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AMSC To Benefit From Biden’s Green Energy Agenda

Investors seeking a stock that could realize huge gains from the Biden administration’s green energy agenda would do well to examine AMSC, formerly known as American Superconductor Co. (AMSC). 

As the recent cold snap that produced the Texas power outages underscores, the U.S. needs a sturdier electric grid. That’s where suppliers like AMSC enter the picture. Based in Ayer, Massachusetts, AMSC makes electric voltage regulators that utilities and industry need to better manage the grid, and ensure a safe and reliable conversion of homes, cars and commercial and industrial facilities to clean energy.

With more U.S. homes and industry expected to add solar energy and with the conversion of vehicles to electric power, AMSC will benefit. According to the Solar Energy Industries Association and Wood Mackenzie, a research consulting firm, new home solar installations alone are expected to grow 7 percent this year, despite the coronavirus.

But as more homes, commercial and industrial facilities and cars turn to renewable energy sources for electricity, utilities need to enhance the power network’s capabilities to accommodate this growing resource, while maintaining efficiency and reliability in energy distribution.

With the many positive benefits derived from renewable energy come the challenge for utilities of coping with rapidly varying wind speed or cloud cover, for instance. Being inherently intermittent and variable, clean energy sources require electric utilities to find solutions to issues like rapidly changing generation levels and reverse power flow. 

Without the optimal technical solution, utilities must invest in increased maintenance on traditional voltage management systems, such as voltage regulators, capacitor banks, and transformer load tap changers. And unless utilities navigate these challenges successfully, the distribution of electricity can be impeded, prompting a limit placed on the amount of renewal power added to electric distribution grids.

In 2019, when AMSC was last spotlighted in this column, the stock was priced at 11.75. Today, AMSC, with a market cap of over $700 million, trades at 24.63, and reached a 52-week high of 31.78. In the previous story, a large AMSC shareholder provided a target price of 30. The accuracy of that forecast prompted a check-back with the buy-side holder to gain an update on the outlook for AMSC shares.

Like last time, this shareholder requested anonymity due to his firm’s compliance policy of not discussing portfolio investments.  At the time, his bullish posture on AMSC was largely predicated on the growth of the company’s Resilient Electric Grid system, which uses AMSC’s high temperature superconductor technology to link existing electric power substations within urban areas by stringing underground superconductive cabling to ensure no loss of electric current, the Inox wind turbine business and the ship protection systems project, a U.S. Navy contract to harness the same technology to protect the San Antonio Class ships.

Those businesses continue to flourish, but the large shareholder has added to his position because AMSC, which has over 20 years of experience in the design and manufacturing of utility-scale power electronics, is providing a set of products, including D-VAR (Dynamic Volt-Amp Reactive) systems, to help utilities manage varying load conditions and connect wind power plants to the electric grid. 

Deploying D-VAR systems, wind and solar generation plants can meet utility connection requirements, like regulating and correcting for low voltage and high voltage changes. The AMSC investor points out that D-VARs mitigate the problem of voltage fluctuation, reducing the stress on wind turbine gearboxes, switches, and other components, and stabilize the power grid, preventing undesirable events, such as voltage collapse.

AMSC’s D-VAR system is designed to detect and compensate for voltage disturbances by “dynamically injecting leading or lagging reactive power into the power grid.” The D-VAR systems are highly modular and scalable by design, allowing utilities to install right-sized systems in the proper power grid locations, and add to the installation later, as demand requires.

The shareholder is also keen on AMSC’s VVO product, which optimizes electric power at the distribution level and supports energy conservation by managing voltage reduction. Importantly, VVO regulates electric flow as the grid evolves to a “distributed generation” architecture. This refers to electricity produced within the distribution system itself, as opposed to the stream of electricity generated from centralized power plants, which is directed to substations through the transmission grid and then delivered to customers by the distribution grid. Sources of distributed generation include biomass, wind turbines, solar panels and electric vehicles.

Smaller than their D-VAR cousins, VVO boxes are mounted on electric poles in neighborhoods realizing increased demand for solar-home conversion. As car chargers for electric vehicles increase in demand, charging stations will assume an increased presence, and homes are installing them as well. By serving an entire community, not individual households, AMSC’s VVO boxes are more efficient and cost effective to the utility, which is AMSC’s customer.

In the home, excess electricity produced by the solar panels flows into the utility’s distribution lines. This so-called distributed generation power can create quality concerns, which AMSC’s VVO system can address. Additionally, like AMSC’s D-VAR solutions, the VVO systems are scalable to accommodate changing grid conditions.  

Preparing the U.S. grid for the future flow of electricity, AMSC sees ample opportunity to further expand the product offering it supplies to utilities, by making acquisitions. Last October, for instance, AMSC acquired Northeast Power Systems, Inc. (NEPSI), a private company based in upstate New York that supplies medium voltage metal-enclosed capacitor banks, harmonic filters, fast-switching reactive power solutions and surge protection products, for $26 million in cash and 873,657 in restricted shares of AMSC common stock.

According to Colin Rusch, an analyst who follows the stock for Oppenheimer, “The NEPSI acquisition continues to increase AMSC’s exposure to industrial end markets and broaden the company’s pipeline of potential customers.”  By leveraging NEPSI’s leadership position in the static voltage management market for industrial applications, AMSC expects to expand its grid business offerings and deliver greater value to existing and new customers, business partners and shareholders.

“NEPSI has established a leadership position in the industrial market for power electronics that complements our recent push into the industrial market,” said Daniel McGahn, CEO of AMSC. “The addition of NEPSI to AMSC’s grid solutions is expected to accelerate our ability to achieve our goal of profitability and expand our offering of proprietary power electronics products in the industrial sector.”

The buy-side holder has a 12-month target price of 50 on AMSC’s shares.

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