Wednesday, August 26, 2009

Beware of extreme saving claims

Canada's biggest alternative-power generator, Canadian Hydro Developers, generates 496 megawatts of wind and hydropower... theoretically. If its claims were true, it could power almost 400 average U.S. homes for a year.

In fact, this $720 million company's power supply is terribly inefficient. In the first quarter, the company only operated about 27% of the time from January to March. That means its true generating capacity was just 133 megawatts.

When we break down Canadian Hydro Developers' sales, we see that it earns about $82 per megawatt hour (which is one megawatt of energy supplied for one hour). That works out to about $720,000 per megawatt of capacity (hours per year multiplied by $82 per megawatt hour).

The company claims it will install another 185 megawatts of power this year. However, by its own estimates, those power plants will only produce about the equivalent of 66 megawatts of power. In other words, those new plants' planned efficiency is 37%... and will probably be much lower.

That puts the company's total paid power generation for this year at just under 200 megawatts. The company spends, on average, $8.5 million to build one paid megawatt of wind power and $4.8 million to build one paid megawatt of hydropower.

At $720,000 per megawatt of paid power generation, new hydropower plants will take almost seven years to pay for themselves. New wind plants will take almost 12 years to pay for themselves.

As you can see, the company must spend far more money than it will recoup in the near term. Canadian Hydro Developers' long-term debt soared 275% in three years... from $224 million in 2005 to $839 million today. That's about 10 times its estimated earnings for 2010, which is too high for my taste.

Tuesday, August 18, 2009

GM Volt

Despite GM's struggles to bring the Volt to market, there's no doubt that technology is changing the automotive industry forever and that mpg will soon be a wholly inadequate metric on which to judge the efficiency of a car. You can expect GM's inflated claims to be reduced when the Volt finally hits showroom floors in a few years. But you can also expect shockwaves to run through the industry and the economy as virtually every component of the car, shy of the seats, is rethought over the next decade. Fortunes will be made and lost in a way that has not been seen in the automotive industry in half a century or more