Now if the US could just build the wind turbines to actually generate the electricity…

Brian and Jacob talk about floating wind turbines, a kindler, gentler Burger King, and what the Discovery Channel left out of Frozen Planet.

An airborne wind turbine that uses 90% less mass than conventional wind turbines picks up $3 million in funding from the Energy Department’s ARPA-E program.

Nuclear power phase outs, good and bad news there; Obama backs fracking; and another look into whether or not wind turbines have much affect on human health. Here’s what we’re reading this morning:

Flickr/CC BY 3.0

In the same way that solar panels are getting more efficient at converting sunlight into electricity, wind turbines are also getting better at harnessing the wind. There are two main levers that engineers can pull to squeeze out improvements: 1) Modifying the physical characteristics of the turbines, such as the shape of the blades, the components inside th…Read the full story on TreeHugger

Tom Konrad CFA

It’s not often that I come across a new type of renewable energy and
think, “This could really work.”  But that’s what I thought
when I heard the concept for the downdraft tower proposed by href="http://www.cleanwindenergytower.com/">Clean Wind Energy
Tower ( href="http://www.altenergystocks.com/comm/content/windtower/">CWET.OB.)

First, a couple caveats.  The concept is not new, it’s been
around 25 years in draft form.

The physics is
simple.  Build a very tall, hollow tower in a hot, dry climate;
cool the air at the top with a mist of water (even salt water will
work), and capture the resulting energy from the downdraft with an
array of wind turbines arranged around the bottom.  Most of the
water is condensed at the bottom of the tower, and (since it has
been effectively distilled) used as fresh water, a valuable
commodity in the dry regions that are appropriate for downdraft
towers.

src="http://www.altenergystocks.com/archives/Downdraft%20Tower.PNG"
height="519" width="347">

Because the tower needs to be extremely tall in order to make the
downdraft strong enough to generate electricity economically, the
tower also features vanes designed to direct prevailing winds down
to the base to be captured by the same turbines.

The company expects that the combination of generation from
prevailing winds and the induced downdraft wind will combine to give
the tower a capacity factor in excess of 60%, much higher than
typical solar or wind capacity factors, while most of the power will
be produced in the afternoon and evening during spring, summer and
fall, meaning that this power is likely to be more valuable to
utilities than either wind or solar photovoltaic. 

The reason no one has attempted to build a downdraft tower before is
that we did not have the technology to build a tall enough
tower.  Now we do.  In particular, the Kroll self-erecting
cranes used to build such href="http://www.constructionweekonline.com/article-6890-last-burj-dubai-crane-comes-down/">skyscrapers

as the Burj Dubai, along with other construction methods used
to keep such extremely tall skyscrapers upright in strong winds and
earthquakes.

I spoke briefly with Ron Pickett, CWET’s President and Stephen
Sadle, the firm’s Chief Operating Officer at the Modern Energy Forum
in Denver in early September, and I got the impression that the two
men are used to success.  They, and two others of their team
have worked together on four successful start-ups, from telemedecine
to the incineration of municipal solid waste recycling.

This time they’re thinking bigger: The commercialization of a new
clean energy technology.  Although they are careful to stress
that they are simply combining and commercializing proven
technologies, I find it hard to believe that they will be able to
raise the funding necessary to build their demonstration tower in
the current environment.  Bond investors are generally
unwilling to fund anything that seems even remotely new, a problem
that might have potentially been overcome  by a program like
the DOE loan guarantees, but it’s unlikely that anything resembling
that program will be authorized in the next few years considering
the current Solyndra brouhaha.

I hope I’m wrong and they do get the money they need to succeed,
since this downdraft tower concept has the potential to be a
valuable addition to our clean energy arsenal, but at this point, I
can’t recommend small investors buy the stock.

DISCLOSURE: No Position. style="font-style: italic;">


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.

Tom Konrad CFA

Dumpster diving for high yielding
gems.

An href="http://www.forbes.com/sites/tomkonrad/2011/08/04/trash-stocks-trashed-an-income-opportunity/">earlier

version of this article was written at the end of July and
published on my Forbes blog, before the August market implosion.
I’ve updated it here to reflect the new stock prices and some
recent company news.

Renewable energy has many advantages over fossil energy.  One
of the most important is that it’s renewable.  As supplies of
Oil and other fossil fuels are used up, they become harder and more
expensive to extract, while renewable energy is generally getting
cheaper over time, due to improving technology.

Unfortunately, while there is no real limit to how expensive fossil
fuels might become, as we start using more and more renewable
energy, we will start running into resource constraints which will
eventually end the decline in renewable energy prices.  Where
fossil energy uses a small capital investment up front, followed by
a long tail of fuel cost, renewable energy requires a large capital
investment up front, followed by little or no fuel cost. 
Unfortunately, that up-front capital investment is not just money:
it’s an investment in capital equipment such as solar panels or wind
turbines using much more raw material than an equivalent fossil fuel
plant.

Commodity prices are already high and rising higher because of
buoyant demand in developing countries.  The transition to
clean energy will only accelerate this trend, as old fossil fuel
based generation is replaced with new renewable energy that require
a far larger investment of industrial metals.  This is what
Jeff Vail calls the Renewables

Gap, and John Petersen calls the href="http://www.altenergystocks.com/archives/2011/06/the_alternative_energy_fallacy_1.html">Alternative

Energy Fallacy.  We cannot transition to clean energy
without making other significant changes to our economic system: the
resources in energy and raw materials are not there.  In
reality, we must make those changes, because we simply do not have
the resources to transition to clean energy while continuing
business as usual.

Commodities and Trash

Rising commodity prices have recently been hurting waste haulers
even as volumes fall during the recession.  On July 28, href="http://www.altenergystocks.com/comm/content/waste-management/">Waste

Management (WM) missed Q2 Earnings expectations by $0.12,
earning $0.50 per diluted share.  Waste Management’s CEO, David
Steiner, attributed a $0.04 earnings shortfall to increased
operations and maintenance due to rising commodity prices in the href="http://seekingalpha.com/article/282820-waste-management-s-ceo-discusses-q2-2011-results-earnings-call-transcript">earnings

call, yet “[h]igher commodity prices, improved recycling
volumes, acquisitions and year-over-year yield increases contributed
to the [year over year] revenue growth.”  Overall volumes
dropped due to a slower economy, and management attributed a decline
in revenues to this, in addition to increased competition. 

The other side of rising commodity prices is not a cost, but a
revenue source.  This comes in two forms: Recycling and
Waste-to-Energy.  Waste Management is expanding in both these
areas, with significant waste to energy operations, which benefit
from rising energy prices, and recycling operations, which benefit
with rising prices for recycled paper, plastics, and metals. 

Stocks Trashed

While Waste Management has fallen from around $36 to below $30 (17%)
because of the earnings miss and market decline, another waste and
water purification stock I follow, href="http://www.altenergystocks.com/comm/content/veolia-environment/">Veolia

Environnement SA (VE) has been much worse hit, falling from
$26 to $15 (42%) because of href="http://www.reuters.com/article/2011/07/29/veolia-idUSLDE76S08520110729">
lower guidance related to restructuring because of declining
volumes, href="http://www.reuters.com/article/2011/08/04/veoliaenvironnement-idUSLDE77308620110804">plans
to downsize, and an accounting fraud in its US division. 
Veolia has been hit by declining volumes and increased competition
in the US, as well as European economic woes. 

Yet both Waste Management and Veolia are high yielding companies,
and are beginning to look tempting to income investors as dividend
yields are pushed up by declining stock prices. Unfortunately,
Veolia’s restructuring could easily lead to a dividend cut since the
company already distributes most of its earnings to shareholders in
the form of dividends, and this could lead to a further fall in the
stock price, if it is not already priced in. 

Progressive Waste Solutions ( href="http://seekingalpha.com/symbol/bin">BIN) also missed
second quarter earnings, a shortfall the company blamed on bad
weather.  The stock fell further than many others in the recent
sell-off because much of it’s revenue comes from Western Canada,
where the economy is heavily dependent on the oil fields.  But
I seriously doubt that oil price declines will come anywhere near
the levels needed to seriously dent the oil sands boom, so
investors’ fears over oil seem to be providing a buying opportunity
in this stock, as outlined in a href="http://online.barrons.com/article/SB50001424052702304576504576512673365787688.html?mod=BOL_da_wt">recent

Barron’s article.

The downtrend in waste stocks has been industry-wide, with the href="http://www.altenergystocks.com/archives/2011/05/wste_not_want_not_1.html">
Global X Waste Management ETF ( href="http://www.altenergystocks.com/comm/content/waste/">WSTE)
having declined 18% over the last three months, while the S&P
500 index has declined less than 15%.  This under-performance
is surprising in an industry which is often considered a defensive
play.

href="http://finance.yahoo.com/q/bc?t=3m&s=WSTE&l=on&z=l&q=l&c=spy"> alt="WSTEvSPY.png"
src="http://www.altenergystocks.com/archives/WSTEvSPY.png"
style="border: 0px solid; width: 515px; height: 223px;">

Safe Income From Trash?

While I’m tempted by the high current yields, I want to be sure that
the companies can easily cover their rather high dividends with
earnings going forward.  I’d like a stock with a high dividend
yield, but with that dividend well covered by earnings and Free Cash
Flow (FCF).  I’m also looking for a low leverage ratio (debt to
equity,) so that the effects of any future decline in revenues will
have only a moderate effect on earnings.  Below, I show
dividend yield compared to three years of earnings yeilds and
estimates as well as trailing FCF yield and debt to equity ratios
for several waste management stocks.

As long as earnings and FCF yields are comfortably higher than the
dividend yield, the company in question should be able to continue
to pay (or even increase) the dividend.
src="http://www.altenergystocks.com/archives/Waste%20Co%20Stats.png"
height="614" width="519">

Data Source: Yahoo! Finance

As I noted earlier, while Veolia has an attractive yield of almost
10%, but with earnings and Free Cash Flow yields only slightly
higher, and FCF far below, Veolia will probably have trouble
maintaining its dividend if the fierce competitive environment and
low waste volumes persist or worsen, with 84 cents of every dollar
earned being paid out as dividends.  With a Debt to Equity
ratio of almost 200%, the company is quite vulnerable to further
drops in revenue, although they may be able to pay off some of this
debt by selling divisions as part of the downsizing. 

Waste Management’s dividend payout is also higher than I would like
at 64% of earnings and 67% of free cash flow, but the lower debt to
equity ratio makes this more manageable, so I expect they will be
able to maintain the current dividend.

Of the other companies listed, both Republic Services and
Progressive Waste are beginning to look attractive because their
lower dividends (at 3% and 2.5%) are very well covered by earnings
and cash flow, and their low debt means that earnings will be more
resilient in the face of a potential continued revenue
decline.  On the other hand, if earnings continue to grow as
projected, these two companies have plenty of room to increase
dividends further.

Conclusion

The falling volumes and increased competition in the waste
management industry, along with the last few week’s market decline
have made these stocks into attractive income investments. 
Since the sector has a href="http://seekingalpha.com/article/270758-republic-services-a-trash-stock-worth-picking-up">
reputation for earnings stability, the recent earnings misses
and revisions have hit investors particularly hard, leading to
potential buying opportunities.  Nevertheless I feel there is
still room on the downside, so it’s probably better to dip a toe
into the trash bin rather than engaging in full scale dumpster
diving. 

The most attractive names right now are Waste Management and
Republic Services, while Veolia’s gigantic dividend will tempt
braver investors, and Progressive Waste is probably worth including
in a portfolio for additional diversification.  I have a bias
toward Waste Management and Veolia because they have stronger
focuses on recycling and waste-to-energy, which I believe will serve
them well if commodity and energy prices continue to rise due to
growth in emerging economies. 

DISCLOSURE: Long WM,BIN.

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.

By David Anthony and Ken Brown   Wind turbines capture the energy contained in wind.  The turbine rotates a shaft which powers an electric generator.  The electricity that flows from the generator can go to the wind farm’s grid connection to be consumed immediately or go to storage.  We have previously discussed the advantages of [...]

Image via YouTube screengrab.

This week, office solutions company Ricoh unveiled what it is calling the “eco-board” – a billboard powered entirely by solar and wind power in London. Situated on the M4 motorway, the billboard is equipped with 96 solar panels and five wind turbines, and it only lights up when it has produced enough energy to do so. It’s not the first of its kind, though- Ricoh has already installed similar billboards in New York and Sydney….Read the full story on TreeHugger

Tom Konrad, CFA

Last week, I asked three green money managers if they thought
cleantech stocks, especially solar and wind sectors were near a
bottom.  While they did tell me about href="http://www.altenergystocks.com/archives/2011/07/eight_cleantech_value_stocks_1.html">eight

cleantech value stocks, they were href="http://www.altenergystocks.com/archives/2011/07/money_managers_see_value_in_cleantech_sector_but_hesitate_to.html">not

ready to call the bottom.

Commoditization in Clean Energy

In response to my questions, Rafael Coven, the manager of the
Cleantech Index ( href="http://finance.yahoo.com/q?s=%5ECTIUS&ql=0">^CTIUS),
which is the index behind the Powershares Cleantech Portfolio ETF ( color="#000080"> href="http://www.altenergystocks.com/comm/content/pzd/">PZD,)

told me that he and his colleagues at the Cleantech Group

“are continually reminded how fast certain sectors have
product commoditization, where intellectual property isn’t strong
enough to differentiate products sufficiently, then prices have
been collapsing  even faster than we had anticipated. 
This is true for smart power meters, solar panels, wind turbines,
and most lighting products – especially LEDs. … Sector growth
doesn’t necessarily mean that many companies will make economic
profits in LED lighting or solar PV.”

In other words, Coven sees the decline in solar PV stocks to be a
consequence of changing market structures.  If he is right,
there is no reason to expect investors in sectors which have
experienced the rapid commoditization to ever recover their
losses.  Just because these stocks look cheap based on historic
earnings, they could easily continue to fall.

Spencer Hempleman, a partner and clean energy portfolio manager at href="http://ardsley.com/">Ardsley Partners in Stamford, CT
thinks similarly.  He says,

“[S]olar and wind have underperformed the more broadly
defined cleantech sectors because China is subsidizing the
manufacturing ramp of those industries and creating
overcapacity.  Commensurate with pricing pressure due to the
supply and demand imbalances are raising commodity costs like
steel, silver, copper etc which pressures margins for solar and
wind manufacturers throughout the value chain.”

Other Structural Problems

Commoditization is not the only potential structural problem in
clean energy.  I also corresponded last week with href="http://www.wildershares.com/wilder.php">Robert Wilder,
the manager of the Wilderhill Clean Energy Index ( href="http://www.altenergystocks.com/comm/content/powershares-clean-energy-etf/">ECO)
and the Wilderhill Progressive Energy Index ( href="http://www.whprogressive.com/">WHPRO).   The
largest clean energy ETF, href="http://www.altenergystocks.com/comm/content/powershares-clean-energy-etf/">PBW

is based on ECO, while the Powershares Wilderhill Progressive
Energy Portfolio ( href="http://www.altenergystocks.com/comm/content/puw/">PUW)
is based on WHPRO.  Wilder and I were discussing why
broad-based ETFs such as PUW and Coven’s PZD had outperformed
narrower clean energy indexes like PBW recently.  Wilder says,

“Indexes capturing broader themes simply had been able
to avoid the narrow, sharp drop. A wider Index for say, cleaner
technology with lesser green energy weightings would in a sense do
‘better’ the past couple years, while Progressive energy
emphasizing efficiency and the smart use of dominant energy would
do even ‘better’ than that.”

src="http://www.altenergystocks.com/archives/PBW%20PZD%20PUW.png"
height="363" width="520">
In addition to the quick commoditization arising from the rise of
Chinese manufacturers, Wilder and Hempleman also see structural
problems for solar PV and wind in the reduction of subsidies. 
Wilder says that the paring back of subsidies has quickened recently
as “several governments are suddenly fiscally flat on their back.
… One-off events like Japan’s nuclear crisis, or sharp doubling in
oil prices, spotlight moves to new energy in places like Germany,
but that alone is not enough to offset these partly structural near
term structural forces.”  Hempleman adds that “this is a major
structural issue as many of the companies that compete in these
sectors are highly levered and the barriers to entry are fairly
low.”

The Cyclical Case

While Wilder and Hempleman see the recent decline as mostly
structural, Wilder also sees some cyclical causes.  He sees an
analogy to semiconductor makers, which go through boom and bust as
wafer makers over-expand, and then are forced to contract, but he
sees the forces driving down solar, wind, LEDs, and geothermal in
recent times as much more powerful than those in the semiconductor
industry.

Garvin Jabusch, manager of href="http://greenalphaadvisors.com/SC-GAPortfolio.html"
>The Sierra Club Green Alpha Portfolio,
emphasizes more cyclical causes.  He sees a big driver of the
decline in the solar and wind stocks to be the political shift
against pricing in fossil fuels’ externalities, such as the effects
of global warming, increased health care costs caused by pollution,
and the costs of going to war for oil.  He says “These costs
have not been accounted for in the economics of fossil fuels, but if
the international political economy is ultimately rational, sooner
or later (preferably sooner) they must be. … [E]merging scale and
accurate pricing of combustion’s externalities will inexorably
reverse this trend.”

Hence, if politics is cyclical (i.e. mean-reverting or “ultimately
rational”) then political drivers for renewable energy will be
cyclical as well.  And right now he sees the political pendulum
swinging to the extreme detriment of renewable energy due to
disinformation.  “Polls show that (in the U.S. anyway), this
[disinformation] is working. Except for a very recent rebound in
belief in global warming, the last two years have seen a general
decline in belief in warming science among Americans, particularly
but not exclusively among conservatives.  It’s hard not to
notice that this period of declining belief has approximately
corresponded to the period of declining valuation, and increasing
short interest (some solar companies have had short interest as high
as 30-40% of total float), among renewables.”

Jabusch also scoffs a bit at the commoditization argument.  He
says that, as the price of solar declines to the point where it
becomes competitive with fossil fuels such as coal, “some of the
same analysts who derided renewables’ expense now deride their
inexpensiveness as ‘commoditization’ and ‘margin squeezing’ that
means solar companies can’t make much money going forward. To me
these guys are missing the point that the rapid, large reductions in
the price
of solar, which by the way show every sign of continuing, mean that
solar will now begin to supplant coal far faster than anyone could
foresee even five years ago.”  
src="http://www.altenergystocks.com/archives/Gas%20and%20Oil%20vs%20ECO%20and%20HAUL.png">

Conclusion

I think it’s fairly safe to conclude that both structural and
cyclical factors have been at work in the recent declines of solar,
wind, LED, and geothermal stocks.  For the investor, the
question should be, “Have the structural factors and most of the
cyclical factors been fully priced in?”  If so, these stocks
will benefit as cyclical factors begin to reverse themselves. 
If, however, the full effects of the structural problems in these
industries have yet to be felt, then even a political and cultural
shift back towards pricing in the full costs of fossil fuels may not
be enough to make the current batch of solar and wind stocks
profitable again.

For myself, I find the bears’ structural arguments more
convincing.  While I think Jabusch is right that the political
pendulum will swing back in favor of the recognition of the very
real harm done by the use of fossil fuels, the resurgence of the
solar and wind industries in terms of volume may be a great boon to
society yet still fail to return great profits to the current
shareholders of solar and wind companies.  This is because a
new, more clean-energy friendly political environment may draw in
new competitors into these industries, further increasing pricing
pressure, and preventing solar and wind companies from “more than
mak[ing] up in volume what they’re losing in margins,” as Jabusch
predicts.

It is possible to do well by doing good.  As Rob Wilder points
out, “an Index capturing global energy efficiency in transportation
is well up” over the same period solar and wind have been
down.  I think that’s probably due to the fact that
transportation efficiency competes with oil, and the price of oil is
up 50% over the last two years. 
Solar, wind, geothermal, and electrical efficiency technologies such
as demand response and LEDs compete with the marginal supplier of
electricity, which in most of the developed world is natural gas,
and the natural gas price has been very low since early 2009
compared to 2004-2008.  This is why many renewable developers
are now focusing more on developing countries where it is possible
to href="http://www.altenergystocks.com/archives/2011/07/drill_for_geothermal_power_in_developing_countries_and_on_king_street.html">displace

oil in electricity generation.

Fossil fuel prices are far from the only factor influencing clean
energy stocks, but they seem significant.  If we want to know
if the current price trends for renewable electricity and
electricity efficiency technologies are structural or cyclical, we
also need to know if the price trends for natural gas are structural
or cyclical, which in turn depends on our assessment of the long
term course of the shale gas boom.  If we want to know if the
recent positive trends in transportation efficiency will continue,
we need to decide if recent oil price trends are structural or
cyclical.

Unfortunately, as with the trends in renewable energy, I think the
recent trends in oil and natural gas have both structural and
cyclical factors.  Which of those factors will dominate over
the next two years is beyond this analyst’s expertise to
predict.  Over the long term, though, the trend for fossil fuel
prices is likely to be up.

DISCLOSURE: No positions.

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.