bragging about new highs for the Dow, energy funds are down over 10% for the year. For example, the Energy Select Sector SPDR (XLE), largely composed of oil and gas companies, is down 13% for the year. The tiny coal sector did better, with the VanEck Vectors Coal ETF up 18%.

Even so, Trump's favorite industry was behind the one he seems to hate the most, clean energy. The broadly held Clean Energy ETF (PBW) which I use as a benchmark for my growth stock picks is up 24% year to date, which my clean energy income stock benchmark (the Yieldco ETF YLCO) is up 20%.

Perhaps this administrations' ineffectiveness is simply the result of the chaos resulting from the many investigations into the possible corrupt practices that may have helped bring this administration into power. Or perhaps the media spotlight has helped the solar and wind industries bring the message to a broad audience that solar, wind and energy efficiency are the most cost effective energy resources. The President can remove environmental regulations and allow coal companies to increase their profits from existing plants and the expense of citizens' health, but he can't make new coal plants more economic than solar and wind, no matter how many regulations he removes. Wind and solar have simply come too far for a mature technology like coal to catch up.

In short, the President may brag about the stock market, be his efforts have little to do with its actual performance.

While clean energy has been doing well, and my Ten Clean Energy Stocks model portfolio has been doing better. For the year to July 31st, the portfolio is up 24.7% compared to 20.8% for its benchmark. The success has been driven by the core eight income stocks (up 24.8% vs 19.6% for YLCO.) My real managed Green Global Equity Income Portfolio (GGEIP) is up 19.9%, slightly ahead of the same benchmark. My two growth picks are up 22.2%, closing in on their benchmark PBW at 23.8%.

See the chart below for detailed performance over the two months since the May 31st update.

Stock discussion

Income Stocks

Pattern Energy Group (NASD:PEGI)

12/31/16 Price: $18.99. Annual Dividend: $1.63 (8.6%). Expected 2017 dividend: $1.64 to $1.67. Low Target: $18. High Target: $30.
7/31/17 Price: $25.10. YTD Dividend: $0.832 (4.4%). Annualized Dividend: $1.655. YTD Total Return: 37.3%

Wind-focused Yieldco Pattern Energy Group made a strong 13% gain in June and July without any significant news.

This move is mostly in line with other Yieldcos, most of which made gains for the two months. The Yieldco ETF (YLCO) was up 7%. I believe this trend is mostly due to the market realizing that the Trump administration can do little to undermine Yieldco profitability, combined with a return to more normal valuations in the wake of the 2015 Yieldco bust. Pattern's somewhat stronger move compared to other Yieldcos is most likely a function of better valuation.

8point3 Energy Partners (NASD:CAFD)
12/31/16 Price: $12.98. Annual Dividend: $1.00 (7.7%). Expected 2017 dividend: $1.00 to $1.05. Low Target: $10. High Target: $20.
7/31/17 Price: $14.75. YTD Dividend: $0.521 (4.0%) Annualized Dividend: $1.04. YTD Total Return: 17.9%

8point3 Energy Partners gained 10% for the two months, also ahead of the average Yieldco. This is most likely due to its relatively high dividend yield.

I believe that 8point3 is somewhat overvalued at the current price. Both its parent companies, First Solar (FSLR) and SunPower (SPWR) have said that they want to sell their stakes, and an examination of the Yieldco's financials leads me to believe that they are unlikely to find a buyer for more than $13 a share. If they can't find a buyer, I believe that 8point3 will be forced to drastically cut its dividend in the next one to three years, a move which will almost certainly send the share price tumbling.

I have sold my position in CAFD and sold short calls on the stock.

Hannon Armstrong Sustainable Infrastructure (NYSE:HASI).

12/31/16 Price: $18.99. Annual Dividend: $1.32 (7.0%). Expected 2017 dividend: $1.34 to $1.36. Low Target: $15. High Target: $30.
75/31/17 Price: $23.25. YTD Dividend: $0.66 (3.5%). Annualized Dividend: $1.32. YTD Total Return: 26.0%

Sustainable infrastructure and clean energy financier Hannon Armstrong continued to advance over the last two months. On August 3rd, it announced solid second quarter results slightly ahead of analysts' forecasts, and continued its slow advance. Its 34 cents of core earnings for the quarter topped its current dividend of 33 cents. This is significant because HASI has a target of paying out 100% of core earnings as dividends over the course of a year.

Given the core earnings growth trend, I expect the company to raise its quarterly dividend to at least 35 cents per share in December. Previously, my low end estimate was 34 cents. My high end estimate remains at 37 cents per share.

NRG Yield, A shares (NYSE:NYLD/A)

12/31/16 Price: $15.36. Annual Dividend: $1.00 (6.5%). Expected 2017 dividend: $1.00 to $1.10. Low Target: $12. High Target: $25.
7/31/17 Price: $18.23. YTD Dividend: $0.53 (2.6%). Annualized Dividend: $1.08. YTD Total Return: 22.4%

In July, Yieldco NRG Yield's (NYLD and NYLD/A) parent, NRG Energy (NRG), announced that it was looking for a buyer for its stake. NRG Yield's stock rose on the news, but at the current price of $18, I don't expect that there is much room for a buyer to pay a premium. Using a similar methodology as I used for 8point3, I estimate that a buyer should be willing to pay between $15 and $21 per share for 8point3, based on my estimate of sustainable CAFD per share of approximately $1.50 to $1.70.

Atlantica Yield, PLC (NASD:ABY)
12/31/16 Price: $19.35. Annual Dividend: $0.65 (3.4%). Expected 2017 dividend: $0.65 to $1.45. Low Target: $10. High Target: $30.
7/31/17 Price: $21.61. YTD Dividend: $0.25 (2.6%). Annualized Dividend: $1.00. YTD Total Return: 14.4%

Atlantica Yield did not participate fully in the general Yieldco rally, gaining only 3.5% over the two month period. The company continues to be held back by the delay in obtaining a waiver from the creditors of its ACT cogeneration power station in Mexico. The plant itself has been performing well, according to the Yieldco's second quarter earnings release on August 3rd. The company also announced a quarterly dividend increase to $0.26 "reflecting a positive outlook regarding the resolution of some of our last remaining waivers."

I like Atlanica's cautious approach with its dividend, which allows the company to retain cash and make small acquisitions like a 4 MW mini-hydro plant in Peru on July 20th, despite the company's current depressed stock price. I was hopeful, however, that Atlantica would have obtained the necessary waivers by this point, and increased the dividend much further.

NextEra Energy Partners (NYSE:NEP)
12/31/16 Price: $25.54. Annual Dividend: $1.36 (5.3%). Expected 2017 dividend: $1.38 to $1.50. Low Target: $20. High Target: $40.
7/31/17 Price: $41.22. YTD Dividend: $0.718 (2.8%). Annualized Dividend: $1.52. YTD Total Return: 65.0%

NextEra Energy Partners continues to be the star of the Yieldco space, and has now reached a point where it should be able to fund acquisitions with secondary offerings of stock. As long as investors are willing to buy more shares at its current yield of below 4%, NEP should be able to maintain its target annual per share dividend growth of 12% to 15%.

I personally prefer Yieldcos with higher current yields and lower growth prospects, and so have been taking profits on my position.

I am happy to see NEP's share price recovery, and not just because of the capital gains. The long term dividend growth NextEra Energy Partners hopes to deliver will require the purchase of ever larger numbers of clean energy projects, or even entire Yieldcos. This renewed appetite for clean energy projects will lower the capital costs for future wind and solar farms, increasing the number that will be built.

Other Income Stocks

Covanta Holding Corp. (NYSE:CVA)
12/31/16 Price: $15.60. Annual Dividend: $1.00 (6.4%). Expected 2017 dividend: $1.00 to $1.06. Low Target: $10. High Target: $30.
7/31/17 Price: $15.10. YTD Dividend: $0.50 (3.2%) Annualized Dividend: $1.00. YTD Total Return: 0.2%

Waste-to-energy developer and operator Covanta reported strong second quarter results on July 27th. The company reported a strong waste disposal market. Covanta President and CEO called it a "good time to be a waste company" on the conference call. Revenue per ton increased 3.3% year over year. The company also expects increases in the prices it will get for recycled metals because of a new sorting facility. The one sour note was continued weakness in energy markets.

With the completion of company's new Dublin Facility to be financed entirely with non-recourse debt, Covanta expects to begin to pay down debt towards the end of the year.

The market liked what it heard, reversing a 9% decline in June with a 14% increase in July.

Seaspan Corporation, Series G Preferred (NYSE:SSW-PRG)

12/31/16 Price: $19.94. Annual Dividend: $2.05 (10.3%). Expected 2017 dividend: $2.05. Low Target: $18. High Target: $27.
7/31/17 Price: $22.26. YTD Dividend: $1.53 (7.7%). Annualized Dividend: $2.05. YTD Total Return: 19.4%

Leading independent charter owner of container ships Seaspan reported second quarter results on August first. The market for container ship leases continues to improve, as does Seaspan's balance sheet. The company paid down $147 million in net debt over the quarter, in part ($34 million) financed by the issuance of new common shares. For holders of the preferred stock, this is unadulterated good news, since we suffer no dilution from the new common stock (which is junior to preferred) but still gain from the stronger balance sheet.

Growth Stocks

MiX Telematics Limited (NASD:MIXT).
12/31/16 Price: $6.19. Annual Dividend: $0.14 (2.3%). Expected 2017 dividend: $0.14 to $0.16. Low Target: $4. High Target: $15.
7/31/17 Price: $8.14. YTD Dividend: $0.076 (1.2%). Annualized Dividend: $0.14. YTD Total Return: 32.8%

Vehicle and fleet management software as a service provider MiX Telematics reported quarterly results on August 3rd, with subscriber growth running ahead of expectations. The company also raised its quarterly dividend by 25%. As CEO Stephan Joselowitz put it, "the company has reached an inflection point in regards to margin accretion, particularly as MiX is moving out of a heavy investment cycle into a phase where we are starting to enjoy the returns on these investments."

Shareholders should buckle their seat-belts and continue to enjoy the ride.

Aspen Aerogels (NYSE:ASPN)

12/31/16 Price: $4.13. Annual Dividend and expected 2017 dividend: None. Low Target: $3. High Target: $10.
7/31/17 Price: $4.61. YTD Total Return: 11.6%

In recent updates, I've predicted that aerogel insulation manufacturer Aspen's stock would underperform, although I maintained a positive long term outlook. In fact, it has been in a slow rising trend, even if it was a little slower than clean energy stocks in general. On August 3rd, Aspen reported second quarter results, and the market reacted positively to the improving (if still weak) business fundamentals.

For me, it looks like Aspen will likely be "the one that got away," but I will continue to monitor the stock for readers who did not sell at the bottom, as I did.

My Trades

I've added to my positions in Seaspan Preferred and Covanta in the last two months. I have reduced my effective position in NRG Yield (and taken some profits) by selling covered calls. I've increased my short position in 8point3 by selling uncovered calls.

Final Thoughts

Although the economics of clean energy are strong, recent stock market highs, the likely slow increase in interest rates, and political uncertainty make the stock market a risky place to be right now. While I am skeptical about the sustainability of 8point3's dividend, my short calls on the stock also serve the function of partially hedging my investments in other Yieldcos.

Despite (or because of) the recent gains in the market and clean energy stocks, now seems a good time to invest cautiously.

Disclosure: Long HASI, MIXT, PEGI, NYLD/A, CVA, ABY, NEP, SSW-PRG, ASPN, GLBL, TERP. Long puts on SSW (an effective short position held as a hedge on SSW-PRG. Short calls on CAFD.)

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.

Corbion Bids To Acquire TerraVia

Fri, 04 Aug 2017 16:50:06 +0000

In California, Corbion has made a $20M stalking horse stock and asset purchase bid for TerraVia (TRVA).

The purchase agreement provides TerraVia with a binding bid of $20 million in cash along with the assumption of certain liabilities, which is subject to higher or otherwise better offers. As part of the transaction, Corbion will be assuming the ongoing financial obligations of the business and its joint venture ownership, therefore the total financial commitment is expected to be in excess of the cash purchase price. Through this proposed transaction, TerraVia employees, who bring with them a wide range of highly valued skills and expertise, together with its customers, have an opportunity to benefit from joining a global leader in its markets.

The bidding process

To facilitate the bidding process, TerraVia and its wholly owned U.S. subsidiaries have filed Chapter 11 reorganization. Pursuant to section 363 of the Bankruptcy Code, TerraVia intends to implement bidding procedures to allow other qualified bidders the opportunity to submit bids through a court-supervised process to purchase certain or all of the assets being sold. TerraVia anticipates that a sale will be completed within 60 to 90 days.

Interim financing

In addition, TerraVia also announced that it has received a commitment for debtor-in-possession (DIP) financing from holders of approximately 63% of the outstanding principal amount of its senior unsecured convertible notes. The DIP financing will be used to finance the working capital needs of TerraVia’s business through the completion of the sale transaction and to support payments to vendors for post-petition purchases in the ordinary course.

The DIP financing announced today provides the necessary financing to support continued operations and TerraVia’s ability to service customer demand, while the Section 363 bankruptcy restructuring process provides the tools to execute an expedited and orderly strategic transaction. This process will create a level playing field for all interested bidders to compete to provide the highest or otherwise best offer for certain or all of TerraVia’s assets.

The company going forward

The chapter 11 cases and the sale process should have no material impact on TerraVia’s ability to fulfill its obligations to its customers and employees going forward. TerraVia has filed a series of motions with the Bankruptcy Court requesting authority to continue normal operations, including requesting Bankruptcy Court authority to continue paying employee wages and salaries, certain vendors and customer obligations in the ordinary course without interruption.

The Solazyme-TerraVia backstory

“We make oils” said the prospectus for the old Solazyme when it completed its celebrated IPO five years ago, pledging to transform the market for oils through the power of algae to make them. The company subsequently ratcheted its focus down to speciality ingredients and nutrition — but that’s been typical of almost every algae-based venture, most of which long abandoned the fuels and big chemicals markets in a search for price points that were more reachable in the near-term.

Solazyme transformed itself far more than others — renaming the company and focusing solely on nutrition. That move generally felt like a Hail Mary to raise fresh money when interest in industrials collapsed with the fall of oil prices in 2014-15.

We last looked at TerraVia in depth during April, in our “TerraVia in the Wilderness Years” column. At the time we noted:

How much clock does TerraVia have? With a “going concern” warning and a debt re-org on the menu for this year, it’s far from dire but equally far from “you have lots of time”. TerraVia will have to find it’s mojo soon if it to remain independent, we suspect. 2017 appears to be the year.

The momentum the company is detailing in releases is not yet translating into financial results — that’s for sure. The good news? The [most recent quarterly] results were in line with the painful corporate guidance in the Q3 call with investors and analysts. The bad news? The company’s auditors inserted a “going concern” notice into the company’s 2016 annual report.

We also noted:

It’s been rough going for TerraVia in recent weeks. The company announced a painful round of layoffs — 25 percent of the company’s workforce, which had already been substantially reduced in the past two years. And the company suspended operations at its Peoria, Illinois demonstration-scale facility, and said it was seeking “strategic opportunities to partner its AlgaVia line of products” — which of course could range from a joint venture to an outright sale of the brands (while retaining perhaps a manufacturing contract).

The product portfolio today

The company earlier this year had six active products in “food & nutrition” and one in “speciality ingredients” – the latter generally refers to the AlgaPur range of specialty personal care oils including Capric, Lauric and Oleic-based oils — and Unilever is currently AlgaPur high lauric oil in certain of its soap brands.

Two of those products under the AlgaVia brand are in the “seeking partner” shelf at the moment. Leaving the company with its DHA, it’s AlgaWise Omega-9 algae oil, the thrive Culinary Algal Oil (launched in 2015) and the afore-mentioned AlgaWise algae butter.

There is a pipeline of “additional products we expect to launch in the food, nutrition and specialty ingredients markets in 2017 and 2018” and on those really will rest the fate of the company’s painful and wrenching shift of company name from Solazyme to TerraVia. After all, AlgaPur is essentially a carryover from Solazyme days, Thrive was launched during that period as well, and since there are a half-dozen companies at least in the algae space focused on nutritionals without changing identity — in many ways it comes down, for now, to AlgaWise butter. That’s been the fruit, so far, of the a titanic identity shift last year and an refocusing of the brand onto nutrition. Butter is a $4.4 billion market and a price point around $4400 per ton, so there’s room for encouragement and that may well be what Corbion sees.

What Corbion is getting

There’s lots for Corbion to like — after all, the company is focused on food, biochemicals, bioplastics, and biomedicals — so there’s plenty of cross-over, and Corbion has been looking at more advanced technologies. We expect that the TerraVia name will be swiftly retired — but some reasonably established brands will go on — especially the AlgaPur relationship with Unilever.

Getting in on the auction of the assets

This is a stalking-horse bid for the company — the price could go higher and the acquiror could change. We’ll know all within 60 to 90 days. Meanwhile, interested bidders “are encouraged to contact, as soon as practicable” the Rothschild team — that’s Nicholas Barnes or Tero Jänne at (212) 403 3500.

Jim LaneJim 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.

How Much Could Another Yieldco Pay For 8point3?

Wed, 02 Aug 2017 21:37:30 +0000

by Tom Konrad Ph.D., CFA

When SunPower (SPWR) and First Solar's (FSLR) YieldCo, 8point3 Energy Partners (CAFD), went public two years ago, I used the financial nerd joke in 8point3's ticker symbol as a launching point to explain what "cash available for distribution," or CAFD, means.

In that article, I cautioned against the risks of using a short-term cash flow measure for long-term investing decisions. That risk is becoming more and more real for investors in 8point3 because the YieldCo is using short-term, interest-only financing to fund its long-term investments.

All of 8point3's debt matures in 2020, and refinancing that debt will reduce its ability to pay dividends for two reasons. First, interest rates are rising, which will lead to higher interest payments. Second, if the YieldCo is unable to secure interest-only debt, it will have to refinance with amortizing debt. The principal payments from amortizing debt will further reduce CAFD.

First Solar and SunPower are also considering a sale of the company. The better-capitalized YieldCo NextEra Energy Partners (NEP) has been mentioned as a possible buyer.

If another YieldCo were to buy 8point3, it would do so at a price that allowed it to raise its own dividend. This is the same yardstick YieldCos use when evaluating the effects of buying renewable energy projects from their sponsors or third parties. If a transaction will not increase a YieldCo's CAFD per share (preferably significantly), it will not do the transaction. This rule applies to both individual projects and large transactions like purchasing another YieldCo like 8point3.

A somewhat naive version of this rule would be that a YieldCo with a low dividend should be able to purchase a YieldCo with a higher dividend. Unfortunately, it's more complicated than that. Here's why.

1. Declared dividends are not the same as a YieldCo's ability to pay dividends. Different YieldCos have different payout ratios (the proportion of CAFD that they distribute as dividends). Naturally, an acquirer will keep its own dividend policy when acquiring another YieldCo, and so the value of the acquired YieldCo will depend on its CAFD, not the proportion of CAFD it has chosen to pay as dividends before the acquisition.

2. CAFD is what is called a non-GAAP measure, meaning that it is not defined by generally accepted accounting principles (GAAP). As such, different YieldCos do not use the same definition of CAFD, and some are quite aggressive in how they define it. This can lead to declared CAFD that is higher than the YieldCo's ability to pay dividends in the medium to long term. Naturally, a buyer will want to use a conservative measure of CAFD that is more indicative of the purchased YieldCo's assets to support medium- and long-term dividend increases.

3. 8point3's debt is interest-only and does not include principal payments. Most of this debt was issued when interest rates were lower than they are today, and all is due by the end of 2020. No other YieldCo uses this capital structure; most limit their interest-only debt to about one-third of total debt. A buyer would want to refinance most of this with amortizing debt to match its current capital structure. The increased principal and interest payments will reduce CAFD significantly.

4. As I pointed out in my article two years ago, CAFD exaggerates the value of projects that are likely to have less value at the end of their existing power-purchase agreements (PPAs). This will be dictated by the ability and cost to develop competing projects in the future. Solar projects can be built almost anywhere, and solar prices are falling rapidly. This means that solar projects are likely to have very little value at the end of their PPAs. Wind will be somewhat more valuable, while hydropower and geothermal are likely to be the most valuable renewable energy projects in the long term.

8point3's portfolio is entirely solar, meaning that using CAFD exaggerates 8point3's valuation compared to YieldCos that include other types of assets. All other YieldCos contain non-solar assets, and most have less than 50 percent solar in their portfolios.

5. IDRs, or incentive distribution rights, redirect a portion of a YieldCo's dividend to its parent company. For an acquirer with an IDR, any increase in per-share cash flow from a possible acquisition of 8point3 would have to pay for the IDR as well as a dividend increase to the buyer's common shareholders. In the case of NextEra Energy Partners, 25 percent of any increase in distributions goes to its parent as an IDR payment, while 75 percent goes to the YieldCo's shareholders.

Others have attempted to value 8point3 in a potential buyout by NextEra Energy Partners, but I have yet to see an analysis that takes most -- if not all -- of the above factors into account. Below, I try to do just that, evaluating what the other YieldCos (not just NextEra) might be willing to pay for 8point3 Energy Partners if they were to buy it.

Comparable, sustainable CAFD

The meaning of "cash available for distribution" should be clear. It's cash that is available to be distributed to shareholders. Actual definitions vary.

One would expect that CAFD should include all cash produced by the company's operations, investments, and financing that is not needed to maintain (but not replace) the company's investments.

For investors' purposes, these cash flows should not include one-off payments and cash flows that are likely to reverse in future periods. This is because investors are interested in a company's ability to both pay a dividend today and maintain that dividend for the long term.

The more conservative a YieldCo's definition of CAFD (i.e., the lower the final number), the more confident investors can be that expected future CAFD is a good measure of expected future ability to pay dividends.

The definitions of CAFD that I find most realistic are the ones used by Pattern Energy (PEGI) and NRG Yield (NYLD, NYLD-A). They start with the cash flow from operations (CFO), a measure defined by GAAP and hence comparable across YieldCos.

They also adjust for changes in operating assets and liabilities (which should reverse in later periods), subtract operations and maintenance capital expenditures (necessary to maintain equipment), add distributions from minority investments, subtract payments to the minority investors in its projects, and subtract payments of principal made from operating cash flows. Note that interest payments are considered an operational expense, and thus are already subtracted when calculating CFO.

The one adjustment that does not fit my model is the addition of one-time cash flows such as "network upgrade refunds." Several other YieldCos include these in their definitions of CAFD as well. These refunds are likely to be one-off for any particular project, and so they should be excluded from any attempt to estimate a YieldCo's ability to pay dividends in the medium to long term. In order to be useful to investors, the current CAFD should only include cash flows that are likely to repeat.

I attempted to build my own version of CAFD that would be comparable across all YieldCos and only include sustainable cash flows. I found that most YieldCos do not disclose sufficient information to complete this calculation.

The major barriers I found were different types of disclosure around minority investments in affiliates. These affiliates own the energy projects, and the YieldCo owns all or part of the affiliates. The lack of consistent disclosure meant that I could not be confident that my numbers were comparable across YieldCos. A related barrier to comparability is company structure. Most YieldCos have complex financial and legal structures, and these structures vary from one YieldCo to the next.

Below, I outline the results of my survey of definitions for CAFD.

Table 1: Comparison of how Yieldcos define Cash Available For Distribution (CAFD) - "Yes" indicates a relatively conservative definition of CAFD
Yieldco	NRG Yield	Pattern Energy Group	NextEra Energy Partners	Atlantica Yield	8point3 Energy Partners	TransAlta Renewables
Ticker	NYLD and NYLD-A	PEGI	NEP	ABY	CAFD	Toronto: RNW
Simple definition of CAFD	No	Yes	No	Yes	No	Yes
Includes only cash payments from minority investments	Yes	Yes	No*	Yes	No	No
Conservative treatment of majority-owned investments	No	No	No	No	No	Yes
Excludes one-time cash flows	No	No	Yes	No	No	No
Overall	Average	Conserv- ative	Average	Conserv- ative	Aggressive	Conserv- ative

*Note: NextEra Energy Partners has only one minority investment, so the aggressive treatment of such investments has (so far) had limited effect on reported CAFD.

More conservative definitions of GAAP

In my subjective analysis, I found that Pattern Energy, Atlantica Yield, and TransAlta Renewables had the most conservative CAFD definitions. Perhaps not coincidentally, all three of these YieldCos report results using international financial reporting standards (IFRS) instead of (or in addition to) U.S. GAAP.

IFRS is more of a principle-based system than GAAP, and so places more emphasis on intent than GAAP. GAAP is a rules-based system where the focus is more on the letter of the law.

Neither GAAP nor IFRS define cash available for distribution. GAAP gives a company nearly free rein to make up its own CAFD definition. IFRS principles provide somewhat more guidance, and seem to have resulted in more conservative definitions of CAFD.

The relatively conservative definitions of CAFD employed by Pattern, Atlantica and TransAlta are all defined with reference to cash flow measures. Pattern and Atlantica both treat their minority stakes in affiliates (renewable energy installations that the YieldCo does not own outright) conservatively by limiting the CAFD impact of these investments to actual cash received.

TransAlta instead includes a proportionate share of adjusted funds from operations (AFFO) for minority stakes in affiliates, but also subtracts a proportionate share of AFFO for minority interest in its affiliates when it has a majority stake. This is conservative because TransAlta has more majority-owned than minority-owned affiliates.

Treatment of minority/majority stakes in affiliates

The common factor in the two methods for dealing with minority and majority stakes in affiliates is that the three YieldCos discussed above treat the CAFD from their minority stakes in affiliates as they do the CAFD associated with the minority stakes of others when they have the majority share. In other words, they apply the rules consistently.

Hence TransAlta Renewables distributes the AFFO pro rata between the owners of each affiliate, while Pattern and Atlantica attribute only the cash payment to the minority investor, regardless of whether that minority investor is the YieldCo or some other party.

In contrast, the other three YieldCos seem to have chosen their definition of CAFD to maximize the number they report, rather than for internal consistency. NRG Yield, NextEra Energy Partners and 8point3 Energy Partners treat their own minority investments in affiliates differently than they treat other investors' minority investments in their majority-owned affiliates.

When these YieldCos own 25 percent of a project (a minority stake), they claim 25 percent of the project's CAFD. When they own 75 percent of the project (a majority stake), they claim more than 75 percent of the project's CAFD. These choices lead to a higher value for CAFD than what it would have been if they treated both types of ownership the same way.

Just how much this differential treatment of minority- and majority-owned investment affects CAFD varies based on the relative size of each YieldCo's investments.

8point3 did not respond to my request of a reconciliation of CAFD to CFO, which I had hoped would have allowed me to confidently isolate this effect. Lacking that information, my best guess (based on the slide below) is that 8point3's CAFD guidance for 2017 would be reduced from a range of $91.5 million to $101.0 million, to a range of $86.8 million to $93.4 million. With 79 million shares outstanding, this is a difference of between 6 and 10 cents per share.

Source: 8point3 Energy Partners Q2-2017 Earnings Presentation.

Reimbursement of network upgrade costs

Among the one-off cash flows many YieldCos include in CAFD, the largest is usually refunds of network upgrade costs. These costs are incurred when a new solar or wind farm is built in order to ensure that the grid can handle the additional power production. The YieldCo can only be reimbursed for these costs once, and hence they are non-recurring.

8point3 Energy Partners expects to receive $13.2 million in network upgrade refunds in 2017. Since the YieldCo is making far fewer purchases of solar projects in 2017 than it was in 2016, we can expect network upgrade refunds to fall dramatically next year.

If we remove these one-off refunds from 8point3's 2017 CAFD guidance, it is reduced to $73.6 million to $80.2 million, or $0.93 to $1.02 per share. This is below 8point3's current annual dividend ($1.09 per share).

Refinancing 8point3's debt

Elsewhere, I have attempted to calculate the effects of refinancing 8point3's debt before it is due in 2020. My estimates range from a best-case scenario where all the debt is refinanced with interest-only debt at current interest rates, to one where two-thirds of debt is replaced by amortizing debt.

Today's higher interest rates would reduce annual CAFD by $11 million in the most optimistic case. Replacing two-thirds of 8point3's debt with amortizing debt would reduce annual CAFD by approximately $20 million to $25 million. I use $20 million in the calculations below.

8point3's sustainable CAFD

Putting these adjustments together, we find that, based on the company's 2017 guidance, its sustainable annual CAFD after replacing two-thirds of its debt with amortizing debt would be $54 million to $60 million, or $0.68 to $0.76 per share.

What another Yieldco should pay for 8point3

Most YieldCos have a target payout ratio (the percentage of CAFD paid to shareholders) of 80 percent to 90 percent. The residual value of solar farms after the end of their PPAs will be lower than most other types of renewable generation, as explained in the beginning of this article. For that reason, I assume that another YieldCo would only want to buy 8point3 if the purchase would both allow it to increase its dividend, while maintaining an 80 percent or lower payout ratio.

If the YieldCo were to pay for 8point3's shares with shares of its own, it would then be paying at most 75 percent of 8point3's per share CAFD, or $0.51 to $0.57 on each of the 8point3 shares. This amount would have to be further reduced for NextEra Energy Partners, which pays 25 percent of any dividend increases to its parent in the form of incentive distribution rights.

Table 2: The most other Yieldcos could pay for 8point3 Energy Partners and still increase their dividends.
Yieldco	Current Yield	Could Pay For Each 8point3 Share
NRG Yield	6.2%	$9
Pattern Energy Group	7.0%	$8
NextEra Energy Partners	3.8%	$13
Atlantica Yield	7.1%*	$8
TransAlta Renewables	5.7%	$10

* Expected yield after last issues related to Abengoa bankruptcy are resolved.

Perhaps First Solar and SunPower will find a buyer for 8point3 with easier access to capital than the other YieldCos, all of which have been at least somewhat undervalued since the popping of the YieldCo bubble in the second half of 2015. The only exception to this rule is NextEra Energy Partners, which has recently been approaching a point where it can issue new shares to fund accretive acquisitions.

An investor expecting NextEra's stock to rise further should buy it. Barring that, investors hoping for another YieldCo to buy 8point3 above $13 will be disappointed. 8point3's current share price of almost $15 seems due more to investors chasing yield than a careful valuation of the company in a buyout.

Why does 8point3 continue to raise its dividend unsustainably? Most likely, it hopes the high yield will drive up the share price. While this has succeeded to a limited extent, it is not close to a level (over $20) where 8point3 might be able to issue new shares and grow its way out of its current problems.

The final victim of the YieldCo bust?

Another possibility is that 8point3 and its sponsors don't have a strategy at all. Before the YieldCo bust, it seemed to many that YieldCos could keep issuing new shares to buy more projects at increasingly higher prices.

Rising dividends, rising share price and rapid growth worked together in a virtuous cycle. If a YieldCo raised its dividend a little faster than it should have, the only consequence was an opportunity to sell more shares at high prices and use the procee

Giant Appeals Court Victory For Biofuels

Tue, 01 Aug 2017 17:02:43 +0000

Jim Lane

As DuPont’s (DD) Jan Koninckx put it in his understated way, Friday was “a good day for biofuels.”

But it was the biggest victory in the courts for biofuels, ever.

Specifically, the U.S. Court of Appeals for the District of Columbia Circuit ruled in favor of Americans for Clean Energy and other renewable fuels advocates, agreeing with the petitioners that the Environmental Protection Agency erred in how it interpreted and used the “inadequate domestic supply” waiver in the Renewable Fuel Standard law in setting low renewable fuel volumes for 2014-2016.

In Americans for Clean Energy et al v. Environmental Protection Agency, the Court vacated EPA’s decision to reduce the total renewable fuel volume requirement in 2016 and remanded the rule to EPA for further consideration.

It’s here.

The background

In late May 2015, the EPA weighed in with staggeringly weak RFS volumetric proposals for 2014 through 2016, based on an arcane theory of “supply” vs. “demand” that the Court of Appeals found ridiculous. At the time, the industry was aghast, and responded with more than 200,000 comments. Among them, dire remarks like “POET expects to stop all future U.S. cellulosic investments if EPA’s proposed base renewable fuel requirements are not strengthened.”

And BIO’s Brent Erickson warned:

“EPA continues to assert authority under the general waiver provision to reduce biofuel volumes based on available infrastructure. This is a point that will have to be litigated. It goes against Congressional intent. EPA has proposed higher volumes for advanced biofuels, still below the statutory volumes, but maintained a methodology that discourages investment in the industry. That will likely undercut future production, requiring additional cuts to volumes in future.”

And so, industry sued. And now, as Judge Kavanaugh writes in his unanimous opinion:

EPA noted that the Renewable Fuel Program’s requirements were “readily achieved” in the few years after Congress created the program in 2005 and amended it in 2007. Id. That was due in large part to the fact that the industry had the capacity to produce – and the market had the capacity to consume – increasing quantities of ethanol. Id. But by 2014, ready compliance with the statutory volume requirements was no longer possible. That is because the industry hit the “E10 blendwall”: an “infrastructure and market-related constraint on ethanol demand” that “arises because most U.S. vehicle engines were not designed to handle gasoline consisting of more than 10 percent ethanol.” Put differently, a few years into the amended Renewable Fuel Program, the supply of ethanol was much greater than the demand in the market.

Now, you may ask yourself, why would the distribution industry (controlled by, ahem, you can guess who) ever embrace E15. E30, or E85 if they could, by refusing to put in infrastructure, they could get ethanol volumes waived down — volumes that would have to be replaced by more gasoline (made by, ahem, you can guess who).

Think of it this way. All a petroleum marketer would have to do to squash competition is to make sure that no pump in the United States could handle E10 ethanol, or any ethanol content whatsoever. Presto! The E0.00000001 blendwall, and we’re right back to the gasoline dependency we started with.

Congress debated this very problem in the 2007 EISA Act. As Judge Kavanaugh observed:

The drafting history of the “inadequate domestic supply” provision, to the extent it is relevant, counts as yet another strike against EPA’s interpretation. The version of the Energy Policy Act passed by the House would have allowed EPA to reduce the statutory volume requirements “based on a determination by the Administrator, after public notice and opportunity for comment, that there is an inadequate domestic supply or distribution capacity to meet the requirement.” The latter portion of the waiver provision – which would have allowed EPA to consider “distribution capacity” – was dropped in the version of the bill passed by the Senate.As relevant here, the House agreed to the Senate’s amendment to the bill. The “distribution capacity” language does not appear in the final version of the Act. Congress’s decision to drop the “distribution capacity” language counsels against EPA’s reading in this case, which in effect would add that kind of language back into the waiver.

Nevertheless, the EPA went ahead with its interpretation. Industry headed for the courts for justice. And justice they won.

Why is this so big?

If you’ve been asking where all the cellulosic biofuels are, the obvious answer is that very little has been made, but why? One primary reason — not the only one, but a completely major factor — has been the EPA’s insistence that the content standard for US gasoline can be limited in terms of ethanol should anyone in the oil or automobile industry decide not to build distribution capacity.

It struck us as absurd from the get-go. We noted that, by he same logic, that any obligated party could avoid mandates for safe drinking water by not building any distribution for anything but filthy water. Or a cruise ship could avoid rules for minimum lifeboat count by simply not installing the davits to hold them.

Everyone knows that this is not so. A mandate to provide something puts the responsibility on the obligated party to figure out how to distribute it. And in the case of the Renewable Fuel Standard, if parties feel they cannot afford the burden of blending and distributing fuels, or the exercise in innovation of figuring out how to lower the cost — they can simply purchase RIN credits in the open market and they are done.

The problem is that common sense evaded the EPA in this case. Not only did they release the 2014 Renewable Fuel Standard some 2 years late — in fact, after 2014 had expired — they got the math very, very wrong.

So decided Circuit judges Brett Kavanaugh, Janice Rogers Brown and Patricia Millett — the first two being Bush-era nominees — in a stinging decision penned by Kavanaugh.

Highlights from the decision

Importantly, whether a thing is “available” to someone has nothing to do with whether he or she decides to use it. (The fact that a person is on a diet does not mean that there is an inadequate supply of food in the refrigerator.) So too here: Whether there is an adequate amount of renewable fuel available to allow refiners, blenders, and importers to meet the statutory volume requirements has little to do with how much renewable fuel that refiners, blenders, and importers – much less consumers at the pump – ultimately decide to use.

The Renewable Fuel Program’s increasing requirements are designed to force the market to create ways to produce and use greater and greater volumes of renewable fuel each year. EPA’s interpretation of the “inadequate domestic supply” provision flouts that statutory design: Instead of the statute’s volume requirements forcing demand up, the lack of demand allows EPA to bring the volume requirements down. “No argument” that EPA has “offered here supports that goal- defying (much less that text-defying) statutory construction.”

We reject EPA’s attempt to bootstrap the definition of “renewable fuel” into a boundless general waiver authority. Contrary to EPA’s contention, the phrase “that is used” in the definition of “renewable fuel” does not mean that biofuel transforms into renewable fuel only when it is actually pumped into gas tanks.

Second, EPA contends that interpreting “supply” to refer to the amount of renewable fuel available to refiners, blenders, and importers in effect reads “supply” to mean “production.” That interpretation is not correct, according to EPA, because “other fuel related provisions of the Clean Air Act” distinguish between “capacity to produce” and “capacity to supply” fuel.

EPA has not explained why Congress would have established the severe-harm waiver standard “only to allow waiver under the inadequate-supply” provision based on “lesser degrees” of economic harm.

We are not convinced that EPA’s strained interpretation of “inadequate domestic supply” is necessary to avoid the parade of horribles that EPA identifies.

Taking a step back, moreover, we reject EPA’s purposive argument on its own terms. That is because EPA’s proposed interpretation of the “inadequate domestic supply” waiver provision – in which the demand for renewable fuel largely dictates the volume requirements – turns the Renewable Fuel Program’s “market forcing” provisions on their head. Final Rule, 80 Fed. Reg. at 77,423. To be sure, EPA and obligated parties have raised serious concerns that the Renewable Fuel Program is not actually functioning as intended and that, as a result, the statute’s requirements will only become more and more impractical to meet. But the fact that EPA thinks a statute would work better if tweaked does not give EPA the right to amend the statute. Cf. Utility Air Regulatory Group v. EPA, 134 S. Ct. 2427, 2445, slip op. at 21 (2014) (“An agency has no power to ‘tailor’ legislation to bureaucratic policy goals by rewriting unambiguous statutory terms. Agencies exercise discretion only in the interstices created by statutory silence or ambiguity; they must always give effect to the unambiguously expressed intent of Congress.”) (internal quotation marks omitted).

Reaction from the stakeholders

Jan Koninckx, DuPont:

“We look forward to working with EPA as the agency re-examines the renewable volume obligation rules on biofuels and translates the Court’s decision into regulatory action. Consistent and long-term biofuels policy is critical to continued growth and investment in renewable fuels.

National Corn Growers Association

“Today’s Court decision is a win for farmers, the biofuels industry, and consumers. We appreciate the Court honoring Congress’ intent. Congress created the Renewable Fuel Standard to help increase American energy independence and provide cleaner fuel choices for consumers by opening a closed fuel market and forcing the oil industry to allow competition in. Whether there is an adequate supply of renewable fuel to meet volume standards is not the same as how much fuel is used. Or, in the Court’s own words, ‘The fact that a person is on a diet does not mean there is an inadequate supply of food in the refrigerator.’

“Corn farmers have done our part to help expand the supply of renewable fuel, as well as help support use of renewable fuels with retailers and consumers. We look forward to working with the EPA to ensure that going forward, the Agency follows the law when implementing the RFS.”

POET CEO Jeff Broin

“Today’s decision is a victory for U.S. drivers and everyone who supports clean, American-made fuel. Congress clearly laid out its vision for increasing our nation’s use of American-made biofuels, and the biofuels industry has worked tirelessly to make that vision a reality. We must use every available gallon of clean, domestic biofuels in lieu of importing more oil. It’s environmentally responsible; it’s economically responsible; it’s common sense; and it’s the law. We hope this decision will help us move past the unjustified resistance to year-round use of E15 by those protecting oil markets and pave the way to the expansion of higher biofuel blends across the United States.

Donnell Rehagen, CEO, National Biodiesel Board

“Today’s decision from the D.C. Circuit is welcome reassurance that EPA has the authority to increase volumes of biomass-based diesel. We must do so to advance the goals of the law. And as co-petitioners to the general waiver authority argument, we were pleased to see the court agreeing with our arguments. Biofuels today replace toxic chemicals linked to cancer, developmental disorders and other health issues. Biofuels lower greenhouse gas emissions by at least 43 percent. Today’s decision will help to increase those benefits while lowering costs for consumers at the pump.”

BIO President & CEO Jim Greenwood

“BIO and its members are pleased that the Court agreed with us that EPA’s flawed methodology would have allowed the oil industry to control the volumes of renewable fuels offered to consumers. BIO has consistently said that the RFS statute does not allow EPA to rely on demand-side factors under the oil industry’s control as a basis for setting annual volumes.

“We are equally pleased that EPA abandoned its legally flawed reliance on general waiver authority in subsequent rules. We will continue to work with the agency as it reconsiders the 2015 and 2016 RFS volumes. EPA can send a strong signal that it will support the biofuels industry and grow advanced and cellulosic biofuel production.

“BIO’s members rely on the RFS to open the U.S. transportation fuel market to new, cleaner technologies. Stability in this program enables our member companies to secure investment for the development and commercialization of new advanced biofuel technologies.”

The Bottom Line

This issue looks settled for all time — there’s just nothing for the Supreme Court to look at here until President Trump gets five justices on the bench from Oklahoma, and there’s nothing for the Court of Appeals here to go for an en banc review of the three-member panel. There no controversy between warring circuit courts, and the decision is a model of judiciary knocking down zealous Obama-era bureaucrats.

If there are issues with the RFS, the Circuit Court is very clear:

If the regime is indeed flawed, it is up to Congress and the President to “reenter the field” and fix it.

ABFA president Mike McAdams recently penned this column on that topic and we anticipate and encourage a healthy and vigorous debate on the RFS’ legislative future. Now, let the noisy, fractious, democratic debate begin.

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.

Endowments: Smart People Making Dumb Choices

Thu, 27 Jul 2017 17:15:33 +0000

By Marc Gunther.

America’s foundations spend many millions of dollars every year on investment advice. What do they get in return? Bubkes.*

You read that right: Money that could be spent on charitable programs — to alleviate global poverty, help cure disease, improve education, support research or promote the arts —instead flows into the pockets of well-to-do investments advisors and asset managers who, as a group, generate returns that are below average.

This is redistribution in the wrong direction, and why it hasn’t attracted more attention or debate is a mystery.

The latest evidence that foundation executives make dumb investment decisions arrived recently with the news that two energy funds managed by a Houston-based private equity firm called EnerVest are on the verge of going bust. Once worth $2 billion, the funds will leave investors “with, at most, pennies for every dollar they invested,” the Wall Street Journal reports [paywall]. To add insult to injury, the funds in question, which were invested in oil and natural gas, raised money in 2012 and 2013, just as Bill McKibben, 350.org and a handful of their allies were urging institutional investors to divest from fossil fuels.

Foundations that invested in the failing Enervest funds include the J. Paul Getty Trust, the John D. and Catherine T. MacArthur Foundation and the California-based Fletcher Jones Foundation, according to their most recent IRS filings. Enervest operates 33,000 U.S. oil and gas wells, more than any other company, according to a profile of its founder, John Walker, in Shale magazine. Stranded assets, anyone?

Of course, no investment strategy can prevent losses. But the collapse of the Enervest funds points to a broader and deeper problem–the fact that most foundations trust their endowment to investment offices and/or outside portfolio managers who pursue active and expensive investment strategies that, as a group, have underperformed the broader markets.

How costly has this underperformance been? That’s impossible to know because most foundations do not disclose their investment returns. This, by itself, is a troubling; it’s a reminder that endowed private foundations are unaccountable to anyone other than their own trustees.

Unhappily, all indications are that most foundations pursue investment strategies that fritter away money. This month, what is believed to be the most comprehensive annual survey of foundation endowment performance once again delivered discouraging news for the sector.

The 2016 Council on Foundations–Commonfund Study of Investment of Endowments for Private and Community Foundations® reported on one-year, five-year and 10-year returns for private foundations, and they again trail passive benchmarks.

The 10-year annual average return for private foundations was 4.7 percent, the study found. The five-year return was 7.6 percent. Those returns are net of fees — meaning that outside investment fees are taken into account — but they do not take into account salaries for investment officers at staffed foundations, who frequently are paid more than foundation presidents or CEOs.

By comparison, Vanguard, the pioneering giant of passive investing, says a simple mix of index funds with 70 percent in stocks and 30 percent in fixed-income assets delivered an annualized return of 5.4 percent over the past 10 years. The five-year return was 9.1 percent.

These small differences add up in a hurry.

Warnings, ignored

The underperformance of foundation endowments is not a surprise. In a Financial Times essay called The end of active investing? that should be read by every foundation trustee, Charles D. Ellis, who formerly chaired the investment committee at Yale, wrote:

Over 10 years, 83 per cent of active funds in the US fail to match their chosen benchmarks; 40 per cent stumble so badly that they are terminated before the 10-year period is completed and 64 per cent of funds drift away from their originally declared style of investing. These seriously disappointing records would not be at all acceptable if produced by any other industry.

The performance of hedge funds, private-equity funds and venture capital has trended downwards as institutional investors flocked into those markets, chasing returns. Notable investors including Warren Buffett, Jack Bogle (who as Vanguard’s founder has a vested interest in passive investing), David Swensen, Yale’s longtime chief investment officer, and Charles Ellis have all argued for years that most investors–even institutional investors–should simply diversity their portfolios, pursue passive strategies and keep their investing costs low.

In his most recent letter to investors in Berkshire Hathaway, Buffett writes:

When trillions of dollars are managed by Wall Streeters charging high fees, it will usually be the managers who reap outsized profits, not the clients. Both large and small investors should stick with low-cost index funds.

For more from Buffett and others on why passive investing makes sense, see my March blogpost, Warren Buffett has some excellent advice for foundations that they probably won’t take.

That said, the debate between active and passive asset managers remains unsettled. While index funds have outperformed actively-managed portfolios over the last decade, Cambridge Associates, a big investment firm that builds customized portfolios for institutional investors and private clients, published a study last spring saying that this past decade is an anomaly. Cambridge Associates found that since 1990, fully diversified (i.e., actively managed) portfolios have underperformed a simple 70/30 stock/bond portfolio in only two periods: 1995-99 and 2009-2016. To no one’s surprise, Cambridge says: “We continue to find investments in private equity and hedge funds that we believe have an ability to add value to portfolios over the long term.” Portfolio managers are also sure to argue that their expertise and connections enable them to beat market indices.

But where is the evidence? The last time I asked, eight of the U.S.’s 10 biggest foundations declined to disclose their investment returns. I emailed or called the Getty, MacArthur and Fletcher Jones foundations to ask about their investments in Enervest and was told that they do not discuss individual investments. A Getty spokesperson emailed me to say:

The Getty Trust was an investor in a private equity fund managed by Enervest. We do not discuss the specifics of our investments, but this investment was not material in terms of our overall portfolio which is highly diversified. We also do not release investment performance data, but our returns compare very favorably with benchmarks and peers.

To its credit, MacArthur is one of the few big foundations that does disclose its investment performance of its $6.3bn endowment. On the other hand, MacArthur has an extensive grantmaking program supporting “conservation and sustainable development.” Why would it want to finance oil and gas assets?

A meaningful step towards transparency around foundation endowments will come soon when the Ford Foundation discloses its performance for the first time. Darren Walker, Ford’s president, told me at the Skoll World Forum that the foundation would do so, and a spokesman confirmed that last week. When, I wonder, will other big foundations follow?

The refusal of portfolio managers to adopt simpler strategies that deliver higher returns is ultimately the responsibility of foundation boards, which brings us back to the headline on this blog: Why smart people make dumb choices.

Maybe it’s because so many foundation trustees — particularly those who oversee the investment committees — come out of Wall Street, private equity funds, hedge funds and venture capital. They are the so-called experts, and they have built successful careers by managing other people’s people. It’s hard for the other board members, who may be academics, activists, lawyers or politicians, to question their expertise. But that’s what they need to do.

At the very least, foundations ought to be open about how their endowments are performing so those who manage their billions of dollars can be held accountable.

—

* Bubkes is Yiddish for goat droppings.

Marc Gunther is a veteran journalist, speaker, and writer who reported on business and sustainability for many years. Since March 2015, he has been writing about foundations, nonprofits and global development on his blog, Nonprofit Chronicles.

Solid Play in Solid Waste

Mon, 24 Jul 2017 22:37:31 +0000

by Debra Fiakas CFA

The last article “Advanced Disposal Services: Hauling a Heavy Load” on July 18th inspired a closer look at the solid waste management sector in which it competes. The solid waste industry is growing at a good pace between 1.6% and 2.0% per year, largely on population growth and the human penchant for consumption and waste. In the U.S. solid waste collection is still populated by many localized, family-owned businesses, despite the emergence of several large consolidators that now command as much as 55% of the revenue in waste handling and disposal. Fragmentation creates ample opportunity for the incumbents to ratchet up growth rates.

Advanced Disposal Services is the most recent in the sector to enter the public capital markets with an initial public offering of stock. There are several seasoned securities in the sector and that begs the question, what is the best stock to own in the group.

For investors who are looking for value, the solid waste sector is not fertile ground. The average price multiple in the selected group presented in the table here is 35.31times expected earnings. This is well above the average ‘forward price earnings’ multiple of the S&P 500 Index at 17.6 times expected earnings in 2017. Only Stericycle (SRCL: Nasdaq), a provider of specialty waste collection and disposal services for the health care industry, compares to the broader market with a forward PE of 16.08. Among the plain vanilla garbage haulers, Waste Management (WM: NYSE) appears to be the best value with a forward PE of 21.71.

Company Name

Symbol

Price

Forward Price-Earnings Ratio

Price-Earnings to Growth Ratio

Forward Dividend Yield

Return on Assets

Advanced Disposal Services

ADSW

$23.40

41.70

2.62

2.41%

Casella Waste Systems

CWST

$16.55

23.31

7.24

5.08%

Clean Harbors

CLH

$56.46

47.05

1.33

1.96%

Covanta Holding

CVA

$13.30

95.00

-2.55

7.49%

REX American Resources (REX: NYSE). Based in Ohio, REX American is an ethanol fuel producer with owned nameplate capacity near 215 million gallons per year. Additionally, the company distributes by-products of the ethanol production process, including distiller grains and non-food grade corn oil. REX has full or partial ownership in six ethanol production plants located in the Ohio, South Dakota, Illinois and Minnesota.

The company relies on corn feed stock for its dry milling ethanol production process. Like any other ethanol producer, that puts REX American in a vulnerable position if corn prices rise faster or to an egregious high level relative to fossil fuels, which help determine ethanol selling prices. This is called the ‘crush spread’. REX uses forward commodity agreements to lock in raw materials prices as well as ethanol selling prices. However, these fixed price contracts typically do not last more than three or four months.

REX management has done a fairly good job of handling the ‘crush spread’. In the twelve months ending April 2017, the company recorded $466.7 million in total sales, providing $34.0 million in net income or $5.16 per share. Importantly, the company turned 17.9% of each revenue dollar into operating cash flow. The strong cash conversion rate has helped build cash balance at the end of April 2017 to $181.9 million. With no debt, REX American has one of the strongest balance sheets among companies in the ethanol sector.

REX American stands out among small-cap companies - habitually profitable, naturally cash generative and capital conservative. However, we do have some concerns about management’s ability to act decisively or to take bold or aggressive action in their market. The balance sheet is fully capable of supporting debt to finance acquisitions or new build ethanol production. However, there are no concrete plans for such expansion.

Cash assets are now greater than the book value of the Company’s property plant and equipment. Management’s investment plans are increasingly under scrutiny. While management describes plans to expand capacity, these are very small investments relative to the total cash resources.

Although the management team might not be as culturally agile as most small, innovative companies, the REX American group can be admired for its conservative nature. Conservatism has helped build a frugal operating structure that generates strong operating cash flows. In the end it is shareholders who benefit from management’s penchant for staying the course with proven strategies rather than taking bold actions.
At a price-earnings ratio of 21.3 times the current fiscal year consensus estimate, the stock appears priced well above its peers in the ethanol industry. This should give investors pause. The ethanol industry is subject to considerable uncertainty, which is not supportive of premium valuations. For example, in November 2016, the U.S. Department of Environmental Protection announced the 2017 requirement of 15.0 billion gallons for conventional renewable fuels. This equals the statutory requirement. Despite this action well before the end of the calendar year, the ethanol market did not benefit from the expected certainly but was instead roiled by a temporary moratorium imposed by the Trump administration.

REX shares are rated at Trim by Crystal Equity Research given that fundamental valuation is at an egregious premium that may not be sustained. The stock has shown considerable strength in trading in recent weeks. Should the stock go through another retreat, tradings might be tempted to add to overall positions.

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. As of the date of this article, Crystal Equity Research has a Trim rating on REX shares.

Recycler Priced for Recovery

Fri, 07 Jul 2017 15:11:49 +0000

by Debra Fiakas CFA

Shares of Appliance Recycling Centers of American (ARCI: Nasdaq) has trended downward over the last year, despite some strong fundamental progress in the company’s position the recycling sector. The corporate name tells at least part of the company’s story. Besides recycling appliances such as washers, dryers and refridgerators, ARC also sells new and like-new appliances right out of the box. The company has eighteen stores branded ApplianceSmart across the country. Services to electric utilities and other energy companies related to energy efficiency programs provide yet another revenue source.

In the twelve months ending March 2017, ARC reported $101.5 million in total sales, providing $1.2 million in net income or $0.19 per share. Importantly, operations generated $2.0 million in cash flow during this same period. The profits are a welcome improvement over losses reported in fiscal years 2016 and 2015. Sales had been declining and did not fully cover operating expenses in 2015 and 2016.

Besides having a spotty track record in producing profits, ARC also has debt on its balance sheet. At the end of March 2017, the company had $6.2 million in total debt on its balance sheet. This represented a debt-to-equity ratio of 47.52. Debt at any level might give some investors pause, especially if there is no consistent profitability.

Still there are some elements in the ARC story that should interest investors. In April 2017, the company opened a new recycling center in the Milwaukee area. The company has teamed up with a state program to recycle old kitchen appliances, cleaning up the environment and removing unsafe, uneconomical appliances from neighborhoods. The company also launched new contact center services to consumers called Customer Connexx. The service supports scheduling of services of local utility programs related to appliance safety and energy efficiency.

Shares of Appliance Recycling Centers are trading below a dollar a share, which might be off-putting for some investors. For those who are not shy of penny stocks, ARCI could be your stock. The shares are now priced at 4.2 times trailing earnings. There is no forward price-earnings ratio given that the company has a limited following among sell-side analysts. With recent demonstration of recovery (no pun intended!), the stock appears to be priced at a bargain.

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.

Oh, No! Renewable Energy Group CEO Departs

Thu, 06 Jul 2017 15:19:42 +0000

Oh, No! Renewable Energy Group CEO Departs

Intirim CEO plans no strategy change

Jim Lane

In Iowa, Renewable Energy Group (REGI) announced that Dan Oh has resigned as President and Chief Executive Officer and as a member of the Company’s Board of Directors. The resignation was effective July 3, 2017. The Board of Directors appointed long-time director Randolph (Randy) L. Howard as Interim President and Chief Executive Officer.

Howard is a 33-year veteran of Unocal, has been on the REG board since 2007 — so, a familiar face — at 67, may not be in the job for the long-haul, but a strong interim pick.

Oh departs as the company’s stock hit a 3-year high of $13.39 in Monday trading, and has surged 46.2% in the past 12 months, topping the notable surge in biofuels equities which has seen the Zack’s biofuels sector average jump 30.6% year-on-year.

REG stock traded down a whopping 5.74% on the news, closing at $12.40.

Staying the course

“The strategy is in place and there’s no change,” CEO Randy Howard told The Digest. “That is our #1 message. We placed markers on the table and we intend to execute, and today we are seeing part of that execution as we bring in leaders who can take us to that next level.”

Howard is the iCEO for now, but there’s no sense of a caretaker — the company will continue to drive while the search takes place. “We’ve grown dramatically, and we’ve presented to our investor community a growth perspective for our biodiesel projects, and for hydrocarbon projects like Geismar, and new products. We’ll need leadership that can manage can build big projects like that, and manage companies of that scope and scale. I obviously hope to accelerate that growth, there’s no time limit on the search [for a new CEO], and I am all in until we get it right, with the long-term leadership that can take us to the next level.”

Projects there are, but also the ongoing project known as public policy. The EPA proposed a 2019 “no growth” RVO. But Howard was not dismayed.

“We see in the next several months,” Howard predicted “public policy coming together to give the biodiesel a secure future for an extended time. Not this year to year of tax credits, RVOs and import penalties. All of it we think is coming together, so that we will have a public policy in place that permits the industry to manufacture to its capacity.”

Meanwhile, Howard pointed to the short-term organic growth opportunities. “We have opportunities such as our Ralston plant where we were birthed, to increase capacity — and projects like these can fundamentally can help us grow in the mid to long term. I think that’s why investors have become excited in recent months. They see benefits in the financial short term but also a vision for long-term growth. Not just running a set of assets.”

Bullish outlook, yes. But there’s some ‘whoa Nelly’ in terms of expectations on timing. Think ‘expansion to 112 million gallons at Geismar’ as an all-but-certain reality. Think the same way about optimization of existing assets. Think “not ready to make that decision, but soon” on further doubling Geismar’s capacity as much as 234 million gallons — specific volumes to be better studied before decision time. As far as greenfield hydrocarbon projects, Howard noted, “the other facilities we are looking at, that’s not this year for sure. That’s all in process, but there are a lot of issues to work through when it comes building greenfield projects.”

A three-year stock high

Late last month at the company’s Investor Day in New York City, the company pointed analysts confidently towards $150 million or higher annual earnings, saying that they saw $100 million or more coming from the company’s biodiesel operations and as much as $50 million in annual earnings from its renewable hydrocarbon business based in Geismar Louisiana.

Oh said that the company would be “expanding, adding geographies, products and markets and capturing more downstream margin, citing the development of speciality products. Though Argentine imports have surged into the US in response to favorable prices for advanced biofuels, Oh predicted that “trade sanction activity is underway, and it looks like going to happen.” He saw the import and export trade “moving back to balance”. And he said that a reinstatement of the $1.01 per gallon biomass-based diesel tax incentive “seems likely”.

Oh pointed to the “growing global distillate market,” and said that, in contrast to the travails of ethanol producers, “we don’t have tension with petroleum,” because of the global call for more heavy-duty, distillate fuel. The world needs more of what we do.” Oh noted at the time that just a 3 percent increase in global demand would increase the market for diesel by 12 billion gallons, and noted that LMC and EIA projections saw the distillate market growing from 480 billion gallons per year to more than 700 billion by 2030.

REG’s Competitive Advantage

We’ve noted it before, REG has been building a mini-trading behemoth, accessing a wide range of lower cost, lower carbon intensity (CI) raw materials that gives the company “pricing flexibility”, and “reliability as an off-take customer for key suppliers of contract-manufactured fuel”. The company also notes that it is “a preferred supplier to key customers and trading partners” known for an “ability to meet stringent customer specifications” with its REG-9000 biodiesel product. For carbon value, the company ability to deliver a massively advantaged molecule with 50% lower CO2 emissions has given it access to $1.00+ per gallon RIN credits that have been giving biodiesel the cost advantage it has needed.

REG’s Growth

Accordingly, the company has been on a production tear, growing 39% annually since 2010, reaching 567 million gallons of production in 2016, and displacing 3 million tons of CO2 last year.

The company was growing with the industrial sector, in many ways — global biobased diesel production had risen from just over 4 billion gallons at the height of the “green fuels craze” in 2008 to more than 10 billion in 2016, and LMC is projecting the global production will top 14 billion gallons by 2020.

The boom has been particularly on in California, where sales of biomass-based diesel rose, according to the California Air Resources Board, from less than 20 million gallons in Q4 2012 o 110 million gallons in Q4 2016.

One trouble spot in boom times? Surging imports from Argentina and Indonesia in 2016 — according to REG, an 843 percent increase over 2014 for Argentina and 117% increase for Indonesia. The US Department of Commerce will determine on August 22nd whether countervailing duties will be imposed over charges of dumping. The European Commission imposed antidumping duties on Argentine and Indonesia biodiesel for five years starting in Q4 2013, crushing the volume of fuels shipped to the EU.

Overall in 2016 the company recorded a record $2.0 billion in revenue and recorded $102 million in adjusted EBITDA. Overall, EBITDA has been growing even faster than the gallonage — the company has recorded a 67% annual growth rate in earnings since 2010 when the com[any was essentially a break-even proposition, before RFS2 kicked in strongly starting in 2011.

Overall, revenue has doubled since 2012; although the company’s annual EBITDA has been on the up-and-down, following the mercurial policy ups and downs in DC. and the low energy prices seen since 2015. EBITDA reached a high of $148M in 2013 and dipped to $50M in 2015 before recovering last year.

However, the balance sheet has been strengthened — net working capital has doubled since 2012 and book value has almost doubles, and the company had $82 million in cash and just $217 million in debt, which is down from a high of $252 million in 2014.

Feedstock Market Outlook

In its analyst presentations, REG saw corn oil supplies expanding with a growth in US ethanol exports, and an uptick in animal rendering fats with meat production numbers climbing. Oh said that the company would continue to intensify its efforts on waste feedstocks. The company presented this overview of historical price data on feedstocks and molecule prices — the “crush spread”:

The big growth opportunity? The EU

REG acquired its first production capacity in Eastern Europe, Petrotec, not long ago, and strategically there’s a strong rationale, with a advanced biofuels target under the proposed Renewable Energy Directive set in the 1.5-9% range, or an overall 6.5 billion gallons market. “ REG noted that the “RED II proposal aims to expand success by growing and emphasizing the lowest carbon advanced biofuels.”

Geismar, the Rock Star

The old Dynamic Fuels plant, which REG acquired in 2014 after it had been idled for nearly two years, never produced more than 75% of its nameplate capacity in any given month, and what REG described as “significant Mechanical & Processing Issues” dropped utilization as low as 20% in selected months. With new catalysts and upgrades to the technology, the Geismar plant reached 100% of nameplate in December 2016 and has produced in aggregate more than it’s nameplate capacity since then. The company acquired 82 acres at the GEismar site and is aiming at expansion at a site strategically located less than a mile from the Mississippi and less than 3 miles from the Bengal pipeline. Another set of upgrades are taking place in June.

The biggest opportunity is capacity expansion, and Geismar is slated for a 37 million gallon capacity increase, to north of 110 million gallons. An interesting opportunity worth noting? Specialty chemicals. The company says that its “Specialty Products Unit adds 10 MMGY of RHD capacity with an option to produce significantly higher margin specialty chemicals.”

Terminals and Energy Services

REG is aiming at life beyond producing fuels and chemicals, sold in to various third-party terminals. The company has identified seven terminal growth opportunity regions in the US.

The Life Sciences gambit

In 2015, REG acquired LS9 as the base for an entry into specialty chemicals and more. The division has been 11 years in the making with $135 million invested — and not much to show by way of revenue, although there have been a steady stream of brand-name partners such as ExxonMobil. The REG Life Sciences unit is a “fatty acid derivative platform” from idea to manufacturing, with a small facility already in place in Florida.

The company has identified 11,000 “unique structures” and assembled nearly 200 patents — to date, one multi-functional fatty acid (musk) has reached “phase 4 -pre-launch” and a second sale id expected in Q3 2017. Nine other products are in the development pipeline, i various stages of partner discussions — ranging from nutrition, esters plastics, fragrances, and polyamides.

Overall, REG Life Sciences aims to compete in four markets — flavors & fragrances, the C8/C10 platform, speciality polyamides and novel building blocks, with a total addressable market size of $25.3 billion, growing by more than 5 percent per year.

The Digest’s Take

Here’s your takeaway. REG is staying the course and ready to execute its strategy as unveiled with its investors last month in New York.

Transitions at the top always create nervousness. They involve regret for the loss of valued leaders. In this case, no reason for nerves. And reason to re-focus on REG’s big, big opportunity. If it executes the strategy, builds a large and strongly committed investor base, and gets the decisions right on expansion opportunities. A great strategy is validated by great execution.

Let’s salute Dan Oh and the company he built — the people and the systems that remain will be his substantial and substantive legacy. Now, let’s salute Randy Howard and the company that’s emerging — with growth opportunities that any company in this sector would envy.

Now, it’ll be noses to the grindstone in Ames as the company tackles decisions on optimization and expansion — Geismar, terminals, upgrades in the existing fleet, M&A opportunities, generating cash out of REG Life Sciences. It’s a heady set of opportunities and choices for REG as it aims to go from a 3-year high in the stock price to something even more special.

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.

The New US Solar Trade Dispute

Wed, 05 Jul 2017 17:40:10 +0000

by Paula Mints

In 2012 SolarWorld, facing significant price and margin pressure from cells/modules imported from China, filed trade petitions in Europe and the US under section 337 of the 1930 Trade Act. As a refresher on the Trade Act of 1930; this was the infamous Smoot-Hawley Act which began as a protection for farmers but after much debate fed by many special interests it was eventually attached to a wide variety of imports (~900). Other countries retaliated with their own tariffs. The US trade deficit ballooned. Smoot-Hawley did not push the world into the Great Depression but it certainly was a card in the Depression playing deck.

In 1934, as part of the New Deal, President Franklin Roosevelt pushed the Reciprocal Trade Agreements Act through and the short reign of protectionism in the US ended.

Back to 2012, following an investigation, tariffs on cells and modules imported from China were put in place. Despite high anxiety in the US and Europe over potential price increases, and a highly divided solar industry prices did not increase significantly. In many cases, for larger buyers, the tariffs were absorbed.

Goal of action: Attempt to correct the import/export solar panel imbalance.
Result of action: Aside from industry participants and observers lining up on one side or the other it was Business as Usual. Prices increased slightly for smaller buyers and did not decrease as rapidly for smaller buyers.

In 2014 SolarWorld amended its original petition to include cells imported from Taiwan. Significant tariffs were put in place. Despite renewed high anxiety in the US over potential price increases, prices did not increase significantly. In many cases, for larger buyers, the tariffs were absorbed.

Goal of action: Attempt to correct the import/export solar panel imbalance.
Result of action: Despite angry shouts from both sides of the dispute (for and against) it was business as usual again. In old fashioned measurement terms, the needle on prices barely budged for larger buyers, and though prices increased for smaller buyers this was sometimesoffset by manufacturer or distributor sales on inventory. In late 2016 China slowed it exploding market sending global PV capacity immediately into an oversupply situation. Overnight prices crashed and margins collapsed. To support current production manufacturers began selling future production to large buyers at extremely low prices. Price decreases were in some cases available to buyers of smaller quantities.

Prices, in some cases, dipped below $0.30/Wp, lower than the price of a cell and below the cost of wafer-to-cell-to module production. Manufacturers, trapped in a spiral of buyer expectations and low margins, doubled down by selling future production to large quantity buyers in the $0.30/Wp to $0.40/Wp range.

Goal of action: Concerning the significant price drops, this was an attempt to sell off manufacturer inventory and it went awry. The goal of future pricing was to support current production.
Result of action: Lower prices for cells and modules for all buyers and extended unprofitability for manufacturers leading to a new round of manufacturer consolidation and creating a perfect situation for new tariffs and other government actions on imports. Meanwhile, sales of future production at low prices trapped manufacturers in a downward pricing spiral.

Figure 1 offers average prices, average costs and shipments from 2006 through 2016. Average prices and costs are the weighted average price (or cost) represent a global weighted average of the price paid for modules or the cost of manufacturing modules during a specific period.

In April 2017 US-based (and 63% Chinese Owned) monocrystalline cell manufacturer Suniva filed for bankruptcy and shut down its cell and module facilities in the US. Simultaneously it filed a new petition under Section 201 of the Trade act of 1974 asking for a 0.78/Wp minimum price on all crystalline module imports and an additional $0.40/Wp tariff on imported crystalline cells.

The Trade Act of 1974, in theory, was designed to expand US manufacturing participation in global markets and reduce trade barriers. It also – and this is important – gave the President broad fast-track authority. Under it the US president can give temporary relief to an industry. Gerald Ford, who became the 38th president after the resignation of Richard Nixon, was president at the time. The Trade Act of 1974 was deemed necessary because it gave the president a stronger negotiating position during the Tokyo multilateral trade negotiations. It was set to expire in 1980 and has been extended several times. President Bush used Section 201 in 2002 to increase tariffs on some steel imports to the US.

Section 201 of the 1974 Trade Act sets a higher bar for petitioners than the previous trade dispute. The injury must be serious. The ITC (US International Trade Commission) has 120 to 150 days to report its findings to the president.

In early May SolarWorld Germany (SRWRF) declared itself insolvent and its US subsidiary while stating it would continue operations filed its intent to lay off its employees. In late May SolarWorld joined Suniva’s petition.

Goal of action: The goal of the latest petition seems to be to make a statement.   Result of action: Suniva is unlikely to survive. SolarWorld may pull itself out of danger. US cell manufacturing is already comatose. The most likely result will be higher prices for all participants. Should the petition be made retroactive for any period it will cause margin distress for US installers, developer and EPC.

Nota bene, the 2012/14 petitions established a date for the tariffs to be implemented that took into account the timeframe required to investigate. That is, the tariff would go into effect at an earlier date than the decision. The current tariff minimum import price petition does not include a date marker but this it is by no means certain that an earlier date wouldn’t be established if the proceedings go forward. The ultimate decider in the current case is President Trump.

Who did the earlier tariffs benefit?

Several years later the solar industry still takes sides concerning the 2012 and 2014 trade dispute. Concerning the US, the 2012/2014 dispute did not lead to an increase in US cell manufacturing. One reason for this is long timeline from installing equipment, through pilot scale production to commercial activity. It takes time. It takes money. The decision to invest time and money in a vulnerable incentive-driven market is nontrivial.

In 2016 the US had 1% of US cell manufacturing capability and 1% of module assembly capability. The cell is the electricity generating component of the module without which the module is just a frame. Module assemblers buy cells. As the US has significantly more demand than it does crystalline capacity US module assemblers must import cells. Table 1 presents US cell manufacturing capacity, shipment and US market demand from 2011 through 2016.

Observing Table 1, US manufacturing capacity remained flat during the period from 2011 through 2016 viewed through the lens of compound annual growth. On the face of it, the US supply and demand story seems clear, however, looking closer bumps in the supply/demand road are apparent. To understand the market, the macro view, represented by compound annual growth rates, is informative, but the bumps in the road, that is the detail, are even more important.

Table 2 offers a bumpier view of US supply and demand during the period after the first tariffs in 2012. In 2013 US capacity to produce cells, again, the electricity generating component of the module, decreased by 16% decreasing again in 2015 by 9%. In 2013 shipments decreased by 9% before seeing a 6% recovery in 2014.

Demand, meaning modules acquired from all countries, increased by 70% in 2013, 40% in 2014, 25% in 2015 and 73% in 2016. Demand during this period and for the foreseeable future (assuming no changes) was and is primarily driven by the ITC.

In 2015 US capacity to produce cells increased by 60 percent as manufacturers brought new capacity online. Shipments increased by 38% primarily to serve the growing US market. Despite new capacity the US still could not serve its own market. The new capacity that was available in 2015 was additional, that is, brought on line or added by manufacturers currently operating. It takes years, decades in many cases, to add new manufacturing capacity. The only way new capacity can be brought on line in a country is to truncate the pilot scale to commercial production timeline. When manufacturers move too rapidly through pilot scale production the result is almost always poorer quality.

Table 3 offers four scenarios for 2017, low, conservative and accelerated. Table 3 provides two conservative scenarios based on manufacturing capacity. The reason for this is that though SolarWorld will likely shutter some capacity and lay off employees it may survive the year as it has done before. Should installers become anxious about SolarWorld’s survival and stop buying its modules the ripple effect of this would ensure the company’s failure.

The direct goal of the current tariff/minimum price action is murky. Following its bankruptcy Suniva took investment with the caveat that it file the petition. The goal of protecting US manufacturing is difficult to support as the US has very little cell manufacturing and cannot serve its own market. The US has more module assembly capacity but must buy cells to assemble from other countries. The petition affects crystalline cells and not thin films, at least for now. There is not enough global thin film capacity to serve the US market.

Should the current tariff petition be enacted prices for cells and modules all demand side participants will increase and US manufacturing will not become more robust. The only to increase US cell manufacturing is to invest overtime and reward buyers to choosing US produced cells and even then, other components will need to be imported.

What the trade petition means to you

End users: It is highly unlikely that system prices will increase. Expectations for low system prices are cemented in (and highly publicized). End users do not have to choose to install solar. End users have buying power.

Residential Installers: This group will feel the squeeze stuck between buyers who do not have to choose solar and distributors/manufacturers who will likely pass on higher prices. Warning, however, though the current petition does not set a date for tariffs it still could.   Distributors: This group will face higher prices but can usually pass on at least part of the cost to installers. As with installers, though the current petition does not set a date for tariffs it still could.

Developers and EPC: Price increases will be smaller for this group but there will be price increases and slower decreases. Thin film manufacturers will be free to raise prices, though as there is not enough thin film capacity to fulfill current demand supply constraints are likely. As with installers and distributors, though the current petition does not set a date for tariffs it still could.

US Module Assemblers: Prices for crystalline cells will increase and this group will have to pay them to stay in business. Margins will feel the pain and it will be difficult to pass much of the price premium to customers Investors and Developers: With low PPA bidding the norm, higher prices for modules will affect profitability. If the modules have already been purchased beware of retroactive pricing – not in place yet but you never know. If modules have not been purchased you will pay more per Wp.

Thin film manufacturers: This group is probably secretly (or not so secretly) hoping the US minimum price and $0.40/Wp tariff on crystalline cell imports is enacted. Why? – no more price pressure. Expect prices for thin films to increase almost immediately while supplies remain constrained. High end monocrystalline providers such as LG and SunPower: These manufacturers have already met the minimum price but may get hit with the $0.40/Wp on imported cells. If so, these manufacturers will have to absorb the tariff.

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.

Stock Picks for US Energy Dominance

Sat, 01 Jul 2017 00:51:55 +0000

Tom Konrad, Ph.D. CFA

Thursday night (Friday morning in Sinapore) CNBC Asia's Street Signs program must have had an interview cancellation, because they needed someone to give them 3 energy stock picks in response the Trump's "Energy Dominance" speech on last minute notice. They sent me (and probably a bunch of other people) an email two and a half hours before air. I did not see it until 20 minutes before the actual interview. I warned them that I do clean energy, not fossil fuels, but apparently they had no other takers who were awake and able to give energy stock picks at 11:23pm ET on a moment's notice.

I think they found me because I was on Capital Connection Asia in late January.

I don't think I was quite what the host, Martin Soong was looking for. He improvised well by turning from the Trump clip saying "if you want to do something entirely different, you might invest in alternative energy..."

I'm still trying to get video, but here's my memory of the interview.

MS: How is clean energy doing under Trump?
TK: Great. There was a little stumble after he was elected, but then the market figured out that he's living in the 20th century while the economy has moved on to the 21st. Clean energy has turned the corner, and is now the cheapest source of new electricity. The market is realizing that, even if Trump doesn't.

MS: Do you have stock picks?

TK: Atlantica Yield (ABY), Covanta Holding Co (CVA), and General Cable (BGC).
I went on to describe why I like Atlantica - you can read about that and Covanta in my last 10 Clean Energy Stocks for 2017 update.
General Cable was a last minute add for me. I'm very nervous about the market right now, so there are not many stocks I'm enthusiastic about. I was tempted to mention Seaspan (SSW) Preferred shares (SSW-PRG), but they'd asked for energy stocks, not efficient transportation. You can read about Seaspan Preferred in my recent update as well.

My picks in January had been Pattern Energy Group (PEGI), and Hannon Armstrong (HASI.) Both have gained significantly (17% and 22%) since then, and so they're still top holdings, but not the most likely to make further large gains in the near term.

I picked General Cable instead. It's a bit of a stretch to call it an energy stock, but at least the connection between the manufacturer of electric and communication cables and the energy sector is obvious. Given more than 20 minutes, I might have picked something else, or just stuck with the two I'm most enthusiastic about.

Martin Soong wanted to talk about ETFs, we did not talk about Covanta or General Cable at all.

MS: What about clean energy ETFs? I've looked at six that are up about 10% for the year.

TK: ETFs are okay if you're unwilling to pick stocks, but clean energy is such a new sector, pricing is not yet efficient, and there is a lot of room for stock pickers to get an edge.

MS: But the ETFs are up 10% for the year. Why not just invest in those?

TK: My Green Global Equity Income Portfolio is up 17%.

MS: I have to admit, that's good performance.

And he ended the interview.

Unfortunately, I had misstated my performance. I don't spend much time thinking about past performance: Future performance and how I can improve it is much more interesting. For the record, my Green Global Equity Income Portfolio (GGEIP) was up 13.5% for the year to date.... not as good as I'd thought, but still ahead of the alternative energy ETFs he was looking at.

Despite my mistake on my track record, I stick to my assertion that clean energy remains a stock picker's market. Until clean energy investing becomes main stream, there will be a lot of room for stock pickers like me to beat the indexes. Perhaps I should have mentioned that GGEIP was up 30.5% in 2016, although I achieved that using options and other strategies not available in clean energy ETFs, not just stock picking.

DISCLOSURE: Tom Konrad has long positions in ABY, CVA, BGC, PEGI, HASI, and SSW-PRG, and own puts on SSW (an effective short position.)

Power REIT: No News Is Good News

Thu, 22 Jun 2017 19:22:01 +0000

Tom Konrad Ph.D., CFA

I first wrote about Power REIT (NYSE MKT:PW) in 2012, when the tiny real estate investment trust unveiled its plans to become what would have been the first Yieldco by investing in the land underlying solar and wind farms... before the term 'Yieldco' had even been invented. In the years since, the company made some progress buying land under solar farms. According to the most recent shareholder presentation, they now own land under seven solar farms totaling 601 acres and 108 MW, in addition to their legacy railroad asset.

These assets produce Core Funds From Operations (FFO, a cash flow metric commonly used in among REITs as a measure of the company's ability to pay a dividend) of $0.60 per share. When the dividend is reinstated (more on that below) we can expect that it will be between 70% and 100% of Core FFO, or $0.40 to $0.60 per share. As a microcap REIT, I would expect the yield of be in the 7 to 8 percent range, justifying a stock price of between $5 and $8.50. The stock has recently been trading at the low end of this range, or $6.50 to $7.00.

Other Yieldcos (the mostly non-REIT companies that invest in solar and wind farms and use the cash flow to pay dividends) currently have yields between 4% (NextEra Energy Partners (NYSE:NEP)) and 7.5% (8point3 Energy Partners (CAFD)). As I recently wrote, I believe CAFD's dividend is unsustainable, so 7.5% is a good high end estimate for the yield on a microcap Yieldco. When PW resumes its dividend, it should be worth $6 to $8 a share if valued as a Yieldco.

A Yieldco Wrapped in a Legal Enigma

Based on its potential to pay a dividend, Power REIT seems fairly valued or mildly undervalued.

But nobody is looking just at the potential dividend. The big story about Power REIT is its appeal in a civil case against the lessees of its railroad asset. I'm not going to spill any more ink about this legal case, as I'm not a lawyer and I have no idea what the chance of a successful outcome might be. What I do know is that, if the appeal fails, Power REIT is reasonably valued today. I also know that if Power REIT were to prevail in any way, the benefits to shareholders could be enormous. The debt that the lessees owe Power REIT (but which they claim is not payable) is worth more than Power REIT itself. Add in legal fees and back interest, and it's easy to see the stock price tripling. You can read about the details of the case in one of my articles here, or a more recent piece by an attorney (Al Speisman) who thinks Power REIT has a good chance of winning, here.

Why No Ruling Yet?

There is no set time frame for an appellate court ruling, but the case has now been under consideration for five months. To me, that means that there are at least some aspects of the case that Third Circuit Court of Appeals finds hard to decide. If the case were simple, the Court could have ruled already.

A case that is hard to decide must have a chance of going either way. That means the judges must be considering overturning at least part of the District Court's ruling (which went almost entirely against Power REIT.)

The debt (settlement account) is worth about $9/share. Legal costs (which Power REIT argues are reimbursable under the lease are another dollar or two per share. Back interest could dwarf everything else, but I consider the chance of Power REIT being awarded any back interest to be low. There is also the possibility that PW will have an opportunity to sign a new lease for the railroad, which could also benefit the company.

What are the chances of Power REIT winning anything in its appeal? We don't know, but those chances seem to be rising the longer the Court of Appeals takes to rule. Denying Power REIT's appeal might have been an easy decision. Overturning part or all of the District Court's ruling requires more deliberation. The Federal judges are still deliberating.

No news is good news.

The upside is measured in stock price multiples. Should we expect a double? A triple? Or "just" a 50% increase? The chances of upside are increasing. At the current price, the downside is minimal. There could even be some upside from increased certainty around the company's future and tax write-offs in the case of a loss.

What's not to like?

Disclosure: Long PW, PW-PA, NEP. Short calls on CAFD.

China Everbright Greentech

Mon, 19 Jun 2017 19:16:03 +0000

by Debra Fiakas CFA

Investors based in the U.S. need to look far and wide for new stock issues from renewable energy companies. Capital markets activity has slowed in the last couple of years, in part to due to their own success. In reaching new efficiency in energy production, renewable energy companies are generating their own internal capital and are not as dependent upon the capital markets. The Hong Kong market has come to the rescue of U.S. investors with a ‘green’ offering

China Everbright Greentech Ltd. is now trading on the Hong Kong Exchange with the stock code 1257 following a successful offering of 560 million shares in April 2017. The company raised $385.6 million (HK$3.0 billion) in new capital that will be used to develop business in the People’s Republic of China as well as research and development in advanced technologies.

A spin-off of parent China Everbright International, the waste-to-energy and water treatment developer, China Everbright Greentech invests in a variety of renewable energy projects. These projects are capital-hungry and sometimes deliver volatile returns. The spin out should help the parent to present more stable financial results. Investors in the spinout are getting a more speculative play at a more compelling valuation.
China Everbright Greentech is a self-described “specialty environmental protection service provider.” Its portfolio includes biomass, solar and wind energy production as well as hazardous waste treatment facilities. Total energy product at the time of the IPO was 125.9 megawatts from solar and wind facilities and another 810 megawatts from biomass projects currently in the planning and construction stages. Current hazardous waste treatment capacity is in excess of 500,000 tons per year.

Management has wasted no time in deploying new capital. In late May 2017, the company announced definitive agreements for three new hazardous waste treatment projects in mainland China. The total investment of US$102 million (RMB680 million) will add 120,000 tons per year in waste processing capacity after all construction phases are completed.

The company’s public offering document provides details on revenue and profits. Sales value has increased in each of the last three years, with profits following. In 2016, the company delivered HK$629.5 million (US$81.8 million) in profit on HK$3.0 billion (US$390.0 million) in total sales, representing a profit margin of 21%. Operations generated HK$886.2 million (US$115.2 million) in cash flow.

China Everbright International remains the controlling shareholder in its greentech spin-off. However, the offering makes room for investors of all stripes to participate in what appears to be a successful formula for growth and income.

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.

Should I Sell My Mutual Fund To Go Solar?

Wed, 14 Jun 2017 19:47:02 +0000

by Tom Konrad Ph.D., CFA

An enthusiastic solar volunteer recently asked me: “What can I invest in to prepare for the next financial crisis?”

The situation made the question deeply ironic. The woman asking me was trying to help people invest in solar systems through Solarize, a nonprofit, community-sponsored group buying and discount program. Our town of Marbletown, New York and the neighboring towns of Rochester and Olive have just launched Solarize Rondout Valley, a campaign open to residential and commercial building owners in Ulster County.

Solarize campaigns are designed to make it easier and cheaper to go solar. While defensive stock market investments are my specialty, I can't think of a single financial investment that combines the expected high returns and relatively low risk of a home solar system.

Just like buying value stocks when they are cheap, buying your solar system at a discount through Solarize or a similar program only increases the expected returns while lowering the risk. Solarize Rondout Valley offers a 14 percent discount compared to installers' standard prices. The installers can afford this discount because volunteers help them reach new customers.

Customer acquisition costs make up nearly 17 percent of the cost of a typical home solar system. The customers benefit because it boosts their returns. Even New York state and the federal government benefit, because lower prices reduce the size of tax credits, which are currently 25 percent and 30 percent of the purchase price of the solar system, respectively (capped at $5,000 for the state credit).

It turned out that my fellow volunteer had a roof she thought would be great for solar, but was hesitant about signing up herself. I told her solar was one of the best investments I know of for a financial crisis, because it will still be generating the same amount of electricity and savings, no matter what the markets do. And I asked her what sort of payback she thought she was getting from her mutual funds.

Two minutes later, she was our next signup for a free home solar assessment.

If you finish this article, live in Ulster County and own a home without solar, I'm betting you will be our next registrant. But even if you don't have a Solarize campaign going on near you, this article should give you the tools you need to evaluate any installer's bid as a financial investment.

Investment criteria

When considering any investment, most professional investors focus on these criteria:

1. Expected return, or how much you expect to make on your investment.

2. Risk, which has two components:

a) The likelihood of things going wrong

b) The expected losses if things go wrong

3. Liquidity/cash flow: Can you get your money back when you need it?

Many professional investors, including myself, also focus on the moral aspect of our investments, but I will not focus on that variable here. If you think it's important to promote your local economy or reduce carbon emissions, it's clear to just about everyone that a home solar installation is the best choice. The financial comparison is a lot less readily discernible, so that is what I will focus on here.

A note on mutual funds

There are more mutual funds than anyone can count, so, for simplicity, I will focus on two that readers are most likely to own. According to Investopedia, the two biggest mutual funds this year are the Vanguard 500 Index Fund Admiral Shares (VFIAX) and Fidelity Government Cash Reserves (FDRXX). These funds hold more investor money than any other mutual funds. Even if you do not own either of these funds, most investors own something similar.

VFIAX is a stock market index fund, designed to mimic the return of buying a proportionate share of the entire market. For the purposes of this analysis, most funds that contain the words “stock market index” in their name will have substantially similar investment characteristics. If it makes sense for you to sell VFIAX to invest in home solar, it will make sense to sell any of these other stock market index funds for the same reasons.

FDRXX is a money market fund, and almost every investor owns some money market or short-term bond fund in their portfolio. If it makes sense for you to sell FDRXX to invest in home solar, it will make sense to sell any of these other money market or short term bond funds for the same purpose.

Example home solar installations

The economics of home solar vary widely depending on local and state incentives, future local electricity prices, installation cost, local climate and the angle and degree of shading of your roof. In my experience, a reputable local installer is likely to give you reliable estimates for all of these except for future electricity prices.

As examples, I will use two fairly typical installations using prices from Solarize Rondout Valley. The first system is a best-case scenario, installed on a house with a large, open section of roof with moderate tilt oriented at least a little south and with limited shading. A 5-kilowatt installation using 18 panels and 320 square feet of roof space will cost $3 per watt ($15,000) before state and federal tax incentives at the discounted Solarize price. The New York state tax incentive is 25 percent of installation cost up to $5,000, while the federal Investment Tax Credit is 30 percent, so the net cost after incentives for this installation will be $6,750. Because of the orientation and limited shading, this array will produce about 1,300 kilowatt-hours per year, per installed kilowatt (6,500 kilowatt-hours total) in Ulster County. Call this System A.

On the other end of the spectrum, consider a 7-kilowatt array on two sides of a building with the panels facing due east and west, and with some shading. The customer has high electricity usage and wants to get as much production out of the given roof space as possible, and so opts to use 19 of SunPower's (SPWR) highly efficient 360-watt AC panels using only 340 square feet of roof space. Each of these panels has its own microinverter to best handle the shading. While this installation will probably still produce 7,000 kilowatt-hours per year (1,000 kilowatt-hours per year, per installed kilowatt) despite the less-than-optimal conditions, the premium SunPower panels will cost $4 per watt, or $28,000 before tax incentives. After tax, the system will cost $14,600. Call this System B.

To find out the financial returns, we also have to make assumptions about the price of electricity saved. I will use 14 cents per kilowatt-hour, increasing at a rate of 1 percent for the next 25 years. This is more conservative than most installers' assumptions of annual electricity price increases of 3 percent or more, but I find it pays to be conservative when making investment decisions.

Calculations

With these assumptions, we can use an online return calculator such as PVCalc. Below are the assumptions for System A, as I entered them into PVCalc.

I assumed a 25-year life, 1,300 kilowatt-hours produced and skipped the “own consumption," as well as "feed-in tariffs" and "tax" sections -- which do not apply in New York state. Setup cost is the cost per kilowatt after tax incentives ($6,750 for 5 kilowatts), and financing is 100 percent the customer's funds, because we are considering selling a mutual fund to pay for the system.

(Note that the euro '€' symbol is displayed by default in this European calculator under levelized cost, even though the levelized energy cost displayed is actually $0.076, not €0.076.)

PVCalc gives the following results for System A.

I think the most useful factors here are “levelized energy cost" and internal rate of return (IRR).

The levelized energy cost of 7.6 cents per kilowatt-hour is far below the price we pay for retail electricity in New York. IRR is a financial measure that allows us to compare the system on an apples-to-apples basis with fixed price investments that bear interest, such as CDs, bonds and money market funds like FDRXX. An IRR of 12.7 percent is a better return by far than you can find on any investment available to the retail public.

The economics of System B are less attractive because we're paying for an additional panel and more expensive panels in order to produce only a little more electricity than System A on a suboptimal roof.

Still, System B may be a better bet than many mutual funds. Here are the results from PVCalc.

You will note that the levelized energy cost is close to break-even at 14.9 cents compared to the 14 cents, plus the 1 percent annual increase I used for this scenario. That said, the IRR is 4.3 percent, meaning that it is still worth considering selling a money market mutual fund like FDRXX to buy this system. FDRXX has a yield of just 0.1 percent. So as long as the risks and limited liquidity of a home solar system (discussed below) are acceptable to you, it will make financial sense to sell a money market mutual fund like FDRXX to buy System B.

It is more difficult to gauge the expected return of a stock market mutual fund like VFIAX, but over 25 years, it is possible to come up with some reasonable estimates. Since we are looking at a 25-year life of the solar system, we should consider a similar time period for our mutual funds. Historically, long-term stock market returns have been driven by the valuation of the stock market at the beginning of the period. One widely used valuation measure is Robert Shiller's cyclically adjusted price-to-earnings ratio (CAPE). The CAPE is currently high by historical standards, meaning that stock market and VFIAX returns for the next 25 years are likely to be below par.

Extremely long-term stock market returns have been in the 9 percent to 10 percent range, but a CAPE this high has usually preceded long periods where returns have much lower, like in 1929 and 1966. The CAPE was even higher in 2000, and stock market annual returns have been around 3 percent over the past 17 years. With these past results as a guide, we can expect long-term stock market returns to be between 3 percent and 8 percent over the next 25 years.

From this we should subtract the expense ratio of a mutual fund, which is a negligible 0.1 percent for VFIAX, but could be much higher for other stock market mutual funds. We should also reduce the return to reflect the expected tax on dividends and capital gains of about 15 percent. All together, the expected return for VFIAX is between 2.5 percent and 7.5 percent. People in high income-tax brackets should reduce these expected returns even further.

If you are worried about future stock market returns, even the mediocre 4.3 percent expected annual return from System B looks good against a 2.5 percent after tax return for VFIAX. If you are a stock market optimist, you should jump at the chance to sell VFIAX if you can get the expected 12.7 percent annual return from System A, but you will probably find System B less enticing.

Risks

Risks for mutual funds

Expected return is not the only consideration; we also need to consider risk. Stock market mutual funds like VFIAX are known to be risky, and in the next 25 years, we can reasonably expect to have one or two financial crises like we saw in 2001 and 2008. Given the high CAPE ratio discussed above, a bear market in the next few years seems more likely than not.

Over long periods, the stock market does tend to make up for past losses, so a 2.5 percent annual return for VFIAX over the next 25 years is a reasonable worst-case scenario.

The attraction of a money market mutual fund like FDRXX is the limited downside. The fund should be able to pay its 0.1 percent interest without losing value (at least before inflation) over the next 25 years. The biggest risk for FDRXX is actually inflation itself. If inflation accelerates, and short term interest rates do not keep up, the real value of FDRXX will fall faster than the dividends it pays can make up for. Even if dividend payments rise to keep up with higher inflation, these are taxable, and they are very likely to continue to fall short of inflation after tax.

Given the the country's high debt, and the Trump administration's stimulus plans, rising inflation is quite possible. If it does rise, the interest paid to holders of FDRXX should rise with it. Since that interest is taxable, rising inflation will lead to small net losses for holders of FDRXX.

Risks for solar

Unlike FDRXX, a solar installation should benefit in the high-inflation scenario, since electricity prices and savings should rise with inflation. Nor should a prolonged stock market downturn hurt the returns from a solar installation. Another way to put this is that, as investments, solar installations have the attractive property of holding their value when financial investments are falling. This makes investing in even a relatively unattractive solar installation like System B a good way to diversify a larger investment portfolio.

The main risks for solar installations are falling electricity prices, the chance that the system breaks down, and the chance it is damaged in a house fire and insurance does not cover its replacement. There is also regulatory risk: the chance that regulators may change the way solar owners are paid for the electricity they generate.

The breakdown of solar risks

Falling electricity prices

Lower electricity prices equate to lower savings from solar. Most people assume that electricity prices will continue to rise over the long term, as they always have in the past, but this may not be a valid assumption. The falling prices for renewables and, perhaps most importantly, natural gas have been causing electricity prices to fall in recent years, and renewable energy technologies like wind and solar are almost certain to continue their price declines. These price declines are likely to be at least partially offset by the need to repair and expand our aging electric transmission and distribution infrastructure. How these two trends will balance is hard to predict.

A scenario where we see electricity prices continue to fall as fast as 1 percent per year seems quite possible. If we put this 1 percent annual decline into PVCalc, the IRR of each system falls by 2 percent. The IRR for System A becomes 10.7 percent, which is still pretty hard to beat. The IRR for System B falls to an unattractive 2.2 percent, but this is still better than we can expect from a money market mutual fund like FDRXX.

Repairs

Most home solar systems come with warranties. Solar panels usually have a 25-year power warranty that guarantees that electricity generation will not fall too much faster than expected. The expected return calculations already account for some degradation, the rate of which is specified in the “degradation” field of PVCalc. The rest of the system usually carries a 10- to 12-year product warranty, and the electricity produced in the first years of a solar system is the most important in determining the expected return.

If, for instance, in the highly unlikely case that System A were to break down and be completely worthless after 15 years, we can see the effect on return by putting 15 into the “useful life” field. In this case, the IRR of System A falls only to 10.2 percent from the initial 12.7 percent, still a far better return than we should expect from a stock market mutual fund over the next 15 years.

Part of the reason System B was more expensive was that it was made with SunPower AC panels, which come with a comprehensive 25-year warranty on all of the expensive system components. Hence, if System B were to fail during the 25-year useful life I assumed (and it will likely last longer), it could be fixed under warranty.

House fires

Including an annual insurance premium of 0.5 percent of the initial system cost reduces the expected return for System A to 11.2 percent. In that scenario, the expected return for System B changes to to 4.0 percent from 4.3 percent, so the cost of insuring against property damage to a solar system is manageable. Such insurance makes sense if the solar system is accounts for a significant portion of your net assets.

Regulatory risk

In the stock market, companies often deal with regulatory risk. Large importers like Walmart are worried about President Trump's proposal for a “border adjustment tax,” because it would increase their costs. A recent petition filed by bankrupt Suniva with the International Trade Commission could result in a 40 cents per watt tariff levied on solar cells imported into the U.S. This worries solar financiers and residential solar installers.

The recent rise of stock market index mutual funds like VFIAX since the election also has to do with regulation, namely, the anticipation that regulations will be reduced and businesses will become more profitable. If those reforms fail to happen or the profits fail to materialize, the market and mutual funds will fall.

Regulatory risk can also affect the value of a home solar system by changing the expected future payments. Net metering and other payment structures to compensate homeowners for the power they send to the grid are created by state regulators, and what regulators give, regulators can take away. Although state utility commissions have a great deal of power to change rates, they are generally appointed by elected state officials. As such, they are subject to political pressure, and usually avoid actions that will be unpopular with a large number of voters. Yet they also have a mandate to ensure the financial stability of the utilities they oversee. This can lead to unpleasant surprises for solar customers if utilities persuade regulators that their financial health is at risk.

The most stark example of regulatory risk for solar was when the Nevada Public Utilities Commission reduced solar customers' payment for net excess generation by three-quarters in December 2015. The commission also tripled fixed charges -- and retroactively applied all of these changes to existing solar customers. For someone considering investing in home solar today, it is the fact that the change was retroactive which should be most disconcerting, since the possibility of a future retroactive change makes it impossible to accurately estimate the future returns for solar.

Any possibility for a retroactive change should concern homeowners considering going solar, but the Nevada example should be comforting to many. This is because it is the exception that proves the rule: No other state regulator has ever retroactively reduced payments for existing solar customers. Moreover, the public outcry was such that the retroactive aspects of the ruling were eventually reversed.

Although regulatory risk is generally low for home solar, it does vary from state to state. The safest states are those like New York that have recently reached decisions regarding the compensation for home solar. The New York PSC recently ruled that existing residential solar customers could keep net metering for the life of their systems, while homeowners who install solar over the next five years would benefit from net metering for 20 years. The certainty of receiving net metering rates for 20 years should be sufficient for New York homeowners to make an informed investment decision.

Most homeowners should be fairly confident that whatever rules apply to their system at the time it is installed will last (at least for them) a long time. But there is still so

Family-sized Solar Car to Race in World Solar Challenge

Wed, 25 Jan 2017 08:03:23 +0000

Solar Team Great Britain has started a kickstarter page to help fund their design for entry in the 2017 World Solar Challenge. Founder Steven Heape leads a team of volunteers from many different disciplines, companies and universities working on a family-sized solar car to compete in the cruiser class. “Cruiser Class is about two or […]

Hot Offgrid Showers – Hurricane Matthew

Mon, 31 Oct 2016 15:17:46 +0000

When the hurricane hit, everyone on our road lost power when trees brought down the power lines. We decided to set up a public outdoor shower for our selves, neighbors, and whoever else needed one. A tree came down on the neighbors wooden swing set / gym, so they donated the materials, which I assembled into the outdoor shower. I used our Eccotemp L7 portable tankless propane water heater ($140), a 20 lb. grill bottle, and ran a extension cord from the generator to the well house so we would have water. Nice long hot showers for everyone! Video below:

Hot Water for the Cabin

Sat, 01 Oct 2016 00:20:06 +0000

We wanted something that would be energy efficient and frugal to produce hot water for the cabin. We picked up a inexpensive tankless propane water heater, which easily runs off a 20lb grill bottle and uses batteries for ignition. The Eccotemp L7 supplies 1.6 gpm of unlimited hot water (as long as the fuel holds out) for those needed satisfying showers after working out doors all day. Comes with a showerhead and propane regulator. The next step is to construct a solar hot water preheater to save on propane in sunny weather.

Richmond Hill to covert all street, park and parking lot lights to LED

Wed, 21 Sep 2016 18:06:35 +0000

The light has gone off in Richmond Hill. This GTA town north of Toronto is converting most of its 17,000 street, park and parking lot lights to LED as part of a contract it has just signed with Ameresco, which will supply and install the new lights. But this is more than just about high-efficiency lighting. The town will be getting a “smart lighting control system” that allows staff to remotely monitor and turn off/on the lights.

Is it worth it? Hell, ya. LEDs consume up to 60 per cent less power than “high pressure sodium” lamps currently used in most infrastructure. The town is expected to spend around $8 million to convert 15,000 lights and in return will enjoy $1.5 million in energy and maintenance savings each year. We’re talking payback in about six years on lights that are warrantied to last for 20 years.

And keep in mind, the price of LED lights have plunged by about 90 per cent since 2010, according to the U.S. Department of Energy. At the same time, efficiency and operating life continue to climb. Like solar and energy storage, the deal just keeps getting better and better.

The smart controls, which communicate with the lights through a wireless narrowband network, will also allow staff to more accurately monitor electricity consumption, dim the lights, and be notified when a bulb isn’t working properly.

“With this wireless network in place, Richmond Hill is one of the few Canadian municipalities to lay the foundation for high-tech systems management and is establishing the foundation for future ‘smart cities’ applications such as smart traffic lights, water and gas metering,” according to a town release.

Toronto Hydro has been testing the waters for LED street lighting, but the city has yet to dive in. Right now, about 150 LED street lights are being tested “in advance of a full citywide rollout,” but there’s no word on when that rollout is going to happen. Consider Toronto has 170,000 streetlights alone. Add in park and parking lot lights and it has a lot of work to do.

Aurora is taking the step, along with Markham, Newmarket and another 125 municipalities. The trend is taking hold, but seriously, there’s no compelling reason why this shouldn’t be a priority for every municipality in Canada. The financing models exist to ease the upfront capital costs. Municipalities just need to commit and do it.

And keep in mind, this is more than just about streetlights. Parking lots represent a massive opportunity. A December study from the Canadian Urban Institute estimated there are at least 42 million parking stalls in Canada. “Parking lots were estimated to have an average of one light per 20 stalls, and garages an average of one light per three stalls,” according to the report.

“Although there are more parking lighting fixtures in Canada than streetlighting fixtures, parking lighting only accounts for 5 per cent of LED sales,” it says. “This is likely because the sales process is more difficult with the more distributed ownership of the parking lighting, but this does not diminish the significant potential for improved safety energy and cost savings, GHG reduction across Canada.”

You Can Believe The Flexseal Hype!

Wed, 21 Sep 2016 11:50:28 +0000

We bought a used travel trailer to live in while we prepare the cabin for living in. Then Hurricane Hermine hit. Boy did we find leaks in a hurry, over the bed, around skylights, etc. I took a chance on a late night TV hawker, and got two cans of White Flex Seal. It sprays on like spray paint, but it’s liquid rubber. It sealed those leaks quickly (front and back ridges, plus two skylights, in less than 15 minutes), and no more leaks. It’s flexible, so it should stretch without peeling or pulling. It’s made me a believer! Also available in larger cans and colors for larger jobs.

EV tipping point is getting closer, and Exxon is beginning to worry

Sun, 18 Sep 2016 14:26:44 +0000

Last fall, I interviewed John Mitchell, an associate research fellow with Chatham House and a guy who knows his stuff when it comes to energy transitions. One quote I used from him — in an article I wrote for Corporate Knights— really stood out for me: “For oil, the Kodak moment will be when somebody produces a low-cost battery, as that will change the transport market profoundly.”

Mitchell didn’t mention a specific price-point, but a number I’ve heard tossed around as the likely tipping point is $100 per kilowatt-hour. At that price it’s believed electric cars can easily outcompete gas-fuelled vehicles by pretty much every measure. Tesla’s chief technology officer JB Straubel said last year that he expected that $100 target to be hit by the end of this decade. Bloomberg New Energy Finance has been a bit more conservative, saying it expects batteries to be less than $120 kWh on average by 2030. That said, Colin Mckerracher, BNEF’s head of advanced transportation, had a post on Twitter last week featuring an interesting slide from a Ford investor presentation. Ford, according to the slide, thinks it can hit $120 kWh in 2020 and projects costs hitting $95 by 2025 and $85 by 2030.

Finally, we can’t let the week go by without pointing to the soon-to-be-launched GM Chevy Bolt, which we learned will have a range of 238 miles (383 kilometres) between charges. It has been reported that the batteries used in the Bolt come in at $145 kWh. The car will still be priced in the high $30,000 range, but the fact a mainstream carmaker like GM is hitting this range at this price point in 2016 is nothing short of phenomenal, and in my opinion should silence all the EV haters who have dismissed the technology and its potential. Did they really believe that EV tech as reported in 2010 would never change, never get better, never get more affordable?

And let’s not obsess over just cars. Buses and big trucks, previously considered off limits to battery technology, are now being eyed as potential markets. Elon Musk, in Part Deux of his Master Plan, cited plans in July for a “Tesla Semi” unveiling next year and a desire to get into “high passenger-density urban transport” — i.e. buses. A Michigan-based company called Nikola Motor Co. is coming out with its own electric drive semi-trucks fuelled by hydrogen, while Proterra has a bus that can go 350 miles (564 km) on a single charge.

No wonder Exxon Mobil has beefed up its anti-EV lobbying. The company is getting worried. It sees the trend line, and it knows what this means for its core business. The only stalling tactic it has at this point is to continue feeding the public an increasingly tired line: EVs and their batteries need further development and cost-reductions to be competitively viable on a large scale.

It’s hogwash, of course. At some point within the next decade, Exxon executives are going to have to turn to the camera and smile for their Kodak moment.

Cabin delivered and set!

Wed, 07 Sep 2016 17:44:54 +0000

The cabin arrived and was set yesterday. Lots of issues with soggy ground from last week’s hurricane, but finally got it in place. The delivery truck got buried in mud, then so did the “mule” used to set the cabin place. A winch got the vehicle unstuck after a bit.

This week I’m installing the breaker box and some of the interior wiring, then will start on insulating and interior wall coverings. Insulation will be Great Stuff Pro and then I’ll be using pallet wood for the walls.

Moving into a Tiny House

Sat, 27 Aug 2016 20:44:14 +0000

Next week our Tiny House is being delivered. It’s a common 14′ x 28′ wooden shed that we will be converting into an off grid home. These sheds sell for about $8000, and include a steel roof and pressure treated 2″ x 6″ floor joists, decking, and T-111 siding. We will document our progress converting this shed into a Tiny Home, and will be using a variety of environmentally friendly and energy efficient materials and processes to keep our costs and energy use to a minimum, even here in hot and humid South Carolina. We have started with a radiant barrier in the roof,and will follow with sprayed closed cell foam in the walls. The interior walls will then covered with recycled pallet boards, stained and sealed. Stay tuned for video and other documentation.

Remove Radioactivity from Water?

Tue, 09 Aug 2016 20:59:56 +0000

Pure water can not become radioactive or carry radioactivity. Dissolved particles in the water carry radioactivity. A water purifier that prevents the passage of these particles eliminates the hazards of drinking radioactive contaminated water. The Berkey purifier elements in our DIY filters accomplish this easily.

From New Millennium, the suppliers of the Black Berkey elements:

When it comes to drinking water, how do you know that your water is actually safe? Who decides when water is drinkable? An article by the Las Vegas Review Journal[i] reported that the water in the Las Vegas Valley area was deemed safe according to the EPA’s Safe Drinking Water Act[ii]. However, this report also stated that the water tested positive for radioactive materials like uranium. This radiological contaminant can be found in groundwater, bedrock, and in dissolved minerals containing uranium. This element has been known to cause kidney damage, cancer, and even death[iii].

If this water meets the quality standards of the federal government, and yet still contains contaminants such as uranium, how can you be sure that the water that you are drinking is doing more good than harm? If municipal water is only doing the bare minimum that the EPA requires, what can you do to ensure that your water is clean and safe?

The Black Berkey^® Purification Elements are rated to eliminate at least 97% of uranium from your water, along with other radioactive contaminants. These purifiers are rated to clean your water down to the viral level, while still allowing safe and beneficial minerals to pass through. The Black Berkey^® Purification Elements provide a layer of protection and ensure that the water you are drinking is not only safe, but is also clean and pure tasting.

Episode 5 of the Clean Break Podcast

Thu, 07 Jul 2016 01:28:25 +0000

In Episode 5 of the Clean Break podcast, host Tyler Hamilton, returning after a long break (hey, it’s cottage time), discusses Ontario’s heat wave, applauds record Chevy Volt sales in Canada, and wonders why a small slice of EV purchase incentives don’t go to the auto dealerships that sell the cars. This shorter-than-usual podcast concludes with an interview with Phil Abrary, president and CEO of Vancouver-based Ostara Nutrient Recovery Technologies, one of Canada’s most successful pure-play cleantech companies.

Gene Logsdon has passed away

Wed, 01 Jun 2016 02:03:45 +0000

My first experience with Gene was 40 years ago reading Homesteading: How to Find New Independence on the Land. I still have that book, although it’s pretty dog eared, from reading it over and over. It was a primary inspiration for our own move offgrid over 10 years ago. Gene lost his battle with cancer today, and will be missed.

https://thecontraryfarmer.wordpress.com/

RV Off Grid Solar Guide – Free

Thu, 19 May 2016 14:26:07 +0000

Want more freedom when camping? Solar is a great way to providing lighting, charge your phones and reduce your fridge’s propane usage. If getting great views is your goal, a powered site isn’t going to get you there. Here is a free guide for sizing, installing and maintaining a off grid power system. Did I mention it’s free? We recommend it!

https://www.outsidesupply.com/rv-solar-guide

Make Crockpot soap in 24 hours

Thu, 19 May 2016 12:53:27 +0000

Ever wanted to make your own soap? Thought it was too slow or complicated? Here’s a fast and easy method using a “hot process” in your typical crockpot. A cheap digital scale for about $15 and you are in business!

All-natural soap is actually surprising easy to make. 12-18 big bars of organic soap are made with ingredients that cost less then $10 .

http://www.myhealthyfeed.com/2016/05/16/making-soap-in-a-slow-cooker/

Episode 4 of the Clean Break podcast

Thu, 05 May 2016 21:58:46 +0000

Climate and energy news and views. In this episode host Tyler Hamilton interviews John Paul Morgan, co-founder, president and chief technology officer of Toronto-based solar technology company Morgan Solar. It has the potential to be one of the lowest cost solar module makers in the world. Can it deliver?

Episode 3 of the Clean Break Podcast

Fri, 22 Apr 2016 23:06:25 +0000

In this episode host Tyler Hamilton interviews Ron Dizy, managing director of the Advanced Energy Centre at the Mars Discovery District in Toronto. Discussion includes flywheel technology from Temporal Power, opportunities for Canadian cleantech companies in Chile and China, and how to reduce barriers that will help Canadian cleantech companies scale up.

Clean Break podcast Episode 2

Tue, 12 Apr 2016 00:54:43 +0000

In Episode 2 of the Clean Break podcast, host Tyler Hamilton reviews climate, energy and technology news of the past week and shares excerpts of an interview with Annette Verschuren, CEO of energy storage company NRStor.

Here’s the buzz on Ecobee, the smart thermostat crowding out the Nest

Tue, 05 Apr 2016 13:17:52 +0000

This story of mine appeared in the Spring 2016 issue of Corporate Knights magazine.

Stuart Lombard had no obvious reason to leave his job as a venture capitalist in 2007. Times were good. As managing partner with J.L. Albright Venture Partners in Toronto, he worked out of a swank office on the 44th floor of Brookfield Place, at the time known as BCE Place. The firm was one of Canada’s most successful early-stage investors in Internet and software startups, many of which were acquired by the likes of General Electric and Cisco.

Lombard also had major street cred in the technology world. During the 1990s he co-founded what grew to become Toronto’s largest Internet service provider, and as chief executive of Isolation Systems, a maker of virtual private network products, he built a company that in 1998 was sold for $37 million and at one point was owned by Intel.

So it was a surprise to colleagues when the mild-mannered Lombard told them he was giving it all up to start a company that makes a better home thermostat. “People thought ‘You’ve got to be nuts’,” recalls Lombard, explaining that he made the decision just weeks before Apple released its first iPhone. “It was based on this simple idea of helping people reduce energy, save money and reduce their carbon footprint.”

The way Lombard saw it, thermostats at the time were just too dumb and did a poor job of keeping people comfortable in their homes. Even the programmable kind – which most people don’t take the time to program – fell short, mostly because in the real world the movement of individuals in and out of a home doesn’t always follow a predictable weekly schedule. There was also the fact that thermostats pre-2007 were ugly plastic rectangles with monochrome LCD displays – a waste of wall space for a generation with higher aesthetic expectations.

Nine years later, Toronto-based Ecobee, the company Lombard founded, is creating major market buzz and holding its own against deep-pocketed newcomers and incumbents alike, most notably Google-owned Nest and longtime thermostat king Honeywell. Lombard says Ecobee has doubled the size of its business since launching its first product in 2009, and has outgrown three – soon to be four – head offices to accommodate its rapidly growing workforce, which today sits at about 120.

As for market impact, in six years the company has helped its customers save an estimated one terawatt hour of power, Lombard says. It’s the equivalent of taking a small coal-fired power plant off the grid for a year. According to the company’s own analysis, the average Ecobee user reduces energy consumed for home cooling and heating by 23 per cent. “People really, really love it,” says Lombard.

Ecobee started off well, making an early splash when it launched the industry’s first Wi-Fi-enabled thermostat. That first-generation device signalled the promise of the connected “smart” home and gave homeowners their first sense of where the market was destined to go. Customers could easily program the thermostat through its unique colour touchscreen or remotely through an Internet-connected device. Delivery of real-time weather reports was an added bonus. Ecobee could also do software upgrades to all installed thermostats without customers even knowing.

“When we launched, we were the only product of its kind, and we were kicking Honeywell’s butt,” says Lombard, apologizing in typical Canadian fashion for potentially sounding arrogant. He wasn’t, given that Honeywell controlled about 60 per cent of the thermostat market at the time. “It was really exciting,” he adds. “We were doing high-fives in the office.”

Nest bumps the hive

Ecobee’s current office is located on Toronto’s University Avenue in the historic Bank of Canada Building, a 60-year-old structure based on classical architecture that used to secure all the cash and gold in the region in theft-proof vaults. When the elevator doors open on the fourth floor, however, it’s like being in a time machine that reveals a portal to the 21st century.

Not that the office is anything special. It’s modern, as expected, and is a hive of activity typical of a tech company – young worker bees behind computer screens quietly typing away. It’s clear that what was deemed “crazy” and risky by Bay Street colleagues in 2007 has proved, in hindsight, a sane bet.

“Stuart has a gritty determination underneath,” says Jane Kearns, a senior advisor with the cleantech practice at the MaRS Discovery District, which counts Ecobee as an early client. “It’s impressive what they’ve done. They’ve really been smart about it.”

But Kearns, like others, had concerns when she learned that Google-backed Nest was coming to market with its own smart thermostat. Many saw the beautifully designed Nest device as an Ecobee-killer, even more so after Google purchased the company in 2014 for a whopping $3.2 billion (U.S.).

Nest Labs was co-founded in 2010 by CEO Tony Fadell, a former senior vice-president of Apple’s iPod division. Fadell helped design the iPod and reported directly to Steve Jobs. His commitment to aesthetics and ease-of-use while at Apple is reflected in the design of his “learning” thermostat.

I ask Lombard about the Nest factor. He says Ecobee was never “up against the ropes” financially and has always performed well, but admits that the emergence of Nest was a “shock to the system” that put tremendous pressure on Ecobee to up its game.

“When Nest came to market it was a wake-up call,” Lombard says. “Certainly there was this period where it felt like we had this twin that was smarter and better looking.” Until Nest launched, Ecobee thought it was playing in the NHL. After the first hockey puck-shaped Nest device was dropped in the market in 2012, “we felt more like champions of the North Toronto minor bantam hockey league,” he jokes.

Not resigned to being a second stringer in the big leagues, Lombard stayed upbeat. He viewed the arrival of Nest as an opportunity to make some big changes. Ecobee’s designers and engineers were tasked with giving the device a dramatic facelift, including a stylish, slim new look and a basket of novel capabilities.

Photo courtesy of Ecobee

When finally released in September 2014, the third-generation thermostat – called Ecobee3 – was greeted with great fanfare. It has consistently received more positive reviews than the Nest device. Within four months of launching, it unseated Nest as PC Magazine’s Editors’ Choice for smart thermostats, and the accolades keep rolling in.

“The Ecobee3 worked like a charm,” according to PC Magazine reviewer John Delaney, who praised the device for being loaded with features, easy to install and “best suited” for people with flexible schedules. Most recently, in January, Ecobee was named to the Global Cleantech 100’s Ones to Watch list, which recognizes new companies that are “catching the eye” of big market players.

Best Buy and Apple were quick to start carrying Ecobee3 in select stores and online, and eventually the device was available through all of their store locations. Home Depot also began stocking the thermostat, putting it side-by-side with Nest and high-end models from Honeywell. Heating and air-conditioning giant Carrier, an important distribution partner for Ecobee, dove in to become a minority investor. An even bigger market signal came in July 2015, when Apple decided to dump Nest from its stores and go exclusively with Ecobee3.

Needless to say, meeting the high standards that earned Apple’s exclusive endorsement gave Ecobee a major boost as the company entered the latter part of 2015. Rahul Raj, vice-president of marketing and e-commerce at Ecobee, says having the Apple “halo” hovering over Ecobee has been nothing short of huge.

“People know that we’re quality enough to be in the Apple store, so it gives them a kind of shorthand. Even if they don’t do their own research, just knowing it’s in that store means it must be pretty good,” says Raj, adding that it helped level the field with Nest when it came to brand awareness – particularly in the U.S. market. “The Americans have taken notice.”

Asked why he believes Apple kicked Nest out of its stores, Lombard kept it simple: “I think we have a better product.”

Sting like a bee

The bee is now swarming around the nest. Ecobee still trails Nest, but last year it surpassed Honeywell to become the second-best selling Internet-connected thermostat in the United States. It’s not an insignificant achievement. “They were ostensibly the Kleenex of thermostats, and we’ve overtaken them,” says Raj, who is convinced Ecobee is positioned to overtake Nest this year.

According to research firm NPD, Ecobee had 24 per cent of the smart thermostat market by mid-2015. Since then, there’s good reason to believe it has captured a larger share.

The market moves fast and can change abruptly, but Ecobee3 currently has an important edge over Nest. The $250 thermostat ships with a wireless sensor that can be placed in any room. Other home thermostats only measure temperature in a single location, usually the kitchen or living room. That often results in the ground floor being comfortable but upstairs rooms being too hot or cold.

Ecobee’s sensor can separately monitor temperature in another room, as well as when people come and go from that location. The sensor talks to the main thermostat, which uses a proprietary algorithm to spot patterns and calculate an ideal temperature balance. To bolster accuracy even more, up to 32 sensors (at $79 a pair) can be added to fine tune comfort, which is particularly handy in larger homes.

Scott Jenschke, who is responsible for heating and cooling merchandise at Home Depot’s headquarters in Atlanta, says this unique feature is what seems to be resonating the most with customers. It’s also what Delaney, in his PC Magazine review of Ecobee3, noted as a comparative weakness with the Nest thermostat. “The Nest can’t sense temperature or motion in other rooms, and may leave you shivering if you’re in another part of the house,” he wrote.

There are lots of other goodies. In late 2014, Ecobee launched its free Home IQ service, which gives homeowners detailed insights into how they’re using energy, what they can do to reduce costs, and how their home compares to neighbourhood averages. “If you start with the premise that people want to do the right thing, you just have to give them the tools to do it,” Lombard says. “We can tell them how fast their home heats up and cools down, how tight or leaky it is, and how efficient your (home heating and cooling) equipment is. If you capture that data on an anonymized basis, you even have the opportunity to inform public policy.”

This is all combined with real-time alerts and actions. When someone is away on vacation, for example, Ecobee3 can send an e-mail nudge if it appears the furnace has stopped working, potentially putting pipes at risk of freezing. Lombard tells of one customer who was alerted that his home’s air conditioner had been running for hours but, strangely, the house was not cooling down. The customer, perplexed at first, put two and two together: his daughter was having an unsanctioned party and the door was always opening as people came and went. “He confronted his daughter,” Lombard says. “She finally admitted it.”

Al Shuman, vice-president of marketing at Just Energy, a major natural gas and electricity retailer, says homeowners appreciate the control. “Honestly, what people most like is just the idea of adjusting their thermostat from their bedroom using their smart phone,” says Shuman, whose company has been an Ecobee partner for two years and this spring plans to mass market Ecobee3.

“It’s really intuitive, and so much improved over the second-generation one. People play with it more, they treat it as jewelry and take pride in it,” he says. Still, he gives Nest credit for boosting public awareness of the broader smart thermostat market. “We do get a lot of customers that ask how it compares to the Nest. At first blush people might say, hey, that’s not a Nest, but frankly, the features and functionality are there.”

Those features seem to get richer by the day. Part of the reason Apple gave Ecobee exclusive access to its online and brick-and-mortar stores is that it was the first smart thermostat certified to work with Apple HomeKit, the developer platform that allows non-Apple smart devices to interact seamlessly with iOS, the company’s proprietary mobile operating system. It allowed Ecobee to virtually mimic the Ecobee3 display through an app on the homeowner’s iPhone, iPad, iPod touch or Apple Watch. Users get control on the go, including the ability to issue voice commands through Siri.

HomeKit also enabled geofencing – the ability to instruct the thermostat to operate in a certain way based on the personal location of Apple device users in a household. For example, it can be told to lower the temperature when home occupants are more than five kilometres away, and crank it back up when someone gets within two kilometres of the house.

The move to HomeKit and closer partnership with Apple has put Nest and Honeywell on the defensive. “This year has by far been our best year ever, and it’s given us a lot more momentum just based on the increased awareness,” says Lombard, at the same time reiterating that Ecobee3 is also Android compatible. “Our Android users are just as important to us, but our Apple relationship just gets us the bigger mention.”

Avoiding colony collapse

Kearns at the MaRS cleantech practice says Ecobee’s ability to navigate through the Nest threat has been impressive, with the company gaining some crucial traction in the marketplace. But the technology sector never stands still, and with Google the long-term vision is to have Nest dominate the Internet of Things that are expected to make up a smart home. Already, Nest has a smart smoke and carbon monoxide alarm, and a Nest Cam with motion and noise detection that can double as a nanny-pet cam or home security product. All of these products can be controlled remotely through a smart phone. “Ecobee is trendy and popular, but it’s still a thermostat and they’re still a one-trick pony, which for me is a pretty risky place to be,” says Kearns.

Lombard has no intention of standing still. Ecobee continues to develop partnerships with major utilities and position its thermostat as a way for homeowners to participate in demand-response programs. Eventually, customers might be able to monitor and control electric vehicles and energy storage systems connected to their homes. Utilities, with customer permission and under specific conditions, could one day remotely control the energy consumption of tens of thousands of homes to better manage the flow of solar and wind energy on the grid.

Ecobee also has a public API, or application program interface, meaning anyone can develop their own app to add value and choice to the Ecobee app. Lombard says there are a thousand applications currently being designed around Ecobee3.

Given the huge amount of data Ecobee is collecting, there seems no end to how it can be used to improve the customer experience.

Clean Break podcast Episode 1

Wed, 30 Mar 2016 02:04:28 +0000

In this episode, host Tyler Hamilton reviews climate and energy news of the past week and talks about plans that two Canadian companies have to make carbon-neutral gasoline out of captured CO2 and renewable hydrogen.

Clean Break podcast – the pilot episode!

Mon, 21 Mar 2016 19:28:44 +0000

Hey all, experimenting here with a podcasting that I hope will become a regular feature on this site and available through iTunes. Would love any feedback you can offer.

Nanticoke, once North America’s largest coal plant, to host 40MW solar farm

Thu, 10 Mar 2016 20:54:51 +0000

Okay, it’s ridiculous to compare a 40-megawatt solar PV park to a coal-fired power plant that could crank out 4,000 megawatts at peak capacity, but the fact Ontario Power Generation (OPG) got a contract today to build such a solar project at the old Nanticoke Generating Station is, at the very least, symbolically significant.

Ontario’s Independent Electricity System Operator announced the results Thursday of its Large Renewable Procurement (LRP), which, for good reason, replaces the previous feed-in-tariff (FIT) program. The FIT program just couldn’t keep up with the pace of technological change and learning in the industry, and since the solar and wind industry in Ontario is now well established, it was time to abandon the rich premiums that came with the FIT and make the big boys of renewable energy compete for Ontario’s business.

In total, 455 megawatt of wind, solar and hydro was contracted out as part of the LRP:

Five wind contracts totalling 299.5 MW, with a weighted average price of 8.59 cents per kWh;
seven solar contracts totalling 139.885 MW, with a weighted average price of 15.67 cents; and
four hydroelectric contracts totalling 15.5 MW, with a weighted average price of 17.59 cents.

See list of projects here.

The lowest price Ontario got for wind was 6.45 cents, which is half of what it initially paid under its feed-in-tariff program. As Ontario’s Clean Air Alliance pointed out, that’s lower than what a re-built Darlington Nuclear Station is expected to cost, assuming it doesn’t go over budget (and history says it likely will). Now, nuclear is baseload, wind isn’t. But keep in mind that the purchased wind power comes risk-free to Ontario ratepayers. Can’t say that for nuclear deals in the province, no matter how much lipstick you put on a pig.

With solar, the lowest price locked in was 14.15 cents, which is remarkably close to what Ontario was paying for large-scale wind under its FIT program. It’s also significantly lower than rates for large-scale solar under the FIT program, which back in 2013 started at 34 cents and climbed from there.

These power purchase agreements (PPAs) show just how much solar costs have fallen — and will continue to fall. Now, you may be tempted to point to super-low cost solar contracts announced in places like California, Texas and New Mexico. Toronto-based Skypower has even bid 8 cents (U.S.) for projects in India. But keep in mind the solar regime isn’t as favourable in Ontario, the dollar is lower, and projects were tied to some social goals. For example, 13 of 16 projects include participation from one or more Aboriginal communities, including five projects with more than 50 per cent Aboriginal participation. I wonder, however, if the province could have secured even lower bids if it agreed to backstop loans on winning projects — perhaps from a green bond issue?

Still, the price is heading in the right direction. As the Canadian Solar Industries Association said,

“It is also the first time that a utility scale solar project has been contracted at a price that is lower than the retail rate of electricity in Ontario.”

That’s a milestone we should all remember.

But back to the OPG contract. Its significance wasn’t lost on Dan Woynillowicz, policy director at Clean Energy Canada.

“It’s both a powerful symbol and great progress to see a contract offered for a solar farm that will be built on the land once occupied by the Nanticoke coal-fired power plant, once Canada’s top greenhouse gas polluter.”

I wrote about OPG’s planned bid for solar projects last May in Corporate Knights. At the time, OPG was hoping to win up to 120 megawatts worth of projects, which would be spread across its shut down Nanticoke and Lambton generation sites, as well as its still-operating Lennox station near Kingston.

Here’s what I said:

OPG, a publicly owned crown corporation, has historically been held back from bidding on renewable energy projects, given that its sheer size and influence were seen as unfair advantages in a competitive, open market procurement process. The company supplies roughly half of the province’s power, mostly through nuclear and large hydroelectric facilities.

In June 2013, however, the Ontario government restructured its feed-in-tariff program such that only smaller renewable-energy projects could participate. Larger project proposals, those generally more than 500 kilowatts in size, would need to compete through a request-for-proposal (RFP) process.

And in a controversial twist, Energy Minister Bob Chiarelli directed the Ontario Power Authority to allow OPG to participate in all renewable energy procurement rounds.

I think it’s smart to let OPG enter this game. Sure, it’s a large publicly owned incumbent, but the solar market has matured and can hold its own. OPG also has unique experience (and recent success) partnering with aboriginal communities.

One potential hitch is that SunEdison is OPG’s development partner. The company is going through some tough times right now (the existential kind), and it’s unclear whether that will have an impact on OPG’s plans.

Speaking Appliances for the Visually Impaired

Sun, 06 Mar 2016 15:34:43 +0000

We are working with an organization that provides adapters and converted equipment to announce status messages by speech instead of visually. We have speech enabled shop measuring equipment like calipers, micrometers and dial indicators, weather stations, and thermostats, and are working of speech enabled appliances, motion sensors, and other common gadgets. To help fund this endeavor, we have reduced the prices of all our ebooks at http://green-trust.org/products/ to $10 each.

To see a bit of what we are working on, see:

Solar / Geothermal Driveway Snow Removal

Wed, 10 Feb 2016 13:59:48 +0000

A engineer in NJ uses a combination of solar and ground source heat pumps to keep his driveway and walkway clear of snow, and recycles the snow melt for laundry, toilet and other purposes.

“What we are doing is using the environment to battle the environment,” said Asit Parikh, who helped his father Raj develop what they call “Zenesis House.”

Introducing the New Berkey DE Filters

Tue, 01 Dec 2015 18:04:42 +0000

The New $50 DE (Diatomaceous Earth) Filters are the most powerful filters available on the market. With filtering specs that approach the much more expensive purification filters, these are an awesome value!

The most powerful gravity-fed element in the Filtration class

Filtration class: Micro-Filtration Technology. Tested to reduce contaminants to bacterial level, as well as some viruses.

Chemicals, herbicides, pesticides, VOC’s, THM’s, heavy metals and more are easily reduced to 99.9%

Proprietary formula comprised of Diatomaceous Earth, granulated activated carbon and other media components, designed to exceed filtration standards (test results).

Each element will filter up to 3,000 gallons of water or last up to 3 years, before replacement is needed.
With 4 elements (in a Big Berkey system), the 9” elements can produce flow rate of up to 1.5 gallons per hour or up to 36 gallons of water in 24 hours.

Ideal for the price-conscious consumer to get started with a highly efficient filter system, at a more affordable price.

Economical entry price affords those who would like to upgrade to the more powerful Black Berkey™ elements down the road, the ability to get an effective and economical system now and then upgrade later.

We package a 9″ twin pack with a faucet to build your own Berkey. Just add two buckets. See http://www.instructables.com/id/DIY-Berkey-Water-Purifiier/ for construction details. Prices for the elements (delivered in the lower 48) run $50 for the New DE, $75 for the white ceramic, and $115 for the Black Berkey. We also include a series of ebooks on collecting, storing, filtering, and heating water.

Make your own Paracord bracelets, hatbands, belts and more

Thu, 05 Nov 2015 14:31:35 +0000

You never know when you need a length of paracord to tie down a load, lower yourself out a second story window, or other emergency or day to day use. What better way to have the cord with you, than to make a functional piece of clothing or attire out of it. Here are some great instructionals on how to make these useful gadgets:

http://www.instructables.com/id/Paracord-Bracelet-Instructions-2/

http://www.instructables.com/id/Paracord-Project-Guide/

Sources for paracord:

http://amzn.to/1MBKP50

Fire Starter Buckle Flint Buckle Whistle Buckle Combo

http://amzn.to/1MBKOOv

The DIY $20 Rocket Stove

Fri, 30 Oct 2015 16:39:04 +0000

Today we built and fired up our new rocket stove. It took 13 Fire Bricks at $1.35 each, one cement block, and less than a pint of furnace cement. The pictures document the build, and the video shows the operation.

Build a Earth Bermed home for under $50k

Thu, 22 Oct 2015 11:28:35 +0000

The Wofati is a Earth Bermed home made of materials primarily found on the building site. Virtually no heating or air conditioning expenses, it works with nature instead of against it. From the inside it looks and feels like a log home, and with more light than a underground home! A living roof with plenty of thermal mass, this pole building is worth checking into! – https://paulwheaton12.wordpress.com/2014/11/20/wofati/

5 Gallon Bucket Book – DIY Projects

Mon, 12 Oct 2015 22:13:27 +0000

The common 5 Gallon Bucket is useful for so many things after it’s initial use. We have been building water filters, clothes washers, and composting toilets, but there’s a whole lot more you can do with this everyday object. Chris Peterson has written a full color photo and diagrammed book that lists parts, tools, and step by step instructions for over 50 neat projects including:

Small Room Air Conditioner

Cable and Cord Organizer

Trash Compactor

Shoe Rack

and so much more. We have been avid bucket upcyclers for years. This book is fantastic! I can’t wait to start some of these projects. A few of my favorites are the mailbox, dryer lint trap, and the storage stool.

You can read a preview of the book for free at http://amzn.to/1R7HZZ7, just click the book cover.

Discuss these projects at https://groups.yahoo.com/neo/groups/bucketproducts/info

Take Yourself Off-Grid!

Thu, 03 Sep 2015 11:45:42 +0000

You probably have heard horror stories of $30k + solar power systems that don’t work when the power goes out (grid tie), complicated power company rules, and expensive and complicated equipment.

We lived off grid for 6 years, and designed and installed our own power system. I’m sharing some of the things I learned, and the full journey is found in the pages of this blog.

You can start the off grid journey yourself, with minimal investment, and grow your system at your own pace. No legal complications.

I’m providing a DIY guide to setting up your own off grid power system for free. Great for cabins, boats, and RV’s, it gives you the basics you need to expand to a larger system.

Good starter equipment includes a small wind turbine if you live in a windy location and a good quality solar panel and charge controller:

400 Watt Wind Turbine

100 Watt PV Kit

This is a good start on your journey, and you will learn a lot about the technology before you build a larger, and more expensive system yourself.

Can Thermoelectrics Replace a Vehicle Alternator?

Wed, 24 Jun 2015 12:10:09 +0000

Borla®, the pioneer and leading manufacturer of stainless-steel performance exhaust systems and Alphabet Energy, the global leader in thermoelectrics for waste heat recovery, announced today a nonexclusive partnership to deliver the industry’s first aftermarket thermoelectric fuel-efficiency product for vehicle internal combustion engines.

Sixty percent of the energy from fuel used in cars and trucks escapes through the exhaust tailpipe as waste heat. Borla’s technologically-advanced exhaust systems coupled with Alphabet Energy’s PowerModule™ thermoelectric generator has the potential to capture 5 to 10 percent of a car or truck’s waste heat and use it to improve fuel efficiency by reducing alternator loads or replacing the alternator entirely. This captured heat can be used to power the multitude of electrical components on a modern car normally powered by the energy-hungry alternator, such as lights, heating, air conditioning, sound, and navigation systems.”

“Our customers count on us to deliver the highest quality exhaust products while also helping them manage their most pressing challenges for the Class 8 truck fleet operator, and that’s fuel efficiency,” said Alex Borla, Co-Founder and Chief Technology Officer at Borla. “As we expand into new markets, it’s our vision to combine Borla’s state-of-the-art exhaust and filtration technologies with thermoelectrics, and Alphabet Energy is the ideal partner to fulfill this vision.”

According to the US Department of Energy, a Class 8 truck traveling 150,000 – 200,000 miles per year averages $70,000 – $125,000 in fuel costs. For many, the lifetime fuel costs for a Class 8 truck are approximately five times the original purchase price of the vehicle. Heat captured by a Borla Exhaust and delivered to an Alphabet Energy’s PowerModule™ could deliver a fuel savings of 3 to 6 percent or as much as $7,500 per year, per Class 8 truck.

“Alphabet Energy is committed to transforming waste heat into value for our customers and partners,” said Dr. Matthew Scullin, Founder and CEO of Alphabet Energy. “Borla’s passion for innovation and design parallels our own and we’re excited to partner with them on the future of heavy-duty trucking exhausts and fuel efficiency improvements.”

Alphabet Energy’s PowerModules™ will undergo testing on both gasoline and diesel truck exhausts at Borla’s state-of-the-art research and development centers in Oxnard, Calif. and Johnson City, Tenn. Based on positive results from the testing, the two companies intend to co-develop and commercialize the next-generation Borla Exhaust for trucks and other mobile and stationary internal combustion engines with Alphabet Energy PowerModules™.

First City to be 100% powered by renewable Energy?

Sat, 06 Jun 2015 13:51:06 +0000

PBS recently announced that Burlington VT was the first city to be 100% powered by renewable energy. As fun as that sounds, PBS was off by more than 100 years.

A quick search of Wikipedia shows:

The old Schoelkopf Power Station No. 1 near Niagara Falls in the U.S. side began to produce electricity in 1881. The first Edison hydroelectric power station, the Vulcan Street Plant, began operating September 30, 1882, in Appleton, Wisconsin, with an output of about 12.5 kilowatts. By 1886 there were 45 hydroelectric power stations in the U.S. and Canada. By 1889 there were 200 in the U.S. alone.

I personally grew up in communities that were 100% hydroelectric powered, either in their past, or currently. Nice try PBS. We realize your heart was in the right place, but a little fact checking goes a long way.

Make your own fuel from waste plastic?

Fri, 29 May 2015 17:26:16 +0000

Turn that waste plastic (2, 4, 5 & 6) into fuel. This machine cooks the plastic at over 300 Celsius, and condenses the gas back into a liquid oil. 1kg of plastic + 1 kWh of electric, = 1 liter of fuel (3 hours). At just over $13k, it would pay for itself in about 6 years (including the electric costs to run it).

Models and Specifications

“Bride of Frankenfood”

Wed, 20 May 2015 15:38:06 +0000

Hillary Rodham Clinton’s ties to agribusiness giant Monsanto, and her advocacy for the industry’s genetically modified crops, have environmentalists in Iowa calling her “Bride of Frankenfood” — putting yet another wrinkle in her presidential campaign’s courtship of liberal activists who are crucial to winning the state’s Democratic caucuses.

The backlash against Mrs. Clinton for her support of genetically modified organisms (GMO), which dominate the corn and soybean crops at the heart of Iowa’s economy, manifested itself at a recent meeting of the Tri-County Democrats, where members gauged support for the former secretary of state.

A large faction of women voiced strong support for Mrs. Clinton’s candidacy until the GMO issue came up, prompting them to switch allegiances to Sen. Bernard Sanders of Vermont, a liberal stalwart challenging her for the Democratic nomination.

Water Conservation in Las Vegas

Mon, 04 May 2015 11:26:54 +0000

Water Conservation in Las Vegas

In the middle of the Mojave Desert lies an oasis known as Las Vegas. Although the desert is among one of the driest places on earth, water supply doesn’t seem to be a problem considering the 22 million gallons used at the Bellagio fountain and the amount water used to fill the canals of the Venetian. From 2000 to 2010, Las Vegas was the third fastest growing city in the fast growing state, and rates of water consumption went through the roof. The city only gets about 4 inches of rainfall on average, which makes the public question what exactly are casinos to do to fight the drought.

Other than endangering the environment, the lack of eco-friendly practices can also be a risk for businesses as operators are missing opportunities in accelerating non-gaming revenue and expanding their target consumers. Evidently, online casinos don’t face the same handicaps as the land-based facilities, which give online casino providers the upper hand in target marketing. Without the worry of environmental impacts and the hassle of leaving your home, online consumer profiles can range from conservationists to those residing in a country with strict gambling regulations – an example of this is Japan. Despite Japan’s conservative views on gambling, the world’s first internet-based casino InterCasino was able to expand their market to accommodate Japanese players.

The Japanese aren’t only known for their gambling regulations. Other than revolutionizing the world’s technology, they also happen to have one of the lowest water distribution levels in the world. The nation has universal access to sanitation and a steady water supply. They also maintain strict standards in water treatment, and continue to exceed global standards for conservation. Much of this stems from cultural practices that limit excessive water use, which can be seen in the design of a typical Japanese bathroom. They show that a simple restructure of a bathroom can easily cut down the amount of water wasted, which a few casinos on the Strip have already done.

To address the public’s concern for the environment, land-based casinos started increasing their efforts in conservation and minimize dependency on their only nearby natural water supply, Lake Mead. The snow from the Colorado Rockies continues to replenish this body of water, but expansions in the metro and recurring droughts have prevented it to maintain the proper lake levels.

Last year’s drought that heavily affected California was a wakeup call for Las Vegas casinos. Though water conservation programs were always in place, there is always room for improvement. The Southern Nevada Water Authority (SNWA) has worked time and time again to make sure that they recycle almost 100 percent of indoor water. MGM and Caesars implement a low-flow shower and toilet system across all their hotels, demonstrating that water conservation is not only a necessity in Las Vegas, but in other parts of the world as well.

Earth Day Energy Saver!

Wed, 22 Apr 2015 19:14:03 +0000

Ever want your lights to turn on when you walk into the room, and off when you leave? Sure you can buy a gadget to do that, but how about building your own motion sensor?

We wanted to save energy, and create convenience, by adding motion sensors to our lighting circuits. Maybe you want some notification of an intruder. Both can be done with a PIR Motion sensor.

http://arduinotronics.blogspot.com/2015/04/earth-day-have-your-lights-turn-off.html

The Spherical Sun Power Generator

Mon, 13 Apr 2015 11:35:52 +0000

Energy Inventions | Future Technology | Solar Power

German Architect Andre Broessel believes he has a solution that can “squeeze more juice out of the sun”, even during the night hours and in low-light regions. His company Rawlemon has created a spherical sun power generator prototype called the beta.ray. His technology will combine spherical geometry principles with a dual axis tracking system, allowing […]