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4 Clean Energy Stocks for the Future

4 Clean Energy Stocks for the Future

By Bob Kohut 01.07.2013


For years sceptics have derided the potential of generating electricity from clean energy sources like solar and wind.  The key argument has been clean energy is not cost competitive without government subsidies.  Solar and wind farms were considered too expensive to compete with King Coal.  

In Australia that rationale has been turned upside down in the case of wind and it appears solar will soon follow the path of declining cost.  Earlier in the year Bloomberg New Energy Finance released the following graph, demonstrating that the cost of generating power from wind is already lower than new coal in Australia.  Here is the chart:

Bloomberg New Energy finance is a research firm and these charts come from the firm’s Sydney based research team.  Their findings were based on a comprehensive modeling of electricity generation costs by source.  In fairness, note the price of coal used in the model is from newer plants and includes the carbon pricing scheme.  The future of Australia’s carbon pricing mechanism is in doubt, pending the outcome of the upcoming federal elections.  Nevertheless, let’s take a look at Bloomberg’s projections out to 2020 and again to 2030.  Here are the two charts:

LCOE stands for levalised cost of electricity.  It is a calculation which allows for comparison of costs across different energy sources by including the all expected lifetime costs from construction to financing to maintenance; and dividing the cost by the expected lifetime power output.   There are those who would debate the validity of findings such as those reached by the Bloomberg team.  Certainly pricing and forecasting models can be wrong and one might expect a research group on new energy to be unlikely to be bearish about the sector’s future.  However, if you research the cost issue a bit you will find the preponderance of opinion is that the cost of renewable energy sources, especially wind and solar, is declining.

Some of the largest corporations in the world see opportunities in clean energy.  Here are a few examples:

•    Google has invested more than US$1 billion in wind and solar projects around the world.

•    Apple has a 500,000 square foot data center in North Carolina powered by solar and fuel cell farms with a goal of 60% total power derived from these renewables by the end of this year.

•    Wal-Mart already generates over 71 million kilowatt hours of electricity for worldwide operations from solar power.  In the US Wal-Mart generates 65 million KWH of electricity from fuel cells and is using wind farms to power some of its stores in the state of Texas.  The company’s longer range goal is to build small on-site wind farms to power its stores.

If these corporate goliaths believe in clean energy, why shouldn’t you?  

The list of potential clean energy investments on the ASX is not long and it still comes with high risk.  Those of you who have been following the sector may recall names like solar company Advanced Energy Systems (AES), wind company Viridis Clean Energy (VIR), and Panax Geothermal (PAX) – all now suspended from trading.

The following table includes four ASX stocks that appear to have enough potential to warrant taking a further look.  Evaluating companies that have potentially “break-through” technologies that have yet to show positive revenue and profit -- or any revenue and profit -- is difficult at best.  The valuation measure that makes some sense is the Price to Book ratio where applicable.  However, determining the asset value of a technology that might or might not bear fruit is uncertain.  Debt, liquidity, and cash measures take on heightened importance.  In reality, companies like these are involved in a race to produce a profit before the cash runs out.  Here is our table, listed by market cap:

Company (Code)

Market Cap

Energy Source

Share Price

52 Wk % Change

P/B

Current Ratio

Gearing

Total Debt

Total Cash on Hand

Silex Systems (SLX)

$373m

Solar Uranium

$2.19

-31%

3.29

9.16

0

0

$71.9m

Infigen Energy (IFN)

$194m

Wind

$0.26

+11%

0.39

1.45

238%

$1.19b

$110.4m

Dyesol Ltd (DYE)

$73m

Solar

$0.33

+200%

5.48

1.36

9.9%

$

$

Carnegie Wave Energy (CWE)

$32

Ocean Waves

$0.03

+15%

0.4

8.44

0

0

$6.9m

 

Of all the shares in the table, the strongest case for a lower-risk investment can be made for Silex Systems (SLX).  Diversification lowers risk and Silex has four potential revenue streams in play – uranium enrichment, solar power stations, semiconductors, and instrumentation.

The high tech nature of this company is perhaps best represented by the origins of its name.  Founded in 1988 as part of Sonic Healthcare, the company founder began experimenting with the use of lasers to enrich uranium.  By 1993 the principles of Separation of Isotopes by Laser Excitation (SILEX) were in place and the company was spun off in 1996 to work on commercialisation of the technology.  The company later licensed the use of the technology to US industrial conglomerate General Electric.  In conjunction with Hitachi Corporation of Japan, GE established another company called Global Laser Enrichment (GLE) to test and commercialise the technology.  Initial tests were successfully completed in May of 2013 and the company is expected to make a decision on plant construction.  The proposed plant in North Carolina has already been approved by the US Nuclear Regulatory Commission (NRC).

Laser enriched uranium can be produced faster at a lower cost but there are concerns about the potential of the technology for weapons use.  In addition, the long range future of nuclear power for electricity generation is uncertain.  SLX is the only stock in the table to have major analyst coverage.  JP Morgan and CIMB Securities have OVERWEIGHT and BUY recommendations, but both limit their commentary to the pending decision on the laser enrichment plant.

The company’s solar operations appear to provide equal if not better reason to consider investing.  On 27 June the company announced that its 40 solar dish demonstration facility at Mildura, Victoria is now connected to the grid.  The company has a similar large scale solar farm using its “dense array” CPV (concentrated photovoltaic) technology under construction in Saudi Arabia which is expected to go operational later in 2013.  In addition Silex is in the planning stages for yet another large scale solar farm in California.  In early June 2013 shares of Silex became available to US investors through the OTC (Over the Counter) markets.

The potential for massive solar farms for electricity generation around the world could be in the hundreds of millions of dollars, according to the company’s founder and CEO, Dr. Michael Goldsworthy.  With a current ratio suggesting no liquidity issues along with no debt and substantial cash on hand, it is surprising the share price is down 31% year over year.  Silex also has innovative technology underway in the fields of electronic instrumentation and semiconductors.  Here is the company’s one year price chart:

Infigen Energy (IFN) has operating wind farms in Australia and the US, but recorded a net loss of $55.2 million in FY 2012.  The company’s 2013 Half Year results also showed a loss, but the net loss was $7.4 million less than the net loss for the half year 2012.  Infigen’s balance sheet is worrying, with total debt about ten times higher than cash on hand.  Gearing for FY 2012 stood at 179% but as of the most recent quarter it had ballooned to 238%.  Despite all this, Infigen’s stock price is up 11% year over year.  Here is the chart:

There are no major analysts covering IFN but Thomson/First Call note one analyst with a STRONG BUY on the company and three with BUY recommendations.  On 04 March 2013 the AFR reported that the company was considering selling $1.2 billion in its wind farm ownership interests while maintaining operational responsibility.  The AFR cites Infigen’s massive debt burden inherited as part of its spin off from the ill-fated Babcock and Brown (BBW) as the reason.  Debt agreements are reportedly eating up the vast majority of cash the company generates.  Infigen issued a media release in response to the article, stating it was “assessing a range of options to improve financial flexibility.”

Dyesol Limited (DYE) is another clean technology company with a potentially revolutionary technology.  Since its inception in 2004 the company has been working on commercial applications for something called Dye Solar Cells.  

Dye Solar Cell Technology is third generation solar technology that could replace the silicon based solar cells currently in use.  The technology is difficult for the layperson to comprehend but it is something like photosynthesis in nature, using nanotechnology principles, meaning really tiny.  A sensitising dye is applied on a membrane to absorb the light and produce electricity.

Dyesol is not the only organisation pursuing the technology nor did they invent it; but they are considered a leader in offering practical applications for industrial use.  The company manufactures the chemicals and equipment that other researchers as well as manufacturers use in their work.  India’s Tata steel is working with Dyesol to make steel roofing materials with dye solar cells built in.

On 07 May 2013 DYE was trading at around $0.11 per share.  Then it jumped big time.  Here is a six month price chart:

In a matter of days the share price rose over 200%.  Dyesol on 08 May announced a technical breakthrough that could be a game changer.  Although the traditional dye solar cell had the advantage of production efficiency and low cost, the use of liquid electrolytes in the process made the cells less than fully effective in certain weather conditions.  Solid state dyes as of 2010 were yielding dye solar cell performance of 5%, far lower than liquid based cells.  Dyesol’s announcement claims the company has achieved solid-state DSC efficiency of 11.3% at full sun – more than twice as efficient.

The company went on to say that efficiencies of 10% in actual industrial use are possible due to the simplicity of working with solid-state systems.   Dyesol's technology allows the production of solar energy at a lower cost than traditional solar cells and operates more efficiently in low light conditions.  Think of the potential of glass panels and metal sheets in construction use with the ability to generate electricity.  

On 28 May the company was out with another announcement.  The Photovoltaic Industry sets a standard for solar cell durability and Dyesol’s current liquid based systems exceeded that standard by 400%.  The company is planning similar evaluations for its solid-state systems.  Dyesol will continue its work with both liquid based and solid state technologies since each has qualities that lead to better performance in specific industrial applications.

Ocean waves are alternative energy sources that do not generate the same excitement amongst investors as do solar and wind.  Carnegie Wave Energy (CWE) is an alternative energy company with a patented technology that can not only turn ocean waves into energy, but into desalinated water as well.  The company has over 67 patents on its CETO technology, which unlike others makes use of submerged wave power systems.  Submersible power generators give this technology a significant advantage over wind and solar with its small and unobtrusive footprint.  The public is hungry for clean affordable power from wind and solar, but few people relish the thought of living in the vicinity of a vast solar or wind farm.  In addition, unlike the wind, wave power is ever present.

CWE has a licensing agreement with French energy company EDF and will continue its efforts towards global commercialisation of CETO technology through such licensing arrangements.  The company has a demonstration project underway in Perth which upon completion will be the first large scale CETO system directly connected to the Grid in the world.  Carnegie has similar projects underway in conjunction with its French partner EDF as well as in Canada, Bermuda, and Ireland.

The stock is currently trading below its book value and despite its never having turned a profit has rewarded investors over the years with a ten year total shareholder return of a respectable 7.2%.  Although the stock price is still up about 15% year over year, it has fallen considerably since its 52 week high reached in mid 2012.  Here is the chart:

Click on the links below to read other articles from this week's newsletter

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3. 18 Share Tips - 1 July 2013: 18 Share Tips to BUY, SELL & HOLD from...

4. 4 Clean Energy Stocks for the Future: Dyesol announced a technical breakthrough that...

5. Why Investment Risk Shouldn't Depend On Your Age: Most people, including most financial planners...

6. Follow The Herd In Trading The Capital Market: If you have ever heard 'the trend is your...

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Please note that TheBull.com.au simply publishes broker recommendations on this page. The publication of these recommendations does not in any way constitute a recommendation on the part of TheBull.com.au. You should seek professional advice before making any investment decisions.



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WHAT’S ON THIS WEEK

week 31 October 2014
    • 27
    • ARG Argo Investments annual general meeting | 4:26 AM
    • BEN Bendigo and Adelaide Bank annual general meeting | 4:27 AM
    • SPO Spotless annual general meeting | 4:28 AM
    • RBA Panel participation by Reserve Bank of Australia (RBA) head of financial stability, Luci Ellis at the Australian Housing and Urban Research Institute panel roundtable | 6:07 AM
    • 28
    • AOFM AOFM to issue $200 million of February 21, 2022 indexed Treasury bonds | 4:05 AM
    • SGP Stockland annual general meeting | 4:26 AM
    • Financial Review's Future Forum Financial Review's Future Forum: The Asian Century, featuring Telstra chief financial officer Andrew Penn, Fortescue Metals chief executive Nev Power and former Australian Ambassador to China Geoff Raby | 4:27 AM
    • WPL WorleyParsons annual general meeting | 4:27 AM
    • WHC Whitehaven Coal annual general meeting | 4:28 AM
    • SGF Challenger annual general meeting | 4:29 AM
    • TAH Tabcorp annual general meeting | 4:29 AM
    • BGA Bega Cheese annual general meeting | 5:13 AM
    • ANZ ANZ-Roy Morgan weekly consumer confidence survey | 5:16 AM
    • DMP Domino's Pizza annual general meeting | 6:08 AM
    • 29
    • MMS McMillan Shakespeare Group annual general meeting | 2:18 AM
    • QRX QRxPharma annual general meeting | 2:18 AM
    • TTS Tatts annual general meeting | 4:06 AM
    • AOFM AOFM to issue $600 million of April 21, 2029 Treasury bonds | 4:59 AM
    • DXS Dexus Property Group annual general meeting | 5:40 AM
    • AGO Atlas Iron annual general meeting | 5:41 AM
    • JBH JB Hi-Fi annual general meeting | 5:42 AM
    • MOC Mortgage Choice annual general meeting | 6:05 AM
    • NIB nib Holdings annual general meeting | 6:08 AM
    • TPI Transpacific Industries annual general meeting | 6:09 AM
    • SUN Suncorp chief executive Patrick Snowball speaking at American Chamber of Commerce in Australia lunch | 6:09 AM
    • GXL Greencross annual general meeting | 6:46 AM
    • 30
    • IAG IAG annual general meeting | 2:19 AM
    • NAB NAB full year results | 4:23 AM
    • AAD Ardent Leisure annual general meeting | 4:24 AM
    • PAS PAS Group annual general meeting | 4:25 AM
    • FDC Federation Centres annual general meeting | 4:25 AM
    • FLT Flight Centre annual general meeting | 4:26 AM
    • PPT Perpetual annual general meeting | 5:13 AM
    • NCK Nick Scali annual general meeting | 5:18 AM
    • HIA HIA New home sales for September | 5:19 AM
    • AOFM AOFM to issue $500 million of Treasury notes, maturing on February 27, 2015 | 5:19 AM
    • FNP Freedom Foods annual general meeting | 5:19 AM
    • TOL Toll Group investor day | 5:35 AM
    • UGL UGL annual general meeting | 5:42 AM
    • ABS Australian Bureau of Statistics (ABS) international trade price indexes for September quarter | 6:05 AM
    • BTT BT Investment Management full year results | 6:06 AM
    • WES Wesfarmers first quarter sales results | 6:10 AM
    • 31
    • ANZ ANZ full year results | 5:20 AM
    • EGP Echo Entertainment annual general meeting | 5:21 AM
    • ABS ABS producer price indexes for September quarter | 5:22 AM
    • RBA RBA to release financial aggregates for September | 5:22 AM
    • NCM Newcrest Mining annual general meeting | 5:22 AM
    • HIL Hills annual general meeting | 5:23 AM
    • AOFM AOFM to issue $600 million of October 21, 2019 Treasury bonds | 5:23 AM
    • MQG Macquarie Group half year results | 6:09 AM
    • ORG Origin Energy quarterly production report | 6:09 AM

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Craig James, of CommSec points out that retail sales grew by 7.4 per cent during the past year, marking the best rolling 12-month period since January 2002

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