Energy Business

Alternative Energy Watch: Biofuel IPOs; Hedge Fund Manager Short on Wind, Solar; GE Offers New Gas-Fired Design (CDXS, AMRS, GEVO, MON, FSLR, VWDRY, TAN, FAN, GE)

Alt-energy news today looks at some coming IPOs in biofuels, some comments from a hedge fund manager on clean energy, and a new design for a natural gas-fire power plant.  Biofuel maker Solazyme, Inc. is expected to begin trading this week on the NASDAQ under the ticker symbol ‘SZYM’. The company produces a drop-in substitute for petroleum (among other things) using a unique fermentation process. The company hopes to raise $160 million at an offering price of about $16/share. This would value the company at about $900 million.

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

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