Saturday, 16 January 2010

ERI Offers a Refreshing Investment in a Thirsty World

Coleridge's "The Rime of the Ancient Mariner" bewailed seeing "Water, water, every where, Nor any drop to drink."
If only he had packed a seawater reverse osmosis desalination unit, he would have been fine—although, admittedly, poetic rhythm would have suffered a tad.
We will need to claim ever more fresh water from the briny seas in the years to come. The United Nations expects the global population to expand by three billion people by 2050, many in developing regions without sustainable access to safe drinking water. Growing demand for food will add pressure, given that 70% of water consumed is for crop irrigation.
Treating seawater to remove salt, either by heating it or forcing it through membranes (reverse osmosis), is one way to cope. About 60 million cubic meters a day of desalination capacity exists world-wide, according to Global Water Intelligence. That's up more than 12% from 2008 but still represents only 1% of global consumption.

Energy Recovery Inc. offers an investment angle. ERI makes advanced pressure exchangers, which capture and recycle up to 98% of excess energy otherwise wasted in reverse osmosis desalination. Energy represents the single-biggest cost in desalination. ERI's patented technology captures more energy than older products and requires less maintenance.
ERI shares were listed in July 2008 at $8.50 a share. Its stock has been volatile and Friday closed at $6.57. Besides general market turmoil, frozen credit markets and lower oil prices–arid Middle Eastern countries are big buyers—have delayed big desalination projects. In April, a competitor of ERI, Calder AG, was acquired by Flowserve Corp. Calder's technology has much lower market share. But it is now part of an industrial group with a market capitalization of $5.9 billion, compared with ERI's $344 million.
Despite delays, though, the long-term growth story remains intact. ERI's proprietary technology and net cash position provide resilience. The consensus earnings estimate for 2011 is 25 cents a share, implying a heady multiple of 26.3 times. But Jefferies & Co. estimates each incremental one million cubic meters a day of desalination capacity built translates to a $17.5 million revenue opportunity for ERI assuming its current market share, or three cents a share of earnings.
Moreover, some 43% of ERI's revenue is spent on research and development, sales, marketing and administrative expenses. That should be leveraged across more end markets to improve margins. Last month's acquisition of smaller rival Pump Engineering LLC, expanding ERI's product range and addressable markets, was a step toward this.
Water stress, climate change, expensive energy, and infrastructure needs weigh on the global outlook like the proverbial albatross. ERI represents one way of investing in efforts to address the burden.
Write to Liam Denning at

India State Oil Firms May Invest $15 Billion Next Year

NEW DELHI -- India's state-run oil and gas companies plan to raise their total investment by about a fifth in the next financial year to raise crude output, expand refineries and produce cleaner fuels, a senior government official said Friday.
The companies are likely to end the current fiscal year through March with a total investment of 580.95 billion rupees and plan to spend 694.58 billion rupees ($15 billion) next year, the official, who didn't wish to be identified, told Dow Jones Newswires.
Indian energy companies are increasing investment to meet rising demand for fuels in the world's second-fastest growing major economy. India's top policy think tank, the Planning Commission, has forecast the economy to grow at 9% between April 2007 and March 2012.
The federal government aims to raise spending in the sector to assure energy security through higher local output and investment in oil equity abroad. The South Asian nation currently imports more than three-fourths of its crude oil needs.
Oil & Natural Gas Corp., India's largest explorer, is likely to raise capital expenditure next year by about 7% to 265.23 billion rupees as it speeds up drilling at exploratory blocks, including the Cauvery and western offshore basins, the official said.
ONGC--which contributed about three quarters of India's crude oil output and two-thirds of natural gas production in the last fiscal year--hasn't kept up with output targets as its fields are ageing and it hasn't brought any new blocks into production for many years.
The company had planned to invest 208.68 billion rupees this financial year, which is now estimated at 247.20 billion rupees due to an increase in exploratory targets, higher rig charter rates and a rise in offshore drilling wells for marginal fields, the official said.
ONGC's overseas investment arm, ONGC Videsh Ltd., will step up spending by 23% next fiscal year to 86.63 billion rupees on its assets in Nigeria, Russia's Sakhalin, Sudan, Vietnam, Myanmar and Brazil.
OVL produced 8.77 million metric tons oil and oil equivalent gas in the last financial year. It has set a target to produce 20 million metric tons a year of oil and oil equivalent gas by 2020.
Oil India Ltd., the nation's second-largest oil producer, expects to invest 44.65 billion rupees in the next fiscal year, up 88%. It has set aside 20 billion rupees to acquire overseas assets.
Indian Oil Corp. plans to spend INR128.25 billion in the next fiscal year, up 11% on year. The country's largest listed company by revenue aims to expand and upgrade refineries, lay crude and product pipelines and start new projects.
Indian Oil's other two state-run rivals--Hindustan Petroleum Corp. and Bharat Petroleum Corp. --plan to spend 39.24 billion rupees and 30.22 billion rupees, respectively. HPCL's investment will go up by 79% as it aims to complete its projects to supply fuels that meet tighter emission standards.
BPCL's investment will fall by 18% due to lesser outlay on projects to supply clean fuels which are nearing completion.
Gas transmission company GAIL India Ltd. will raise investment by 31% to 55.10 billion rupees as it speeds up work on various pipeline projects, the official said.

India to tackle pollution with energy cuts

Rhys Blakely in Mumbai

India is planning to create a £10 billion-a-year market in energy-saving certificates that officials hope will burnish the country's green credentials and help to avert a looming energy crisis.
Under the plans, due to be implemented in April next year, more than 700 of the country’s most polluting industrial units, such as steel and cement plants, will be given targets for reducing energy consumption.
Those that better their targets will be able to sell energy savings credits to those that fail to make the required cuts.
Ajay Mathur, director-general of the Bureau of Energy Efficiency, the government department leading the project, told The Times he believed that the scheme could save the equivalent of 10 million tonnes of oil a year.

Officials believe that transactions in energy savings certificates could reach £10 billion a year and help to save about 5 per cent of the national energy consumption by 2015.
The move comes as India struggles to provide power to its people, 400 million of whom live in houses that are not connected to the national grid.
Manmohan Singh, the Prime Minister, has pledged "power for all" by 2012, but demand for electricity is likely to increase more than fivefold to 3,870 terawatt hours a year by 2030, according to McKinsey, the consultancy.
In the same period, the number of vehicles on India’s already congested roads is expected to rise sevenfold, to about 380 million vehicles.
If those predictions are realised, India, which relies on its modest coal reserves for the lion’s share of its power and already imports 70 per cent of the oil it uses, would become the third-largest consumer of energy, after the United States and China.
Its share of world energy consumption will nearly double, pitting it against international rivals in a fierce battle for scarce resources.
The energy savings trading scheme is one of several projects designed to tackle the power deficit and cut the emissions blamed for climate change.
There are also plans to distribute 200 million solar powered lamps in the next few years, and to install solar panels on all government buildings by 2012.
Among the more eye-catching experiments is a recent bonus plan for banking executives.
Those whose lending results in villages becoming “fully solar electrified” — by funding small photovoltaic systems capable of powering portable TV sets and street lights — will receive a 100,000 rupee cash prize from the Ministry of New and Renewable Energy, enough to buy a car.
The grandest scheme of all is a $19 billion (£11.67 billion) plan to make India a global leader in solar power.
The plan, which was launched this week, calls for India to generate 200GW of power from solar sources by 2050.
The entire world can generate about 14GW of solar power today.
India will join a growing number of counties exploring energy savings trading schemes.
Several states in the US have instituted similar initiatives, as has New South Wales in Australia.
Italy, Britain and France have also established schemes for energy-saving certificates.
However, only a handful of trades have occurred in the British scheme, which is overseen by Ofgem, the regulator of gas and electricity markets, according to the World Resources Institute, meaning that effective prices have not been set.

Climate Exchange weathers 'perfect storm'

Date: Friday 15 Jan 2010
LONDON (ShareCast) - Neil Eckert, chief executive of Climate Exchange, said the emissions exchange operator had to weather a ‘perfect storm’ of events in 2009 that hit activity in financial markets and pushed the reduction of global emissions further down the political agenda. Nevertheless, the company continued ‘to demonstrate outstanding growth in volumes and open interest’ in its mandatory market products, Eckert claimed, and maintained its dominant market shares of exchange traded volumes. European Climate Exchange (ECX) futures contract volumes in the second half of 2009 were 47% higher than in the second half of 2008, while options contract volumes grew 88%. ECX traded 2,436,072 contracts in the second half of 2009, an increase of 40% over the corresponding period of 2008, while ECX average daily volumes for toalled 18,603 contracts versus 13,311 contracts in the second half of 2008. Chicago Climate Futures Exchange (CCFE) average daily volumes improved to 18,603 contracts from 13,311 in the latter half of 2008 while Chicago Climate Exchange (CCX) trading volumes declined by 31% year on year in the second half.

A123 to Produce Batteries for Fisker

A123 Systems Inc. said it will produce batteries for electric cars made by Fisker Automotive Inc., and will invest up to $23 million in the start-up auto maker as part of the agreement.
A123, based in Watertown, Mass., also said it will expand a battery-assembly plant in Livonia, Mich., with a goal of raising capacity enough to produce 320,000 hybrid-vehicle battery systems and more than 24,000 plug-in hybrid systems a year.
The company expects the plant to create more than 500 jobs.
The partnership between the two companies underscores the critical role the U.S. government has taken in trying to spur the development of electric vehicles.
A123 received $249 million in grant money from the U.S. Department of Energy's Advanced Technology Vehicles Manufacturing Incentive Program, or ATVM. Fisker received a $529 million federal loan from the program in the fall to build plug-in hybrid cars.
Fisker is using some of the money to retool a Delaware auto plant that had been owned by General Motors Co., which was bailed out by the federal government.
"The federal money has been a catalyst," said David Vieau, president and chief executive of A123 Systems.
Fisker is producing a luxury sports car called the Karma, due later this year at about $87,900. It also is working on what it calls a more "affordable" sedan that will cost about $48,000. The vehicles would run on battery power alone and owners could recharge them by plugging into a power source at home.
A123, which held an initial public offering last fall, said $13 million of its investment in Fisker will be in cash.
Last year, A123 formed joint ventures with SAIC Motor Corp., China's largest auto maker by volume, to develop battery systems for hybrid and pure electric vehicles.
The Livonia plant is expected to go online in the second half of this year. The company also said Thursday it would establish operations at a site it leased in Romulus, Mich., last month. That site is expected to start production in the first half of next year.
Write to Alex P. Kellogg at and Mara Lemos Stein at

Suzuki to End Hybrid Work With GM

HAMAMATSU, Japan -- Suzuki Motor Corp. will likely have to reorganize its partnerships with General Motors Co. because of a new alliance with Volkswagen AG, the head of the Japanese car maker said Friday.
"We need to rearrange our traffic," said Osamu Suzuki, the company's chairman and chief executive, referring to tie-ups with U.S. and European car makers that were forged before Suzuki announced its partnership with the German auto giant last month.
Suzuki will work jointly on environmental-technology projects, "learning from our partner," the CEO told reporters in Hamamatsu, central Japan, where the company is headquartered.
The Japanese small-car maker has a technology-development deal with GM and produces vehicles for Adam Opel GmbH, while it procures some of its diesel engines from Renault and Peugeot S.A. As part of the review, Suzuki will end joint development of a hybrid system with GM by the end of February and will likely terminate a fuel-cell systems project with GM, Mr. Suzuki said.
Volkswagen could ask the Japanese company to use its diesel engines instead of those made by the two European firms, Mr. Suzuki said, although details of such a tie-up haven't been decided.
Renault produces 1.9-liter diesel engines for Suzuki, while Peugeot makes 1.6-liter engines. Mr. Suzuki said his company will keep making 1.3-liter diesel engines in India based on Fiat SpA technology.
The CEO, who turns 80 this month and has overseen the company for 31 years, said the car maker wants to continue to produce its Splash compact cars for Opel of the GM group as long as the partner demands.
A spokesman for Volkswagen's Japan unit declined to comment on whether the German company will ask Suzuki to use its diesel engines. GM's Japanese unit couldn't be reached.
Suzuki, helped by its dominance in the booming Indian auto market and smaller exposure to the U.S., was one of the few Japanese car makers to eke out a profit in the business year ended March. Its net profit sank 66% but most of its domestic rivals swung into deep losses as the global downturn dented auto demand. Suzuki controls about half of India's car market through its Maruti Suzuki India Ltd. subsidiary.
The Japanese company forecasts net profit will drop a further 45% this year to 15 billion yen on sluggish sales in Japan and a strong yen.
Suzuki is Japan's second-biggest seller of fuel-efficient mini cars but it has fallen behind in the race for advanced low-emission technologies using electric devices and upgraded diesel engines.
Through the partnership with Volkswagen, the Japanese company hopes to enhance development of gas-sipping cars using Volkswagen technologies, while the German partner exploits Suzuki's technology to produce compact cars at lower cost.
Europe's biggest car maker by volume plans to launch its first hybrid vehicle, the Touareg hybrid, this year, and an electric-car model based on its E-Up concept in 2013.
Suzuki Motor said Friday that Volkswagen completed its purchase of a 19.9% Suzuki stake for 222.48 billion yen ($2.5 billion), under the new alliance. Suzuki, in return, will invest up to half that amount in Volkswagen to solidify the broad alliance.
The CEO said Suzuki wants to make the investment as early as possible but that "there are few floating shares available," as Porsche Automobil Holding SE owns a 51% stake in Volkswagen, the German state of Lower Saxony holds 21% and Qatar has 17%.
"We are asking to look for a shareholder who could sell the shares to us," he said.
Suzuki tied up with Volkswagen after a 1981 capital alliance with the former General Motors Corp. ended in 2008, when GM unloaded its remaining 3% stake in Suzuki. GM had reduced its stake from 20% in 2006 as part of a restructuring.
Write to Yoshio Takahashi at

Fisker raises equity, clears US gov't loan hurdle

Reuters, Friday January 15 2010
* Fisker secures $115 million private equity funding
* A123 among investors, to take seat on Fisker board
* Clears hurdle for $529 million of U.S. govt loans (Adds quotes from Fisker CEO, details, byline)
By Kevin Krolicki
DETROIT, Jan 15 (Reuters) - Electric car builder Fisker Automotive said on Friday it had raised $115 million in equity, clearing a key financing hurdle that will allow it to draw on U.S. government loans needed to launch two plug-in hybrid vehicles.
Raising the additional equity was a condition Fisker had to meet to gain access to a $529 million loan the U.S. government granted to help fund the carmaker's expansion plan.
A123 Systems Inc, which signed a deal this week to supply lithium-ion battery packs to Fisker for its two upcoming plug-in hybrid models, invested $23 million in Fisker and will take a seat on the board.
Fisker said other investors in the funding round included Silicon Valley-based Kleiner Perkins Caufield & Byers, one of the early investors in the California-based start-up founded in 2007, and Ace Investments.
Fisker had raised $45 million from existing investors late last year, founder and Chief Executive Henrik Fisker told Reuters in an interview on Friday.
Taken together with the funding announced on Friday, Fisker now has raised enough equity to access the loans the U.S. Department of Energy pledged to provide in September.
Fisker plans to borrow up to $169 million to finish engineering on its Karma sports sedan and another $359 million to build a second, less expensive hybrid sedan.
Fisker, speaking to Reuters, said he expected to close on the Department of Energy loans over the next four weeks.
He said the company was also on track to complete the $18 million purchase of a former GM assembly plant in Delaware by the end of March.
"That's all on track," Fisker said.
The Karma, a rechargeable sports car scheduled to go on sale in September, is designed to travel 50 miles on a single charge. It will sell for $87,900 and be built in Finland by Valet Automotive.
Fisker is also developing a second, lower-cost vehicle under its "Project Nina", a rechargeable sedan it expects to start building in 2012. That sedan is expected to sell for $47,400 before a U.S. tax credit to consumers of $7,500.
Fisker needs to raise an additional $27 million in equity by Feb. 15 to reach the next milestone under its U.S. government loan agreement.
A123, which is targeting the growth market in electric car power packs, will supply batteries for both Fisker vehicles. The company also has supply arrangements with China's SAIC and BMW.
Boston-based A123 had previously lost out in a competition to supply batteries for the Chevy Volt, a battery-powered car due later this year from General Motors Co.
A123 said in filing with securities regulators that its $23 million investment in Fisker consisted of $13 million in cash and $10 million in A123 common stock. (Additional reporting by Soyoung Kim and Poornima Gupta; editing by Gunna Dickson)

Electric cars struggle to spark enthusiasm

All the big carmakers at the Detroit motor show had electrically powered and hybrid cars on display, but Americans still aren't buying green vehicles

Andrew Clark in Detroit, Friday 15 January 2010 16.51 GMT
With a curiously squashed, elongated body, the Tango electrically-powered car is as narrow as a single passenger and as nippy as a motorbike. Billed as the world's fastest urban car, it can reach a speed of 130mph. Satisfied customers include the actor George Clooney, and its inventor describes the bizarre vehicle as a "chick magnet".
Built by a US start-up called Commuter Cars, the Tango takes up only half a traffic lane. It can carry two people tandem-style in slightly cramped comfort. Without the need for gears, its battery-powered engine can accelerate from zero to 60mph in four seconds and, with a racing car-style roll cage design, the Tango is supposedly as robust as a Volvo estate car.
"It's unequivocally the fastest car you can buy for an urban environment," says Commuter Cars' president, Rick Woodbury, who has sold 11 of the vehicles so far, at a hefty price of $150,000 (£90,000) each, including a recent delivery to a customer in Surrey. "I drove through Times Square and had girls throwing their arms around me."
The Tango is among the quirkier exhibits on Electric Avenue, a corner of the Detroit motor show devoted to electrically-powered vehicles. Visitors this week included speaker of the US House of Representatives, Nancy Pelosi, and the governor of Michigan, Jennifer Granholm. Every manufacturer of any note, from General Motors to Toyota, Mitsubishi and Hyundai, has a plug-in car or, at the very least, a petrol-electric hybrid on display, usually involving the letter "e", as in the BMW ActiveE prototype and the Audi e-tron sports car.
The future of motoring, according to political and environmental enthusiasts, is electric. But this mantra has been repeated, in different forms, for almost a decade and many industry experts feel that it is hard to find a true groundswell of enthusiasm among consumers.
Held backTwelve years ago, the Toyota Prius broke new ground as the first mass-market hybrid car. Hybrid technology, combining electric batteries with a petrol-driven back-up engine, is well established. But barely 1% of industry sales last year were hybrid or electrically powered vehicles. PricewaterhouseCoopers' automotive institute expects to see a small rise to 4% by 2015.
"What's holding them back?" asks Anthony Pratt, a PricewaterhouseCoopers analyst. "Cost." The starting price for a Prius in Britain is £19,500. A Toyota Avensis, with a conventional petrol engine, starts at £16,800.
Typically, buying an environmentally friendly car involves a premium of several thousand pounds, and the recession has not helped. Pratt says: "When people begin to look to do more with less, they became less concerned with the environment and more worried about trying to balance the budget."
Toyota this week showcased a smaller, cheaper version of the Prius called the FT-CH concept. Its Japanese rival, Nissan, displayed a pure electric plug-in car called the Leaf, which is already on the market in Japan and will hit US showrooms this year, arriving in Britain in 2012. It has a socket in its bonnet and needs to be recharged every 100 miles. At a turbo-powered quick charging station, re-energising the batteries takes 26 minutes; a home charging station will take eight hours.
Mitsubishi has a similar model, the MiEV prototype (short for Mitsubishi Innovative Electric Vehicle). With their relatively short range, these vehicles are aimed at commuters and are suitable for commercial use in towns – by, for example, postal services and restaurants delivering food. But until somebody builds a network of electric charging stations, they are awkward for longer trips.
That, according to Jim Hall, an automotive expert at 2953 Analytics, a Detroit-based research company, is a major sticking point: "The average American sees a car as a tool that must be able to do everything. Our cars are viewed as Swiss army knives."
Another reason, Hall believes, for the slow take-up of electric vehicles is that consumers most concerned about the environment also tend to be "late adopters" who are suspicious of impenetrable technology: "They'll be concerned about the nickel in the batteries – the fact that nickel must be mined and that nickel is toxic."
New ideasOther ideas are being tested. Hyundai showed off a prototype called the Blue-Will this week, with roof-mounted solar cells to help recharge its lithium batteries. Tesla Motors, a small Silicon Valley company, has come up with a way to extend the range of a battery-powered car. Its test drivers recently managed to go 313 miles through the Australian Outback on a single charge.
But the most keenly awaited mainstream "green" launch will be GM's Chevrolet Volt, a hybrid that can go 40 miles on a single electric charge but then harness power from its internal combustion engine to generate more electricity on the go, extending its range to hundreds of miles from one tank of petrol. The Volt, which will cost about $40,000, will go on sale in the US late this year, but GM's vice-chairman for product development, Bob Lutz, admits that it will not be much of a moneyspinner.
"If we did it purely for profitability, we wouldn't be doing it," said Lutz, who predicts that even in a decade's time, at least 90% of cars sold will still be powered by internal combustion. "Other than 5% of the public who will willingly make a sacrifice to buy green vehicles, the other 95% of people will ask, 'What am I getting – what's the deal?' They're not going to spend $5,000 to $6,000 on technology they don't need."
There is a legislative incentive to lead the public towards greener cars. The Obama administration has tightened standards for fuel efficiency and ordered manufacturers to cut emissions from new vehicles sold in the US by 30% by 2016. But raising taxes on fuel, which would concentrate consumers' minds, has proved too risky to contemplate for politicians on either side of the Atlantic.
As recently as 2005, research by JD Power, the marketing information company, found that US buyers cared more about the number of cup holders in a new vehicle than its miles-to-gallon ratio. A 2008 spike in oil prices changed that, prompting a shift towards smaller cars, yet still an electric "revolution" on the roads remains a distant prospect. Plug-in cars face a long, tough battle to break beyond a small but devoted audience of Hollywood stars, eccentrics and passionate environmentalists.

Wind industry 'can provide a FTSE 100 firm'

BRITAIN'S fledgling offshore wind industry has the potential to create at least one FTSE 100 company, according to the chairman of a fast-growing energy group.
Steve Remp, executive chairman of SeaEnergy, made the forecast as he outlined plans to set up a services division to take advantage of government plans to turn Britain into the world's largest offshore wind market.SeaEnergy started life as oil services company Ramco, in the 1970s, and was at one point in the late 1990s the largest company on London's Alternative Investment Market.Since deciding to exit its oil and gas assets last year, the realigned wind farm business has won the right to develop the Moray Firth zone in conjunction with Portugal's EDP Renovaveis."I hope the services business will be put together this year. I'm working on it intently at the moment," Remp said.He added that China was also a key area of focus for the company, which prefers to develop wind farms in conjunction with big utility partners."The second largest offshore wind market to emerge hot on the heels of the UK will be China," he observed.Remp said the expected rapid growth of the industry could lead to the creation of one or more Footsie companies."Whether we'll be one of them I can't tell you," he added.The anticipated explosion of activity could see the offshore wind industry become the North Sea oil story of the 21st century, though Remp cautioned that government had a lot to do to ensure Britain made the most of the opportunity, rather than letting international firms steal a march as they did in the North Sea in the 1970s