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Biofuel and Solar fall over 4%, other indices mixed (week ending 5/30)

Author: Mark Henwood

Broad market indices (Emerging Markets, EAFA, S&P500) all rose this week. Camino’s PurePlay™ indices were mixed with Renewable Electricity showing a 0.8% gain. Commodities (DJP) declined 2.6%.

Solar was the story of the week with our 34 member index decreasing 4.2% amid huge volatility.

The market moves this week were evidence of investors valuing companies based on government subsidies packages. On the 28th and 29th we saw reports that reductions in German subsidies might be greater than originally expected. And at the close of business on the 29th our index was down 9.2% for the week. Then on Friday reports came out that feed-in tariff reductions would be roughly in line with previous expectations – Solar rises 5.6% and closes out the week down only 4.2%.

Solar investors are also being influenced to an increasing degree by moves in oil prices. Over the last 365 days Solar and oil (measured by the OIL ETN) have been loosely correlated at .28. Over the last 30 days, however, the correlation coefficient has risen to .39 despite the fact that Solar’s electric market place isn’t driven to any significant degree by oil prices. Remember, only a portion of delivered electric prices are energy, and in most markets only a small portion of that is related to oil. So the data is showing that behavioral factors and regulator policy are important influences on valuations.

Biofuel had a down week dropping 4.5%. I don’t think this was a result of declining oil prices but rather was due to some specific company issues. Biofuel correlation (365 days) with oil has been a low .175 and has not trended upward recently.
Schmack Biogas (SB1.DE) led the decline after reporting a very weak quarter and a significant management change. The 54% decline in sales for the company raises some big flags. Pacific Ethanol (PEIX) was also down a significant 15.3% giving up most of the gains associated with its recent operating profit. While the company has been able to close its preferred stock offering, the offering has caused investors to rethink the pricing of PEIX.

Renewable Electric, up 0.8% for the week, continues to be the sustainable success story for 2008. The index is now down 2.3% for the year, outperforming both the S&P and matching EAFA. Of the broad benchmarks, only Emerging Markets, up 0.7% for the year, has performed better.

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.

Biofuel Rises 6.6%, other indices mixed (week ending 5/23)

Author: Mark Henwood

Broad market indices (Emerging Markets, EAFA, S&P500) all fell significantly this week. Camino’s PurePlay™ indices were mixed but with Biofuels up sharply. Commodities (DJP) advance 1.6%, up 19.6% for the year.

Biofuel was the story of the week with our 15 member index increasing 6.6%. Four constituents rose more than 20% with Pacific Ethanol (PEIX) increasing 30.6%. Pacific rose dramatically after its 5 AM Monday call where it reported an operating profit. Later in the week the stock dropped after the company reported it announced a preferred stock offering.
Part of the operating profit was USD 2.2 million in derivative gains which I feel should be treated cautiously. After all, a year earlier the company had a derivatives loss. Also, with current assets of USD 121 million and current liabilities of USD 168 million, operating earnings don’t look like they will be sufficient to close the gap so I’m not surprised by the financing. The market reaction seems to indicate a question whether this will be the last round.

Of all the sustainable energy strategies, Biofuel is one of the few, and the largest by far, to offer an alternative to petroleum fuels for transportation. So there seems to be some logic that rising oil prices might lift the stocks of Biofuel producers. As I mentioned I would last week, I ran a quick correlation of Biofuel to a readily investable crude oil proxy (Ipath’s OIL ETN) and found over the last year Biofuel and OIL were correlated a relatively low .17. This is even lower than Solar’s correlation to oil which came in at .26 over the last year. With oil and natural gas being used to produce relatively small amounts of electricity in key solar markets, the only logic I can see for the oil/Solar correlation is high oil prices sustain governmental and consumer support for “alternatives” even thought the alternatives are only loosely related to oil.

One good week hasn’t erased Biofuel’s losses this year and the index is still down 27.5% since Jan 1.

LED & Lighting is a new strategy being tracked at Camino. It consists of 9 companies that pass our screens and are producers of energy efficient lighting using LED, flourescent, or other technologies. I expect to discuss lumens next week.

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.

Only Renewables Gain (Week Ending 4/25) + Solar ETFs

Author: Mark Henwood

Broad market indices were mixed this week and so were Camino’s PurePlay™ indices.

The Solar index followed last week’s 7.0% gain with a small 0.2% decline. The index members were also mixed with 15 stocks increasing and 19 stocks declining. Most notable in the group was Centrosolar (C3O.DE) which gained 26.2% for the week. The stock jumped on the 23rd after the company announced provisional results that were above expectations. Sales for the quarter were up 86% over the previous year and EBITDA almost tripled. One analyst suggested the stock was undervalued.


Camino’s Renewable Electricity index managed a small 0.1% increase with 8 stocks climbing and 15 retreating.


Biofuels reversed last week’s 1.5% gain with a 1.9% loss. There were 7 advancing stocks to 8 stocks falling. Several of the ethanol stocks (AVR, PEIX, VSE) seemed to benefit from coverage by Oppenheimer whose analyst believes that overcapacity in the sector will resolve itself in the next 12 to 18 months.

Fuel Cells slumped 5.1% on 1 stock advancing and 6 stocks declining. FuelCell Energy (FCEL) reported a sale to Posco which was well received by the market resulting in a 11% price increase for the week. The sale involved delivering 25.6 MW at a contact value of USD 70 million, or over USD 2,700 / kW. Analysts believe this number is below cost but will help the company reduce its cost. After years of losses FuelCell needs to get it right and get its costs down so it can compete in a very competitive natural gas fired electric generation market.

Solar ETFs It came as no surprise that solar ETFs have been launched by Claymore (TAN) and VanEck (KWT). These two providers worked hard to differentiate their products by using slightly different company selections and weighting schemes. Unfortunately they didn’t decide to compete on cost coming out at an identical 65 basis points.

The result is indices that have a 74% overlap in their 27 constituents. Between the two indices the only company not included in Camino’s Solar index (34 constituents) is MEMC Electronics (WFR). By our computation in 2007 at most MEMC has a 25% exposure to solar so we’re not sure why Claymore included them. We don’t think they currently belong in our PurePlay™ index.

Going forward we expect these ETFs will have comparable performance and very high volatility. We routinely calculate Sharp ratios for our indices in an effort to assess the risk/reward profile of the sector. Over the last 365 days our solar index’s Sharpe ratio was 0.8 and over the last two years the ratio was 0.48, both periods measured against the 13wk T-Bill. Traditional fund managers would probably not find these values attractive particularly considering their high beta. That said, we think there are plenty of opportunities in the sustainable energy sector.

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. Mark has no positions in solar.