Opcon


Electricity from Wastewater

This time we'd like to focus on ORC - the Organic Rangine Cycle. The idea is simple and reasonable: generate electricity from waste heat. That's something that currently goes wasted but has the potential of being useful. This is spreading rapidly among the western world, but the industry appears to be in its early phases.

This is comparable to technology advancements in general: be more efficient. There's no real need for gas hungry V8 engines like American cars used to have in a broad range decades ago. Much could be talked of led lamps and how they were initially expensive but are now being valuated more reasonably.

In other words, if ORC units were given free to anyone interested, those devices would be everywhere in industries that would benefit from them. However, the installations seem pricey at the moment and the industry is waiting for it to become a bulk business - where the decline of the price of ORC installations may be in place. It's not a multi-billion business quite yet. But will it ever be? Let's spare a monent to think about it!


Opcon AB - the swedish stock market listed ORC manufacturer

Opcon AB is listed on the Stockholm OMX small cap. There isn't many publicly listed companies with focus on commercial ORC units. This swedish company which has a long history is apparently a good choice, as it's one of the vendors that can make their equipment work with only 55 degrees (Celcius):

Opcopn competition
The table is borrowed from the document dated at 2015-02-04 from money.163.com

Among their hit products is the Opcon Powerbox. They have sold several ORCs on large industrial companies, including Stora Enso's (pulp & paper) mill. Moreover, they have teamed up with a Chinese company called Fujian Snowman. This news is something good for the markets as the individual companies across the business field are generally located in the west where the labour costs are quite high. Opcon AB - with its business partner in China should provide an effort to make the ORC segment a bulk business where the prices decline enough to attract even the western countries in growing number. However, only time will show how this will shape up; but the odds are good: the business segment is maturing and the benefits of installing ORCs are evident.

Let's have a look at the historical price of the crude oil:

Crude history

For you see, there's an apparent spike in 2008/2009. In 2014, the price started to decline rapidly after a period of consolidation. One of the known factors for the decline in price is the shale gas. Borrowed from the wiki of shale gas we may learn that:

"Shale gas has become an increasingly important source of natural gas in the United States since the start of this century, and interest has spread to potential gas shales in the rest of the world. In 2000 shale gas provided only 1% of U.S. natural gas production; by 2010 it was over 20%"

Now that the oil price has declined, one may wonder if the ORC business has lost its attractiveness? First of all, one should remember that the ORC business is not targeted to energy companies alone. It's applicable to the industry in general. Now the industrial companies should have more money to invest - as their energy bills have declined rapidly and the stock market is rallying pointing to more profitable future. Let's have a look when the shale gas revolution took place: (Graph is located in the wiki here.

shale gas momentum

The crude oil spike seen in 2008 and the further decline in 2008/2009 set the shale gas revolution in motion. Now that the price of crude oil has declined, it has the potential for ORC related activity to increase rapidly as the industrial companies should see their energy bills cheaper than a year ago. In other words, there should be more money available to investments that would favour their business. No doubt, ORCs are something they're well aware of but after the sharp stock market decline in 2008/2009 the investments were frozen in a broad range. Let's have a look at the OMX Stockholm Small Cap index:

omx small cap

It should be obvious that the small cap companies in general are getting more attractive as the market expects more investments to appear to this segment also. A small cap company may double or triple its price if it starts making a breakthough in sales - compared to large industrial counterparts. Likewise, a small cap company is likely to get in trouble more rapidly. In short, they are more riskier but have the potential for significant growth.


Opcon AB chart

Opcon AB has been in a bull market since the mid 2014. The chart below illustrates the value from which the spikes are filtered out. The red line is the uptrend in question. The spikes cannot be neglected though. They represent the sudden interest that was present with the idea of manufacturing the Opcon Powerboxes in China.

opcon chart

Opcon AB market cap

As of March 02, 2015, the market cap is around 259.5 million Swedish kronas (SEK). 378,8 million shares x 0.685 share price = 259.5 MSEK. That's somewhere near 27.8 million Euros. As the Opcon Powerbox is priced at more than a million USD (rounding here a quite a bit), selling 100 ORC units annually would set the turnover to $100 million. In Swedish kronas that would be 833 million, (One USD being equal to 8.33 kronas, see USD/SEK). Thus the potential for the share to increase ten times from the current level is no miracle provided that the joint venture starts selling ORC units 100 pieces per year. Any potential to sell 1000 pieces a year? According to the q4/2014 report from Opcon AB, there's more than 500000 commercial boilers in China today. Briefly, there's great potential with this company. In my opinion, the prices of the ORC units (Powerboxes) will come down, as the labour costs are cheaper in China - and that could set the market to fly.

Currency Risks

USDSEK and EURSEK appear to be on a cyclical high as of now, March 02 2015. On a bull markets there's usually new higher highs but as a general note, an investment made to OMX Stockholm a year ago would have suffered from the currency devaluation. This is not such a high risk anymore, although it cannot be neglected. It's important to do the research well if you plan to invest to Opcon AB from outside the country.


Outlook for Opcon

The old saying goes "Trend is your friend until it ends". Opcon is one of the rare publicly listed ORC companies where one may invest money by buying the shares. Thus, the Opcon Powerbox portfolio should be among the winners if the ORC business gains momentum. This is further fueled by the cooperation with the Chinese company. After the sharp energy price drop in late 2014 all odds favour the business segment. Only time will tell how things shape up, but the sharp decline in crude oil should - like it was with the shale gas back in 2008/2009 - bring strong tailwind. Now that the Chinese new year is over (that was in the end of February 2015) the domestic Asian companies should have something to think about and possibly invest in ORC supplies. Let's have a look how the business partner is performing in China:

snowman

The stock is called Fujian Snowman co ltd-a (002639:Shenzhen). Apparently the business is performing well at the moment. The trend is up pointing to increased demand.

If the crude oil was climbing higher and higher, energy companies would have been just satisfied (no need to invest) and the industrial companies would have less to invest (higher energy bills). Now the price has been declining so both - energy businesses might need to rethink and enhance their businesses whereas the industrial companies might pick on novel investments such as the ORCs. It might be a trigger for an investment wave towards the ORCs units - but only time will show.

From this article, dated March 17 2015, we may learn that E.ON is installing a new Opcon Powerbox as a part of an E.ON district heating plant project in UK. If all goes well, there will be a steady demand for the powerboxes in the years to come!

From Chinese news, dated March 20, 2015, we learn: "OPCON AB joint venture company the world's leading screw expansion power technology, the introduction of technology to achieve localization snowman, the cost will be greatly reduced. The company's main products oil free screw expansion power systems, high efficiency, less components, small footprint. The company early to participate in the petrochemical energy saving technology exchange, an exchange as the only oil-free screw expansion power systems manufacturers, explained the company's technology to obtain customer approval. The company covers potential customers downstream petrochemical, chemical, steel and contract energy management company, is expected to change the business in 2015 will be an important breakthrough." That was translated with the google translator. The text "in the petrochemical" links to Sinopec Group! Well, whatever it really means!

Another translation service (systranet.com) puts it this way: "The company attended the China Petroleum and Chemical Corporation energy conservation and emission reduction technological exchanges at the beginning of the year, as only one manufacturer that exchanges the oil-free screw rod to inflate the generating system, explained that the company technology obtains the approval of customer." Whether they're referring to the Chinese new year, it nonetheless sounds like the right steps are being taken.

Moreover, according to Sinopec's own climate related pages we read one of their goals: Promote combined production of heat and power, operation system optimization, power generation based on differential steam pressure, hydraulic turbine, and other technology and equipment; and develop application technology of gas turbine


Falling energy prices - a turning point

Financial Times reported "However, Chinese oil companies might "take the opportunity to push ahead with some of their lower cost projects" to increase energy independence, said Richard Bailey, regional director for oil services group DNV GL. While falling resource prices could bring opportunities for acquisition, Sinopec has so far been cautious." Indeed, we'll see if the ORC revolution is in its early phases!

powerbox