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Greetings,
In April 2023, I was the US$500,000 lead order for MSE Investments’ million-dollar investment into a sub-$25mm energy stock. I think this stock has legitimate multi-billion-dollar potential over the next 3-6 years. The investment was made after months of collaborative due diligence which included onsite, in-person meetings with management. Below you will find my investment thesis which is also the reason I decided to feature the company as a new show sponsor (see disclosures below).
No risk-taking means no outsized reward-reaping. Therefore, I am willing to take calculated risks for potentially huge returns.
-Bill Powers
Lead Investor, MSE Investments
Host, Mining Stock Education Podcast
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Multi-Trillion-Dollar Opportunity
Fortunes can be made when energy trends radically shift. And today we stand at the beginning stages of a burgeoning, unstoppable trend in America towards decentralized electrical energy generation. This trend is exponentially increasing current by the kilowatt hour with no foreseeable diminishment. It is driven by the powerful confluence of economic pragmatism, utter necessity, environmental concern, investment demand and governmental incentives. Thus, after recognizing the immensity of and opportunity within this multi-trillion-dollar macro energy trend, MSE Investments concluded Correlate Energy (OTCQB: CIPI) is the best small-cap company poised to capitalize on this trend.
Drivers of the Decentralized Energy Trend
The burgeoning decentralized electrical energy generation trend in America is driven by:
Exponential Demand Increase for Renewable Energy: The demand for renewables is expected to grow exponentially through 2030 and beyond. The International Energy Agency estimates that over one billion dollars per day will be invested in solar investments in 2023.[1] Furthermore, IEA’s executive director Fatih Birol, said investment in solar was “set to overtake the amount of investment going into oil production for the first time.”[2] And over the next five years, the Solar Energy Industries Association and Wood Mackenzie expect that “the US solar industry is expected to nearly triple in size. Between 2023 and 2028, the industry will add 236 GW to an installed base of 142 GW (as of year-end 2022). Solar will be the leading technology of the clean energy transition, thanks to the long-term policy certainty provided by the IRA [Inflation Reduction Act].”[3]
Most of immediate demand for renewable energy generation can only be met via decentralized systems. In the long-term, widespread central electricity generation via renewable energy is likely unfeasible. Even if centrally-controlled mammoth solar projects were initiated throughout the sunny southwestern states or wind farms in the gusty midwestern states, there would not be the corresponding transmission lines and supporting infrastructure to provide that green electricity to end-users.[4] If the necessary supporting infrastructure were to be committed, it would take trillions of dollars of funding and decades to install. Therefore, over the next decade and beyond, renewable energy growth will be primarily via decentralized systems.
Unprecedented Government Incentivization: The Inflation Reduction Act (IRA) of 2022 is a game-changing climate law that is supercharging the renewable energy industry for at least the next decade. BloombergNEF and the National Renewable Energy Laboratory increased their U.S. solar generation projections after IRA’s passage by 90% and 93% respectively for 2035 and by 9%–35% for 2050.[5] Moreover, the Wall Street Journal has concluded that the uncapped structure of the IRA will end up providing $1.2 trillion in tax credits, much of which will fund renewable energies.[6]
Growing Private-Sector Investment Funding: Venture capital investment in clean energy saw a record $16.2 billion invested across 582 deals in 2022. [7] McKinsey estimates that by 2030 there will be between $1 trillion and $1.5 trillion annually deployed into renewable energy.[8] McKinsey’s projection would represent a three-to-four-fold increase from the $366 billion dollars invested into renewables in 2021.[9]
Real Cost Savings: Most decentralized energy resources being installed today include solar generation. These photovoltaic systems provide a relatively quick payback of the capital investment and then essentially provide “free” electricity. Michael Sarich, senior vice president of Rystad Energy, said that, “Investments into renewables are likely to increase further moving forward as renewable project payback times shorten to less than a year in some cases.”[10] These systems also allow the end-user to lock in their electrical cost over 20-30 years while prices rise. Furthermore, some companies finance, develop and own the onsite power generation sources and then sell the electricity to the local consumer. In these situations, the electrical customer pays zero money down and gets an instant electrical price discount to current rates.
Decarbonization Imperative: The United States of America is one of many nations that have committed to net zero carbon emissions by 2050. To successfully achieve this goal, non-carbon-emitting renewable and nuclear electricity generation needs to skyrocket. But wide-scale approval, funding, construction, and commissioning of U.S. nuclear power plants along with the corresponding infrastructure, would necessitate multiple decades to accomplish, if at all. Therefore, if the decarbonization goals are to be achieved, it will primarily be by means of decentralized renewable energy sources.
Inability to Access Electricity from the Grid: In some areas of America, would-be users do not have access to centrally-generated electricity due to lack of generation capacity and the necessary transmission infrastructure. For example, in Virgina, Dominion Energy cannot service potential consumers due to lack of sufficient transmission lines.[11] Furthermore, in parts of California, new developments cannot receive a “will serve” letter from the local power companies due to both the lack of electricity generation as well as lack of transmission infrastructure. This problem will only be exacerbated as society becomes increasingly electrified, especially with continued electrical vehicle adoption. Thus, the only solution to this expanding problem is decentralized electricity. The utter necessity of and demand for localized solar power and microgrids[12] will, therefore, quickly grow.
Demand for Electrical Resiliency and Independence:
Due to increasing grid disruptions and longer overall durations of power interruptions, consumers are increasingly moving to onsite solar generation-plus-battery storage.[13] This desire for resiliency and independence is also a key factor driving demand for microgrids. These decentralized microgrids can combine baseload electricity production, oftentimes from natural gas, with solar panels for continual and locally-generated power.
Correlate Energy: Founded by Industry Leaders to Pursue a Generational Opportunity
Correlate Energy was founded by CEO Todd Michaels to pursue this generational wealth-building opportunity. Todd, Correlate board member Bob Powell, and Correlate CFO Channing Chen have been pioneers in the clean energy sector for over 15 years. In 2007, Todd and Channing founded Solar Power Partners. Seeing the ground-floor opportunity with Solar Power Partners, Bob then left behind his career with California’s largest utility company, and joined Solar Power Partners as CFO. Together they built the company into one the first and most successful solar power providers in America. Over five years, they raised and deployed over $500mm into clean energy. The trio then capitalized on their successful venture by selling the business to NRG Energy, the largest power plant operator in the United States, which was seeking to get more into renewable energy at the time.
During the next decade, Todd, Channing and Bob headed divisions within renewable energy leaders NRG Energy and SunEdison. While together at SunEdison, the largest global player in renewables at the time, Bob became President of North America, Todd was Head of Product Innovation and Channing was General Manager of the Residential Segment and Head of Project Finance. Here the trio greatly contributed to the successful growth and operation of a large renewable energy business.
While at SunEdison, Todd noticed the industry was heading towards a more complex set of solutions beyond just solar energy. There were challenges and colossal shifts occurring that would require a more integrated approach to energy at the local level. Therefore, Todd developed a business plan for SunEdison to acquire other technologies and companies in order to scale a North American platform. But due to SunEdison’s investment in overseas markets, they were not financially prepared to pursue this opportunity. So, Todd sought and received approval to exit SunEdison with his key deputies to begin the foundational work on Correlate Energy.
For the next few years, Todd worked behind the scenes to set in place a core team to take Correlate to the public markets. After the pandemic lockdowns, the energy market exploded. Demand increased while utility rates rose at unprecedented levels. There were extended grid outages happening in almost all markets. So, Todd decided the quickest and most cost-effective way to go public would be via a reverse takeover. In December 2021, Correlate merged with Triccar, a tightly-held oil and gas services company traded on the OTCQB, which was also looking to make a transition.[14]
Since going public, Todd has continued to recruit and hire industry-leading talent. Correlate’s management and board form the company’s unique competitive advantage. Correlate’s team consists of experts who, in their careers, have successfully financed, developed, and installed over two billion dollars of clean energy projects for their clients. This team, through long-term relationships, has access to billions of dollars of future institutional project capital required to develop, build, and operate thousands of energy systems at scale. A would-be clean energy start up would not have the connections or access to project capital that Correlate possesses.
Clean Energy Profits Are Being Exponentially Rewarded By The Market
Clean energy earnings are being sought after by investors. In Q4 2022, the median EBITDA multiple for green energy companies was 12.3x, according to Finerva. Investors particularly rewarded renewable energy stocks. For example, producer Innergex was consistently being valued over 20x or 30x their EBITDA in 2022.[15] Raymond James’ research has further shown that in 2023 some renewable energy companies are receiving dramatic valuations. For example, Altus Power, a sub-billion-dollar company has seen a P/E of over 40x, while multi-billion-dollar Brookfield Renewable Partners was valued at a P/E of over 137x.[16]
Investors are also highly rewarding clean energy companies that pursue growth via accretive acquisitions. For example, on May 12, 2023, NASDAQ-listed First Solar announced it was spending $80mm to acquire a company whose technology would help accelerate First Solar’s next generation of solar panels.[17] First Solar shares immediately rose over 26% and added over $5.3 billion of market capitalization that day.
There is not a surplus of publicly-traded, high-growth-potential, small-cap, U.S. clean energy stocks into which investment dollars can flow. So, if Correlate Energy’s management team executes on its corporate strategy in this environment where investors desire to reward green energy success, there is the real possibility that the company could quickly move from an under-followed, illiquid $25mm stock to a valuation significantly higher.
Correlate Energy’s Three-Pronged Strategy
Firstly, Correlate seeks to finance, develop, and profitably sell localized clean energy solutions and microgrids to industrial, commercial, and residential customers. Secondly, Correlate plans to retain ownership of some of these energy systems and thereby realize ongoing, reliable cash flow. Thirdly, Correlate seeks to acquire proven renewable energy companies in order to exponentially grow earnings per share for investors.
Correlate Energy Aims to Capitalize on Clean Energy’s Consolidation Opportunity
Correlate Energy seeks to acquire private clean energy companies and their corresponding intellectual property, project pipelines and existing EBITA. Once acquired, the company’s expected future cashflow and EBITA can then immediately be revalued higher in the public markets creating an instant win-win for both Correlate and the acquired private company. The decentralized clean energy market is extremely fragmented. This creates this tremendous opportunity for Correlate and is why growth-through-acquisition is central to the company’s business plan.
Consolidation is a sign of a maturing market as costs lower and adoption rates rise. For example, in 1914 there were 350 car manufacturers producing 2 million cars annually. After 70 years of mergers and bankruptcies, there was 15 manufacturers producing 11.5 million cars.[18] A similar consolidation occurred with internet companies after the dot-com bubble of the early 2000’s in which $5 trillion of market value was quickly erased. In subsequent years, around 5,000 companies were acquired or shutdown as the industry matured.
Consolidation periods in burgeoning sectors offer investors unique opportunities to build wealth. For example, during the 20 years since the dot-com bust, leading companies, such as Alphabet Inc. (Google), rose to the top through acquisitions and have achieved market valuations of over a trillion dollars. And it was Standard Oil’s consolidation of America’s burgeoning oil industry in the late 1800’s that made John D. Rockefeller one of the world’s richest men. Rockefeller started in the fledgling oil business in 1863 and by the early 1880’s, Standard Oil owned around 90 percent of U.S. refineries and pipelines.
The Correlate Energy team has the entrepreneurial drive, thought leadership, access to capital and public company vehicle to structure accretive acquisition offers. Correlate offers regional acquisition targets growth and geographical de-risking via its national platform. Founders of successful privately-run clean energy companies can reap a substantial reward in the shares of Correlate via acquisition. Struggling solar companies can find growth via Correlate’s multi-faceted platform. Renewable energy companies run like small businesses without scalability receive from Correlate access to complex, integrated clean energy solutions, in-depth project modeling and institutional-grade accounting required by sophisticated and institutional investors.
Cashflow Positive Inflection Point
Correlate recently reached the cashflow-positive inflection point in May 2023. CEO Todd Michaels has shared with MSE the 2023 revenue guidance of US$26-35mm with gross margins of 18-20%. For 2024, Todd projects revenue to be in the range of US$45-60mm with 25% gross margins. With this guidance, he pointed out, “you can see the [revenue growth] directionality as our projects are now coming to fulfillment.”
These revenue projections, Michaels said, are organic revenues “that we have line of sight to.” The projections due do not include the contracting of any microgrid projects the company is currently pursuing. Microgrid projects are large and one project can easily add US$20mm to US$100mm to Correlate’s revenue. The guidance also does not factor in the successful acquisition of other companies’ project pipelines or revenue via acquisition.
Due to all the talent that Correlate has been recruiting and hiring, Michaels said for 2023, EBITA may end up negative. On paper, this is a result of how the new employees’ and consultants’ stock and option issuance are reflected in the financials. EBITA for 2024, therefore, should see a dramatic increase compared to 2023.
NASDAQ or NYSE American Uplist Plans
Correlate Energy has announced plans to uplist from the OTCQB to the NASDAQ or NYSE American stock exchanges. Management expects this possible uplist to further increase company awareness and therefore trading liquidity in the company’s shares. Correlate has interviewed numerous investment banks over the past three months to help with the uplist process. The board of directors is currently going through the selection process to determine the bank that Correlate will work with for the uplist.
Conclusion
My investment success in Correlate Energy will be determined by management’s ability to execute the corporate strategy. The macro energy trend is compelling and unstoppable. And the Correlate team has the ability, experience and industry relationships to make success a reality. Thus, I have concluded there is a significant possibility that I could do very well with my investment in Correlate. So, I look forward to the years ahead and the share price appreciation I expect.
[12] The U.S. DOE Microgrid Exchange Group defines a microgrid as “a group of interconnected loads and distributed energy resources within clearly defined electrical boundaries that acts as a single controllable entity with respect to the grid. A microgrid can connect and disconnect from the grid to enable it to operate in both grid-connected or island-mode.”
[18] Howard H Baker Jr. Center for Public Policy, University of Tennessee, Assessment of Incentives and Employment Impacts of Solar Industry Development, May, 2012.
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Disclosure/Disclaimer: Correlate Energy’s forward-looking statement found in the company’s investor presentation applies to the content of this episode. MSE’s standard disclaimer also applies: https://www.miningstockeducation.com/disclaimer/
In April 2023, Bill Powers led a group of investors in the Company’s convertible note offering pursuant to which Bill invested $500,000 in the note offering and the total amount sold to the group was $1,000,000. The notes bear interest at a rate of 14% per annum, mature 18 months after the date of issuance and are convertible at any time into the Company’s common stock at a conversion price $3.20 per share. Additionally, investors in the note offering received warrants to purchase shares of the Company’s common stock for a period of 24 months at an exercise price of $0.85 per share. MSE Business Trust, of which Bill Powers is the Trustee, has entered into a consulting and advisory agreement with the Company, pursuant to which the Company has agreed to pay MSE Business Trust an aggregate of 500,000 shares of its common stock in exchange for the services rendered. The shares shall vest on a monthly basis over a period of twenty-four months. Upon the vesting of shares, the shares will be subject to the holding requirements of Rule 144 of the Securities Act of 1933, as amended, which generally requires the shareholder to have owned the shares for a period of six months prior to any sales thereof. Due to Bill’s prior experience running a construction company, he has already helped recruit talent to join the Correlate Energy team. Correlate is an MSE show sponsor.
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