The U.S. Navy Loves This Micro Cap

Email
    Text size

As a concept, tidal power seems straightforward enough:

The ocean moves continuously without incurring any problematic conditions like lack of wind or sun, as is the case in the best-known renewable energy sources. With a constant source of motion, all that's needed to generate power is a drive shaft connected to a dynamo.

But a concept - by itself - doesn't make any money... especially in the "renewable energy" space. You need an effective product to make an impact.

That's why the U.S. Navy loves this little company...

It's Always High Tide for These Buoys

Harnessing tidal power involves using coastal waters - and their wave and tidal currents - as a continuous source of energy. And several recent tidal pilot projects have indicated that there is considerable potential here for significant power generation.

Infrastructure development, of course, requires more than proof of concept. And you also need some significant investment. But this is where things are picking up...

To further this cause, the U.S. Department of Energy has entered the discussion by providing a new $16 million round of funding for tidal power. It includes 17 initiatives to improve efficiency, along with some necessary data accumulation and environmental impact studies.

There is no doubt the potential here is impressive...

Current DOE estimates put the possible annual power to be obtained at more than 1,400 terawatt hours of electricity. That would be enough electricity to power millions of homes.

As with most efforts to develop what remains a niche source, most of the attempts thus far have been by smaller companies with limited capital and a restrained ability to stay afloat (no pun intended) until the market expands.

But Ocean Power Technologies Inc. (Nasdaq GM: OPTT) - a firm I have followed for some time - is different.

The whole company is worth just $16 million at the moment. But it's having success now using stationary buoys to generate power.

Any move into the tidal wave sector remains a high-risk investment move, to be sure. Ocean Power Technologies, for example, has lost 67.5% of its value since I began tracking the stock in early April of 2011.

However, there's still some merit here.

In addition to landing one of the new DOE grants, Ocean Power has one pretty important partner in its current projects.

It's the U.S. Navy.

In fact, through their Ocean Renewable Energy joint project, the two can lay claim to developing the first commercial grid connection for tidal power. The facility has been in operation since 2010 and is located at the Marine Corps Base Hawaii, in Oahu.

In addition, the Navy also recently announced an increase in activity at its related (and already operational) Hawaiian wave power test bed. The objective here, according to a report several months ago from the United States Pacific Fleet (USPACFLFT), is to provide an up-to-date shared Research and Development (R&D) platform for private sector wave power developers.

As the sector leader, Ocean Power Technologies is likely to be the first company to benefit from this decision.

Yet, even the ability to estimate tidal and wave patterns with any accuracy - thereby enabling a realistic efficiency measurement - is several years away.

So any move at this point into companies like OPTT remains a speculative one at best. Still, in the more diversified energy balance emerging, the tides will have their place.

In that case, working with the U.S. Navy is certainly a big plus.

Syrian Crisis Update

Meanwhile, the move to punish Syria has been slower to develop than anticipated last week. As a result, after a major move up, NYMEX futures contract oil prices have subsided 2% over the two trading sessions leading up to Labor Day. No matter. Once the decision is made to attack, the angst will return with force.

Markets dislike uncertainty, and pending military actions present the greatest uncertainty of all. That means there will be volatility moving forward. Expect it will now take at least another week before the U.S. Congress reconvenes to consider the Obama Administration's request for authorization to proceed.

Thus far, among the "fair weather allies," only the French appear committed to move. The British Parliament voted down the PM's request, but has left the door open pending the report from the UN review team.

In the interim, Washington has turned up the heat with several high-level public conclusions, including those by U.S. Secretary of State John Kerry, that clear evidence exists for: (1) Assad government's use of chemical weapons against his own people, (2) nerve gas (sarin) residue from the attack outside Damascus, with (3) more than 1,400 deaths confirmed as a result of the chemical attack.

There will be more disclosures as the return date for Congress approaches in a concerted attempt to drum up sufficient political support. Absent a UN report showing no chemical weapons were used (virtual impossibility), that support will materialize.

In short, I will have much more to say about what all of this means for the energy sector in due course.

About the Author

Dr. Kent Moors is an internationally recognized expert in oil and natural gas policy, risk assessment, and emerging market economic development. He serves as an advisor to many U.S. governors and foreign governments. Kent details his latest global travels in his free Oil & Energy Investor e-letter. He makes specific investment recommendations in his newsletter, the Energy Advantage. For more active investors, he issues shorter-term trades in his Energy Inner Circle

... Read full bio