by Paula Mints

Transmission and distribution is the process of getting electricity from the point of generation to the point of use. Unfortunately, upgrades, maintenance, and the need to extend the electricity infrastructure from point a to point b are often ignored. Also ignored are infrastructure designs that support a distributed grid with renewable energy sources of electricity.

Transmission bottlenecks are the utterly foreseeable consequence of accelerated solar and
wind deployment. As countries worldwide were announcing RE goals, holding auctions, and providing incentives, system operators everywhere were warning about the need to add new and upgrade existing infrastructure while also warning about the effect of variable sources of electricity production on the grid and mismatched peaks.

The industry and governments listened, but governments and utilities didn’t act. And then,
seemingly overnight, accelerated solar deployment DID happen, bringing long queues for transmission studies, high costs for the new transmission, long connection queues, and curtailment as a special treat.

Ontario, Canada, offers an example of what happens when a country moves to accelerate
solar deployment by offering healthy incentives without considering whether its  infrastructure is up to the deployment goal. In 2009, the province’s government announced a generous 20-year feed-in-tariff for rooftop and utility-scale solar and a CAD $2.3-billion T&D plan. The new feed-in tariff was the centerpiece of Ontario’s Green Energy Act. The act also made connection permits easier and established a Right-to-Connect for RE projects of any size. Project approval queues sprang up overnight, as did requests by homeowners. Unfortunately, projects were proposed in areas where new transmission was necessary to deliver the electricity to the demand centers. After experiencing long wait times, developers began canceling projects.

Ontario applied restrictions and fines to prevent early and easy exits but, as transmission
building continued to lag, was forced to allow developers to exit without penalty.

When Ontario first announced its FiT, it expected gigawatts of deployment. Though installations in Canada did increase, mainly in Ontario, deployment was primarily rooftop and far below expectations. Figure 1 depicts solar growth in Canada from 2009 through 2019. Deployment is, again, primarily in Ontario.

Canada Demand Growth, 2009-2019

Over ten years ago, California’s Independent System Operator stated that increasing solar on the state’s grid would strain resources partly because of inadequate transmission and partly because solar’s peak is a mismatch for the demand peak – the infamous duck curve. The mismatch can be mitigated with storage, but over ten years ago, storage was considered too expensive and, in some cases, unnecessary. One west coast utility announced that it did not need storage but would instead strategically install wind and solar, assuming that wind would take over when solar stopped producing. As everyone knows, it never pays to bet on the weather. Sometimes the wind doesn’t blow, and the sun doesn’t shine.

The current situation, understood well by developers, is for longer wait times for transmission studies to begin and higher costs for transmission when they do. Building new transmission is, ballpark, $1-million a mile (or so), with the cost of undergrounding lines much higher. Who pays? – often the developer. Other project delays, such as permitting and offtake agreements, are icing on the unpalatable cost-overrun cake.

The infrastructure problem is global – and since deployment activity continues apace, it’s  not improving.

Most countries, for example, China, though the problem is far beyond just one country, continue installing and simply do not connect new systems to the grid. Systems that are connected to the grid are almost always subject to curtailment.

Transmission planning is the boring, necessary stuff of getting electricity from one point to
another. Rethinking infrastructure to enable a world dominated by renewables is a challenge – and an expensive one. The electricity future cannot be a reimaging of the past. It will take bold thinking and unpopular action to redesign the current electricity structure, literally, tear it down, redesign, and build new – one circuit at a time if that is the only way to move forward.

What the world needs now isn’t love, sweet love (What the World Needs Now is Love, lyrics, Hal David); it’s a T&D infrastructure that serves the present and addresses the future.

Paula Mints is founder of SPV Market Research, a classic solar market research practice focused on gathering data through primary research and providing analyses of the global solar industry.  You can find her on Twitter @PaulaMints1 and read her blog here. 
This article was written for SPV Reaserch’s monthly newsletter, the Solar Flare, and is republished with permission.

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by Ishaan Goel

Energy is crucial to India’s policy agenda. Millions of households are yet to gain reliable access to electricity, hampering their potential for economic growth. Severe pollution issues create widespread health problems. Renewables are prioritized as viable solutions across the political spectrum, with their low costs and ease of installation in remote regions. The current administration has ambitious plans for renewable energy (RE), targeting an almost 4x increase in installed capacity to 450 GW by 2030 and introducing a spate of tax and investment reforms.

At the heart of the Indian power supply chain lie distribution companies (discoms). The discoms purchase power from power generators, and sell it directly to consumers or businesses. Most discoms are public enterprises owned by the central or individual state governments. They are concentrated in specific regions where they hold monopoly over power supply. 

Discoms have an important role to play in the integration of RE into the grid. However, they are currently ridden with financial and administrative problems. Due to several issues, a large number of them are running large losses and are in severe debt. They are unable to pay power producers, with outstanding payments summing to over $19 billion in November 2020, and numerous government bailouts have failed to alleviate the situation. These problems pose tough barriers against the adoption of RE in India.

SOURCE OF FINANCIAL PROBLEMS

To make power affordable for the masses, governments regularly provide large waivers in electricity tariffs and unpaid electricity bills owed to discoms. This is usually done for certain demographic groups as part of electoral promises, particularly farmers and low-income households. Governments also seek to promote redistributive welfare through the subsidization of agricultural and rural power using higher revenues from industrial and commercial applications. 

All of these provisions are supported by payment guarantees to discoms from state governments, to cover any deficits in revenue. However, governments frequently default from these obligations due to their own financial issues, forcing discoms to operate under loss. Tariffs undergo periodic regulation to ensure that they reflect current costs, but subsidies and other concessions cannot be easily reversed for political and economical reasons.

To make matters worse, a large proportion of discoms are also locked in long-term power purchase agreements with thermal power plants (mostly coal and natural gas). The conditions of these agreements were originally designed to attract private investment into thermal power generation. They usually stipulate that discoms must pay the plant a fixed fee based on its maximum potential output, and a smaller fee for the power actually purchased. 

As a result, discoms tend to have high fixed costs because they pay the same amount to producers regardless of how consumption patterns vary. Base tariff rates are generally set low in India for the benefit of low-income households, and change frequently compared to the terms of the agreements. So, discoms must recover their high, fixed costs from variable and uncertain revenue streams.

Technical losses can also contribute significantly to discom problems. Power theft is a big issue in India, with illicit connections to transmission lines drawing out almost a third of power in some regions. Poor maintenance and tampering of electricity meters and lines, especially in rural areas and small towns, leads to wastage of supplied power too. This reduces the already insufficient revenues of the discoms.

EFFECTS ON RE PROVIDERS

When governments default on payments to discoms, the discoms themselves are unable to pay the electricity providers. This creates a chain of debt across the entire power supply chain, which has particularly pronounced effects for RE providers. 

Tariffs for RE are usually fixed before or during the development of the project, as an assurance to providers to promote investment in the sector. However, such agreements do not provide the same level of protection as the long-term agreements made with thermal power plants. Providers end up operating on thinner margins that are heavily reliant on projected revenues from discoms.

When discoms do not receive their dues, they cannot pay RE providers whose finances are also placed in precarious conditions. Providers are usually given future payment guarantees, but these cannot help sustain them in the short-term. They also find it more difficult to raise funds from other financial institutions due to their increased risk profile. With such uncertainties and barriers to acquiring capital, firms are dis-incentivized or unable to enter the RE sector.

Discom issues also affect the adoption of captive RE – private generation facilities managed by industrial consumers for their own uses. To avoid wastage of excess power produced during peak times, providers usually ‘bank’ it with discoms. This power can be ‘withdrawn’ during off-peak hours to balance out supply. Discoms usually charge sizable fees for banking to add to their revenues, and also require fees for transporting power from production facilities to industries. All of this raises the cost of RE so that any cost benefits over thermal power are negated, which can discourage switching to RE. 

Many governments have established renewable purchase obligations (RPOs) for discoms in their respective states, to promote the integration of RE in the grid. However, adhering to RPOs is cost-inefficient for discoms as they are already paying for capacity from thermal power plants. Discoms also need to spend on upgrading their grid capacity to accept the variable power output of RE. To avoid these issues, many discoms end up curtailing (refusing to accept or pay for) large amounts of electricity from RE generators. This leaves providers with lower revenues than they had planned for when constructing their facilities. This adds yet one more risk to the RE sector. 

SOLUTIONS

Discom issues are major deterrents to the adoption of RE. These could be solved by  improving the health of discoms, or by developing alternative methods of delivering renewable power.

Of the latter, microgrids are promising and have been implemented with some success in remote regions in India. They attract political goodwill because of their ability to boost electrification of households and commerce in underdeveloped regions. Discoms usually face the greatest difficulties in power supply and tariff collection in such regions, so their burden is eased too. 

Private interest in microgrid development is rising. For instance, Tata Power (NSE: TATAPOWER) has partnered with the Rockefeller Foundation to implement 10000 microgrids in India of capacity >2MW by 2026. To promote microgrids, it is important that the government provide greater transparency about grid expansion plans and adequate sources of financing for developers. Awareness also needs to be created amongst target communities to make them more receptive towards the system.

Other alternatives include the promotion of household and community RE projects, particularly in solar energy, which is already underway through numerous government schemes. Captive RE is also gaining ground with several states slashing banking and transmission charges for industrial applications. These measures alone cannot solve discom-related issues, however, as they are mostly applicable in non-urban regions. Larger scale RE projects must be added to the grid and structural issues in discoms must be addressed head-on to boost RE integration in cities and urban industries. 

Governments have introduced several relief packages for discoms in the past, but these have not proven very effective due to the underlying structural issues described above. In its most recent budget, the central government allocated almost $42 billion for reforming electricity distribution over the next 5 years. This will be done through breaking the monopolies of discoms in geographic regions to increase efficiency, and funding rural electrification. The benefits of this cash injections are likely to be transmitted to RE providers.

Smart meters are being pushed forward to reduce transmission and collection-related losses in revenue, with the government hoping to install 250 million. Such meters will allow for better maintenance and monitoring of transmission lines to detect possible power theft. They will also digitize the payment of tariffs to reduce defaults. 

The government is also experimenting with transitioning to real-time markets, where discoms purchase power on energy exchanges just before supplying it, to ensure supply matches demand. This arrangement reduces average input costs for the discoms, and makes the grid more flexible for the integration of RE.

CONCLUSION

To achieve its targets and foster growth in the RE sector, the government needs to ensure that providers receive guaranteed, regular revenues and operate under low risk to invest and expand further. Despite emerging alternatives to RE provision, creating such an environment is only possible if discoms are streamlined and debt-free. Structural and market-based changes will aid in the recovery process, but it is equally important for state governments to honor payment obligations and minimize defaults across the supply chain.

*****

Ishaan Goel is a high school senior from Mumbai, India and an incoming freshman at the University of Chicago. He likes applied mathematics and statistics, especially in relation to economics and finance. He is very interested in green energy and sustainable technologies, because of their potential and increasing relevance for the future. Ishaan’s hobbies include writing, long-distance running, playing the keyboard and coding. 

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by Tom Konrad, Ph.D., CFA

Rounding out the discussion of the stocks in my 10 Clean Energy Stocks for 2021 list are the two that don’t fit either of the themes I highlighted for 2021: Picks and Shovels or a Possible Yieldco Boom.  Both help with diversification, both in terms of their industry and geography.

MiX Telematics (MIXT) was retained from the Ten Clean Energy Stocks for 2020 list because I expect its prospects to improve rapidly as the world comes out of covid lockdowns.  The global vehicle telematics provider has a large number of its customers among mass transit, logistics, and multinational oil and gas vehicle fleets.  All these industries were disproportionately impacted by covid, and idled many vehicles.  When the owners bring the vehicles back into service, they will once again start paying on the subscriptions for those vehicles.I also believe that covid has led many businesses to take a new look at what parts of their operations can be handled online and remotely.  This should provide a lasting boost to the vehicle telematics industry in general.

Another holdover from the 2020 list is Spanish transmission utility Red Eléctrica (REE.MC, RDEIF, RDEIY).  European countries understand how a robust transmission grid is essential to transition the economy to renewable energy, and they support significant investment in their transmission networks because of this.  Red Eléctrica is an attractively valued European utility transmission utility without any natural gas networks or fossil generation.  Plus it has a nice dividend.

Both these picks get the majority of their revenues in currencies other than the dollar, which should provide an added boost to the stocks as I expect the dollar to continue to fall in 2021 because of America’s mishandling of the pandemic and the effects it will continue to have on our economy relative to most other countries.

Conclusion

While I am hopeful that the US economy will begin to recover in 2021, I worry that the buoyant stock market has already priced in this recovery and then some.  These high valuations and the damage the pandemic continues to do the US economy have me keeping plenty of cash on the sidelines and looking more to Europe than the US for investment opportunities.

Here are links to the other articles on the Ten Clean Energy Stocks for 2021:

• The list
• The Yieldcos: Covanta Holding (CVA), Green Plains Partners (GPP), Avangrid (AGR), and Brookfield Renewable Energy Partners (BEP)
• Picks and Shovels: Valeo, SA (FR.PA, VLEEF, VLEEY), Veolia (VIE.PA, VEOEF, VEOEY), Umicore, SA (UMI.BR, UMICF, UMICY), and Scorpio Bulkers, Inc. (SALT),

DISCLOSURE: Long MIXT, REDIF, CVA, GPP, AGR, BEP, VLEEF, VEOEF, UMICF, SALT.

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.

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by Blackridge Research

The latest trend is that power transmission companies around the world are increasingly looking at energy storage technology to defer or replace transmission system upgrades. How this works is energy storage is placed along a transmission line and operated to inject or absorb power, mimicking transmission line flows. Going with names like “virtual transmission” in Australia and “GridBooster” in Germany, projects totaling over 3 GW of capacity are poised to increase system efficiency and reliability across the world.

Storage as transmission offers an array of benefits over traditional transmission infrastructure. They are faster to deploy, have smaller footprint, flexibility, and relocatability, and they offer other additional services including the ability to provide reactive power, frequency and voltage control and special protection schemes. They also act as revenue streams, while concurrently offering network support.

• RTE, a French utility company, is considering a 40 MW “virtual transmission line” project called RINGO. The project seeks to attain grid integration of renewable energy and optimize electricity currents on its network.
• The German grid development plan, developed by the utilities who own the transmission lines in the country, includes a massive 1.3 GW of energy storage to achieve grid stability and lower network costs.
• In India, the public-owned utility company based in the new state of Andhra Pradesh—the Andhra Pradesh Transmission Company—has proposed in January 2019 between 250 and 500 MW of energy storage to add capacity on its transmission network.
• In the US, Pacific Gas & Electric (PCG) is following through on a 10 MW energy storage project as part of a portfolio of transmission solutions during its regional transmission planning process. This undertaking will be the first one in the country to provide congestion relief in the market.

Blackridge Research is a pure play energy research company covering the Global Energy Transformation.

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One potentially huge contributor to decarbonization of the economy could come from dramatic efficiency gains obtainable from digitally improving the power quality of electricity, as it is being generated, transmitted & being consumed.   The enabling technology is emerging from developments in computing that is associated with the Internet of Things (IOT).

DOE estimates indicate that approximately 38.2 quads of electricity are produced, from all sources, but that 25.3 quads, or 66.2% is deemed “Rejected Energy”, so only 33.8% of generated electricity is actually being used.  Within that 66% a distinction is recognized between “Losses” & “Waste”:

• Loss is non-recoverable, I²R losses that would occur unavoidably in a theoretically ideal electrical network.
• Waste is recoverable, because it is due to unsynchronized power & non intelligent distribution of electricity, which is potentially correctable.

The DOE does not quantify the proportions, but independently it has been estimated that as much as 50% of the Rejected Energy may be recoverable, so 50% of the 66%, perhaps 30-35% of the total generated, may be accessible to mitigation by waste-reducing technology.  This constitutes a market of billions of dollars in potential savings which is being addressed by a huge Power Quality market competing to provide products & methodologies to mitigate waste due to distortions and inefficiencies.  Despite these advancements and the scale of the industry offering solutions, data that would quantify the amount of waste actually mitigated is hard to find, perhaps because measurement and verification methods are inadequate, non-digital.

Suffice to say, a fully optimized Grid with zero waste that was able to add another 30-35% to the available 33%, would nearly double the capacity of available electricity.  This might have the effect  of flattening demand forecasts, or even render some existing capacity redundant.  And if adoption of optimization solutions was rapid enough, sufficiently large curtailment could result in financial stranding of surplus generating assets, which in turn could impact the public conversation about use of fossil fuels for power generation, accelerate wind down of coal plants and increase awards to battery peaking over gas peakers.

The main focus of Digitial Electrification is reduction in the thermal waste produced by inefficiencies in power quality due to various distortions in the shape of the sinusoidal wave form.

What Digital Electrification is NOT

Digital Electrification is distinguishable from the “Digitization & Digitalization” broadly associated with “demand response” capabilities, and the many products and sub-disciplines instrumental to the goal of transitioning to a “smart grid”.  The breadth of this far-reaching industry is captured in this infographic by ABB & Zpryme, showing 3 stages, dozens of goals in process, and a long list of topics & acronyms, the most familiar perhaps include:

1. Smart meters (AMI – advanced metering infrastructure) to automate end user peak demand reductions, reduce inefficiencies and pass along cost savings.
2. Demand Response Management Systems (DRMS), to coordinate load shifting
3. Distributed Response Management Systems (DERMS), support integration of Distributed Energy Resources (DERs) & integration of intermittent generation from renewables, solar, wind & storage to support energy arbitrage, aggregation of batteries on site & in vehicles (V2G) into Virtual Power Plants (VPPs), and implement “non-wires alternatives” (NWAs).
4. Supervisory Control & Data Acquisition (SCADA), big data management of circuit balancing,
5. Outage Management Systems (OMS)

Digital Electrification is based on Software Defined Electricity (SDE)   

3DFS is a small start up in North Carolina dedicated to development of SDE, which last received national level press coverage in a profile published in 2016 by Vox.   Chris Doerfler, CEO of 3DFS, contends that waste due to poor power quality is fixable with 3DFS technology.

SDE is actually a term in use by other firms, such as vendors CUI & VPS, which essentially offer high end demand side management, reducing consumption by controlling equipment assets with equipment and sensors distributed throughout the equipment, managed through APIs, and can achieve some efficiencies in usage through peak shaving.

3DFS is different from these companies because its technology manages the way electricity moves through a power grid, not where it moves. 3DFS instead is installed non-intrusively in parallel directly to the electrical network panel, and is able to monitor & correct the flow of electricity itself, recognizing any non-sinusoidal waveform, line impedance or reactive power from unbalanced phases, that is producing waste heat. 

Electricity is currently not precisely measured, rather, existing technologies use estimations calculated using  Root Mean Square (RMS).  RMS values are averages of electrical parameters based on less than 1% of real values.  Most “smart” meters are inexpensive & low fidelity because they do not have digital processors.  RMS sampling acquire 6000 values every second, 100 data points per sinewave at 60hz, or roughly one data point every .17 milliseconds which leaves as much as 99% unsampled.  This data quality is not high enough to be usable for correcting distortions.  Based only on this imprecise data, existing technologies typically compensate using transformers, capacitors and power switching technology.  But in order to correct electricity more efficiently, continuous subcycle information is needed.

3DFS data acquisition oversamples the electricity, acquiring 26 separate electrical parameters (current, voltage, phase angle, power factor, harmonics, reactive power) at MHz frequencies and 24 bit resolution, 8192 times per cycle.  This provides an exact digital replica of the analog signal within a few nanoseconds, with no errors, no rounding, and zero noise, rendering RMS values obsolete, because it acquires the data  nearly 50,000 times faster  than any technology that relies on RMS values.

Software-Defined Electricity is an application of Task Oriented Optimal Computing (“T2C”) which is “model-based” computing that creates a layer of metadata from a feedback loop on the operation of the controller.  T2C is embedded onto simple ARM processors (Advanced RISC Machines).  These ARM processors are capable of handling high volume data, by using a) high end FPGAs (Field Programmable Gate Arrays) and        b) Reduced Instruction Set Computing (RISC).

Terabytes of data are generated, but as the data feeds into load disaggregation models and is processed by analytic & predictive algorithms, 99% of the foundational layer of operational data used in the controller is constantly erased and written over every few microseconds without ever being transmitted outside the device, providing the ultimate form of data security. The 1% fraction of data that is not erased is used to maintain the working model of the device operation and to display reporting information.  And although operating with supercomputer capacity, it has very low power requirements, only 120 watts.

Doerfler credits these data processing developments to the creative efforts of two scientists on staff, Vladislav Oleynik and Gennadiy Albul.  The model based matrix computing concepts are not patentable IP, since already in the public domain, but proprietary applications are protected as trade secrets.  3DFS also controls an innovation in material science for proprietary ultra-high frequency sensors.

Power Quality Rating (PQR)

This real time layer of electricity informatics for modeling both the supply side power and the load side demand, can be represented in a single metric – the Power Quality Rating, which in turn provides the basis for the correction technology.   Traditional power quality metrics focus mostly on harmonics and power factor. However, an imbalance across phases can induce neutral currents on the load side and cause eddy currents in the upstream transformer on the utility side, both of which also contribute to direct losses, and should be factored into power quality calculations.   The 3DFS version of Power Quality Rating combines power factor, harmonics & phase balance, and hence is able to more accurately analyze how much electrical energy waste is occurring in the moment.

Power Quality Correction

The 3DFS Power Controller models power quality in nanoseconds, and calculates the precise microsecond to either inject or extract microamps to optimize the circuit components restore the waveform close to ideal, effectively achieving “noise canceling”.

The Power Controller contains a parallel device, the Flash Energy Storage System (FESS), which contains  capacitive and inductive components that are directly controlled by the TOOC computing.  This supplies the real time capacitance and inductance needs with microamp charges and discharges at the microsecond level, which corrects the distortions in each aspect, power factor, harmonics & phase imbalance, resulting in digitally synchronized electricity,  automatic impedance matching for the entire panel.   It also calculates the overall electrical load balance of the entire network and adjusts accordingly, eliminating upstream neutral and ground currents.

3DFS has engineered the system into several products for targeted applications, the main product is called VectorQ², designed to be attached in parallel non-intrusively to any power network, from a small commercial building or microgrid to a massive utility load circuit.

When the VectorQ² is installed, it profiles each downstream load attached to the panel down to the level of each individual circuit board component, and continues to improve the resolution of that profile over time because of artificial intelligence algorithms, as it recognizes in each component the variances that exist even within manufacturing tolerances.  This real-time visibility into each device enables not only improved load performances, but can also detect changes from faults or degradation, reducing maintenance costs.  It can also identify when a device may have been hacked & can correct the problem, offering cybersecurity protection as a bonus.

Operational effects can be monitored as shown in this walk through of the system dashboard, which identifies the derangement of the current wave forms, the phase angles, harmonics, and the PQR, before & after correction.

If an electrical network starting with a PQR of 28%, meaning it is only utilizing 28% of the electrical power and wasting the remaining 72% to heat or vibration, were to add a 3DFS Controller, the network would achieve a PQR of 94%, reducing losses to only 6%.    Similarly, if a 3DFS controller were paired with a generator with a starting PQR of 31% & losses of 69%, it would operate after operate with a PQR of 97%, dramatically increasing the output of the generator by reducing the heat waste to 3%,  with fuel savings of up to 25%.

Data Centers

Data centers are big power consumers that make substantial investments to mitigate risks associated with poor power quality, so they are an ideal test case to conduct a Proof of Concept commercial application.   One such assessment was conducted by Freudenberg IT (FIT), a global company with $5B in revenues, with a US HQ in NC that hosts critical software services for Fortune 500 clients.  The results were described by Michael Heuberger (CEO of the US division) as “almost unbelievable”, observing immediate 20% reductions in power consumption and 20F drop in server temperature, as the PQR went from less than 30% up to 96%.  He projected substantial savings in power usage of 20-30%, reduced air conditioning costs, and ability to use smaller copper cables.  But even more significant savings would come from avoiding data losses due to power network disturbances from start up of generators and air conditioners, and servers rebooting, less downtime & lower labor costs for maintenance, and less expense for mitigation of cybersecurity risks. The VectorQ² system sized to meet the needs of FIT was $100K in 2016, with a 7yr payback, but prices have been dropping.    Doerfler enumerated benefits that would factor into Return on Investment for data centers.

Demand Charges

Utilities add penalties on users with spikes in utilization.  When one phase is high, the demand charge imposes a 3x penalty on the highest phase being metered.  By rectifying phase imbalances, equalizing all 3 phases so that loads are not excessively drawn against one phase, demand charges can be substantially reduced, and the resulting savings can be significant over time.  Further, there are load spikes upon motor start ups without protection.

Microgrids

One of the purposes of microgrids is to be able to manage power self-sufficiently, with generators, solar panels, microhydro, & batteries, and to have ability to operate “behind the meter” disconnected or “islanded” from the grid, but still have access when necessary, for backup power supply and to be able to export surplus power back into the grid.   At the critical moment of reconnection, the utilities require that the power quality of the microgrid meet stringent conditions because of the risk of systemic disturbances in power quality when grid connection is established.  Consequently, microgrid developers design in redundancies in corrective mechanisms, capacitor banks, voltage regulators, and tend to overbuild.  However, with the VectorQ² system in place, the interconnection dynamics result in perfectly seamless integration, which means that microgrid managers can save costs by reducing these redundancies in oversizing.  Another risk when phases are imbalanced that can affect microgrids especially, is that current can spill into the neutral wires, which increases fire risk, and risks to workers touching unexpectedly activated wires.  So microgrid networks with 3DFS power correction will reduce or eliminate that risk for fire, worker injury and associated increased liability risks.   As the 3DFS technology is increasingly recognized as solving these problems for microgrids, use of microgrids will step up in the sectors they are already being utilized, hospitals, campuses, nautical electrical systems for the Navy, and other sectors will begin to open up.

Utility scale Solar distributed generation

Another major grid-edge application is to improve the functioning of inverters used in solar power, to convert DC power from the panels into AC power, that can be synced to the grid that meet specs for low levels of harmonic distortion.  Currently PV inverters are achieving 98% efficiencies, and the goal to improve to 99% is driven as much by the desire to reduce cooling requirements as the goal of higher power yield.  The 3DFS solution not only can achieve those improvements, as with microgirds, it substantially normalizes the power quality to be able to sync to the grid with near zero perturbations, far more efficiently than currently available technology.  Additionally, the more precise control of power factor with the 3DFS controller rather than with capacitor banks, expands the available time that a solar system can export power to the grid.

Most importantly, since grid interconnection is perhaps the single most daunting hurdle to accelerating utility scale solar market penetration to achieve displacement of fossil fuels power generation, the 3DFS technology solution could be the key to eliminating a principal barrier to integrating renewables at the pace needed to meet climate challenges.

SAM Controllers for end use devices

End use equipment, including pumps for air compressors, water wells, irrigation & sewage, bilge,  conveyors, liquid sensors, and any other systems using Programmable Logic Controllers (PLC), can be converted by embedding 3DFS digital controllers with all the same data acquisition Task Oriented Optimal Computing & correction capabilities of the VectorQ² unit.   Air compressors, for example, in addition to efficiency gains from power quality correction, can benefit by improving function during startup when the motor is loaded, causing the current draw to be much higher, & when draining condensate from the expansion tank and releasing too much air, causing the tank to get repressurized more frequently.  SAM Controllers will always soft start the motor unloaded, allowing it to warm up before loading it with the pump, which significantly reduces the amount of current required to startup.  Additionally, the Compressor Controller constantly calculates the precise amount of condensate being created during compression & drains the condensate using the exact amount of air required, reducing the number of times the pump must repressurize the expansion tank.  These two intelligent operations will result in substantial savings, both in energy consumption and maintenance costs.   The ultimate vision is to get the technology small enough to fit on a chip. Each electronic device would have an SDE chip (like its wifi chip) that perfectly synchronizes electricity for its circuit board — a kind of “Intel Inside” for power quality.

Software Defined Battery Management System

By digitizing the electricity, oversampling & disaggregation of that data, SDE can build a working chemical model for each battery “so accurate, we can see dendrites growing and can react with corrective action in microseconds.” SDE can efficiently charge and discharge batteries at ideal maximums and minimums, which increases the number of charge cycles by 2-3x.   It can digitally withdraw a battery from service and run restorative charging/discharging cycles and automatically reinsert without service disruption.

Utility scale applications

The elephant in the room is the question of how much it would cost to implement for utility scale grid applications, for primary turbine generating facilities, and for balancing long distance transmission lines, at major substation transformers and large user transformers.   3DFS literature indicates that SDE can benefit transformers, reducing losses for stepping power up or down to less than 2%.   It indicates that the technology can be adapted all the way up the supply chain, to service secondary substations and power plants, and is scalable from 120V up to 25kV.

The visionary goal in the premise of this article, that as much as 50% of the energy wasted to power quality inefficiencies could be avoided, will require that the solution be adopted at all stages of the value chain, at generating facilities, along all nodes of the transmission system, and in end use networks and devices.  Commercial utility scale generators, no matter what the fuel source, will need to acquire & install these units, as either voluntary or mandated capex.  Market driven acceptance will dominate if the anticipated cost savings become well documented.  If the power savings is widely confirmed but cost recovery remains unappetizing, then regulated utilities would need to be compelled by their governing utility commissions to integrate these units at all substations, etc.  Licensing fabrication of end use applications with 3DFS units embedded would also accelerate penetration.  It will take years of promoting the benefits of this technology to expect to witness a complete transition, with all the forecasted benefits.

The ultimate goal is for electricity derived from fossil fuels to have a feasible exit from our energy portfolio.   With the assumptions scaled, the conserved energy from SDE corrected electricity would actually eclipse all other renewables in volume of power produced in the U.S. within 20 years.  It would represent the single largest defacto “source” of renewable energy, as avoided generation from conservation, or to use a phrase by Amory Lovins, founder of the Rocky Mountain Institute – power from “negawatts”.  

Two other major trends could recognize synergies from 3DFS Digital Electrification:

1. Decentralization of grid architecture, which is needed to unleash the proliferation of more distributed generation, microgrids, & other “grid edge” technology, at a much quicker rate of adoption.  Technical solutions have been articulated to fix the current bottleneck of structural disincentives for utilities, as outlined in Democratizing the Grid, which references a study published in IEEE & an article by David Roberts at Vox.  The current crisis is an opportunity (per  Goodrich Sonsini), and is being seized as seen in bill passed in WA.
2. Upgrading long distance transmission to High-voltage Direct Current to enable long range transmission of renewables from remote territory to urban centers, which will also reduce transmission losses, as discussed in Future of electricity transmission is HVDC,

Negawatts crypto

A couple of economists from Columbia University proposed a Network Capital theory of currency as a protocol, with currency value being predicated on network participation.  They evolved the concept into a cryptocurrency called SolarCoin based on Proof of Stake that is given away to solar developers.  It is actively traded under ticker SLR.   Although market cap is small and trading volume very thin, it nevertheless has grown by substantial percentages within the two years since inception.  The value proposition to solar project developers is a) that it costs them nothing and they will accumulate annual grants based on kWh of power generated for the duration the system is in operation; and b) as the network expands, the value also increases, in what is expected to be an actual balance sheet asset, adding market value to the operating asset for subsequent disposition or refinancing.

A variant that might be proposed to apply to conserved power rather than generated power, a crypto that could perhaps be called NegawattsCoin (NGW), and attach it as a grant to every purchaser of a 3DFS product, whether stand alone VectorQ² or embedded SAM controllers, tied to power saved.   The idea is in conceptual stages, but could conceivably add an inducement to adoption.

Conclusion

It appears that this technology is well beyond the point of technical validation, there have been numerous proof of concept 3^rd party trials, and there is a very significant field application test being conducted by a lab specializing in microgrid sector system analysis, which will be producing a comprehensive report that is expected to confirm dramatic enhancement of interconnect integration.   The challenge for this company is to evolve a path of expansion as quickly as is feasible without getting ahead of itself, and to distinguish its technology from competitors that may have some similar developments, such as GridBridge.  It needs to build alliances for distribution networks, licensing partnerships, apply & be awarded contracts for public RFPs, and find the answer to the riddle of acceptance by public utilities, and rural electric coops, and weigh the benefits of merging with larger entities with more resources.   Potentially its best markets in the near term will be microgrid EPC design engineering firms and community solar developers.  The possibilities are endless but the urgency to make a difference could not be overstated.

The post Digital Electrification: Less Waste, More Capacity appeared first on Alternative Energy Stocks.

by Daryl Roberts

In a previous article I investigated the question of whether private sector capital was being stimulated sufficiently enough to build out renewable infrastructure on pace to reach climate goals.  I found that on the upper end, giant institutional funds were only mobilizing a tiny fraction of their total Assets Under Management, due to regulatory constraints and uncompetitive yields.  On the lower end, smaller scale funding seemed to be growing, with facilitation from intermediaries, fintech aggregation services, and increased access at lower levels to complicated derisking strategies.

But I now find reporting that capital is over-mobilized, that solar may be in a “finance bubble” – at least temporarily, for the mid-range funds.  Too much money is chasing too few infrastructure development projects, at least with regard to the largest utility scale projects and corporate procurement, which have the most appeal to large asset holders seeking stable PPA’s.   Richard Matsui, CEO at kWh Analytics comments in this article that aggressive investors with lower costs of capital are able to accept deals with lower returns, on the premise that solar is long term & hence a stable investment.  This means that investment funds are overpaying for assets, which in turn raises the risk profile.

Shorter PPA’s are becoming more common, which results in relying more on profit from  post-PPA “residual value” of merchant pricing.  The whole point of doing longer term PPA’s is to mitigate the risk of gambling on forecasts for wholesale prices 20 yrs out, but instead, investments are modeling returns using wider, riskier spreads assumptions between high-to-low merchant prices.

Simpler 2-way grid structure will accommodate more Projects

The bottleneck however may in fact be that the limited availability of infrastructure development assets is a symptom of grid architecture itself, as explored in detail in this extended piece by David Roberts:  Clean energy technologies threaten to overwhelm the grid. Here’s how it can adapt .

This wholistic reconception of grid architecture proposes a shift away from one-way power flows from centralized power plants toward a decentralized structure that can accommodate massive proliferation of smaller scale Distributed Energy Resources (DERs) situated locally, closer to the end users, at the edge of the grid.

Under the current regulatory regime utilities are often hostile toward DERs, because they threaten existing and future investments.  So the utilities show exactly as much support for DERs as is mandated by legislators, and no more.  Alternatively they seek approvals from regulators to impose fees on DERs, that cripple their competitiveness, which disincentivizes adding renewable generation to the mix, at a time when more are needed, if we ever hope to reach climate mitigation goals.

The author walks the reader through an accessible explanation of the complex landscape of grid architecture, and then describes the two primary options for future grid expansion.  The main contention is that a bottom-up paradigm would “unlock the full potential of clean energy technologies to decarbonize the electricity sector, and meet new demand coming from electrification of transportation & buildings”.

• The current structure is a 2-level hierarchy: central power plants supply power through Transmission-Distribution (TD) Interfaces, into Local Distribution Areas (LDAs).

About 65% of utilities have been restructured, splitting off generation and leaving the utilities as distribution service entities only.  They purchase power from separate generating facilities, which sell power at auction into a wholesale markets, administered by a TSO under FERC rules, and then they maintain the distribution network.

• TSOs (Transmission System Operators) are the 1^st level transmission systems – either an ISO (Independent System Operator) or RTO (Regional Transmission Organization). Their networks cross state lines and hence are under Federal jurisdiction, through FERC.
• DSOs (Distribution System Operators) are the 2^nd level distribution networks – utilities that do not cross state lines, and are under state jurisdiction by state public utility commissions (PUCs).

Power exported to the grid by DERs conflicts with the 1-way flow design of the primary TSO architecture.  Currently DERs have limited access to sell into the wholesale markets.   Local generation from DERs & Virtual Power Plants (VPPs) aggregations from DERs & microgrids, storage, & demand response systems, affect this TSO/DSO structure by increasing complexity and the need for flexibility.  Mismatches between supply & demand due to intermittency, demand congestion & DER excesses that produce the “duck curve” require sophisticated technology to manage “shape risks”, and trigger peak shaving solutions.   The TSO architecture wrestles with not just engineering integrations but with putting a fair value on not just the power generated by DERs but also for ancillary grid services, including voltage, capacity & frequency regulation, synthetic inertia, and enhanced resiliency.

The generalized schematic is depicted in the article as a 2-level architecture showing

• downward flow from the TSO, through the Interface, into of the Local Distribution Area (LDA) with blue lines – managed by the DSO,
• and red lines showing energy flowing back from the DERs and microgrids at grid edge, back into the central TSO wholesale markets, but not through the Interface.

The two primary alternatives for updated grid designs for handling the proliferation of DERS are mapped out in an industry study – “A Tale of Two Visions: Designing a Decentralized Transactive Electric System,” published in 2016 in IEEE Power and Energy Magazine by Kristov (CAISO), De Martini (CalTech), and Taft (Pacific NW Nat Lab grid architecture center):

• Grand Central model, in which TSO’s would increasingly manage 2-way transactions involved in dispatching DER generation, & DSO’s would continue to maintain distribution, without involvement in the transactions from grid edge. But this risks “tier bypassing” conflicts in instructions from both the TSO & the DSO, as well as compliance requirements with both FERC & state regulatory policies.  The 2^nd problem is the sheer complexity & computational bulk with visibility & information down to the lowest level of end-use and new rules & enforcement mechanisms, as the TSO’s will soon have to handle an increase in participants, growing as DERs proliferate from a few dozen currently to thousands.
• LDO model (Layered Decentralized Optimization) shifts the management to the DSO level, & would limit the interaction between the TSO & the DSO to a single interface point. Supply & demand would be balanced within the Local Distribution Area, and net remaining supply or demand would be aggregated into a single bid to the TSO, as either a buy or sell offer.   DSOs would be assigned new responsibilities for reliability as well.

Perhaps the biggest advantage of this “LDO” architecture is scalability, in its ability to handle proliferation of DERS, both horizontally across many types & participants, but also vertically (or fractally) with further replication of this “decomposition” downward through several layers of DERs, & microgrids, each with their own subsidiary DER networks, etc. Each layer is responsible for itself and interacts with the level above it through a single point of contact.   It would also decompose responsibility for electrical power downward to local level controls, with the lowest level at the smart controller, coordinating behind the meter resources, maximizing self-reliance, before requesting power from the next tier up. Central power supply becomes the last resort, not the first.

Depicted graphically the LDO architecture is shown as the last illustration in the article, showing a simplified hierarchy, with more orderly energy flows from bottom up & top down.

The LDO structure short-circuits the debate between advocates for big grid with their fears of grid defection by empowering self-sufficient local grids without a downside to the TSO’s.  Cities and regions would be full partners in optimizing resilience and decarbonizing energy, as they address their unique needs (EV charging, building electrification codes, unique vulnerabilities, etc) with locally integrated DER resources.

Innovation would be unleashed, because each DER or aggregation, each layer, would have financial incentive to optimize its own resources and maximize its own self-sufficiency — to consume as little as possible and produce as much power as necessary. That would create enormous demand-side pull for DER innovation in ICT-managed demand response, peak shaving & storage.  Because DERs are smaller and more connected, iteration & learning time would be shorter, and capital barriers would be lower.

This last point is relevant to the asset bubble in the capital markets for renewable investments.  This anticipated increase in clean energy projects would rise to meet the increasing availability of capital chasing renewable projects.   They would be smaller, hence there would need to be more aggregations to meet the investment goals of larger funds.   There is a growing number of intermediary fintech platforms providing aggregation services between developers and offtakers, and between projects and capital (to be enumerated under another title).

Other Benefits of Decentralization

Several other benefits of decentralizing grid structure would likely follow, or perhaps contribute to the incentives to pursue this big shift:

a) Interconnection is currently also one of the primary barriers to development. Decentralizing would not only remove disincentives for TSO’s to expedite interconnection approvals & executions, but more localized authority would relieve the backed up queues and staffing shortages.   Reductions in installed costs for solar would be substantially reduced if reforms for simplifying permitting emulated the reforms implemented in Australia, which in turn would likely increase adoption.

b) Fire risks associated with O&M risks for high tension wires with associated of fire hazard would potentially be reduced. The recent bankruptcy filing by PG&E after findings of liability for more than  thousands of fires has focused attention on deficient inspection & maintenance practices.  Decentralization could a) shifting these responsibilities to the DSO level, and b) by reducing the need to draw from central TSO supply, potentially minimize the need for more large high tension lines.  PG&E declared in US District Court that it would cost $75B to perform inspections & vegetation removal for its 100,000 miles of lines….$750,000 per mile.   This seems extravagant, and although average costs for maintenance may perhaps be too low, surely there is a value for maintenance that would fall somewhere in between a high of $750,000 and an insufficiently low average, that would still represent a monetizable value to the a decentralized grid.

c) Resiliency is a key feature in selling microgrids, and off grid, behind the meter generating & storage. Additional potentials for capital investment may emerge as resiliency itself is more adequately valued. A NYSERDA report by Justin Gundlach entitled  “Microgrids and Resilience to Climate-Driven Impacts on Public Health”  contends that microgrids can protect public health, but there is currently no established value stream for resilience.  He calls for policymakers to identify & measure the benefits & costs of resilience.  NYSERDA has developed such a provisional tool, but this needs to be evaluated for national adoption by federal agencies, such as the National Academies of Sciences, or experts convened by the DOE.  This value could then be monetized along with ancillary services, as value streams that can attract capital.

d) Peaking requirements would likely be lower in such a decentralized environment with proliferating grid edge DERs, and the potential for renewable storage to replace the need for gas peaking plants would likely be adopted more aggressively. NY state is conducting a full inventory of peakers to identify the dirtiest that can be retired, and new proposed gas peakers are being closely compared to battery alternatives.

Scaling into replacement can be achieved by disaggregating a peak demand shape into duration layers of 2hr increments that can be met with a “duration portfolio” of storage. NREL found that gas peaker plants run less than 10% of the year, rarely for more than 4hrs at time.  A battery system with 4-hour capacity would be far more cost effective and lower carbon profile than operating (or building) a gas fired peaker.  The need for new peakers could be virtually eliminated, even if existing fleet of gas peakers remained on standby until retired.

A “Clean Peak Standard” (CPS) has been proposed, that follows the framework of the Renewable Portfolio Standard (RPS) which requires retail electric suppliers to provide a minimum percentage of sales from clean peak resources.    The concept was discussed at a conference hosted by Bloomberg New Energy Finance, with contributors from 8minutenergy Renewables, Invenergy, Fluence, NREL, Wood Mackenzie and Lon Huber, director at Navigant who is credited with originating the concept, and is consulting with state PUC’s where such plans are under consideration, in MA, NY & AZ.

                                                  Credit: Fluence, NREL

This vision of restructuring grid architecture holds the promise of catalyzing the level of capital reallocation needed in order to meet climate goals, from the current levels of climate & transition investment of $300B/yr to the Clean $1 Trillion  targeted by Ceres, IEA, OECD, CPI, Grantham, Paris, RMI, NewClimateEconomy, IMF, IRENA, G20, etc.

What will it take for this transition to be realized? The market is already making strides, as seen in the growth of microgrids, and the creative approach to proposing replacement of peakers with storage technology.  But the most significant changes will require far reaching legislation, starting at the state level, with PUC regulators and legislative committee action, and with action on federal agency proposals, from FERC, DOE and congressional committees.  Conceivably as a political process, there could be some unexpected synergies between stakeholders including TSO’s interested in divesting some of their current responsibilities, capital interests focused on seeking a broader range of asset offerings, and climate activists.

The post Democratizing the Grid appeared first on Alternative Energy Stocks.

Investors interested in renewable energy often get singularly focused on innovators new energy sources at the expense of companies that provide the nuts and bolts of the energy infrastructure.  Advanced Energy Industries (AEIS:  Nasdaq) is a stalwart of the electric power network, providing power conversion and control components that convert energy to the proper current for use by consumers and business.  The company has a broad product line that has applications with a diverse customer base, including semiconductor manufacturers and chemical processing plants. The 2017 acquisition of Excelsys Holdings Ltd. based in Ireland added products targeted at medical and industrial applications.

As popular as Advanced Energy is with its customers, investors do not seem to pay much attention.  The stock trades at a multiple of 10.33 times earnings expected in 2019.  Given that the Russell 2000 Index composed of small-cap stocks is trading at a forward multiple of 19.00, it would seem Advanced Energy is not getting enough respect.

What are investors missing in AEIS?

Advanced Energy reported $98.8 million in net income on $744 million in total sales in the twelve months ending September 2018.  The represents a net profit margin of 13.3%.  Some investors might be impressed by the accomplishment and look for further, but earnings reported following GAAP prescriptions leaves so much out of the picture.  A better barometer might be how much of each sales dollar is converted to operating cash flow that can be used for investment or adjustments to capitalization.  In the same twelve months, the company converted 22% of sales to operating cash.  That is impressive!

It is also important to figure out what leadership is doing with its cash.  At the end of September 2018, Advanced Energy held $338.7 million in the bank, compared to $407.3 million at the end of December 2017 and $282 million in December 2016.  Thus it appears management has been letting cash pile up, but only to some extent.  Spending on maintenance capital has been modest, running an average of $12 million per year over the last four years and after a recent acceleration in spending in 2018.

Management has not been shy about growth investment.  In the last two years, Advanced Energy has plowed $111.2 million of its cash into acquiring strategic operations.   The Excelsys deal in July 2017, brought the company even further out of its China origins and added a proven manufacturing site to its global footprint that already includes Littlehampton, UK and Ronkonkoma, New York as well as the home base in Shenzhen, PRC.

The Excelsys deal must have whetted an appetite in the Advanced Energy board for corporate shopping.  So far in 2018, Advanced Energy has snapped up three companies that have added products, technology and market share to the mix.

• Japan-based Trek Holding Co., Ltd. was acquired in February 2018, for $11.7 million in cash, adding power supply products to high voltage applications in industrial settings.
• In May 2018, Monroe Electronics with manufacturing facilities in Lyndonville, New York that specializes in electrostatic technology was acquired for $3.0 million in cash.
• LumaSense Technologies Holdings with operations in the U.S., Germany and Denmark was acquired in September 2018, for $94.9 million in cash, adding a line of photonic-based measurement and monitoring solutions to Advanced Energy’s Sekidenko-branded measurement products.

The impact of these recent deals on financial results is yet to be seen. Extension of Advanced Energy’s footprint and expansion of the product line would seem to put the company in a much better competitive position. The company has done well with its tactics in the past, delivering returns on invested capital (ROIC) in the high twenties in each of the last two years.  This compares very favorably to a single digit cost of capital, which is essentially the company’s cost of retained earnings.

Management seems to agree that Advanced Energy market value is out of whack with the company’s fundamental performance.  Some of that ample cash from operations  –  $149 million over the past four years  –  has been used to buy back stock.    AEIS shares may not give investors the bragging rights of an electric car manufacturer or a social media giant, but this undervalued stock should not be overlooked.

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.

This article was first published on the Small Cap Strategist weblog on 11/24/18 as “Advanced Energy: Overlooked and Undervalued.” 

The post Advanced Energy: Overlooked and Undervalued appeared first on Alternative Energy Stocks.

by Tom Konrad, Ph.D., CFA

Last week, I wrote that I’d taken a short position in Enphase Energy Inc. (ENPH). I have now closed out that position and don’t intend to go short again.

My decision to go short was based on four factors:

1. I’m worried about risk in the overall market, and so am considering opportunistic short positions as a hedge.
2. Prescience Point Capital Management released a report accusing Enphase of earnings manipulation. The report seemed well-researched from a purely accounting point of view.
3. My favored indicator for avoiding companies which might be engaging in earnings manipulation, Beneish M-Score was indicating possible manipulation.
4. My own knowledge of the residential solar market made me skeptical of the long term competitiveness of Enphase’s technology.

A week later, the first factor is still in play; I’m still interested in taking opportunistic short positions as a hedge. However, I am no longer confident that any of the other 3 factors that led me to choose Enphase as a short target are valid. Because of that, I have taken advantage of the decline in Enphase’s stock price (mostly caused by Prescience Point’s report and follow-up article on Seeking Alpha, but also caused by somewhat disappointing revenue guidance for the remainder of the year.) I was able to close my short position at a profit mainly because I sold in reaction to the report, but before the Seeking Alpha article, which had a much greater effect on the stock price.

My opinion has changed mostly because readers of my first article made a good case that my understanding of Enphase’s competitive position is out of date. Enphase seems to have addressed my concerns regarding the inherent difficulty in servicing a large number of microinverters compared to a single string inverters.

For me, one of the most convincing parts of Precience’s argument was the allegation that ENPH had been boosting earnings by reducing warranty reserves. However, if Enphase’s microinverters truly have become much more reliable, then reducing warranty reserves is simply the accounting acknowledgment of the benefits of improvements in the company’s technology. I’m not saying that I know the reduction in warranty reserves is justified, but I now think that it could be, and lack the confidence I think necessary to use this as a factor in an investment decision.

Second, after Enphase released second quarter earnigns on August 1^st, I recalculated the quarterly M-Score using the new numbers. The results are shown in the following chart. In the version of M-Score I use, a value above 0 indicates possible earnings manipulation:

Note that, while Enpahse’s M-Score (red line) is still positive, it fell back significantly in the second quarter. Typically, a company that is manipulating earnings will have an M-Score that continues to rise as the manipulation goes on. This is because, as the deception goes on, larger changes to accounting numbers are needed to hide the disappointing reality and make it appear that the company’s finances are continuing to improve. Hence, the second quarter decline in M-Score makes me think that while Enphase is in a tight situation that would tempt many management teams to manipulate earnings, they have probably not done so, and the improved income seen in the first couple quarters is most likely real.

Digging a little deeper into the factors that contribute to the overall M-Score, the ones that an investor should pay attention to are the ones which are rising. In the first quarter, these were:

• SGI – the sales growth index.
• GMI – the gross margin index
• LEVI – the leverage index
• AQI – the asset quality index

Of these, the first three are all indicators of a company where management is likely to be tempted to manipulate earnings, not signs of earnings manipulation itself. These were all rising in the first quarter, but moderated in the second quarter.

The only real sign that there might be or have been earnings manipulation is the asset quality index, AQI. This sign of declining asset quality is, once again, most likely due to the fact that Enphase is holding less revenue in reserve to cover future warranty costs. If the durability of the most recent versions of Enphase’s microinverters has improved as greatly as the company claims, this increase in AQI will turn out to have been justified by business fundamentals.

Conclusion

While I still feel that holding some short positions is justified by the overall risk in the market, I no longer feel that there are any compelling reasons to short ENPH in particular. Hence I have closed out my short.

Disclosure: No position

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 Hopping Off The Short Enphase Bandwagon appeared first on Alternative Energy Stocks.

by Daryl Roberts

DC Fast Chargers (DCFCs) and Tesla superchargers are a key element in electric vehicle (EV) charging infrastructure that could facilitate wider adoption of EVs by enabling recharging that comes to resemble the time currently taken for gas station stops, and thereby reducing “range anxiety” for drivers.

However, the pricing structure for electrical costs incurred at commercial DC fast chargers is currently prohibitive, because it includes a special fee called a “demand charge”. Rate design in a number of states includes this additional charge, based on the “peak rate” on electric power consumed in kW. In New York, demand charges are determined from max instantaneous demand, the amount used in any 15-30min segment in a monthly billing cycle (not from coincident peak demand which is user demand that coincides with peak system demand). This is a separate factor, distinct from the volume of electricity actually consumed, which as priced in kWhs and referred to as the “volumetric charges”.

Demand charges were originally conceived to apply to small to medium commercial enterprises with high utilization, to incentivize reduction of demand during periods of demand congestion. As long as such businesses have peak instantaneous demand that coincides with periods of demand congestion, then these businesses can be said to be paying a fair rate for their cost of service.

DCFCs by contrast are “low utilization” enterprises, with low monthly load factor at current low levels of EV penetration, despite high capacity factors. DCFC load profiles are intermittent and random, as compared to the load profile for typical commercial entities driving demand. Consequently, peak instantaneous demand only rarely coincides with periods of demand congestion. Demand charges for DCFCs not only fail to align with the cost of delivering power, they are so disproportionate as a percentage of costs that even the NY Power Authority recognizes that the business proposition is rendered infeasible, precluding a viable case for DCFC investments.

Two examples of the calculations demonstrate the problem – one included in a recent NY Power Authority petition to the Public Service Commission, the other in a Mckinsey consulting analysis (How battery storage can help charge the EV market) as shown in the graphic below. 

Comparing the two examples in the table below, the NYPA version shows that demand charges constitute almost 80% of costs, which are roughly confirmed by the 90% shown in the McKinsey version.  The ratio is not improved by 3x scaling as shown in the graphic, because the increased utilization also raises the total instantaneous demand.

As currently structured, in NY as well as in other states facing similar considerations, it is increasingly recognized that demand charges applied to low utilization, intermittent DCFC stations do little to mitigate impacts to peak load, but rather result in disincentives to development that are inconsistent with other state goals. In New York, a goal of 800,000 electric vehicles by 2025 was set under the Multi-State Memo of Understanding, and since there are less than 30,000 on the road in 2108, in order to add 110,000 EVs per year for the next 7 years, some dramatic  incentives will be needed to accelerate infrastructure penetration and EV adoption.

A Rocky Mountain Institute study from Oct ‘17 contended that eliminating demand charges for DCFCs is consistent with societal objectives of vehicle electrification. Creating a business opportunity for companies that provide public EV charging is a societal objective and hence these companies should be able to earn a reasonable profit providing a valuable service & maintaining publically available charging equipment. Even if volumetric tariffs for public DCFCs does not recover all system costs incurred, some costs could be justifiably recovered from general customer base, because DCFC’s provide a public benefit in air pollution reduction & other local economic benefits.

Rather than designing a tariff by building up from cost basis of the utilities, RMI proposes instead to work down from a cost that would be attractive to EV drivers. Find a consumer cost target, deduct a reasonable profit margin, & set that as the rate ceiling for public DCFC owners. Any shortfall in utility revenue for actual costs of service could be recovered from the general customer base on a cost basis only, which would also recognize numerous EV-grid value streams, including benefits to the grid from “smart charging” EVSE’s and the value of enabling greater renewable energy penetration. As emerging EV telematics technologies evolve, a more precise quantification of the value streams in the EV-grid interaction can result in a more sophisticated & granular tariff design. NYSERDA offered a 2015 report with similar contentions Electricity Rate Tariff Options for Minimizing DCFC Demand Charges

In New York, the issue is before the Public Service Commission, NYPA Joint Petition of New York Power Authority, New York State … – NY.gov filed 4/13/18 by five agencies NY Power Authority, NYS Dept of Environmental Conservation (DEC), NYS DOT, and NYS Thruway Authority, to request immediate and long-term rate relief to encourage statewide deployment of DCFC facilities. The Petition argues that:

• Demand charges render DCFC business case infeasible, are not cost-based
• Shifting to non-demand metered rate is fully justified, would spur deployment
• Other states have taken similar action on demand charges for DCFCs, and offer various strategies for immediate elimination followed by incrementally adding them back in as utilization rates increase, such that incentives are structured to synergize with Time of Use rates to encourage charging at off peak periods.
• Immediate elimination of demand charges would reconcile the tariff to be consistent with other policy initiatives:
  • Multi-state MOU for 800K vehicles by 2025
  • GHG 40% reduction targets for 2030 in State Energy Plan, & exec Order 166
  • Renewable Energy Vision goals (REV)
• 1500 DCFCs are calculated to be necessary to me the ZEV mandate, which if achieved would result in utility revenue arising from EV use of $234 million (net the loss of avoided delivery charges $58.8 million to $124.6 million), yielding net positive value to utility ratepayers at approximately $175 million to $109 million due to the increased EV adoption, made possible by increased penetration of DCFC, and increased throughput from EV charging by 2025
• CO2 reductions due to EV adoption would be valued at $64 million by 2025.

Supporting comments were filed 7/23/18 by the Sierra Club and Natural Resources Defense Counsel.   Readers can view other comments that have been filed under the case number 18-E-0138 by numerous other industry participants, including by companies producing charging equipment, vehicles and charging networks [Tesla (TSLA), Greenlots, ChargePoint, EVgo, Siemens (SIE.DE, SIEGY), BYD (BYDDY, a Chinese electric bus manufacturer)], non-profit public interest organizations [RMI, NY Battery & Energy storage Tech Consortium, Advanced Energy Economy Institute, City of NY], and utilities [Orange & Rockland, PSEG (PEG), Niagara Mohawk, National Grid (NGG)] and others.

If this regulatory shift can be achieved, an accelerated transition to electrification of transportation is being envisioned in some interesting media.   NYPA offers a vision for DCFC corridors that can provide 200 miles of range in 10 minutes of charge.  Tesla has the most evolved vision for DCFC infrastructure, with over 1200 supercharger stations and 10,000 superchargers globally, and is promoting 3^rd party development of charging convenience stops.  

Other extensive DCFC charging networks are being developed with similar visions for providing sufficient charging services to accommodate massive adoption, including:

•  Electrify America is administering, in collaboration with Greenlots, the VW (VOW.DE) settlement fund which is mandated to distribute $2B in infrastructure development as part of the fine in its emissions fraud case;
•  Ionity, the European charging network [Porsche (PAH3.DE), Audi (NSU.DE), VW, Daimler (DAI.DE), BMW (BMW.DE) and Ford (F)],
• Fastned in the Netherlands
• ChargePoint & EVgo are the next largest charging network and EVSE providers in the US
• Projects linking remote renewable supply to DCFCs are also emerging.  One such example was the remote net metering proposal from an independent renewable generator (small hydro) providing dedicated supply to an independent gas station chain in NY (Stewarts).

For charging station developers, the battle is being waged on two fronts: 1) to change the Demand Charge regulatory environment and 2) to develop charging facilities that integrate battery storage to benefit from time of use charging, and peak shaving discharge to smooth the load profiles and thereby avoid or reduce Demand Charge pricing, supplemented by PV generation on solar carports.  Peak smoothing has the potential to significantly reduce the burden of demand charges, even if there is no regulatory relief, as shown in the calculations below, in this estimate by 73%. 

Perhaps the most forward looking is the vision of tech firm ZapGo, which is developing carbon ion supercapacitors that will be integrated with batteries to enable very short charging times, both for end user vehicles and for supply trucks envisioned be able to deliver fast recharging of bulk storage in filling station environments.

Both technology and regulatory solutions need to be aggressively pursued in order to achieve the goals being set forth, for reduction of GHG’s and dramatically increased electrification of transportation.

Bio

Daryl Roberts has been following renewable energy technology & policy for 20 years, recently most interested in EV charging infrastructure, community solar development and net metering policy, utility scale solar development, project financing, and renewable energy asset management. He has participated in Sierra Club electric vehicle policy initiatives, and offered consulting for grant applications to install municipal EV charging stations. He has been involved with business plan development for commercial projects in diverse technologies, municipal solid waste gasification, PV fabrication on architectural glass, and LENR research. Previously he worked for almost 20 years in litigated medical malpractice claims. 

The post EV Fast Charging Disincentives appeared first on Alternative Energy Stocks.

Impressed by the number of stocks in the Crystal Equity Research alternative energy indices that have delivered exceptional price appreciation, the last few posts have been on a quest to find fundamental characteristics that could give an advance signal of a future star.  The post “Alternative Returns” on May 8^th introduced the series identified future growth as a precursor of strong stock performance.  The next post “Quest for Growth” on May 11th looked at stocks with above average growth predictions.  Then the post “Alternative Bargains” looked at stocks in the alternative energy indices that are trading at below average price-earnings multiples.

There is a better way to find valued priced stocks of companies with expectations for strong future growth.  The Price-Earnings-to-Growth Rate ratio compares a company’s price-earnings ratio (PE ratio) to its projected growth rate.  Conventional thinking is that if the PE ratio is lower than the growth rate, the stock is a bargain.  The rationale is that stocks with high expected growth rates should trade with higher PE ratios than stocks with low expectations for growth.

Unfortunately, the PEG ratio as it is called has some short comings.  It ignores an important source of value  –  dividends.  To include dividend yield the measure become PEGY  –  Price-Earnings to Growth plus Yield.  The measure provides a view on what the market is willing to pay for both future growth and forward dividend yield.  The ratio differentiates for growth and dividends, but it silent on relative risk.  By adjusting the PEGY by the stock’s beta measure, investors get an even more nuanced view on stock value. The new measure becomes PE times Beta to Growth Rate plus Dividend Yield or PERGY.

The PEG ratio has not been shown to be particularly helpful in the short-term, but studies have found that the PEGY ratio and her sister PERGY can well inform a long-term buy-and-hold strategy.  A review of the Crystal Equity Research alternative energy indices found a number of PERGY candidates.

Beach Boys Index  –  Specialty Chemicals

Eastman Chemical Company (EMN:  NYSE)was mentioned in the April 3^rd post “A Stake in Bioplastics.”  The company makes no products using organic feedstocks.  Accordingly, investors with a preference for environment-friendly stocks would need to take a big gulp before taking a stake in EMN even with a PERGY measure of 1.18.   Eastman grabbed $9.6 billion in sales from the specialty chemicals market in 2017, earning $1.4 billion in net income or $9.47 in earnings per share.  The company turned a whopping 17.3% of sales into operating cash flow.  The stock is currently priced at a forward dividend yield of 2.12%, which is part of what is driving its PERGY ratio.  That may be enough to tempt even the ‘greenest’ investor.

Mothers of Invention  –  Smart Grid

By all accounts the U.S. electric grid is outmoded.  Its various power plants, wires, transformers and poles represent trillions of dollars in sunk capital. The goal of the smart grid is to build a high-speed communication network on top of the established power grid.  Advanced communications could make it possible to keep the power supply stable and efficiency by sensing, analyzing and controlling the otherwise unreliable network.

Arrow Electronics (ARW:  NYSE) serves users of electronics components with product supply and design services.  It is a supply channel partner for more than 125,000 original equipment manufacturers and commercial customers around the world.  The company recently acquired eInfochips, a design and managed services provider specializing in Internet-of-Things technology.  The deal is expected to help Arrow offer smart grid solutions for municipalities and building managers through real-time data analytics from connected devices and systems.

In the twelve months ending March 2018, Arrow earned an operating profit margin of 3.9% on $28 billion in total sales.  The company turned just 0.2% of sales into operating cash flow during that period, but in the previous two years the company averaged a much higher 2.1% sales-to-cash conversion rate.

The recent slip in cash generation may be one of the reasons ARW shares have sold off since the beginning of 2018.  The company does not have a dividend that garners the loyalty of long-term holders with income generation as a goal.  However, a PERGY ratio of 0.15 suggests the stock is on sale relative to its expected earnings growth. The market is perhaps not giving the company enough credit for its improved competitive position in the fast growing market for IoT solutions.

The Atomics  –  Solar Power

SunPower Corporation (SPWR:  Nasdaq) has a PERGY ratio of 0.18, which puts it among the lower ratios in all four of novel indices featuring companies producing alternative energy or offering energy conservation or efficiency solutions.  The measure could inform investors with a contrarian view.

SunPower has come through difficult times. The company reported a deep loss of 38.6% in the most recently reported twelve months ending April 2018.  The loss narrowed in the most recently reported quarter, but that accomplishment has been overshadowed by guidance for negative impacted from U.S. tariffs on solar imports.  The company makes most of its solar products in the Philippines and Mexico.  Earnings are expected to be reduced by as much as $55 million over the next year.  To counter the effect of the tariffs the company is acquiring U.S. panel producer SolarWorld Americas.  The company is also shifting its focus to products used in distributed generation systems at homes and businesses where growth rates exceed the power plant market.

Both strategies will take time to deliver improvements to the company’s topline growth rates and profit margins.  However, for the patient investor the stock might have appeal.  That said, we note the stock appears overbought from on technical basis. It might be worthwhile to wait for a period of even greater price weakness to build a long position.

The next and last post in this series changes focus from growth to dividend yields

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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