Deep Green Crystals: June 2006 Archives

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June 20, 2006

How did Brazil do it?

You have probalby heard that Brazil is now oil independent from unleaded because of their ethanol business. How did they do it? a new report tells you how and what they plan to do as an encore.

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EU starts 25 year biofuels roadmap

Another big research and "planning" project: Refuel: Home. At least they are serious about it.

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June 19, 2006

I hope Neander ships this diesel motorcycle

Neander Motors over in Germany are a bunch of crazy Germans who love their power and torque. Who needs a 1.4 litre diesel that puts out 100HP and 200Nm/144FTlb torque? Nobody. But EVERYBODY WANTS one. Who doesn't want to go 0-60 in under 4 seconds on a motorcycle powered by biodiesel?

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How about a 157 mpg diesel car?

Green Car Congress: Malaysian Company Takes 26% Stake in German Maker of 157 MPG Diesel Car

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The Deal article on Imperium Renewables

Happy reading: TheDeal.com - Green gold

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June 12, 2006

Nancy Floyd on Northwest Clean Tech

Nancy Floyd is a partner at Nth Power and on my board. So her most recent article (cover) of Oregon Business Magazine: Current Issue was par for the course. She is a leader nationwide on cleantech but notes that the Northwest and Oregon in particular is falling behind despite it's "green" image. A good read of activity in the region.

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More movement on Capital hill for biofuels

the 25/25 idea has taken bill form.

RESOLUTION CALLING FOR 25% RENEWABLES BY 2025 INTRODUCED
With an eye towards further decreasing the U.S. dependence on foreign oil, a handful of mostly Midwest senators and representatives introduced a non-binding, bipartisan resolution calling for 25% of the nations energy to be produced from renewables by 2025.
The concurrent resolution, H ConRes 424 and S ConRes 97, introduced by Senate Finance Chairman Chuck Grassley (R-Iowa) and House Agriculture Chairman Bob Goodlatte (R-Va.), stems from ideas previously announced by the Energy Future Coalition, a broad, high-level group of representatives, including former CIA Director James Woolsey, former Sen. Tom Daschle (D-S.D.), former Clinton Chief of Staff John Podesta and British media mogul Richard Branson.
America for too long has endured tight energy supplies. And, unfortunately Abracadabra wont solve our problems, said Grassley. Thats why the 25 by 25 initiative is so important. Its going to take bold ideas and workable solutions, he said.
Our effort with this concurrent resolution is to signal to Americas farmers, ranchers and forestry industry, that we believe they have the ability and resources to generate 25 percent of our energy needs and that it is in our economic and national security interest to do so, Grassley added.
The resolution does not say how the U.S. would reach the 25 by 25 goal, but supporters of this goal commit to support sensible policies and proper incentives to work toward the goal, Grassley said. This is something we all can support. Its in our economic and national security interest to do so, he added.
However, its unclear as to why the non-binding resolution was introduced, and not a bill, which would have some enforcement behind it.
Several bills have already been introduced in Congress pushing for a higher biofuels requirement than what was passed into law as part of the 2005 energy bill. However, those efforts have received some opposition from oil refiner groups, who feel the biofuels industry doesnt need another mandate.
The topic of biofuels was also discussed yesterday during a Senate Foreign Relations Committee hearing on oil dependence and its economic risk. Former Fed Chairman Alan Greenspan testified that while corn-based ethanol can play only a limited role, because its ability to displace gasoline is modest at best, cellulosic ethanol, if it becomes cost competitive, would help wean us of our petroleum dependence.
-Rachel Gantz, rgantz@opisnet.com

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VW Touareg V10 TDI best biodiesel rig on the planet

found a good quality used one on e-bay today: eBay Motors: Volkswagen : Touareg (item 4649051087 end time Jun-16-06 15:58:19 PDT). I already have two. You should buy it.

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June 9, 2006

New Imperium Renewables site launches

Read all about our strategy, our refinery roll-out plans and keep up to date on the latest news.

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strong demand for Ethanol ipos

Aventine sets a very high range for their IPO: StreetInsider.com and Verasun raises their range due to strong investor demand. Verasun also increases the number of shares offered (although all from existing investors, not money going to the company).

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UBS officially launches biofuels index notes

If you want to play the upside on biofuels commodities with principal protection, here are the notes for you. (I am not a broker nor am I personally investing in these notes). They are a little ethanol heavy for me, but ethanol will drive most of the demand for feedstocks relative to biodiesel over the next couple of years anyway.
BIOFUEL INDEX NOTE.pdf

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June 8, 2006

Iowa passes significant biodiesel laws, NBB tracking 160 pieces of legislation

The NBB is reporting it is tracking over 160 pieces of state biodiesel legislation. Read the most important here.

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Thoughts on the Hawkeye S1

More bedtime reading last night. This one is truly a page turner with a surprise on every page. A good analyst highlight here Here are some things that struck me:

1. in 2005, Ethanol was 89.2% of revenue and distillers grain 10.8% Note that Verasun is 85%/15%. I wonder if Hawkeye has a better market for ethanol or a worse market for DDG?
2. Gross profit margin of 24.5%
3. About $3/gallon of current capacity in debt. My reading of the other Ethanol plays puts this one with the highest leverage. Interest expense in 2005 of $14,863,000.
4. Corn costs "for year ending December 31, 2005 made up approximately 46.9% of our total operating expenses". with corn prices having dropped in 2005.
5. No technology differentiation. In fact a huge disclaimer on the fact that new technologies may displace them. Some of this just the lawyers, but read this disclaimer: "The development and implementation of new technologies may result in a significant reduction in the costs of ethanol production. We cannot predict when new technologies may become available, the rate of acceptance of new technologies by our competitors or the costs associated with new technologies. Significant amounts of oil and natural gas ar required to grow, fertilize and harvest corn, and to ferment and distill corn into ethanol. New technologies that seek to develop more energy-rfficient means to produce ethanol from cellulosic biomass could displace the corn-based technologies used in our facilities and materailly and adversly affect our busines and business prospects. In addition, advances in the developmen tof alternatives to ethanol could significantly reduce the demand for or eliminate the need fo rethanol. Any advances in technology which require significant capital expenditures to remain competitive or which reduce demand fo rprices for ethanol could have a material adverse effect on our results of operations and financial condition."
6. Hawkeye makes a point of saying they are NOT in any of the "pooling" agreements for ethanol distribution and suggests a competitive advantage for that, yet they have given their marketing to an exclusive agend Eco-Energy, Inc. upon whom all the marketing is dependent.
7. Apparently the entities that own the assets are not today American corporations. "After the Conversion, we will become subject to corporate income taxes in the United States."
8. Read this: "Our substantial indebtedness could have important consequences for you by adversely affecting our financial position." Yea, $650M in debt will do that to a guy. Read on: "Our ability to make payments on and refinance our indebtedness will depend on our ability to generate cash from our operations." Much of this is standard debt disclosure, but the tone is much more severe due to the high amount of leverage in this deal.
9. Here is an interesting concept I have not seen before. Hawkeye will be a "controlled company" which means the public shareholders don't control it. From their disclosure "Upon completion of this offering, THL will continue to control a majority of the voting power of our outstanding common stock and we will be a "controlled company" within the meaning of the New York Stock Exchange corporate governance standards. Under the New York Stock Exchange rules, a company of which mor ethan 50% of the voting power is held by another person or group of persons acting together is a "controlled company" and may elect not to comply with certain New York Stock Exchange corporate governance requirements." These go on to include independence of the board, etc. I wonder if that is good for all shareholders?
10. how bout this one "You will experience immediate and significant dilution in the tangible book value of the shares you pruchase with this offering." This is because the money is going straight out the door to pay debt rathen than to grow the company.
11. While I understand accountants are getting more conservative in their opinions, his is the first S1 I have seen with a "material weakness" letter on file. Here is the disclosure: "Our management and auditors ahve identified a material weakness in the design or operation of our internal controls that, if not properly remediated, could result in material misstatements in our financial statements in future periods." "Our failure to maintain adequate control over the financial reporting process has resulted in adjustments to our financial statements related to the accounting for and reporting of certain derivative transactions and reporting of cash flow information." Huh?
12. The next disclosure goes on "A failure to achieve and maintain effectie internal control over financial reporting in accordance with the rules of the SEC could harm our business and operating results and result in a loss of investor confidence in our financial reports, which could have a material adverse effect on our business and stock price." You think?
13. Hedging losses. "an increase in accrued expenses of $37.3 million, representing the estimated fair value of certain forward sales contracts determined to be below market" Basically their strategy of forward selling, undoubtedly driven by financial covenants around their debt leverage, has backfired.
14. Natural gas prices increased 92% QtQ in Q106 and represented 21.5% of COGS Q106 vs 16.4% COGS Q105. versus Verasun at 19.7% and 18.5% respectively. The casual observer could conclude that Hawkeye's plant is getting less efficient with natural gas whild Verasun's is getting more.
15. "We recorded a net gain from commodity option transactions of $0.9 million in the first quarter of 2006.." This is the first S1 I have read with a gain. Most have had losses on commodity option transactions. Must have some smart guys there.
16. "The term loan facility bears interest rate at a six-month LIBOR rate plus 2.875%." Verasun has the same, but +3.00%.
17. "As of December 31, 2005, approximately 64% and 16% respectively, of our estimated ethanol and distillers grains production in 2006 was subject to fixed-price contracts" this is versus 48% at Verasun. That is ALOT of fixed price contracts in a period of rising ethanol prices they are not able to capture the upside. That is why they are recording expenses (above).
18. Here is an interesting one: "We have two customers, one of which accounts for all of our ethanol sales and the other which accounts for all of our sales of distillers grains."
19. They have a big play in logistics. "Through a long-term lease agreement, we have access to over 500 rail cars for our exclusive use for at lease the next five years. We believe that this dedicated rail supply provides us with a logistical advantage over other ethanol producers by allowing us to deliver ethanol to the highest bidders in a timely manner. In addition, we own a 63.5% interest in the D&W Railroad LLC, which owns the 52 mile spur from our Fiarbank plant to the Iowa Northern line."
20. This is my personal favorite: "Hawkeye Renewables also will pay THL Managers VI, LLC at the closing of the THL Transactions a transaction advisory fee of $20.0 million."

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Great site tracking alternative energy stocks

Lots of good momentum charts slice and diced every which way. Energy Stocks. Some good alalysis as well.

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June 7, 2006

Ethanol valuation round-up

More Ethanol Makers Plan to Go Public SmartMoney.com is a good round-up of current Ethanol related public valuations, revenue and activity. A little light on analysis, but most coverage is today.

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Intel to sell off it's Communication chip business, one I got wrong

As a venture capitalist you are basically making calculated bets. One of my bets was development of an operating system for NPU communication chips which Intel had made a big commitment to. It is becomming clear this week: MercuryNews.com | 06/03/2006 | How Intel wasted billions that Intel is getting out of the business after spending over $10B on it. The start-up I funded four years ago, IPFabrics, was a very good bet at the time to draft behind this investment. But one of the major risks was always that Intel would not be sucessful and would get out of the business. That has come to be. That doesn't mean that the bet on IPFabrics was wrong. In fact, they have created some very valuable technology which has the potential to be repurposed in a different way. That is also a fact of life in venture investing. The business plan that ends up making money may not be the one you originally invest in. Gosh this is fun.

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June 5, 2006

thoughts on the Verasun S1

My weekend reading was the Verasun S1 IPO filing. Very interesting stuff. A couple of interesting observations and take-aways.

1. The revenue from Dried Distillers Grains was flat from 2004 to 2005 while ethanol production ramped significantly. The only conclusion, DDG prices are falling. In 2005 they represented about 15% of the revenue down from 18% in 2004. DDG is a material part of the economics of ethanol and market is getting flooded meaning for profitability to stay, ethanol prices have to go up.
2. Natural gas prices (the second most expensive cost of goods) increased 207.3% QtQ from Q105 to Q106. Nat gas represented 19.7% of Cogs in Q12006. 18.5% in 2005 and 12.4% in 2004. This makes ethanol as much a bet on natrual gas prices as corn prices.
3. Transportation expense in creased 123.8% QtQ from Q105 to Q106. These plants are fixed to rail logistics. Rail cars are hard to find and expensive. The trains that carry them have near monopoly power to set and raise prices. Transportation represented 14.6% of the COGS in 2005.
4. Verasun markets "substantially all of the ethanol that we produce at our two facilities" through Aventine Renwables who have now entered the business directly and are listed as major competition. Verasun will be responsible for their own marketing in mid 2007 and after.
5. "During 2005, approximately 48% of our ethanol sales were made under fixed price contracts, 16% under indexed contracts and 36% at spot prices." That strikes me as alot of fixed price contracts with lots of varying inputs.

All this is against a raising price of ethanol. They also

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June 4, 2006

Think deeper behind the BP announcement of "biodiesel"

seems like everyone wants to be making "biodiesel". I even got taken by the BP announcement out of Australia that they would make lots of "biodiesel". But read this: This is the main page for the association. What BP is making is not technically "biodiesel". Hydrogenated tallow fat is NOT biodiesel. It may be a fuel that may burn, but it is not the mono-alkyl esters of long chain fatty acids derived from vegetable oils or animal fats that are recognized by the ASTM and EN as "biodiesel". It is some other kind of fuel that BP is trying to make cheap, blend with petroleum diesel and get tax credits for. Expect more of this kind of sillieness form the majors.

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CIBC opines on climate change impact on natural resources

Al Gore's movie primier went apparently well this weekend. You will be seeing more graphs like this. These are from CIBC up in our great white north. You can ar

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2007 Jeep Grand Cherokee CRD

If you want a big SUV, but want diesel, they are coming in Q1 2007 Green Car Congress: Chrysler Introduces New Diesel, E85 Grand Cherokee Models

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California presses for more biofuels (thanks Arnie!)

OFFICE OF THE GOVERNOR

GAAS:266:06FOR IMMEDIATE RELEASE04/25/2006

Gov. Schwarzenegger Directs State Agencies to Expand 'Bio-Fuels' to Fight High Gas Prices

In line with his strong leadership in reducing California's dependence on petroleum fuels, Governor Schwarzenegger today directed several state agencies to take major steps toward the widespread use of renewable energy sources known as bio-fuels. Biofuels, such as ethanol, can be developed from specially grown crops such as corn and sugar, to produce clean, renewable transportation fuels or electricity. Fuels can also be developed from naturally occurring waste, such as rice straw, animal waste and municipal solid waste.
"It is critical that we do everything we can to reduce our dependence on petroleum-based fuels," said Gov. Schwarzenegger. "Turning waste products into energy is good for the state's economy, local job creation and our environment. By implementing biomass programs in California, we will help fight critical waste disposal and environmental problems, including the risk of wild fires, air pollution from open field burning, and greenhouse gas emissions from landfills."
The Governor issued Executive Order S-06-06 establishing targets for the use and production of biomass products such as biofuels (liquid) and biogas (gas) as an integral part of California's renewable portfolio standard. To achieve these targets, he directed the California Energy Commission (CEC), the Resources Agency and other state agencies to collaborate, research, promote and identify funding to advance biomass programs in California. The CEC will report the progress to the Governor's Office and Legislature on a biannual basis.
California will produce a minimum of twenty percent of its own biofuels by 2010 and forty percent by 2020, according to targets set by the executive order. Currently, of the 900 million gallons of ethanol consumed in California (which is 25 percent of the entire nation's consumption), only five percent is produced in California.
The executive order also calls for the use of biomass for electricity to reach 20 percent within the state's Renewables Portfolio Standard (RPS) goals for 2010 and 2020.
The Governor has also made it a priority to develop a self-sustaining solar industry for California. Last year, he introduced the Million Solar Roofs Initiative, which included $2.9 billion in incentives to homeowners and building owners who install solar electric systems. He sponsored legislation to fund the incentive program that rewards the installation of systems in new and existing residential and commercial sites. The Governor worked with the California Public Utilities Commission (CPUC) which is now implementing the program, which will lead to one million solar roofs in California by 2018.
Under Gov. Schwarzenegger's leadership, California has continued to champion policies that reduce the state's dependence on petroleum. To promote the transition to alternative fuels, the Governor led the effort to create the hydrogen highway which will provide Californians with 200 hydrogen fueling stations across the state. Gov. Schwarzenegger has also promoted the Flex Your Power at the Pump program encouraging Californians to use gasoline more efficiently.

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UBS: Oil outlook "fundamentally bullish through 2008"

some top tier analyst research on oil outlook.
UBS oil outlook April 2006.pdf

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Siemens ships commercial quanity of copper rotor motors

This is big news: Super-efficient Motors with Copper Rotors Enter U.S. Market - EnergyVortex. Efficiency of electric motors is a key metric. Copper is just plain more efficient than aluminum. But the problem has been that copper is notoriously hard to mass manufacture to the quality specs needed. Many people have gone with hand made rotors for efficiency and power like Tesla motors. The effect is amazing, just drive the car! Expect the next couple of years to see alot of retrofit business replacing old electric motors with these new super efficient ones. Go Siemens!

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