Among a group of ten large wind power companies, Sinovel ranks tenth in installed megawatts, but significantly higher in market share. General Electric Co. (NYSE: GE), Siemens AG (NYSE: SI), Vestas Wind Systems A/S (OTC: VWDRY), Gamesa Corp. (OTC: GCTAF), and Nordex SE (OTC: NRDXF) all have larger installed bases than Sinovel, but due to Sinovel’s presence in China its market share was second only to Vestas’s, and ahead of GE.

Among US utilities, NextEra Energy, Inc. (NYSE: NEE) claims the largest installed base of wind generation, with 85 wind farms and about 8,300 megawatts of generation. The AES Corp. (NYSE: AES) operates about 1,700 megawatts of wind generation globally. Utility-scale wind is on most US utilities’ radar screens for more development.

American Superconductor depended on Sinovel for about 70% of its 2010 revenues. Many of the rest of the company’s wind systems customers also came from Asia, particularly China. The US company put a lot of eggs into a single basket, and that decision has come back to haunt them.

At one time, it didn’t seem like such a bad decision. China installed more wind turbines in 2010 than any other country and has plans to install many more. And to top off the good news, Sinovel held a Shanghai IPO in March of this year and raised $1.4 billion. The company out to be able to pay a bill for $56 million.

But the issue probably revolves around technology. As a condition of doing business in China, alt-energy companies must have a Chinese partner and must share their technology with those partners. The trade-off appeals to companies like American Superconductor because it opens up a huge market at a cost that will only have to be paid sometime in the future. For American Superconductor, payday may have arrived.

One might look at the company’s current troubles and decide that this will be a good test of management’s talent and skill. So far, management has not done a very good job. Sure, they’ve lost $56 million in revenue and have lowered their revenue expectations for 2011 by a quarter. That’s no longer news, nor should a possible de-listing be news.

Is there anyone at company headquarters who knows how to play this game? The company’s wind power systems division was destined to fall behind Chinese competitors eventually. It happens all the time when US companies try to compete with Chinese companies. Nothing new here either.

Management should have been ahead of the curve though, and managed that decline. American Superconductor’s cable division has a virtual stranglehold on high-performance superconducting cable. This is the stuff that every major grid operator in the world will be ordering thousands of miles of in the not-too-distant future. This is American Superconductor’s future, not wind turbines.

The First Trust ISE Global Wind Energy ETF (NYSE: FAN) is up about 1.25% today, to $10.35, in a 52-week range of $9.30-$12.38. American Superconductor is one of the smallest holdings in this fund.

American Superconductor’s shares have risen today, by about 2.5%, to $7.79, in the first hour or so of trading. The stock’s 52-week range is $7.40-$38.88. The stock’s trailing P/E ratio is around 9, and its forward P/E is nearly 19, but these are way down from earlier this year. Results for 2011 are not likely to push those ratios up, but this is a better stock than that. Provided of course that the company’s managment stops looking in the rear-view mirror.

Paul Ausick

Solazyme follows Codexis, Inc. (NASDAQ: CDXS), Amyris, Inc. (NASDAQ: AMRS), and Gevo, Inc. (NASDAQ: GEVO) into a market with a lot of promises and very little else. That may sound harsh, but none of these companies makes much biofuel or much revenue from biofuel. Solazyme, like the others, plans to make nutrition and personal care products in addition to biofuels.

Another biofuel maker, Ceres, Inc., recently filed for an IPO and plans to trade on the NASDAQ under the symbol ‘CERE’.  The company wants to raise $100 million to develop and market its modified seeds that are used to raise feedstocks for biofuel production. Agribusiness giant Monsanto Co. (NYSE: MON) owns 6.4% of Ceres.

The largest single user of petroleum products in the US is the Air Force, which has been experimenting with biofuels as a substitute for kerosene-based jet fuels. Tests of the biofuel substitute have been promising, but it costs about 10 times more than jet fuel. It is not realistic to believe that biofuel’s cost will come down by an order of magnitude in the near future. In fact, it is unlikely ever to fall that far. Oil prices will have to rise much higher than they are today, and biofuel costs will have to fall significantly before biofuels will replace jet fuel.

The hedge fund manager who predicted the collapse of Enron, Jim Chanos, told an investor conference that wind and solar energy will never be cost-effective sources of energy because they are not efficient. He especially suggested that investors dump shares of First Solar, Inc. (NASDAQ: FSLR) and Vestas Wind Systems A/S (OTC: VWDRY).

Chanos notes that Vestas’s revenues keep falling and that the company has run afoul of certain accounting procedures. First Solar is experiencing quality control issues and negative cash flows, as well as having difficulty hiring and keeping managers with experience in the solar industry. Chanos also noted that China’s growth is propped up by a real-estate bubble and he recommends short positions there as well.

Because China now leads the world in clean energy spending, it’s not a stretch to say that companies like Vestas and First Solar, both of which have huge projects pending in China, could get some real headaches if China’s real estate bubble should pop. Such an event could see the government pull back on its grand plans for investments in green energy and put a big hurt on a number of alt energy companies.

Finally, General Electric Co. (NYSE: GE) has introduced a new high-efficiency natural-gas fired plant design that can respond more quickly to fluctuations in wind and solar electricity generation. The new design, which GE calls the FlexEfficiency 50, is a 510-megawatt plant that can ramp up power by 51 megawatts/minute, reaching full capacity within 10 minutes.

The plant’s fast response time means that sudden cloudiness or stillness won’t cause system operators to substitute coal generation for those times when the wind and solar plants aren’t generating. By evening out the intermittent nature of solar and wind generation, the new design could be appealing to utilities facing renewable portfolio standards in many states. The new plants are expected to be launched first in Europe, due to regulatory uncertainty and lack of demand for new gas-fired plants in the US.

Paul Ausick

Just on June 18 we ran a piece describing the The First Trust ISE Global Wind Energy ETF (NYSE Arca: FAN), so it appears there will be two new fresh wind ETF’s trading in short order.  On the surface, it looks like there are also going to be many overlaps within these similar ETF’s.

Jon C. Ogg
June 26, 2008

These are the top holdings  of the index as of today’s fact sheet:

• Repower Systems                    10.34%
• Vestas Wind Systems A/S        9.95%
• Gamesa Corp Tecnologica SA   8.07%
• Hansen Transmissions Int’l NV   6.03%
• Theolia                                     5.25%
• Japan Wind Dev. Co., Ltd           5.06%
• Nordex AG                               4.61%
• Babcock & Brown Wind Ptr Gr.  4.44%
• Clipper Windpower Plc              3.20%
• Gurit Holding AG                      2.64%

These are some of the facts of the total ETF as well:

• Number of Stocks             52
• Maximum Market Cap.     $299.22 Billion
• Median Market Cap.         $1.53 Billion
• Minimum Market Cap.      $203 Million
• Price/Earnings                 25.36
• Price/Book                      3.06
• Price/Cash Flow              22.26
• Price/Sales                     2.30

FAN is designed to track the performance of the ISE Global Wind Energy Index and will invest at least 90% of its assets in common stocks that comprise the Index or in depository receipts representing securities in the Index.

This one actually had a decent launch considering the lack of press and considering the ADR or foreign listed composition.  With less than 30 minutes to the close it has traded 356,000 shares.

Jon C. Ogg
June 18, 2008