Biiofuel stocks are publicly traded companies whose business involves transportation fuels or any other form of liquid fuel made from plant or animal feedstocks (also called biomass).  Included (but listed separately) are ethanol and biodiesel stocks.

If you know of any biofuel stock that is not listed here or in the lists of ethanol or biodiesel stocks, 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 Biofuel Stocks appeared first on Alternative Energy Stocks.

by Debra Fiakas CFA

Insider buying is not one of my regular screening criteria in selecting long plays in the small cap sector.  However, to learn a chief executive officer has taken out his/her check book to buy shares in their company is influential.  In November 2016, the CEO of biofuel producer Renewable Energy Group (REGI:  Nasdaq) reported an increase in his stake in the company in recent months.

With REGI shares just above the prices paid by the CEO just three months ago, it is timely to look more closely from the outside.

In the most recently reported twelve months, Renewable Energy Group produced $1.87 billion in total sales of renewable diesel and chemicals, resulting in a net loss of $71.9 million or $1.70 per share.  Those two metrics are only part of the story as the company also reported generating $52.2 million in operating cash flow in the same period.   Using its typically low-cost feedstock such as inedible corn oil and used cooking oil, the company lays claim to being a low cost biofuel producer.  Nonetheless, the company has come through a particularly tough period in 2015, when thin margins failed to deliver enough profit to cover fixed costs.  Yet even during this difficult period, operating cash flows remained positive.

Free cash flow, that is operating cash flows net of investment requirements, may be a more helpful metric to evaluate a renewable energy producer.  REG operates a dozen biorefineries in North America with total nameplate capacity just over 450 million gallons per year.  The company is moving aggressively to expand its footprint.  In November 2016, management trooped out to Iowa to stage a showy groundbreaking ceremony with Iowa’s high profile governor, Terry Branstad.  The group turned over first shovels on a project to expand its Ralston biorefinery capacity from 12 million to 30 million gallons.

The price tag for the Ralston expansion is estimated at $24 million.  This is easily fit into the company’s regular budget.  Renewable Energy invested $42.8 million into its plants in the first nine months of 2016.  Indeed, capital investment has averaged $54.6 million per year over the last three years.  Operating cash flows have been more than ample to cover capital investments into existing plant and equipment, leaving $29.5 million in average annual free cash flow.

REG management has had no difficulty in finding places to use that extra cash.  Approximately $84.4 million in cash has been used to acquire new operations since the beginning of 2013.  The most recent deal in March 2016, was the acquisition of a biodiesel refinery in Wisconsin owned by Sanimax Energy.  REG paid a total of $21.1 million for 20-million gallons in nameplate capacity in a combination of cash and stock.
A more significant deal was struck in August 2015, for a facility in Grays Harbor, Washington that added 100 million gallons to the company’s total capacity.  A total of $36.7 million in cash and stock valued at $15.3 million were paid up front.  An additional $5.0 million was promised contingent upon achievement of milestones in renewable diesel production in 2016 and 2017.

A growing, profitable operation should be of interest for most investors.  The one reservation that investors should have regarding REGI, is the possible fall out of favor for renewable energy producers.  REG management has come out in support of a recent proposal for the 2017 standard set by the Environmental Protection Agency for Advanced Biofuel Renewable Volume Obligation from 4.0 billion gallons to 4.28 billion gallons.  Biomass-based diesel is a direct beneficiary of the standard.  Given the antipathy expressed by the incoming occupant of the Oval Office toward the environment and climate, renewable energy may not be a particular priority.  Indeed, petroleum-based energy is most often the lips of Trump and his surrogates.  Hopefully, REG management made a good impression on Branstad while they were in Iowa to put a good word in for renewable diesel.

Debra Fiakas is the Managing Director of Crystal Equity Research, an alternative research resource on small capitalization companies in selected industries.

Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein.

The post Insider View on REGI appeared first on Alternative Energy Stocks.

by Al Speisman, Esq.

Al Speisman, Esq.

Power REIT¹ (NYSE MKT:PW) is a micro-cap Real Estate Investment Trust with assets generating consistent, secure cash flow.  Power REIT’s assets consist of long-term railroad infrastructure as well as 600 acres of land leased to solar farms. Power REIT’S current underlying value of $11.07 per share is delineated in a shareholder presentation on Power REIT’S Web-Site. This valuation does not factor in potential success in Power REIT’s pending Federal Appeal.

A recent article appearing in Value Investors Club lists Power REIT’s Net Asset Value at $10.62 per share plus a “lawsuit optionality value” of $1.09 or a total current valuation of $11.71 per share.  The Value Investors Club analysis assumes a 15% probability of success in the appellate litigation.  I believe this greatly under-estimates Power REIT’s chance of success, and the company has a strong chance of prevailing on its appeal.  The potential damage recoveries should it succeed are huge.

The Case

Power REIT has a CEO with vision, persistence and patience: David Lesser.  Mr. Lesser has been involved for several years in pursuing Norfolk Southern on potential lease violations and defaults. The Power REIT/Pittsburgh & West Virginia Railroad (PWV) litigation with Norfolk/Wheeling has been going on for five years. The Appellant Brief (PW), the Appellee Brief (Norfolk/Wheeling), and Appellant Reply Brief (PW) have been filed with the Third Circuit Court of Appeals (Federal Court).

Power REIT’s appeal with Norfolk Southern and Wheeling & Lake Erie Railway (Case No 16-1195) is ripe for a decision. The case “will be submitted on the briefs” to an Appellate panel of three justices on Thursday, January 19, 2017.  As is the norm in the vast majority of 3^rd Circuit cases, “there will be no oral argument.”  It is reasonable to believe that the appellate decision should be forthcoming during the First Quarter of 2017.

My summary of Power REIT’s position on the appeal follows.  My primary source is Attorney  Steven A. Hirsch

’s Amended Appellant Brief and Reply Brief.  It is enlightening to review both of these in conjunction with the original lease document.  Mr. Hirsch’s background and the outstanding job he has done preparing the appeal both lead me to believe it has an excellent chance of success.

The Lease

My overall assessment is that the lease itself is the key to this case, and the lease is the “blueprint of the deal.” 

Power REIT’s subsidiary, Pittsburgh and West Virginia Railway (PWV), owns 111.21 miles of rail line going between Pennsylvania and Ohio.  It also owns 5 short branch lines comprising an additional 20.38 miles.

In 1962, PWV entered into a 99-year renewable lease with Norfolk Southern (hereinafter “Norfolk”) with a fixed base rental of $915,000 per year plus “Additional Rent.”  Additional Rent includes, among other things, “deduction-based additional rental.” (Federal tax deductions for depreciation, amortization, etc.)  Norfolk is also obligated to pay all expenses Pittsburgh & West Virginia Railroad incurs when they come due and assumes “all obligations” Pittsburgh & West Virginia Railroad incurs relating to Pittsburgh & West Virginia Railroad performing its legal duties and protecting its rights under the terms of the lease.

Key lease provisions include:

• Leasing of Pittsburgh and West Virginia Railway’s property including the 111 mile stretch of Railroad and the 5 short branch lines (limited exceptions excluded). (See Section 1.)
•   Pittsburgh and West Virginia Railway property that Norfolk Southern determines to be not “necessary or useful” may be sold, leased or otherwise disposed of” by Norfolk Southern and shall be an indebtedness to Pittsburgh and West Virginia Railway. (See Section 9.)
• When lease terminates, whether by failure to renew or by default, leased property “shall be returned to Lessor in the same condition as it (was) in at the commencement of the term of this lease, reasonable wear and tear excepted….” (See Section 11.)
•  Norfolk Southern shall return enough property at the termination of the lease to run the railroad for one year with such property being in unchanged condition. (See Section 11.)
• A default under the Lease requires Pittsburgh and West Virginia Railway to provide 60-day written notice to cure. Upon determination of default, Pittsburgh and West Virginia Railway is entitled to the return of its property. (See Section 12b.)
•  Damages from a default of the lease include Interest at 6% from date of default, reasonable attorneys’ fees and expenses. Also, all remaining indebtedness becomes due when the lease is terminated. (See Section 11.)
•  Indebtedness between Norfolk Southern and Pittsburgh and West Virginia Railway is capped at 5% of the value of Pittsburgh and West Virginia Railway’s total assets “as long as any of the obligations of lessor (Pittsburgh and West Virginia Railway) which have been assumed by lessee (Norfolk Southern) remain outstanding and unpaid.” (See Section 16a.)

During 2011, David Lesser became CEO of Pittsburgh and West Virginia Railway.  He pinpointed the injustices involved in the Norfolk Southern transactions.

Norfolk Southern attempted to sell certain property and Power REIT challenged Norfolk Southern, alleging among other things, that it was entitled to attorney fees for reviewing and acting upon the proposed sale.  Norfolk Southern, trying to avoid a “default” under the lease terms, filed a Declaratory Judgment action in Federal District Court.  The District Court determined by summary judgment that Norfolk Southern had not defaulted.

A key aspect of the case, which goes to the extent of the damages recoverable by Power REIT, is whether Norfolk Southern and/or its sub-lessee, Wheeling & Lake Erie Railway Company, defaulted on the lease.

Four (4) potential defaults under the lease are being appealed by Power REIT:

1. Norfolk Southern violated Section 9 of the lease by failing to pay or record as an indebtedness almost $14 Million from “dispositions” of Pittsburgh and West Virginia Railway’s Property.

2. Norfolk Southern violated Section 11 by allowing resource extraction from these unrecorded dispositions, thus permanently altering Pittsburgh and West Virginia Railway property.  Each time resource extraction occurs it should be construed as a “permanent transfer”.

3. Norfolk Southern violated Section 4(b)6 by failing to pay Pittsburgh and West Virginia Railway’s attorney fees and litigation costs.

4. Norfolk Southern violated Section 16(a) which imposes a 5% cap based upon the assets of Pittsburgh and West Virginia Railway.  The section requires Norfolk Southern to pay any excess indebtedness in the Transactions/Settlement Account beyond the 5% c
ap to Pittsburgh and West Virginia Railway.  Confirmation of the indebtedness is evidenced by Norfolk Southern’s course of performance with the IRS.  Norfolk Southern prepared Pittsburgh and West Virginia Railway’s tax returns through 2012. Norfolk Southern’s tax returns, as well as the tax returns prepared by Norfolk Southern on behalf of Pittsburgh and West Virginia Railway, acknowledge and affirm the outstanding indebtedness in the Transaction/Settlement Account. (For greater detail and analysis of the tax treatment involved, see the Alpern Rosenthal expert report dated 3/29/13 concluding the Settlement Account on Norfolk Southern’s financials is an indebtedness/liability to PWV.)  Based upon that report, the Settlement Account balance exceeded five percent (5%) of the value of the assets on a market capitalization basis, of each year ending December 31, 1983 through December 31, 2012.  By December 31, 2012, the balance of the Settlement Account, per Norfolk Southern, was $16.66 Million and exceeded five percent (5%) of the value of Pittsburgh and West Virginia Railway’s assets by $15.91 Million.

Potential Damages include:

1. Recovery of Power REIT/ Pittsburgh and West Virginia Railway Attorney Fees: approaching $4 Million.

2. Recovery of Interest:  Section 11, (Termination of Lease) provides for interest at 6% per annum from date of default.

3. The Transactions Account reflects an admitted indebtedness of approximately $17 Million as of 2012. Of that amount, approximately $16 Million exceeds the 5% cap.  No updates of the current Transactions Account balance have been provided by Norfolk Southern to Pittsburgh and West Virginia Railway.

4. An additional $14 Million in dispositions have been identified by Pittsburgh and West Virginia Railway but have not been recorded by Norfolk Southern in the Transactions Account.

5. If the Court determines a Norfolk Southern default has occurred, under Section 11, Pittsburgh and West Virginia Railway is also entitled terminate the Lease and to “such machinery, equipment, supplies, motive power, rolling stock and cash as will be sufficient to enable Lessor to operate the demised property for a period of one year after the return thereof….”. A key variable in determining the amount owed to Pittsburgh and West Virginia Railway would require analysis of Wheeling & Lake Erie Railway Company’s detailed financial statements.

6. If the Court rules Norfolk Southern has defaulted, the entire property reverts back to Pittsburgh and West Virginia Railway.  The rental established of $915,000 per year was established in 1962 and does not escalate and is likely significantly below the current market value.

7. What Pittsburgh and West Virginia Railway could actually lease the property for in today’s market is speculative. Norfolk Southern and Wheeling & Lake Erie Railway have refused to provide operational and income data to Pittsburgh and West Virginia Railway (also a potential default based on a failure to comply with a contractual right contained in the lease that allows Pittsburgh and West Virginia Railway to inspect the  books and records of Norfolk Southern).  However, based upon discussions with railroad consultants, a generic valuation range may be in the range of $1 Million per track mile. Pittsburgh and West Virginia Railway has a total of 131.59 track miles. Note that in recent years, Wheeling & Lake Erie Railway has experienced significant traffic growth as a result of Marcellus Shale activity.

8. One could speculatively project that with either a new or renewed lease, annual revenues to Pittsburgh and West Virginia Railway would be between $5 Million to $10 Million per annum.  That projected valuation does not include potential mineral rights on Pittsburgh and West Virginia Railway land.

Summary

Litigation, especially Appellate Litigation, can have a life of its own. Recent articles written on Power REIT have predicted a probability of success in the area of 10 to 15 percent. However, after extensive review of the ongoing litigation, including in depth review and analysis of the facts and pending appellate briefs before the 3rd Circuit Court of appeals, I sincerely belief that David (Pittsburgh and West Virginia Railway) should defeat Goliath (Norfolk Southern) based on the merits of the case. Ultimately there is no way to know if the appeal will be successful….

Endnote

1) Price (1/13/17):  $6.88.  Shares Outstanding (in M) 1.78 Million.  Market Cap:  12.28 Million. Core Funds from Operations Annualized (FFO) .50 to .60.  Net Asset Value (NAV):  $10.62 to $11.07 (assumes Power REIT loses appeal)

ABOUT THE AUTHOR: Al Speisman is the principal of Speisman Law, LLC. As an investor, he focuses on undervalued, micro-cap companies. He received his M.B.A. from Northwestern University’s Kellogg Graduate School of Management with concentrations in finance and accounting. Mr. Speisman earned his Juris Doctorate degree from The John Marshall Law School.

DISCLOSURE: Al Speisman is a significant shareholder in Power REIT.  On January 3, 2017, he filed an Amended 13G.

DISCLAIMER:  Al Speisman is not employed with Power REIT.  Nor is he a Board Member. The above article should not be construed as legal or financial advice.  It’s strictly the opinion of the author.  For specifics regarding Pittsburgh and West Virginia Railway’s legal position on the appeal, Power REIT’s appellant briefs should be reviewed in detail in conjunction with the lease. The appellee brief filed on behalf of Norfolk Southern/Wheeling should also be reviewed. These, as well as other documents, are readily available on Power REIT’s website: www.pwreit.com. Go to PWV Litigation Update under the “Investor Relations” tab.

Other sources of articles online to consider reviewing when evaluating Power REIT as an investment include, but should not be limited to, the most recent Power REIT Investor Presentation on Power REIT’s website: www.pwreit.com, Tom Konrad’s numerous articles on Power REIT, several articles published with Seeking Alpha, Forbes On Line, AltEnergyStocks.com, and most recently Value Investors Club (VIC).
Investors are also encouraged to participate in dialogue on this article via http://investorshub.advfn.com/Pittsburgh-&-West-Virginia-Railroad-PW-20486/ as well as via the Seeking Alpha post of this article.

The post Power REIT: Why David Should Defeat Goliath appeared first on Alternative Energy Stocks.

Jim Lane

In California, Ceres (CERE) announced the a realignment of its business to focus on food and forage opportunities and biotechnology traits for sugarcane and other crops. As part of the realignment, the company will restructure its Brazilian seed operations and is exploring discussions with additional local partners and collaborators to support the continued development and commercialization of its technology in Brazil.

Earlier, the Company announced that due to the economic challenges faced by the Brazilian ethanol industry as well as changes in the global energy market, it had expanded the number of market opportunities available for its technology and products and began prioritizing its working capital in additional areas beyond Brazil.

The news may come as a surprise to the broader community, since in March 2015 the company signed a multi-year collaboration agreement Raizen, a joint venture of Royal Dutch Shell and Cosan, to develop and produce sweet sorghum on an industrial scale.

Also, in July 2014, Ceres was selected for a competitive grant and a multi-year credit facility to fund a product development project for sorghum and sugarcane for up to approximately 85 million reais, or 27.1 million U.S. dollars, under the Brazilian government’s PAISS Agricola program.

Going forward

The Company indicated that its Brazilian operations after implementation of this aspect of the restructuring plan would be focused primarily on sorghum breeding and sugarcane. In particular, the company plans to expand its sugarcane trait development activities for the Brazilian sugarcane market, which Ceres expects to fund, in part, under a grant available from the Brazilian government.

The restructuring of the Company’s Brazilian seed operations, which is expected to be substantially completed by October 31, 2015, includes, among other actions, a workforce reduction that will impact 14 positions in Brazil primarily related to administration, operations and manufacturing as well as 2 support positions in the United States. Ceres estimates that it will incur total charges of approximately $0.6 million over the next five months with respect to these workforce reductions in Brazil and the U.S., including $0.1 million in continuation of salary and benefits of certain employees until their work is completed and their positions are eliminated, and $0.5 million of one-time severance and other costs, all of which will be cash expenditures.

“These changes represent an important step in the transformation of our business as we refocus on our strengths in agricultural technology and direct our attention to markets being fueled by global prosperity growth,” said Ceres President and CEO Richard Hamilton.

He noted that bioenergy markets have continued to face serious near-term challenges due to low oil prices, the struggling Brazilian economy, delays in second generation refining technology and unfavorable government policies, among other headwinds. “If these challenges can be surmounted then I believe the market for bioenergy feedstocks can reemerge as a global opportunity for agricultural technology companies like Ceres.”

The long timeline to Brazilian ethanol success

In April, the company wrote in its quarterly report: “With industrial processing of sorghum feedstock generally well established in Brazil, we believe that field performance – primarily yields of sugars that can be fermented to ethanol – will largely determine the scale and pace at which our current and future sweet sorghum products will be adopted. Based on industry feedback, we believe that minimum average yields in the range of 2,500 to 3,000 liters of ethanol per hectare will be necessary to achieve broad adoption.

“While we achieved yields in this range in the 2013-2014 growing season in Brazil with multiple products in multiple regions, the 2014-2015 growing season in Brazil will be necessary to validate results. Additional growing seasons beyond the 2014-2015 season may be required to fully demonstrate this yield performance across numerous geographies and for our products to gain broad adoption.

The company added in April that, “Since 2010, we have completed various field evaluations of our sorghum products in Brazil with approximately 50 ethanol mills, mill suppliers and agri-industrial facilities. During this time, our sorghum seeds were planted and harvested using existing equipment and fermented into ethanol or combusted for electricity generation without retrofitting or altering the existing mills or industrial facilities.

On to brighter horizons

Ceres advises that “Our strategy is to focus on genes that have shown large, step increases in performance, and whose benefits are largely maintained across multiple species. Trait performance is evaluated in target crops, such as corn, rice and sugarcane, through multi-year field tests in various locations. In addition, we are deploying a new multi-gene trait development system internally and believe there may be opportunities to out-license the system, known as iCODE, to other crop biotechnology companies. To date, our field evaluations have largely confirmed earlier results obtained in greenhouse and laboratory settings…At this current pace, commercial sugarcane cultivars with our traits could be ready for commercial scale-up as early as 2018.

Blade Forage Sorghum Seed and Traits

In 2015, the company expanded its sorghum offerings to include hybrids for use as livestock feed and forage. In addition to direct sales efforts, Ceres entered into a distribution agreement with Helena Chemical Company, a leading distributor of crop inputs and services. Under the agreement, Helena will provide sales and customer support for our forage sorghum in the southeastern U.S.

The current hybrids, which are traditionally bred and do not yet contain biotech traits, have performed well in numerous commercial and multi-hybrid field trials. In a 2014, in a U.S. field evaluation, one of our leading biotech traits provided a greater than 20% biomass yield advantage in a commercial-type sorghum. In 2014, we received confirmation from the U.S. Department of Agriculture (USDA) that our high biomass trait was not considered a regulated article under 7CFR 340 of the USDA’s mandate to regulate genetically engineered traits.

The Bottom Line

NexSteppe has been reporting strong momentum in Brazil and there simply may have not been room enough for two companies in Brazil, given the slowdown in the ethanol industry.

Jim Lane is editor and publisher  of Biofuels Digest where this article was originally published. Biofuels Digest is the most widely read  Biofuels daily read by 14,000+ organizations. Subscribe here.

The post Ceres Focuses On Food & Feed After Bioenergy Disappoints appeared first on Alternative Energy Stocks.

by Debra Fiakas CFA

Last week Brazilian agriculture technology developer Ceres (CERE:  Nasdaq) made formal plans to shift its focus to seed traits and the food and feed markets and away from energy.  Ceres is not abandoning biofuels as such, but with oil prices at historic low levels, it is not economic enough to justify working capital not to mention new investments.   The company is restructuring operations and reducing personnel in both its U.S. and Brazilian operations.  Ceres management estimates the changes will save between $6 million and $8 million next year.

The question investors need to ask now is whether the shift in priorities can change the value of Ceres.

The company has a strong balance sheet with no debt and $4.8 million in cash and $9.9 million in marketable securities.  The cash and financial assets will come in handy over the months as Ceres tries to reinvent its business model.  Ceres has yet to post a profit on its various agricultural technologies.  Consequently, the company has required considerable investment in working capital.  Over the last year alone Ceres has used $23.9 million in cash to support operations.  Assuming the anticipated savings develops as planned, it is possible that Ceres might need another $16 million to $18 million to keep the wheels turning.  Still it looks like the company could be $2 million to $4 million short.

Thus the first hiccup in creating value is the potential need to raise capital.  That means either increased leverage or issuing additional equity securities.  For a company that is not generating profits or cash, debt can be troublesome.  For most investors, the dilution from new stock is anathema to creating value.

To be fair, Ceres has been making progress with its crop traits.  In March 2014, the company announced plans to accelerate development of its sugarcane traits after initial field trials found better than expected growth and biomass even under drought conditions.  The next stage of field research is expected to be completed by June 2016.  If the company is able to keep pace with the planned schedule, the sugarcane traits should be ready for commercial market introduction in 2018.

The company has made some progress that could bring in revenue in the near-term.  Ceres has licensed its homegrown bioinformatics software platform to HZPC Holland BV, a seed potato developer.  The license will allow HZPC to access DNA databases.  One software license is not material.  However, in my view, the fact that Ceres commercialized a technology that it has originally developed only for in-house purposes, is a plus for Ceres.  It is just the kind of creative management that is needed during adverse market conditions like those presented by weak price conditions in the energy market.

It does not look like there are any significant revenue and earnings generators in the wings.  The single revenue estimate that is published by Thomson Reuters for Ceres suggests revenue could ramp dramatically in the fiscal year ending August 2016.  That that analyst thinks there will be profits, he or she is keeping it a secret as they have not published an earnings estimate.    Of course, this estimate could be predicated on the old biofuel-centric business model.  Yet, I see little change in the potential for revenue and earnings in a ‘food and feed’ business model.

So if investors must wait for earnings to create value, the stock represents an option human or capital assets.  While I might like management’s style, Ceres stock price seems a bit steep for an option on management.  Its crop products, sorghum, sugarcane and switchgrass seem better suited to the energy market than to feed hungry mouths.  Thus the stock seems a bit overpriced as an option on the intellectual property if its application is to be limited to ‘food and feed.’

Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein.

The post With Oil Price Drop, Ceres Looks To Food appeared first on Alternative Energy Stocks.

by Debra Fiakas CFA

In the recent series of articles on graphene we have found a number of companies working on more efficient production processes and as well as applications for this exceptional material.  So beguiling graphene is  –  conductive, strong and pliable.  Scientists and investors alike have thought certainly graphene can provide that all-important ingredient that enhances value and creates profits.  In this post we look at two more companies that claim real progress in commercializing graphene materials. 

Based in the UK, Applied Graphene Materials (AGM:  LON; APGMF:  OTC) reported no sales in 2014 and a net loss of GBP1.9 million (US$2.9 million).  However, management is confident these circumstances will not last.  Applied claimed sending dozens of samples to prospective customers during 2014, and that initial feedback has been ‘encouraging.’  The team is so confident they have moved forward with plans for adding production capacity.  Applied is targeting three separate markets:  advanced composites, functional fluids and coatings.

Applied’s strategy to commercialize graphene seems to differ from most of the other graphene developers.  Instead of creating an entirely new product, Applied is focused on enhancing existing industrial materials by adding a small portion of graphene.  The company’s engineers cite graphene’s mechanical, barrier and lubricating properties as valuable in increasing impermeability, reducing wear and tear, or increasing efficiency.  In my view, this is an interesting strategy. Potentially, even at low-volume, high-cost production rates, a graphene producer could make a profit by offering higher priced graphene material supplies to a customer that will find the increase in performance worth the investment.

Canada-based graphene developer, Grafoid, Inc., has recorded significant revenue in recent months, although it is not entirely clear it the sales are from its graphene material branded as MesoGraf.  Although privately held, Grafoid’s most significant investor, Focus Graphite (FMS:  V; FCSMF:  OTC), reported that Grafoid had recorded sales of CND$1.9 million (US$1.5 million) in the twelve months ending March 2015, resulting in a loss of CND$8.9 million (US$7.2 million).

Grafoid’s market strategy is hitched to a series of acquisitions to integrate forward into the supply chain that would use the company’s graphene materials.  A year ago Grafoid paid US$1.3 million for ALCERECO,  an advanced materials technology developer that provides its customers with specialty ceramics and aluminum-scandium materials.  ALCERECO brings considerable engineering capability to Grafoid, including practical knowledge of manufacturing and materials production.   In September 2014, Grafoid bought a 75% position in Braille Battery, Inc., a developer of lithium ion batteries.  No details of the purchase price or Braille Battery sales or profits have been disclosed.  More recently in April 2015, Grafoid announced plans to acquire Ames Rubber Corporation based in the U.S.  Ames supplies materials for coatings, gaskets, moldings and other ‘rubbery’ products.  Grafoid’s CEO characterized the deal as the company’s ‘springboard’ into the rubber and plastics market.  Although the Ames deal is still pending, Grafoid has forged ahead with yet a fourth acquisition of MuAnalysis, Inc., a provider of testing and analytical services to industry, manufacturing and life sciences companies.  It is no surprise that deal terms were not disclosed.

Integrating all of these operations into the Grafoid fold presents something of a challenge.  It may have already taken its toll on Grafoid’s parent and 18% owner, Focus Graphite.  Grafoid’s chief executive officer, Gary Economo, is also the top executive at Focus Graphite.  In early June 2015, Focus Graphite announced the resignation of its chief operating officer due to a ‘divergence of vision.’  Economo has taken over as interim COO for Focus Graphite.

Some investors might consider shares in Focus Graphite an alternative to a direct investment in Grafoid.  However, it might be wise to let the recent drama at Focus Graphite play out, before taking a stake in what would only be an indirect position in graphene and a significant exposure to Focus Graphite’s yet unproductive graphite mining operations.

Debra Fiakas is the Managing Director of Crystal Equity Research, an alternative research resource on small capitalization companies in selected industries.

Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein.

The post Graphene: It Is All In The Strategy appeared first on Alternative Energy Stocks.

By Bridget Boulle and Sean Kidney

Helping to push along the green muni space, the New York State Environmental Facilities Corp (EFC), rated AAA, has issued a USD 213 million green / water bond. There were 30 bookrunners on this bond with JP Morgan and LOOP Capital Partners co-leads – see prospectus.

The proceeds will be used to provide financial assistance to local governments to finance and refinance drinking water projects as well as to refund certain bonds previously issued. They expect to support 128 drinking water and wastewater infrastructure projects across the State.

Qualifying projects will be chosen based on their adherence to various state water and pollution legislation. Although the third party verification was not supplied, EFC promised to post semi-annual updates regarding such projects on their website.

Water is a complex area for green bonds as projects can have conflicting environmental and social outcomes. For example, the provision of clean water has obvious social benefits, but there are lots of good and bad choices that can be made towards that end. Water-provision investments can range from building a new reservoir and long aqueducts for transporting water, to reducing pipeline leaks (which can be vast in old and leaky city systems) and introducing better demand management measures.

The wrong decisions can end up over-using limited water resources in areas beginning to suffer decreased or more volatile rainfall as a result of climate change – and can lead to spikes in energy consumption just as we need to cut back to reduce emissions. Water infrastructure is a huge consumer of electricity – for example 17% of California’s electricity is used to shift water around the State. Yes, that’s right, 17%!

Water investments that don’t take into account climate and energy issues can end up being positively harmful, even as they deliver nice clean water.

From a creditworthiness perspective, as our friends at Ceres have shown, the level of climate-preparedness in water utility and water-dependent companies should be seen as a key risk signal.

That means it would be foolish to see water projects as green by default. At minimum investors should be asking for evidence that asset management and capital expenditure plans have robust climate adaptation and mitigation thinking behind them.

The good news is that we know New York has done this! It makes me love New York. For EFC’s next bond we would ask that relevant plans be specifically linked to the projects in the bond.

On the broader issue of being able to better recognize good and not so good water investments from a climate change perspective, we’re working with Ceres, the World Resources Institute and CDP to make it easier for investors by developing clear criteria for water related investments. They will become part of the Climate Bonds Standard.

Bridget Boulle is Program Manager and Sean Kidney is Chair of the Climate Bonds Initiative, an “investor-focused” not-for-profit promoting long-term debt models to fund a rapid, global transition to a low-carbon economy. 

The post Is Clean Water Always Green? Why I <3 NY appeared first on Alternative Energy Stocks.

James Montgomery

2014 is predicted to be a breakout year for solar financing, as the industry eagerly pursues finance innovations. Many of these methods aren’t really new to other industries, but they are potentially game-changing when applied in the solar industry.

Not all options are ready to step into the spotlight, though. Master limited partnerships (MLP) and real estate investment trusts (REIT) promise more attractive tax treatment than securitizations or yieldcos, but they require some heavy lifting and difficult decisions at the highest levels: MLPs need an act of Congress even for an infinitesimal language tweak to remove a legislative exclusion to solar and wind, while REITs involve a touchy reclassification of assets from the IRS that could have broader and undesirable tax consequences. Yet another model gaining traction is a more institutionalized version of crowdfunding, led by Mosaic (technically they call it “crowdsourcing”), but crowdfunding is awaiting more clarity from the Securities and Exchange Commission about what rules must apply.

And so, while patiently waiting for Paleozoic movement out of Washington, the industry is turning its attention and anticipation toward ushering in two other new financing models: securitizations (converting an asset into something that is tradable, i.e., a security) and “yieldcos” (publicly traded companies created specifically around energy operating assets to produce cash flow and income). Their build-up actually began last year: in the fall SolarCity (SCTY) finally launched the first securitization of distributed-generation solar energy assets, with a pledge to do more and significantly larger ones in the coming quarters, and throughout 2013 several companies (NRG, Pattern, Transalta, Hannon Armstrong) spun off yieldcos with varying levels of renewable energy assets in their portfolios.  These were NRG Yield (NYLD), Pattern Energy Group (PEGI), TransAlta Renewables (RNW.TO), and Hannon Armstrong Sustainable Infrastructure (HASI).

Just weeks into 2014 we’re already seeing an uptick in activity. While the industry awaits SolarCity’s next securitization move, in the meantime the company has acquired Common Assets, which had been building up a Web-based platform for managing financial products (most especially renewable energy investments) for individual and institutional investors; the first SolarCity-backed products are expected to start rolling out by this summer. We’re also hearing rumors of up to half a dozen other securitization deals working through the pipeline, referencing unidentified large players with long histories of building out projects some names frequently invoked as potentially fitting those criteria include familiar residential-solar companies such as Vivint, Sunrun, Sungevity, and several others.

On the yieldco front, in mid-February SunEdison announced plans for its own “yieldco” IPO aimed at unlocking more value within its solar energy assets. Pricing wasn’t announced at press time, but earlier reports suggested it could generate a $300 million payday. SunPower also recently has been talking about doing a yieldco in a 2015 timeframe, likely to feature its 135-MW Quinto project and possibly its 120-MW Henrietta project. Others reportedly eyeing the yieldco model include Canadian Solar, Jinko Solar, and First Solar.

What Capital Markets Can Do For Solar Companies

What’s coming together to bring these two financial innovations into the arena right now? Put simply, it’s the confluence of plunging PV prices and blistering installation growth which are achieving a scale and maturity that outstrips the capacity of traditional tax-equity sources but it also means they can now entertain large-scale financial instruments, explains Joshua M. Pearce, Associate Professor at the Michigan Technological University’s Open Sustainability Technology Lab, who recently published a study of solar securitizations. Look at it from a macro level: even conservative growth estimates for U.S. solar energy capacity additions point to 20 GW coming online by the time the investment tax credit (ITC) is planned to run out in 2017, notes NREL energy analyst Travis Lowder, author of another recent report. At an average of $3/W that’s $60 billion in assets, of which a third or even half could generate securitizable cash streams for solar developers. Spin that equation around: a single $100 million securitization deal could support 72 MW of residential solar assets, 100 MW of small commercial solar, or 133 MW of larger commercial/industrial projects.

Number of PV Systems (by Market Sector) Potentially Financeable Through a Single Securitization Transaction. Credit: NREL

What does that mean for individual companies? In its 3Q13 financial results SunEdison calculated its current business model of building and selling solar projects yields about $0.74/Watt, but those assets’ true value could jump as high as $1.97/W if the company could find ways to lower its cost of capital, apply various underwriting assumptions, and factor in residual value in power purchase agreements. That’s a startling 2.6x increase in potential value creation that SunEdison thinks it can unlock, by choosing to hang onto its projects vs. simply selling them off. In its mid-February quarterly financial update the company revealed more value-creation calculations: it captured an additional $158 million during 4Q13 through those retained assets, with a resulting metric of “retained value per watt” at $2.02/W. By applying most of the 127-MW on its balance sheet with an estimated $257 million in “retained value” to its proposed yieldco, the company says, it now has sufficient scale to unlock the true value of those solar assets.

The ability to lower the cost of capital deserves extra emphasis. SolarCity’s securitization last fall had a 4.8 percent yield, only slightly higher than a 30-year fixed mortgage and with twice the payout on current 10-year treasury bonds, which is great for investors but for the company it represented roughly half the cost of capital vs. what can be obtained currently for distributed solar PV financing, noted Rocky Mountain Institute’s
James Mandel.

“This trend is transformative for the solar industry” because of how it can unlock so much more value and generate more returns, explained Patrick Jobin, Clean Technology Equity Research analyst with Credit Suisse. (Disclosure: SunEdison is one of his top picks specifically for that reason.) “We’re probably in the first or second inning of the public capital markets appreciating what this does for the industry.”

Securitization vs. Yieldco: The Good, Bad, And Unknown

Both securitization and yieldcos increase access to lower-cost financing by pooling solar assets into an investment vehicle, separating the more reassuring elements of them (payments from operating energy assets under a power contract) from the riskier ones (project development). Both of them promise returns, though yieldcos come as dividends that vary with the company’s performance while securitizations are fixed-income meaning investors get locked-in payments for a set period. And most importantly to the solar industry, they offer a lower cost-of-capital compared to the usual funding sources: debt, tax equity, and sponsor equity.

Generalized solar securitization transaction. Credit: NREL

One key difference: yieldcos own both the energy producing assets and the contracts, which means they can monetize federal investment tax credits. An equity owner can’t use power-purchase agreements to create a securitization and also take the tax benefits. The real challenge, says Yuri Horwitz, CEO of boutique financial services firm Sol Systems, will be building a yieldco that has income-producing assets that create tax liability, coupled with solar projects that have tax benefits. NRG’s yieldco last year did that, and he thinks they have a leg up because of it. Moreover, yieldcos will go out into the market to compete aggressively with other options such as specialty financing that offer similar returns. The hope is that as yieldcos mature and more operating assets are added in their competitiveness will improve.

Defining what assets are best securitized and best spun out into yieldcos exposes a gap that neither properly addresses. Larger projects are good candidates for yieldcos; securitizations typically involve residential solar assets. (An exception: MidAmerican used debt securities/project bonds for its 550-MW Topaz solar farm, as did NextEra (NEE) for its two 20-MW St. Clair solar projects in Canada.) In between is the commercial/industrial segment which presents a more complicated financing challenge. “[Securitizations and yieldcos] don’t really work in the center,” Horwitz said. A different class of securitizations, “collateralized loan obligations,” are more applicable to the commercial sector where less diversity in assets means more risk in making ensuring offtakers’ credit-worthiness, suggests NREL’s Lowder.

Something else that successful securitizations and yieldcos have in common: the more scale and diversity the better. But that’s also a limiting factor: not everyone can pool a wide distributed portfolio of solar assets to mitigate risk, or a smaller portfolio of larger ones. And the more diverse it is, the harder it is to evaluate them as a whole, value them, and get underwritten.  By definition, they require someone who can offer up a large pool of assets as de-risked and diversified as possible, and backed by a brand-name sponsor, pointed out Tim Short, VP of investment management at Capital Dynamics. “There’s plenty in the wings that will never make it,” he said. “There’s not a whole lot of people to bring all the ingredients together.”

One other factor to account for in any solar-backed financial models is the externality of policy changes. While investors appreciate the value in a solar offtake contract, but they need to factor in potential risk of any retroactive policy changes, such as is on the table in the net metering debates raging in several states. If net metering policies end up being reduced or even repealed, “solar contracts may default and reducing predicted income streams,” Pearce said. “Ensuring policy stability and communicating that stability to investors will be key to the on-going attractiveness of solar assets.”

The Need to Standardize

What will be critically important as more of these financing innovations emerge, and more solar companies try to take advantage of their promise, is pinpointing ways to standardize how the process works, in specific areas and as a whole. “The number-one priority is standardization, especially moving forward with vastly more distributed-generation assets coming online, said Haresh Patel, CEO of Mercatus. That’s the glue that will hold these offerings together with both developers and investors and it needs to be embedded in developers’ DNA from the very beginning, so their solar assets can be evaluated and bundled repeatedly and reliably. 

Addressing the databasing of solar asset performance metrics are NREL and SunSpec with their open-source OSPARC database. One “Gordian knot” issue: who owns the data and are they willing to share it? That pathway of data ownership can get muddled because not all issuers outright own their systems, and it gets worse by adding a tax equity layer. Figuring out that chain of data ownership protection and security is hugely important., notes Mike Mendelsohn, senior financial analyst at NREL. That’s part of OSPARC: anonymizing and rolling up data into a friendly fashion so it’s easy for solar companies to present to investors, and for them to digest. “We need to build confidence that those issues are adhered to,” he said.

Startup kWh Analytics is similarly targeting aggregation and benchmarking of information about solar asset performance, which is crucial because it tells institutional investors about the soundness of the collateral (the system and the leasee). What are individual PV panels and inverters doing compared with other options; are the customers with FICO scores in the 650-700 range paying off their bills? Developers also want to know how their chosen systems are performing comparatively and increasingly so with the emergence of these new investment vehicles, where the developer retains those assets as a financing tool.

Mercatus, meanwhile, wants to address the whole package, assessing everything from system components to permitting. “What entities look for is consistency for which they can reduce risk,” said Haresh Patel, CEO of Mercatus, which is tackling that problem with its own platform: quickly process and synthesize projects’ data so they can be more easily pooled for investors and in the same language project after project, especially as new assets come into the pool. Establishing a mechanism to organize this on a repeatable basis is “the biggest friction point,” he said.

Project summary view inside Mercatus’ 2.0 “Golden Gate” platform. Credit: Mercatus

Standardizing offtake contracts “is the best place to start as this problem impacts every step in the process,” Pearce suggested. “Uniform contracts facilitate comparison, reducing asset evaluation costs and promotes pooling.  They also simplify data collection and analysis. Uniform contracts will better facilitate data collection and analysis, asset comparisons and pooling, all of which means reducing costs. 

As part of SolarCity’s securitizati
on last fall, Standard & Poors (which rated it BBB+) revealed some interesting background info about the assets being offered, including an impressively high FICO score for residential system owners (and strong mostly investment-grade ratings for the nonresidential ones). There is no solar version of FICO scores, which took decades to become the standard for credit ratings and lending. Addressing this particular pain point is the truSolar Working Group, formed a year ago by 15 solar companies and organizations, trying to develop uniform standards similar to a credit score for measuring the risks associated with financing solar projects, explained Billy Parish, founder/president of Mosaic and a truSolar founding member.

“Standardization will happen much sooner than people think,” Patel said. “Standards drive velocity.” He invoked the efforts of the DoE-NREL multi-year project Solar Access to Public Capital (SAPC), which folds in well over a hundred organizations with activities from standardized PPAs to installation techniques, “mock pools” of solar assets to rating agencies, and collecting performance data.at involving groups with touchpoints all along the solar energy chain from panel suppliers to banks.

Message to the Masses

As solar companies come around to how much extra value they can unlock, part of that process is coming up with new metrics to calculate that value potential, such as “net present value per watt” or “retained value per watt,” and then educating investors who might persistently adhere to the traditional metrics like earnings per share. Issuers including SolarCity and SunEdison and the investment banks go out and do their part with investor roadshows, but also out in the field helping educate about solar asset-backed investments is SAPC is out pounding the pavement too, engaging both sell-side investment banks and buy-side capital market managers to get everyone more comfortable with how these vehicles will work.

“We are now in a positive feedback loop,” said Michigan’s Pearce. “By successfully accessing lower-cost capital, the solar industry can fund high rates of growth in the future, continuing the current momentum of eliminating antiquated and polluting conventional electricity suppliers.”

Jim Montgomery is Associate Editor for RenewableEnergyWorld.com, covering the solar and wind beats. He previously was news editor for Solid State Technology and Photovoltaics World, and has covered semiconductor manufacturing and related industries, renewable energy and industrial lasers since 2003. His work has earned both internal awards and an Azbee Award from the American Society of Business Press Editors. Jim has 15 years of experience in producing websites and e-Newsletters in various technology.

This article was first published on RenewableEnergyWorld.com, and is reprinted with permission.

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by Debra Fiakas CFA

Judging by stock prices, investors have decided Ceres, Inc. (CERE:  Nasdaq) is the favorite horse in the cellulosic ethanol race  –  at least among those that have publicly traded stocks.  Ceres develops and sells sorghum, switch grass and miscanthus seeds to feedstock growers that supply cellulosic ethanol mills. The stock is selling for a buck and change, which is far more impressive that the stocks of most companies that could be included in the “cellulosic biofuel” sector.

Ceres announced fiscal second quarter 2014 results at the beginning of this month.  The company cited sorghum plantings this season for forty-nine customers in Brazil.  That sounds impressive, but most of the plantings are for sampling and testing so that mills can evaluate potential yield.  It is not like Ceres has not been testing its sorghum.  The company used a grant from the Department of Energy to test various plant traits.  Ceres has done so well with its plant trait development it was able to get a U.S. patent for a sorghum-derived gene promoter.

Ceres reported $4.0 million in total sales over the last twelve months.  Profits are still on management’s wish list.  The company is still using cash to support operations  –  $5.7 million in the November 2013 quarter.  The good news is that the cash burn rate has been brought down to from a run rate near $28 million in fiscal year 2013 to $23 million per year.   Management has undertaken some cost cutting measures that appear to be yielding results.

The proof is always in the pudding.  For Ceres the pudding is in forty-nine sorghum field trials in Brazil.  Orders from any one of those Brazil mills is a solid endorsement for Ceres and provides a compelling support for the value of the company’s new patent.
 
Debra Fiakas is the Managing Director of Crystal Equity Research, an alternative research resource on small capitalization companies in selected industries.

Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein.

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Jim Lane

A stunner at NBB. Renewable Energy Group (REGI) deploys its balance sheet and takes aim at renewable chemicals as it acquires the storied LS9.

In Iowa, Renewable Energy Group (REGI) announced it has acquired LS9 for a purchase price of up to $61.5 million, consisting of up front and earnout payments, in stock and cash. Most of the LS9 team, including the entire R&D leadership group, will join the newly named REG Life Sciences, LLC, which will operate out of LS9’s headquarters in South San Francisco, CA.

Under the terms of the agreement between REG and LS9, REG paid $15.3 million in cash and issued 2.2 million shares of REG common stock (valued at approximately $24.7 million based on a trading average for REG stock) at closing. In addition, REG may pay up to $21.5 million in cash and/or shares of REG common stock consideration for achievement of certain milestones over the next five years related to the development and commercialization of products from LS9’s technology.

The technology

LS9’s proprietary technologies harness the efficiency of the fatty acid metabolic pathway of microorganisms and are expected to make a wide range of renewable chemicals for large, diverse markets such as detergents and personal care, as well as renewable fuels. LS9’s technology platform can utilize diverse feedstocks including conventional corn and cane sugars, low-cost crude glycerin from biodiesel production, and cellulosic sugars. LS9 is a cornerstone investment for REG Life Sciences, which also plans to develop adjacent and complementary fermentation technologies.

All about LS9 here in our 5-Minute Guide to their technology and story.

Follows the Syntroleum acquisition

Last month, REG announced that it would acquire substantially all of the assets of Syntroleum Corporation (SYNM), and assume substantially all of the material liabilities of Syntroleum, for 3,796,000 shares of REG common stock worth $40.08 million at today’s market close.

Syntroleum has pioneered Fischer-Tropsch gas-to-liquids and renewable diesel fuel technologies, has 101 patents issued or pending, and owns a 50% interest in Dynamic Fuels, LLC, a 75-million gallon renewable diesel production facility in Geismar, Louisiana.

”Syntroleum and its 50%-owned subsidiary Dynamic Fuels represent an attractive entry path for REG into renewable diesel,” Oh continued. “They have invested substantial resources in their Bio-Synfining technology, which enables the economical conversion of lipid-based biomass into diesel and jet fuel. Their technology and products complement our core biodiesel business.”

Restarting in Iowa and Texas

In October, REG was primping up its core biodiesel business in Iowa when it held a ribbon cutting ceremony to formally open their recently acquired biodiesel refinery in Mason City and announced it has begun a $20 million project to upgrade the plant to a multi-feedstock facility. REG completed the acquisition of the former Soy Energy, LLC refinery on July 31, 2013. REG immediately began efforts to repair and re-start the plant and began producing biodiesel on October 1.

And back in July, REG re-opened the former North Texas Bio Energy plant it bought in November. The waste cooking oil and fats biodiesel plant in Western Bowie County can produce 15 million gallons of biodiesel annually.

Reaction from REG and Khosla

“This acquisition is a major step in realizing REG’s strategy to expand into the production of renewable chemicals and other products,” said Daniel J. Oh, Renewable Energy Group President and CEO. “The industrial biotechnology platform and robust patent portfolio LS9 has been building will now be combined with REG’s proven production and commercialization capabilities to accelerate the commercial introduction of renewable chemicals to meet increasing customer demand for sustainable products.”

“LS9 is a leader in developing technology for the next generation of chemicals and fuels to be produced from renewable feedstocks rather than petroleum,” said Vinod Khosla, founding partner of Khosla Ventures, an investor in LS9. “REG’s proven capabilities, track record for execution, and access to lower cost feedstock make it an ideal partner to commercialize LS9’s technology.”

What’s it all mean?

Two takeaways.

1. LS9′s investors bail with a so-so deal. Keep in mind, LS9 raised $75 million in its four public funding rounds. $5M in 2006′s Series A, $15M in a 2007 Series B, $25M in a 2009 Series C that brought in Chevron in addition to Flagship, Khosla and Lightspeed, and $30M in a 2010 Series D that added BlackRock. Not to mention sweeteners given to insiders, and the founder’s stock.

But there’s upside in the REG shares if the shares double and LS9′s team hit their milestones the investors may recoup their investment and more.

2. Renewable diesel and chemicals. That’s what’s hot and that’s where REG is pointing its long-term strategy, as a complement to biodiesel, as it charts its path forward and also puts its strong balance sheet to work.

Is this more about renewable diesel or chemicals? We think the latter, short-term. The Syntroleum acquisition creates the short-term capacity for renewable diesel – LS9′s strengths lie also in areas such as surfactant alcohols and other designer molecules. And we see REG having the market heft to take this to scale when the technical readiness is there.

The feedstock problem

As with biodiesel, LS9′s technology bumps up against a feedstock problem it requires reasonably pure sugars, for now. Although Jay Keasling’s lab has done work to expand LS9′s capabilities to waste biomass.

Jim Lane  Jim Lane is editor and publisher  of Biofuels Digest where this article was originally published. Biofuels Digest is the most widely read  Biofuels daily read by 14,000+ organizations. Subscribe here.

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