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 Roel Aerts

Greystone Logistics (GLGI) designs and manufactures plastic pallets for the logistics industry. They use recycled plastic which would otherwise be destined for landfill. They grind and pelletize the plastic in house. Injection molding and proprietary resin blend is used to manufacture the pallets.

Greystone is headquartered in Oklahoma and has its manufacturing plant in Iowa.

Recent results and Financials

· The company had invested heavily in manufacturing equipment several years ago, that loaded them with quite some debt. Over the last years they worked on a massive reduction in debt. In 2 years they reduced it from 21.6M$ to 9.4M$ currently (debt minus cash).

· Very high free cash flow generation in fiscal 2021, 12M$. At this pace they theoretically could be debt free end 2022 if they choose to be.

· Gross margins of ~17% or higher from 2020 onwards (with the exception of last quarter). This was the effect of the investments in manufacturing equipment. Without being a subject matter expert, that sounds like a very high margin for a pallet, a commodity to me.

· High growth, 20% compounded growth in sales and gross margin from 2016 till 2020, 35% compounded growth in earnings. Shrinking numbers in FY2021. Can they pick up the growth path?

· Potential for reduced expenses in calendar year 2022, close to a million in interest payments vs. 2021 should they pay off the majority of debt, and several 100k$ in leases that run at lower lease cost in their last year.

· Last reported quarter, ending August 31 2021, was weaker than previous ones. Management attributes this to shortage of personnel in the COVID recovery and downtime on production machines. Driving down margins as well.

Outlook, growth opportunities

· Can they pick up the growth path from 2016 to 2020? Their high free cashflow should give them room to invest in growth. Growth stagnated and fell back in FY2021 and first quarter of FY2022. Global pallet market is forecasted to grow ~5% CAGR in the next years, however, Greystones growth potential is in customers that move from the omnipresent wooden pallets to plastics pallets. That growth rate could be, should be, much higher.

· Possible beneficiary of a green tailwind where customers want reusable, recycled solutions, often driven by consumer demand. Rising automation by pallet users could be growth driver as well

· “Greystone believes that the demand for its pallets is increasing which is primarily expected to have a positive impact on operations during the last half of the current fiscal year as well as future years.” (Quarterly report Oct 2021)

Management, board and investors

· Lots of skin in the game, CEO owns more than 34% of common stock.

· Second largest shareholder is a Director, together with CEO they each own 50% of the preferred shares, they control the board.

Excellent multiples (TTM):

· P/S 0.4

· P/E 4.2

· P/FCF 2.5

Risks

· Nano-cap, only 24M$ valuation, with corresponding risks associated

· High customer concentration, less than 5 customers account for more than 80% of revenue. There has been gradual improvement over the past years. Risks associated with most small-caps.

· Control of the board by 2 persons. Are their interests aligned with common shareholders? High insider ownership is usually a good thing; for micro-caps, total control by insiders is something to watch. How to be sure they don’t use the company as their private bank? (cf. Leases and loans directors have outstanding to the company; but those seem fair valued and limited in time, no signs this risk is materializing.)

Questions

· At what capacity level are they running?

Conclusion

This looks like a value play from the FY2021 numbers, but it could be an emerging growth story if they go try and pick up the growth path they were on in 2016-2020.

DISCLOSURE: Long GLGI

About the author: 

Roel Aerts is a retail investor with a focus on renewables and clean technology. Insights and analyses above are written for his own purposes and are shared to help others form an opinion and to gather feedback. It is not intended as investment advice and Roel is not an investment advisor.  Roel holds a master’s degree in Electrical Engineering and in Industrial Management.

The post Analyzing Greystone Logistics appeared first on Alternative Energy Stocks.

By Jim Lane

The case

Last week’s decision stems from a May 2018 challenge brought against EPA in the U.S. Court of Appeals for the Tenth Circuit by the Renewable Fuels Association, the National Corn Growers Association, National Farmers Union, and the American Coalition for Ethanol, working together as the Biofuels Coalition. The petitioners argued that the small refinery exemptions were granted in direct contradiction to the statutory text and purpose of the RFS and challenged three waivers the EPA issued to refineries owned by HollyFrontier Corp. and CVR Energy Inc.’s Wynnewood Refining Co.

The case is HollyFrontier Cheyenne Refining, LLC v. Renewable Fuels Association, 20-472 and the high court heard oral arguments in April. The case involved exemptions given to units of HollyFrontier Corp (HFC) and CVR Energy Inc (CVI). Reuters reports that at issue in the case was whether the EPA impermissibly exempted units of HollyFrontier and CVR Energy in 2017 and 2018 when they had not received continuous prior extensions of an initial exemption.

In January 2020, the Denver-based 10th U.S. Circuit Court of Appeals found that the EPA exceeded its authority “because there was nothing for the agency to ‘extend.’” According to the Circuit Court ruling, “the statute limits exemptions to situations involving ‘extensions,’ with the goal of forcing the market to accept escalating amounts of renewable fuels over time.” The refineries appealed to the Supreme Court, and the federal government, under Biden, switched sides to favor the biofuel supporters.

The SCOTUS decision

The 6-3 ruling overturned a lower court decision that had faulted the U.S. Environmental Protection Agency for giving refineries in Wyoming, Utah and Oklahoma extensions on waivers from the Clean Air Act’s renewable fuel standard requirements even though the companies’ prior exemptions had expired, according to Reuters. Bloomberg reported that the justices rejected arguments that the EPA’s exemption power is limited to only a handful of refineries that have received uninterrupted annual waivers from the Renewable Fuel Standard.

Interestingly, Conservative Justice Amy Coney Barrett joined liberal justices Sonia Sotomayor and Elena Kagan, in dissenting from the decision.

What this means

It’s no secret that President Biden supported biofuels and was “expected to issue fewer waivers and force more refineries to satisfy annual biofuel quotas by either blending plant-based alternatives into their products or buying compliance credits from other companies that have. However, the new precedent will give future administrations wide clearance to exempt oil refineries from annual blending quotas,” according to Bloomberg. And let’s not forget that small refinery waivers surged under former President Trump which didn’t make biofuel producers happy.

But it’s not over yet. The Renewable Fuels Association points out that “While the Supreme Court failed to affirm a portion of the Tenth Circuit decision, the Biofuels Coalition pointed out that the appellate court also ruled that EPA’s exemption decisions must reconcile the agency’s consistent findings that all refineries recover the costs of compliance with the RFS, and that EPA may only use hardship caused by the RFS to justify granting exemptions. Despite today’s Supreme Court decision, EPA must still resolve those other aspects of the Tenth Circuit ruling.”

Reactions from the Industry

Disappointment for sure, but a huge sense of optimism too. Reminds us of the Tubthumping song lyrics, “I get knocked down, but I get up again, You are never gonna keep me down” from Chumbawamba.

Let’s hear from those involved directly first. The Renewable Fuels Association sent this statement on the SCOTUS decision from the Biofuels Coalition involved in the lawsuit:

“A coalition of renewable fuel and farm groups expressed “extreme disappointment” in today’s U.S. Supreme Court decision overturning a 2020 appellate court ruling that struck down three improper small refinery exemptions granted by previous EPA administrators. However, because certain elements of the appellate court ruling were left unchallenged and were not reviewed by the Supreme Court, the groups remain optimistic that the Biden administration will discontinue the past administration’s flagrant abuse of the refinery exemption program.

“Nearly a year and a half ago, the Tenth Circuit handed down a unanimous decision that was ultimately adopted by the very agency we took to court in the first place,” coalition members said. “While we are extremely disappointed in this unfortunate decision from the Supreme Court, we will not stop fighting for America’s farmers and renewable fuel producers. Further, we are optimistic that other elements of the Tenth Circuit decision, which were not reviewed by the Supreme Court, will compel the Biden administration and EPA’s new leadership to take a far more judicious and responsible approach to the refinery exemption program than their predecessors did.”

Irrespective of today’s decision, the Biofuels Coalition thanked President Biden and EPA Administrator Regan for taking swift action to rein in the previous administration’s mismanagement of the small refinery exemption program. After carefully reviewing the issue, new EPA leadership in February reversed the agency’s previous position and announced support for the Tenth Circuit decision. In April, EPA decided to revoke three last-minute refinery exemptions granted the day before President Biden’s inauguration; and in May, EPA announced it would cooperate with a Government Accountability Office investigation into the past administration’s adjudication of small refinery exemptions.

As of today, 70 small refinery exemption petitions remain pending with EPA, for the compliance years 2011-2020.”

So what do others in the industry have to say about this?

Growth Energy CEO Emily Skor told The Digest, “The Supreme Court disagreed with the lower court’s view of extensions, but today’s decision does nothing to change the 10th Circuit’s ruling that exemptions cannot be granted when refiners cannot properly trace their hardship to compliance with the Renewable Fuel Standard (RFS),” said Skor. “In the past, the biofuel industry has looked to the courts to halt abuse. Today, new leaders at the Environmental Protection Agency have shown a willingness to defend the RFS, most recently by reversing three improperly granted exemptions. We look forward to working with the Biden administration to keep a lid on exemptions, further strengthen the RFS, and fast-track our progress toward decarbonization. Engine smart and earth kind biofuels are vital to achieving the nation’s climate goals.”

Michael McAdams, President of the Advanced Biofuels Association said, “We are greatly disappointed by the Supreme Court’s ruling to overturn the 10th Circuit decision with regard to small refinery exemptions. Frankly, the Court got this one wrong. We do not expect, however, that this decision will impact the current Administration’s view on using SREs moving forward.”

Kurt Kovarik, National Biodiesel Board’s Vice President for Federal Affairs, said, “The Supreme Court decision is dismaying because it leaves uncertainty about when EPA may offer exemptions to small refineries. These exemptions harm biodiesel and renewable diesel producers when they reduce demand for advanced biofuels. EPA has provided multiple ways for refiners to meet the Clean Air Act’s RFS requirements, including an outsized bank of reserve RIN credits. The agency must issue the 2021 RFS rules as soon as possible and ensure that RFS volumes it sets are met, with full accounting for any small refinery exemptions in plans to grant.”

Doug Durante, Executive Director, Clean Fuels Development Coalition told The Digest, “Between the courts, the oil industry, and EPA chipping away at the RFS it only underscores that we need to create new demand beyond the confines of the RFS, which frankly may continue to shrink. Ethanol’s highest value is as an octane additive and to reduce the carbon in gasoline by replacing aromatics. The pending re-write of the fuel economy rule is a perfect opportunity to do that and the ethanol industry needs to make that case, as we are doing through the High Octane Low Carbon Alliance.”

Iowa Renewable Fuels Association Executive Director Monte Shaw said, “We are extremely disappointed the Supreme Court didn’t uphold the 10th Circuit Court ruling on eligibility to request RFS refinery exemption extensions. I am not a lawyer, but it sure seems like the 10th Circuit Court got it right when they determined that a refinery can’t extend something it no longer has. However, it is important to remember this case only applied to one of the three major findings from the 10th Circuit Court. Today’s decision allows refiners to apply to extend RFS exemptions that have lapsed. But this case did not impact the 10th Circuit’s ruling that refiners must still prove economic harm directly related to compliance with the RFS. Just as importantly, the 10th Circuit also found that EPA cannot use RIN costs as a cause of economic harm while simultaneously admitting RIN costs are recovered in the refiner’s crack spread. As the Biden EPA has pledged to follow the 10th Circuit Court ruling, today’s decision allows refiners to request an RFS exemption extension, but it does not make it easier for refiners to actually receive one. We fully expect the Biden EPA to keep their commitment to the RFS and to apply the 10th Circuit Court standards relating to economic harm, and as a result, to deny the vast majority of RFS exemption extension requests that are pending or that will be submitted in the future.”

Speaking of Iowa, the Iowa Biodiesel Board’s Executive Director, Grant Kimberley, said they were “extremely disappointed” too and “We believe today’s ruling opens the door for oil refiners to intentionally circumvent the RFS. However, the Supreme Court did not consider nor overturn the economic harm arguments decided in the 10th Circuit, and the EPA is still bound by them. The only question is how many refiners can seek exemptions each year and at what point in the year—or ‘at any time’—they can be granted. The EPA must consider only whether the Renewable Fuel Standard itself causes ‘disproportionate economic harm’ to a small refinery requesting exemption; and the EPA must consider its own evidence that refineries recoup the costs of RFS compliance. As green energy becomes a national priority, we are hopeful that the Biden EPA will keep its commitment to the RFS, fulfilling the promise that a green future depends on a stable and strong biofuels industry.”

Steve Roberts, Director, Opportune LLP, told The Digest, “This is the first of two key decision points expected this summer, with the second being the RFS blending requirements for 2021 and 2022. Additionally, there is a backlog of Small Refinery Exemptions (SREs) to be reviewed and decided upon by the EPA. So, while the SCOTUS ruling provides some clarity for the Small Refiners Exemption, both the biofuel industry and oil refiners are still in a ‘wait and see’ mode, which will continue to drive volatility in the biofuel and RINs markets.”

Former Deputy Undersecretary of Agriculture and now Managing Director of Ocean Park, an Investment Bank that has advised on many biofuels transactions, John Campbell told The Digest, “All eyes will be on EPA’s rulemaking proposal for RVO’s in 2021 and 2022 now that the SRE issue has been settled by the highest court. The 2007 RFS legislation anticipated 150 billion gallons of gasoline demand with traditional corn ethanol at 10% or 15 billion gallons.  Despite gains in E-15 demand the 10% blend wall has been problematic when EPA considers the overall RVO landscape and imipact on RIN prices.  The RFS has served the biofuels industry well but the time has come to consider reform that takes into account new fuel demand realities and increasing need for decarbonization of the liquid fuel supply.”

“Today’s decision still does not resolve the question of regulatory certainty for the Renewable Fuel Standard,” Michael Newman, Chief Operating Officer of Parhelion Underwriting Inc. told The Digest. “A sudden change of policy is an unwelcome surprise in any market and the interests of policymakers, regulators, market participants and the public should be aligned in wanting a stable market with an orderly, gradually rising trend. A sudden drop in value hurts companies holding RIN assets and impacts government revenues that support sustainable projects; a spike in value is passed on to consumers at the gas pump, eroding public support for the program.”

“A possible alternative is a national clean fuel standard, along the lines of California Low Carbon Fuels Standard, to supercede the RFS at the end of 2022,” said Newman. “It is a program with flexibility for how the government’s goals are achieved – including through the purchase of carbon credits generated by electrical vehicle producers, a price cap to fix the ‘price spike’ and a focus on carbon intensity.”

Some other good news

Another hopeful sign was the Senate’s passage of the Growing Climate Solutions Act, legislation that would break down barriers for farmers and foresters interested in participating in carbon markets.

Growth Energy CEO Emily Skor applauded that news and said, “Farmers have already been making big investments in new technology to reduce their carbon emissions. As reducing greenhouse gas emissions is top of mind for the biofuels industry, we are working with our ag partners to use sustainable farming practices to reduce emissions throughout the entire production lifecycle. The Growing Climate Solutions Act will rightly reward farmers nationwide for their efforts to reduce emissions.”

“Our industry truly is from nature and for nature. We thank Senators Stabenow (D-MI) and Braun (R-IN) for their leadership in passing this legislation.”

Former Sens. Saxby Chambliss (R) and Heidi Heitkamp (D), co-chairs of the Bipartisan Policy Center’s Farm and Forest Climate Solutions Task Force, hailed Senate passage of the Growing Climate Solutions Act of 2021.

“The bill provides USDA with clear bipartisan direction to help producers and forest landowners implement practices that capture carbon, reduce emissions, improve soil health, and make their operations more sustainable,” noted former Sen. Heitkamp.

The Growing Climate Solutions Act creates a certification program at USDA to bolster technical assistance and help address challenges that can prevent farmer and forest landowners from fully participating in voluntary environmental credit markets.

“America’s farmers, ranchers, and forest landowners can play a pivotal role in capturing carbon while creating another income stream for their operations. The 92-8 vote in the Senate indicates the strong support for helping producers access new carbon market opportunities,” former Sen. Chambliss said.

And hey, Oregon approved E15 for customers too! Governor Kate Brown signed into law an important measure that will help clean Oregon’s air and reduce their carbon footprint immediately while saving motorists money at the pump. The new law, HB 3051, revises state law to clarify that gasoline sold in Oregon must contain at least 10 percent ethanol and gives retailers the ability to offer higher ethanol blends, like E15, across the state benefitting consumers and the environment.

“We applaud the state of Oregon and Gov. Brown on clarifying that E15 is approved for sale and giving drivers across the state access to a more affordable, better for the environment option at the pump,” said Skor. “Oregon’s approval of E15 comes just weeks after recent news from neighboring Nevada, who enacted legislation to approve E15. We look forward to working with West Coast retailers to offer drivers an engine smart, earth kind fuel.”

The United States House of Representatives doesn’t want to be left out of the good news too! Also on Friday, they voted to utilize the Congressional Review Act to reinstate regulations preventing unnecessary methane leaks in the oil and gas industry, which were rolled back by the Trump administration.

BlueGreen Alliance’s Executive Director Jason Walsh said of the news, “Preventing unnecessary methane leaks is a no brainer; it’s good for workers, communities, the environment, and the economy. Nobody benefited from rolling back this regulation. Reinstating it is the right move. We know that full deployment of existing practices and technologies at new and modified oil and gas facilities will reduce methane emissions in the United States and could create 50,000 jobs over the next ten years. As our nation works to build back from the COVID-19 pandemic, throwing away tens of thousands of good-paying jobs manufacturing and installing the technology needed to stop leaks that are wasteful and unnecessary would be senseless.”

International policy good news

In case you missed this positive piece of news last week, the UK aviation industry launched the first interim decarbonization targets of at least 15% by 2030 and 40% by 2040, having reaffirmed their commitment to net zero by 2050. The new interim targets lay foundations for rapid acceleration of aviation decarbonization in the coming decades, with new data on the impact of Covid-19 on aviation demand. The focus is on ramping up SAF, permanent carbon removal, and new low and zero carbon technologies – such as electric and hydrogen powered aircraft – so that they can become mainstream in the 2030s.

These milestones are reflected on a new chart taking account of the effects of Covid-19 on aviation demand, and complement an ever-growing set of voluntary industry pledges to drive down emissions fast. Importantly, the announcement also kickstarts detailed work to update by the middle of next year the sector’s Decarbonisation Road Map, first published in 2020, that is expected to demonstrate even faster potential to decarbonise aviation through technology innovation.

Another piece of good news is that the Swiss government renewed the GRI partnership to spread sustainability reporting globally. through a new €3.8 million (US$4.6m) program to increase high-quality sustainability disclosure and accountability by organizations in Africa, Hispanic America and South East Asia. The key aims of the four-year Sustainability Reporting for Responsible Business (SRRB) program are to enhance the capacity of companies for reporting; create and improve the environment for transparency and disclosure; and increase the application of corporate sustainability data by stakeholders.

What this means for those in the bio-world is that those three key world regions will have more training, improved access to sustainability professional development, engagement with government on integrating ESG in the public sector, and more programs like those that will further biobased industry in developing markets.

Bottom Line

This is far from good news for biofuels producers in the U.S. but the Senate and House news, Oregon’s bump up in ethanol blending, and other good news like that offers some light in the dark. And like the saying goes, it ain’t over til it’s over, so stay tuned on the other pieces and decisions yet to come from SCOTUS and keep your fingers crossed for more good news next time.

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 A Disappointing Supreme Court Biofuel Decision. Why It’s Not Over Yet appeared first on Alternative Energy Stocks.

by Jan Schalkwijk, CFA

ESG investing is all the rage these days. That is, investing that includes the non-traditional  environmental, social, and governance factors in the investment process.  Its appeal to the broader investment industry is twofold:

1) The writing is on the wall: as wealth is passed down to younger generations who in the aggregate care more about values alignment, the asset management industry does not want to lose the assets and the fees they generate.

2) Thematic investing is popular and ESG is one of the hottest themes. Wall Street is not going to miss out. Much like crypto is too good to pass up.

Not everyone is enamored. Some folks accuse ESG investing of greenwashing, others argue that ESG is progressive politics spilling over into investing, that heretofore was “neutral,” and just concerned with the financial bottom line.

In the spirit of every niche gets an ETF, there now is fund that is unabashedly the anti-ESG fund: the American Conservative Values Fund (ACVF). It has $10m in assets under management, so not competing with ESG anytime soon or ever, but what struck me is that its top 10 holdings have a 50% overlap with the top 10 holdings of iShares MSCI KLD 400 Social (DSI), which tracks the broadest and longest-running US SRI/ESG index.

If the ESG flagship benchmark, and the anti-ESG fund agree on 5 of their 10 biggest holdings, then that begs the question: what is ESG anyway?

Jan Schalkwijk, CFA is the founder and Chief Investment Manager of JPS Global Investments, an investment firm specializing in green investing on a global basis.

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by Paula Mints

The solar industry has a supply chain problem – no, not just the current polysilicon and glass constraints. Solar wafer, ingot, cell, and module manufacturing are concentrated in China and South East Asia, leaving buyers outside these areas vulnerable to supply chain shocks.

Countries in this region have lower labor costs, lower energy costs, and higher incentives and subsidies for manufacturers. In China, manufacturing is supported (and controlled) by the central government.

Manufacturers in China, who have expanded into South East Asia, can make do with lower
margins than their counterparts in other countries. Manufacturers in South East Asia and China can also undercut competitors’ prices, determine industry direction (P-PERC, mono-crystalline, and n-type), ignore pilot-scale timelines, and ramp to commercialization more rapidly than can competitors in other countries.

Low energy costs in the region are made possible because of cheap coal. Low labor costs in
China’s Xinjiang Uygur Autonomous Region (XUAR), are made possible because of forced
labor.

Manufacturers in China can also raise prices and increase margins with little pushback from
buyers in other countries because … they control the supply chain.

It did not take long for China’s manufacturers to dominate shipments. Figure 1 depicts shipment growth for manufacturers in China, South East Asia, and the rest of the world from 2005 through 2010. During this period, shipments for China grew at a compound annual rate of 157%.

Figure 1: Shipments from China, South East Asia, and the Rest of the World, 2005-2010

Shipments from China’s manufacturers surpassed shipments from other manufacturers in
2011. In 2018, shipments from manufacturers in South East Asia surpassed manufacturers in the Rest of the World. Shipments from manufacturers outside of China and South East Asia continue to decline. Figure 2 presents shipments from manufacturers in China, South East Asia, and the Rest of the World from 2010 through 2020.

Figure 2: Shipments from China, South East Asia, and the Rest of the World, 2005-2010

The Polysilicon and Glass Problems

The shortage of glass for solar modules continues as a bottleneck for the industry even as
glass manufacturers in China ramp capacity. China has 90% of the capacity to produce glass for solar panels, which was strained in part by demand for bifacial modules and in part by government restrictions on adding capacity. As with the global polysilicon shortage in the early 2000s, the glass industry was unprepared for the surge in demand despite the clear trend over several years to glass-glass modules. With glass prices up and capacities tight until Q3 2021, module manufacturers face price increases and are passing these increases on to customers.

Meanwhile, after years of pricing below cost, polysilicon prices are increasing dramatically and are unlikely to decrease until potentially 2022. As with price increases for solar glass, module manufacturers are passing the increases on to buyers. Figure 3 offers polysilicon prices from 2018 through the 2024 estimate.

Figure 3: Average Polysilicon Prices 2018 – 2024

China has over 82% of the global capacity to produce polysilicon. In 2020 shutdowns due to the pandemic and accidents at polysilicon production facilities in China left the industry under capacity. In Q3 2020, floods forced Tongwei to shutter a 20,000 MT facility in Southeastern China. In September, a 50,000 MT polysilicon plant in Xinjiang suffered a major ‘incident’ during maintenance and was forced to shut down.

Before these incidents, there was sufficient polysilicon capacity to produce 205.6-GWp of
crystalline cells. Afterward, there was only sufficient polysilicon capacity to produce 176.7-GWp of crystalline cells. The industry capacity to produce crystalline cells in 2020 was
194.4-GWp. Polysilicon for high-quality monocrystalline cells was particularly constrained.
Polysilicon capacities have recovered in 2021. There is currently sufficient polysilicon  capacity to produce 251-GWp of crystalline cells, and capacities for high-quality polysilicon are increasing. The capacity to produce crystalline cells is expected to be 223.9-GWp by the end of 2021.

The Point

With the capacity to produce polysilicon and other raw materials, glass, wafers, ingots, cells, and modules concentrated in China and its expansions in South East Asia, buyers in other countries have little control over the pricing and availability of product.

While module prices were low, buyers of solar cells and modules could let themselves believe it was a buyer’s market where they controlled the price – after all, if the current offer is not low enough, a cheaper module is right around the corner.

Years of low prices had a lulling effect, hiding the fact that true control of the market would
become clear at some point. It’s a seller’s market and has been for years.

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.

The post The Solar Industry’s Supply Chain Problems appeared first on Alternative Energy Stocks.

by Jim Lane

What in the world has gone right with Gevo?

For years now, Gevo (Nasdaq:GEVO) has remained true to a vision of low-carbon, advanced renewable fuels, when so many others pivoted away to the world of ABF — Anything But Fuels. Some tried chemicals, cannabis, algae, natural gas, nutraceuticals, vegan foods — lately, protein has been all the rage. Gevo was one of the few true believers and paid the price of stock price punishment and near-extinction, for years.

While they weathered a debilitating patent battle with DuPont, until it settled and DuPont imploded. And the collapse of oil prices when the frackers arrived, until many of the frackers imploded. Not to mention the joys of investor impatience as Gevo battled to stabilize their technology at the first commercial deployment in Luverne. The years when no investor believed that carbon prices were here to stay and that low-carbon technology represented a quantum leap in shareholder value creation. The years when the RFS and the LCFS and the Paris climate agreement were unknown to the many and disdained by the few. The years when everything was going electric ‘next year’ and then ‘next year’ and ‘next year’.

Gevo persevered with their technology, and a focus on renewable hydrocarbons, as their stock on a ride through the Valley of Dilution. The company’s many fans stubbornly kept the firm in the upper echelons of the 50 Hottest Companies in the Advanced Bioeconomy. The management kept costs trimmed, laid out a plan for deployment, and waited for the storms to pass. And as was said in Casablanca, “waited and waited and waited.”

The stock dipped to just 49 cents a share last summer, after a series of dilutions, as it assembled a series of impressive offtake agreements, ultimately reaching $1.5B late last summer, and the company raised $50 million in a new share offering. A Praj partnership expanded, and a Koch partnership appeared. The company’s shelf of Whitebox debt was repaid.

And, finally, the stock began to rise as the prospects that Gevo would finally deploy at the scale necessary for thriving, not just surviving, seemed at hand. Gevo announced its Net Zero Project.

Just as the world took notice that all these Net Zero promises coming from companies of late could not be satisfied by a mountain of wind and solar, because those technologies have very small carbon footprints but they are not zero. For every wind and solar project, you need to offset with something carbon negative, and that’s something found in biology. Not to mention, renewable fuel projects can be low carbon, too, even when they are not carbon negative, and the investment returns can look pretty darn good when you sell the resulting fuels into low-carbon markets.

And so, Gevo began to rise, and rise and rise and rise. Back to a dollar a share by November. Four dollars a share in December, and $13.24 a share as of January. A market cap soaring to $2B this past week.

I had a conversation earlier this month with a large investment fund, they were looking for value investments in the renewables space — given how high many of the players had gone. He hadn’t heard of GEVO, which I recommended to his attention. I sure hope he bought it, in volume, the price has doubled since that call.

All of this growth has allowed the company to raise $350 million in a share offering this past week — 43.7 million shares at $8 per. Gevo’s back to being a Wall Street darling after The Wilderness Years, as the 1930s were described with respect to Winston Churchill, who sat in the shadows as unjustly and as long.

Is Gevo back? No, Gevo never left. What’s happened? Those things that Gevo long predicted — a future where renewable fuels would do good, and do well — have come to pass. If they are crowing triumphantly for a few days at their reversal of fortune, we’ll not say a word in criticism, for it has been a long stretch of sailing in the Doldrums, but tomorrow it is back to work.

Net Zero Projects

As Gevo outlined recently, it plans to build Net Zero Projects to produce energy-dense liquid hydrocarbons using renewable energy and Gevo’s proprietary technology. Gevo is currently developing its Net-Zero 1 Project at Lake Preston, South Dakota. Gevo management said they expect Net-Zero 1 would have the capability to produce approximately 45 million gallons per year of liquid hydrocarbons (jet fuel and renewable gasoline) that when burned should have a “net-zero” greenhouse gas footprint as measured across the whole of the lifecycle based on Argonne National Laboratory’s GREET model.

In addition, Net-Zero 1 is expected to produce at least 350,000,000 lbs/yr of high protein animal feed. To reduce and eliminate the fossil resources used in the plant, it is expected to have an anaerobic digestion wastewater treatment plant that is capable of generating enough biogas to run the plant and supply a combined heat and power unit, capable of meeting approximately 30% of the plant’s electricity needs. The remaining 70% of electricity to run the plant is expected to come from wind power. Net-Zero 1 may also obtain renewable natural gas using manure from dairy or beef cows.

Here’s the latest Gevo presentation explaining the what, how, who and when of their deployments and partnerships.

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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by Paula Mints

In August, CdTe manufacturer First Solar (FSLR) sold its North America O&M business to NovaSource Power. According to First Solar CEO Mark Widmar, the decision was due to contracting O&M margins and customer demands for more services. The company is also exploring jettisoning its EPC business. First Solar plans to focus on its module manufacturing business.

Comment: Apparently, First Solar finally realized that O&M is low margin and that the EPC business may also not have much margin cushion. Now the company can concentrate on another low margin sector of the solar manufacturing chain, manufacturing.

First Solar has occasionally proven prescient with its strategic moves. It saw the FiT-driven boom in Europe before its competitors and rode the silicon shortage to a leadership position. The company correctly read the tea leaves and exited the market in Europe before it crashed to concentrate on the US market. First Solar was an early pioneer in O&M.

And then there is all of that Walmart (WMT) money that funded First Solar right up to, and after, its IPO.

So, First Solar can be forgiven for ignoring O&M’s dangerous undervaluing and chronic low margins in the field. Or … maybe not. Underfunding O&M is rife in the solar industry. Most assume that O&M costs will decrease in time depressed along with the artificially low price of modules. O&M costs rise over time as systems age. Underfunded O&M is under-done O&M, and this is dangerous for the future of the industry.

Lesson: First Solar’s move is akin to the over-used excuse ‘I’m leaving to spend more time with my family.’ Lesson – read the tea leaves earlier.

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 Paula Mints

In July, Unprofitable residential solar lease company Sunrun (RUN) announced that it would acquire its unprofitable competitor, Vivint Solar (VSLR). Each share of Vivint stock will be exchanged for .55 shares of Sunrun’s common stock. Sunrun indicated that there were great synergies between the two companies.

Comment: Remember when Tesla (TSLA) adopted Solar City, a company founded by Elon Musk’s cousin? Sorry – remember when Tesla acquired money-losing Solar City and claimed strong growth and profits would follow? Great synergies. A wonderful future. Rainbows, kittens, and a profitable solar future for all.

The residential solar lease and residential PPA offers little synergy for customers, other than giving away their ITC and paying much more over time for having a solar system on their roof than they would if they bought it in the first place. Companies operating in the space need the cheapest cost of hardware (not always the best), fastest installs (not always the best), to reuse equipment when customers withdraw (including inverters), and to keep on adding customers to feed the machine.

Lesson: Watch this one as typically, when one unprofitable company buys another, they just create one big unprofitable company – albeit one with synergies. Gotta have those synergies.

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.

The post Unprofitable Sunrun Buys Unprofitable Vivint Solar appeared first on Alternative Energy Stocks.

by Jim Lane

COVID-19 has changed the way we do things…like drink more alcohol, wash our hands more, wear a mask, limit our gatherings and trips, but positive things have come about too. More time to connect with friends and family via online tools, a new respect for healthcare, agriculture and other essential workers, breathing cleaner air, and finding new ways to connect, entertain and innovate. Even in the bioeconomy, companies are doing the “pandemic pivot” and creating innovations to improve our future.

We’ve covered how the ethanol industry jumped in to save the day with hand sanitizer production, but today we look at how bioinnovator, Amyris (AMRS), is taking a different approach to fighting COVID-19.

In today’s Digest, how Amyris reminds us of David Bowie’s “Changes” song and how they are ‘turning to face the strange’ with their sugarcane-derived squalene vaccine adjuvant, how their business is not only surviving but thriving in today’s changing world, and more.

Fighting back with vaccines

First, let’s start with the big news from Amyris that they signed a binding term sheet for a planned COVID-19 RNA (ribonucleic acid) vaccine technology program with The Infectious Disease Research Institute (IDRI).

The program combines IDRI’s expertise in combating infectious diseases with Amyris’ fermentation platform technology, with the goal to create semi-synthetic squalene-based adjuvants at scale. IDRI’s RNA vaccine platform is expected to offer significant differentiated advantages over other RNA vaccines currently in development and will be further enhanced by a scalable Amyris adjuvant.

The Critical Role of Adjuvants in Vaccines

Adjuvants are added to vaccines as an excipient to enhance their effectiveness and are typically sourced from shark-based squalene, a non-sustainable and non-scalable resource. Amyris’ fermentation technology, which replaces shark-derived squalene with lower cost sugarcane-derived squalene, is capable of delivering greater availability facilitating access to adjuvants by large parts of the population. Amyris’ squalene is targeted to be functionally identical to shark-based squalene and will be certified as such as one of the last steps to commercialization.

“The combination of IDRI’s leading RNA vaccine platform technology combined with Amyris’ sustainably-derived adjuvant has the potential to lead on efficacy for a COVID-19 vaccine solution and potentially play a major role in other vaccine solutions to help mitigate potential future pandemics,” said IDRI’s CEO Dr. Corey Casper. “Without adjuvants, vaccines are not maximally effective, and a shortage of existing shark-based adjuvant supply could prove devastating in the future, underlining the importance of this anticipated partnership.”

“We are pleased to partner with IDRI to combat COVID-19 and deliver a significant breakthrough for vaccine technology into the future,” said John Melo, Amyris President and CEO. “We believe synthetic biology can play a significant role in scaling vaccines and therapies that meet the needs of global health crises. Making the world’s rarest chemistry available and affordable has been Amyris’ purpose since its founding in 2003. Soon after its founding Amyris partnered with the Bill and Melinda Gates Foundation and created an alternative supply source through fermentation for artemisinin, a first-line treatment for malaria that is still recommended by the World Health Organization today. Many organizations are working toward a COVID-19 vaccine solution, with uncertain outcomes. IDRI’s expertise in vaccines combined with our leading synthetic biology platform presents a real opportunity to deliver the most scalable and highest efficacy vaccine for COVID-19. We are focused on a second-generation solution that is better performing and can deliver a sustainable platform for vaccines to address future pandemics. We expect first commercial supply of our leading vaccine adjuvant by the end of this year and, assuming successful trials, could have a successful vaccine platform next year.”

Amyris and IDRI anticipate executing a comprehensive agreement after which additional details of the proposed program will be disclosed. In the interim, work on advancing the vaccine is continuing to ensure accelerated time to market.

Not just surviving but thriving

And while many biofuel, biomaterial, biochemical and other bio-related companies are struggling, Amyris has had a solid first half of 2020. They just announced their second quarter 2020 results demonstrating a record quarter for consumer brands with 3X revenue growth, the lowest cash operating expenses in five quarters, and $200 million private placement that significantly reduced debt and debt servicing expense.

Here are some more of their Q2 2020 highlights:

• Completed $200 million private placement during Q2; largest raise in the history of the company.
• Reduced debt by $121 million or 40% since start of 2020. Improves H2 2020 debt servicing cash costs by $30 million.
• Q2 Recurring Revenue for Consumer & Ingredients of $26 million more than doubled YOY. Record quarter for Consumer brands with revenue tripling YOY from strong online sales. Ingredients Revenue grew in excess of 50% year-over-year.
• Cash Operating Expenses of $43 million were the lowest in the five sequential quarters and down 6% versus prior year. Lower G&A and R&D expense was partly reinvested in consumer brands.
• Signed commercial partnership for Purecane in commercial baking applications with AB Mauri.
• Signed term sheet for a scientific partnership with Infectious Disease Research Institute (IDRI) to create RNA vaccine platform.

Reaction from the stakeholders

“Our business and our people have shown strong resilience during these unprecedented times. Keeping everyone safe has been our number one priority while continuing to grow revenue and improve operations. COVID has certainly had an impact in how we operate the business. For example, COVID has impacted progress with third party manufacturing,” said John Melo, President and Chief Executive Officer. “Lower consumer revenue from store closures was mitigated by consumers transitioning online. Our consumer brands saw record revenue in the quarter and, for the first time, was equal in size to our ingredients portfolio. We expect second half consumer revenue to more than double that of the first half of this year. This shift in our portfolio will continue with significantly larger sustainable and predictable product revenue relative to collaboration programs.”

Continued Melo, “We have executed on commercial and scientific strategic partnerships such as Purecane in commercial baking applications with AB Mauri and to create an RNA vaccine platform with IDRI. Our focus on improvement of operational economics as it relates to scale-up of both new ingredients and our young brands continues, and we made significant progress on improving our capital structure. During Q2, we raised $200 million from a private placement with high-quality investors of which 70% were new and 90% with a health care, biotechnology and/or long orientation.”

Strategic Priorities

The strategic priorities Amyris set out at the start of 2020 support their goals for growth, sustained cash generation, and profitability.

Full Year 2020 Outlook

When looking to the future, no one can predict what it holds but Amyris notes “Based on current estimates, the full year Sales Revenue target indicates approximately 44% growth versus 2019 GAAP sales revenue of $153 million, and approximately 80% versus 2019 recurring sales of $104 million. Based on expected sales mix, Gross Margin is expected to be between 55-60% of revenue. Adjusted EBITDA is expected to turn positive during Q4 of this year. COVID continues to present significant uncertainties to which we do not have full visibility.”

Bottom Line

While most companies in the bioeconomy are throwing out the crystal ball completely, it doesn’t mean companies are just giving up on predicting what might happen and preparing for all sorts of scenarios. And that’s what sets successful companies apart from others – the savviness to work with the current situation and make the best of it, going outside the box or comfort zone to come up with creative ways to survive the current time, and the vision to consider possible future challenges, creating scenarios and action items for each of them and being prepared yet adaptable and flexible for whatever may come.

So whether you prefer the classic David Bowie “Ch-ch-changes, Turn and face the strange, Ch-ch-changes” song or the more modern Sigma version “This ain’t what I signed up too, This ain’t right, it’s no good, No good, oh, Everything is changing”, remember that while there are lots of changes going on, some of them are good.

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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by Shawn Kravetz, Esplanade Capital

Somewhat catalyzed by COVID-19 disruptions but more so by sector maturation, solar is entering a consolidation phase driven by:

• Solar incumbents seeking to fortify market positions and reduce costs through
  scale
• Legacy/traditional energy and utility players seeking renewables exposure to
  diversify away from fossil fuels, accommodate investor concerns, and generate
  sustainable, predictable profit streams
• Corporates capitalizing on cost of capital advantages particularly in cross-border
  acquisitions
• Parents, specifically China state-owned independent power producers, privatizing
  their separately listed renewable subsidiaries (typically in Hong Kong) to bolster
  their renewable bona fides and exploit wide valuation discrepancies (typically
  between mainland China and Hong Kong).

Like the entire global economy, solar endured some COVID-19 dislocations in the first half
of 2020; however, unlike most industries, COVID-19 has marshalled unprecedented international governmental, corporate, and financial support and momentum for renewables broadly and solar specifically. We remind readers that solar benefitted immensely from modest fiscal, monetary, and policy stimulus (namely in the U.S. and China) in the aftermath of the 2008/09 Global Financial Crisis growing from a 6 gigawatt industry in 2008 to 28 gigawatts in 2011. Given cost competitiveness with traditional energy sources today, post-COVID-19 solar backing relies far less on subsidies and far more on long-term policy clarity, streamlined financing methods, and entirely new, massive sources of end demand.

Without this powerful and likely irreversible tailwind, the sector was already positioned to dominate the power landscape for years to come, but now, solar is poised to shatter prior aggressive expectations through the end of the decade.

Shawn Kravetz is President and Chief Investment Officer of Esplanade Capital LLC, an investment management company he founded in 1999.  The firm manages private investment partnerships including Esplanade Capital Electron Partners LP, launched in 2009, which intends to be the world’s premier private investment fund dedicated to public securities in solar energy and those sectors impacted by its emergence.

This article is an excerpt from Esplanade Capital Electron Partners’ second quarter 2020 update.

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