Monday, March 20, 2006

The Sun May Shine Down on Nano-Solar Sooner Than Expected

The promise of nano-solar technology—the application of nanotechnology to the development of solar cells—has received a lot of attention over the last year. By manipulating matter at the scale of a billionth of a metre, scientists believe they can significantly improve the efficiency of solar cells, on the order of a threefold increase in the electric conversion rate over the next decade.

There are a number of nanotechnologies demonstrating real efficiency gains and costs savings in photovoltaic applications, including carbon nanotubes, quantum dots and dye-sensitized solar cells. Dye solar cells (DSC), however, seem to be breaking out of the pack.

Dyesol, listed down under on the Australian Stock Exchange as DYE, is up 300 percent in 2006 and climbed 1,000 percent in February. This week, Konarka, which licenses DSC technology in North America, received $20 million in a private equity investment, raising its capital fundraising efforts to $60 million. In Japan, auto parts maker Aisin Seiki is producing dye sensitized solar batteries. Major semiconductor manufacturer STMicroelectronics announced its intention to ramp up its commitment to a dye solar cell product line.

Dye solar cells are essentially nano-engineered photosynthesis--a nanocrystalline layer of titanium dioxide absorbs photosensitive dye to generate a voltage—that can produce electricity even when the shine is not shining. The technology is demonstrating efficiencies of 10 percent, higher than other thin film solar cells, and can be produced at a much lower cost than silicon solar cells.

Yet amidst all the buzz around solar IPOs last year, the first solar nanotech IPO in August failed to rise above the din. Following an international conference last month, however, international investors started to scoop up shares of Dyesol. Certainly, the solar hype helped. But the real attraction was the appointment of Michael Graetzel—the inventor of dye solar cells—to chairman of Dyesol’s Technology Advisory Board. DSC production is quickly establishing a global footprint.

The major market for these photosynthesis replicating cells is building integrated photovoltaics (BIPV). When I spoke this summer with Toby Meyer of Solaronix, one of Professor Graetzel’s protégés at the Swiss Federal Institute of Technology in Lausanne, his Swiss-based company expected to be in production within 12 months and planned to establish an early market in parking meters and garden lamps. Dye solar cell manufacturing facilities also are being negotiated across Asia, Europe and North America.

Thursday, March 09, 2006

Biofuels Indices and the Globalization of Trading in Biofuels

The first biofuels index was launched this week—the UBS Diapason Global Biofuel Index—by Swiss bank UBS and commodity firm Diapason. The index should allow all parties along the biological fuels chain (Biomass Feedstock Information Network) to increase their exposure to opportunistic fuels that are derived from agricultural and organic waste sources. By providing a pricing benchmark, biofuels producers, consumers and investors can enter into contracts to hedge their exposure to volatile biofuels prices. The index composition is 30 percent ethanol and 29 percent sugar, and smaller weightings in wheat, barley, rice, lumber and a biodiesel component.

The index, to be denominated in USD, EUR, CHF and JPY, also reflects the globalization of the biofuels industry.
Part of the economic case for biofuels has always been the ability to use on-site opportunistic fuels, thereby eliminating fuel costs and the transportation costs associated with natural gas and oil. The leading example is Brazil’s use of its domestic sugar cane industry to make ethanol to power its transportation sector. In today’s high natural gas and oil price environment, however, it is becoming more economical to ship biofuels across the world’s oceans like oil and liquefied natural gas (LNG).

A recent BBC article says that Japan wants to import six billon litres of Brazil’s ethanol by 2008. The exporting of wood chips to Europe for use in power generation is becoming a growing business for Canada’s lumber industry. Closer to home, President Bush estimates that the United States’ sizable surplus of wood chips and switchgrass could meet 10 percent of energy needs one day. Yet until the US and Europe divert more of their lumber resources to biofuels and as long as energy prices remain high, Canada’s lumber industry has a captive market for its residual waste. The BBC article estimates that oil would have to fall to $35 a barrel to compete with ethanol.

While there are ethanol, sugar and many other major commodity indices that capture biofuel stocks, the biofuels index provides an important global price benchmark to help reduce price risk in the growing international trade of biofuels. The next development will be a futures market in biofuels, in the same way that we trade futures on ethanol or blends of oil on commodity exchanges today. It’s all good. An increase in financial instruments available to manage volatile price risk in the biofuels market will result in an increase in the usage of carbon neutral commodities.

Friday, March 03, 2006

Alternative Energy: A Review of Technologies & Investment Vehicles

A Wells Fargo report Identifying the Opportunities in Alternative Energy has received a lot of attention this week. After reviewing the report, I think it is worth mentioning again. It provides a good overview of investment opportunities in the alternative energy sector.

You can access the report at: https://www.wellsfargo.com/downloads/pdf/about/csr/alt_energy.pdf

Wednesday, March 01, 2006

Clean Coal: The Economics Work

The selection by the US Department of Energy of FuelCell Energy (NASDAQ: FCEL) to participate in its clean coal program has significant upside potential for the maker of solid oxide fuel cells (SOFC). Clean coal is a controversial clean technology. Yet the reality is that the world has a lot of coal and its major energy consumers, including China and the United States, have placed clean coal at the center of their clean energy strategies.

The economics of the SOFC power plant are attractive. FuelCells is targeting 50 percent energy efficiency. The fuel source, coal, is cheap at a few cents per kilowatt hour. Furthermore, in prototypes such as the DOE’s FutureGen—a 275 MW coal-fueled zero emissions power plant—carbon capture and storage is part of the SOFC-based model. CO2 sequestration can add another 3 – 5 cents per kwh. Additionally, there are many ultra-clean spin-offs or value-added processes from coal derivatives, including sulfur-free diesel and hydrogen.

The technology and economics work. However, if dirty coal wants to come clean, it also has to invest in human capital and make coal mining safer.

Friday, February 24, 2006

Sector Targeting Clean Technologies

Several new clean technology indices were announced over the last month. The Cleantech Capital Group’s CleanTech Index (CTIUS) launched on the American Stock Exchange this week. In January, Cronus Capital Markets (CCM) and the International Securities Exchange launched the ISE-CCM Alternative Energy Index (POW). ISE is the largest equity options exchange in the world. WilderShares announced it is launching a global clean energy index—the Clean Energy Global Innovation Index (NEX) —together with New Energy Finance. WilderShares introduced the first cleantech index, the Wilderhill Clean Energy Index (ECO), in August 2004 on the American Stock Exchange.

Closely tracking the emergence of cleantech indices is the trend toward exchange traded funds (ETF). In February 2005, PowerShares launched an ETF that tracks the WilderShares index, the $250 million PowerShares WilderHill Clean Energy Portfolio. WilderShares also plans to launch an ETF to track the new global fund. 2005 saw a movement of socially responsible investment funds into exchange traded funds. Clean technology funds are expected to follow and may be the better place to put your money. An article this month in Ethical Investing suggests that investors who apply more than one social screen to SRI investments tend to see poorer performance. In other words, the number of social screens is closely correlated with returns. The PowerShares Wilderhill ETF is up 70 percent since its inception a year ago. In contrast, SRI funds are up 11.3 percent and the Standard & Poor’s 500 Index 10.3 percent over the same period.

Wednesday, February 22, 2006

Fuel Cells Firing Up Homes & Stocks

Australia’s Ceramic Fuel Cells Limited listed on the Alternative Investment Market this week. CFCL makes solid oxide fuel cells for use in combined heat and power (CHP) applications. The company’s plan is to capitalize on the attractive subsidies for residential CHP systems in Europe by locating a plant in the north of England. In the meantime, Ceramic Fuel Cells is diversifying its revenue streams. It has just partnered with Precision Flow Technologies to manufacture and market fuel cell test systems.

What is notable about this initial public offering is the number of large investors. Over 90 institutional investors participated in the oversubscribed deal, which raised $65 million. All in all, investors were in love with residential fuel cells this week, an early commercial market. Ballard Power Systems was trading high ahead of reporting a 1 1/2 fold increase in sales to the power generation market. It markets the leading natural gas powered fuel cell used in residential cogeneration applications in Japan. Ballard’s 1kw fuel cell captured 43% of the Japanese market in 2005.

Friday, February 17, 2006

Clean Energy Mines for Gold on AIM

Following up on my microwind power posting last week, some of you asked how you can invest in this sector. Of the 10 companies mentioned in the article, only Clipper Windpower is public. The California-based company began trading on the Alternative Investment Market (AIM) in London as CWP in 2005.

And that brings me to my next topic, the Alternative Investment Market (AIM). The listing last week of Biodisen Biotech, a Chinese maker of environmentally friendly fertilizers and pesticides, is a sign of AIM’s growing attraction to clean technology companies. More Chinese cleantech is venturing abroad. Notably, Chinese solar company SunPower (NYSE: STP) was the top technology IPO last year.

The AIM difference is that the subsidiary of the London Stock Exchange has become the place for earlier stage, entrepreneurial companies to gain access to the public market. There is no minimum listing requirement or outside regularly review on AIM. In addition to Clipper Windpower, other US-based clean technology companies listing on AIM over the last year include Polyfuel (PYF.L) and Solar Integrated Technologies (SIT.LN). All of these IPOs were oversubscribed.

In 2005, KPMG reports that UK initial public offerings were up 40 percent to 307 in 2005 over 2004, reaching 2000/2001 levels, while US IPOs fell 14 percent to total 206 deals. Of the UK IPOs, 207 were on the AIM market and 20 on LSE’s main market, raising £3,442 million and £5,091, respectively, reflecting the smaller sized deals on AIM.

Although AIM may be better known for its junior mining and oil exploration companies, more clean technology companies are expected to take advantage of the strong appetite for IPOs in Europe. Other cleantech companies venturing to Europe’s AIM include Australia’s Ceramic Fuel Cells Ltd. (ASX: CFU) and another microwind power IPO is rumored. It is worth noting that microwind turbine makers like Bergey Windpower and Southwest Windpower have been installing their wind turbines throughout the world for almost two decades. We may also see some new wind issues on the big boards.

Sunday, February 12, 2006

Wind Goes Urban

Wind turbines are going urban. Micro-wind turbines (up to 3 kW) aligned in rows on top of city buildings may not only prove to be cheaper than large-scale wind turbines but could soon compete with low-cost nuclear power. Global sales of large-scale wind turbines, 500 kW and above, are growing at an average annual rate of 30 percent plus. Analysts expect the growth rate of micro-wind turbine sales to quickly eclipse that of other renewable energies.

The small-scale wind sector is receiving a lot of attention as cities such as Manchester, England begin to install the first micro-wind farms on rooftops. In the United States, a recent C-Net article states that Chicago, Illinois-based Aerotecture is in negotiations to place micro-wind farms on top of the Daley Center in Chicago and under the Golden Gate Bridge in San Francisco. Additionally, Atlanta, Georgia-based Ecoloft will be the first condominium development powered by wind.

As the urban wind concept takes off, micro-wind will benefit from economies of scale in production, according to a study by the Association for the Conservation of Energy, which concludes that micro-wind can ultimately compete with nuclear on costs per kWh—2 to 3 cents--in addition to the avoidance of costs associated with grid investment, transportation and distribution. Large-scale wind turbines can generate electricity at a cost of 5 cents/kWh today, down from 30 cents/kWh in the 1980s. Micro-wind turbine costs may initially range between 4 and 6 cents/kWh

Some of the companies gearing up to harness urban wind include Abundant Renewable Energy, Bergey WindPower, Clipper Windpower and Southwest Windpower. The CNet article also mentions Windside (Finland), Windsave (UK), Renewable Devices (UK) and Urban Turbines (Dutch).

Tuesday, February 07, 2006

Taking Stock of Ethanol Crops

In his fifth State of the Union address, President Bush finally fessed up, “…we have a serious problem. America is addicted to oil, which is often imported from unstable parts of the world.”

In reality, the United States has been hedging its oil exposure for many years with billions of dollars in investments across a wide range of alternative energy technologies. However, in announcing the Advanced Energy Initiative, which plans to up investments in clean energy research by 22 percent, the president’s main focus was on weaning America off its oil dependence by upping its use of ethanol to fuel automobiles.

America’s corn belt has been an enthusiastic promoter of ethanol derived from corn, but the government also wants to develop a market for cellulosic ethanol, the non-food parts of grains and other cellulosic material—such as “wood chips, stalks and switch grass”—that can be produced and burned with lower pollutant emissions and at a lower cost. The objective is to see the price of cellulosic ethanol competitive with gasoline within six years.

While ethanol-related stocks soared upon the early release of the State of the Union Address and Bush’s ethanol plug, there are, in fact, few pure ethanol plays. Nonetheless, the media has been abuzz with ways in which investors can get an ethanol fix.

Cellulosic technology—Fortune magazine cites several biotech companies that are improving the cost and efficiency of producing ethanol with low-cost enzymes that speed up the fermentation process. It is not easy for the individual investor to invest directly in these companies today. Genencor went public in 2004 but is now part of Danish food and feed producer Danisco. Canada’s Iogen Corporation is partly owned by Royal Dutch Shell, clearly an oil over an ethanol play. However, do not be surprised to see spin-offs and IPOs to tap the growing potential in ! the bio-enzyme market. It is a safe bet that BC International, part of Vinod Khosla’s growing ethanol venture capital portfolio, Khosla Ventures, is being prepped for a private sale or public offering.

Biorefineries-Pacific Ethanol, the only biorefinery pure play, was the media darling Monday as it soared ahead of the president’s address. It also was the first stock to fall amidst the profit taking in alternative energy-related stocks that followed. It may be worth riding out the volatility, though, as the West Coast’s largest ethanol producer brings five more plants online.

Farm equipment-MSNBC has been sweet on Deere (DE) and Agco (AG) this week; both companies expect to see high demand for the machinery that plants and harvests biofuel feedstocks.

Corn and ethanol marketers- High oil prices and advanced technologies that are driving down the costs of producing ethanol will continue to contribute to attractive margins.

The best ethanol play is likely grain futures. Ethanol futures this week were moving on hard supply and demand numbers rather than the presidential-speak that boosted alternative energy stocks. The Chicago Board of Trade launched a corn-based ethanol futures contract in 2005.

This blog does not endorse the specific stocks mentioned. Stocks are cited for the express purpose of supporting the discussion of general investment trends.