The following was written by Tom Konrad

#4 Composite Technology Corp. (CPTC.OB)

I first recommended CPTC last April in an article about how electricity transmission is essential for renewable energy on a large scale. At the time I focused on how transmission helps even out the variability of wind power, but transmission is going to be if anything more essential to the development of Concentrating Solar Power [CSP]. It is true that a 100×100 mile square of Southwest Desert theoretically receives enough sun to generate electricity for the entire US, and that electricity could meet both peaking and baseload needs with thermal storage. However, if the population centers in the East and California are to be served, it will require a massive transmission build out.

I don’t expect Southwest CSP to ever supply all our electricity needs, but I do expect that this abundant, storeable electricity will start to be used for more than just the local needs of the desert Southwest within the next decade. Even this much smaller vision will require a large upgrade to our transmission infrastructure, as will the growing penetration of wind as a percentage of utility resource bases.

CPTC’s Aluminum Conductor Composite Core [ACCC] is gaining acceptance in China (which is building out its electric infrastructure much faster than we are building ours.) I expect the US to follow (although just the China play could be enough to keep the stock rising.) In the US, I see an opportunity for ACCC with utilities that want to move more power down existing rights of way. Many utilities need to upgrade their transmission after decades of relative neglect, and the added demands of higher wind penetration and the possibility of long range transmission of CSP power only enhance this need.

Using ACCC instead of traditional (Aluminum Conductor Steel Reinforced) power cables allows the same line to carry higher currents (up to 2x as much) with less sagging in hot weather, and line losses are reduced by as much as a third under all conditions. For high usage lines, a straight retrofit with ACCC can have good financial returns for a utility based solely on the lower line losses.

CPTC also has a wind division, which like all turbine manufacturers should, in my opinion, be able to sell all the turbines they can build for the foreseeable future, which should greatly help CPTC with their ongoing operating cash flow as they ramp up production of their D8.2 turbines. However, they are not profitable, and much of their turbine technology is assembled through patents licensed from other companies, and these revenues are vulnerable to a declining dollar and other foreign currency exchange risks.

CPTC will not become profitable in the near future, and will almost certainly have to return to the capital markets for additional capital. If their products catch on, it should be easy for them to raise capital on favorable terms; if they don’t, we can expect massive dilution.

In all, the “Risk Factors” section of their most recent annual report is long, and many of the risks (including multiple lawsuits) are not trivial. Perhaps the most serious risk is the United States’ utility industry’s resistance to change, which may lead to a complete unwillingness to use ACCC, despite its superior properties. This is a big if, and I expect long term investors’ returns to be excellent if they persuade utilities to adopt their technology, and miserable if utilities stick to the way they have always done things.

Tags: energy investments

This entry was posted on Tuesday, January 1st, 2008 at 5:06 pm and is filed under concentrating solar, electrical distribution. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.