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Shale gas is starting to affect markets….

The oil gas ratio hit a new record high December 27th with gas trading at $3.11/mmBtu and WTI going for $101.25/bbl yielding an energy ratio of 5.61.   In simple terms this means gas is  trading at the equivalent of $18.05/bbl crude.

The market is starting to notice this rapid shift in natural gas economics.  Back on Dec 10 I mentioned a few of the sectors, such as chemical processing, that would be likely winners due to lower priced gas.  Companies are now starting to announce their plans to build new plants.  Royal Dutch Shell PLC is planing an ethylene plant in the Appalachian region, Nucor is building a gas fired iron plant in Louisiana, Dow Chemical Co. is planning two new chemical facilities in the Gulf coast, and CF Industies is planning to boost its ferterlizer production made from gas.  (WSJ, 12/27/2011, A3) .  All due to relatively low gas prices.  If LNG importers are not able to “reverse to flow” and turn into LNG exporters, then the price of gas can stay low until domestic consumption has a chance to absorb these lower cost supplies.

One of the other sectors that should benefit from the relatively high oil/gas ratio is the CNG (compressed natural gas) transportation buisness.   In October I analyzed Clean Energy Fuels’ [CLNE] stock performance relative to the energy ratio and couldn’t really see any coorelation between the fundamental driver of their business (the oil/gas ratio) and their stock price.   Checking back today I’m still not seeing any sustained improvement in the company’s stock price.  So I’m still looking for the breakthrough in the transportation business.

In other news, shale gas is certainly affecting the price of electricity, both spot prices and prices offered for term contracts for renewables.   In the western US, on-peak spot prices in southern California today were $30.37 $/MWh….lower then they were 30 years ago in 1981 when our company (www.henwoodassociates.com) started producing power.  And the natural gas based market reference price (MRP) used by the California PUC for evaluating renewable projects is off about 15% from the last MRP posted by the CPUC.

While this is happening the solar sector is having problems with oversupply and a softening market.  The oversupply is drivien by the rapid increase in Chinese production (including two IPOs in October and November – Changzhou Almaden and Sungrow Power).   Coupled with  German demand for 2011 reported to be 29% below 2010 levels two German producers, Solar Millennium and Solon SE filed for insolvency this month.  The supply/demand combination is also driving layoff such at those reported at SMA, Suntech, and First Solar.   And stock prices for solar companies, as measured by the solar ETFs KWT and TAN, have dropped by over 60% YTD and their market cap has fallen below the $70 million level that was related to me as a break-even size for an ETF.   In fact, all of the sponsors of sector specific ETFS –  KWT, TAN, FAN, PWND, GRID –  are losing money on their offerings if this is still the break-even number.  Which one will close up first like the progressive transportation ETF did in 2010?

How much of the market woes facing solar producers stems from gas competition?  I’m not aware of any analysis of the relationship of subsidies and RPS mandates to gas prices in the US, but reason tells us there must be some connection beyond a mere correlation of gas prices and solar woes.

I think this is just the start of the disruptions caused by low gas prices.  On a very small scale our company is affected in contract renewals and the prospects of lower electric prices/subsidies for new project development.  Many other businesses will be forced to adapt and potentially sooner then anyone expects.

Originally posted here .

Disclosures – no postions in any securites mentioned.

 

36 States now have Utility-Scale Wind Power

(4/12/10)

The U.S. wind energy grew in 2009, despite a severe recession. There are 36 states that have utility-scale wind projects and 14 states are in the “Gigawatt Club” with more than 1,000 MW of installed wind capacity per state. In state rankings, Iowa leads in terms of percentage of electricity from wind power, getting 14% of its power from the wind, and also leads in highest number of jobs in the manufacturing sector. Texas consolidated its lead in wind capacity and in largest wind farms installed, according to the annual wind industry market report by the American Wind Energy Association (AWEA).

“Jobs, business opportunities, clean air, energy security—wind power is delivering today on all those fronts for Americans,” said AWEA CEO Denise Bode. “Our annual report documents an industry hard at work and on the verge of explosive growth if the right policies—including a national Renewable Electricity Standard (RES) — are put in place. A national RES will provide the long-term certainty that businesses need to invest tens of billions of dollars in new installations and manufacturing facilities which would create hundreds of thousands of American jobs.”

Highlights from AWEA’s new report include:

•The U.S. wind energy industry installed over 10,000 MW of new wind power generating capacity in 2009, the largest year in U.S. history, and enough to power the equivalent of 2.4 million homes or generate as much electricity as three large nuclear power plants.

•In industry rankings, GE Energy remained #1 in U.S. wind turbine sales; NextEra Energy Resources continued to lead in wind farm ownership; and Xcel Energy continued to lead utilities in wind power usage. At the same time, however, more companies are now active in each of these areas, showing that the wind energy market is diversifying as it expands.

•The report’s section on manufacturing shows that in spite of a slowdown in wind turbine manufacturing in 2009 compared to 2008, 10 new manufacturing facilities came online in the U.S. last year, 20 were announced, and nine facilities were expanded. The largest category was wind turbine sub-components, such as bearings, electrical components and hydraulic systems. In all, the U.S. wind energy industry opened, announced or expanded over 100 facilities in the past three years (2007- 2009), bringing the total of wind turbine component manufacturing facilities now operating in the U.S. to over 200.

•All 50 states have jobs in the wind industry.

•Approximately 85,000 people are employed in the wind industry today and hold jobs in areas as varied as turbine component manufacturing, construction and installation of wind turbines, wind turbine operations and maintenance, legal and marketing services, transportation and logistical services, and more.

•To ensure a skilled workforce across the wind energy industry, 205 educational programs now offer a certificate, degree, or coursework related to wind energy. Of these 205 programs, the largest segments are university and college programs (45%) and community colleges or technical school programs (43%).

•Despite the economic downturn, the demand for small wind systems for residential and small business use (rated capacity of 100 kW or less) grew 15% in 2009, adding 20 MW of generating capacity to the nation. Seven small wind turbine manufacturing facilities were opened, announced or expanded in 2009.

•Offshore wind power is gaining momentum in the U.S. The report lists seven projects with significant progress in the planning, permitting, and testing process. Both the federal government and several states established significant milestones in 2009 to encourage offshore wind power development.

•America’s wind power fleet of 35,000 MW will avoid an estimated 62 million tons of carbon dioxide annually, equivalent to taking 10.5 million cars off the road.

•America’s wind power fleet will conserve approximately 20 billion gallons of water annually that would otherwise be lost to evaporation from steam of cooling in conventional power plants.

Renewable Energy and Clean Transportation Reports

By John Addison. Publisher of the Clean Fleet Report and conference speaker.

Key sustainable energy indices rise, LED-Lighting suffers (week ending 8/1)

Author: Mark Henwood

EAFA fell 2.2%; Emerging Markets, S&P500, and commodities (DJP) treaded water.


The two key strategies, Renewable Electricity and Solar, posted gains for the week.

Solar’s 4.1% gain reduced the index’s loss for the year to 31.7%. This highly volatile strategy saw some big gains with Day4Energy (DFE.TO) leading the way with a 24.6% rise. Most of the increase occurred after the company reported on July 30 that they had achieved a 19% efficiency with multi-crystalline cells in the lab and they expect this development to drive costs down by up to 25% in 2009.

Renewable Electricity also saw a 1.1% advance with Canadian Hydro Developers (KHD.TO) leading the way with a 23.7% gain, the best performance for the week in the TSX Composite Index. The company had an analyst upgrade during the week which apparently triggered the gain. Another notable gain was notched by Suzlon (SUZLON.NS) which reported strong earnings growth in their last quarter.

LED-Lighting had a dismal week with the group falling 9.4%. Rubicon (RBCN) led the way down despite reporting in their Wednesday morning call that they beat guidance. The sell-off started on Thursday after Oppenheimer downgraded the stock and continued through Friday declining 23.5% for the week. Management reported continued enthusiasm for the LED segment but expressed some uncertainty regarding their SoS segment which accounts for about 30% of their business. Investors apparently have almost written off the SoS business line.

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 KHD.TO.

Solar Rises 10.8%, Renewable Elec and Biofuels increase also (week ending 5/16)

Author: Mark Henwood

Broad market indices (Emerging Markets, EAFA, S&P500) all rose significantly this week. Camino’s PurePlay™ indices, with the exception of Fuel Cells, were up. Commodities (DJP) retreated slightly.

Solar was the story of the week with our 34 member index increasing 10.8%. Six constituents rose more than 20% with the top three, SolarFun Power (SOLF), Renesola (SOL), and China Sunergy (CSUN) increasing more than 40%. Renesola reported strong Q1 results on the 14th. SolarFun and China Sunergy are scheduled to report earnings next week.

Even after its 53.85 % price increase last week, SolarFun’s current year PE is 32.2 (corrected) and its 09 PE is 19.5 (corrected). With continued high growth rates expected, and unless there is a negative surprise next week, I wouldn’t be surprise to see this stock rise further. Renesola’s current year PE is now 22.3 but with expected growth in the 50% range it may support a higher price also. China Sunergy’s 44.9% increase is harder to understand. The company isn’t profitable this year and has a 09 PE of 32. Offsetting this are consensus expectations of revenue growth of over 50% this year and next.

After last weeks big gain at Energy Conversion (ENER) the stock rose an additional 19.2%. Other then hope for an ITC extension in the US I didn’t see any events specifically related to the company that would drive this change. The stock is in both of the solar ETFs so money flowing into them may have lifted the stock last week. At a current period PE of about 80 I can’t justify owning it.

Biofuels bounced up 4.9% last week. Some of the gain was no doubt driven by oil prices but some was driven by the 27.3 % increase in Brasil Ecodiesel (ECOD3.SA). The company reported a significant block transaction of stock during the week. Next week we’ll look at the correlation of this strategy with oil prices.

Fuel Cells continued to suffer with Medis (MDTL) leading the decline. The company reported an increased YoY quarterly loss. This strategy is now down 33% of the year and is still searching for the winning product mix.

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. We expect this sector to grow as technical improvements and rising retail electric prices make advanced lighting more compelling to customers.

In total our five indices, which track just PurePlay™ sustainable energy companies, have aggregate market capitalization of USD 227 billion.

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.

Only Renewable Electricity Stocks Advance (Week Ending 4/11)

Author: Mark Henwood

Sustainable energy stocks followed the broader markets down this week with only Renewable Electricity able to show a gain.

The Solar index followed last week’s 14.5% advance with a 4.7% decline. The retreat was broad-based with only 4 stocks increasing and 30 stocks declining. Aloe Solar SG (AS1.DE) led the declines falling 13.1% for the week despite positive news on April 3 that it’s production expansion was on track and it had received orders in 2008 for EUR 150 million. With First Solar (FSLR) also falling 3.5% the decline was not limited to the silicon world as some commentary alluded to. Without extraordinary news to push the sector down the relatively modest change for this highly volatile group seems to be primarily driven by broader market movements.


In the Renewable Electricity sector Camino’s index advanced 0.3% with 14 stocks climbing and 9 retreating. German wind farm developer Planbeck Neue Energien Ag
(PNE3.DE) led all increases with a 13.1% gain. On March 31 the company reported on 2007 results and conducted a press and analyst conference. The company reported a solid pipeline and positive news about its wind blade subsidiary SSP Technology. While the stock price didn’t react for a few days it looks like this week’s price gain is a reaction to the recent news.

Biofuels reversed last week’s small gain with a 7.5% decline culminating in a YTD decline of 32.4%. There were 3 advancing stocks to 12 stocks falling. Aventine (AVR) led the way down lowering 23.1 % for the week. 9.5 % of the decline occurred Friday after a USB analyst lower their target price due to concerns over corn prices and shrinking margins. Aventine is now valued at USD 0.97 per gallon of production capacity. This compares favorably with VeraSun’s (VSE) value of USD 0.67 per gallon of production capacity (after this year’s 5 new plants start-up). If it is possible to make any money producing ethanol, the company valuations have to be getting low enough to be attractive.


Fuel Cells also reversed last weeks gain with the index falling 2.2% on 1 stock advancing and 6 stocks declining. Ceramic Fuel Cells LTD
(CFU.L) kept the index from falling further with its 13.6% gain for the week. We found no public news that would explain Ceramic’s being able to move counter to the market unless these are second reaction to the company’s Feb 28 order announcement. ITM Power (ITM.L), on the other hand, continued to lose ground with a 12.4% decline. I share the market’s skepticism about the impact of the company’s recent electrolyzer development.

Solar continues to move with the broader markets, all of which were down for the week. With its high beta over any period during the last 500 days the index’s performance this week is to be expected. Biofuels continue to be plagued by questions regarding profitability. Clearly, getting bigger, like VeraSun did with it’s acquisition of US Bioenergy, isn’t perceived as materially helping the basic operating cost issue. At some point stock prices for Biofuel companies will get low enough to present a compelling price / cash flow return and investors will start taking positions.

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 a position in PNE3.DE

The Week in Sustainable Energy Stocks (Week Ending 3/14)

Author: Mark Henwood

The Dow traded in a 569 range this week reflecting negative credit market news and strong intervention by government institutions. Global results were mixed with EAFA advancing and the S&P and Emerging Markets declining. The final changes were not dramatic. This translated into mixed results for the Camino indices with three indices retreating and one, Solar, advancing.

The Solar index increased 1.8% bringing the YTD decline for the sector to –41.5%. LDK Solar Co. LTD (LDK), which fell 21.3 % last week, led all stocks in the index with a 16.3% increase. Most of this gain happened Thursday and Friday after the company’s press release reported it had sold 100% of its 2008 production and 90% of 2009. The communication also shed some light on the inventory issue. This strong sales picture may be supportive of the view that demand for PV product hasn’t been affected much by larger economic concerns. Overall the sector had 19 stocks climbing and 14 stocks falling.

Biofuels experienced a 1.9% decline with 6 stocks rising and 10 stocks falling. Gushan (GU) was the leader recovering 7.5% after last weeks 24.9% decline. On the declining side, Schmack Biogas (SB1.DE) led the field with a 11.6% decrease. This may be a delayed reaction to the company’s 2/26 release of 2007 results where strong sales growth (47% !) was coupled with a wider than expected loss. VeraSun (VSE) and US BioEnergy (USBE) also suffered steep declines after VeraSun reported on Wednesday that ethanol prices weren’t increasing as fast as corn costs. Getting bigger with the merger isn’t going to change that equation.

In the Renewable Electricity sector Camino’s index retreated 0.5% with 8 stocks climbing and 11 retreating. Geodynamics Ltd. (GDY.AX) led the pack with a 17.2% decline. The only news we found was an ASX note on 3/11 that a flow test had been delayed until 3/14.

Fuel Cells had another down week with the index decreasing 3.2% on 3 stocks advancing and 4 stocks declining. ITM Power (ITM.L) suffered a 25.2% decline. On Feb 5 Citigroup criticized the company’s unfocused business strategy and apparently the company’s 3/14 announcement of a testing contract with Bi-Fuels did little to sharpen the strategy.


What did I learn this week? Traders are listening carefully to company communications and are very quick to take decisive action on news, both positive and negative. I also think LDK’s order news may be significant as a bell weather for overall demand in the solar 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 holds a position in GDY.AX .

The week in sustainable energy stocks (ending 3/7/08) ….

By Mark Henwood

Continuing concerns with economic conditions drove all the broad stock indicators into negative territory for the week. With one expectation our sustainable energy indices followed suit with three indices retreating and one, Renewable Electricity, advancing.

The Solar index suffered another large drop of 5.9% bringing the YTD decline for the sector to –42.5%. In perspective, even with this large YTD decline the index has 46% to give up before it losses all of the huge gains in 2007. LDK Solar Co. LTD (LDK) led the move downward falling 21.3% and closing below its IPO price. Apparently there remains some lingering angst over inventory issues. Overall the sector had 4 stocks climbing and 29 stocks falling.

Biofuels suffered a significant 12.5% decline with all 16 stocks falling and 5 falling more than 20%. It looks like concerns about rising corn prices and reduced margins affected the ethanol producers. Gushon (GU) reported a Q4 loss and, despite management explaining the loss was due to a large non-cash charge, the stock declined 24.9%

In the Renewable Electricity sector our index advanced 0.9% with 10 stocks climbing and 9 retreating. Suzlon (SUZON.NS) is a big component of the index and was down 13.1% percent after reporting a turbine blade replacement program for 1,251 blades. This represents a market cap decline of more than USD 1 million per blade against management’s estimated cost of USD 24,000 per blade.

Fuel Cells had a down week with the index decreasing 6.3% on 1 stock advancing and 6 stocks declining. FuelCell Energy Inc. (FCEL) led the movement downward with its stock price falling 14.3% for the week. Most of the loss came after their earnings call on March 6.

What did I learn this week? Oil prices hit record highs and sustainable stocks fall sharply with the broader market. Given the relatively high beta of the Solar, Fuel Cell, and Biofuels indices, their stock performance seems to be weakly correlated to oil prices and much more strongly influenced by broad market trends. Renewable Electricity, with its lower beta, may offer some portfolio diversification benefit.

Mark is the founder of Camino Energy, a information provider specializing in globally traded sustainable energy stocks. He also is an investor in sustainable energy stocks. Mark doen’t hold a position in any of the specifically mentioned stocks.

The week in sustainable energy stocks….

By Mark Henwood

Neal says “keep going”. So let’s start with the big picture.

Stocks were down – S&P, EAFA, emerging markets. Commodities advanced. The broad based ETN tracking the DJ AIG commodity index (DJP) increased 3.1% for the week. This was the week of oil history. Our sustainable energy indices were mixed with one, our biggest, declining and three advancing.

The Solar index suffered another large decline dropping 5.2% bringing the YTD decline for the sector to –38.9%. Solarfun Power Holdings Co. Ltd (SOLF) -16% and JA Solar Holdings Co (JASO) -13.9% led the decline after an analyst downgrade prompted by declining margins and weaker demand. With 25 stocks declining versus 8 advances, these concerns must be widely held.

In Biofuels our index advanced 1.8% led by an impressive 52.7% increase, in US dollars, for Basil Ecodiesel (ECOD3.SA). Despite Basil Ecodiesel being the largest biodiesel producer in Brazil, none of our usual news sources reported any developments to explain the sharp increase. Aventine (AVR) continued downward off another 7.3% in the wake of its liquidity issues, despite S&P leaving Aventine’s rating unchanged.

In the Renewable Electricity sector our index advanced 1.8% with 12 stocks advancing and 7 declining. Our scan of the news showed a series of normal announcements typical of an industry with some traction. The index results this week, moving counter to broad markets, are not surprising given the index’s 100 day beta of only .3.

Fuel Cells had a strong week with the index increasing 7.8%. The increase was due in large part to the 44.6% gain for Ceramic Fuel Cells Ltd. (CFU.L) Ceramic reported it was constructing a manufacturing plant in Heinsberg, Germany and a substantial order for 50,000 2 kW micro CHP units from NUON. If these units are able operate reliability at a reasonable cost this could be an important breakthrough in a significant market targeted by a number of fuel cell companies.

What did I learn this week? Market developments reinforced the highly “leveraged” nature of solar stock prices. High growth expectations result in high volatility. I also realized I need better information sources for some of the lesser developed markets like Brazil. These are important investment centers and I’ll be looking for improved resources. We also saw investors are carefully looking for the key breakthrough. Ceramic is now center stage.

Mark is the founder of Camino Energy, a information provider specializing in globally traded sustainable energy stocks. He also is an investor in sustainable energy stocks.

The week in sustainable energy stocks….

Neal asked me if I would comment on the markets for sustainable energy stocks in the last week. It’s an area I follow closely so he hopes I will occasionally stumble across some nuggets.

Let me start by saying I believe there is potential for good returns in sustainable energy stocks over time. In the short term though, it was a tough week. Sustainable energy stocks in all four of Camino’s sectors declined. In contrast, broader indicators such as the S&P, EAFA, and emerging markets were all positive for the week.

The Solar index, comprised of 33 companies, suffered the largest decline with a 5.3% drop bringing the YTD decline for the sector to -35.5%. Suntech (NYSE:STP) was hardest hit with a 20.3% price decline after it reported earnings and revenue below expectations, driven in part by silicon supply issues. If other producers report similar problems I would expect to see further declines in the sector as prices adjust to lower growth expectations.

In Biofuels Aventine (NYSE:AVR) was off 17.4% after it reported Thursday it had liquidity issues stemming from its $211.5 million invested in auction-rate securities. This issue may delay plant development. I expect analysts are reviewing the balance sheets of other sustainable energy companies to see if they have “cash equivalents” that aren’t exactly equivalent to cash. If you don’t understand what you’re investing in don’t invest in it.

In the Renewable Electricity sector Solar Millenium (FRA:S2M) declined 10.1% . The company announced a rights issue on Feb 19 that may have triggered concerns about dilution. Overall 8 stocks advanced and 11 declined resulting in relatively modest decline of 1.1% in the index.

In Fuel Cells all of our companies reported price declines with Fuel Cell Energy (NASDAQ:FCEL) falling the most at -6.3%. The company presented at the PiperJaffray conference on February 20, 2008 and didn’t highlight any items of concern that I noted.

What did I learn this week? Apparently growth constraints are still a factor in the high growth solar sector. I also relearned that unexpected risks occur when broader markets are having problems. Are there more surprises from the credit markets waiting to be revealed in sustainable energy companies?

Mark is the founder of Camino Energy, a information provider specializing in globally traded sustainable energy stocks. He also is an investor in sustainable energy stocks.