It's cellaring season. I can smell the pungent waft of white vinegar from my window. Canadians are pickling, saucing, jamming and chutneying. Some are making wine, too.
And while strictly speaking there's no cellaring season for those of us who buy our cabernets and merlots ready-made and punitively taxed, this is the time of year when stockpiling instincts tend to go into high gear. Liquor stores also ramp up their big-red offerings, making it a good time to hunt for bottles to lay down.
If you've just begun keeping a stash or are considering embarking on that journey, it's good to bear a few hazards in mind. Candid collectors, when they're done boasting about prized trophies, will admit they've committed boners in their buying along the way. I've got my own regrets, which I'm sharing here as part of this wine-cellar confessional. I'm also including tips from bona fide experts: Peter D. Meltzer, New York-based author of Keys to the Cellar: Strategies and Secrets of Wine Collecting, and Tony Aspler, Toronto-based author of Tony Aspler's Cellar Book. Check out their books for extensive information on which styles of wine tend to age gracefully and which don't.
1. Resist hoarding
Don't break the bank today by feverishly scooping up every available bottle of something you've read about or tasted believing it to be the last smart buy on Earth. There'll always be more wine.
2. Don't limit yourself to single-bottle purchases
Previous point notwithstanding, consider buying at least two or three wines of the same kind. When you crack open the first and it delivers bliss, the pleasure will be sweeter knowing you've got more in the basement. Besides, the first will serve as a barometer of how the wine is aging.
3. Make room
If you're building a cellar, think of the capacity, then double it, Mr. Aspler advises. “You'll find that you fill the cellar quickly and wish you had more space.”
4. To thine own tastes e true
Buy wines that reflect your lifestyle, not some critic's scorecard, Mr. Meltzer says. “Try to project the occasions at which your wines will be poured. Extrapolate from your present drinking patterns. Ask yourself how often you entertain, the wines you serve and a typical menu. Break down your purchases accordingly.”
5. Mix it up
“It's possible to have a cellar full of wine yet nothing to drink,” Mr. Meltzer warns. Ideally, you should have a mix of both young wines that need further aging and mature examples that you can consume in the interim.
6. Segregate
“Mark a rack in your cellar for your wife for her book-club nights and your son's rugby party,” Mr. Aspler says. “Otherwise you'll find your first growths missing,” he adds, referring to the top tier of red Bordeaux that cost well into the three digits. Ditto your husband, same-sex partner or daughter, depending on your domestic situation.
7. Be prepared for nevitable letdowns
Trophy hunters never want to admit it, but even the best blue-chip labels can underdeliver 10 or 20 years down the road, either because of poor storage conditions, inherent flaws in the wine or a defective cork. Get set to shed a few tears over the coming years – and always have a backup bottle to crack open.
8. Take regular inventory
Wines can get long in the tooth faster than you anticipate. Make sure you stay on top of your stash.
Mr. Meltzer says one solution is to store wines that are close to maturity in a separate bin or rack for easy access.
9. Wine is for drinking, not idol worship
Don't treat your gems like museum pieces. Mentally expense your wines at the moment of purchase, Mr. Meltzer says.
That way you won't put off opening a precious old bottle until it's too late, waiting for that special occasion that somehow never seems special enough for the wine.
10. Think white
You will inevitably buy too much red wine and not enough age-worthy white, such as German riesling, Australian semillon or fine white Burgundy.
But they can take on glorious nuances and deliver just as much complexity and nirvana as reds – and don't require red meat to make them sing.
11. Beware the shoe closet and furnace room
Store your wines at a constant temperature of 13 C (55 F).
12. Remember the sideways rule
Save your limited horizontal shelving for traditional bottles sealed under cork, which must be kept moist. Screw-cap wines, some of which are good enough to age, can be stored standing up, Mr. Aspler notes.
13. Buy some big bottles
Nothing says fun or conveys generosity at a dinner party like a 1.5-litre magnum or three-litre double-magnum. I wish I had bought more.
14. Beware of older vintages purchased at auction
“Try to determine their provenance and how they were stored,” Mr. Meltzer says. “The level of the wine in the bottle, also known as ‘ullage,' is the barometer of a bottle's condition. Top or upper-shoulder levels are not uncommon for 30-year-old wines but are unusual for a 10- or 20-year-old vintage, where levels should still be into or close to the bottle's neck.
15. Forget not the fizz
“Always keep Champagne on hand,” Mr. Aspler advises, especially vintage-dated bubblies, which can improve nicely with five to 15 years in the cellar. “You'll never know when you'll need to celebrate or commiserate.”
Tuesday, September 21, 2010
Thursday, September 16, 2010
Leadership lessons to live by - Harvey Schachter
Kouzes ... Posner ... Bennis. Three hallowed names in the literature of leadership, and they’re offering new gifts for the fall reading season – simple gifts, in the shape of books with clearly stated ideas, unadorned but punchy, and certainly wise.
James Kouzes and Barry Posner, professors at Santa Clara University in California, write as a team. They are best-known for their 1987 bestseller The Leadership Challenge, which offered a principled and practical view of leadership.
Warren Bennis, a distinguished professor of business administration at the University of California and chairman for the Center for Public Leadership at Harvard University’s Kennedy School, is viewed as the founder of leadership studies. His 1985 book Leaders with Burt Nanus is a talisman for many executives, and he has collaborated on a string of books (my favourites are Organizing Genius, about great groups, and Co-Leaders, about pairs of effective leaders).
Professors Kouzes and Posner are continually asked what is new in leadership ideas. The more they pondered that question, they more they realized that good ideas aren’t new, but have stood the test of time. They describe their new book, The Truth About Leadership, as “a collection of the real thing – no fads, no myths, no trendy responses – just truths that endure.”
They discuss 10 such enduring truths, backed by research they and others have carried out over the years:
You make a difference: Before you can lead, you have to believe you can make a positive impact on others. You have to believe in yourself.
Credibility is the foundation of leadership: As well as believing in yourself, you have to behave in a way that will spur belief in you. “If people don’t believe in you, they won’t willingly follow you,” the authors advise.
Values drive commitment: People want to know what you believe in and you need to know what others treasure if you are going to create the commitment needed to bring everyone together into a powerful force.
Focusing on the future sets leaders apart: Leaders need the capacity to imagine and articulate exciting future possibilities. They need a long-term perspective.
You can’t do it alone: Leadership is a team sport.
Trust is paramount: If you rely on others, you will need their trust. That will only come if you trust them first.
Challenge is the crucible for greatness: Exemplary leaders don’t maintain the status quo, they change it. “Change invariably involves challenge, and challenge tests you. It introduces you to yourself. It brings you face-to-face with your level of commitment, your grittiness, and your values,” they write.
You either lead by example or you don’t lead at all: Leaders must keep their promises, and be role models for the values and actions they espouse.
The best leaders are the best learners: Learning is the master skill of leadership.
Leadership is an affair of the heart: Leaders are in love with their colleagues and their constituents. They make others feel important, and graciously show appreciation. And they love their work, or they wouldn’t be successful at it.
Prof. Bennis’s new book, Still Surprised, is a memoir describing his experiences in the Second World War as a leader of others at age 19; his mentorship by a towering figure in organizational psychology, Douglas MacGregor; the excitement of being at the cusp of the new breakthroughs in social sciences and management in the 1950s and 1960s; his experiences as provost at the State University of New York at Buffalo during the student activism of the 1960s and later as president of the University of Cincinnati; and, most poignantly, his feelings, at age 85, about growing old, as his body (and sometimes mind) fails him, and he experiences the insults of ageism.
The memoir is suffused with insights in leadership, such as how, at both Buffalo and Cincinnati, he learned the dangers of coming on too strong as a newly hired outsider, and the need to master a new culture before trying to change it. Or how he resigned from the helm at Cincinnati after being asked a simple question he couldn’t answer: “Do you love being president of the University of Cincinnati?” The answer turned out to be that he would be happier as a professor than a president.
Whether leadership lessons are learned from Prof. Bennis’s memoir or from the detailed advice from Professors Kouzes and Posner, either book makes for rewarding reading.
James Kouzes and Barry Posner, professors at Santa Clara University in California, write as a team. They are best-known for their 1987 bestseller The Leadership Challenge, which offered a principled and practical view of leadership.
Warren Bennis, a distinguished professor of business administration at the University of California and chairman for the Center for Public Leadership at Harvard University’s Kennedy School, is viewed as the founder of leadership studies. His 1985 book Leaders with Burt Nanus is a talisman for many executives, and he has collaborated on a string of books (my favourites are Organizing Genius, about great groups, and Co-Leaders, about pairs of effective leaders).
Professors Kouzes and Posner are continually asked what is new in leadership ideas. The more they pondered that question, they more they realized that good ideas aren’t new, but have stood the test of time. They describe their new book, The Truth About Leadership, as “a collection of the real thing – no fads, no myths, no trendy responses – just truths that endure.”
They discuss 10 such enduring truths, backed by research they and others have carried out over the years:
You make a difference: Before you can lead, you have to believe you can make a positive impact on others. You have to believe in yourself.
Credibility is the foundation of leadership: As well as believing in yourself, you have to behave in a way that will spur belief in you. “If people don’t believe in you, they won’t willingly follow you,” the authors advise.
Values drive commitment: People want to know what you believe in and you need to know what others treasure if you are going to create the commitment needed to bring everyone together into a powerful force.
Focusing on the future sets leaders apart: Leaders need the capacity to imagine and articulate exciting future possibilities. They need a long-term perspective.
You can’t do it alone: Leadership is a team sport.
Trust is paramount: If you rely on others, you will need their trust. That will only come if you trust them first.
Challenge is the crucible for greatness: Exemplary leaders don’t maintain the status quo, they change it. “Change invariably involves challenge, and challenge tests you. It introduces you to yourself. It brings you face-to-face with your level of commitment, your grittiness, and your values,” they write.
You either lead by example or you don’t lead at all: Leaders must keep their promises, and be role models for the values and actions they espouse.
The best leaders are the best learners: Learning is the master skill of leadership.
Leadership is an affair of the heart: Leaders are in love with their colleagues and their constituents. They make others feel important, and graciously show appreciation. And they love their work, or they wouldn’t be successful at it.
Prof. Bennis’s new book, Still Surprised, is a memoir describing his experiences in the Second World War as a leader of others at age 19; his mentorship by a towering figure in organizational psychology, Douglas MacGregor; the excitement of being at the cusp of the new breakthroughs in social sciences and management in the 1950s and 1960s; his experiences as provost at the State University of New York at Buffalo during the student activism of the 1960s and later as president of the University of Cincinnati; and, most poignantly, his feelings, at age 85, about growing old, as his body (and sometimes mind) fails him, and he experiences the insults of ageism.
The memoir is suffused with insights in leadership, such as how, at both Buffalo and Cincinnati, he learned the dangers of coming on too strong as a newly hired outsider, and the need to master a new culture before trying to change it. Or how he resigned from the helm at Cincinnati after being asked a simple question he couldn’t answer: “Do you love being president of the University of Cincinnati?” The answer turned out to be that he would be happier as a professor than a president.
Whether leadership lessons are learned from Prof. Bennis’s memoir or from the detailed advice from Professors Kouzes and Posner, either book makes for rewarding reading.
Saturday, September 11, 2010
The U.S. Open Costs $236,000 a Day With Mercedes, Nice Seats - By Philip Boroff
Courtside seats at Sunday’s men’s singles final at New York’s U.S. Open go for as much as $5,300 via Ticketexchange, a division of Ticketmaster. (Plus an $800 service charge.)
Women’s final courtside tickets tonight are more widely available, starting at about $700, via Ticketmaster.
Cheapskates endure a love-hate relationship with the Open - - loving the tennis and carping about prices, including $3.75 for a tiny Evian bottle.
Big spenders, though, can get really happy here. A lot of damage can be done in a few hours of conspicuous consumption.
Enticed by a $1,000 discount offered by local Mercedes-Benz dealers, my first stop was the $183,000 silver SLS AMG sports car, on view by the Open’s East gate.
Some 10,000 people have allowed themselves to be photographed with the car at the Open. (The shots are retrieved online, in exchange for providing Mercedes with your e-mail.) With gullwing doors, it has a look James Bond could love.
A few paces away, a volunteer from the United States Tennis Association detailed the terms of Open immortality. He pointed to tiles on the ground of the plaza with names of donors to “USTA Serves.” It provides scholarships to middle school and high school students, among other deeds.
The top tiles, 16-inch squares of white bronze, go for $25,000. Audio equipment mogul Sidney Harman, the new owner of Newsweek, sprung for one with his wife, Jane, a California congresswoman.
Dress Like Roger
While duplicating Roger Federer’s forehand is impossible, replicating his outfit is easier.
Nike’s outpost sells Federer’s collared shirts and shorts, which end just above the knees; plus sneakers artfully depicting New York’s skyline over the heel. Rafael Nadal’s uniform is more informal, with shorts below the knees and neon sneakers.
The two getups run a total of just over $600.
As an investment, player autographs can be dubious. Federer, for one, patiently dilutes the market when encountering fans outside Ashe Stadium. Mementos do evoke our shared history. The Ace Authentic Collectibles kiosk has them in abundance.
For the budget-minded, there are tennis trading cards, modeled after baseballs cards. Four cards per $3 pack -- with surprise autographs and bits of player clothing.
Then there’s a wall mounting of champions Rod Laver, Pete Sampras, Federer and Bjorn Borg, including a picture of them taken last year at Wimbledon clutching a trophy, with balls autographed by each. It goes for about $1,200.
Ashe Endowment
The Arthur Ashe Endowment for the Defeat of AIDS is auctioning a jumbo tennis ball, signed by Federer and others, which as of Wednesday required a minimum bid of $600. Among other tasks, the endowment annually brings eight doctors to New York who do AIDS work in their home countries, training them in the latest clinical techniques. It was started in 1995, two years after Ashe died of pneumonia, a complication of AIDS.
“AIDS doesn’t have the same consciousness and urgency in this country that it once had,” said Leslie Allen, a former world No. 18 singles player who manages the booth.
For nourishment, I sampled Aces Restaurant on the “club” level of Ashe Stadium, adjacent to suites that accommodate 20 people and that the Open sold for $10,000 to $65,000 a session. I sustained myself with a $12 heirloom tomato salad and $28 Scottish salmon. Monitors at the bar showed live tennis on center court without commercials.
Silk Rug
The last stop was the Silver Tennis Collection shop on the club level, next to Aces. A rare 1998 Jack Kramer Autograph graphite racket costs $6,000; a silk tennis-themed rug was tagged at $15,000 and there’s tennis jewelry. One-third of proceeds go to USTA Serves.
After spending a theoretical $236,000 on my spree -- skimming the surface of goods advertised and sold at the Open -- I bought a salmon-and-blue striped tie, embossed with gold, wood rackets.
It cost $65.
Women’s final courtside tickets tonight are more widely available, starting at about $700, via Ticketmaster.
Cheapskates endure a love-hate relationship with the Open - - loving the tennis and carping about prices, including $3.75 for a tiny Evian bottle.
Big spenders, though, can get really happy here. A lot of damage can be done in a few hours of conspicuous consumption.
Enticed by a $1,000 discount offered by local Mercedes-Benz dealers, my first stop was the $183,000 silver SLS AMG sports car, on view by the Open’s East gate.
Some 10,000 people have allowed themselves to be photographed with the car at the Open. (The shots are retrieved online, in exchange for providing Mercedes with your e-mail.) With gullwing doors, it has a look James Bond could love.
A few paces away, a volunteer from the United States Tennis Association detailed the terms of Open immortality. He pointed to tiles on the ground of the plaza with names of donors to “USTA Serves.” It provides scholarships to middle school and high school students, among other deeds.
The top tiles, 16-inch squares of white bronze, go for $25,000. Audio equipment mogul Sidney Harman, the new owner of Newsweek, sprung for one with his wife, Jane, a California congresswoman.
Dress Like Roger
While duplicating Roger Federer’s forehand is impossible, replicating his outfit is easier.
Nike’s outpost sells Federer’s collared shirts and shorts, which end just above the knees; plus sneakers artfully depicting New York’s skyline over the heel. Rafael Nadal’s uniform is more informal, with shorts below the knees and neon sneakers.
The two getups run a total of just over $600.
As an investment, player autographs can be dubious. Federer, for one, patiently dilutes the market when encountering fans outside Ashe Stadium. Mementos do evoke our shared history. The Ace Authentic Collectibles kiosk has them in abundance.
For the budget-minded, there are tennis trading cards, modeled after baseballs cards. Four cards per $3 pack -- with surprise autographs and bits of player clothing.
Then there’s a wall mounting of champions Rod Laver, Pete Sampras, Federer and Bjorn Borg, including a picture of them taken last year at Wimbledon clutching a trophy, with balls autographed by each. It goes for about $1,200.
Ashe Endowment
The Arthur Ashe Endowment for the Defeat of AIDS is auctioning a jumbo tennis ball, signed by Federer and others, which as of Wednesday required a minimum bid of $600. Among other tasks, the endowment annually brings eight doctors to New York who do AIDS work in their home countries, training them in the latest clinical techniques. It was started in 1995, two years after Ashe died of pneumonia, a complication of AIDS.
“AIDS doesn’t have the same consciousness and urgency in this country that it once had,” said Leslie Allen, a former world No. 18 singles player who manages the booth.
For nourishment, I sampled Aces Restaurant on the “club” level of Ashe Stadium, adjacent to suites that accommodate 20 people and that the Open sold for $10,000 to $65,000 a session. I sustained myself with a $12 heirloom tomato salad and $28 Scottish salmon. Monitors at the bar showed live tennis on center court without commercials.
Silk Rug
The last stop was the Silver Tennis Collection shop on the club level, next to Aces. A rare 1998 Jack Kramer Autograph graphite racket costs $6,000; a silk tennis-themed rug was tagged at $15,000 and there’s tennis jewelry. One-third of proceeds go to USTA Serves.
After spending a theoretical $236,000 on my spree -- skimming the surface of goods advertised and sold at the Open -- I bought a salmon-and-blue striped tie, embossed with gold, wood rackets.
It cost $65.
Wednesday, September 1, 2010
Petrobras to Buy Oil From Brazil for $42.5 Billion in Stock - By Peter Millard, Maria Luiza Rabello and Katia Cortes
Petroleo Brasileiro SA, Latin America’s largest company by market value, agreed to pay the Brazilian government $42.5 billion in new stock for the right to develop 5 billion barrels of offshore oil reserves.
Petrobras, as the state-run company is known, will pay an average of $8.51 a barrel for the oil after almost two weeks of negotiations with the government, according to a regulatory filing yesterday. More than half the oil will come from the Franco field in the offshore Santos Basin, the company said.
The value set for the reserves will determine how much new stock Petrobras must offer minority investors in a related public offering to raise funds for a $224 billion plan to develop offshore fields and boost refinery capacity. Petrobras has plunged 26 percent in Sao Paulo this year on concern it would pay more for the oil than it’s worth, diluting earnings.
The price is “certainly at the high end” of what investors and analysts were expecting, said Gianna Bern, president of Brookshire Advisory & Research Inc., based near Chicago. “Market conditions right now are less than desirable, but Petrobras has a good long-term growth story.”
The price is more than the $7.50 per barrel estimated by UBS AG analyst Lilyanna Yang and Ted Harper, who help manage about $6.8 billion at Frost Investment Advisors in Houston. A price of $7.50 a barrel or higher would force Petrobras to sell more shares to the government than investors expect and dilute earnings, Yang said in an Aug. 11 report.
High Price
Haroldo Lima, head of the Brazilian oil regulator, known as the ANP, said in an Aug. 12 interview that $8 a barrel would be a “reasonable price” for the reserves.
About 3.1 billion barrels of the reserves will come from Franco, Petrobras said in yesterday’s statement, while the Iara and Florim fields will account for another 1.07 billion. Petrobras, based in Rio de Janeiro, will also receive the rights to oil at Tupi Northeast and Sul and Guara East fields.
“This is the biggest operation ever done of its kind,” Finance Minister Guido Mantega said in Brasilia yesterday.
Billionaire George Soros’s Soros Fund Management LLC, which oversees $25 billion, sold its Petrobras stock in the second quarter, dumping its biggest company holding. BlackRock Inc., the world’s biggest asset manager, and Banco BTG Pactual SA also sold Petrobras in the quarter, according to Bloomberg data.
Petrobras rose 97 centavos, or 3.7 percent, to 27.03 reais in Sao Paulo trading yesterday. The yield on the company’s $2.5 billion in 5.75 percent bonds due 2020 fell to the lowest since Aug. 26, declining to 4.828 percent yesterday from 4.942 percent, according to BNP Paribas SA prices on Bloomberg.
Maintaining Stakes
Petrobras, which aims to carry out the share sale by the end of this month, said in the regulatory filing it expects to disclose the terms of the offer on Sept. 3. The company plans to issue enough shares to allow the government and minority investors to maintain their stakes. The sale was delayed in June as the company and the government awaited independent assessments on the value of the reserves.
Mantega and Petrobras Chief Executive Officer Jose Sergio Gabrielli yesterday declined to comment on the total value of the share sale.
The oil-for-stock swap is part of new regulations from President Luiz Inacio Lula da Silva late last year to increase government control over reserves after Petrobras discovered the Tupi field, the largest oil find since Mexico’s Cantarell in 1976. Lula received two separate independent valuations on the crude reserves on Aug. 19 from Petrobras and the ANP. The ANP, government and company began negotiations on Aug. 20.
Lula is ’’happy’’ with the price, according to Mantega.
‘Commercial Transaction’
Petrobras said last month it was treating the price talks as a “commercial transaction” and that “it’s natural that both parties would seek to maximize their results.”
Petrobras in June named Banco Bradesco SA, Citigroup Inc., Itau Unibanco Holding SA, Bank of America Corp., Morgan Stanley and Banco Santander SA to manage the share sale and that Banco do Brasil SA will manage the offering to minority investors in the domestic market.
Chief Financial Officer Almir Barbassa said Aug. 13 that the share sale is needed to replenish capital after debt rose to the upper limit of the company’s target. Debt as a percentage of equity rose to 34 percent in the second quarter, from 32 percent in the previous quarter and 28 percent in the year-earlier period, Petrobras said in its earnings report.
Petrobras, as the state-run company is known, will pay an average of $8.51 a barrel for the oil after almost two weeks of negotiations with the government, according to a regulatory filing yesterday. More than half the oil will come from the Franco field in the offshore Santos Basin, the company said.
The value set for the reserves will determine how much new stock Petrobras must offer minority investors in a related public offering to raise funds for a $224 billion plan to develop offshore fields and boost refinery capacity. Petrobras has plunged 26 percent in Sao Paulo this year on concern it would pay more for the oil than it’s worth, diluting earnings.
The price is “certainly at the high end” of what investors and analysts were expecting, said Gianna Bern, president of Brookshire Advisory & Research Inc., based near Chicago. “Market conditions right now are less than desirable, but Petrobras has a good long-term growth story.”
The price is more than the $7.50 per barrel estimated by UBS AG analyst Lilyanna Yang and Ted Harper, who help manage about $6.8 billion at Frost Investment Advisors in Houston. A price of $7.50 a barrel or higher would force Petrobras to sell more shares to the government than investors expect and dilute earnings, Yang said in an Aug. 11 report.
High Price
Haroldo Lima, head of the Brazilian oil regulator, known as the ANP, said in an Aug. 12 interview that $8 a barrel would be a “reasonable price” for the reserves.
About 3.1 billion barrels of the reserves will come from Franco, Petrobras said in yesterday’s statement, while the Iara and Florim fields will account for another 1.07 billion. Petrobras, based in Rio de Janeiro, will also receive the rights to oil at Tupi Northeast and Sul and Guara East fields.
“This is the biggest operation ever done of its kind,” Finance Minister Guido Mantega said in Brasilia yesterday.
Billionaire George Soros’s Soros Fund Management LLC, which oversees $25 billion, sold its Petrobras stock in the second quarter, dumping its biggest company holding. BlackRock Inc., the world’s biggest asset manager, and Banco BTG Pactual SA also sold Petrobras in the quarter, according to Bloomberg data.
Petrobras rose 97 centavos, or 3.7 percent, to 27.03 reais in Sao Paulo trading yesterday. The yield on the company’s $2.5 billion in 5.75 percent bonds due 2020 fell to the lowest since Aug. 26, declining to 4.828 percent yesterday from 4.942 percent, according to BNP Paribas SA prices on Bloomberg.
Maintaining Stakes
Petrobras, which aims to carry out the share sale by the end of this month, said in the regulatory filing it expects to disclose the terms of the offer on Sept. 3. The company plans to issue enough shares to allow the government and minority investors to maintain their stakes. The sale was delayed in June as the company and the government awaited independent assessments on the value of the reserves.
Mantega and Petrobras Chief Executive Officer Jose Sergio Gabrielli yesterday declined to comment on the total value of the share sale.
The oil-for-stock swap is part of new regulations from President Luiz Inacio Lula da Silva late last year to increase government control over reserves after Petrobras discovered the Tupi field, the largest oil find since Mexico’s Cantarell in 1976. Lula received two separate independent valuations on the crude reserves on Aug. 19 from Petrobras and the ANP. The ANP, government and company began negotiations on Aug. 20.
Lula is ’’happy’’ with the price, according to Mantega.
‘Commercial Transaction’
Petrobras said last month it was treating the price talks as a “commercial transaction” and that “it’s natural that both parties would seek to maximize their results.”
Petrobras in June named Banco Bradesco SA, Citigroup Inc., Itau Unibanco Holding SA, Bank of America Corp., Morgan Stanley and Banco Santander SA to manage the share sale and that Banco do Brasil SA will manage the offering to minority investors in the domestic market.
Chief Financial Officer Almir Barbassa said Aug. 13 that the share sale is needed to replenish capital after debt rose to the upper limit of the company’s target. Debt as a percentage of equity rose to 34 percent in the second quarter, from 32 percent in the previous quarter and 28 percent in the year-earlier period, Petrobras said in its earnings report.
Monday, August 30, 2010
Immigrants Don't Take Jobs From Americans, Fed Study Says - By Courtney Schlisserman
Immigration has no “significant” effect on the number of jobs available to U.S.-born workers and helps boost incomes and productivity over time, according to a paper by an economist at the Federal Reserve Bank of San Francisco.
“There is no evidence that immigrants crowd out U.S.-born workers in either the short or long run,” Giovanni Peri, an associate professor at the University of California-Davis and a visiting scholar at the San Francisco Fed, said in the paper released today. “Data show that, on net, immigrants expand the U.S. economy’s productive capacity, stimulate investment, and promote specialization that in the long run boosts productivity.”
Immigrants, who tend to be less educated and lack English- language skills, allow U.S.-born workers with similar levels of education to shift toward more communications-intensive jobs, which generally pay better, Peri said. Also, a growing workforce prompts companies to expand and upgrade equipment, making the economy more productive, he said.
An inflow of immigrants equal to 1 percent of the increase in employment helps boost overall incomes by 0.6 percent to 0.9 percent, according to Peri’s research. That means that immigration pushed wages up by $5,100 on average from 1990 to 2007 after adjusting for inflation, accounting for 20 percent to 25 percent of the gain during those years, he said.
The paper comes as U.S. hiring shows signs of cooling. A Labor Department report on Sept. 3 may show that private payroll rose by 47,000 this month after a 71,000 gain in July, and the unemployment rate rose to 9.6 percent, according to the median forecast of economists surveyed by Bloomberg News.
“The painfully slow recovery in the labor market has restrained growth in labor income, raised uncertainty about job security and prospects, and damped confidence,” Fed Chairman Ben S. Bernanke said at the Kansas City Fed’s annual monetary symposium in Jackson Hole, Wyoming, on Aug. 27.
“There is no evidence that immigrants crowd out U.S.-born workers in either the short or long run,” Giovanni Peri, an associate professor at the University of California-Davis and a visiting scholar at the San Francisco Fed, said in the paper released today. “Data show that, on net, immigrants expand the U.S. economy’s productive capacity, stimulate investment, and promote specialization that in the long run boosts productivity.”
Immigrants, who tend to be less educated and lack English- language skills, allow U.S.-born workers with similar levels of education to shift toward more communications-intensive jobs, which generally pay better, Peri said. Also, a growing workforce prompts companies to expand and upgrade equipment, making the economy more productive, he said.
An inflow of immigrants equal to 1 percent of the increase in employment helps boost overall incomes by 0.6 percent to 0.9 percent, according to Peri’s research. That means that immigration pushed wages up by $5,100 on average from 1990 to 2007 after adjusting for inflation, accounting for 20 percent to 25 percent of the gain during those years, he said.
The paper comes as U.S. hiring shows signs of cooling. A Labor Department report on Sept. 3 may show that private payroll rose by 47,000 this month after a 71,000 gain in July, and the unemployment rate rose to 9.6 percent, according to the median forecast of economists surveyed by Bloomberg News.
“The painfully slow recovery in the labor market has restrained growth in labor income, raised uncertainty about job security and prospects, and damped confidence,” Fed Chairman Ben S. Bernanke said at the Kansas City Fed’s annual monetary symposium in Jackson Hole, Wyoming, on Aug. 27.
Sunday, August 29, 2010
Rising China Wages Cut Advantage Over Mexico, Flextronics Says - By Tim Culpan and Frederik Balfour
China’s rising wages are cutting the country’s cost advantage over other manufacturing centers such as Mexico, according to Flextronics International Ltd., the world’s second-largest custom electronics maker.
“As China moves up, up and up and up, for five straight years, it’s been moving up heading towards Mexican pricing,” Mike McNamara, Chief Executive Officer of Singapore-based Flextronics, said in an interview. “Mexico’s been the same labor cost for the past five years, it hasn’t moved up at all.”
Flextronics, which supplies to Hewlett-Packard Co. and Cisco Systems Inc., has been forced to increase wages in China in line with government regulations and growing affluence in the fastest-growing major economy. Larger rival Foxconn Technology Group said this month it will move production away from China’s coastal regions after announcing a doubling of wages at its largest production bases in the south east.
The failure of Flextronics to make its components business profitable means the company will “probably not” achieve its operating-margin target of 3.5 percent this fiscal year which ends in March, McNamara said, without giving a goal timeline. Components account for about 10 percent of sales, he said. Operating income as a percentage of revenue is a key measure of profitability.
Mexico’s Appeal
Mexico, where Flextronics makes televisions for LG Electronics Inc., contributed 15 percent of the manufacturer’s sales in the fiscal year to March, compared with 11 percent a year earlier, its annual report showed. China provided 33 percent of the company’s revenue.
“Mexico’s proximity to the U.S. is phenomenal,” McNamara said. “You start thinking about freight and you think about all the green energy initiatives that are going on. It’s going to put a little bit more emphasis toward doing more products in Mexico.”
Former Mexican Economy Minister Gerardo Ruiz Mateos said in a June 29 interview that the nation will create 750,000 formal jobs this year as the economy rebounds from a recession and foreign direct investment rises. Demand for Mexican exports will help draw about $20 billion in foreign direct investment this year and a greater amount in coming years, Mateos said.
“Mexico is close to the U.S. and is part of the North American Free Trade Agreement, which is why more and more companies are building facilities for exports to the U.S.,” said Vincent Chen, an electronics analyst at Yuanta Securities Co. in Taipei. “China labor costs have been rising 10 percent to 20 percent per year for the last decade, but the cluster of suppliers is still there.”
Flextronics employs 200,000 people globally with operations in 30 countries. Around 30 percent of its workforce is the Americas and 90,000 in China, spokeswoman Valerie Kurniawan said in an e-mailed statement.
No Inland Move
Rising wages in China won’t spur an exodus or prompt Flextronics to move all of its production bases in the country, since labor remains a small cost of manufacturing for many of its products, McNamara said. Labor is about 0.5 percent of sales for computers, rising to 10 percent for power supplies, which require more manual work, he said.
“As far as a wholesale, large-scale effort to move inland, I don’t see any economics at all to it,” McNamara said. Ninety- percent of Flextronics’ production is exported, making a move away from China’s ports less economically viable, he said.
Flextronics plans to continue hiring for the next five years at a power-supply factory in Ganzhou, in China’s inland Jiangxi Province where wages are lower, offsetting the higher labor component for those products, he said. The company will hire up to 6,000 in Ganzhou this year.
Foxconn Shifts Production
Foxconn, which makes Apple Inc.’s iPad and also supplies most of the components used in the cell phones it assembles, in June announced the company would double base-wages for employees in Shenzhen, where it has around half its 900,000 workers, and cut the headcount there by about 170,000 over five years. A 40 percent expansion in its workforce over the next year will occur in inland China, where wages are lower and factories will be closer to the hometowns of its migrant workers, it said.
Foxconn controls 50 percent of the electronics manufacturing services market, double the share of Flextronics, according to researcher iSuppli Corp.
Flextronics shares have lost 30 percent this year on the Nasdaq stock market to close at $5.11 on Aug. 27. Hon Hai Precision Industry Co., the Taipei-based flagship of the Foxconn Group, has declined 11.3 percent on the Taiwan Stock Exchange over the same period.
“As China moves up, up and up and up, for five straight years, it’s been moving up heading towards Mexican pricing,” Mike McNamara, Chief Executive Officer of Singapore-based Flextronics, said in an interview. “Mexico’s been the same labor cost for the past five years, it hasn’t moved up at all.”
Flextronics, which supplies to Hewlett-Packard Co. and Cisco Systems Inc., has been forced to increase wages in China in line with government regulations and growing affluence in the fastest-growing major economy. Larger rival Foxconn Technology Group said this month it will move production away from China’s coastal regions after announcing a doubling of wages at its largest production bases in the south east.
The failure of Flextronics to make its components business profitable means the company will “probably not” achieve its operating-margin target of 3.5 percent this fiscal year which ends in March, McNamara said, without giving a goal timeline. Components account for about 10 percent of sales, he said. Operating income as a percentage of revenue is a key measure of profitability.
Mexico’s Appeal
Mexico, where Flextronics makes televisions for LG Electronics Inc., contributed 15 percent of the manufacturer’s sales in the fiscal year to March, compared with 11 percent a year earlier, its annual report showed. China provided 33 percent of the company’s revenue.
“Mexico’s proximity to the U.S. is phenomenal,” McNamara said. “You start thinking about freight and you think about all the green energy initiatives that are going on. It’s going to put a little bit more emphasis toward doing more products in Mexico.”
Former Mexican Economy Minister Gerardo Ruiz Mateos said in a June 29 interview that the nation will create 750,000 formal jobs this year as the economy rebounds from a recession and foreign direct investment rises. Demand for Mexican exports will help draw about $20 billion in foreign direct investment this year and a greater amount in coming years, Mateos said.
“Mexico is close to the U.S. and is part of the North American Free Trade Agreement, which is why more and more companies are building facilities for exports to the U.S.,” said Vincent Chen, an electronics analyst at Yuanta Securities Co. in Taipei. “China labor costs have been rising 10 percent to 20 percent per year for the last decade, but the cluster of suppliers is still there.”
Flextronics employs 200,000 people globally with operations in 30 countries. Around 30 percent of its workforce is the Americas and 90,000 in China, spokeswoman Valerie Kurniawan said in an e-mailed statement.
No Inland Move
Rising wages in China won’t spur an exodus or prompt Flextronics to move all of its production bases in the country, since labor remains a small cost of manufacturing for many of its products, McNamara said. Labor is about 0.5 percent of sales for computers, rising to 10 percent for power supplies, which require more manual work, he said.
“As far as a wholesale, large-scale effort to move inland, I don’t see any economics at all to it,” McNamara said. Ninety- percent of Flextronics’ production is exported, making a move away from China’s ports less economically viable, he said.
Flextronics plans to continue hiring for the next five years at a power-supply factory in Ganzhou, in China’s inland Jiangxi Province where wages are lower, offsetting the higher labor component for those products, he said. The company will hire up to 6,000 in Ganzhou this year.
Foxconn Shifts Production
Foxconn, which makes Apple Inc.’s iPad and also supplies most of the components used in the cell phones it assembles, in June announced the company would double base-wages for employees in Shenzhen, where it has around half its 900,000 workers, and cut the headcount there by about 170,000 over five years. A 40 percent expansion in its workforce over the next year will occur in inland China, where wages are lower and factories will be closer to the hometowns of its migrant workers, it said.
Foxconn controls 50 percent of the electronics manufacturing services market, double the share of Flextronics, according to researcher iSuppli Corp.
Flextronics shares have lost 30 percent this year on the Nasdaq stock market to close at $5.11 on Aug. 27. Hon Hai Precision Industry Co., the Taipei-based flagship of the Foxconn Group, has declined 11.3 percent on the Taiwan Stock Exchange over the same period.
Saturday, August 28, 2010
Solar Power: Brighter Long-Term Investment Outlook - David Bogoslaw
With utilities adopting standards to increase the amount of solar-generated electricity in coming years, the U.S. could bolster its presence in the global solar-power market. The quickening growth pace could present attractive opportunities for investors, according to some professionals.
At the end of 2009, the U.S. ranked fourth in total solar capacity, with 2.09 gigawatts installed, behind Germany with 9.79Gw, Spain with 4.01Gw, and Japan with 2.68Gw, according to Bloomberg New Energy Finance. With U.S. installed capacity growing at a faster pace than that of the international market, the country may be on track to become a more dominant market by 2014, according to Larry Sherwood, an analyst at the Interstate Renewable Energy Council (IREC).
Some 23Gw of solar capacity are under development in the U.S., enough to provide electricity for 4.4 million households, according to the Solar Energy Industries Assn. (SEIA). Solar demand in the U.S. is expected to grow 75 percent in 2011, compared with 2010. About 1.5Gw to 2.0Gw of capacity—1.36Gw in California alone—is scheduled to be installed next year.
One factor could snarl that time line: the expiration of federal incentives, specifically the Treasury Dept.'s cash grant program, which currently covers 30 percent of a project's costs, as long as construction has begun by the end of 2010. SEIA and other groups are pushing to have the qualifying construction start date extended by two years, to the end of 2012. Members of the U.S. Senate Finance Committee didn't return calls asking when they would vote on extending the program. Kaufman Brothers said in an Aug. 17 research note that the firm didn't expect a major decision on solar incentives until after the fall U.S. elections.
U.S. FOCUS ON UTILITY-SCALE SOLAR
The diversion of $3.5 billion from the Energy Dept.'s Loan Guarantee Program to other stimulus projects—and uncertainty as to whether any of the money will be restored—is also delaying some projects. Indeed, the main reason the U.S. solar market lags Europe's is that the federal government has consistently failed to commit to a long-term policy offering financial incentives to power providers, without which solar can't yet compete with such cheaper sources of electric generation as coal and natural gas.
While Europe is moving toward smaller rooftop installation, utility-scale projects are fast becoming the focus in the U.S. and are the most likely way for the U.S. to catch up with the leading solar markets. Photovoltaic panel makers FirstSolar
Solar's brighter future has some investment pros seeking opportunities beyond manufacturers of photovoltaic solar panels. Page at Guinness Atkinson recommends investing in stocks likely to benefit, no matter where solar demand is strongest. Page likes SMA Solar (S92:GR), a German producer of inverters, which convert the direct current produced by solar and wind into alternating current that can be used on the grid.
SATCON'S UTILITY-SCALE INVERTERS
The bigger the installation, the more important the inverter that enables a connection to the grid, says Osborne at Stifel Nicolaus.
While SMA Solar dominates the inverter market, Satcon Technology (SATC) is the largest manufacturer of utility-scale inverters, whose importance is sure to grow as the U.S. market moves toward utility-scale systems. While Satcon continues to report net losses, its revenue tripled from a year earlier, to $27.6 million in the second quarter. Some 45 percent of that volume derived from Europe, vs. nearly all its demand coming from North America a year earlier. The company's "geographic diversification is also reflected in its record backlog of $111 million," 20 percent of which comes from Europe, with another 33 percent coming from Asia, according to an Aug. 6 research note by Raymond James & Co. (RJF). The total backlog has grown 35 percent since June 30. Satcon has announced plans to build annual production capacity from 1Gw now, to 1.25Gw by the end of 2010, and to 1.75Gw in 2011.
Much of Satcon's revenue growth and gross margin expansion, bolstered by a recent shift to lower-cost manufacturing in China, is being offset by higher fixed costs necessitated by international expansion and a bigger workforce, said Raymond James, which still expects the company to post net losses through 2011. The red ink didn't stop Osborne at Stifel from upgrading the stock on July 27 to buy, from hold, citing improving margins and prospects for market share expansion.
The transformation of the U.S. market from rooftop to utility-scale systems is also expected to benefit Power-One (PWER) and Advanced Energy Industries (AEIS), which also make inverters. Dougherty & Co. estimated in a July 30 research note that Power-One's total renewable energy backlog increased by more than $500 million, compared with the first quarter, and is now over $900 million, the equivalent of 3.2Gw to 3.5Gw in shipments. The fast-growing inverter business introduces "a compelling growth aspect to an otherwise cyclical semiconductor capital equipment stock," giving the company more potential than other semiconductor makers to branch into adjacent segments such as solar over the long term, Pacific Crest Securities said in an Aug. 12 note.
KEY ROLE FOR CAPITAL EQUIPMENT MAKERS
Another company that is expected to do well regardless of where demand is strongest is STR Holdings (STRI), which makes adhesive encapsulants, the ethylene vinyl acetate sheets used to weatherproof solar panels and prevent yellowing. Demand for STR's products is strong, with half the world's solar panel makers signed up to use them, says Page at Guinness Atkinson. The company's net sales for the second quarter rose 126 percent from a year earlier, to $67 million, and were up more than 22 percent from the first quarter.(FSLR) and SunPower (SPWRA) have large pipelines of utility-scale projects and will be dominant players in the U.S., starting in 2011, says Matthew Page, one of the managers of the Guinness Atkinson Alternative Energy Fund (GAAEX).
With so much uncertainty surrounding incentives at home and overseas, the fact that more countries are adopting renewable energy standards and planning to build solar plants has analysts and some fund managers feeling more confident about the industry. "I'm bullish on solar because the market is no longer dominated by two or three countries," says Jeff Osborne, an analyst who covers clean energy stocks at Stifel Nicolaus (SF). "Morocco said in 2009 that it wanted to build 2Gw of solar." Utilities in Eastern Europe, he adds, are eager to diversify their energy sources to reduce their exposure to periodic supply disruptions from Russia's Gazprom (OGZPY:US), which provides roughly 25 percent of Europe's natural gas needs.
Capital equipment makers are also a fairly safe bet, with attractive returns on invested capital, says Osborne. Applied Materials (AMAT) and GT Solar (SOLR) both make the semiconductor equipment that deposits chemicals on large polysilicon cell surfaces. Applied Materials also makes equipment that cuts silicon wafers, while GT Solar makes polysilicon and wafers. Osborne sees them as "the arms merchants to the sector," which is attracting new customers in such countries as Korea and India.
If utility-scale installations grow as analysts expect, photovoltaic technologies will in time be outshone by concentrated solar thermal power, or CSP, which uses rotating mirrors to reflect the sun toward parabolic troughs carrying a liquid heat conductor or to so-called "power towers" with hot water boilers on top. The concentrated sunlight superheats the liquid heat conductor or the water, producing steam that drives turbines and generates electricity.
The companies that make materials for solar thermal installations such as mirrors and receiver tubes are now privately held. Turbines are made by public companies, however, and Siemens (SI) is one manufacturer whose turbine orders may increase as solar thermal power gets commercialized. BrightSource Energy, the privately held developer of Ivanpah, a 392-megawatt complex consisting of three CSP plants in California, is using Siemens turbines; the first of those plants is scheduled to begin operation in 2012.
BY 2020, 6GW OF SOLAR CAPACITY
Still, photovoltaic systems are the backbone of the U.S. market, now and for the foreseeable future. In the U.S., 29 states and Washington now have mandatory Renewable Portfolio Standards, while a further six states have set voluntary goals. Most of the solar development is occurring in the 16 states that have "carve-outs," which establish a minimum percentage of electricity that retailers must provide from solar or distributed generation by a certain date, says Justin Barnes, a policy analyst for the Database of State Incentives for Renewables & Efficiency (DSIRE).
Total capacity for grid-connected PV installations was 1.26Gw at the end of 2009. Total solar capacity must reach 6Gw by 2020, and 9.5Gw by 2025, in order for the 16 states with solar carve-outs to meet their targets, according to projections by the Lawrence Berkeley National Laboratory, which is part of the U.S. Energy Dept. That's expected to be a key driver of revenue growth for manufacturers of PV panels and related materials.
Apart from companies that serve the PV panel market, there isn't yet much of a solar industry for retail investors to buy into. That will change in the next couple of years, says Nancy Pfund, a managing partner at DBL Investors, a San Francisco venture capital firm that was spun out of a JPMorgan equity fund in 2008 and which has invested in the Ivanpah complex. "There's going to be a lot more choice very soon," she says, citing the coming of gigawatt-sized solar projects by 2016.
Eventually, manufacturers of solar mirrors used in CSP plants will either go public or be acquired by public companies, she says. She foresees the same trajectory for makers of concentrated photovoltaics, which boost the efficiency of energy conversion from silicon on the panels by focusing on how the silicon is arranged alongside glass.
SOLAR FINANCING OPTIONS
Solar installation financing is another potentially big area for investment, Pfund believes. She sits on the board of SolarCity, the only full-service solar installation company in the U.S. In January, SolarCity signed a deal with Pacific Gas & Electric (PCG) under which the California utility will provide $60 million in tax equity financing for solar installations in U.S. homes and businesses in exchange for lease revenue from SolarCity customers, as well as federal investment tax credits and local rebates. SolarCity's financing options let homeowners and businesses switch to solar power with no up-front investment, so they can start saving on energy costs right away. The company's goal is to be a national brand and become publicly traded, although that's a few years away, says Pfund.
Banks such as Rabobank have also begun to establish tax equity funds. As solar energy becomes more prevalent, Pfund believes more utilities will be attracted to the financing model in order to avoid losing some of their biggest customers, who will move to solar because of how much power they consume.
Investors need to maintain a lengthy time horizon in betting on the growth of the solar industry, says Mark Burger, a principal at Kestrel Development, a consulting firm for renewable energy policy, markets, and technologies.
Solar is "the new 30-year Treasury bond," Burger says. "It's a nice, conservative investment. And you'll get a better return than owning a Treasury bond."
At the end of 2009, the U.S. ranked fourth in total solar capacity, with 2.09 gigawatts installed, behind Germany with 9.79Gw, Spain with 4.01Gw, and Japan with 2.68Gw, according to Bloomberg New Energy Finance. With U.S. installed capacity growing at a faster pace than that of the international market, the country may be on track to become a more dominant market by 2014, according to Larry Sherwood, an analyst at the Interstate Renewable Energy Council (IREC).
Some 23Gw of solar capacity are under development in the U.S., enough to provide electricity for 4.4 million households, according to the Solar Energy Industries Assn. (SEIA). Solar demand in the U.S. is expected to grow 75 percent in 2011, compared with 2010. About 1.5Gw to 2.0Gw of capacity—1.36Gw in California alone—is scheduled to be installed next year.
One factor could snarl that time line: the expiration of federal incentives, specifically the Treasury Dept.'s cash grant program, which currently covers 30 percent of a project's costs, as long as construction has begun by the end of 2010. SEIA and other groups are pushing to have the qualifying construction start date extended by two years, to the end of 2012. Members of the U.S. Senate Finance Committee didn't return calls asking when they would vote on extending the program. Kaufman Brothers said in an Aug. 17 research note that the firm didn't expect a major decision on solar incentives until after the fall U.S. elections.
U.S. FOCUS ON UTILITY-SCALE SOLAR
The diversion of $3.5 billion from the Energy Dept.'s Loan Guarantee Program to other stimulus projects—and uncertainty as to whether any of the money will be restored—is also delaying some projects. Indeed, the main reason the U.S. solar market lags Europe's is that the federal government has consistently failed to commit to a long-term policy offering financial incentives to power providers, without which solar can't yet compete with such cheaper sources of electric generation as coal and natural gas.
While Europe is moving toward smaller rooftop installation, utility-scale projects are fast becoming the focus in the U.S. and are the most likely way for the U.S. to catch up with the leading solar markets. Photovoltaic panel makers FirstSolar
Solar's brighter future has some investment pros seeking opportunities beyond manufacturers of photovoltaic solar panels. Page at Guinness Atkinson recommends investing in stocks likely to benefit, no matter where solar demand is strongest. Page likes SMA Solar (S92:GR), a German producer of inverters, which convert the direct current produced by solar and wind into alternating current that can be used on the grid.
SATCON'S UTILITY-SCALE INVERTERS
The bigger the installation, the more important the inverter that enables a connection to the grid, says Osborne at Stifel Nicolaus.
While SMA Solar dominates the inverter market, Satcon Technology (SATC) is the largest manufacturer of utility-scale inverters, whose importance is sure to grow as the U.S. market moves toward utility-scale systems. While Satcon continues to report net losses, its revenue tripled from a year earlier, to $27.6 million in the second quarter. Some 45 percent of that volume derived from Europe, vs. nearly all its demand coming from North America a year earlier. The company's "geographic diversification is also reflected in its record backlog of $111 million," 20 percent of which comes from Europe, with another 33 percent coming from Asia, according to an Aug. 6 research note by Raymond James & Co. (RJF). The total backlog has grown 35 percent since June 30. Satcon has announced plans to build annual production capacity from 1Gw now, to 1.25Gw by the end of 2010, and to 1.75Gw in 2011.
Much of Satcon's revenue growth and gross margin expansion, bolstered by a recent shift to lower-cost manufacturing in China, is being offset by higher fixed costs necessitated by international expansion and a bigger workforce, said Raymond James, which still expects the company to post net losses through 2011. The red ink didn't stop Osborne at Stifel from upgrading the stock on July 27 to buy, from hold, citing improving margins and prospects for market share expansion.
The transformation of the U.S. market from rooftop to utility-scale systems is also expected to benefit Power-One (PWER) and Advanced Energy Industries (AEIS), which also make inverters. Dougherty & Co. estimated in a July 30 research note that Power-One's total renewable energy backlog increased by more than $500 million, compared with the first quarter, and is now over $900 million, the equivalent of 3.2Gw to 3.5Gw in shipments. The fast-growing inverter business introduces "a compelling growth aspect to an otherwise cyclical semiconductor capital equipment stock," giving the company more potential than other semiconductor makers to branch into adjacent segments such as solar over the long term, Pacific Crest Securities said in an Aug. 12 note.
KEY ROLE FOR CAPITAL EQUIPMENT MAKERS
Another company that is expected to do well regardless of where demand is strongest is STR Holdings (STRI), which makes adhesive encapsulants, the ethylene vinyl acetate sheets used to weatherproof solar panels and prevent yellowing. Demand for STR's products is strong, with half the world's solar panel makers signed up to use them, says Page at Guinness Atkinson. The company's net sales for the second quarter rose 126 percent from a year earlier, to $67 million, and were up more than 22 percent from the first quarter.(FSLR) and SunPower (SPWRA) have large pipelines of utility-scale projects and will be dominant players in the U.S., starting in 2011, says Matthew Page, one of the managers of the Guinness Atkinson Alternative Energy Fund (GAAEX).
With so much uncertainty surrounding incentives at home and overseas, the fact that more countries are adopting renewable energy standards and planning to build solar plants has analysts and some fund managers feeling more confident about the industry. "I'm bullish on solar because the market is no longer dominated by two or three countries," says Jeff Osborne, an analyst who covers clean energy stocks at Stifel Nicolaus (SF). "Morocco said in 2009 that it wanted to build 2Gw of solar." Utilities in Eastern Europe, he adds, are eager to diversify their energy sources to reduce their exposure to periodic supply disruptions from Russia's Gazprom (OGZPY:US), which provides roughly 25 percent of Europe's natural gas needs.
Capital equipment makers are also a fairly safe bet, with attractive returns on invested capital, says Osborne. Applied Materials (AMAT) and GT Solar (SOLR) both make the semiconductor equipment that deposits chemicals on large polysilicon cell surfaces. Applied Materials also makes equipment that cuts silicon wafers, while GT Solar makes polysilicon and wafers. Osborne sees them as "the arms merchants to the sector," which is attracting new customers in such countries as Korea and India.
If utility-scale installations grow as analysts expect, photovoltaic technologies will in time be outshone by concentrated solar thermal power, or CSP, which uses rotating mirrors to reflect the sun toward parabolic troughs carrying a liquid heat conductor or to so-called "power towers" with hot water boilers on top. The concentrated sunlight superheats the liquid heat conductor or the water, producing steam that drives turbines and generates electricity.
The companies that make materials for solar thermal installations such as mirrors and receiver tubes are now privately held. Turbines are made by public companies, however, and Siemens (SI) is one manufacturer whose turbine orders may increase as solar thermal power gets commercialized. BrightSource Energy, the privately held developer of Ivanpah, a 392-megawatt complex consisting of three CSP plants in California, is using Siemens turbines; the first of those plants is scheduled to begin operation in 2012.
BY 2020, 6GW OF SOLAR CAPACITY
Still, photovoltaic systems are the backbone of the U.S. market, now and for the foreseeable future. In the U.S., 29 states and Washington now have mandatory Renewable Portfolio Standards, while a further six states have set voluntary goals. Most of the solar development is occurring in the 16 states that have "carve-outs," which establish a minimum percentage of electricity that retailers must provide from solar or distributed generation by a certain date, says Justin Barnes, a policy analyst for the Database of State Incentives for Renewables & Efficiency (DSIRE).
Total capacity for grid-connected PV installations was 1.26Gw at the end of 2009. Total solar capacity must reach 6Gw by 2020, and 9.5Gw by 2025, in order for the 16 states with solar carve-outs to meet their targets, according to projections by the Lawrence Berkeley National Laboratory, which is part of the U.S. Energy Dept. That's expected to be a key driver of revenue growth for manufacturers of PV panels and related materials.
Apart from companies that serve the PV panel market, there isn't yet much of a solar industry for retail investors to buy into. That will change in the next couple of years, says Nancy Pfund, a managing partner at DBL Investors, a San Francisco venture capital firm that was spun out of a JPMorgan equity fund in 2008 and which has invested in the Ivanpah complex. "There's going to be a lot more choice very soon," she says, citing the coming of gigawatt-sized solar projects by 2016.
Eventually, manufacturers of solar mirrors used in CSP plants will either go public or be acquired by public companies, she says. She foresees the same trajectory for makers of concentrated photovoltaics, which boost the efficiency of energy conversion from silicon on the panels by focusing on how the silicon is arranged alongside glass.
SOLAR FINANCING OPTIONS
Solar installation financing is another potentially big area for investment, Pfund believes. She sits on the board of SolarCity, the only full-service solar installation company in the U.S. In January, SolarCity signed a deal with Pacific Gas & Electric (PCG) under which the California utility will provide $60 million in tax equity financing for solar installations in U.S. homes and businesses in exchange for lease revenue from SolarCity customers, as well as federal investment tax credits and local rebates. SolarCity's financing options let homeowners and businesses switch to solar power with no up-front investment, so they can start saving on energy costs right away. The company's goal is to be a national brand and become publicly traded, although that's a few years away, says Pfund.
Banks such as Rabobank have also begun to establish tax equity funds. As solar energy becomes more prevalent, Pfund believes more utilities will be attracted to the financing model in order to avoid losing some of their biggest customers, who will move to solar because of how much power they consume.
Investors need to maintain a lengthy time horizon in betting on the growth of the solar industry, says Mark Burger, a principal at Kestrel Development, a consulting firm for renewable energy policy, markets, and technologies.
Solar is "the new 30-year Treasury bond," Burger says. "It's a nice, conservative investment. And you'll get a better return than owning a Treasury bond."
Subscribe to:
Posts (Atom)
