Will Ocean Power Technologies Surge Forwards?

I always try to remain objective about the stocks that I write about and invest in. I have experienced the pain of falling in love with a stock that blinds me to its warts and blemishes. I must admit that I am very attracted to the stock that is the subject of this article. I am not in love yet, but if the stock recovers like I believe "Love" may be in the offing.

So much attention is being paid these days to green technologies that one might expect we would be farther along towards energy independence. Alas, we are not. America and the world have had many wake-up calls over the years (OPEC embargoes, shortages, high prices, gas crises, etc.). It is only going to get worse with projections that global energy demand will increase by 45% between 2006 and 2030 — and that $26 trillion in power-supply investments will be necessary simply to meet those needs (International Energy Agency's (IEA) annual World Energy Outlook-2009).

That is the sad and scary truth, but the good news is that investment in alternative energy technologies (wind, solar, biofuels, hydrogen) have soared dramatically over the past few years. Certainly green technology has a friend in the White House when President Obama campaigned on the promise to spend $150 billion over the next 10 years to support alternative energies, like wind and solar.

One company that believes that it has a viable alternative energy technology is Ocean Power Technologies, Inc (OPTT). The company is no flash in the pan. They can trace their roots back to 1994 when Dr. George Taylor and the late Dr. Joseph R. Burns created a company whose vision was to extract the natural energy in the sea. The company has pioneered the technology to create electricity from wave energy.

I do not need a degree in fluid dynamics or mechanical engineering to understand the power of the sea. The kinetic energy present in wave motion of the sea is limitless and constant. That is what Ocean Power Technologies is capitalizing on. Ocean Power Technologies focuses on its proprietary PowerBuoy® technology, which captures wave energy using large floating buoys anchored to the sea bed and converts the energy into electricity. A more complete understanding of Ocean Power Technologies can be gleaned by visiting its website.

The challenges facing Ocean Power Technologies have less to do with "can you do it?" but rather "can you do it cost-effectively?". The major hurdles facing any sea energy project have been the cost per kW of the energy created and the amount of energy created. Typical wind farms currently on the drawing boards usually run between 200 and 300 Megawatts. A typical OPT project might max out at 10 megawatts and currently is not cost effective when compared with wind or solar. Experts indicate that it might be as much as 10 years before sea energy could be price competitive with those other technologies.

While the future is unknown for OPT, there are several positive things that I gleaned during my study of the company, as follows:

• The company appears to have the financial resources to bring their technology to commercialization with their first full-scale commercial project slated to be delivered in 2010.
  
• The company has over $41 million in cash and equivalents.
• Quick ratio of 8.5:1.
• The company has virtually no long term debt.
• At the current burn rate, the company has several years of cash in the bank.
• The company has current revenues albeit operating at a loss.
• The company holds U.S. and International patents on the most crucial aspects of their technology.
• The company appears to be the technology leader in its field and has beta sites currently in operation.

While the chart is not OPT's friend right now, it could turn quickly. The stock is bearish with the MACD line well below the zero line and not indicating any strong upwards trend. OPT is trading along the bottom of the Bollinger bands and appears to be rebounding from its oversold condition.


Ocean Power Technologies, Inc. is not the only answer to the world's energy problems, but it deserves a place in the pantheon of energy technologies that we hope will deliver the needed energy. It has a number of significant hurdles to overcome before its future is secure. As a short-term stock play, however, Ocean Power Technologies, Inc. bears watching.

Disclosure: No Positions

Comments

[Davewmart:]

I wish it weren't so, but I am expecting very major cutbacks in support for all of the renewables, at least outside of China.
Check out what has happened in Spain with it's cutbacks on solar subsidies, or the UK with wind cancellations.
The reason is that when times are tough and budgets out of control, they are likely to be early victims of cuts.
Ocean power is entirely dependent on subsidy, so a lot of these idea will hit the end of the road as reality starts dawning on the fiscal position.
Oil and gas exploration are being cut back, so what chance does ocean power have?
Obama might like renewables, but is he going to let, say, California go bankrupt to save them?

Aug 11 12:46 PM

[Ben-G-man:]

The problem with this stock is that they are not a technology leader. See Pelamis, Wavebob, Oyster to name a few of the private technology developers out there, who are equally advanced and to my knowledge gaining better results than OPTT. Harnessing power from waves is far from easy and it is not clear which technolgical path will win. This company is so early stage it more of a VC investment, and way too risky for any normal investor.... you're falling in love with a dog.

Aug 11 12:58 PM

[WildSurmise:]

Excellent piece. I've been watching OPTT and have been accumulating a very few shares since 2003. (Came in too early, as usual.)

Wave power is the greatest prospective renewable energy solution, my friends. Wind power? Phooey. Wave generation gear is more durable and cheaper than wind power generation gear, and no one has to look at the structures. The high costs mentioned are mainly relative to new cabling and strong moorings and should drop substantially with widespread adoption. Fish and shellfish love wave power units-- they're protective.

What I particularly appreciate about OPTT's business plan is the very simple flotation principle of the unit's design, its successful operations at sea for years, OPTT's working with a number of foreign countries, its having the US Navy as a customer (wave power units would be a brilliant power source for miltary and geothermal soundings in remote ocean locations), and the company's recent tie-up with Lockheed to plan and equip a large wave power installation off the US Pacific coast. News flow about the latter is expected soon, and should substantially move the stock.

Aug 11 01:06 PM

[jerrydd:]

These devises are not going to be cost effective for the power output, cost.

Kinetic currents, tides, rivers, streams over 2mph can be the cheapest power, $.01-.02/kwhr, you can get if anyone can figure out how to do it. There is enough US resource for at least 1/2 of our energy needs with very little footprint of any kind and no dams. There is enough to completely replace coal at a much lower price.

I built a bunch in the 80's that worked great, too good as they made so much power we had to turn them off most of the time. Yet all these engineers can't make one work? What's up with that?

Aug 11 09:53 PM

[jerrydd:]

What happened in Spain? For one day last yr all of Spain ran from wind power alone, hence built out so no need for more subsidies. I'm glad heavy solar subsidies are backing down so solar panel prices can fall which at about $2/wt they will be viable without subsidies in many places.

The subsidies we need stopped is those in oil, coal both direct and indirect. Once the full cost of fossil fuels are in them instead of in our income taxes then RE will be far lower cost.

Aug 11 10:12 PM

[A Barrel Full:]

I think that wave power will piggy back on offshore wind. Putting the two together would reduce the unit costs of infrastructure, whilst giving a less volatile power output.

I agree with Ben G Man, though, we do not know if any particular company will be a winner, even if wave power becomes a large scale reality.

Aug 12 03:46 AM

[Rick Krementz:]

I've been following Ocean Power for quite a while. They have had some very limited pilots, in Hawaii, and have had numerous failures. Building strong wave energy equipments is really difficult: light enough to produce power on average days, strong enough to survive storms. Only the West Coasts have enough energy to make wave a possible energy source. The amount of wave energy that can be captured on west coasts and in shallow enough water to anchor is not really that large. In may be an interesting niche application, but nowhere near a game changer.

I really liked their idea and almost fell in love, but I realized it wasn't going to work big time. I wish them luck.

Aug 12 01:13 PM

[quick:]

I looked into these guys a while ago, and there seemed to be at least 10 other private companies that were trying to do the same thing. Too much competition in my opinion. Plus it looks like the technology is not quite ready for the big time yet. I wish them luck, I hope they succeed, but I'm not putting any money in their stock.

Aug 12 05:40 PM

[news_to_use:]

OPTT has $81.7 million in cash and equivalents (all of their investments are in short term treasury notes), not the $41 million you stated. They have no debt. You also forgot to mention confidential contracts they have with DOD and the Navy. They are definitely the leader in their field.

Aug 17 04:05 PM

[Tate Dwinnell:]

don't forget about the collaboration with lockheed announced early this year

Aug 25 10:33 PM

[WildSurmise:]

There are some uninformed comments above. First, the scope of harnessing wave power doesn't require the big waves that typically occur off western coasts and hit surfers' beaches. The kinetic force of water in ocean waves is so outsized, compared to wind, that small waves consistently do the job (and reliably maintain power supply in all weathers, unlike wind, which is crucial for electricity distribution). The relatively low-wave Mediterranean will be fine for flotation wave generators.

Second, Ocean Power Technologies' competitors were way behind, when I last looked-- for example, the relatively advanced Pelamis rig had yet to work at sea.

Third, you don't need an engineering degree (I'm an architect) to assess the simplicity and likely relative costs of competing designs. To cite Pelamis again, the floating snakes require ship-sized articulated floating structures with many moving parts. OPT's design is just a floating doughnut rising and falling around a column-- and if the column had air chambers, it could float, too, with only cable anchorage.

OPT's rigs have so far used fixed columns. They (and other designs with fixed rigs) could indeed be topped with wind power generators, but why extend the columns to double height at great cost, due to the much higher cantilever forces to contend with? Wind generators at sea would require heavy maintenance. And a wind generator could never account for more than a small fraction of the energy of a functioning wave power generator.

Finally, the fact that OPT has produced a rig with no environmental impact (the highest rating, recently received) is potentially of immense importance. Indeed, "wave farms" of OPT design would protect stressed fish species such as Atlantic cod. In warm waters, a tiny trickle of electricity to the moorings would cause coral to grow at multiplications of natural rates. Wave power generation may help save the planet in this extra way.

The only big hurdles now are political: for planning permissions in coastal waters, and international treaties for wave farms in open seas. In view of all the benefits, it's maddening that our politicians haven't yet grasped that. I think they probably will before long.

Aug 28 07:17 AM

[ISeeUClearly:]

OK - I wish OPT management would stop posting here.
However no one has mentioned their management or their inability to product success or attract senior prize winning engineers. They've been only successful at selling a concept so far; and considering that the Fed Gov has invested doesn't impress me (I have a $2000 hammer to sell too). The talent has departed the company long ago and high turnover has followed for 10 years consistently.
OPT's ocean testing has a 9 to 1 failure rate. What is alarming is that their failures continue to appear within different technologies that they employ /patent. I only wish that I was allowed to inspect their equipment during that one/single success test in NJ (I'd be looking for the hidden battery).
Poor facility, staff morale and grossly paid executives smells bad. Additionally if you check in on some black-hat sites you may begin to question their IT as well.

My money is blowing in the “wind”.

Aug 29 12:32 AM

[fastcad:]

Ocean wave power has been on my mind since I took Oceanography in college. I am now an Architect and think I found the answer.
Wave energy can be extracted from waves in three places, the top (floaters), the front (crashers) and the bottom (neutral buoyancy).
Crashers only can work at the shoreline Which is way to expensive.
Floaters work on the surface near shore in shallow water. Winter storms can rip out any moorings and shorten there useful life.

I chose the bottom of waves to extract power and began my invention, which by the way is sitting in some pile at the US Patent office in Washington D.C. It takes for ever when they don't under stand what there looking at.

I invented a device that floats below the surface like a jelly fish. It generates electricity by moving up and down with passing waves above. Its location below the surface protects it from storms and boats above. The electricity produced is then converted into Hydrogen and Oxygen threw the process of electrolysis.

I am looking for investors with the vision to see the future.
If you are interested in my idea, you can contact me at
[e-mail]

Oct 19 12:53 PM