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Wind and Heat Pumps: A Winning Combination

Last month, I brought you some nice maps showing when and where good wind resources are found in the US.� Now I've found something better: a visual comparison of electrical load with wind farm production[pdf file], published by the Western Area Power Administration in 2006.� The study compared electricity production from five wind farms in Northern Colorado, Southwestern Nebraska, and Central Wyoming in 2004, 2005, and the start of 2006, compared with electricity consumption in the same area over the same time period.

Comparison of Wind Production to Electricity Demand

I've copied four of the most representative graphs below.

The first and third heat graphs below show electricity production at the five wind farms studied in 2004 and 2005, respectively.� The Second and fourth show electricity demand in the surrounding territory.� Red(blue) denotes areas of high(low) production or demand.�

For wind advocates, these are probably rather scary graphs.� The first thing you probably noticed was the big blue patches of wind production during summer peak demand, roughly 10am to 10pm in June, July, and August.�� This is why wind is referred to as an "energy resource" not a "capacity resource."� Right when demand is highest (namely hot summer afternoons), the wind is least likely to be blowing.

On Second Thought - How Much Backup Do You Need?

That is just the first impression, and while it is a true impression, it's also an oversimplification.� If you look at the scale, you will notice that the blues on the wind production graphs actually represent wind generating at 10% to 15% of nameplate capacity.� If you factor in the fact that a normal capacity factor for wind is about 25-40%, that means that even on these hot summer afternoons, the farms are generating at one-third to one-half of their "normal" output.� This means that, contrary to popular misconception, wind does not require a "100% back-up with natural gas."�� It is true that wind is less reliable than baseload power plants such as coal and nuclear, which typically run about 90% of the time, but in an apples-to-apples comparison, a 100 MW coal or nuclear plant will produce as much energy over the course of a year as a 270 MW wind farm.� During the peak summer months, the coal plant will need some backup power in case of an unscheduled shut down due to lack available coal (this happened in Colorado in 2005 due to problems with dust in rail tracks) or lack of available cooling water during a heatwave, and when a coal or nuclear plant goes down, it goes all the way down, so the 100 MW baseload plant has a small chance of needing 90 MW of backup to produce at its "normal" rate of power production.� On the other hand, the wind farm will be operating at (a conservative) third of its "normal" capacity, producing about 30MW.� To bring that up to it's normal capacity for the year, it will need 60MW of back-up power.��

In other words, because some part of a large distributed group of wind farms is always producing some power, it will never go completely down.� A large baseload power plant, on the other hand, is completely down about 10% of the time (although less during peak summer months, because utilities schedule maintenance in off seasons.)

Pick Farms to Match Your Load

Another point worth noting, is that the wind has different annual patterns in different locations.� The smallest (8.4 MW out of 139MW) of the five farms in the study was "Wind Farm B" in central Wyoming.� If you look at the following two heat maps below for 2004 and 2005, which show the production of just this wind farm, you will note that during the peak summer demand, this farm was producing at over 50% of "normal" capacity for much of the summer peak.

Since we know what electricity demand looks like, if we plan new wind farms (and adequate transmission), we can choose to build wind farms that produce more power when we most need it.� If all the farms in the example in the last section had more favorable production patterns like Farm B, even less back-up generation would be needed to bring them up to "normal" capacity.

For instance, in the Texas Competitive Renewable Energy Zones study [.pdf 7.64MB] wind in the coastal area (along Texas's southern gulf coast) was found to be a much better match for the ERCOT load shape than wind in other areas, although the average capacity factor was considerably lower than panhandle wind.� See chart below.

�

Hence, careful selection of wind farms can lead to wind production with higher capacity during peak loads, and correspondingly less need for dispactchable power.� Although Texas is currently focusing on developing wind farms in West Texas and the Panhandle because of their high capacity factors and correspondingly high annual energy output, the power from coastal wind farms is likely to become increasingly valuable as wind reaches higher penetration.

It's Not All About Summer Peak

Statements about wind's need for large dispacthable backup generation because of low capacity factors during peak times contain am implicit assumption that electricity demand is fixed.� This assumption is both false and pernicious, because shifting demand can be done cheaply, and often produces multiple benefits.� While it is true that most large scale electricity storage technologies, such as pumped hydropower, compressed air energy storage, and utility scale batteries are expensive or limited to a few available sites (pumped hydro,) technologies which shift the demand curve are not.

If you look back at the first set of four heat maps, you will note that wind actually does a quite good job serving the winter peak.� In 2004 (a year with a moderate summer) winter peak demand actually exceeded summer peak.��

Capacity during winter peak has some advantages over summer peak.� First of all, natural gas prices are higher during the winter, because natural gas is used extensively for home heating as well as power generation.� In February 2006, Xcel Energy had a series of major power outages in Northern Colorado which they blamed on insufficient natural gas in storage due to an unusually cold temperatures.� Yet as this heat map��

shows, wind farms in the region were operating at 40-60% capacity factors (i.e. well above "normal" production) for January and February.� Note that the blue at the end of the year was due to lack of data, not lack of production.� Had there been more wind farms installed, this would have had a large impact on the amount of natural gas needed for electrical generation, and the outages would not have happened.�� I don't have data to back it up, but my personal experience leads me to believe that cold winters in the great plains are also particularly windy winters, meaning that winter wind capacity is ideally suited to displace natural gas needed for heating.

How Heat Pumps Fit In

Which brings me to the title of this article: why heat pumps are an excellent fit with wind generation.� In my article on how to invest in the Pickens Plan, I mentioned that ground-source heat pumps (GHP) can displace gas used for heating with a smaller amount of electricity from wind.�� Since a GHP is both an efficient air conditioner as well as an efficient heat source, it not only reduces natural gas used for heating, but also reduces electricity used for cooling in hot summer months, which in turn reduces summer peak loads.��

Deployment of GHPs does three things to make energy supplies fit energy demand:

1. Winter electricity usage is increased just when wind capacities are highest.
2. Summer electricity consumption is decreased when wind capacities are lowest.
3. Use of natural gas for heating is reduced during times of peak gas demand.

GHPs, because of their extreme efficiency, also have the benefit of saving users a lot of money.

The Dual Fuel Option

Unfortunately, GHPs have not been widely adopted, due to the difficulties of installing the buried heat exchange loops, especially in urban areas (although some utility programs have been very successful.)� When I bought a house, it was in a New Urbanist development with very small lots which was close to my work.� While this saves me countless gallons of gasoline, it meant that I was unable to use a heat pump.� I opted instead for the most efficient natural gas furnace available from my homebuilder, in combination with the most efficient air-source heat pump.� Unlike GHPs, air-source heat pumps lack a ground loop, meaning that they only work efficiently when temperatures are above about 40F.� In my dual-fuel system, the heat pump heats my house during milder weather (which is frequent in Denver winters), and the natural gas furnace takes over when it is cold.�� Since the heat pump is only slightly more expensive than the air conditioner I would have bought anyway, the dual fuel system will pay for itself rapidly, especially when natural gas prices are high.

From the perspective of the electric grid, my electric usage is higher and my natural gas usage is lower during the heating season, when gas demand is high and wind farms are at their most productive.� So while a dual fuel house is much less of a strain on the energy infrastructure than one with a furnace and an air conditioner, it also saves the homeowner money for a much smaller investment.� In addition, while the need for a ground loop makes a GHP nearly impossible to retrofit to an existing home, an air source heat pump is an option for anyone considering replacing or installing an air conditioner, and has the added advantage of having a back-up heat source during a natural gas outage.

Another retrofit option I hope to see available soon is a hybrid ground/air source heat pump [pdf].� These systems combine a short ground loop with an air heat exchanger.� By using the air exchanger during milder weather, only a smaller ground source loop is needed for use during more extreme conditions, reducing the up-front costs compared to a GHP, but without the performance loss of an air source heat pump.� A startup called Co-Energies has developed a way to retrofit existing air conditioners into hybrid heat pumps; see slides 33 and later of this PowerPoint.

Electricity Demand Can Shift

Heat pumps are just one option for changing the shape of the electricity demand curve.� Many such efficiency measures can do so.� Other examples are improved home sealing and insulation, which typically pay for themselves in a couple years or less, and, because air conditioners work less hard in the summer, reduce summer peak loads.� Wind is undoubtedly a tricky sort of electricity to use in the existing grid, but the fallacy that demand is fixed makes the problem seem much harder than it needs to be.

Five Alternative Energy Stocks I'll Research "One of These Days"

I have more ideas than I have time to explore them, and it's getting out of hand.� I still need to write the promised articles on Evergreen Solar (ESLR) and Lithium Technology Corp (LTHU), but there are many others that have caught my attention over the last six months or so.� Since the list keeps getting longer, I thought I'd just give you a taste of some of the companies in my inbox, and why they seem interesting.� Since I may or may not ever write articles about any of these, I thought I'd give people the opportunity to evaluate the companies for themselves.

1. AECOM (NYSE:ACM).� Astute readers of my recent Hydropower overview will have noticed I said: "AECOM Technology Corporation (NYSE:ACM) [is] a global provider of professional technical and management support services to a broad range of markets, including transportation, facilities, environmental and energy," and also that the most promising opportunities were in "suppliers of parts and services to hydropower projects."� Not only is ACM a prominent provider of services to hydro projects, they also get much of their revenue from, and, as one ACM employee described it to me, energy projects which don't involve burning something.� This includes some of my longtime favorite sectors, such as transmission and public transit.� So ACM is on my short list.� I might have already bought some, if the stock price had not been going up since I discovered the company.
2. Kaydon (NYSE:KDN). As a wind industry supplier, I've had Kaydon as part of my portfolio for about a year.�� When the company had disappointing earnings last month due to their non-wind business, my instinct was that it was time to buy more, but I wanted to dig a little deeper to make up my mind.� I still have not done that digging.
3. Power Efficiency Corp (OTC BB:PEFF).� This company, which makes software to save energy in industrial motors and such as escalators and rock crushers caught my eye last year by advertising with us for a few months.� After an interesting conversation with the CFO, BJ Lackland, I decided to make a small investment.� It's a niche technology, yet has the potential to save a tremendous amount of energy even so, and it is already working in the marketplace.� If they can get the technology accepted by OEMs, the growth potential (from a tiny base) is enormous, nevertheless, I have not done the deeper digging I require of myself to make a larger investment than I already have.
4. Orion Energy Systems (NasdaqGM:OESX).� Another energy efficiency company that caught my attention a couple months ago, Orion provides a suite of efficient lighting solutions to commercial businesses.� Since I expect the sector to boom in coming years, Orion seems well placed to take advantage of utility Demand Side Management programs.
5. Texas Pacific Land Trust (NYSE:TPL).�� A reader sent me this suggestion in response to my comment in my Invest in the Pickens Plan article "I'd prefer a REIT with a rural focus, but have been unable to find one."� According to the company's profile, they "owned the surface estate in 964,813 acres of land located in 20 counties in the western part of Texas" as well as some oil and gas royalties.�� West Texas is typically fairly windy, but to really know if this stock would benefit from a rural resurgence driven by massive wind investment, we'd have to know how their lands line up with both wind resources and available transmission capacity... and how management feels about wind... would they sell out as soon as they saw a small price rise due to interest in wind, or would they wait for enhanced economic growth to produce long term superior returns?

DISCLOSURE: Tom Konrad and/or his clients own KDN, PEFF.
DISCLAIMER: The information and trades provided here and in the comments are for informational purposes only and are not a solicitation to buy or sell any of these securities. Investing involves substantial risk and you should evaluate your own risk levels before you make any investment. Past results are not an indication of future performance.� Please take the time to read the full disclaimer here.

Why Clean Energy Investors Need to Care About Politics
Tom Konrad

I believe that investments in clean energy should outperform the market as a whole for two reasons.� First, the inability of fossil fuel supplies to keep up with demand will raise prices and improve the environment for alternatives.� Second, growing awareness of the seriousness of Climate Change will lead to increased regulation of greenhouse gas pollution, which should benefit clean energy relative to conventional energy.

While I am certain that at some point reality will galvanize public opinion and political action on climate change, the sooner the politicians take action, the better for the planet, and the better for our investments.� This is why I and every clean energy/cleantech/greentech investor should care about politics.� Unfortunately, Green is still a partisan issue, with the typical Republican (with a few welcome exceptions) opposing the legislation we need, and strongest leaders on this subject being Democrats, with the party as a whole being supportive.

With the Democratic National Convention in my home town of Denver this week, you can expect a series of articles on Clean Energy and Politics.� After the break, you will find my take-away from a recent hearing help by Colorado state Republicans on the subject of Energy and the Economy. [Note if you're reading this on the feed or email, you'll have to click through to the site to see the full story]

As I attend several convention-related Cleantech events this week, you can expect several short articles on how politics affects the future of Alternative Energy. And, I hope, vice-versa.

The Week In Cleantech (Aug. 24 to Aug. 30) - And The Tax Credit Drama Continues...

On Sunday, Technology Review showed us the first tidal power generator. Harnessing the ocean's power is the next frontier in utility-scale alternative power generation, but this has so far proven difficult given all that the sea can throw at what humans try to put in it. This installation produces power at a hefty 0.30 to 0.40/kWh, but scale can bring this down to 0.20/kWh. Cut that in half again and now you're talking.

On Monday, Clean Edge told us that Schott was planning a partial spin-off of its PV unit through an IPO. Given the headwinds the Eurozone economies are facing, and the impact this is having on equity markets, this will be a real test of solar investors' will.

On Tuesday, Ernest Scheyder at Forbes informed us that new efforts to store wind power were underway. This is great news for wind aficionados such as myself, and the direct involvement of a large integrated utility is testament to the potential of large-scale storage technologies. Of course, don't expect these technologies to come in cheap.

On Wednesday, Paul Davidson at USA Today informed us that wind and solar projects were in a race to finish before tax credits expired. This rush to get projects in the ground is no-doubt creating a tremendous amount of inflationary pressure across the supply chain, meaning that the costs of that solar and wind energy will be higher than would have been the case had the industry been operating under a predictable, long-term policy framework.

On Thursday, David Ehrlich at Cleantech.com told us that thin-film was getting fat on cash. The big winner: Nanosolar.

On Friday, The Master Resource Report showed us a graphical depiction of why electric transportation makes more sense from an energy balance perspective than ethanol-powered vehicles. After you click on the link and download the PDF, scroll down to the last page. You can access the full presentation on Tesla`s website.

The Week In Cleantech is a collection of our favorite stories from the past week generated by our Cleantech News service. Register your site with us if you want your articles to appear here.

Evergreen Solar (NASD: ESLR): Ready to Turn Around?

Evergreen Solar has been in a trading range ($8 to $18) for about two years.� Now it's trading again at the bottom of the range, and with the general market downturn, along with the anticipated wave of new polysilicon supply a lot of investors will be wondering: Is Evergreen about to turn around as it has so many times in the past, or is it going down from here?

Over the past couple years, I have been very successful at trading the stock, but not because of some special insight.� When a stock has so many analysts following it (about 30 in the case of Evergreen), I generally assume that I won't be able to add much in terms of insight.

Instead, I made my profits using cash covered puts (options on ESLR are relatively liquid) and covered calls, a strategy which works best when a stock is trading in a range.

What's Different About Evergreen

Evergreen is fairly unusual in the crystalline silicon solar space in that it is vertically integrated, and manufactures its own wafers, modules and panels.� Evergreen's String Ribbon Technology allows them to make more cells using less silicon than traditional manufacturers, but at a conversion efficiency of 14.5% it is only about 2/3 of that available from the silicon PV industry efficiency leader, Sunpower (NASD:SPWR).� However, because of their thinner cells, they use less than 5 grams of silicon per peak watt (Wp) [see annual report, pdf], as compared to approximately 6 grams per watt for Sunpower.� According to Evergreen 5g/Wp is "less than half the industry average."

Evergreen has contracted for supplies of Silicon sufficient for all their planned increases in production through 2012.� Since silicon prices are widely expected to moderate in 2009, and the price moderation has been expected for some time (I first wrote about this in 2006), the expected price reduction will have been built into the contracts. Evergreen will only be affected relative to unhedged competition if price declines are different that that expected when the contracts were written.

Going Forward

The photovoltaic industry is likely to see a shakeout if supply grows faster than demand in late 2008 and 2009 because the industry will be less constrained by available supplies of Solar grade silicon.� If the demand for photovoltaic panels is elastic enough to absorb the resulting increased supply (albeit at a lower price), other steps along the value chain can hope to take a large portion of the profit which silicon suppliers were formerly taking.

As an aside, I personally will take a serious look at a PV system next year if I can't get the prototype Combined Heat and Power solar system I'm negotiating with a local startup for.� Until now, I have advocated investing in dividend paying renewable energy companies such as Ormat (NYSE:ORA) as being as green and having better prospective returns than buying photovoltaics.� However, alternative energy stocks are a poor hedge for commodity inflation, and a solar system is a perfect hedge for electricity prices, so that, along with lower solar system prices tempts me to to do home improvements beyond radical energy efficiency.

Evergreen Solar, with its wafers-to-panels supply chain, seems likely to be able to capture some of the gains given up by the silicon manufacturers, assuming that all of these gains do not go to consumers and installers, or vanish with the possible expiration of the ITC and reduction in German and Spanish subsidies. There are a lot of "ifs," but Evergreen seems relatively well placed for the coming solar storm.� With the stock price back below $8, I expect we're much closer to a bottom than we are to the recent peak.

DISCLOSURE: Tom Konrad owns shares in ESLR and ORA.
DISCLAIMER: The information and trades provided here and in the comments are for informational purposes only and are not a solicitation to buy or sell any of these securities. Investing involves substantial risk and you should evaluate your own risk levels before you make any investment. Past results are not an indication of future performance.� Please take the time to read the full disclaimer here.

The Week In Cleantech (Aug. 17 to Aug. 23) - Do We Need An Energy Revolution Or Evolution?

The Economist is currently running an interesting poll on whether we can solve our energy problems with existing technologies or whether we will need breakthrough innovations. Add your vote!

On Sunday, Domenick Yoney at AutoBlog Green told us that electric bike sales were soaring world-wide. I'm not sure what's a good play on this, but an interesting trend to note nonetheless.

On Monday, Matthew McDermott at TreeHugger told us about another biofuel feedstock we may not have considered. Earlier this summer, David Pauly at Bloomberg was telling us about yet another such potential feedstock, which apparently is the craze with commodity speculators.

On Tuesday, Jennifer Kho informed us that New Energy Finance was predicting a 43% solar silicon price drop.

On Wednesday, Cleantech.com reported that Nexus India Capital had closed a $220 million fund. India is not as flamboyant a growth story as China, but anyone who's been to Bangalore can attest to the fact that this is country with the ability to be a dominant player on the technology front. Add to this major problems with the nation's power infrastructure, and you can see why this quiet giant might one day be a major player in alt energy technologies.

On Thursday, Reuters informed us that carbon funds were to grow in 2008, albeit at a slower pace because of uncertainty. If there is one sector that's exposed to the whims of politicians in the broad environmental investing space, it is this one. I like emissions trading; my grad work was in the area of market-based policy tools. But the contrarian in me can't help but feel a little uneasy at so much capital flowing into something that's so closely tied to the political mood du jours.

On Friday, TheStreet.com let us know all that we needed to know about wind energy. The Title says it all!

The Week In Cleantech is a collection of our favorite stories from the past week generated by our Cleantech News service. Register your site with us if you want your articles to appear here.

Climate Change Will Hurt The Poor Most But the Solutions Don't Have To

The International Center for Appropriate and Sustainable Technology (iCAST) helps communities use local resources to solve their own problems.� I've been a fan of iCAST's approach of teaching people how to fish (or, in this case, how to apply sustainable technologies) rather than giving away fish since I first encountered them at a conference in 2006.� Last week, they took advantage of some of their own local resources (namely the fact that the DNC was in Denver) to organize a luncheon with a panel of nationally recognized speakers, any one of whom would have been enough to draw a crowd alone, and asked them to speak about how coping with Climate Change will impact the poor.

The speakers were Daniel Esty, co-author of Green to Gold, the bestselling book on how companies turn environmental innovation into profit opportunities, Aimée Christensen, a consultant to organizations addressing the issues of climate change including the Clinton Global Initiative and Richard Branson, and Jim Lyons, VP of Policy and Communication at Oxfam America.� The talk was moderated by Vijay Vaitheeswaran, award winning correspondent for The Economist, and author of Power to the People, and Zoom.

Should Investors Worry About the Poor?

Stereotypically, business and investors do not care about the plight on the poor.� Like most stereotypes, it only has to be true if we choose to live down to it.� Many argue that socially responsible investing can lead to superior returns, and have studies to support this conclusion, but the mutual fund track record shows mixed results.� I personally ascribe underperformance of socially responsible mutual funds to high fees and unsuccessful active management.� Moral responsibility does not absolve the investor from the need of doing good research, but my anecdotal experience leads me to the belief that at least among individual investors, many act as if moral investing is a substitute for due diligence.� Addressing Climate Change need not come at the cost of profit (Walmart came to energy efficiency from the profit motive, not an environmental ethic, as Ms. Christensen pointed out.)

That said, it's an equal fallacy to assume that financial due diligence absolves us of moral obligation.� I'm not here to tell you what your moral obligations are, but for many it will probably include making sure that the most vulnerable people do not bear the bulk of the cost of decarbonizing our energy supply.� On a more cynical note, it's a lot easier for people to accept large profits if more people are helped than harmed in the process of making them.� I attended the luncheon with the hope that I would gain some ideas on specific types of companies which are both addressing both the problem of Climate Change and of poverty.��

Climate Change and the Poor

The good news is that there is considerable potential for leapfrogging, with off grid or microgirds powered by solar or wind often being the cheapest way to bring electricity to remote locations which never had it before.� The bad news is that although such projects often bring tremendous benefits to the people in need, and carbon emissions are reduced as electric light displaces oil lamps or candles, the small scale of such projects and the limited financial resources of their users mean that such projects can seldom be completely self-financing.

Yet the rural poor are not the only ones who will benefit from switching to renewable sources of energy.� Since these projects bring reductions in carbon dioxide and other pollutants, a carbon trading system could help to bridge the gap between need and ability to pay. According to Ms. Christensen, current carbon prices are still too low to bridge the gap, in large part due to uncertainty in the quality of offsets on offer.� If the buyer is uncertain that the project producing the offsets purchased would have happened without the sale of offsets, he will be less willing to pay as much for each offset.� This is the much discussed problem of additionality.

Another problem is moral hazard.� In an unregulated environment where there are buyers of carbon offsets, a company will have an incentive to plan a new factory using less efficient processes, or even intentionally emit more of a potent greenhouse gas such as HFC-23, than they might on purely economic grounds, in order to receive a payment to later upgrade the factory to use the more efficient process they might have used anyway.��

Raising the Price of Carbon, and Enabling the Poor to Sell

There are many efforts underway to improve and certify the quality of carbon offsets on the market.� Organizations such as Green-e certify offsets to high standards, and allow retailers to place their logo on certified offsets and Renewable Energy Credits, but the very proliferation of such efforts speaks to the difficulty of the combined certifying additionally without providing perverse incentives.��

A much better solution would be global carbon emissions regulation.� By providing a mandatory cap (even a rising one) for all countries, the total number of offsets sold would be limited to the amount by which emissions were below that cap.� This would provide certainty of additionality, and also remove the perverse incentive to emit more in order to receive later payments to cut emissions.

The prospects for a truly global treaty to reduce greenhouse gas emissions, referred to by Mr. Esty as "Kyoto II", are mixed. He believes that China would be willing to sign up to a truly global agreement (although they would definitely negotiate hard to get a relatively forgiving emissions quota,) but that India does not yet feel the necessary urgency which would induce it to join such a regime.� Given the size and growth of these two emerging economies' emissions, both would be necessary signers to persuade smaller emerging economies to join.

A global treaty, by both creating demand for carbon offsets, and by providing more certainty as to the quality of those offsets, would go a long way towards increasing prices and making combined poverty reduction/carbon reduction projects economically viable.� It's my hope that the benefits of self-sustaining poverty reduction schemes run by for-profit businesses, and made economic by carbon offsets could be enough to induce large, poor, but rapidly industrializing countries like India and China to join a global carbon regulatory treaty.

Climate Change and Poverty Reducing Investments

Until we have strong, global carbon markets, we should look for investments which help bring them about.� North American investors can now buy an American Depository Receipt for Climate Exchange PLC (CXCHY.PK) the parent of the Chicago Climate Exchange (CCX).� However, the carbon contracts traded by CCX have been frequently criticized on the basis of lack of additionality.� On the other hand, the CCX already allows different sorts of offsets to be traded, and the offsets most criticized for additionality are those for the carbon sequestered by low till farming, since there are documented instances of farmers who already follow this helpful practice being paid for what they had already been doing.� An even more serious criticism of no-till farming is that the science behind the measurement of carbon sequestration is in doubt.� If our priority is solving Climate Change, the additionality and certainty of carbon sequesteration is of great concern, but if we are pursuing the dual goals of poverty reduction and carbon sequestration, then the lack of additionality is a minor concern, since there is always uncertainty in what is truly "additional."� After all, even if a farmer had been practicing no-till for years and only now is receiving payments, those payments may be enough to keep him in business and keep his land from being plowed by a less progressive farmer.��

But how will Climate Exchange PLC fare when a global carbon trading system is finally established?� The signs do not seem good.� At the moment, CCX's advantage in the carbon market seems to be that they both define the contract and provide a platform for trading it.� If governments step in to define carbon contracts by regulatory fiat, CCX will only have the advantage of incumbency, something of dubious value when the trading is in a new contract.�

A better investment would be a company which is alredy in the business of developing high-quality carbon offsets, that is, starting projects which reduce greenhouse gas emissions, and would not have happened without offset payments.� Such companies would likely be able to focus their efforts on developing contracts which could be sold into any well thought out regulatory regime. One I did find was Veolia Environmental Services (NYSE:VE), which sells offsets from landfill gas projects.� This is admittedly a small part of their business, yet their other businesses, focused on water, waste, energy efficiency, and transit are all sectors likely to do well as we confront the reality of Climate Change, and also sectors of concern to the world's poor.

DISCLOSURE: None.
DISCLAIMER: The information and trades provided here and in the comments are for informational purposes only and are not a solicitation to buy or sell any of these securities. Investing involves substantial risk and you should evaluate your own risk levels before you make any investment. Past results are not an indication of future performance.� Please take the time to read the full disclaimer here.

Why Power-Save (PWSV.ob) is No Longer on our Stock List

Mea Culpa.

We often get request from readers to add companies to our Alternative Energy Stocks list.� Since the field is very active, we do some quick checks to make sure that the companies at least:

1. Provide enough information to make an informed investment decision.
2. There's nothing obvious which indicates serious investors wouldn't be interested.

We by no means feel that everything in the list is a good investment, but we do feel that our list a good place to start your own research. Usually.

Last weekend, we received a request from a shareholder to add Power-Save Energy Corp (PWSV.ob) to our list.� It fell to me to check it out, and while I did check that they provide enough information to make an informed investment decision (they file audited financial statements with the SEC,) the contents of those statements would have made me flinch, at least if I had bothered to read them.

Non-Existent Internal Controls

Fortunately for us, we have many diligent readers, and one of them quickly pointed out that PWSV did not belong on our list.� Here are a few things I should have read the first time around:

From the auditor's opinion (italics mine):

The Company is not required to have, nor were we engaged to perform an audit of the Company's internal control over its financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.

Since the auditors don't have an opinion on internal controls (this is not particularly unusual for an over the counter or pink sheet company), I should have looked to see what I thought of any controls they might have.� I would have found:

1. Not only is the CEO Michael Forster also the Chairman of the Board, he is the Chief Financial Officer as well.� Given no separation of duties, it is impossible for the company to have any sort of financial controls.
2. The Board consists of Mr. Forster, a 38 year old relative of Mr. Forster, and a 23 year old whose most relevant experience was managing daily operations at a restaurant.
3. Under the internal review of controls and procedures, "The Certifying Officers [who, you will note above, are actually one person, Mr. Forster] have evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report and believe that our disclosure controls and procedures are effective based on the required evaluation." At the very least a lack of separation of duties should have been highlighted as a material weakness in this section.

Why Internal Controls Matter

None of this is to say that Power-Save might not be a viable business.� It may or may not be.� I'd have to do more research to find out.� But there is no reason to do more research, because even if the company had discovered a process for turning lead into gold, there is no reason to believe that shareholders would ever see any of the profits.� Mr. Forster does not even need to write out a company check to himself, he can simply grant himself excessive compensation in the form of cash and stock so that all company profits flow directly into his pay packet.�

Off the List

The shareholder who contacted me with the stock is probably going to be unhappy that I not only removed PWSV from our list, but wrote this article suggesting it is a bad investment.� I'm doing this in order to reduce my workload: if you would like to add a stock to our list, please do some preliminary checks of your own before bringing it to our attention.� You'll save yourself money, and save us time, so we can continue bringing you information about stocks that really are worth investing in.

DISCLOSURE: None.
DISCLAIMER: The information and trades provided here and in the comments are for informational purposes only and are not a solicitation to buy or sell any of these securities. Investing involves substantial risk and you should evaluate your own risk levels before you make any investment. Past results are not an indication of future performance.� Please take the time to read the full disclaimer here.

What Do CPV and LEDs Have in Common?

I recently attended the Optoelectronic Industry Development Association's (OIDA) "Green" Photonics Forum.� Unlike dirty industries trying to appear green, the Optoelectronics industry does not really have to try to be green.� Two prominent examples familiar to clean energy investors are Concentrating Photovoltaic Solar (CPV) (i.e. using optics to focus light on high efficiency solar cells) and Light Emitting Diodes (LEDs).

The presentations on Tuesday focused on the above technologies, and I was struck by a common problem faced by both: heat dissipation.� According to Sarah Kurtz, a National Renewable Energy Laboratory scientist leading the team working on high-efficiency, multi-junction solar cells used in CPV, one of the key challenges for CPV integrators is bonding the solar cell to the heat sink.� This bond needs to be uniform, without any bubbles, and needs to be able to withstand large, rapid temperature changes, as the amount of light and heat on the chip goes from practically nothing to hundreds of suns.

What can LEDs not do at 150 lumens per watt?

The keynote speaker at the conference was Jay Shuler of Philips (NYSE:PHG) Lumileds.� He's confident that white, high power LEDs which have been demonstrated in the laboratory to produce up to 150 lumens per watt� will make their way to the marketplace in the next couple years.� At this level of light production, commercially available LEDs will surpass even the most efficient light sources available, low pressure sodium lamps (no, not CFLs, which typically produce about 100 lm/w) with much better color rendering.� But there are lighting markets that LEDs will have difficulty penetrating even when they are the most efficient white light source, namely retrofit markets for standard light bulbs (i.e. you will keep your CFLs for some time yet.)���

The problem with fitting into the form factor of a standard bulb in a standard socket is, once again, cooling.� The first commercially available100W replacement� LED bulb actually contains a fan for cooling... a step away from the solid state reliability we would expect from LED bulbs.� Jay suggested that buyers of such bulbs should be very concerned about quality and durability of such bulbs.��

As an aside, I have been using a 60w replacement (using 5w) in an outdoor light, and four 25w candelabra replacements (at 2w each) in a fan since January, without any problem yet.� On the downside, although the candelabra bulbs have a long, shiny base for cooling.� The light quality (soft white, about 3000K color temperature) has been excellent, and seem brighter than I would expect from the bulbs they are meant to replace.�

Can we invest in heat sinks?

Often the most profitable way to invest in an industry is to invest in the suppliers of hard-to find technology for that industry.� For instance, one of the best ways to invest in solar during the silicon shortage from 2004-2007 was suppliers of silicon.� This may be more difficult to profit from than silicon, because heat sinks are not particularly high-tech, but, as Dr. Kurtz pointed out, the connections to the heat sinks are.

This leads me to look for current industry leaders in thermal management, who might have relevant expertise.� A search for "Thermal Management Solutions" led me to several companies such as Rogers Corp (ROG), which is focused on wireless communication and computer markets.� Given this focus, they probably have some expertise to apply to LEDs, but not necessarily any that might apply to the extreme temperatures of CPV.� I also found a few private companies, of which the most promising for this market was Plansee, because of their experience in both optical and military markets, and claims the "ability to braze metal to metal, ceramic to metal and ceramic to ceramic to exacting specifications and tolerances."�

Unfortunately, as a private company, Plansee is not an option for public market investors.� The question remains open for readers: Is there a publicly traded company with experience in thermal management for the extreme temperatures needed for CPV?�

DISCLOSURE: Tom Konrad and/or his clients have long positions in PHG.
DISCLAIMER: The information and trades provided here and in the comments are for informational purposes only and are not a solicitation to buy or sell any of these securities. Investing involves substantial risk and you should evaluate your own risk levels before you make any investment. Past results are not an indication of future performance.� Please take the time to read the full disclaimer here.

3:35 PM | |

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