Archive for the ‘Indices’ Category

Effective 9/1/2013 I’ve stopped computing indices for these sectors.   I’ve concluded that the clean energy sector isn’t a separate asset class and as a result it doesn’t fit into my investment framework.   That said, for those interested in investing in this sector there a plenty of ETFs available for sector specific investment in solar and wind (sort of) and broader based collections of “clean energy” companies.  You can find all of these under the Equities menu at www.newenergyview.com

Mark

 

I’ve been busy so I haven’t updated the underlying company data since 5/28.   So when I ran a few queries today to perform an update I found a large number of OTC companies were now valued under $1 million USD and had sunk into un-traded status.  With the blush off the sustainable energy business I don’t think many, if any, of these small OTC companies will develop.  As a result I’ve pruned my database of these firms and I’m now tracking 303 companies.  So after years of development, the sustainable energy business, in the aggregate, represents 27% of the market value of Exxon Mobil.

Why do I say the blush is off the sustainable energy business?   Here are a couple of quick reasons:

  • shale gas in the US is providing a clean, low cost energy supply that is directly competing with renewable electric generation.  One location where I generate electricity had the “Short run avoided cost”  electric price for May set at less than $20/MWh!  This super low prices stems from cheap gas,  tons of efficient combined cycle generation in the western US, and locational marginal pricing penalizing a rural location.  Try to generate anything, much less solar or wind, at that price level.
  • budget problems everywhere are affecting subsidies and subsidies are what have gotten the sustainable energy business rolling, and
  • the growing realization that no progress is being made, or frankly is likely to be made, on green house gas emission reductions is leading to diminished support for the subsidies  supporting higher cost low-carbon sources.  The subsidies aren’t just high tariff rates but also RPS programs and cap-and-trade programs monetizing RECs.

That said, there has been a lot of progress made,  particularly in the electric generation arena.  Wind and solar are now more efficient and lower cost then ever before.  And of all the renewables they have proven to be scale-able to a meaningful size.   It also possible that EVs will able to improve their competitive position against gasoline / diesel internal combustion engines.  EVs work, it just a matter of cost.  And sustainable energy has real value as a hedge against the inevitable price excursions in the fossil markets.

I just took a look at the universe of 89 solar stocks in my database.  At the end of the Panic of 2008 only 23 companies passed my screens for index tracking.  Running the screens today, I pass 38 companies, a dramatic increase in investable firms.

The screens are typical for creating an index:  the energy source is solar, the product is PV related or electricity, the market cap is greater than  USD 150 million, over 50% of the business is from solar activities, the firm trades on a recognized (non-OTC) exchange for over 6 months, at least .25% of the shares trade on average over a three-month period with a daily value of at least USD 250,000.

I also eliminate companies from consideration that were previously tracked but have fallen below USD 100 million in market cap.  The four firms that failed this test are Energy Conversion [ENER], Solon [SOO1.F], Solar-Fabrik [SFX.F], and Evergreen [ESLR].

There are  4 new firms I track in the solar sector with market caps greater than USD 1 billion.   The largest, GCL-Poly [3800.HK]  is nearly as large at First Solar [FSLR].  The three other new billion club members are SMA Solar [S92.DE], GT Solar [SOLR], and Hanan Xindaxin [300080.SZ].

For a complete list register on the NEV research site and look at the Solar sector report.

I’m seeing some interesting shifts in the solar sector.  With 67 solar IPOs from 2005 through 2010 (where there were 10),  there have been no IPOs in 2011.   We are also seeing an increasing number of firms entering the wholesale power generation business and cell prices have fallen.  (It’s a lot easier to sell in volume with 1 – 10 MW wholesale projects versus 5 kW end-use projects).  The industry is maturing, but still very dependent on governmental support as evidenced by Energy Conversion’s woes in March when a shift in subsidies in France and Italy crushed revenue.   In North America, the shift to wholesale generation puts PV in direct competition with super-efficient combined cycle alternatives burning shale gas.  That said, the downward march in prices, and the larger stable of companies represents significant progress in the sector.

 

 

While I track 53 companies that produce some form of biofuel, most of these companies don’t pass a basic screen for investment and hence inclusion on NEV’s BIOFUEL index. For a specific stock to be included the company has to (1) generate a material portion of its revenue, generally over 50%, from sustainable energy activities, (2) have a total market capitalization (not float adjusted) of at least $100 million USD at the time of inclusion, (3) trade on a recognized exchange for at least 6 months, and (4) have adequate trading volume for reasonable liquidity. We exclude companies that are in bankruptcy or are publicly traded project finance vehicles.

Until recently the group that passed these screens had shrunk to just 8 companies. But one of the companies that I had been forced to remove a few years ago has staged a comeback and now has nearly 500 million USD in market cap. As a result we have expanded the index to include Green Plains Renewable Energy [GPRE] as of 4/26/2011.  Amyris [AMRS] is a candidate for inclusion but currently is an R&D stage company and our experience has shown that companies at this stage present additional risks that make them speculative for investment purposes.

Registered users of New Energy View can see the complete list of companies by going to the Research > Company Search  tab and filtering for companies producing biodiesel, biofuel, biogas, biomass, ethanol, methane, or plant oil.

Calpine (CPN) is a great company.  Occasionally I see Calpine listed when geothermal companies are being discussed because of their 725 MW of geothermal at the Geysers.  But for sustainable energy investors its exposure to renewable technology is too small to include Calpine in an investment strategy.   Of their 28,549 MW of capacity, only 2.6 % is renewable with the balance being combined cycle or simple cycle peaking turbines.   As a result I’m removing coverage of Calpine from my database.

That said, their emphasis on natural gas fired combined cycle plant may payoff big.  Continued moderation in natural gas prices driven by the shale gas boom, low capital costs, high generation efficiency, and low air and carbon emissions present big opportunities for combined cycle developers.  Not only is it a strong candidate to supply new MWs, but combined cycles may replace the aging coal fleet at lower cost then air and carbon capture retrofits.   IMO this is one of the best carbon reduction opportunities in the near term.

Effective Sept 1, 2010 our equal weight fuel cell index was updated.  The index still has the same six companies with aggregate market cap of about USD 500 million.   The sector continues to have trouble in public markets.  On June 21, 2010 Protonex Technology Corp (PTX.L) was delisted from the London AIM market.

E5G.DE and KHD.TO were removed from their respective indices following their acquisitions and the SOLAR and RELEC indices were rebalanced.   The RELEC index currently has 19 companies, just sufficient to meet limit requirements (i.e individual companies representing over 5% of the index will in the aggregate will not exceed 45% of the index) on modified market cap indices.

The RELEC index is comprised of wholesale producers of electricity, and their equipment suppliers, using renewable energy sources, currently bio-waste, biomass, geothermal, hydro, ocean, and wind.  We do not include diversified utilities that have some renewable generation portfolio and as a result the universe of eligible companies is smaller that those used to comprise the FAN and PWND ETFs.   We made this choice to have a clearer focus on the business of renewable energy.   We’ll keep looking to see if we can expand the companies incuded in the index.

In one word, returns.   For three years the main Camino Energy site has been computing returns for:

  • Camino’s  five indices,
  • Market Comparables (that would be used in a diversified portfolio),
  • Sustainable ETFs, and
  • actively managed Sustainable Mutual funds.

Suprisingly, the page with this data is  infrequently visited so I have relocated the page to the highest level menu, Market Returns, to create greater visibility to the investment community.  I’ve also expanded the coverage to include a couple of additional ETFs and the nuclear ETFs.

A quick perusal of this year’s returns shows a rocky start for the sustainable business.  While the market comparables (ex commodities) are all positive YTD, the Sustainable Mutual funds and the Wind/Solar ETFs are all negative.  A couple of the broader based ETFs are positive, most notably the PowerShares Global Progressive Transportation (PTRP) ETF is up 7.3% through April 23rd….interesting.

The publicly traded fuel cell industry continues to have problems.  The latest change affecting Camino’s index is the delisting of Medis Technologies from the NASDAQ to the Pink Sheets on 8/25/2009.   We have removed Medis from our equal weight index which now contains just 6 firms.    These firms are headquartered in four different countries and have an average market cap of USD 142 million.

The correction started by the “Panic of 2008″ continued with the broad US market falling until March and then rallying to finish out the first half of 2009 close to neutral.  The S&P closed 7/2 down 0.76%  YTD (excluding dividends). 

In general, sustainable energy stocks followed this pattern but were bid up more then the broader US market and posted some strong gains YTD as shown in the summary below.   In particular, Camino’s LIGHT index posted nearly doubled indicating this strategy may have potential.  See my previous post  about LIGHT and I’ll comment more on this later. 

Even with these gains, this volatile sector still has a long way to go to erase last year’s steep declines.