by Debra Fiakas, CFA

After years of promises Ocean Power Technologies (OPTT:  Nasdaq) is finally realizing revenue from its ocean wave power innovations.  Sales in the quarter ending January 2020, was $725,000  –  more than double the same quarter in the previous fiscal year.  Driving the top-line is the sale of one of the company’s signature PowerBuoy ocean wave power generation system to Enel Group (ENEL: BIT; ESOCF:  OTC), Italy’s premier energy company.

Some investors might find Enel an unlikely customer for a renewable energy device like the PowerBuoy.  Designed to convert the mechanical energy in ocean waves to electrical energy, the PowerBuoy has been years under development.  Ocean Power has long touted the potential in the device to generate energy free of carbon emissions.

Yet the first commercial customer, Enel, is using the PowerBuoy power data gathering and communications for its offshore oil and gas operations.   Maintaining communications with off-shore installations has often been frustrated by the expiration of power sources, leaving remove installations dark and no longer functional.  Extracting power from the ocean itself is a major step forward in solving this problem for producers with off-shore oil and gas assets.   Yet, it can hardly be considered a step toward a carbon free world if a renewable power source simply facilitates fossil fuel extraction.

Disappointment over the strategic direction of Ocean Power may have played a part in the dramatic decline in the stock from a high of $7.76 in April 2019, to its current level under a dollar.  Of course, the stock price today reflects the stress and uncertainly in our economy due to work stoppages to combat the coronavirus health threat.  It also reflects the company’s struggles to keeps it bills paid until cash begins to flow from operations.

The company has $9.9 million in cash on its balance sheet at the end of January 2020.  That might seem like a tidy sum until investors consider that management has been using on average $2.9 million in cash each quarter to support operations.  For the most part, expenditures are for sales and marketing activity as well as product development work.

The cash kitty was built up by sales of stock through an equity line of credit and an at-the-market stock sales agreement.  The company sold 2.3 million shares under these two arrangements in the first nine months of fiscal year 2020.  Shares outstanding have mushroomed from 5.4 million in April 2019 to 8.7 million at the end of January 2020.  It is likely the dilutive effect of the stock sales has also been dragging down the OPTT stock price.

Ocean Power Technologies might be very much like the company’s flagship PowerBuoy devices  –  there is alot more under the water than you might think.  That said, worries for one investor may be creating an opportunity for others.  Those who expect Ocean Power to score additional sales opportunities of the PowerBuoy might find the hand wringing over dilution as overreaction.  For those with a tolerance for risk at the top-line, the current stock price may be a compelling value.

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 3/10/20.  

The post Ocean Power Technologies: Alot Under the Water appeared first on Alternative Energy Stocks.

by Debra Fiakas, CFA

Renewable energy developer Eco Wave Power Ltd. is reportedly planning a public offering of its common stock in Sweden.  From its base in Israel, the company has developed proprietary technology to capture the energy in ocean waves and turn it into electricity.  Eco Wave has systems in place in Gibralar and the Jaffa Port of its home country.  Its pipeline of proposed projects encircles the globe through the United Kingdom, Scotland, Mexico and China among other countries.

With a building list of potential customers, Eco Wave needs capital. Management has disclosed that the 100 kilowatt wave energy installation in Gibraltar required $450,000 to build. However, most of its projects will be considerably larger.  Eco Wave has agreed to build a 5 megawatt plant also in Gibraltar, which is expected to have significantly higher price tag.  A plumper purse would provide working capital for construction and potentially allow Eco Wave to take equity positions in it is projects.  Even without that equity investment, a stronger balance sheet could help in discussions for project financing from banks.

According to the financial information portal Crunchbase, Eco Wave Power has raised a total of $5 million in two separate rounds.  The company’s most recent financing was a Series B round in 2017, which valued Eco Wave Power at $40 million. The valuation appears in line with an estimate $3.6 million in annual revenue with about 150 employees.  That implies $24,000 in revenue per employee and suggests the company is not yet profitable.

Reportedly the company is seeking $13 million to $18 million in new capital through the sale of common stock.   The offering circular is still under review by Sweden’s Financial Supervisory Authority.

Sweden has become increasingly popular with European companies seek access to public capital markets.  Relatively low interest rates and moderate volatility have helped make the country attractive.  Historically, oil companies have figured prominently in Scandinavian markets.  However, there is increasing diversity that includes technology innovators such as software, biotechnology and engineering firms.  Sweden has four stock exchanges, including the Nasdaq’s First North Sweden where Eco Wave Power is reportedly planning to list its securities.  Nasdaq’s First North exchange has recently ranked just behind the London Stock Exchange for number of transactions per year.

When the offering prospectus is completed, investors will have a rare chance to read details about the technology and business of wave power generation.  The Eco Wave system relies on a flotation device that rises and falls with the ocean waves.  The flotation devices are attached by an arm or piston to stationery structures such as a pier or jetty.  For example, the system in the Jaffa Port in Israel is attached to a sea wall.  The floater’s motion builds fluid pressure in a land-based generator that spins to create electricity.

Eco Wave Power has a deep patent portfolio to protect its innovations.  The protections cover not only the system design, but extend to the various mechanisms and structures.  The company has also sought protection for wave farm architecture that should help protect the company’s ability to capture the value in electricity generation.

Wave power development has been frustrated by the sometimes hostile environment of the ocean.  Storms are sudden and violent.  Seawater is highly saline and corrosive.  The unique structure of the Eco Wave Power system means that only the flotation device and piston are located in sea water and all the other devices are located safely on land.  The flotation device and piston can also be pulled up out of the water when storms are expected or operators need access system features.  This helps reduce risk of damage and facilitates maintenance.  Capitalizing on existing land structures also helps to keep capital costs low.

The market opportunity for Eco Wave Power is impressive.  The World Energy Council estimates that in ocean bodies there is energy of as much as 32 petawatts per hour per year.  High capital costs and the frustrating operating environment have been too intimidating for most to pursue the chance.  Of the few companies with wave power technologies, all have struck out for the open ocean.  Eco Wave Power, with its floater system that hugs the shore line, may ultimately prove to have greater profit potential.  Those who participate in the initial public offering will have an ocean front view on the industry.

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 5/14/19.

The post Oceanfront View On The Wave Industry appeared first on Alternative Energy Stocks.

by Debra Fiakas CFA

For Ocean Power Technologies (OPTT:  Nasdaq) the sea is more a utility than Whitman’s source of romantic miracles.  The company has developed a wave turbine to capture the energy in ocean waves and turn it into electrical power.   Last month the company was successful in convincing investors of the merits of its ‘ocean utility’ technology, raising $8.2 million through the sale of common stock.

Branded as the ‘PowerBuoy’, Ocean Power’s product line is headed by its PB3system that has the capacity to generate up to three kilowatts of peak power.  An onboard power storage system has the capacity to store up to 150 kilowatt hours.  The PB3 is intended for users with remote off-shore installations such as ocean observatories, oil and gas wells, or communications systems.  Currently oil and gas companies or scientific groups rely on a mix of power sources to power remotely located systems, such as batteries, gas generators, solar panels, or fuel cells.

The Ocean Power management thinks they have a good pitch to tell customers.  Each of the established power sources has limitations, such as reliability, short length of service or high cost.  Ocean Power has been working on reducing the production costs of its PB3system so that it offers a low cost of operation over a longer useful life.  The PB3 also offers remote, real-time communication capability so that operators can gain access to vital data gathered at its systems site without having to make an expensive, time consumer trip.  The PowerBuoy is also more easily deployed with conventional ocean going equipment.

The extra capital puts Ocean Power in a better position to move aggressively on its target markets and finally achieve profitability.  Aside from a few development contracts with the U.S. government, the company has not yet recorded revenue from the sale of its PowerBuoys.  At the end of July 2017, Ocean Power reported cash balances of $11.4 million after having used $4.2 million to support operations for the previous three months.  Based on that pace in spending, it is estimated that the company now has approximately $15.0 million in cash to support operations.

Ocean Power already has a number of relationships that can be translated into customers, drawing first from a string of development partners and equipment testers.   Indeed, at the end of July 2017, there was backlog of $100,000 in fully funded orders.

Discussion of Ocean Power in terms of backlog represents a seminal change for its investors.  The company has successfully proven its technology and has now moved on to the next challenge  –  proving competitive vigor in its end markets.  The shift in focus can also be observed in operating expenses reported for the quarter ending July 2017.  Total expenses declined to $2.8 million compared to $3.1 million in the same quarter of the previous year, with the decrease attributed to a 33% reduction in spending on product development.  Selling, general and administrative expenses increased by 8%.

Unfortunately, Ocean Power’s backlog is composed only of government-sponsored development contracts.  It does not yet hold a contract for the sale of a PowerBuoy.

It might be the conundrum over backlog that has made it difficult for investor to form a view on Ocean Power.  The offering was met with considerable enthusiasm, driving the stock price to a high of $2.54 on the offering day before it closed at $2.00.  Since then the stock has struggled, falling back down below its 50-day moving average price.  At the present price level, the stock would seem to be a bargain for investors who accept the potential in ocean power and have confidence in Ocean Power management to execute on a winning market strategy.

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

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

The post The Price Of Ocean Power appeared first on Alternative Energy Stocks.

by Debra Fiakas CFA

The first two lines of the prospectus for the April 2017 public stock offering by Ocean Power Technologies (OPTT:  Nasdaq) say all investors need to know about the market opportunity for the company’s wave power generation products.  First, the earth’s surface is covered 70% by water.  Second, over 40% of the world’s population lives within 150 miles of a coastline.  If the earth is dominated by water and a good share of our energy-hungry population lives near that water, doesn’t it make sense to turn the ocean into a renewable energy source?
If market opportunity based on common sense was all required for a stock offering, Ocean Power might have been able to sell new shares nearer its 52-week high price of $15.65 rather than a penny below the 52-week low of $1.31.  In the final trading days leading up the pricing on April 27th traders paid as much as $3.67 for the shares.  However, underwriters were frightened off, setting the offer price at a NEW 52-week low.

Perhaps there is more to prove than market opportunity…or market opportunity is not what it seems.

One question mark could be the company’s flagship technology.  Ocean Power Technology is on the cusp of commercializing a line of ocean wave conversion systems branded PowerBouy.  The PB3 PowerBuoy is intended for use in remote locations off-shore and can generate up to three kilowatts of peak power.  It comes with an energy storage system that has a 150 kilowatt hour capacity.  As we have noted an earlier article in September 2016, “Navy Buoys Up Ocean Power Tech”, the U.S. Navy has been an early and loyal follower.  The Navy’s product development grant was on top of a deal discussed in an earlier article “Ocean Power Nets A Discerning Buyer” in June 2016, which described a lease of the PB3 by Mitsui Engineering and Shipbuilding.

Thus it seems PB3 PowerBuoy is likely a strong product, built on sound technology and delivering the performance its engineers have promised.  Testing by two high-profile customers provides strong endorsement.  However, the intended applications for the PB3 in remote locations are a long way from “the 40% of the world population that lives 150 miles from the coast.” If the intended market is only in remote locations, market opportunity might not be as suggested by the opening lines of Ocean Power’s prospectus.

Ocean Power has identified four different types of customers:  oil and gas, defense and security, ocean observing and communications.  The ocean is a busy place and there are numerous installations in each of the four categories.  On the plus side, potential customers would be easy to identify and target with marketing and sales campaigns.  Ocean Power is even narrowing its target markets to certain of plum geographies to make the most of its new capital resources.  Then again, demand, especially in the oil and gas sector, might be subject to periodic peaks and lows as each customer group contends with own business cycles.  Perhaps most important, the remote location market will be rife with competing energy solutions, such as solar power, fuel cells or systems using conventional fuel.  Management contends its solutions will be viewed as a cost-competitive solution, and this may be necessary to gain a place at the table.

Investors might now be getting a hint as to why the OPTT offer price was set at a record low level rather than at a high.  Even if market opportunity is not as significant as is implied by the ‘40% of the population’ opening line of the prospectus, Ocean Power may still have a place in the hydrokinetic energy industry.  The company will be among few bringing ocean power solutions to remote installations in those very waters.  That should provide some upside to the $1.30 follow-on offering price.

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

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

The post Ocean Power’s Stock Offering appeared first on Alternative Energy Stocks.

by Debra Fiakas CFA

The last post, Grid Connected Ocean Power, highlighted the claim by the U.S. Navy of the first grid connected ocean power generator in the country.  Two wave power systems have been connected to the electrical system at the U.S. Marine Base in Kanehoe Bay, Hawaii.  The Navy is gathering performance data as part of its on-going program to support renewable energy to perfect system designs, installation strategies on-going maintenance.  That is apparently not enough for the nation’s sailors.  Last week the Navy announced an award of $250,000 to Ocean Power Technologies (OPTT:  Nasdaq) to support the design of a ocean power buoy especially suited for military needs.

Ocean Power Technologies (OPT) already has its PB3 system intended as a continuous power supply to ocean installations such as equipment anchored to the sea-bed or deployed from an ocean vessel’s deck.  Called the PB3, it is deployed near a point-of-use in depths up to one kilometer.  The wave energy is converted to electricity through a direct drive generator that charges an on-board battery pack.   The Navy has already had experience with the PB3.  It was in use off the New Jersey shore during Hurricane Irene in 2011 as part of a demonstration project run by the Navy.  Its power capacity is near 8,400 watt hours per day.

The Navy design contract will take OPT in a new direction.  The new design is to be self-contained and will have no external moving components.  The Navy is looking for a highly reliable renewable power source for mission critical sensors.  The first phase of the contract involves design and testing.  If this phase is completed successfully, the Navy has pledged an additional $500,000 for additional design and testing of the entire power conversion system.

In July 2016, OPT announced its first installation of a commercial version of the PB3 also off the New Jersey coast.  A month earlier the company had signed a lease agreement valued at $975,000 with Mitsui Engineering and Shipbuilding for deployment of a PB3 off Kozu Island in Japan.  Together the two developments bring OPT significantly closer to commercial stage with its ocean power technologies.

OPT is also known for its PowerBuoy system, which can produce output in a range of 350 watts to 15 kilowatts depending upon the installation characteristics.  The PowerBuoy floats on the ocean surface above a seabed anchor.  A float moves up and down with the waves along a central spar, driving a mechanical system that converts the up and down motion to a rotary motion in an electrical generator.  The company had earlier partnered with Mitsui in anticipation of deploying the PowerBuoy at Mitui’s Kozu Island project.  The two companies have been working on an advanced algorithm for assessing ocean wave capture.

The design contract with the Navy is most welcomed by a company that has yet to record product sales let alone profits.  OPT is financed by equity and recently raised $5.3 million in net proceeds from the sale of common stock at $6.75 per share.  At the end of July 2016, directly following the stock offering, the company had $9.1 million in cash in the kitty.  OPT has been using about $3.0 million per quarter to support operations, suggesting there is about nine months breathing room for management.

OPTT shares are among few pure plays on ocean power technology.  With advances in new product development and interest from high-profile prospects, the company might seem promising.  Still investors might be concerned about a $2.5 million contingent liability on OPT’s balance sheet related to settlement of a class action lawsuit.  Although the company expects liability insurance to cover as much as $2.5 million of the original $3.0 million settlement, the liability still casts a shadow across OPT’s balance sheet.

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

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

The post Navy Buoys Up Ocean Power Tech appeared first on Alternative Energy Stocks.

by Debra Fiakas CFA

The U.S. Navy is laying claim to the first electric grid connected wave power generator in the country.  A test site has been set up near military facilities at Kaneohe Bay in the Hawaiian Islands, where wave activity is known to be exceptional.  Yes, Hawaii is part of the United States.  The project consists of two wave-power generation systems or ‘power buoys’ anchored about a half-mile off shore.  The two buoys are connected by undersea cable to the Marine Corps base at Kaneohe and ultimately to Oahu’s electric power grid.

The first of the two buoys is produced by Northwest Energy Innovations.  Its Azura wave energy device was first deployed at the Hawaii test site in June 2015.  The buoy sits atop the ocean with about 12 feet rising above the waves and another 50 feet extending below the surface.  The system weighs 45 tons and uses both up and down as well as side to side motions to generate electricity.  Northwest got help installing the Azura in Hawaii from a contractor, Sea Engineering, which also helped with the assembly and launch.  The Azura was developed in collaboration with Callaghan Innovation, a government agency of New Zealand and Energy Hydraulics Ltd., also located in New Zealand.

It seems that ‘takes a village’ to put a wave power buoy into the ocean.  The corrosive conditions of salt water and the dangers presented by the unpredictable waves and currents present significant challenges for engineers.  Device design, materials, anchoring and grid connections each present unique hurdles. 

The second buoy was developed by Fred. Olsen Ltd. based in Great Britain.  Its Lifesaver wave power system is a 50-foot wide and 3-feet thick doughnut-shaped device, which is anchored to the ocean floor by cables.  It is the action of the cables as the ocean moves that turns the generator.  The Lifesaver was put in place at the Hawaii site in April 2016, with help from Healy Tibbitts Builders and Sea Engineering, Inc.  The smaller of the two buoys, the Lifesaver is expected to generate about 4 kilowatts.

The Kaneohe projects is a first for the U.S., but not a first for the world.  The first grid-connected wave power station in the world was turned on in early 2015 of the coast of Western Australia by the device developer Carnegie Wave Energy Ltd (CWE:  AUS or CWGYF:  OTC/QB).  There are limited ocean power grid connections in the United Kingdom and Norway as well.  The U.S. has remained behind developers in these areas where the engineering community has been quicker to embrace innovation and where public policy has been supportive of alternative energy development.  Over the past decade the U.S. military has invested about $300 million in hydrokinetic research and development, well behind investments in the United Kingdom, Australia and northern Europe.  The Hawaii project has been made possible by financial support from the U.S. Navy, which has interests in reducing energy costs at Hawaii military installations.

The Navy will collect performance data from the Hawaii project in the coming months, which will be used to make adjustments to the power buoys installation as well as to the grid connections.  Northwest Energy Innovations also plans changes in its Azura power buoy to increase electric output from 20 kilowatts to 500 kilowatts.

For now the companies involved in the Navy’s project in Hawaii are all privately held and are beyond the reach of most individual investors.  Wave power is still in the nascent stages and few ocean power projects underway anywhere have reached the point of generating power on a consistent basis.  Some investors might remember solar energy in the 1980s, when solar cells had been proven capable of generating electricity but had not consistently generated profits for any company.  With practical knowledge of system design, construction and operation accumulated, the early companies were eventually able to achieve scale and then began generating consistent income streams.

The realization of a full and complete grid connection in Hawaii makes ocean power more certain for U.S. coastal markets.  In a study commissioned by the U.S. Department of Energy, RE Vision Consulting estimated that the theoretical ocean wave energy resource potential in the U.S. could satisfy more than 50% of the country’s annual demand.  This is a resource that cannot be ignored no matter how challenging the engineering work.   

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

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

The post Grid Connected Ocean Power appeared first on Alternative Energy Stocks.

Tom Konrad CFA

The Growth of Offshore Wind

Offshore wind has finally gotten a toe hold in the United States.  

The United States’ first offshore wind farm, the 30 megawatt (MW) Block Island Wind Farm, is under construction.  A new project, the South Fork Wind Farm will be  three times the size of Block Island (90 MW), is set to be approved by the Long Island Power Authority.  This project will be located 30 miles East of Montauk, NY and Southeast of Block Island in a wind energy area designated by the federal Bureau of Ocean Energy Management (BOEM.)

BOEM also recently designated 81,130 acres of outer continental shelf off New York’s Long Island and New Jersey as a new commercial wind energy area.  This area’s proximity to some of the nations’ most expensive and capacity constrained parts of the nations’ electric grid make it an excellent site for relatively expensive but abundant offshore wind energy.

Both are projects of Deepwater Wind, the country’s leading offshore wind developer.

Offshore Wind Stocks: Over The Horizon

Investors looking for a way to invest in offshore wind will be disappointed to note that Deepwater Wind is principally owned by the D.E. Shaw group, a privately held partnership.  The best investment opportunities in offshore wind stocks are, like offshore wind itself, often located beyond the horizon.

One place to look for stock market investments are the suppliers to wind farms.  Offshore wind turbine suppliers are a natural first choice.

GE (NYSE: GE) is supplying the turbines for Block Island Wind.  Again, this will be a little disappointing to stock market investors.  While GE is a publicly traded company, offshore wind turbines are not a significant part of its business.  The company’s Renewable Energy segment accounts for less than 20% of total revenue, and offshore wind is a tiny fraction of that.

Offshore wind turbines tend to be larger and more rugged than their onshore counter parts.  The large size is due to the expense of foundations, making it important for an offshore farm to generate as much power as possible from each turbine.  A typical onshore wind farm uses turbines with peak power output of around 2 MW each.  Block Island is using just five 6 MW turbines.

These large sizes make it difficult for new entrants to challenge established manufacturers.  This means that offshore wind manufacturers a very elite bunch.  This is good for offshore wind investors because it means that industry incumbents (which are often public) are likely to remain leaders for far into the future.  But it is bad for investors looking for a pure-play exposure to offshore wind.  Offshore wind turbine manufactures simply do not exist without a large onshore wind business to support the investment in manufacturing and R&D.

Most wind turbine manufacturers serve both the onshore and offshore market, but the ones with the biggest names in offshore wind are European players Siemens AG (OTC:SIEGY) and Vestas (OTC: VWDRY). 

It’s not particularly surprising that European manufacturers lead the offshore wind turbine market, since Europe has long been the leading offshore wind market.  Because offshore wind sites are almost by definition accessible by ship, I expect that the early dominance of European offshore wind manufacturers will prove to be more durable than the early dominance of European solar manufacturers proved to be in the early 2000s.

Wires

Another way offshore wind is different from its onshore cousin is the need for underwater electrical connection to shore.  Again, investors will not find pure-play offshore wind companies, but underwater cables need to be strong and durable enough to survive decades under salt water and the occasional encounter with a ship’s anchor or other submarine hazard.

Submarine cables are expected to be the fastest growing segment for electrical cable manufacturers over the next five years.  US-Based General Cable (NYSE:BGC) and European Prysmian S.P.A. (OTC:PRYMF) both have large submarine cable businesses.

Owners and Developers

No article on offshore wind stocks would be complete without a mention of Danish energy giant Dong Energy A/S (Copenhagen:DENERG.)  Dong is a diversified energy developer and utility with a focus on sustainable energy.  The company has long pioneered new offshore wind technology, and is a leading European developer.

Foundations

Much of the investment in offshore wind is under the surface of the water, in the foundations.  Constructing these giant, incredibly strong structures under windy seas is also a technical feat requiring specialized equipment.  Holland’s Sif Group (Amsterdam: SIFG) is the leader in this market, where it gets approximately two-thirds of its revenue.  This makes Sif the closest thing to a pure-play offshore wind company available.  The balance of its revenue comes from foundations for oil and gas.

Conclusion

Offshore wind is a rapidly growing and exciting form of renewable energy, and the established industry leaders have wide moats protecting them from startup competition.  This combination means that current leaders are likely to continue to lead, but it also means that pure offshore wind exposure is difficult, if not impossible to find.  The only stock that is more offshore wind than anything else is Sif Group, and that company’s exposure to oil and gas may be too much for some investors excited about renewable energy.

This article was first published on GreenTech Media on July 19th.

Disclosure: Tom Konrad manages and invests in The Green Global equity Income Portfolio, which owns BGC.

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 Offshore Wind Blows Into The US: Seven Stocks To Catch The Breeze appeared first on Alternative Energy Stocks.

by Debra Fiakas CFA

Earlier this week shares of Ocean Power Technologies (OPTT:  Nasdaq) soared as the company announced its first commercial order for its PowerBuoy hydrokinetic devices.  The order represents a modest $975,000 in potential revenue, but the customer, Mitsui Engineering and Shipbuilding Co. Ltd., provides extra value as a discerning buyer.  PowerBuoys are built to capture the energy in ocean waves to drive an electrical generator.  Power output can be delivered to nearby ocean or terrestrial installations.  With worldwide interests in the numerous marine markets, Mitsui could develop into a large and long-standing customer.

OPTT traded as high as $6.79 in the first hours following the earnings announcement, representing a fourfold increase from the closing price the day before.  Since that first frenzied day of trading with unprecedented volume, things have settled down a bit.  However, it is clear the Mitsui opportunity has resent investors’ views on Ocean Power.

Quick to take advantage of the newly kindled fervor, Ocean Power announced the pricing of a registered offering of common stock.  A total of 417,000 shares with a warrant attached to each will be sold at $4.60.  Each warrant buys about a third of a common stock share at $6.04 per share.  A fortuitously planned shelf registration statement facilitated the fast response.

Ocean Power will take in about $1.6 million in net proceeds after the investment bankers get paid.  This is not a large offering, but just enough to top off the bank account without diluting current shareholders more than necessary.  Management appears to have the view that, even after the dramatic price increase, the shares still do not reflect the long-term earnings potential in Ocean Power’s technology.

Mitsui is leasing the PB3 PowerBuoy which has the capacity to generate 350 watts of continuous power.  The structure floats on the ocean surface from a tethered attached to the ocean floor. As the wave move the direct drive generator, the electrical charge is stored in an on-board battery pack.  Power can be delivered to a nearby marine installation such as an off-shore oil rig or to coastal installations such as a communications network.

Ocean Power expects more to develop in its relationship with Mitsui Engineering & Shipbuilding.  Mitsui is among the largest construction companies in the world, with interests in energy and environmental projects as well as shipbuilding and infrastructure construction.  Mitsui is expected to be a strong advocate for the PowerBuoy if it begins designing the ocean-based power source into its assignments.  Mitsui has recently been trusted to address customer problems in a wide range of projects involving underwater inspection, marine position keeping and deep-sea remote observation.

Indeed, the range of potential applications that Ocean Power sees for the PowerBuoy is as wide as Mitsui’s business interests.  In a recent investor presentation, management outlined multiple addressable markets:  ocean observing, communications, off-shore oil and gas installations, and off-shore wind energy projects.  Likely, the new capital going into Ocean Power’s bank account this week, will be used to reach customers in these markets.

It was impressive that Ocean Power was able to take in capital at a strong price  –  at least from the corporate perspective.  However, one lease to Mitsui  –  and it is a lease, not an outright sale  –  may not be sufficient to support the current price.  Effective execution on market penetration will be the key for OPTT valuation.  It is then important that Mitsui fulfills the promise so many have placed in that relationship  – bringing in a big catch of fish for Ocean Power.

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

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

The post Ocean Power Nets A Discerning Buyer appeared first on Alternative Energy Stocks.

by Debra Fiakas CFA

Three public companies end our series on wave and tidal power development.  Marine and HydroKinetic energy has only recently received enough interest from scientists and engineers to merit an acronym  – MHK.  It is an all-encompassing category, stretching across ocean tides and waves and reaching into the currents of inland rivers and straights.  It is separated from hydropower, which involves the construction of dams to create elevation differences in water levels that can be used to turn turbines.

Still this promising source of renewable energy is populated mostly by small, private companies that survive on government grants and investments from family and friends.  A few angel investors have also found their way to MHK, but minority investors have few options.

Ocean Power Technology (OPTT:  Nasdaq) has been previously featured in our articles.  The post ‘Ocean Powers Up the Big Apple’  on June 26, 2015, described the company’s success in getting permits to place one of its power buoys of the coast southeast of New York City.  In January 2016, the company announced the achievement of milestones in the project, including a generation record of 32 kilowatt hours for a twenty-four hour period.  Most importantly the system is still working despite extreme ocean conditions since deployment in October 2015.

In the twelve months ending October 2015, Ocean Power managed to earn $1.4 million in total sales, mostly from engineering work on development projects.  Of course, still in a developmental stage, Ocean Power reported a deep net loss of $12.7 million.  The company used $12.1 million in cash to support operations during this period, leaving $10.4 million in the bank at the end of October last year.  As much as half of that is probably gone, unless management found a way to bring in more revenue or cut costs.  Indeed, in January 2016, the company received $1.7 million from the State of New Jersey in the form of business tax credits.

Carnegie Wave Energy Ltd. (CWGYF:  OTC/PK or CWE.ASX) is another public company option on wave energy.  The company has patented a novel design for an underwater device that captures energy from ocean current movements.  The device is tethered to the ocean floor and remains below the ocean surface.  The company has spent over $100 million to develop the device and has completed over 10,000 hours of testing.

That price tag can only be justified by a significant commercial opportunity.  The primary application of the device is to power desalination plants on-shore, but excess electricity could be delivered to an electrical grid.  Island applications seem to have merit as well.    Carnegie has partnered with Western Power, an energy utility in Western Australia, to develop a project at Garden Island.  Construction is scheduled to begin yet in 2016 on six of the wave power devices and a desalination plant.  When completed the Australian Department of Defense has pledged to buy the power and water supplies.

Both Carnegie and Ocean Power are priced more like options on their technology than companies with sales and earnings expectations.  For risk averse investors or those with shorter investment horizons that might be required to see these developmental stage companies to full commercial operations, there is an alternative.

Lockheed Martin (LMT:  NYSE) has taken an interest in wave and tidal power generation.  The company has considerable experience in maritime systems and tidal power apparently does not seem like a big stretch for its engineers.  Lockheed is a partner of Atlantis Resources Ltd. (ARL:  LN), which was featured in this post in February.  Atlantis is deploying its proprietary turbine in the largest tidal power project so far off the coast of Scotland.  Lockheed will be manufacturing the nacelle or the business component of the Atlantis tidal turbine and supplying the controls and gearbox.  Then Lockheed will serve as the system integrator and use is considerable balance sheet strength to provide the required project assurances to the owner.  

Make no mistake, LMT is no small-cap company.  Lockheed Martin reported $46.1 billion in total sales in 2015, providing $3.6 billion in net income or $11.46 per share.  Of course, a share of Lockheed is more than a stake in tidal power.   Lockheed is still an aerospace company with additional interests in communications and security technology and services.  Tidal power at its current state of development is merely a drop in Lockheed’s very large bucket.  Some investors might take Lockheed’s partnership with Atlantis as a cue, much like the purchase of shares by an insider.  The logic is that a large company like Lockheed would not bother with a very small company like Atlantis and its tidal power project, it its engineers and planners did not see some potential in the sector.  It could be an appealing investment.  LMT is trading at 16 times the consensus earnings estimate for Lockheed in the year 2016.  The stock also offers a dividend yield of 6.6%.

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.  Ocean Power Technologies and Carnegie Wave Power are included in the Ocean Group of Crystal Equity Research’s Electric Earth Index of company’s developing power sources from the earth.

The post Three Marine and Hydrokinetic Stocks appeared first on Alternative Energy Stocks.

by Debra Fiakas CFA

The last post introduced Atlantis Resources Ltd. (ARL:  LN), a developer of tidal power generation technologies.  Atlantis has been working on a project called MeyGen ofthe coast of Scotland, which is to become the world’s largest tidal stream energy project.  It is a distinctive location where tidal action reaches up to five meters per second.  Atlantis will supply the underwater turbines for the 400-megawatt project, which has received regulatory consent.

Atlantis is not the only tidal power developer to hear the call to the high seas off the coasts of Ireland and Scotland, active waters particularly attractive for tidal power generation.  DP Energy Ireland Ltd. is seeking permits to build a 100 megawatt energy project off the coast of north Ireland near Ballycastle.  DP Energy is a renewable energy developer with far ranging interests in solar, wind and tidal power.  Its Fair Head Tidal project is the focus of a joint venture with Blue Power NV of Belgium, a renewable energy construction company with prior experience in tidal power.

Brookfield Renewable Energy Group and DCNS’s OpenHydro subsidiary are also dipping their collective toes into the ocean with another 100 megawatt tidal power project immediately adjacent to DP Energy’s Fair Head project.  The two companies have formed their own joint venture called Tidal Ventures Ltd.  An environmental impact statement has been completed, but Brookfield and OpenHydro still need to get marine licenses and other permits before moving forward with construction.  Like the Fair Head Tidal project, Brookfield plans to sell to the electrical grid operating in north Ireland.

Investors looking for exposure to tidal power development will find the alternatives few.  All of these developers are private companies and probably accessible only by those investors with the wealth and income to be considered ‘qualified’ investors.

Brookfield’s Renewable Energy Partners LP (BEP:  NYSE) provides an alternative. The shares are supported by a portfolio of renewable power generating facilities, most of which are hydroelectric dams and wind towers.  Purists might be put off by the two natural gas fired power plants in the mix.  Total the Brookfield limited partnership operates plants with a total generation capacity of 6,700 megawatts across the U.S., Canada, Brazil and Europe.  It is expected that once in operation the Tidal Ventures projects to end up on the portfolio.

The forward annual dividend yield on the Brookfield shares is 6.7% at the current price level. A long position in the stock will come at a price as the earnings multiple is 63.1 times the consensus estimate for 2016.

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. DP Energy Ireland Ltd. is included in the Ocean Group of Crystal Equity Research’s Earth, Wind and Fire Index of companies using the power of the planet to generate energy.

The post The Choppy Waters Of Ocean Power Investing appeared first on Alternative Energy Stocks.