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Green Bio-Refining Up, Solar Stocks Down

by: Marc Courtenay June 06, 2008 | about stocks: CSIQ / FSLR / GEX / JASO / LDK / SOLF / SPWRA / STP / TSL / VRNM / YGE    

Marc Courtenay

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These are strange but promising times for green-oriented investments. Although oil prices are again on the rise today, the general short-term trend is down, and some analysts believe oil will fall to around $100 by the end of the summer. I don't buy this, but the market does and solar stocks were beaten down yesterday. First though, good news for cellulosic ethanol.

Verenium Corp.  (Nasdaq:VRNM)  said Wednesday it is starting up a research ethanol plant that runs on agricultural waste and wood products instead of corn. The issue of making ethanol from food sources such as corn and soy beans has been very controversial.

Cellulosic ethanol uses waste material to make fuel, so it involves using matter that otherwise would be disposed of and would not be of any benefit. This exciting application would make even more sense if the bio-refining process does not create greenhouse gas emissions. 

The process is illustrated below in a colorful example provided by Verenium to show how cellulosic ethanol is refined.

Biofuels Cellulosic Ethanol chart image

The Associated Press reported that the demonstration-scale plant in Jennings, La., is designed to run on cellulosic feedstocks such as stems and leaves, which are also known as "nonfood biomass," the alternative energy company said.

The plant, which uses specialty enzymes and Verenium's proprietary technology and is the epitome of what "cellulosic ethanol" is all about, has a 1.4 million-gallon-per-year capacity. This is a huge first step in creating an alternative fuel that doesn't create food shortages or have nasty "side affects" for the environment. 

The company plans to begin construction in the middle of next year on a 30 million-gallon-per-year cellulosic ethanol plant. Verenium Corporation, together with its subsidiaries, engages in the development and production of specialty enzyme products, and production and commercialization of biofuels.

It operates in two segments, Biofuels and Specialty Enzymes. The Biofuels segment focuses on the production and commercialization of biofuels, primarily ethanol from cellulosic biomass. The Specialty Enzymes segment develops customized enzymes for use in alternative fuels, specialty industrial processes, and animal nutrition and health markets.

We don't own the stock right now but are watching it closely and are inclined to begin accumulating it soon. The financial statistics and the balance sheet look risky, but if VRNM can continue to find government funding and lines of credit it has a good chance of being a success. Risk-oriented investors would find commensurate rewards if all works out..."if."

Solar stocks fell Wednesday as analysts said solar cell makers with heavy exposure to silicon prices or the Spanish market could be at risk. This is a new twist to an important green theme.

Calyon Securities analyst George Kotzias was rumored to have said in a client note that the so-called thin-film technology stands to gain on silicon -- long the key ingredient in solar cells -- because thin-film technology is less expensive than silicon.

Whereas thin-film had a 12 percent market share in 2007, that could grow to about 20 percent in 2008, he wrote. Among the companies that make solar cells with silicon are SunPower Corp (Nasdaq:SPWR)., JA Solar Holdings Co. Ltd.(Nasdaq:JASO), LDK Solar Co. Ltd (NYSE:LDK)., Trina Solar Ltd.(NYSE:TSL), Canadian Solar Inc (Nasdaq:CSIQ) and Yingli Green Energy Holding Co. Ltd.(NYSE:YGE), Kotzias said in a telephone interview.

These stocks have all bounced back today as oil once again spikes above $124 a barrel.By the way, many of these stocks and some other great green investments are found in the Market Vectors Global Alternative Energy Exchange-Traded Fund (NYSE:GEX). 

The investment seeks to replicate the price and yield performance of the Ardour Global Index (Extra Liquid) Index. The fund normally invests at least 80% of total assets in stocks in proportion to their weightings in the index. It will invest at least 30% of assets in securities of non-US companies located in at least three different countries. The index includes companies primarily engaged in the generation of power through environmentally friendly, non-traditional sources.

Meanwhile, Lehman Brothers analyst Vishal Shah said in a client note  on Tuesday that companies with high exposure to the Spanish market could be hurt if authorities follow Germany's lead and cut subsidies, potentially reducing demand.

He listed Canadian Solar, Suntech Power Holdings Co (NYSE:STP)., Solarfun Power Holdings Co.Ltd (Nasdaq:SOLF). and Yingli. Ironically they are all up sharply today as well.

If this article has done anything it has introduced you to the name of a promising cellulosic ethanol bio-refinery company, given you the names of most of the players in the solar energy stocks (excluding the most famous, First Solar (Nasdaq:FSLR)) and introduced you to a global alternative energy ETF which is a more conservative way to invest in the green energy revolution.

In the future we will do other articles about other promising companies and ETFs that are the heart of green investing and that have the potential to reward environmentally-considerate investors.

Disclosure: Author holds positions in some of the above-mentioned securities

 

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This article has 13 comments:

  •  
    Jun 06 03:14 AM
    I quibble with one point: "Cellulosic ethanol uses waste material to make fuel, so it involves using matter that otherwise would be disposed of and would not be of any benefit." What we call waste material is an essential part of healthy soil. Ideally, all agricultural waste would be composted and returned to the soil to keep it productive. The depletion of nutrient-providing biomass is a tragedy of epic proportions, and is one of the reasons we consume increasing amounts of fertilizer. Thus, consumption of this material for fuel creates a ripple effect of environmental damage.
    Reply
  •  
    Jun 06 06:30 AM
    I don't consider that a quibble - it's a matter that must be given serious consideration.
    Reply
  •  
    Jun 06 06:47 AM
    It may take awhile for people to realize this, but plant based ethanol is not the answer to our energy problems - not even short term. It causes more problems than it solves. Aalan is correct, this is not waste material. It is plant material that we choose to call "waste" material. It's part of an environmental cycle that is essential to the long term productivity of our forests and other lands.
    Reply
  •  
    Jun 06 08:56 AM
    i find it interesting that the analysts on wall street always find a reason why we should sell solar stocks. they are following orders from the research director who takes orders from the investment banking dept that takes orders from the clients such as utitlities and large industry like oil and ge etc. oil is up 2.50 today and the solars are starting down. when oil is down they say sell solar. the analysts

    oh they do always like nuclear and wind(ge). i wonder why?
    Reply
  •  
    Jun 06 09:29 AM
    skip the plants, go to the source... the sun.
    Reply
  •  
    Jun 06 10:34 AM
    Yes, the SUN is the ultimate answer by which ever way we want to use this free source. Ethanol is bad news, not re-using bio-waste for
    farming will hit us later.......farming will start using more artificial
    fertilizers that in turn will pollute our water. Sometimes humans don't
    think these radical ideas through.
    Reply
  •  
    Jun 06 12:08 PM
    6 comments--how many true Farmers?? Please raise your hands if earning $50,000 or more with farming as a primary occupation??

    The only yard waste that real farmers return to the soil is their own, and they don't have time for compost piles. That's for the little speciality "Organic" guys. If a mulching mower dosen't return leaves to the lawn they fell on, they're headed for the dump.

    Now if municipal recycling trucks put all the leaves-& yard waste through a grinder, piled them and sold the product back to the homeowners to offset taxes---A-La Milorganite--That might make sense. It's too labor intensive for farmers who will continue their patronage of Monsanto.
    Reply
  •  
    Jun 06 12:09 PM
    quibble all you want what would you rather have honestly. Distilled compost tea running your car or middle east war oil.
    Reply
  •  
    Jun 06 12:14 PM
    Being from a highly rural neck of the woods, I would honestly like some disclosure from government agencies to the media about past practices of subsidizing farmers to plow under their crop (namely corn) to keep from flooding the market with product (back before it was worth more than 23$ an acre). I have seen it done so you can say it doesn't exist all you want, I don't care.
    Reply
  •  
    Jun 06 12:21 PM
    Savvy: Buy my tea from Brazil, with the experiance to brew the best, or there's "no choice". When we get to $6 a gallon I'll take electricity--Nuclear or wind--or diesel from coal or bio-Algae.

    Everything comes from the Sun--only thing we can do is accelerate the time frame.
    Reply
  •  
    Jun 06 01:03 PM
    Gebby - You are right. Its very rational to price a company at 30x revenues when it has manufacturing-like margins, a commodity product, is completely dependent on government policy to have a market, faces technology innovation which could make it obsolete and is tied to the housing and therefore debt markets. So it must be the investment bankers pulling the strings... </snark>

    The problem with investing in solar is that its a bubble - now that doesn't mean its going to go down - we were in a bubble with Internet stocks as early at 1997-8 and it took 4 years for the market to come to its senses...

    That is the challenge that investors face in today's market - we all know that these valuations are unsustainable - but that doesn't change the fact that there is money to be made owning them - right up until there is not...
    Reply
  •  
    Jun 09 10:36 AM
    captbob

    No doubt, i'll take electricity too. I'm not too proud to drive an extended range electric car. Stop in at a battery station for a swap instead of a fill up. I'm long solar, but, thats just it this country is long solar as in a long way off. So in the mean time until we wise up I'll have a little tea while my crumpet is still baking in the sun. Yes, Brazil makes some fine (sugar cane and texas T) tea, too bad the gulf states wouldn't wise up and follow their equation they could use some cash crop money to clean up down there.
    Reply
  •  
    Jun 11 11:12 AM
    I'm sure there's an organic way to make this work. Maybe there's enough material left that's usable for fertilizer after the process. Or selection and rotation of crops may somewhat reduce the need for fertilizer.

    As for solars, they are one of the most popular sectors for investors today, which means they are a prime target for short sellers. The relaxation of rules regarding short selling has created a boom short market, with short and ultra-short funds ruining entire sectors of otherwise good investments.

    Perhaps when enough investors are turned off by the greatly increased risks in this unregulated "Wild West" market system and start pulling their money out in record droves, the SEC will wise up and restore some semblance of sanity and fair play.
    Reply
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