Could Renewable Energy be the Next Big ASX Winner?

On Wednesday, Infratech Industries announced their intention to list on the ASX. It’s a bold move for the fledgling renewables company, which was established in April 2012.

The company is behind the $17.5 million floating solar panels project currently being expanded in South Australia. They say their tracking and cooling technology produces 57% more power than land-based solar panels. It’s a big deal for the entire solar industry.

Chief executive Raj Nellore says that soon, more capital will be required to keep up with demand. Of listing on the ASX, he said ‘once we get to a certain size, [it] makes sense’.

Infratech has partnered up with the Centre for NanoScale Science and Technology at Flinders University (CNST) for research. CNST has backing from the South Australian state government. So their funding — and the partnership with Infratech — is subject to budget changes.

There are other forces that might pressure Infratech to go public sooner rather than later. For example, they may need to raise money to expand their US operations too. Their US entity was opened in June 2014. They signed their first US customer — the City of Holtville, California — in November. That’s pretty much all they’ve done there.

Whenever they do float, they won’t be alone. A small group of renewable energy companies are already listed on the ASX.

Which renewable energy companies are currently on the ASX?

Wave power

Carnegie Wave Energy [ASX:CWE] is one of the oldest ASX listed renewable energy companies. They specialise in harnessing the force of waves for zero-emission power. Their CETO wave power system works when the wave moves an underwater buoy, which moves a pump on the seabed. The pump pushes high pressure water through a pipe to a hydroelectric power station. The station can be onshore or offshore.

concept panel
Source: carnegiewave.com
[Click to enlarge]

You may have heard of them in passing over the last few months. They’re the firm responsible for the wave power station off the coast of Perth that generates about 5% of the power at the Garden Island military base. An artist’s rendering of the station recently went viral.

B-Final Array image 1024x724
(Source: carnegiewave.com)
[Click to enlarge]

They’re not the only company in Australia developing wave power technologies. Oceanlinx is based in South Australia. Unlike Carnegie, their unit sits on the surface. The changing pressure of air in the internal column pushes a turbine, which creates electricity.

Group2013 (1)
(Source: oceanlinx.com)
[Click to enlarge]

Ocean Power Technologies Australasia was developing a 19 megawatt power station off Portland in Victoria. But last July their parent company Ocean Power Technologies [NASDAQ:OPTT] scrapped the project.

BioPower Systems is developing a system called bioWAVE. It works similarly to Carnegie’s technology. Waves move the three floats, which in turn move a hydraulic system. BioPower Systems is currently constructing a pilot project off Port Fairy in Victoria. They’re evaluating sites near King Island, Flinders Island, Cantabria in Spain, and San Francisco.

BW_diver
(Source: biopowersystems.com)
[Click to enlarge]

They’re also developing a tidal power technology called bioSTREAM. It uses the same hydraulic conversion unit as the bioWAVE. It looks like half a shark stuck to the ocean floor because the swimming motion of sharks inspired the design of the bioSTREAM. It’s ‘biomimicry’.

header-tech-biostream

(Source: biopowersystems.com)
[Click to enlarge]

But Carnegie is the only one that’s listed on the ASX. Their share price has continued to grow in the last year. The rise in October was thanks to their announcement that CETO was ready for commercialisation. The rise in February could be due to the publicity when the Garden Island unit started producing power.

ASX CWE 20150501
Source: Google Finance
[Click to enlarge]

Shares reached an all-time high of $0.40 in January 2008. This was after the first government funding and pilot project results came in.

Solar

Dyesol [ASX:DYE] develop and make Dye Solar Cell (DSC) products. DSC technology is a ‘photovoltaic enabling technology’. It’s a system that allows metal, glass and some plastics to become the conducting surface for a solar cell. It’s basically a solar cell disguised as a regular tile, panel or pane of glass.

DSC_Diagram
(Source: dyesol.com)
[Click to enlarge]

They make it sound so simple:

DSC technology is a third generation photovoltaic technology and is very different from first generation silicon solar cells and second generation thin film solar technologies.  DSC is biomimetic. It works on a principal [sic] in many ways similar to the natural process of photosynthesis and is sometimes described as a kind of “artificial photosynthesis”.

Dye Solar Cells are made from a few key materials applied in very thin layers to a substrate (such as glass or steel).  The Dye Solar Cell is made using a layer of electrolyte, a layer of titania (a pigment used in white paints and toothpaste), and a layer of ruthenium dye.  These key layers are either sandwiched between glass or encapsulated using other methods.  The term mesoscopic has been introduced to reflect further advances in the technology, particularly where a perovskite is substituted for dye as a sensitiser. Light striking the sensitiser excites electrons which are absorbed by the titania to become an electric current.’

The benefits of Dyesol’s technology are low manufacturing costs and emissions. Dyesol claims their cells are more reliable in low-light conditions than traditional silicon based cells. DSC products can also replace other building façade materials like glass, instead of taking up roof space or land space.

On 30 March, Dyesol got a letter of intent from the Development Bank of Turkey. The Bank wants to help Dyesol commercialise their technology in Turkey. Their March quarterly report, released on Friday, says the deputy CEO of the bank has ‘taken a strong interest in perovskite based solar PV and considers it strategic in addressing Turkey’s reliance on imported fossil fuel energy’. Dyesol is planning to form joint ventures around the world to ‘provide high-quality and high-volume routes to market’.

Their stock price history is a bit up and down. The spikes in 2006 and 2007 were due to positive news such as  defence contracts and development news. It’s possible that, now commercialisation is ramping up, their stock price will also get a boost.

ASX DYE 20150501
(Source: Google Finance)
[Click to enlarge]

Then there’s Enviromission [ASX:EVM]. They’ve developed a ‘solar tower’. It ‘combines the use of a solar air collector [canopy] and a central updraft tower to generate a solar induced convective flow which drives 32 x 6.25MW pressure staged turbines to generate electricity’.

It looks like this:

enviromission3
(Source: enviromission.com.au)
[Click to enlarge]

The image on the right is an actual pilot plant that they’ve built in Spain.

Enviromission has had a very busy six months. In November, they signed a deal with the US Department of Energy to fund their South of Parker Transmission Upgrade Project. That upgrade would service a solar tower that Enviromission wants to build in La Paz, Arizona. Then in early February they confirmed they’d be building a tower in India. The good news has had a positive impact on their share price.

ASX EVM 20150501
(Source: Google Finance)
[Click to enlarge]

Geothermal

The Raya Group [ASX:RYG] was previously known as Panax Geothermal Ltd. They specialise in geothermal energy.

Geothermal energy is the heat stored in rocks. It works by tapping in to steam or hot water reservoirs underground. There are two main types of plants — steam, and binary cycle. With steam plants, steam is piped straight up from the ground and it drives a turbine which produces electricity. With binary cycle plants, the hot water is used to heat a liquid that boils at a much lower temperature and the steam from that liquid drives the turbines.

Raya Group projects use a binary cycle setup:

company-geothermal-about
Source: panaxgeothermal.com.au
[Click to enlarge]

Their point of difference is that they only use ‘conventional’ geothermal technology. This means that they only tap naturally occurring aquifers. ‘Enhanced’ tech involves pouring water onto hot dry rocks underground. Their website says that ‘Raya only targets these geothermal resources because the technology has been commercially proven around the world.’ That seems sensible in light of the failures of other geothermal companies. In April 2009, Geodynamics’ [ASX:GDY] dry-rock well Habanero 3 burst, costing the company several million dollars.

Liquidated companies

Of course, not all renewable energy companies have survived on the market. In late April, Ceramic Fuel Cells Limited [ASX:CFU] went into liquidation. They ran out of money for research. Then they ran out of money to find more money: ‘The Company has been unsuccessful in securing further funding to enable it to explore a corporate transaction to maintain…ongoing future operations’.

Basically, they’ve made losses since the very beginning. They’ve never paid a dividend. At least the other renewable energy companies have relatively healthy books. For example, last quarter Geodynamics reported a net operating cash flow of $1.28 million for the year to date. They had $31.08 million cash at the end of the quarter.

What’s it like to invest in one of these companies?

Wondering what it’s like to invest in eco-friendly companies? Just ask our editor Tim Dohrmann. In October he introduced us to Redflow Ltd. [ASX:RFX]. He pointed out the signs to look for in a small-cap tech company that focuses on renewable energy:

As is the case for many tech companies that focus on renewable energy, the market refused to rate Redflow highly without evidence of sales contracts.

Well, in May this year, the market got a sniff of that evidence…and Redflow started its steady march upward.

After Redflow announced a supply agreement with a Philippines-based telco provider, the stock started to rock. It went from 10 cents per share in mid-May to 38 cents in mid-September.

Even after pulling back in October, Redflow shares have brought shareholders a whopping 279% yearly gain.

But if you had looked closely enough, you could have spotted this news coming and intercepted the gains.

In January, Redflow announced a manufacturing partnership with a global tech giant.

And in February, the company told the market that its product was ready for commercial production…and that its sales pipeline was robust.

These kinds of signals reveal a small-cap stock that’s ready to erupt.’

If you’re not keen on spending your time scouring news and announcements for clues like this, there is an alternative. There are a number of renewable energy exchange traded funds to choose from.

Australian Ethical [ASX:AEF] is a fund that avoids investments that cause harm. They also ‘seek out positive investments that support people, quality and sustainability’. They’ve invested in two geothermal energy companies, three wind companies, and nine solar companies.

Australian Ethical likes to argue that ethical investing is smart as well as kind. On their website, they say ‘Demand for ethical and sustainable products and services – like those many of the companies we invest in provide – is increasing. The renewable energy sector has a much more promising future than fossil fuels.

Their flagship fund is the Australian Ethical Smaller Companies Trust. It has outperformed the ASX Small Industrials Index for over a decade. This has had a positive impact on their share price:

ASX AEF
(Source: Google Finance)
[Click to enlarge]

 

If you’re willing, you can also look outside the ASX. For example, there’s KLD.

iShares MSCI USA ESG Select ETF [NYSE Arca: KLD] doesn’t just have a long name. It also has a long history. It’s one of the US’s oldest socially responsible investing (SRI) ETFs. The fund’s investment advisor, BlackRock, says it gives ‘exposure to socially responsible U.S. companies (excludes tobacco companies) [including] access to 100+ large- and mid-cap stocks that have been screened for positive environmental, social and governance characteristics’. It holds lots of interesting investments. 4.2% of its holdings are in NextEra Energy [NYSE:NEE]. NextEra specialises in wind and solar power technologies.

The fund has performed well since its inception in 2005.

NYSEARCA KLD
(Source: Google Finance)
[Click to enlarge]

So, what’s the conclusion?

The conclusion is that…uh…there’s no conclusion.

Renewable energy stocks are a mixed bag.

Some companies look like they could perform well in the long term. Some don’t look like they have the strength to get through the period before their first successful project.

If you’re willing to put your time in to research and active investment, you could find that a renewable energy company is a big winner for your portfolio.

Eva Mellors
Contributor, Money Morning

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