NEVs blog

One of the basic premises of Camino is to improve investment decisions by identifying sustainable energy strategies, tracking their performance, and sifting out the winners. Last year I identified Solar and the huge Renewable Electricity strategy.  In Feb 08 I upgraded my view of the fuels market to encompass all Biofuels.  The indices for these strategies include 72 PurePlay companies with market cap of USD 215 billion representing 65% of Camino’s entire database.

Two key insights…..

Since the beginning of the year I have been working to identify other strategies that are developing.  Two key themes keep recurring.  First, the sustainable energy business is primarily about the renewable generation of electricity – inside the meter in the case of Solar, and outside the meter for Renewable Electricity.  Second, improved utilization of electricity is a major, but fragmented trend that has now given rise to our newest strategy, LED and Lighting.

Get used to lumens 
 
In the “old” days I used to measure light in watts, after all, almost all residential lighting was incandescent and of equal, if dismal (about 2%), efficiency.  Now we measure lighting efficiency as lumens/watt.  Flourescent tubes have long been used because of their efficiency (7 – 15%)  but the incandescent bulb hung on in many applications.  Compact florescence lights (CFLs) have such a big increase in efficiency, from about 16 lumens/watt for incandecents to between 45 and 70 lumens/watt, that they have really started to penetrate the market.  This happened despite their initially crummy color spectrum and form factor.  While CFL makers have been improving both of these items they are still fragile and they still have mercury in them.

Enter LEDs…

You can now get a standard LED with a reasonable 54 lumens/watt from Cree and there are research products in the 115 – 150 lumen/watt range.  LEDs have a number of other advantages over CFLs including ruggedness, spectrum, dimming, and longevity.  Unfortunately they cost a LOT more.  Even so, LEDs are becoming a significant factor in streetlights, flashlights, autos, and architectural lighting. Given some time I expect the research efficiencies to reach the market and costs to drop thereby opening up a bigger markets for LEDs. 
 
In fact LEDs and other efficient lighting have succeeded enough to where we now have 9 companies that pass all our index screens with a market cap of USD 10 billion.  This is bigger than Camino’s Biofuel index and the largest of the electricity utilization activities. I now feel the strategy is of sufficient importance to cover.  Hence the LED & Lighting index which Camino has computed since March 31. 

Changes to the site..
 
The Camino company research database and return computations continue to be available to users for free.  It’s a great way to browse the business using some key company attributes. 
 
The research tools and index tracking on Camino have allowed me to take profitable positions in 16 Renewable Electricity companies since October 2007.  The tools also allow me to write my “Week in Sustainable Energy” review.  Because of the growing investment in these tools, and my desire to increase this investment, Camino now makes its core index tracking and risk analytics available for a small fee.  Check out a sample of our new index report for the LED index, or test the site with a free trial.

Camino has reconstituted and rebalanced its PurePlay indices effective March 29, 2008. 

Solar: Two companies, centrotherm  (CTN.DE) and Day4 Energy  (DFE.TO) were added.  DayStar (DSTI) was removed due to its decreased market cap. 

Renewable Electricity:  Five companies,  Ibedrola Renovalbles (IBR.MC), Goldwind (002202.SZ), Hanwei (HE.TO), Novera (NVE.L), and EarthFirst (EF.TO) were added.  Repower (RPW.DE) was removed due to its control by Suzlon.

Biofuels:  US BioEnergy (USBE) was removed due to its acquisition by VeraSun (VSE).

Fuel Cells:  No changes were made to the constituents.

by Mark Henwood 

Twelve months ago biofuels were dominated by companies producing ethanol from corn and sugar cane. The situation is evolving with a growing number of public companies using bio-oil or bio-waste energy sources to compete with a broader range of fossil fuels.  In addition to ethanol producers we now have public biodiesel producers and bio-gas producers.  To reflect this progression we have renamed our index “Biofuels” and expanded it to include companies that use bio-waste, biomass, corn, sugar cane, sugar beets, or bio-oils to produce biodiesel, ethanol, or methane.

As a first step in refining the index we reviewed the market and our database to identify public companies with significant exposure to biofuels. We then subjected the 77 potential companies to our standard PurePlay screens to identify the constituent companies.  Sixteen companies passed our energy source/product, exposure, size, liquidity, exchange, and business type screens.  We have removed Sunopta (STKL) from the index because of their very small (and decreasing) business exposure to ethanol. Five biodiesel producers were added:  Biopetrol (B2I.DE), Brasil Ecodiesle (ECOD3.SA), Gushan (GU), Nova Biosource (NBF), and VERBIO (VBK.DE).  Two biogas producers were added:  EnviTec Biogas (ETG.DE) and Schmack (SB1.DE). 

Sixteen companies are insufficient to construct a properly diversified (5/50 rule) modified market capitalization index so the index continues as an equal weight tracking index.  We expect more companies will enter this area to compete with increasingly expensive transportation and gaseous fuels.  We also note that efforts to produce fuels from biomass, rather than bio-waste or bio-oil, have not yet produced a company able to pass our index screens. In our view a breakthrough is needed to propel this sector beyond the confines of its current resource limitations. 

PS – by bio-oils we mean either plant or animal derived oils.

JASO underwent a 3:1 share split effective closing 2/7/09.  The solar index was adjusted accordingly.

Our fuel cell index kept pace with the broad S&P 500 index this year.   With no significant new entrants the same seven companies passed all our screens and remain in index and the index was rebalanced January 1, 2008.   We exclude Hoku Scientific due to their rapidly declining fuel cell business (six months revenue ending 9/30/07 was off 57% according to their Nov 07 10-Q), their hydrogen based technology, and their continued push into the polysilicon supply business.  

Companies using hydrogen as a fuel source continue their decline in market cap share.  We discussed this trend with Haitham Haddadin of Reuters on August 31, 2007 and Bob Keefe of Cox News on September 9, 2007 and we see no abatement as shown below: 

Source:  Camino Energy

What is the future of the fuel cell segement?  With Ballard’s exit from the auto market  it doesn’t appear to be the major transportation market.  In our view the longer term promise lies with companies using readily available fuels, such as natural gas, but the promise requires significant cost reductions and improvements in reliability.  If these happen, fuel cell’s inherent efficiencies, quiet operation, low emissions, and potential for heat recapture will help the technology find broader markets.

Renewable Generation has shown stong, consistent performance the last two years returning 19.2% in 2006 and 29.0% in 2007.   With low correlation to the broader US market (100 day beta of .328, 500 day beta of .523 against the S&P 500) this sub-sector looks like a good candidate for inclusion in portfolios.  

Recognizing the long term growth in renewable electric generation Camino has expanded its selection criteria to also include companies that supply generation equipment to renewable generators.   This expansion, and growth in the sector, has allowed 19 companies with USD 68.5 billion in market cap to pass all the Camino index screens.  With this number of companies we are now able to use our modified market capitalization methodology for this sector effective January 1, 2008.  Numerical and graphical values represent the spliced result of the previous equal-weight index and the Jan 1 modified market cap methodology.  

The solar industry has undergone dramatic growth in 2007.   Reflecting this growth is an increase from 24 to 33 companies passing Camino’s index screening methodology.  As a result we have decided to discontinue our solar tracking index in favor of our modified market cap index. The index was reconstituted and rebalanced as of January 2, 2008.  

We have computed the index since October of 2007 and back-tested the methodology to April 10, 2007.   Prior to April 10 we spliced the former equal weight tracking index as a good proxy for solar industry performance.   During the April – July 2007 overlap period, as prevously reported in our October 29, 2007 posting, we saw good agreement between the indices. 

With the index representing USD 122 billion in market cap this is the real deal.

The equal weight ethanol tracking index was updated effective January 2, 2008.   After applying our screens the index now consists of ten (10) companies with market cap of USD 8.4 billion.   Abengoa S.A was removed because only about 20% of its business is ethanol related.   Great Plains (GPRE) and BlueFire (BFRE.OB) were removed because their market cap is now below USD 100 million.   Biofuel Energy Corp. (BIOF) passed all our screens and is now included in the index.

Consistent with our index methodology, when needed we will modify our indices between reviews.   In this case PNE3.DE (Plambeck Neue Energien Ag) was removed from the Renewable Genco index due to small market capitalization.   This change resulted from an improvement in our market capitalization computation that more accurately valued the company.   A more complete review of index members for all indices will be conducted during our January update. 

July 27, 2007 – the Camino indices were rebalanced. Three companies were added to the Solar PV producers index: aleo solar AG (AS1.F), Powerfilm (PFLM.L), and ReneSola Ltd (SOLA.L). Two companies were added to the Renewable Gencos index:  Novera Energy Limited (NVE.L) and Plutonic Power Corporation (PCC.V).  No companies were added or deleted from the Fuel Cell or Ethanol indices.