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by Debra Fiakas CFA
post on Brightsource
Energy and its Ivanpah
solar thermal power plant in California cited costs for the
plant as well as costs for nuclear and conventional power
sources. A reader pointed
out a discrepancy in those figures and it prompted me to
look more closely at various sources and citations on power plant
costs. Even within one design or fuel category, costs for
power plants are exceptionally site specific. In particular
variance can occur in labor, site preparation, and interconnection
requirements. Certain material and equipment costs are more
volatile than others. For example, high temperature-
high-pressure pipe, electrical transformers and copper wire are
high in demand in the oil and gas market as well as the power
market. When both industries are busy, costs increase
dramatically. So investors should expect quite a bit of
variance across power sources and from region to region.
It is also easy to get tripped up in the power industry
vernacular. (This is where the cart left the path in the
earlier article.) Back in the 1700s when the steam engine
was being perfected a smart Scotsman named Watt came up with a
measure of energy conversion. The measure became standard
and of course it had to be named after him.
Yet, one Watt is not enough. In very large power complexes, it
becomes unwieldy to discuss power generation in terms of
Watts. Here the Watt siblings come in handy to keep
the digits at a reasonable number. You can choose Kilo’s or
Mega’s or Giga’s. If a power plant has a capacity to produce
2,000,000,000 Watts and you want to shed all those zeros, you can
choose among “2.0 billion watts” or “2,000 Megawatts” or “2.0
1 Joule Per Second
Watts are standard, but the way we talk and write about them is
not. The U.S.
Energy Information Administration is among the most cited
sources for Capital Cost Estimates for Utility Scale Electricity
Generating Plants. This is probably because they have a fairly
detailed report by that name. The report was most recently
updated in April 2013 and expresses all costs per kilowatt.
For example, the nuclear power plant cost is listed in the EIA
report at US$5,533 per kilowatt hour.
Energy Agency also provides information on nuclear power plant
construction costs, but uses megawatts as their basis.
The NEA says “a typical cost for construction of a Generation III
reactor between 1400 – 1800 MW in OECD countries might be in the
region of USD 5 – 6 billion.”
Comparing the two sources requires some math. First, let’s get
the average for that range of sizes and costs provided by the NEA.
US$5 billion or US$5,000,000,000
US$3.6 million or US$3,571,429 per Megawatt
US$6 billion or US$6,000,000,000
US$3,333,333 per Megawatt
US$5.5 billion or US$5,500,000,000
US$3.4 million or US$3,437,500 per Megawatt
Now we need to either re-express the EIA numbers in Megawatts or the
NEA numbers in Kilowatts to compare the two sets of numbers.
|Original Cost||Equivalency||Translation||New Measure|
|EIA||US$5,333 per Kilowatt||1 Kilowatt = 0.001 Megawatts||US$5,333 / 0.001||US$5,333,000 per Megawatt|
|New Measure||Equivalency||Translation||Original Cost|
|NEA||US$3,438 per Kilowatt||1 Megawatt = 1,000 Kilowatts||US$3,437,500 / 1,000||US$3,437,500 per Megawatt|
That was exhausting. In the end, the two are so far apart as
to bring into question the value of the cost benchmarks in the
first place, from either source. Did I mention regional
variances and how power generation costs can be quite site
specific? It is also helpful to know that the EIA has
recently updated it benchmark power plant costs, but the NEA’s
numbers appear to be a bit older.
The EIA report on power plants cites costs for a collection of
conventional fossil fuel plants. Natural gas power plants
are among the fossil fuel-type power sources. The average is
US$1,137 per kilowatt with a range of US$676 per kilowatt for an
advanced conventional combustion turbine to US$2,095 per kilowatt
for a conventional combustion plant outfitted with carbon capture
technology. If fuel cells using natural gas were also
included in this category, it would hold the dubious record as the
most expensive at US$7,108 per kilowatt.
The EIA report also indicates a cost of US$5,067 per kilowatt for
solar thermal power which we could have compared to our source for
the cost of BrightSource’s Ivanpah power plant. It would
have been a tip-off that the cost of US$5,500 per megawatt cited
in the article on Brightsource was “off.” The Ivanpah
facility has a capacity of 377 Megawatts and a cost of US$2.2
billion. That is a cost of US$5.8 million per megawatt or US$5,836
per kilowatt (since 1.0 Megwatt = 1,000 Kilowatts). Indeed,
it appears there could be more to the discrepancy. The
Brightsource website indicates the plant has a 377 megawatt
capacity, but planned capacity is apparently 392 megawatts.
Using 392 megawatts leads to a lower cost figure of US$5.5 million
For investors, the comparison of costs from one plant to another
or even across categories has some informative value. Yet
there are limitations. A resource poor region might find the
construction of a nuclear facility compelling even if the cost per
kilowatt is high in comparison to other energy sources. It
is all relative. What is important for investors is whether
future cash flows from the sale of electricity will be sufficient
to allow investors to receive a return on their investment.
Debra Fiakas is the Managing
Director of Crystal Equity
Research, an alternative
research resource on small capitalization companies in selected
Neither the author of the Small Cap
Strategist web log,
Crystal Equity Research nor its affiliates have a beneficial
interest in the companies mentioned herein.
Date: 3/10/2014The KidWind Project launched an Indiegogo campaign to raise funding for the Future of Renewables initiative, which will fund outreach events for students and teachers, including KidWind Challenges. The campaign ends on March 29, and the …
$50 Million Fund to Build Projects for California Department of General Services Will Create Local Construction Jobs while Saving Taxpayers Money
The agreement stipulates the purchase of 600 BYD electric buses in 2014 and another 600 in 2015, totaling 1200 units. BYD took the opportunity at the signing event to announce the opening of a new electric bus manufacturing facility in the Dalian Huayu…
Tom Konrad CFA
Disclosure: I am long MIXT.
“The MRM market has been growing quickly, and does not look like
it will slow down.”
So says Clem Driscoll, President of C.J. Driscoll &
Associates, a leading consultant for the Mobile Resource
Management (MRM) industry.
One beneficiary of this growth has been Fleetmatics Group
The company’s revenues have been growing 35% per year for
the last four years. On Friday, the company was knocked down
a peg after reporting fourth quarter earnings. The company
reported greater than expected revenues, but lowered earnings
guidance for 2014.
According to Driscoll, Fleetmatics’ valuation has been pulling up
valuations across the industry, including a large number of
private firms (which have been the subject of significant private
equity activity) and divisions of other companies with businesses
based around Global Positioning Systems (GPS) like Garmin, Ltd.
As you’ll note from the chart above, MiX Telematics (NASD:MIXT,
JSE:MIX) stands out for its modest comparative valuation,
especially with respect to Fleetmatics. Unlike Trimble and
Garmin, Mix and Fleetmatics are fully focused on the MRM space.
Both provide Fleet Management Solutions using a
Software-as-a-Service (SaaS) model, but Fleetmatics is roughly
three times more expensive per share based on sales (P/S), book
value (P/B), and trailing earnings (P/E). Based on the
price-earnings-growth (PEG) ratio, FLTX shares are more than twice
as expensive as MIXT, even after Friday’s decline. (Note
that the ratios are shown in log scale in order to display them on
MiX vs. Fleetmatics
While Fleetmatics and MiX have similar business models, they
serve different groups of MRM customers. Fleetmatics is
based in the US, where the industry started, and where fleet
management solutions have the highest market penetration.
MiX started in South Africa, but now serves clients in 112
countries worldwide. The company’s founder and
CEO, Stefan “Joss” Joselowitz told me in a phone interview
that the move to become a global company started eight to nine
years ago. As part of the transition, he relocated to the US
with his family six years ago. MiX has offices in East
Africa, Dubai, the United Kingdom, the US, Brazil, and Australia.
Joselwitz says the move has helped the company in its
relationships with international clients. The company listed
its American Depository Shares (ADS) on the Nasdaq stock market
with the symbol MIXT in August 2013. Each NASD:MIXT ADS is
equivalent to 25 JSE:MIX South African shares.
According to Driscoll, the whole industry is becoming more
international. Companies based in the US are expanding into
overseas markets, or at least looking at overseas markets.
Joselwitz thinks it will be difficult to replicate his
company’s international presence and relationships on the ground.
This infrastructure gives MiX an advantage in serving large
international companies, where MiX is the market leader,
especially in the Oil and Gas industry.
Different industries require different types of MRM solutions.
Oil and Gas and Utility clients require strong integration
with mapping and geographical data, while the trucking industry
requires hours monitoring, and miles driven on a per state basis,
for the purpose of state tax reporting. A new rule from the
Federal Motor Carrier Safety Administration is expected to require
electronic driver logs in trucking soon. Driscoll expects
the new requirement is likely to drive adoption of fleet
management solutions in the industry, but also lead to some price
erosion from increased competition.
Fleetmatics’ main market is small and medium businesses (SMBs),
which require simpler solutions than sophisticated multinationals.
According to Driscoll, its offering is fairly basic, but
regarded as a good solution for its target market.
Despite it’s simpler offering, SMBs have less pricing power than
MiX’s multinational clientele. At the end of 2013, the
companies had active subscriptions for similar numbers of vehicles
(445,000 for Fleetmatics compared to 428,500 for MiX), but
Fleetmatics’ quarterly revenue was $50.1 million compared to $29.6
million for MiX, despite the former’s relatively simple offering.
Although not all revenue from each company comes from
subscriptions, this equates to approximately $450 per vehicle for
FLTX compared to $275 for MiX. This greater revenue is
reflected in each company’s gross margins, which are 77% for FLTX,
and 66% for MiX. MiX’s gross margin on subscriptions is
slightly higher, “approaching 70%” on subscription revenue, but
still low compared to Fleetmatics.
The reason MiX is able to serve its more demanding customers at a
lower cost per vehicle than Fleetmatics is its South African
base. The company keeps as many of its operations as it can
in relatively inexpensive South Africa, where Joselowitz says the
cost of a software engineer is half that of a software engineer in
the US. With the majority of its expenses in South African
rands, and much of its revenues in the dollar, Euro, and other
international currencies, a falling rand leads to an earnings
boost for MiX.
New regulatory requirements such as those mentioned above for
trucking may drive some growth, but they are far from the only or
primary growth drivers. Much more important is the extremely
attractive financial proposition. C.J. Driscoll &
Associates recently completed a survey
of fleet operators regarding their interest in MRM systems.
36% of the respondents use such a system, with higher
penetration in larger fleets.
With all these benefits, it is unsurprising that customers are on
the whole very satisfied with their MRM solutions. 79%
reported being either very satisfied or somewhat satisfied, and
only 6% reporting any level of dissatisfaction.
Driving Safely, Driving Green
While the above results make fleet management easily cost
effective for most clients, the greatest safety and fuel
efficiency improvements can be achieved with some sort of driver
behavior modification (DBM). These systems give drivers
real-time feedback, allowing them to increase safety and reduce
fuel use much more quickly and effectively than without the
While Driscoll says that all major MRM providers offer driver
behavior monitoring as an option, its use is much more suitable
for the large, sophisticated fleets which are MiX’s core customers
than they are for the SMBs which are Fleetmatics’ customers.
The adoption of DBM is still in its infancy in the US.
Only 6% of the MRM customers in C. J. Driscoll’s study
reported using some sort of driver behavior management system.
In contrast, MiX includes a driver behavior management system
standard in its fleet management solutions. According to
Joselowitz, “A standard feature of our MiX FM range of products is
in-cab driver notification which is effected through audible
feedback to the driver in the event of a violation. We then offer
increasing levels of sophistication where we add visual feedback
as well such as with the Ribas and all the way up to color
displays.” Even though most of MiX’s clients opt for the
standard offering, their results show it to be highly effective.
Although I do not have comprehensive data, the results of several
studies provided to me by MiX seem to confirm that the ability to
monitor real time driver performance often produces amazing safety
improvements. The results are impressive even in comparison
to the results reported in the C.J. Driscoll study. MiX
shared results from several Middle Eastern clients that had
reduced accidents between 50% and 95%. Such reductions would
almost certainly not be possible on the much safer roads of the US
and Europe, but they are impressive anywhere.
Reductions in Road Traffic Accidents
and Rollovers by a Middle Eastern Oil and Gas company
after implementing a MiX fleet management solution in
The graph above showing a client reducing road traffic accidents
from 215 to 6 in three years is not an isolated example.
Several other studies showed clients reducing accidents and
accident related costs between 50% and 95% after the adoption of
In terms of efficiency, MiX’s anecdotal evidence points to
customers saving from a low of 5% to as much as 27% in fuel costs
after the adoption of MiX’s solution. Most of the clients
who quantified their fuel savings had efficiency gains in the low
Will Insurers Drive MRM Adoption?
Overall, I find the evidence that driver behavior management
significantly reduces accidents quite compelling. It may
also improve fuel efficiency more than a basic fleet management
solution, but it is the increased savings which should prove
compelling to insurers. Yet insurers are only beginning to
According to Driscoll, insurance has not yet become a selling
point for MRM providers despite the 31% of managers reporting
receiving a discount. Insurers who do give a discount are
more interested in the fact that the fleet manager is using an MRM
system than if that system includes driver behavior management.
In an article
on Telematics Update, Christopher Carver, a former program
manager for commercial insurance telematics at Liberty Mutual, was
quoted as saying, “Commercial insurance is waking up to
telematics. Fuel efficiency is definitively linked to lower
claims costs. Improved efficiency – driving fewer miles at less
busy times – means [fleet operators] are a better bet for an
When insurers do wake up to telematics, I expect they will push
for higher adoption of driver behavior management. That in
turn should benefit MiX, which has extensive experience with
driver behavior management, and the data to prove its
Mix Telematics is a leader in the rapidly growing fleet management
industry. More importantly, it is already a leader in a
number of trends which are likely to reshape the industry in the
coming years: increasing globalization, growing focus on reducing
fuel costs, and an insurance-driven focus on improving driver
safety. Its South African home base and experience with
demanding multinational customers gives MiX a low cost base which
is likely to serve it well in a highly competitive industry.
Because of its recent listing in the US, MIXT is much less
familiar to Wall Street than US-based competitors such as
FLTX. This lack of familiarity is unlikely to last.
Neither is MIXT’s low relative valuation.
This article was first
published on the author’s Forbes.com blog, Green Stocks
on February 26th.
DISCLAIMER: Past performance
is not a guarantee or a reliable indicator of future
results. This article contains the current opinions of the
author and such opinions are subject to change without
notice. This article has been distributed for
informational purposes only. Forecasts, estimates, and certain
information contained herein should not be considered as
investment advice or a recommendation of any particular
security, strategy or investment product. Information
contained herein has been obtained from sources believed to be
reliable, but not guaranteed.
The Biofore Concept Car is designed and manufactured by students from the Helsinki Metropolia University of Applied Sciences.
The new station on Honda R&D Americas’ Torrance, California campus was built in anticipation of Honda’s next-generation fuel cell electric vehicle, due in 2015.