by Tom Konrad Ph.D., CFA

Looking forward to 2019, I’m more optimistic than I have been since the start of 2016, in the wake of the popping of the YieldCo Bubble in late 2015.

The bear market that started in late 2018 seems like it’s far from over, but I expect in early 2019 will see it enter a less chaotic phase.  After the wild declines and swings of late 2018, I expect investors will begin the new year with an eye to safety more than growth.  This means that the clean energy income stocks which are my focus should outperform riskier growth stocks.  The end of interest rate increases by the Federal Reserve should also help these stocks as fewer investors are drawn away by the increasing yields of bonds and other income instruments.

As I write on December 28th, my Ten Clean Energy Stocks for 2018 model portfolio looks like it will end the year with a small loss, but ahead of its benchmarks.  You can see its returns through December 28th in the chart below, and stay tuned for a recap sometime in the next week.

Out with the old

With stock prices down and yields up, I plan to keep seven stocks from the 2018 list for 2019.  The exceptions are (somewhat coincidentally), the two winners: InfraREIT (HIFR), Seaspan Worldwide (SSW), and Clearway Energy, Inc (NYSE: CWEN and CWEN/A).  I’m dropping InfraREIT because the company is being bought out by Oncor in a transaction expected to close sometime in the second quarter.  Seaspan is losing its slot for lack of greenery.  I always considered the owner of relatively efficient container ships to be marginally green (due to the relative efficiency of its ships compared to those of its peers), and a recent purchase of an interest in liquefied natural gas transportation makes it no longer meet my standard for a green stock.

I’m dropping Clearway mostly based on relative valuation.  The company is still attractive, but a little less so than some of the other Yieldcos which made this year’s list.  Not only does Clearway have some fossil fuel assets, it also has a large number of power purchase agreements with PG&E (PCG).  PG&E, in turn, has significant potential liability from the possible involvement of its equipment in starting some of California’s recent wildfires.  Both California’s utility regulators and legislators are working to protect PG&E from bankruptcy, but what that protection might look like has yet to be seen.   Given the large number of Yieldcos at very attractive valuations, I see no need to keep Clearway in my top ten picks.

In with the new

Valeo SA (FR.PA, VLEEF)
12/31/18 Price: €25.21/$28.20.  Annual Dividend: €1.25. Expected 2019 dividend: €1.25.  Low Target: €20.  High Target: €50.

My friend and colleague Jan Schalkwijk of JPS Global Investments brought French auto parts supplier Valeo SA. Like many auto stocks, Valeo struggled in 2018 with industry oversupply and the ongoing trade war.  This led the stock to fall by more than half, giving it what I consider a very attractive valuation.

Valeo follows the European model of paying a single annual dividend based on the previous year’s profits.  Its 2018 dividend was €1.25, which would amount to slightly more than a 5% yield based on the current stock price of €24.55.  Analysts estimate the company will earn around €3 per share in 2018, easily enough to maintain that dividend in 2019, and they still expect growth in 2019.

A 7.5 forward P/E ratio and over 5 percent dividend yield would be enough to get me to take any stock seriously, but valuation is not the only factor attracting me to the stock. The company is a leading supplier for two accelerating trends in the automotive industry: electrification and autonomous driving.

The company is a leader in 48V mild hybrid technology, which can deliver most of the fuel savings from of a full hybrid vehicle at a fraction of the cost by allowing the gas engine to turn off instead of idling while the vehicle is stopped.  Beyond the technologies of today, Valeo has developed a full 48V electric powertrain system which is 20% less expensive than the high voltage systems used in most electric vehicles today.  Although I expect a low voltage electric drivetrain will have lower performance than the typical high voltage system, and so be less attractive to car buyers, it could be extremely well suited to transportation services such as car sharing services and autonomous taxis, such as the Autonom Cab, the world’s first robo-taxi, which was presented by its French designer Navya. This all-electric, driverless vehicle relies on Valeo laser scanners, and LiDAR (light detection and ranging.)

While I find it particularly difficult to predict which carmaker is likely to pull ahead in the race to make profitable electric and autonomous vehicles, I feel more confident investing in a part supplier that works with most of them.

Welcome back, Hannon Armstrong

Hannon Armstrong (NYSE:HASI )
12/31/18 Price: $19.05.  Annual Dividend: $1.32. Expected 2019 dividend: $1.32.  Low Target: $18.  High Target: $27.
 
Last year, I dropped a long time favorite stock, Hannon Armstrong (NYSE:HASI) from the list because I felt the stock was temporarily overvalued.  The stock ended 2017 at $24.06, and, as I write on December 28th, is currently trading at $19.54.  After the company’s $1.32 annual dividend, this amounts to a 13% loss for the year, well below the average total return of the stocks that made the list.

In the current uncertain environment, I am happy to welcome this unique clean energy financier back into the list.  The company arranges financing for a broad range of sustainable infrastructure projects, from renewable energy projects like solar and wind farms, to energy efficient upgrades of buildings for performance contractors and commercial property assessed clean energy loans (c-PACE). Hannon Armstrong’s broad range of clients allows it to focus on the most profitable sectors as certain clean energy technologies go in and out of favor with other financiers, and it also has the expertise to either sell the securities it creates to long term investors like pension funds and insurers when demand is high, or to keep them on its own balance sheet when that is most profitable.

The rising interest rate environment of 2018 meant that Hannon Armstrong did more securitization than in previous years. This strategy delivers short term profits, but does little to increase long term cash flows that can support increases in the dividend.  The recent well-timed secondary offering of 5 million shares at $22.40 per share and the refinancing and extension of its secured credit facilities this month hint that the company plans to keep more of the investments it creates in 2019 on its own balance sheet.  These investments should easily allow it to achieve Hannon Armstrong to achieve its target 2 percent to 6 percent growth in core earnings per share.

The expected 2 to 6 percent core earnings growth should allow the company to raise its dividend per share by at least one cent in 2019, but I am unsure if management will choose to do so, and instead retain the capital to boost future growth.  The company previously had a policy of distributing 100% of core earnings over the course of the year, but said on its first quarter earnings call, “As we grow earnings in 2019 and 2020, we will consider growing the dividend perhaps at a lower growth rate than the growth in core earnings.”  Hence I expect a quarterly earnings increase of no more than 1 cent in each of 2019 and 2020.  A one cent increase would amount to 3% dividend per share growth per year, towards the lower end of the company’s core earnings growth guidance range.  I don’t consider a half cent or no dividend increase at all in 2019 to be out of the question, but I am confident that dividend growth will resume by 2020.

The Marriage of Two Old Friends

Innergex Renewable Energy (Toronto:INE, OTC: INGXF)
12/31/18 Price: C$12.54/$9.27.  Annual Dividend: C$0.68. Expected 2019 dividend: C$0.70.  Low Target: C$11.  High Target: C$16.

Innergex has never been in the model portfolio before, but it has often been a close runner-up.  It also acquired 10 Clean Energy Stocks veteran Alterra Power in early 2018.  Alterra was featured here in 2012, 2013, and 2014.  Like US Yieldcos, Innergex owns wind and solar farms, but also much less common run of river hydropower and geothermal assets.

Innergex also develops its own assets in house as well as acquiring them after they are operational, which is the model for most Yieldcos. While many US Yieldcos are struggling to bring down their payout ratios in order to retain some cash flow for investing, Innergex has kept its payout ratio in the 80 to 90 percent range for the last five years, making it less reliant on the whims of the capital markets to fund future growth.

Updates on Stocks Retained from 2018

Covanta Holding Corp. (NYSE:CVA)
12/31/18 Price: $13.42.  Annual Dividend: $1.00. Expected 2019 dividend: $1.00.  Low Target: $13.  High Target: $25. 

Leading waste-to-energy operator Covanta’s stock cratered in December, but only in sympathy with broader market declines.  News from Covanta was limited to the expected: breaking ground on a new waste-to-energy combined heat and power in Scotland.

I’m very enthusiastic about the value of Covanta’s stock at the start of 2019.  The company shored up its balance sheet and found a source of future funding for growth capital in its partnership with Green Investment Group, but the market has not rewarded the stock.  The 7.5 percent current yield is more reflective of a company in financial distress than a company on an (albeit slow) growth trajectory.  

Atlantica Yield, PLC (NASD:AY)
12/31/18 Price: $19.60.  Annual Dividend: $1.44(%). Expected 2018 dividend: $1.52 (%).  Low Target: $18.  High Target: $30. 

Atlantica was the former Yieldco of Spanish developer Abengoa before its bankruptcy.  Its new parent, Algonquin Power and Utilities (AQN), has gotten it back on track to growth fater a couple tough years as Atlantica dealt with the fallout from its former sponsor’s bankruptcy.  During those two years, Atlantica kept its dividend low and reduced debt to strengthen its balance sheet.  It has now reached its long term target of an 85% payout ratio, and is growing its portfolio with the recent acquisition of a wind farm in Uruguay.

The location of the recent acquisition in Uruguay is not an aberration.  .Atlantica has one of the most geographically diverse portfolios of all Yieldcos, a legacy of its former Spanish sponsor.  It has assets not only in the US and Spain, but also in several other countries in South and Central America and Africa.   It also adds diversification with significant electrical transmission and water infrastructure.

Pattern Energy Group (NASD:PEGI)

12/31/18 Price: $18.62.  Annual Dividend: $1.688(%). Expected 2018 dividend: $1.688(%).  Low Target: $18.  High Target: $30. 

Wind energy Yieldco Pattern’s stock price continues to trade as if investors expect a dividend cut.  I am not one of those investors, and I am happy to collect the current over 9 percent yield while management continues the slow improvement of cash flow that began in 2018 to bring its payout ratio down to its target payout ratio of 80%.  I expect the payout ratio to decline only slowly, and likely end 2019 near 90 percent.

A dividend increase this year is extremely unlikely, but the yield plus any capital gains as investors gain confidence in the stability of the current dividend will be more than adequate reward for holding the stock.

Terraform Power (NASD: TERP)
12/31/18 Price: $11.22.  Annual Dividend: $0.56 Expected 2018 dividend: $0.60 (%)  Low Target: $10.  High Target: $16. 

Compared to other Yieldcos, Terraform’s stock was fairly resilient in 2018, meaning that it is less of a bargain than several others in this list. Solely on the basis of valuation, I was torn between Terraform and Clearway.  While Clearway is trading at a higher yield and both stocks are on similar dividend growth trajectories, Clearway has more underlying risks that compensate for its higher yield (see above.)  I chose to retain Terraform in the list out of environmental preference..  I have never been completely comfortable with Clearway’s fossil fuel assets.

Brookfield Renewable Partners, LP (NYSE:BEP)
12/31/18 Price: $25.90.  Annual Dividend: $1.96 (%). Expected 2018 dividend: $2.08(%).  Low Target: $27.  High Target: $40. 

The end of 2018 brings the chance to buy what I consider the highest quality Yieldco at a greatly reduced price. Brookfield stands out from other Yieldcos because of its larger size ($8 billion market cap, compared to $3 billion for the next largest, Clearway) which allows it access to low cost debt financing.  Its sponsor, Brookfield Asset Management (BAM), which is also Terrafom’s sponsor, also gives it access to flexible financing which has historically allowed it to purchase distressed renewable energy assets at very attractive prices. BAM’s position as a manager of a broad range of leading infrastructure funds like BEP and TERP means that it takes the long view, and its Yieldcos pursue acquisitions when valuations are good rather than getting into bidding wars with other acquirers in the pursuit of growth at any cost.

Brookfield’s managers seem to agree that the partnership became significantly undervaued at the end of 2018.  Over the last year, BEP repurchased 1.8 million units on the open market at an average price of $27.72 per share.  In contrast, the partnership did not purchase any of its units over the course of 2017, when the share price traded consistently above $30.  In fact, it sold 8.3 million units at C$42.15 (US$32.45) each in a secondary offering that year.

One rule of thumb I follow with Yieldcos is that you are likely getting a good value if you can buy the shares at a price below the most recent secondary offering.

Green Plains Partners, LP (NASD: GPP)
12/31/18 Price: $.  Annual Dividend: $1.90(%). Expected 2018 dividend: $1.90(%).  Low Target: $13.  High Target: $27. 

Ethanol MLP and Yieldco Green Plains Partners remains the riskiest stock in the model portfolio.  The ethanol market is suffering from the Trump EPA’s continued undermining of the Renewable Fuel Standard with “hardship” waivers to large, highly profitable refiners.  The price of ethanol’s main competitor, gasoline is low.  Retaliatory tariffs on ethanol exports further undermine the market.

GPP’s stock price reflects this distress.  GPP’s parent, Green Plains Inc. (GPRE) has  fallen as well, and racked up significant losses this year. Nevertheless, analysts expect GPRE’s red ink to stop in 2019.  That means that investors can be confident the minimum revenue guarantees that GPRE has given GPP remain safe.  Those guarantees should allow GPP to limp along, maintaining its current dividend through the weak ethanol market.

When the ethanol market recovers, the pressure on GPP’s stock price should ease, leading to capital gains for investors who buy at the current price.  The ethanol market is in such dire straits that a recovery could be triggered by a number of factors: rising gasoline prices, falling corn prices (perhaps as a result of the continued trade war), a change EPA policy (something advocated by powerful Republicans in the Senate), or the closure of excess ethanol facilities (a process which has already begun.)

While Green Plains Partners is undeniably a risky stock, the current 14 percent dividend is extremely attractive and any recovery in the ethanol market, if it happens, should lead to a dramatic gain in the stock price.

Enviva Partners, LP. (NYSE:EVA)
12/31/18 Price: $27.75.  Annual Dividend: $2.54. Expected 2018 dividend: $2.58.  Low Target: $24.  High Target: $40. 

Wood pellet Yieldco and Master Limited Partnership Enviva continued its growth through regular drop-down acquisition from its sponsor through 2018, increasing its distribution by a regular 0.5 cents per quarter.  With a payout  ratio in the high 80 percentile range and a new, lower interest rate credit facility in place, I expect this growth to continue unabated in 2018.

At a 9 percent yield with continued growth of at least three percent per year, the partnership seems likely to produce a solid return while providing good technology diversification.

Final Thoughts

During bear markets, most investors reassess their willingness to take risk.  Some sell all their stocks, while others reallocate their investments to less risky stocks.  These ten stocks are chosen to benefit from the latter trend.  For the most part, they produce steady income streams that are largely independent of economic conditions.

The first stage of the bear market, which we experienced in late 2018, has been mostly composed of indiscriminate selling by investors once again reawakening to the fact that stocks do not always go up.  I expect the next stages to be characterized by more discriminate selling, and investors begin to differentiate between stocks that may not do as well in a slowing economy crippled by political uncertainty and trade wars, while holding on to those investments that are less dependent on economic conditions.

The final stage of a bear market is capitulation.  In this stage, the optimistic investors who had been holding on to their losers in the hope that the bear market was just a temporary dip give up.  The only buyers at that point are deep value investors, who buy based solely on the future cash flows of a company, regardless of any hope of future appreciation.  Those deep value investors will put a floor under the stock prices of these ten stocks.

I could also be wrong about the future course of this market.  Although it seems unlikely to me, I have a history of underestimating the optimism of investors.  Perhaps the current bear market will be short-lived, and the Dow will be hitting new highs by the end of 2019.  If that happens, I expect that this model portfolio will produce gains as well, although it will likely lag the gains seen by the broad market of less conservative picks.

If this model portfolio makes modest gains in a mild bear market, makes less than spectacular gains in a recovery, or takes modest losses in a continued severe bear market, it will have accomplished my long term goal.  That goal is not taking the big loss, while staying open to the opportunity for gains.  As long as you are in the market, every now and then the stars will align, and you will make some great gains, as this model portfolio did in 2016 and 2017.  The trick is not to have all those gains disappear in the bad years.

2018 was a bad year, but it’s pretty easy to live with the model portfolio’s 1.3% loss.  A severe bear market could lead to another modest loss in 2019.  On the other hand, a recovery in the later part of the year could bring significant gains.  I’m looking forward to seeing how that wager plays out in 2019.

Disclosure: Long PEGI, CWEN/A, CVA, AY, SSW, TERP, BEP, EVA, HIFR, GPP. INGXF, HASI, VLEEF, AQN.  Tom Konrad earns consulting fees from JPS Global Investments for consulting on its Green Economy Strategy.

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.

The post Ten Clean Energy Stocks For 2019 appeared first on Alternative Energy Stocks.

Tom Konrad Ph.D., CFA

July and August saw some mild recovery for the stock market after a difficult first half of 2018.  Clean energy income stocks continue to lag the broader market, but my Ten Clean Energy Stocks model portfolio has managed to maintain its lead over its broad market benchmark.

Through August 31st, the model portfolio is up 7.5%, compared to its broad dividend income benchmark SDY, which is up 5.3%.  Its clean energy income benchmark YLCO is down 1.2, even after dividend income.  The private portfolio I manage, the Green Global Equity Income Portfolio (GGEIP), is slightly behind the broad market of income stocks at 4.6%, but well ahead of YLCO.

Over the two months, most of these companies announced their second quarter earnings, and for most of them, there were few surprises, which no doubt contributed to the steady performance of most of the portfolio.

Details of the stocks’ performance are shown in the chart below.

Top Picks

In July, I highlighted Brookfield (BEP), Covanta (CVA) and Atlantica (AY) as my top short term picks.  These three stocks were up 2.4%, 7.1%, and 3.9% over the last two months. This average increase of 4.5% was solidly above the portfolio as a whole at 2.3%.  I currently think  CVA, GPP and TERP have the best prospects for short term gains.  Not that these prospects are great; I am taking an increasingly cautious approach towards the market as a whole and increasing my allocation to cash.

Stock discussion

Below I describe each of the stocks and groups of stocks in more detail.  I include with each stock “Low” and “High” Targets, which give the range of stock prices within which I expect each stock to end 2018.

Seaspan Corporation (NYSE:SSW)
12/31/17 Price: $6.75.  Annual Dividend: $0.50 (7.4%). Expected 2018 dividend: $0.50 (7.4%).  Low Target: $5.  High Target: $20.
8/31/18 Price: $9.22  YTD dividend: $0.375 (5.56%)  YTD Total Return: 43.3% 

Leading independent charter owner of container ships Seaspan’s gave back a little of its gains from earlier in the year.  The second quarter earnings call was “steady as she goes,” so I see the decline as mostly profit taking after the earlier large gains.  I took some gains myself.

Covanta Holding Corp. (NYSE:CVA)
12/31/17 Price: $16.90.  Annual Dividend: $1.00(5.9%). Expected 2018 dividend: $1.00 (5.9%).  Low Target: $15.  High Target: $25. 
8/31/18 Price: $17.65 YTD dividend:  $0.50 (2.96%)  YTD Total Return: 7.8% 

Covanta, the US leader in the construction and operation of energy from waste (EfW) plants reported second quarter earnings in July. The company is seeing improvements in profitability in most parts of its operations, and now expects full year results to come in at the high end of its previous guidance.

In August, the company reported several financial transactions that should improve overall profitability.  It sold  a small (13MW) hydroelectric project in Washington state to Atlantic Power (AT), and assumed the operation and maintenance of two EfW facilities in Florida.  Since Covanta already operates six other EfW facilities in Florida, it should be able to achieve synergies in these operations that were not possible for the hydroelectric plant in Washington.

The company also enlarged and lengthened the term of its senior loans, and refinanced a number of tax exempt bonds leading to a reduction in interest expense.  Given the company’s size, the move is likely to only result in a $0.01 per share improvement in annual earnings, but every improvement is good to see.

Clearway Energy, Inc (NYSE: NYLD and NYLD/A)
12/31/17 Price: $18.90 / $18.85.  Annual Dividend: $1.133(6.0%). Expected 2018 dividend: $1.26(6.7%)  Low Target: $14.  High Target: $25. 
8/31/18 Price: $18.50/$18.44   YTD dividend:  $0.927 (4.90%)  YTD Total Return: 10.1% 

Yieldco NRG Yield announced that Global Infrastructure Partners (GIP) had completed the purchase of NRG’ Energy’s (NRG) controlling stake in the Yieldco and had become its new sponsor.  NRG Yield has changed its name to  Clearway Energy, Inc, and will be holding a conference call to discuss its plans for the future on September 11th.  GIP is also acquiring NRG’s renewable energy assets and development platform.

Clearway’s stock has been advancing since the announcement, most likely in anticipation of renewed growth under its new sponsor.

Atlantica Yield, PLC (NASD:AY)
12/31/17 Price: $21.21.  Annual Dividend: $1.16(5.6%). Expected 2018 dividend: $1.39 (6.6%).  Low Target: $18.  High Target: $30. 
8/31/18 Price: $20.64 YTD dividend: $0.97 (4.57%)  YTD Total Return: 2.2% 

Atlantica Yield’s new sponsor, Algonquin Power (AQN) has been in place since early this year, and the Yieldco has been taking advantage of the stronger sponsor to refinance its debt at lower interest rates while continuing to pay down existing debt with retained cash flow.  The aftermath of Atlantica’s former sponsor Abengoa’s (ABG.MC, ABGOY, ABGOF) bankruptcy led to Atlantica focusing on paying down debt rather than growth for the last two years, but now that looks ready to change.  The company states that it is in discussions for the acquisition of $200 million in equity worth of accretive investments.

That would represent an approximate 10% increase in the company’s size if all the deals were consummated.  If we assume cash flow margins  20% to 30% above returns to current equity, we could see cash flow per share growth of 2 to 3 percent from these transactions.  I expect a return to even such modest growth will be welcomed by shareholders.

Pattern Energy Group (NASD:PEGI)

12/31/17 Price: $21.49.  Annual Dividend: $1.688(7.9%). Expected 2018 dividend: $1.70(7.9%).  Low Target: $20.  High Target: $30. 
8/31/18 Price: $20.38 YTD dividend: $0.844 (3.93%)  YTD Total Return: -0.7% 

Yieldco Pattern Energy Group’s stock is starting to recover from lows earlier this year as the company’s path to renewed dividend growth becomes clearer.  The company had been paying out nearly 100% of cash flow available for distribution (CAFD) in 2017, and has a goal of bringing this nearly unsustainable payout ratio down to 80%.  To do that without a dividend cut requires growing CAFD by approximately 25% over 2017.

Strong second quarter results increased CAFD by 8% in the first half of 2018 over the same period in 2017, despite a decline in the first quarter.  8% is a far cry from the 25% needed before Pattern is likely to resume dividend increases, but it does give the company breathing room.  Combine this with the completed sale of PEGI’s Chilean assets and the acquisition of higher yielding assets in Japan and Quebec and investors seem ready to put their fears of a dividend cut to rest.

I do not expect any dividend increases for the next year or two as Pattern brings down its payout ratio towards its 80% target, but at a current yield over 8%, increases are not necessary to make the stock an attractive investment.

Terraform Power (NASD: TERP)
12/31/17 Price: $11.96.  Annual Dividend: $0. Expected 2018 dividend: $0.72 (6.0%)  Low Target: $10.  High Target: $16. 
8/31/18 Price: $11.18 YTD dividend: $0.38 (3.18%)  YTD Total Return: -3.4% 

Yieldco Terraform Power completed its acquisition of European Yieldco Saeta Yield, and is now turning its focus on improving the operations at its fleet to improve profitability.  Terraform’s former sponsor, the now bankrupt SunEdison, operated the Yieldco’s fleet of wind and solar farms.  With the distraction of bankruptcy proceedings, such operations were doubtlessly neglected over the last two years.  Now, with a new operations agreement with General Electric (GE), TERP plans to invest in its existing fleet (which now includes Saeta’s as well) to improve operations.

The Yieldco says that these plans, along with the Saeta acquisition, give it a clear path to meeting its 5 percent to 8 percent dividend growth target through 2022 while maintaining its payout ratio below 85%.  Such a long term growth target is rare among Yieldcos, especially one which already has a 6.8% yield.

Brookfield Renewable Partners, LP (NYSE:BEP)
12/31/17 Price: $34.91.  Annual Dividend: $1.872(5.4%). Expected 2018 dividend: $2.02(5.8%).  Low Target: $28.  High Target: $45. 
8/31/18 Price: $30.77 YTD dividend: $0.98 (2.81%)  YTD Total Return: -9.0%

Brookfield Renewable Partners reported a weak second quarter results because of low production from hydropower.  The stock sold off as a result, and now looks quite attractive.  Brookfield’s large base of hydropower and limited partnership structure (you get a K-1 but it is safe to hold in a retirement account because it does not produce UBTI.)

In other words, BEP is a great diversifier in a Yieldco-heavy portfolio, and now looks like a good time to add it to that portfolio if you have not already.

Green Plains Partners, LP (NASD: GPP)
12/31/17 Price: $18.70.  Annual Dividend: $1.84(9.8%). Expected 2018 dividend: $1.90(10.2%).  Low Target: $13.  High Target: $27. 
8/31/18 Price: $15.20  YTD dividend: $0.945 (5.05%)  YTD Total Return: -14.3%

Ethanol MLP and Yieldco Green Plains Partners has been selling off in large part due to the Trump EPA’s attacks on the ethanol industry.  These include diluting the Renewable Fuel Standard, and granting waivers to oil refiners who don’t really need those waivers.  In other words, it is tough times for GPP and its parent GPRE.

At this point, however, I think much of the bad news is priced in, and there is some “good” news in the form of higher gas prices, as well as the tariffs that China and others are putting on corn.  This bad news for corn growers is good news for corn users, like Green Plains. China has also put a tariff on ethanol, but since ethanol can be substituted for gasoline (to a point), the price of gas should put a floor on the price of ethanol.  That is not true for the price of corn.

There are definitely risks with this stock, but the 12%+ yield is some very healthy compensation for those risks.

InfraREIT, Inc. (NYSE: HIFR)
12/31/17 Price: $18.58.  Annual Dividend: $1.00(5.4%). Expected 2018 dividend: $1.00 (5.4%).  Low Target: $16.  High Target: $30. 
8/31/18 Price: $20.89 YTD dividend: $0.50 (2.69%)  YTD Total Return: 15.2% 

Electricity transmission REIT InfraREIT reported much improved income and cash flow per share over the year earlier due to asset acquisitions.  The company is maintaining its $1 annual dividend while it re-evaluates its corporate structure.  It lost most of the advantages it gained by being a REIT as a result of the 2017 Republican tax bill.  At this point, the company could decide to become a normal corporation, be sold, or combine with another corporation.  There is also uncertainty around restructuring various long term lease transactions with its parent, Hunt Corporation so that they work with any new corporate structure and the new tax laws.

Earlier this year, the speculation about a possible go-private transaction drove the stock into the mid-$22 dollar range, at which point I wrote that I was “selling calls to lock in some profits in InfraREIT.”  Now that the stock has pulled back a bit, I’m happy to hold at the current price, collect my dividends, and see what happens.  I expect that there is more upside profit potential in a possible future transaction than downside risk, and I like the improving earnings numbers.  Finally, the company reached a beneficial tax settlement with the State of Texas, which was also good news.  With this positive backdrop, investor uncertainty about the company’s future corporate structure is likely leading to some current undervaluation.

Enviva Partners, LP. (NYSE:EVA)
12/31/17 Price: $27.65.  Annual Dividend: $2.46(8.9%). Expected 2018 dividend: $2.65 (9.6%).  Low Target: $25.  High Target: $40. 
8/31/18 Price: $32.00 YTD dividend: $1.875 (6.78%)  YTD Total Return: 23.2% 

Wood pellet Yieldco and Master Limited Partnership Enviva reported another strong quarter, with new long term contract signed for additional wood pellet supplies to both Europe and Japan.  Although the stock is up significantly this year, I am not ready to start taking profits, given its strong growth and and prospects.

Final Thoughts

While I’m happy that this model portfolio and GGEIP are both now comfortably up for the year, stock market valuation and political turmoil are making me increasingly cautious about the market going forward.  Although there are a few stocks here that I think are good values, I believe caution is increasingly warranted.  I see this as a great time to wait and see, while holding a healthy allocation in cash.

Disclosure: Long PEGI, NYLD/A, CVA, HIFR, AY, SSW, SSW-PRG, TERP, BEP, EVA, HIFR, GPP, AQN, GE.

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.

The post Ten Clean Energy Stocks For 2018: Second Quarter Earnings appeared first on Alternative Energy Stocks.

Alternative energy power production stocks are companies whose main business is the production and sale of electricity from alternative energy installations, such as solar farms, wind farms, hydroelectric generators, geothermal plants, cogeneration facilities, and nuclear plants.

This list was last updated on 9/11/2020.

If you know of any alternative energy power producer that is not listed here or any stock that should be removed, please let us know by leaving a comment.

The post List of Power Production Stocks appeared first on Alternative Energy Stocks.

This is a list of renewable and alternative energy stocks with dividend or distribution yields above 4%.  The list includes most Yieldcos (high distribution companies that own renewable energy operations), but is not limited to Yieldcos. Some Yieldcos may be excluded if their yield is below 4%.

If you know of any high income (distribution yield over 4%) renewable or alternative energy stock that is not listed here, please let us know by leaving a comment. Also if you notice stocks in the list where the yield has fallen below the 4% threshold.

The post List of High Yield Alternative Energy Stocks appeared first on Alternative Energy Stocks.

Solar farm owner and developer stocks are publicly traded companies who develop or manufacture equipment that converts sunlight into other types of useful energy.  Includes manufacturers and developers of both solar photovoltaic and solar thermal equipment, as well as their supply chain.

This list was last updated on 3/21/2022.

See also the list of Solar Manufacturing Stocks, the list of Residential Solar Stocks, and solar and wind inverter stocks.

7C Solarparken AG (HRPK.DE)
Abengoa SA (ABG.MC, ABGOY, ABGOF)
Acciona, S.A. (ANA.MC, ACXIF)
Adani Green Energy (ADANIGREEN.NSE)
Algonquin Power and Utilities (AQN, AQN.TO)
Atlantica Yield PLC (AY)
Azure Power Global Ltd. (AZRE)
Bluefield Solar Income Fund (BSIF.L)
Boralex (BLX.TO, BRLXF)
Brookfield Renewable Energy Partners (BEP)
Canadian Solar (CSIQ)
Capital Stage AG (CAP.DE)
Clearway Energy, Inc. (CWEN, CWEN-A)
Edisun Power Europe AG (ESUN.SW)
Etrion Corp. (ETX.TO, ETRXF)
Canadian Solar (CSIQ)
First Solar Inc (FSLR)
GCL-Poly Energy Holdings Ltd. (3800.HK)
Iberdrola, S.A. (IBE.MC, IBDSF, IBDRY)
Infigen Energy Limited (IFN.AX, IFGNF)
Infraestructura Energética Nova, S.A.B. de C.V. (IENOVA.MX)
Innergex Renewable Energy Inc. (INE.TO, INGXF)
JinkoSolar Holding Co. (JKS)
Greenbriar Capital Corp. (GRB.V)
Guggenheim Global Solar ETF (TAN)
Neoen S.A (NEOEN.PA)
New Energy Exchange Limited (EBODF)
NextEra Energy Partners, LP (NEP)
NextEra Energy, Inc. (NEE)
Northland Power Inc. (NPI.TO, NPIFF)
Panda Green Energy Group Limited (0686.HK)
Premier Power Renewable Energy (PPRW)
Principal Solar (PSWW)
Renesola Ltd. (SOL)
ReNew Energy Global plc (RNW)
RGS Energy (RGSE)
Scatec Solar ASA (SSO.OL)
Shunfeng International Clean Energy Limited (1165.HK)
Sky Solar Holdings Ltd. (SKYS)
Solar Wind Energy Tower (SWET)
Solaria Energía y Medio Ambiente, S.A. (SLR.MC, SEYMF)
Sunpower (SPWR)
Sunvalley Solar, Inc. (SSOL)
Sunworks, Inc. (SUNW)
Terraform Power, Inc. (TERP)
The Renewables Infrastructure Group (TRIG.L)
US Solar Fund PLC (USF.L)
UGE International (UGE.V)
Vivint Solar (VSLR)
Yingli Green Energy Holding Company (YGEHY)

If you know of any solar farm developer or owner stock that is not listed here and should be, please let us know by leaving a comment. Also for stocks in the list that you think should be removed.

The post List of Solar Farm Owner and Developer Stocks appeared first on Alternative Energy Stocks.

Wind farm owner and developer stocks are publicly traded companies that site, permit, develop, construct, own, or operate wind farms for producing electricity.

This list was last updated on 3/22/2022

Acciona, S.A. (ANA.MC, ACXIF)
Adani Green Energy (ADANIGREEN.NSE)
Algonquin Power and Utilities (AQN, AQN.TO)
Atlantica Yield PLC (AY)
Atlantic Power Corporation (AT)
Avangrid, Inc. (AGR)
Boralex (BLX.TO, BRLXF)
Brookfield Renewable Energy Partners (BEP)
China Longyuan Power Group Corporation Limited (0916.HK, CLPXF)
China Ruifeng Renewable Energy Holdings Limited (0527.HK)
Orsted (ORSTED.CO, formerly DENERG.CO)
E.ON AG (EONGY)
Enel SpA (ENEL.MI, ESOCF)
Greencoat UK Wind (UKW.L)
Infigen Energy Limited (IFN.AX, IFGNF)
Innergex Renewable Energy Inc. (INE.TO, INGXF)
Neoen S.A (NEOEN.PA)
NextEra Energy Partners, LP (NEP)
NextEra Energy, Inc. (NEE)
Nordex AG (NRDXF, NDX1.DE)
Northland Power Inc. (NPI.TO, NPIFF)
NRG Yield, Inc. (NYLD, NYLD-A)
Otter Tail Corp (OTTR)
PNE Wind AG (PNE3.DE)
ReNew Energy Global plc (RNW)
The Renewables Infrastructure Group (TRIG.L)
TransAlta Renewables, Inc. (RNW.TO, TRSWF)
Xcel Energy Inc. (XEL)
Wind Works Power Corp. (WWPW)

If you know of any wind farm owner or developer stock that is not listed here, but which should be, please let us know in the comments. Also for stocks in the list that you think should be removed.

The post List of Wind Farm Owner and Developer Stocks appeared first on Alternative Energy Stocks.

After a stormy winter for the broad market and clean energy stocks, including my picks, March and April brought relative calm.  Better yet, my model portfolio has rebounded from its February lows, although its benchmarks (SDY for the broad market of income stocks and YLCO for clean energy income stocks) have mostly been treading water.

The gains were led by two of my less conventional clean energy picks, Seaspan (SSW) and InfraREIT (HIFR).  Seaspan owns (mostly very efficient) container-ships, which most people would not associate with clean energy, but which I include because they they are much less energy intensive compared to moving a similar amount goods by any other means. InfraREIT is an owner electric transmission lines which, although not limited to carrying clean energy, are essential to the addition and integration of large amounts of wind and solar onto the grid. Along with wood pellet MLP Enviva Partners (EVA), three of my five least conventional clean energy picks are up for the first four months of the year. All of the the five more traditional Yieldcos mostly invest in wind and solar are showing losses.  For me, the lesson here is the value of diversification and looking at stocks others might not be considering.  The importance of such diversification only increases when investing in an otherwise very narrow sector such as clean energy.

Overall, my broad market benchmark SDY fell 0.3% for the two months, and my clean energy benchmark YLCO rose 0.8%.  The model portfolio of ten clean energy stocks jumped 4.3%.  The real-money Green Global Equity Income Portfolio (GGEIP), which I manage, rebounded 3.9%.  For the year to April 30, the model portfolio is down 1.8% and GGEIP is down 1.7%, while SDY is down 3.2% and YLCO is down 5.2%.  All results are total return (i.e. they include dividends.)

My short term stock picking was less successful over the last two months.  In the March update, I highlighted Covanta (CVA, up 1.2% in March and April), NRG Yield (NYLD/A, up 14.5%), Pattern (PEGI, down 0.3%) and Brookfield Renewable (BEP, down 1.5%) as attractive short term buys. On average, these four picks were up only 3.5%, or less than the average return on all 10 picks.

Stock discussion

Below I describe each of the stocks and groups of stocks in more detail.  I include with each stock “Low” and “High” Targets, which give the range of stock prices within which I expect each stock to end 2018.

Seaspan Corporation (NYSE:SSW)
12/31/17 Price: $6.75.  Annual Dividend: $0.50 (7.4%). Expected 2018 dividend: $0.50 (7.4%).  Low Target: $5.  High Target: $20.
4/30/18 Price: $7.69  YTD dividend: $0.25  (3.70%)  YTD Total Return: 17.8% 

Leading independent charter owner of container ships Seaspan’s stock advanced steadily after hitting a low of $5.50 on March 13th as investors started to recognize the strengthening fundamentals of the shipping industry (something that Seaspan management has been commenting on for almost a year now.)  Deutsche Bank raised its target price for SSW from $7 to $13 and bumped its rating to “Buy” based on a strong forcast for free cash flow.

On May 2nd, Seaspan reported first quarter results. The strengthening fundamentals were clear in much stronger vessel utilization, which rose from 92% in the first quarter of 2017 to 97% this year, with a slightly larger fleet, leading to higher revenue and improved margins, causing the stock to continue its climb.

Covanta Holding Corp. (NYSE:CVA)
12/31/17 Price: $16.90.  Annual Dividend: $1.00(5.9%). Expected 2018 dividend: $1.00 (5.9%).  Low Target: $15.  High Target: $25. 
4/30/18 Price: $14.90 YTD dividend:  $0.25 (1.480%)  YTD Total Return: -10.3% 

The stock of US leader in the construction and operation of waste-to-energy plants Covanta mostly treaded water for March and April.  The company reported first quarter results on April 26th.  Overall, I felt the results were encouraging, with the company’s Fairfax facility operating well after a long outage for repairs and upgrades in 2017, and progress continuing on new investments.  After an initial positive reaction on the 27th, the stock puzzled me with a sharp sell off.  As I write on May 4th, it seems to have mostly recovered.

Although I remain puzzled by the sharp sell-off and rebound after the most recent earnings, I expect the stock to do well for the rest of the year if the company can just continue to operate its existing plants smoothly while slowly advancing its investment plans, most notably its UK partnership with Green Investment Group.

NRG Yield (NYSE: NYLD and NYLD/A)
12/31/17 Price: $18.90 / $18.85.  Annual Dividend: $1.133(6.0%). Expected 2018 dividend: $1.26(6.7%)  Low Target: $14.  High Target: $25. 
4/30/18 $17.80/$17.61 Price:  YTD dividend:  $0.607 (3.2%)  YTD Total Return: -4.6% 

The purchase of NRG Energy’s (NRG), sponsorship stake in NRG Yield by private infrastructure fund Global Infrastructure Partners (GIP) remains on track and is expected to close in the second half of 2018.  The upcoming change in sponsors has not put growth on hold at NRG Yield: The Yieldco closed the acquisition of a solar farm from NRG Energy.  The smooth transition is likely in part due to the fact that GIP is also buying NRG’s renewable development arm.

NRG Yield announced first quarter results on May 3rd.  Overall, first quarter results seemed unsurprising, but the market reacted favorably, most likely because they included the announcement that the Yieldco had refinanced it’s $495 million revolving credit facility, extending the maturity for 5 years and lowering the interest rate by 0.75%.  It also boosted its quarterly dividend to $0.309 per share, a 3.7% increase over the prior quarter and in-line with its 15% annual dividend growth target for 2018.

I found NRG Yield’s recent small purchase of a small (2.8MW) fuel cell power plant in California from FuelCell Energy (FCEL) interesting in that it is the first purchase of fuel cells by a Yieldco.  NRG Yield has always been one of the more diverse Yieldcos in terms of its assets, and that diversity is valuable in its ability to insulate the Yieldco from weather-induced revenue and earnings fluctuations.  For example, in the first quarter, NYLD’s strong solar results offset lower wind production.

Atlantica Yield, PLC (NASD:AY)
12/31/17 Price: $21.21.  Annual Dividend: $1.16(5.6%). Expected 2018 dividend: $1.39 (6.6%).  Low Target: $18.  High Target: $30. 
4/30/18 Price: $20.09 YTD dividend: $0.31 (1.46%)  YTD Total Return: -3.8% 

Atlantica Yield announced its fourth quarter 2017 earnings on March 7th, shortly after my last update.  The company reported steady results, and after a year of paying relatively low dividends compared to its cash available for distribution (CAFD), a strong balance sheet with falling debt.  The company is targeting an 80% pay-out ration on expected CAFD of $170-$190 million.  This equates to a average quarterly dividend of $0.34 to $0.38, so we can expect continued dividend increases of at least 2 cents a quarter the rest of the year.

On April 24th, Atlantica’s new sponsor, Algonquin Power & Utilities (AQN) announced that it would exercise its option to buy an additional 16.5% stake in AY at $20.90 per share, increasing its stake to 41.5%.  Investors should take note of this vote of confidence and have confidence themselves.

Pattern Energy Group (NASD:PEGI)

12/31/17 Price: $21.49.  Annual Dividend: $1.688(7.9%). Expected 2018 dividend: $1.70(7.9%).  Low Target: $20.  High Target: $30. 
4/30/18 Price: $18.18 YTD dividend: $0.422 (1.96%)  YTD Total Return: -13.3% 

Wind Yieldco Pattern Energy Group has been in the doldrums for two reasons.  First, the company is paying out 100% of its CAFD in dividends, while management says it wants to reduce this to 80% over the next few years.  Second, wind conditions for the last few quarters have not been favorable at their largest wind farms, meaning that CAFD has repeatedly come in below expectations.  First quarter wind production looks unlikely to blow investors away when PEGI reports earnings on May 10th.

With the stock price in the doldrums, any new stock issuance would only dilute cash flow per share, so Pattern’s options for reaching its 80% payout ratio target are limited.  The most obvious is a dividend cut, which management has repeatedly said they will not consider.  Instead, they expect to get incremental cash flow increases from inflation adjustments and efficiency improvements at their existing wind farms.  They are also continuing investment in new wind farms in Japan.

These investments are currently being funded with debt, remaining cash on hand, and recycling capital by selling minority interests in their existing wind farms. Selling stakes in some wind farms to fund purchases of other wind farms can produce incremental cash flow because Pattern keeps a management fee as well as its proportional share of the production; such management fees produce incremental cash flow without new investment.  Cash flow may also be improved if the incremental returns on new investments are higher than the ones sold.  With asset sales going to cautious financial investors such as pension funds, and Pattern’s management team’s long and deep experience in the the wind sector, it seems likely that the Yieldco can produce incremental cash flow by recycling capital from asset sales.

On other words, it seems likely that Pattern should be able to grow CAFD modestly in 2018.  By holding its dividend constant at $0.422 per quarter, it should be able to bring the payout ratio down below 100% this year, even if wind conditions continue to be unfavorable.  For this reason, I expect that Pattern will be able to maintain its dividend even if wind conditions continue to disappoint.  Investors should not expect any meaningful dividend growth for the next 2-3 years, until the company achieves its target 80% payout ratio, but at the current price of $18.18, the current dividend amounts to a 9.3% yield.  At this level, even reduced fears of a dividend cut (perhaps after a couple quarters for favorable wind conditions) should lead to price appreciation.

Although I expect first quarter earnings to disappoint again next week, any further weakness in the stock price that causes should be seen as a buying opportunity.

Terraform Power (NASD: TERP)
12/31/17 Price: $11.96.  Annual Dividend: $0. Expected 2018 dividend: $0.72 (6.0%)  Low Target: $10.  High Target: $16. 
4/30/18 Price: $11.15 YTD dividend: $0.19 (1.59%)  YTD Total Return: -5.2% 

Yieldco Terraform Power is planning for continued interest rate increases by focusing on growth that does not require significant new equity capital.  This will consist of a focus on cost savings and slower, more organic growth, as opposed to large scale acquisitions.  The exception to this is the acquisition of European Yieldco Saeta Yield, which will be accretive to CAFD per share because of its relatively inexpensive valuation, and the cost savings that will come from combining management of two small-ish companies into a company that is large enough to bear the costs of a public listing, especially with the support of Terraform’s new sponsor, Brookfield Asset Management (BAM,)

Terraform expect to achieve cost savings with by outsourcing the operations and maintenance of its wind facilities to a wind manufacturer. The company has already achieved some cost savings through refinancing its debt at more attractive interest rates.  This was made possible by the confidence that its new corporate sponsor, Brookfield, gives lenders in comparison to its former bankrupt sponsor, SunEdision.

One dramatic event in January was when a crack at the base of a wind turbine blade caused the spinning blade to bend and, as it was spinning, sheer off the tower the turbine was mounted on.  While there were no injuries from the incident (windfarms are mostly located in uninhabited areas and managed remotely) Terraform decided to temporarily shut down all of its turbines with blades from the same manufacturer until it determined if any of the others were at risk.  The incident and shutdowns cost Terraform approximately $6 million, all of which the company anticipates will be recoverable from insurance.

With its price near $11, and a solid financial plan to grow the dividend at 5 to 8 percent per year, Terraform is an good long term buy.

Brookfield Renewable Partners, LP (NYSE:BEP)
12/31/17 Price: $34.91.  Annual Dividend: $1.872(5.4%). Expected 2018 dividend: $2.02(5.8%).  Low Target: $28.  High Target: $45. 
4/30/18 Price: $30.33 YTD dividend: $0.49 (1.4%)  YTD Total Return: 11.7%

Brookfield Renewable Partners reported first quarter earnings on May 3rd, with strong generations results coming in above long term average generation, and per unit Funds From Operations (FFO, a measure of the partnership’s ability to pay distributions and similar to CAFD used by other Yieldcos) growing to $0.62 per unit compared to the $0.55 per unit from a year earlier.  The growth was largely due to the acquisition of Terraform Power (TERP, see above) and Terraform Global in late 2017.

Brookfield targets sustainable annual distribution and FFO per unit increases of 5% to 9% on an annual basis.  In the update, management says it expects to be able to deliver growth near the high end of this range over five years, despite the rising interest rate environment without raising new debt or equity.

Green Plains Partners, LP (NASD: GPP)
12/31/17 Price: $18.70.  Annual Dividend: $1.84(9.8%). Expected 2018 dividend: $1.90(10.2%).  Low Target: $13.  High Target: $27. 
4/30/18 Price: $17.40  YTD dividend: $0.945 (5.05%)  YTD Total Return: -4.5%

Ethanol MLP and Yieldco Green Plains Partners will announce first quarter results on May 7th. While the partnership has some protection from the ups and downs of the ethanol market from its agreements with its sponsor, Green Plains (GPRE), the news in this sector has not been good.  While ethanol has strong support from Republicans in Congress, the Trump administration’s EPA head Scott Pruitt have been using his  regulatory power to grant waivers to dozens of oil refineries.  These exemptions are possibly illegal because they were intended to be used only for small refineries that are facing financial hardship.  They have also been given without public comment, and some of the recipients are simply too large to qualify as small refineries.

One was given to the fifth-largest refiner, Andeavor (ANDV) in the nation.  Such waivers were designed for refineries producing less than 75,000 barrels per day that can demonstrate that they suffer a “disproportionate economic hardship” from the costs of RFS compliance.  Andeavor’s 2017 net profit was $1.5 billion.

Until these issues can be sorted out in the courts, the sheer number of exemptions have reduced the required volume of ethanol to be bought by refiners by six percent, a large enough percentage to significantly affect the price dynamics in any market.

It still remains to be seen if Pruitt’s gifts to oil refiners at the expense of ethanol producers will survive judicial scrutiny, or if these exemptions will harm Green Plains to the extent that its contracts with Green Plains Partners are at risk, but Pruitt’s actions have definitely increased the risks for the partnership.

InfraREIT, Inc. (NYSE: HIFR)
12/31/17 Price: $18.58.  Annual Dividend: $1.00(5.4%). Expected 2018 dividend: $1.00 (5.4%).  Low Target: $16.  High Target: $30. 
4/30/18 Price: $21.31 YTD dividend: $0.25 (1.35%)  YTD Total Return: 16.2% 

Electricity transmission REIT InfraREIT continues to perform well.  The rise is most likely due to a rebound from December lows caused by worries surrounding the tax bill, and how it would be treated by utility regulators.  In its first quarter earnings announcement on May 3rd, the company said that it intended to adapt to the new tax environment by opting to become a traditional corporation, rather than a REIT.  The company plans to maintain its strategy of growing its business as a transmission-oriented utility, supporting load growth and the expansion of renewable energy in the Texas Panhandle region.

Most earning metrics increased substantially in the first quarter from a year earlier, but this was driven mostly by the structure of rent payments, which have a higher proportion of fixed rent compared to variable “percentage” rent than they did in 2017.  Since percentage rent was mostly paid in the third and fourth quarters, investors should be careful not to read too much into the increase.

Enviva Partners, LP. (NYSE:EVA)
12/31/17 Price: $27.65.  Annual Dividend: $2.46(8.9%). Expected 2018 dividend: $2.65 (9.6%).  Low Target: $25.  High Target: $40. 
4/30/18 Price: $27.55 YTD dividend: $0.62 (2.3%)  YTD Total Return: 1.9% 

Wood pellet Yieldco and Master Limited Partnership Enviva reported first quarter results on April 29th. Results were well below expectations due to a fire at one of their wood pellet terminals costing $19.5 million in related expenses.  These expenses should be recoverable from insurance in future quarters, and so the company re-affirmed its distribution guidance of $2.53 for the full year.  With the just-declared $0.625 distribution for May, that means we can expect an average dividend of at least $0.6425 for the next two quarters, so the next to raises are likely to be larger than the 0.5 cent raise this quarter, most likely in line with recovering cash flow as the insurance proceeds come in.

The world market for wood pellets remains strong and growing with regulatory action in Europe and Japan driving demand growth.  Even the United States got in on the action this year, with the EPA ruling that biomass from managed forests should be treated as carbon neutral when used for energy production.  This ruling is aligned with numerous state policies and with the European Union, but the greenhouse impact of Enviva’s wood pellets had been in a regulatory gray area previously, at least as far as the US federal government was concerned.

Final Thoughts

Two months ago, I wrote that it was “time to start putting some (but not all)… cash allocation to work.”  With the model portfolio up 5.3% in the subsequent two months, that seems to have been a good call, even if the four picks I highlighted at the time did not advance as far as the portfolio as a whole.

After that advance, I am returning to wait and see mode, and I am selling calls to lock in some profits in InfraREIT.  Despite its larger advance, I still think Seaspan has significant room to the upside, so I am not selling calls there.  For longer term readers, I’ve also been taking profits in MiX Telematics (MIXT) as it hit $15, $16, and $17.  MiX was a fixture in this portfolio starting in 2014, when it started the year at $12.12. I subsequently urged readers to add to their positions at $6.50, $4.22, and $6.19 in 2015, 2016, and 2017, respectively.  I’m happy to say that I followed my own advice.

If I were looking to add to my position in any of the stocks in this list today, my top short term picks would be BEP, CVA, and EVA.

Disclosure: Long PEGI, NYLD/A, CVA, AY, SSW, TERP, BEP, EVA, HIFR, GPP, AQN, MIXT.

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.

The post Ten Clean Energy Stocks For 2018: Oddballs Spring Back appeared first on Alternative Energy Stocks.

by Tom Konrad, Ph.D., CFA

It’s been a busy several days in the YieldCo space.

The post One Week, Three YieldCo Deals. Are More Buyouts on the Horizon? appeared first on Alternative Energy Stocks.

Tom Konrad CFA

Disclosure: Long BEP, MCQPF. PENGF, AQUNF

Last week, I was surprised to discover that Brookfield Renewable Energy Partners (NYSE:BEP, TSX:BEP-UN) is not entirely renewable.

I’ve owned shares of Brookfield for many years, but as a relatively safe income stock, I’ve parked it in the back of my portfolio to gather dust and dividends. I apply my limited time for in-depth analysis to riskier stocks where a quarter’s earnings are likely to make a much bigger difference in the stock price.

I may have noticed the “Other” category in addition to BEP’s wind and hydroelectric generation before last week, but I would not have paid much attention.  4% of Brookfield’s power production is not going to make the other 96% of its production non-renewable, no matter how dirty it may be, at least in my own opinion.

But my opinion is not the only one that matters.   I have been managing the Green Alpha Global Enhanced Equity Income Portfolio (GAGEEIP) since December with Green Alpha Advisors.  Green Alpha is currently offering GAGEEIP in separately managed accounts.  Like all of Green Alpha’s portfolios, we’re managing it to an entirely fossil free mandate.

I came across the “Other” category when I evaluated Brookfield and four other renewable electricity producers in terms of how many dollars it costs to buy a watt of renewable generation last week.  Since BEP was a holding of GAGEEIP, I had to dig deeper.  I found:

• Brookfield owns two co-generation natural gas facilities in New York and Ontario.
• These were acquired along with a larger purchase of hydropower assets several years ago.
• The company is not actively trying to sell them, but would if “the right offer came along.”

It’s Not Easy Being Fossil Free 

I’m a fan of co-generation, where the waste heat from power production is also used.  Despite the fact that these facilities are often powered by natural gas, I’d consider Brookfield to be green even if co-generation accounted for the entire portfolio.  But no matter how green these facilities are, they’re not fossil fuel free, and we had to remove Brookfield from GAGEEIP.

Brookfield is now the fourth of my favorite green income stocks that aren’t in GAGEEIP.  The others are Algonquin Power (TSX:AQN, OTC:AQUNF), Capstone Infrastructure (TSX:CSE, OTC:MCQPF), and Primary Energy Recycling (TSX:PRI, OTC:PENGF).  All have some gas generation, although it’s also cogeneration in the case of Capstone and Primary Energy.

So why not manage a green equity income portfolio rather than a fossil fuel free one?  Marketing.  Green Alpha’s current mutual fund, the Shelton Green Alpha Fund (NEXTX) is one of only four broad based mutual funds which is entirely fossil free.  As far as I know, there is not a single fossil free mutual fund or exchange-traded fund (ETF) targeting a high level of current income.  In fact, most have a distinctive growth emphasis, which is the natural consequence of investing in firms in emerging industries (renewable energy) rather than a mature one (fossil fuels.)

It’s simply much easier to explain “fossil fuel free” than “hardly any fossil fuels, except co-generation.”   And when an individual, a pension fund or university endowment decides to heed 350.org‘s call to go entirely fossil fuel free but needs to maintain a high level of current income, we’re to giving them somewhere to go.

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.

The post It’s Easy Being Green. Fossil Fuel Free Is Harder appeared first on Alternative Energy Stocks.

Tom Konrad CFA

Disclosure: I have long positions in MCQPF and AQUNF.

Capstone Infrastructure Corporation (TSX:CSE, OTC:MCQPF) has been trading at a significant discount to its peers because of a  power supply agreement which expires at the end of 2014.  Capstone is seeking a new agreement with the Ontario Power Authority for its Cardinal gas cogeneration facility, a process which has taken much longer than management expected.

The cardinal Cardinal plant currently accounts for about a third of Capstone’s revenue and a quarter of earnings before interest, taxes, and depreciation (EBITDA), but two-thirds of distributible income.  The high fraction of distributible income is because Cardinal’s debt has been paid down over the term of the expiring power supply agreement.  This makes income from Cardinal (and the terms of a new power supply agreement) crucial to maintaining Capstone’s dividend.

Capstone Infrastructure Corp.’s Gas Cogeneration facility in Cardinal, Ontario.

In the company’s third quarter conference call, we learned a few tidbits which point to how and when the negotiations might be resolved.

Timing

In terms of timing, the Ontario Power Authority (OPA) is expected to release its new Long Term Energy Plan before the end of the year.  It seems unlikely that the OPA would announce a new contract with Capstone before releasing the plan, so I expect that investors will have to wait until 2014 before we have any news on an actual contract.

The OPA did finalize a 20 year power supply agreement with TransAlta Corporation (TSX: TA, NYSE:TAC) for that company’s similar gas cogeneration facility in Ottawa.  That facility’s previous agreement was expiring at the end of 2013.  If Capstone’s negotiations follow a similar pattern, we would expect a new agreement for Cardinal in the middle of next year.

Likely Terms

TransAlta’s Ottawa power supply agreement is interesting in terms of its substance, in addition to its timing.  Under that deal, the plant “the plant will become dispatchable. This will assist in reducing the incidents of surplus baseload generation in the market, while maintaining the ability of the system to reliably  produce energy when it is needed.”

For similar reasons, the chance of Capstone and the OPA failing to come to any agreement seems minuscule.  The Ontario government has committed to no new nuclear and an increasing dependence on renewables and efficiency.  No new nuclear means lower overall supply, and more renewables means more variable power supplies, adding to the value of flexible plants such as Cardinal and Ottawa.

The Ottawa agreement provides for TransAltas’s plant to ramp up and down in response to the needs of Ontario’s power system.  Dispatchable plants receive two types of revenues from the utility: payment for energy produced, and a capacity payment based on the plant’s ability to respond to system needs.

Cardinal is also a flexible facility, so it makes sense that Cardinal’s power supply agreement would also provide for the plant to become dispatchable.  New capacity payments would go some way to making up for the lost revenue when Cardinal no longer operates as a baseload facility.  In 2012 and 2013, Cardinal has been generating power nearly flat-out, running at a capacity factor equal to over 90%  of its theoretical maximum.

The capacity factor of dispatchable facilities varies greatly.  ”Peaker” plants tend to be relatively inefficient facilities with high operating costs which operate for only a few hours or days each year, when load is highest and all other facilities are already operating.   More efficient cogeneration plants such as Cardinal and Ottawa are typically used to serve intermediate load.  Such plants are dispatched whenever demand is high or moderate or when renewable power production is low.  They are switched off at times of low demand or high production from renewables.  Such plants usually operate at capacity factors between 30% and 70%, with more efficient, low-cost facilities operating at higher capacity factors.  Cogeneration facilities tend to be among the most efficient.

Estimates

I modeled three scenarios for Capstone’s 2015 earnings under a new power supply agreement.  For a worst case, I assumed that Cardinal would operate at a very low 15% capacity factor.  My “expected” case would have Cardinal operating at a 55% capacity factor, and my “high” case would have it operating at a 65% capacity factor.

I then factored in moderate revenue and earnings growth from Capstone’s many development projects and capital investments to arrive at some rough estimates of Capstones future capacity to pay dividends.  The company measures this capacity with “Adjusted Funds From Operations” or AFFO, and aims to pay out roughly 70% to 80% of AFFO as dividends.

Starting with Capstone’s recent share price of C$3.66, I assumed that management would maintain the current C$0.075 quarterly dividend through 2014, and pay out 80% of AFFO in 2015.

Although income and AFFO will drop with the new contract, the market is already pricing in a dividend decrease.  Capstone currently trades at a dividend yield over 8%, while the closest comparable, Algonquin Power and Utilities (TSX:AQN, OTC:AQUNF,) yields 5.2%, so I assumed Capstone’s yield would fall to 6% in 2015, given the increased certainty embodied in a new contract.

In my expected scenario, this produced a C$4.70 stock price, while my worst case scenario had the stock fall to C$3.08, and the high case produced a stock price of C$5.06.  The worst case scenario produced only a tiny net loss (less than 1%) over the next two years because of Capstone’s high dividend yield, while the Expected and High scenarios produced 45% and 55% two-year returns, respectively.

Conclusion

Ontario’s plans to meet its electricity needs without new nuclear power, and with the increasing use of wind, solar, and energy efficiency mean that the flexibility of Capstone’s Cardinal cogeneration power plant is increasingly valuable.  The Ontario Power Authority is likely to reach a supply agreement with Capstone to provide for Cardinal to be operated as a dispatchable facility.  Such an agreement is likely to be finalized well in advance of the expiration of Cardinal’s current agreement at the end of 2014.

Under such an agreement, Capstone’s income from Cardinal will almost certainly decline.  However, the market currently seems to be pricing in a worst case scenario under which Cardinal operates only a fifth of the time.  Under a more likely scenario, Capstone should be able to maintain its current C$0.30 annual dividend.  If
that happens, the stock should appreciate for a two year total return of between 35% and 55%.

This article was first published on the author’s Forbes.com blog, Green Stocks on November 15th.

Disclosue: Long CSE, AQN,NPI,BEP,INE,RDZ

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 sour

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