Finnish Scientist Could Revolutionise Inverter Design

Finnish Scientist Could Revolutionise Inverter Design

If this researcher at the Tampere University of Technology (TUT), Finland, is right, generally used design principles of power inverters used in photovoltaic applications are wrong. As they are attracting growing international attention, the potentially revolutionary understandings could be key to solving the problems solar photovoltaic power systems have with power quality and disruptions in the power grid.

Is a photovoltaic cell a non-ideal current source? “I had some doubts about the real nature of the converters used in PV applications, because the PV generator seemed to be a current source not a voltage source,” says Professor Teuvo Suntio from the Department of Electrical Engineering at TUT. He had been reading too many articles describing converters interfacing with PV generators as if they were conventional voltage-fed converters that behave as current sinks at their input terminals. “According to [German physicist Gustav R.] Kirchhoff, connecting two current sources in series does not work properly at all,” Suntio evokes. “This is the basis for the 'revolutionary' ideas.”

That in mind, in 2008, the Finnish scientist began to search for the truth about properties of PV converters. The power electronics expert wondered why many shortcomings and malfunctions of renewable energy power systems remained unresolved. Suntio’s findings could provide game-changing explanations. First, he has explained why a converter directly connected to the PV generator does not work properly if its input current is used as a feedback variable; he recommends the use of the input voltage instead. Second, using output voltage or output current as a feedback variable leads to instability when the MPP [maximum power point] is reached. “This means that the output-side feedback cannot be used without compromising the stability of the PV system,” Suntio explains. Third, the voltage-sourced inverter (VSI) contains right-half-plane (RHP) zero in its output dynamics when the inverter operates in the constant-current region of the PV generator. “This means that the grid-current loop is actually unstable,” Suntio says. “The RHP zero actually turns into a RHP zero in the DC-link feedback loop and, consequently, instability would take place if the control bandwidth of the loop is too low. Such instabilities at rather low frequencies were reported, but their origin was unknown.” Fourth, Suntio and his team noticed that “the inverter output impedance exhibits 'negative incremental resistive' behavior at the frequencies close to the grid frequency and its low harmonics.” They explained that behavior with the cascaded control and phase locked loop (PLL) synchronizing the inverter with grid frequency.

Suntio’s progressive understandings could help improve the reliability of future inverter devices and, especially, the reliability of renewable energy systems as a whole. “Correctly considering the PV generator as an input source would also reduce costs if the sizing of the components are carried out without unnecessary oversizing," the scientist adds.

He also reckons, however, that there is still a long way to go before solar researchers “really understand and, especially, accept the facts related to the power electronics converters applied in the renewable energy systems.” Suntio predicts the main paradigm shift will come when one day “everyone recognises that the same power stage can have properties that are quite different from each other, and that the determining factors are the input and output sources as well as the feedbacks applied.” He even suggests changing currently used terminologies so that other engineers could understand what their colleagues are talking about. “Real knowledge about the origin of different undesired phenomena in the behavior of the inverters will enable their solving in a most optimal way,” he says, adding that many of today’s solutions focus on making inverters more complex or oversizing the devices to compensate for shortcomings. “Even though we have worked hard at making these discoveries known within the research community, there still is too much resistance.”

In 2008, TUT began collaborating with the global manufacturer of power and automation technologies ABB. Together, they have joined forces to pinpoint the optimal structure of photovoltaic power plants and develop new PV inverters ABB has patented. “ABB was the only company visionary enough to recognize the potentials of the research activities at Tampere University of Technology,” Suntio says. “As a consequence of that, the full-scale research projects started in 2009, yielding the 'revolutionary' knowledge.”

Acquires 7MW Solar Parks in Greece

Business News Day Star Acquires 7MW Solar Parks in Greece
DayStar Technologies has entered into a lock-up agreement to acquire seven solar parks, 1MW each, from Arxikon Construction Company in Greece.

The parks are located in industrial areas in Northern Greece. Electricity revenues from the projects are through long-term feed in tariff contracts and will cash flow approximately $75,000,000 Euros over 20 years (beginning at approximately $3.9 million Euro per year).

The electricity sales contracts have a consumer price index increase clause. This lock-up agreement allows DayStar 200 days to complete its due diligence, regulatory approvals and financing, the company says.

These solar parks have an asset value of approximately $21,000,000 Euros base on yielding a 15% IRR, and estimated annual power production of 10,850MWh per year.

Each of the solar parks were constructed with Bosch monocrystalline solar cells and SMA inverters and are fully equipped with data acquisition systems for 24/7 monitoring.

NREL Research Fellow Howard Branz Named APS

NREL Research Fellow Howard Branz Named APS
A solar energy scientist at the US Department of Energy’s (DOE) National Renewable Energy Laboratory (NREL) who has done pioneering and breakthrough work on thin films and nanostructures has been elected a fellow of the American Physical Society (APS). NREL Research Fellow Howard Branz was elected an APS fellow for “seminal research on thin-film silicon: defects, metastability, growth processes, nano-structuring and solar cells,” said James Riordan, spokesman for the APS.

Each year, less than one-half of 1% of APS members are accorded the honour, which recognises members who made advances in physics through original research and publication or made significant innovative contributions in the application of physics to science and technology. The APS has 50,000 members and works to advance and diffuse the knowledge of physics through research journals, scientific meetings, education, outreach and advocacy.

Branz is recognised worldwide for his research in nano-structured anti-reflection silicon, solar hydrogen production and defects and diffusion in semiconductors. He and his National Centre for Photovoltaics team won a prestigious R&D 100 Magazine Award in 2010 for black silicon, an elegant way to turn silicon cells black in just minutes and virtually eliminate reflection waste. The process produced a confirmed record of 18.2% efficiency for a nano solar cell.

Branz also led a research initiative that demonstrated how an NREL-developed chemical vapour deposition process has promise in lowering the cost of making silicon solar cells. Branz’s colleague, NREL senior scientist Pauls Stradins, said Branz “is a very talented, productive scientist, gifted at creating novel renewable energy technology, very much an innovator.” Stradins cites two especially important innovations: Branz’s breakthrough work on the deep connections of hydrogen bonding and motion within the silicon network and his insights into the role of entropy in the thermal excitation process in solids.

Branz, a Fulbright Scholar, earned his PhD at the Massachusetts Institute of Technology (MIT) and joined NREL in 1987. In 2010, he won the Southeast Regional Laboratory Consortium Award for Excellence in Technology Transfer. Earlier this year, he was named to NREL’s Research Fellows Council, the Laboratory’s top advisory council comprised of 10 internationally recognised scientists and engineers. He has published 106 journal articles and 104 conference papers. Branz also has 17 patents issued or applied for, and five pending NREL Records of Invention.

German Energy Storage Association Established

German Energy Storage Association Established
Its goal is to bring together the relevant decision makers in the sector, to offer expertise to policy makers and the public, to  speed up the development of the market and to build a strong contact network. Prof. Dr. Eicke R. Weber, Speaker of the Fraunhofer-Alliance Energy and Director of the Fraunhofer Institute for Solar Energy Systems (ISE) in Freiburg, assumed the office of Founding President of the BVES. "Our association envisages its mission as establishing energy storage as an energy resource along with the conventional and renewable energy supply in order to introduce more efficient, reliable, low-cost and safe energy ressources. To fulfil this vision we want to support the development of a stable energy storage market in Germany, which will then also serve as a model for additional markets in Europe and worldwide," continued Prof. Dr. Weber.

All companies that are involved in the production, planning, sale and operation of energy storage solutions are invited to become member companies. The interest group that is supported and represented by its members is committed to the further development of energy storage in the areas of politics, educational work, consulting and research. The work of the BVES will also involve the provision of industry information to members, as well as pushing ahead the coordination of development activities for energy storage systems in different applications. As one of its next work steps, the Association is planning to create an "Energy Storage Roadmap" in which a clear position for the role of energy storage systems in the energy revolution, the ‘Energiewende’ in Germany will be defined. Further work will be agreed upon at the occasion of the first meeting of members on March 19th, 2013 in Düsseldorf, within the scope of the Energy Storage – International Summit for the Storage of Renewable Energies.

Managing Director of the German Energy Storage Association is Dr. Harald Binder, who has worked in a wide range of international managerial positions, most recently as Vice President and General Manager of Applied Materials. Dr. Harald Binder is an active member of the board of trustees of the Institute of Microelectronics (IMS) in Stuttgart as well as Chairman SEMI Europe PV Group.

Solar Research Trends 2012

Applications Research Top Solar Research Trends 2012
Cost cutting and negative operating results dominated the picture of PV manufacturing around the globe last year. Despite all cost pressure, or maybe even just because of it, research went on even in the difficult market environment of 2012, and has created a number of breakthroughs in many disciplines of PV manufacturing and performance. We looked at the top 10 most-read research articles on Solar Novus Today in 2012 to spot the important trends.

Flexible thin-film research

Despite all cost pressure, or maybe even just because of it, research went on even in the difficult market environment of 2012.

Despite on-going research in the crystalline world, R&D massively takes place in other PV technology sectors. Last summer, scientists at the University of Toronto, Canada, and the King Abdullah University of Science & Technology (KAUST) in Saudi Arabia reported that they collaboratively have created a colloidal quantum dot (CQD) thin-film solar cell with a certified world-record efficiency of 7%. (See “Quantum Dot Solar Cell Achieves World Record Efficiency”).The 37% increase over the previous certified world record was made possible by a technical advance called “hybrid passivation scheme”. The breakthrough could further pave the way for inexpensive, fast mass production of thin-film solar technologies as it offers the possibility of creating solar cells on flexible substrates, using “roll-to-roll” manufacturing in the same way that newspapers are printed in mass quantities.

A method that can also be used to produce organic photovoltaic (OPV) cells developed for instance by energy company Phillips 66 in collaboration with South China University of Technology (SCUT) and California start-up Solarmer Energy Inc. The article “Phillips-66 Creates World Record OPV Cell with 9.31% Efficiency” describes research that resulted in a new world record last year for energy conversion efficiency in this category. At the same time, an interdisciplinary group of researchers from the University of California Los Angeles (UCLA) developed a high-performance polymer solar cell (PSC) that is highly transparent in the visible light range and produces energy by absorbing near-infrared and infrared radiation from the solar spectrum. These lightweight, flexible PSCs made from photoactive plastic-like materials are nearly 70% transparent to the human eye, because they mainly use near-infrared and infrared radiation  (See “Highly Transparent Polymer Cell Converts Near-Infrared Solar Radiation”.)

Material research

A possible way to drive down material and manufacturing costs was presented by researchers at the North Carolina State University (NCSU) in Raleigh, North Carolina (US), who may have found a way to significantly enhance solar absorption using sandwiched nanostructures. The article “Thinner, Cheaper Solar Cells with Sandwiched Nanostructures” describes a technique that would enable manufacturers to produce much thinner, thus, much cheaper, solar cells in less time while maintaining or even improving conversion efficiency. The new production process would even be compatible with existing manufacturing processes of thin-film solar cells in the industry.

Another result in thin-film research was presented by researchers at the Agency for Science, Technology and Research (A*STAR) in Singapore who may have found a way to reduce the cost of dye-sensitized solar cells (DSSC) by replacing indium tin oxide (ITO) electrodes with a thin film of carbon nanotubes. The article “Carbon Nanotube Thin Film Could Drive Down Cost of Dye-Sensitized Solar Cells”, describes what scientists believe could lead to the emergence of truly flexible solar cells. Transparent conductive oxides like ITO are state-of-the-art technology for window electrodes. However, they are brittle and the most expensive part of DSSC. Plus, indium is scarce. By contrast, carbon-based materials could have significantly lower cost, due to the abundant material source and potentially scalable fabrication.

Cell efficiency

In an effort to raise cell efficiency, scientists at the US Department of Energy’s National Renewable Energy Laboratory (NREL) together with Natcore Technology, Inc. have created the “blackest” solar cell to date, a black silicon solar cell that absorbs 99.7% of the sunlight. In this collaborative project, described in “Blackest Solar Cell Absorbs 99.7% Sunlight,” the researchers are aiming at reducing the cost of silicon solar cells by about 2 to 3% while increasing energy output from 3% to 10% over the course of a day without a tracking mechanism. Black silicon solar cells can potentially get higher solar energy conversion efficiency since they reflect less light. Furthermore, black silicon as an anti-reflection technology costs much less than conventional anti-reflection technologies that don’t use liquid etches.

Another, still more fundamental research project at NREL concentrated on the first solar cell that produces a photocurrent with external quantum efficiency (the spectrally resolved ratio of collected charge carriers to incident photons) greater than 100%, though applying a process called Multiple Exciton Generation (MEG)—or Carrier Multiplication (CM)—as the key to achieving a peak quantum efficiency of 114%, where a single absorbed photon bearing at least twice the bandgap energy can produce two or more electron-holes. This research is highlighted in “NREL Creates What May be Third-Generation Solar Cell.”

CPV finally going large scale

Research on concentrating PV (CPV) has made a big step forward in efficiency last year. CPV pioneers Dr. Andreas Bett, Fraunhofer ISE and Hansjörg Lerchenmüller, Soitec Solar GmbH have been awarded with the German Environmental Award for their groundbreaking achievements. Research on CPV continued all over the world: The US Department of Energy's (DOE) National Renewable Energy Laboratory (NREL) with industrial partner Solar Junction developed a SJ3 solar cell that uses tunable bandgaps, lattice-matched architecture and ultra-concentration tunnel junctions to achieve a world-record conversion efficiency of 43.5% with potential to reach 50% ().

Storage solutions

Research on the storage solutions for renewable energy – one of the main drivers in the industry last year – continued, as well. Materials scientists at Rice University in Houston, Texas (US) have developed a rechargeable lithium-ion battery that can be painted on virtually any surface. The new fabrication technique, described in “Paintable Battery Works with Solar Cells,” would open the door to new design and integration possibilities for storage devices. The technology developed by Rice could one day enable standalone hybrid devices for capturing and storing solar energy.

Duke University researchers analyzed a hybrid system in which sunlight heats a mixture of water and methanol in a maze of tubes on a rooftop. After two catalytic reactions, the system produces hydrogen that can be stored and used on demand in fuel cells. The set-up allows up to 95% of the sunlight to be absorbed with very little being lost as heat to the surroundings.

All these research achievements show that the technological progress of PV continues to advance. Even with the burden of rapidly decreasing crystalline PV, through intensive research also other disciplines and technologies still have their chance to emerge end become competitive.

Business Features Smart Grid Required for India’s Solar Plan

Business Features Smart Grid Required for India’s Solar Plan
The government of India is planning to tap the most talked about solar rooftop segment potential (estimated at 92.7GW) in a big way, adding at least 1000MW capacity by 2017. This will be done by integrating a central subsidy plan under phase 2 of National Solar Mission with initiatives being taken at the state level. In reality, India’s power success story is hindered by limited, inefficient (technically and operationally) and poorly managed grid infrastructure.

100,000 villages in India are not connected to grid and 400 million people don’t have access to reliable electricity. Those having access to electricity, face frequent power cuts and low power quality in their daily lives. On the commercial side, a number of industrial associations from Faridabad to Chennai, are ailing due to the irregular power supply, which is affecting businesses.

According to the Ministry of power, currently transmission and distribution losses in India are among the highest in the world with an average at about 30.14% and including non-technical losses such as theft, the average stands at 50%. Due to the rising power deficit year over year, India faces the biggest blackout ever. The Solar Rooftop Plan seems to be a plausible solution, which may largely improve power accessibility, overcome transmission and distribution losses problem, and shrink the demand and supply gap.

KPMG forecasts that rooftop solar capacity to be 4000 MW by 2017 and rooftop power will see parity much earlier by 2014 because of rapidly falling module prices and the rise in the cost of conventional power due to fuel shortages.

The role of the smart meter

In India smart metering technology plays a very important role for grid interactive solar rooftops. Interval metering for the FiT arrangement is quite popular, although another option for net metering is being assessed. In net metering, the smart meter communicates in a two-way fashion by registering the power taken from the grid and power fed into the grid and finally giving the net balance of power use. Net metering is essentially supported by upfront capital subsidy (feeding excess power fed into grid is purchased at conventional power prices) or through generation based incentive.

Commercial and industrial consumers, who already pay high commercial tariffs, face problems in their business operations due to power shortages and currently meet their shortage using costly power from backup diesel generators. Hence, solar rooftop power used primarily for captive consumption with the GBI incentive, renewable energy certificates or capital subsidy on equipment will be viable investments. On the residential side, however, payback time can be a disincentive. As per financial analysis done by Hari Manoharan, a consultant with RESolve Energy Consultants, for residential rooftops based on GBI scheme in Tamil Nadu, payback of Rs. 56,000 over 16 years will be observed based on various assumptions. To make solar on residential rooftops more appealing, financial incentives must be much more attractive.

Technical issues to be addressed

The main technical issues to be addressed for off-grid systems will be correct sizing by the installer and proper installation by the local work force in off-grid areas. Also, there needs to be proper standardization for indigenous equipment such as the battery and inverters used in systems.

“Smart metering for solar system integration with grid will take a lot of time to be accepted since people see solar power as a solution for frequent power cuts in India” says Giridaran Srinivasan, Project Engineer, RESolve Energy Consultants. He adds that unstable grids across various states in India (where power failures are frequent) don’t accept decentralised renewable energy power and make net metering impossible during power cuts as grid tie inverters disconnect immediately when a grid failure occurs.

During power cuts, the owners can only use solar power by using off grid changeover switch or hybrid inverters (expensive hence used for large rooftops), although they are forced to consume all the power themselves, which is not always feasible, hence it is always good to have a battery backup for evening and night power requirements, which will also be helpful during blackouts and emergencies.

Regulation required

All of the segments under discussion for solar rooftops rely significantly on diesel generators for meeting their power needs during power cuts in India. The government needs to consider making regulations for prohibiting the use of diesel generators. Consumers will then look at solar as only suitable alternative (with no noise and air pollution).

India is on the way to tap the most potential segment in solar sector as recognized by solar experts. Various stakeholders must work upon for making the solar rooftops technically robust for the Indian grid. The policies launched at state and central level need to be fine-tuned to make the investments viable along with necessary regulations, which will expedite the adoption of this cleaner source of power and put more power into the hands of the Indian consumer.

Award-Winning PV Cell Could Stride Toward 50% Efficiency

Award-Winning PV Cell Could Stride Toward 50% Efficiency

In their quest for progressively efficient photovoltaic devices, scientists in the III-V Multijunction Photovoltaics Group at the U.S. Department of Energy's (DOE) National Renewable Energy Laboratory (NREL) have been trying to prevail over the solar spectrums boundaries and unchanging rules since the 1990s, when they began their search for easy-to-grow materials with ideal band gaps.

In 2012, NREL and its industry partner, Solar Junction, defeated those solar rules so well they won an R&D 100 award from R&D Magazine for a world-record three-layered multijunction solar cell — the SJ3 — with 43.5% efficiency at 415 suns, as Solar Novus Today reported. Now, NREL has verified that record was outshone when a SJ3 cell reached 44% efficiency at 947 suns.

In concentrated photovoltaics (CPV) in particlular, cell efficiency has proven to be a powerful lever to drive down the cost of solar electricity and, thus, propelling the technology forward. “We have seen in the past that improvements in multijunction cell efficiency have catalyzed the introduction of new CPV systems companies and innovative approaches to lowering CPV costs,” says Daniel Friedman, manager of the NREL III-V Multijunction Photovoltaics Group. “I would anticipate the present  improvements in cell efficiency, as well as future improvements, to have a comparable catalyzing effect on the industry.”

According to NREL, with inventions such as the ultra-high-efficiency SJ3 cell, CPV technology could provide enough electrical energy to supply the entire US many times over. But what would have to happen for such a cogent clean energy solution to become reality? “Such an ambitious goal is very complex and involves more than just photovoltaics,” Friedman points out, referencing a recent NREL study that tackles big-picture questions on what large-scale renewables adoption could look like. “One component of this is to lower the cost of photovoltaics, and that is what the improved CPV cell efficiencies drive towards.”

Cost and long-term reliability remain major challenges on the path to more widespread implementation of CPV power systems. Friedman affirms this current research successfully addresses both. “This achievement [of the world-record 44%-efficient SJ3 cell] stands on the shoulders of several decades of R&D in multijunction photovoltaics,” the NREL researcher says. It was NREL's pioneering multijunction work that ultimately led to the Solar Junction SJ3 solar cell with tunable bandgaps, lattice-matched architecture and ultra-concentrated tunnel junctions.The Lab predicts there could be a 50%-efficient cell in the near future. “There are several multijunction approaches that have pathways to near-50% efficiencies. The SJ3 is one such, and the Inverted Metamorphic Multijunction approach is another,” Friedman reports. “In both cases, a key step towards near-50% efficiencies is the addition of a fourth junction with approximately 0.7 eV bandgap under the existing three-junction structures.” Furthermore, he believes it possible to enhance the performance of the existing junctions by careful analysis and improvement of their optoelectronic properties.

As solar researcher, Friedman’s outlook for solar energy is positive. “The multijunction solar cell field is in the midst of an exciting renaissance, where great strides are being made in the fundamental understanding of the subtleties of the device operation and in the application of this understanding towards obtaining higher-performance devices. I'm looking forward to continuing to work in the multijunctions field during these times,” the scientist concludes.

Renewable Energy Outlook Uncertain

Ernst & Young released its quarterly Country Attractiveness Indices report (CAI) for renewable energy today. There are some quite interesting observations regarding the state of and projections for renewable energy (and specific renewable energy sectors) within the report, but the ranking of the top countries in the index remains the same:

Renewable Energy Outlook Uncertain

With all kinds of economic struggles and uncertainty in Europe, the 2012 outlook for renewable energy in the region is not as bright as in 2011.

“The sovereign debt crisis continues to stifle renewable energy investment in the Eurozone, along with Governments scaling back their ambitions for the sector,” Ernst & Young writes.

“Simultaneously capital scarcity and increased competition from Asia will continue to put pressure on developed markets for the foreseeable future.”

“Early indications for 2012 are that it will be more challenging for stakeholders, with mature markets getting softer due to continued liquidity constraints and the ongoing withdrawal of government incentives,” Gil Forer, Ernst & Young’s Global Cleantech Leader, says.

“The perfect storm of Basel III, banking downgrades and Eurozone instability has increased the underlying costs to banks of lending, especially long-term,” Ben Warren, Ernst & Young’s Energy and Environmental Finance Leader, summarizes.

“With Basel III to be fully implemented by 2019 we feel it is likely that there will be further impacts on costs of bank funding from the legislation during 2012 and therefore additional increases in margins and reducing availability of long-term bank debt.”

Renewable Energy in Asia Still Hot… but Complicated

“However within emerging markets we continue to witness growth in the levels of capacity, as energy security concerns and demand for jobs drive increased government commitments to renewable energy,” Forer notes.

But the researchers find a mix of increasing solar energy targets and underdeveloped grid infrastructure that limits usefulness of new wind power projects.

US Wind Support Now Gone

As you well know, US policy support for the wind industry, especially in the case of the Production Tax Credit (PTC), has dropped off a cliff at the federal level, leaving the industry worse off than it was in 2011. 2012, thus, is looking to be a less exciting year for renewable energy fans in the US.

Germany on the Line

Germany has been a solar powerhouse for years now. But proposed changes to its feed-in tariff program for solar that are on the table right now could have a dramatic and negative effect on that industry.

“The German solar photovoltaic (PV) market expanded in 2011 with more than 7GW installed, but if currently proposed reductions and restrictions in photovoltaic (PV) feed in tariffs pass the German government in March, this would significantly suppress market activity in 2012 and beyond,” Ernst & Young note.

Middle East and North Africa (MENA) May Be Ready for a Growth Spurt

Despite waning and uncertain renewable energy support from the leaders mentioned above, the Middle East & North Africa (MENA) region offers up a bit of relief, as it looks set to start booming (as reported here on CleanTechnica a few times this year).

“An abundance of solar and wind resources are expected to attract a significant amount of investment in the short to medium term, particularly in more economic and politically stable markets. Many countries in the region are seeking to significantly increase the proportion of renewable energy in their generation mix as they look to diversify their predominantly hydrocarbon fuel supply and to meet the ever-increasing consumer demand.”

Consolidation Inevitable

As written here on CleanTechnica several times in the past several months, consolidation within maturing renewable energy sectors (especially solar) make consolidation of cleantech companies inevitable. Company mergers and acquisitions are likely to continue to a high degree throughout 2012.

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Source: Ernst & Young | Renewable Energy Girl via shutterstock

generally growth oriented managers

generally growth oriented managers
While we are generally growth oriented managers, we also in 2012 had good reason to believe that many of our holdings represent excellent values. As of December 31st 2012, 66 of our 80 holdings were trading below the average (1979 to present) price to book ratio of the S&P 500 index.  Our average price to book was 1.45, compared to 2.27 for the S&P 500.

Finally, a compelling argument, if we needed one, for hastening the transition to an economy that can persist and even thrive in a warming world was recently articulated by the World Economic Forum at Davos. "On the economic front, global resilience is being tested by bold monetary and austere fiscal policies. On the environmental front, the Earth's resilience is being tested by rising global temperatures and extreme weather events that are likely to become more frequent and severe. A sudden and massive collapse on one front is certain to doom the other's chances of developing an effective, long-term solution." In other words, we need to get the economy on a sustainable footing before it comes unraveled. Given the imperative of this reality, we have difficulty imagining a near-future scenario where the best next economy companies don’t become the most important to society and subsequently, potentially the best performing.

The decisions we make as an interconnected global civilization now will be the difference between catastrophe and a thriving society with a healthy economy. Given the stakes, we have no doubts about how to place our bets.

Thanks for your continued support of Green Alpha Advisors and investing in the next economy.

Green Alpha Advisors' Annual Client Letter and Portfolio Commentary

Green Alpha Advisors' Annual Client Letter and Portfolio Commentary

Garvin Jabusch and Jeremy Deems
2012 saw a return to positive performance for the next economy and for markets overall. Generally, global economic conditions, as indicated by some jobs growth, slowly improving industrial output and a housing rebound, improved marginally, but debt crises in Europe and America, exacerbated by eternal dithering, gamesmanship and posturing by politicians and other policy makers on both continents, kept optimism in check and moderated expectations for growth. With respect to the next economy, though, growth and expectations for growth began showing real signs of building momentum as mainstream awareness of the need ensure the longevity of the world economy by changing some of its foundations continued to advance. Thus our ‘next economy’ macroeconomic thesis became still more relevant and closer to fruition.

The basic macroeconomics of the next economy thesis are fundamental, and their essentials don’t change over time.  As we wrote in last year's letter: “Earth’s economies may stagnate or grow; either way, we believe things like renewable energy, clean transportation, sustainable infrastructure and water resources must grow in value. Over time, the value of stocks in our models will not be dependent on Wall Street gamesmanship, but on simple necessity. As awareness of the magnitude of our growing resource-climate-security problems advances, so will the valuations of our portfolio companies.” Even as chronic fiscal imbalances distract world leaders’ attention from climate and resource challenges, business, individual and institutional investors, academia, think tanks and research all are addressing the latter at an ever accelerating pace.

Thus we continue to be very optimistic about our potential to provide competitive long term returns performance to our portfolio shareholders. Essentially, Green Alpha Advisors is an asset manager offering portfolios of stocks in companies with proven business plans responding to the challenges presented by a warming, increasingly populous, resource-constrained world. Portfolios of these companies deliver growth in all sectors including transportation, communications, commerce, infrastructure, materials, energy, agriculture and water. Considering:

I. The world’s population is growing fast, but its resources aren’t,

II. Energy security and national security depend upon the U.S. minimizing use of foreign oil,

III. The fossil-fuels based economy, with its digging, burning, scarring of the landscape, disruption of ecology, and disease causing pollution, is ultimately too expensive to maintain, and

IV. Climate change,

it’s clear the time is past due for serious investment in mitigation and adaptation, and indeed the signs that people and institutions are getting that are becoming omnipresent.

Each of the three Green Alpha portfolios saw a positive return for 2012. Our flagship green economy benchmark, the Green Alpha Next Economy Index (or GANEX) returned 4.21%; our Sierra Club Green Alpha portfolio (SCGA), actively managed and more concentrated than the GANEX, returned 6.79%; and our newest portfolio, the Green Alpha Growth and Income Portfolio (GAGIP), was up 6.96% for the partial year from its inception on October 8th, 2012.  While we are happy to return to positive performance after a tough year for next economy stocks in 2011, we did nevertheless underperform the legacy fossil-fuels based indices; the S&P 500 was up 16% and the Dow Jones Industrial Average returned 7.26% in 2012. All three of our portfolios did however outperform prominent green economy ETF portfolios (see discussion below).

All Green Alpha portfolios are based on our universe of next economy companies, with individual securities and weights selected to best fit the mandate of each portfolio. We’re especially pleased that December 30th 2012 saw the fourth anniversary of the inception of the GANEX, reflecting a four year track record milestone measuring the growth and progress of the overall next economy. (On the topic of portfolios, look for an exciting announcement from us later in Q1 regarding our fourth and newest portfolio offering that will greatly enhance our ability to serve current and future clients.)

On the securities level, we saw once again in 2012 the importance of diversification across all sectors of the next economy. We find it hard to overemphasize this point: the post fossil fuels economy is emerging in all sectors, so to invest as though renewable energy (as critical as it is) is the only aspect of a green economy is shortsighted and results in high volatility. Attempting to represent the entirety of the next economy, our Green Alpha Next Economy Index (GANEX) is invested in 27 sectors and 52 sub-sectors, spanning, we believe, nearly everything required for a broad-based economic system to function. Reviewing GANEX’s top five 2012 total return performers gives some indication of its diversification:

Badger Meter, Inc. (BMI), 63.98%. Badger makes water meters, “flow measurement and control solutions” for farming, commercial, utility and residential applications. The U.S. drought of 2012 (and continuing) has brought the need for smarter, more productive water management into sharp focus. You can’t manage what you don’t measure.
Trex Company, Inc. (TREX), 62.51%.  Trex is the world's largest manufacturer of high performance wood-alternative decking. We consider Trex a prime example of waste-to-value economics that not only keeps huge quantities of waste out of landfills and oceans (Trex used 3.1 billion plastic bags in 2010, participates in a system responsible for 70% of all U.S. plastic bag recycling, and has never harvested a single tree to make its product), but also delivers a superior product with better long term value. In a world of constrained resources, making great stuff from leftovers is the best of all worlds.
Cree, Inc. (CREE), 54.17%. Cree is a leading developer of high efficiency LED lighting and systems and semiconductors for radio frequency applications. Cree LEDs can provide illumination as efficiently as 200 lumens per Watt, compared to 14½ lumens per Watt of a 60W incandescent bulb. This translates to big savings in energy and money, and is a straightforward example of one of our primary themes, focusing on innovation in economic efficiencies – getting more output out of less input.
Valmont Industries, Inc. (VMI), 51.03%. Valmont Industries provides critical infrastructure such as efficient mechanized poles and towers for wind turbines, lighting, communications and more. In 2012, VMI gave our portfolios exposure to the infrastructure aspects multiple trends such as the booming mobile and mobile web markets as well as the growing wind energy sector without the risk associated with an individual turbine manufacturer. Full disclosure, for valuation reasons, we removed Valmont from our portfolios as of year-end 2012.
The Hain Celestial Group, Inc. (HAIN), 47.9%. Hain Celestial is a leader in natural and organic food that vertically integrates manufacturing, marketing sales and distribution. We think of Hain as a macroeconomic bet on efforts of people to improve their individual health, and also on efforts at a policy and advocacy level to manage mushrooming and economically destructive escalation in healthcare costs. In addition, from a long-term agricultural management point of view, we think that that industry’s ever more potent pesticides, herbicides and petroleum based fertilizers will prove so deleterious to human health, land productivity and biosphere health that organic methods will continue to increase in popularity, and may one day even be required.
From the standpoint of our next economy sector classification scheme (NESC), the top performing Industry and Sector in the GANEX Portfolio was the Products (Industry), Capital Goods & Equipment (Sector), with Portfolio exposure of 16.11%.

The chart below shows the performance of the GANEX, from its inception on December 30, 2008 to the end of 2012, versus two prominent green exchange traded funds, the Guggenheim Solar portfolio (TAN, in gold here), and the PowerShares WilderHill Clean Energy ETF (PBW, the black line). Over this period, the GANEX returned 28.15%, while the TAN was -79.22% and PBW performance was -46.68%. To be clear, GANEX differs significantly from these other two. TAN is a basket of exclusively solar and solar-related stocks, and PBW, though not as sector focused as TAN, is limited primarily (but not exclusively) to renewable energy. GANEX by contrast attempts to capture the entirety of the next economy, including renewable energy and solar, but also everything else we’ll need to have a thriving economic system, including, again, transportation, communications, commerce, infrastructure, materials, energy, agriculture, water and more. So while the comparison with these two may not be exact, we believe it does show the importance of careful diversification into all areas of the emerging green economy.