A few years ago, I much enjoyed reading (although certainly didn’t always agree with) Jeremy Rifkin’s book, “The Hydrogen Economy“. One part though that stuck in my mind was his reference to hydrogen from wind powered electrolysis. On page 189 of the paperback edition he said:

“When wind power drops to 1.5 cents per kilowatt hour in the next few years, electrically generated hydrogen, using wind power, will be competitive with gasoline.”

5 years on, wind power prices - as measured by the installed cost per megawatt - have actually gone up. And even with one of the best sites and the lowest possible installation costs, the levelised cost per kilowatt hour over a 20 year period is still pretty much 5 cents per kilowatt hour, excluding all other externalities (additional transmission lines, grid-reinforcing, load-balancing, avian mortality rates, etc. . . . all of which rise with an increased wind penetration). From today’s standpoint, 1.5 cents a kilowatt hour looks a very long way off.

But the concept is still alive.

That’s why I was intrigued and very grateful to learn from an AEI reader based in New Zealand of a new company seeking to IPO on the Australian Stock Exchange next month (10th August), called Wind Hydrogen Ltd.

The company says it holds international patents over hydrogen-based technology that is complementary to wind power generation, able to overcome the issue of variable output from wind farms, considered a key long-term barrier to the commercialisation of wind power. They also believe their technology opens access to markets for hydrogen and hydrogen-based products. This last bit is important - they think they can sell off the surplus hydrogen to downsteam chemical companies who would otherwise take it from natural gas, releasing CO2, for the production of ammonia.

What I found particularly interesting though is that they have patents pending on wind monitoring and prediction. Combine accurate wind forecasting to an electricity spot market in short supply of power and very quickly you could get a profitable business model.

But hydrogen has to be most expensive form of energy storage so they are dependent - and I suspect taking a bet on - rising and unpredictable gas prices affecting the electricity and chemical industries. Meanwhile, Hydrogenics has just opened a wind-powered hydrogen fuelling station in Dakota.

Wind Hydrogen is definitely a company to watch. Still, the cynic in me thinks if this energy storage is so good, why not combine their storage technology with a fully amortised and rainfall-deprived hydro power plant?

This would be a lot cheaper - and more profitable, as well as renewable.

Following a couple of IPOs over the last week, here they are;

PV Crystalox - a company in what I regard as the sweetspot of the solar business, a manufacturer of silicon ingots and wafers

and

Solaria Energia - a Spanish PV company, which disappointingly, only carries the Spanish language on its website. There has been a bit of a buzz about Spain becoming the next Germany in solar power - that’s why several German firms were keen to open subsidiaries there over the last year or so. And yet, you have to think that a Spanish supplier ought to have more opportunity to exploit that over a German one. Let’s see. A friend of mine incidentally with a large holiday home in Spain, was advised not to install solar pv panels, because they would be stolen. If that’s really the case, the millions of holiday homes (800,000 built last year alone) there will not be a market and the growth will most likely have to be Spanish-led or more ways than one.

News that a new Chinese solar stock, Jetion Holdings, is planning an IPO on AIM made me think about the routes recent Chinese alternative energy floatations have been taking.

It does appear that AIM is popular for those who will capitalize at less than USD 500 m - in the case of Jetion Holdings, their valuation would be in the region of USD 220 m. Meanwhile, Yingli Green Energy, who today capitalise at USD 1.5 billion, took the American Depository Recept route.

And Suntech Power Holdings, AEI’s largest stock by market cap. has a full listing on the NYSE, capitalises at over USD 5 billion.

I think it’s all about costs and the smaller you are, the less able you are to absorb them. So I think it’s fair to say that you could rank these exchanges - on costs alone - like this;

1. Full listing - NYSE/ Nasdaq - most expensive
2. ADR IPO - on NYSE / Nasdaq - less expensive
3. AIM IPO - least expensive

Ok, ok, I haven’t included some of the other European or Canadian markets - but it does generally appear that if you’re a Chinese company looking to IPO, it’s London or New York.

A useful piece just published here on Motley Fool Scouting the latest IPOs.

The article mentioned 5 companies that touch on the alternative energy realm about to IPO or that just have;

i) Clean Energy Fuels Corp - a company that seeks to provide natural gas for municipal transport needs. Gas is certainly much cleaner and an environmental benefit in terms of reduced particulates. And I’ve got a lot of sympathy for this technology as I use it myself (liquified petroleum gas or LPG in Europe) with my old BMW. But unlike some, I would never claim this was alternative energy technology any more than including clean coal technology companies.

ii) LDK Solar - a Chinese solar wafer manufacturer, going public this week. There are plenty of Chinese solar companies already but analysts are divided on whether this party has only just got started or if it is now looking like a bubble.

iii) Yingli Green Energy - (no website I can find) another Chinese solar cell manufacturer, to IPO shortly - announced deal terms of 29 million American depositary shares at $11-$13 per share. The lead managers are Goldman Sachs and UBS.

iv) Imperium Renewables - A US-based biodiesel producer

v) China Sunergy (no website yet, to be added very shortly to AEI) - IPO’ed a couple of weeks back and makes solar cells.

In recent weeks, many have been fretting about the alternative energy bubble. But since alternative energy stocks first started to appear, arguably in the late 1990s, there have been several pullbacks or more accurately, shifts of investor focus;

Fuels cell stocks led by Ballard until 2000
Danish and German wind stocks
US-based ethanol stocks until April 2006
German solar stocks
And now it seems to be Chinese solar cell manufacturers are in vogue

So we must never fail to keep asking ourselves how long will this particular alternative energy theme last and what’s next?

It has been a while since I’ve had the chance to post about a forthcoming IPO - a shame because historically, IPO Watch has been one of the most popular sections on this website.

So I was pleased for more than one reason to learn of National Hydroelectric Power Corp’s plans to sell a 13.8% stake in an IPO to raise $580m. Growing at over 8% per annum, India needs a lot more power and they will need all the capital they can get to obtain it.

Apart from which, I like Hydropower - it is proven technology, can deliver clean energy in gigawatt scale and does so at the lowest possible cost compounded over the lifetime of the plant - up to 200 years. So my personal view is that exploiting fully amortized hydropower is an excellent long-term bet. But selling off only 13.8% of your company strikes me as a bit blasé - and some would unkindly sum up the attitude behind it as this;

we want your money, but we won’t concern ourselves with what you think and will care even less, because you will always be a minority shareholder.

I’ve just been reading a fascinating and revelationary book by Eric D. Beinhocker “The origin of wealth - evolution, complexity and the radical remaking of economics“. and I was very taken by one point (amongst many) that he made - essentially that mankind has evolved a system for fairness and reciprocity in business, but if the conditions for reciprocity, fairness and trust are not replicated following the business transaction, then civilization does not advance much beyond the Machiguenga people of the Peruvian rain forest (I abbreviate and exaggerate for effect, but it’s not an unfair synopsis).

Why am I saying this?

Because there is another Indian hydropower company Jaiprakash Hydro Power, which although much smaller, continues to earn respect and good ratings, not least because far more of its shares are traded on the open market.

Going public with an IPO is about trusting the market and the investors to have the best interests of your company at heart. That’s why deep down, I believe that anything less than a 50% offering is a long-term mistake.

So I hope NHP reconsider and think big by trusting big. And I dearly hope many other alternative energy companies do not eschew the market either.

Because the public markets still leave the venture capitalists and the banks for dust when it comes to raising larger amounts of capital at lower overall cost.

These last few weeks of falling oil prices have not been a great time to put the case for biofuels. And so, you wonder a little at whoever advised BDI Biodiesel (advfn page going up shortly) to go public on September 25th.

BDI Biodiesel had set its IPO price at EUR58 a share and right now its around 55. Hardly a success, or at least not yet. As I have commented earlier in this blog, it looks like oil has found a new trading range $60 - $80. And when in the last week oil fell below $60, it quickly recovered. Should it go north of $70 again soon, many biofuel (and solar) stocks might well rediscover their popularity.

As reported here, several biofuel companies that had planned to IPO are now holding back and have yet to set a date. These include Hawkeye Holdings (holding back) and AS Alliances and US BioEnergy Corp who have registered but not yet given the date.

Hesitating to call the market for any IPO is nothing new but the nervousness around biofuels is quite marked.

Some of the concerns about biodiesel and bioethanol are;

i) will the price of oil stay high and go higher? Not everyone thinks so, at least in the short-term.
ii) do the environmental benefits add up? Claims of carbon neutrality are now highly disputed and outside of the USA, not everyone sees the benefit of replacing biodiverse forestry in Brazil and Malaysia with vast tracts of industrialized monoculture.
iii) is it scaleable enough to create energy security by eliminating the need for all oil imports? Almost certainly not.

So that’s the case for pessimism.

On the other hand . . .

i) the odds of a conflict between the USA and Iran continue to rise and this would send the price of oil into orbit. My guesstimate is that this will almost certainly happen before President Bush leaves the White House. A terrible event of course that no one would want, but one can’t ignore that conflict in the Middle East has indirectly been very helpful to the alternative energy industry by boosting the price of oil and I see no reason for this to change.
ii) biofuel - because it is higher octane - provides tangible environmental benefits in cleaner air, producing much fewer particulates. This is particularly relevant in biodiesel.
iii) it’s still a tiny industry and nothing grows in a straight line. Just to reach a mere 10% of global transport fuel, would require enormous compound growth for some time to come. So look at it as a 10 year growth story, not a few months.

Nevertheless, as far as alternative fuel vehicles go, I would rank hybrids and plug in hybrids with greater potential over the next 10 years than biofuel.

Let’s see . . .

Oil prices have taken a tumble and the alternative energy IPO boom so strong earlier this year has dried up. So it’s encouraging to see that Prometheus Energy is planning to list on AIM. Like many of it’s American brethren, it is being drawn to London’s AIM market, because of the high cost of regulatory compliance following the Sarbanes Oxley Act - something I’ve written about here before.

The company plans to extract waste methane from landfill and coal mines, liquefy it and turn it into transport fuel. This is all pretty low-tech stuff and I like it. Air pollution in cities would end in short order if cars, trucks and buses ran on natural gas rather than petroleum and especially diesel. Methane - the most powerful greenhouse gas - has very few impurities which create the particulates, or in layman’s terms, the black stuff in your nostrils.

The environmental priority for cities is to reduce air pollution - not reduce carbon emissions which perversely encourages diesel. That’s why companies like Prometheus are a step very much in the right direction.

Heretofore, the public solar markets have largely been a story of Germany, California and what some call condescendingly “Honorary Westerners”, the Japanese.

So news of IPOs coming from China and Thailand smacks of a new wave, let’s call it Solar 3.0. Solar 1.0 started with President Jimmy Carter and fizzled out rather like he did on the New York Marathon. Solar 2.0 was driven by Germany and Japan with their government sponsored solar roof programmes. Solar 3.0 involves lower cost manufacturing and silicon sourcing, whilst higher tech Western companies are looking at alternatives to silicon based technologies.

According to New Energy Finance, Zhejang Yuhui Solar is planning to raise $80 m on AIM this summer. Another Chinese company - CEEG Nanjing PV-tech also plans to raise capital and last but not least, the thai transformer maker Ekarat Engineering which has a small but burgeoing solar division, making 15 MW or 100,000 modules per year.

In recent years, I’ve often thought that alternative energy will only really come of age when Chinese manufacturing moves into it. The signs are that this is just starting to happen. Napoleon once said “Let China sleep, for when she wakes, she will rock the world”.

Well, here’s to the Chinese rocking the world in alternative energy.

On Thursday last (14th July) Ascent Solar Tech raised about $14 million, after expenses and underwriting costs, following an initial public offering of 3 million units priced at $5.50.

The newly Nasdaq listed company (see website) is different to other solar companies in that it is developing next generation amorphous silicon on plastic substrates. The plan then is to use these to power satellites - anything man-made that orbits the earth and wants continuos cloud free solar power and radiation.

I like the 2nd generation amorphous silicon because generation 1 clearly did not live anything like up to its promise. That was the boom the never happened, the customers just didn’t buy. And Solar Ascent’s space angle is really intriguing . . .

Conventional silicon-based modules are very heavy and the cost per kilo, according to this article in the Economist ” have remained static, at $20,000 per kilo put into orbit, for decades.”

The additional point then is that this company is NOT chasing subsidies, like some of its solar brethren. It’s focussing on the boom in satellite communications and to some extent, the military industrial complex.

So please excuse the pun, it is right out of the usual solar stock orbit.