As you likely know by now, President Obama announced a rather aggressive plan to limit carbon emissions from existing power plants last week. This was yet another blow to the coal sector despite Energy Secretary Moniz saying theU.S. is not waging war on coal. Considering the President’s pledge to cut greenhouse gas emissions (GHG) 17% from 2005 levels by 2020, microturbines, which are really high-speed fuel turbines, may be about to score big points with investors who are looking to profit from Obama’s climate plan.
I’m extremely favorable on microturbines because of the ability to generate heat and provide electricity from mainly natural gas but also from diesel, hydrogen, propane or even methane. The idea of cogeneration power or combined heat and power (CHP) is already very much proven but the concept of using one power source for a 1-2 efficiency punch is finding new allure amongst utilities, commercial interests, investors and policy makers all seeking cost-effective (target $500 per kilowatt), low-carbon energy solutions in a world trying to reverse global warming. This bodes well for microturbines because they produce the lowest emissions of any fossil fuel internal combustion system. Therefore the adoption of microturbines could lower state and regional SO2 and NOx figures and thus make the weekly emissions report from our friends at Genscape an even more important barometer for emissions.
Heat is an unavoidable byproduct of power plants so to be able to capture that heat while producing power is really getting the most out of an energy source and thus helping to lower our carbon footprint in the process. Improvements in technology coupled with growing concerns surrounding global warming and the need for reliable power supply should only bodes very well for microturbines, a sub-group of cogeneration since control over cost and availability of power supply presents new revenue opportunities from independent power sources.
Don’t let size fool you, microturbines, roughly 15-300 kilowatt in size, require low maintenance since they have only one moving part. They can eliminate the need for industrial back-up generators, including reciprocating engines used to create biogas. Due to their smaller, lightweight size they can be scalable off the grid in order to help maximize energy production from landfill sites, wastewater treatment plants and/or oil and gas sites while allowing heat from flaring to be used for energy, not just emitted as a pollutant into the air.
Microturbines could also be used at coal sites, even closed mines which seep gas for years, to make emissions from this battle-scarred sector cleaner and used as a power source (this may make the coal sector gain renewed investor confidence). Considering the move to implement non-military microgrids post Hurricane Sandy that can run independently from the power grid for more reliable and manageable service, microturbines have a growing widespread appeal even for utility companies looking for more efficient, local power distribution.
While the idea of tapping landfills for energy is an older concept, the concept is getting renewed interest on the heels of New York City Mayor Michael Bloomberg announcing the city will require residents to separate food waste for composting by 2016. This is good for microturbines which can use methane from food processing waste to create renewable power and heat.
A low carbon footprint makes microturbines attractive also to power hybrid-electric vehicles (HEVs) including trucks, buses and maybe even future cars because the onboard battery charger can solve many fears about electric driving range since it allows a full day of use without stopping to recharge. Utilities may benefit from microturbines by tapping this off-grid energy source in order to peak-shave or alleviate some strain on the grid when demand is high. Therefore the use of microturbines can ultimately improve overall grid reliability. Further strengthening the appeal of microturbines is the fact they are air cooled and unlike most power plants, they don’t require water. Advancing energy without reliance on water is a big investment theme in my view that only solidifies the bullish case for microturbines for me.
Capstone Turbine (NASDAQ: CPST) recently saw a 11% share decline due to “slightly” lower revenues from Q412. However, this may present an opportunity for patient investors since the company, which is seeing better annual margins (11% of revenues vs 5% in 2012), did report the best annual financial performance to date and the best year-end quarter in company history. It doesn’t hurt Capstone, which has record backlog (~$149mln), also has tens of millions of hours of operation across the globe at a time when state incentives to produce cleaner, more effective electricity is accelerating.
Capstone should also benefit from new demand from the marine industry thanks to wider adoption of liquefied natural gas (LNG) and interest to re-use methane gas for energy from coal mine gas. Plus, a growing presence in the oil market is likely to help market penetration for Capstone since more and more E&P companies (including Chinese firms) are looking to be more energy efficient to keep costs down and meet emissions standards. In 2007, Elliot Energy Systems, which was sold first to Calnetix and then again to Capstone, received the largest microturbine order in New York City (NYC) so this also puts Capstone in the enviable position of being a frontrunner for increased sales in NYC thanks to new initiatives made in the area post Sandy to create reliable power, efficient energy, microgrids and a public call to begin composting in less than three years.
Another name to watch is New Hampshire based FlexEnergy is an energy technology company that acquired the Ingersoll-Rand Energy Systems business in 2010. The acquisition has allowed FlexEnergy to become a fast growing company focused on producing reliable clean energy and heat. Like Capstone, FlexEnergy sees oil and gas platforms as a growing revenue opportunity by using methane to power platforms. I would be remiss not to mention that FlexEnergy developed an alliance last year with BP to reduce carbon at BP’s water disposal facility in Wyoming. Also FlexEnergy has seen its microturbines be successful in providing electric power and process boiler heat for American Refining Group’s Bradford, Pennsylvania refinery. At present, President Obama has spared the refining sector from his GHG fight. However, it’s a matter of time (likely on the next President’s watch) before cleaning up emissions from refineries goes mainstream. FlexEnergy claims near zero emissions from previously untapped sources of methane here in the U.S. can eliminate $4 billion in annual oil imports. No wonder the company is positioning nicely for that future market opportunity.
NewEnCo is the distributor of the Turbec T100 combined heat and power microturbine which was formerly a joint subsidiary of Volvo and ABB. According to the company’s website the Turbec T100 microturbine is proven on a range of fuels including biogas, diesel, vegetable oil, LPG, ethanol and methanol.
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