Tuesday, May 23, 2017

Smarting Up Electrical Grids

The most recent post “Bull Case in Rick Perry’s Grid Study” on May 19th highlighted efforts by U.S. Energy Secretary Rick Perry to help the coal industry with a study of the U.S. electrical grid.  Coal has long claimed advantage as a ‘dispatchable’ power source, i.e. a consistently available power source suitable to supply power for the base load.  Technology is making base load less important.  Indeed, modernized or ‘smart’ electrical grids are making it possible to take advantage of low-cost renewable power sources even though they produce power intermittently and are therefore considered ‘not dispatchable’.
The preference of market-based electric grids for the lowest-cost producer is what has got the coal industry in a knot as power generated from cheap natural gas wins out the daily bidding process.  Even intermittent power sources such as wind and solar can beat out coal-fired power plants.      When wind and power sources are in operation at some scale their marginal cost is low (and getting lower according to the National Renewable Energy Laboratory) and therefore the asking price to the electrical grid is low.  As electricity demand escalates the grid operator casts about for additional power from the next lowest priced power source.  At some time during normal operating conditions, as more power is needed, wind and solar sources will rank as the next lowest-cost power source and beat out a coal-fired power source.
Investors can take a cue from the Perry grid study by going long companies with technologies and know-how that make it possible to deliver power at the lowest possible cost.  Following are few companies that are helping to ‘smart up’ the U.S. electricity grid.

Friday, May 19, 2017

Bull Case in Rick Perry's Grid Study

On April 14, 2017, U.S. Energy Secretary Rick Perry ordered a two-month study of the U.S. electric grid.  Sounds like a good idea, since we know that a resilient and reliable electric grid is vital for economic growth as well as homeland security.  However, the study has a particular goal:  determine how policies promoting wind and solar power are accelerating the retirement of coal and nuclear power need for ‘base load’ power.  True enough coal and nuclear power are two fuel sources that are valuable for generating base load power, i.e. the amount of power needed to fulfill minimum demand presented to the electric grid.  Base load power generation requires a continuous supply of electricity throughout the day and all year long, maintaining grid reliability and resilience.  The underlying premise of Perry’s study appears to be that coal and nuclear power are necessary for adequate base load power and without them the country is vulnerable.
Investors might see Perry’s study in the context of environmental politics.  However, the dynamic of the study  -  even one flimsily designed to promote coal  -  can inform investment strategy and tactics.

Tuesday, May 16, 2017

Tetra Tech's Engineering Play

Tetra Tech, Inc. (TTEK:  NYSE) provides engineering, construction and technology solutions to industry, commerce, governments and international development agencies around the world.  The company’s technicians and engineers have earned a stellar reputation for water cleanup, resource management and environmental remediation.  In early May 2017, a Tetra Tech subsidiary was chosen to by the Australian Department of Defence to provide supportive services for infrastructure development.  The contract will run five years and represents an extension of an existing five-year agreement.  The Australia contract extension is the latest in a string of new and extended relationships that help drive Tetra Tech’s top-line.  The company reports revenue in three segments:  1) water, environmental and infrastructure, 2) resource management and energy, and 3) remediation and construction management.

IHNCTetra Tech is heavily dependent upon the U.S. Defense Department and international development agencies.  In April 2017, the company was awarded multiple contracts by the U.S. Navy for remediation of Navy and Marine Corps installations.  The contracts will be shared with five other companies that will work with Tetra Tech in remediation of radiological contaminants at various sites around the U.S.  The company is also a frequent recipient of USAID (U.S. Agency for International Development) contracts, such as the recent award of a contract valued at $57 million to promote the delivery of clean energy services in Pakistan.

Friday, May 12, 2017

US Geothermal Fizzles

Geothermal power generator US Geothermal (HTM:  NYSE) came up short in reporting financial results for the first quarter ending 2017  -  at least from the perspective of the four analysts with published sales and earnings expectations for the company.  Operating revenue of $8.4 million slipped slightly from the same period a year ago, but produced slightly lower net income of $1.1 million.  The company’s share was $260,000 or a penny per share.  Not good enough say the analyst’s who were collectively looking for two pennies per share in earnings!
Missing earnings expectations has become a bad habit for US Geothermal, having failed to clear the consensus hurdle three quarters in a row.  The previous missed had resulted in modest trimming of expectations.  Investors should be prepared for another round of nipping and tucking in revenue, profit margin and earnings predictions.  The steady drumbeat of lower numbers, and the muted commentary that comes along with it, is usually a drag on share price.
Investors have to question whether a period of price weakness is a good time to pick up shares of a quality company at bargain prices…or a time to run for the hills.  It is May after all, when it is ‘time to sell’.