Sustainable energy indices mixed, broad markets and commodities retreat (week ending 7/25)

Author: Mark Henwood

Emerging Markets, EAFA, and S&P500 all fell this week. Commodities (DJP) fell another 4.4% on top of the previous week’s 7.8% decline.

Renewable Electricity suffered a modest loss for the week. One of the components, EarthFirst (EF.TO), continued its steep decline losing another 20.9% on the week. Since the company appointed its new CEO on June 12 the stock has dropped 46% on thin volume. In the intervening period the company reported an approximate 10% increase in cost for its Dokie project, a reduction in the project’s estimated energy of 2.3%, and delivery of 24 MW of wind turbines to the project site. Investors are betting the company lands its project financing and secures additional contracts in other solicitations. As I previously noted, project issues have magnified effect on company valuations in this strategy.
Solar gave up 5.4% this week and is now down 34.4% for the year. But not all the companies are suffering the same decline. In particular, First Solar (FSLR) is only down 1.8% for the year and has now become 25% of the market cap of Camino’s index. Does their technology warrant this dominant position in the strategy? Examining one of their recent project’s sheds some light on the question.

On July 10, 2008 the California Public Utilities Commission approved a 7.5 MW contract between First Solar’s FSE Blythe project and Southern California Edision. Unfortunately much of the economic information was not disclosed but some key data can be gleaned from the record. First, the company is projecting a significant 27% capacity factor for the project, significantly higher than typical estimates for PV projects. But equally important is the company is pursing the development receiving a price at or below the “market reference price” which is based on a highly efficient modern thermal plant. After accounting for some messy seasonal and time-of-use factors the project will receive approximately USD 0.14/kWh plus a 10% tax credit. If FirstSolar can make money at this project then they are very near the holy grail of grid parity. Maybe their dominate valuation makes sense and the company is becoming an execution risk on how fast can they grow.
Mark is the founder of Camino Energy, an information provider specializing in globally traded sustainable energy stocks. He also is an investor in sustainable energy stocks and has positions in Renewable Electricity, including EF.TO.
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