Ocean Power Technologies Inc(OPTT)

Business Overview

Ocean Power Technologies, Inc. (Nasdaq: OPTT and London Stock Exchange AIM: OPT) is a pioneer in wave-energy technology that harnesses ocean wave resources to generate reliable, clean and environmentally-beneficial electricity. OPT has a strong track record in the advancement of wave energy and participates in a $150 billion annual power generation equipment market. The Company's proprietary PowerBuoy(R) system is based on modular, ocean-going buoys that capture and convert predictable wave energy into low-cost, clean electricity. The Company is widely recognized as a leading developer of on-grid and autonomous wave-energy generation systems, benefiting from over a decade of in-ocean experience. OPT's technology and systems are insured by Lloyds Underwriters of London. OPT is headquartered in Pennington, New Jersey with offices in Warwick, UK.

What is interesting about Ocean Power Technologies Inc (OPTT)?

  • Ocean Power Technologies has been developing its product and technology over many years (since 1997). After all these years, the company is very close to being  a commercially viable company.  Ocean power has a proprietary Power Buoy® technology capturing wave energy using large floating buoys anchored to the sea bed and converting the energy into electricity using innovative power take-off systems.
  • Harnessing ocean waves represent a holy grail in harnessing clean energy. Ocean waves if harnessed for energy can produce large scale power with a lot more predictable and smoother power production that from sources like wind.  Oceans also are not using up land space which is a big problem with sources like wind.  With wind, there is more NIMBYism (Not in my backyard syndrome) due to noise, scenic obstruction and a host of other issues.
  • Ocean wave strength can be reasonably predicted in advance, to adjust the power production schedule to manage power fluctuations.
  • Most importantly, ocean power is scalable and there are enough places near major population centres to make it worthwhile to produce power from oceans and transport the power by undersea cables to land. So large scale power production if this technology works is possible.
  • OPT claims its power buoy® offers high load factor.
  • OPT has begun the initial phase of installation of a 1.39 MW wave farm off the northern coast of Spain. The project is a joint venture with the Spanish utility Iberdrola SA. A full size demonstration plant of up to 5MW capacity is planned for installation in UK waters.
  • Company was awarded EUR 2.2 million from the European Commission to deliver a Power Buoy® wave energy device with an innovative wave prediction capability and a "wave-by-wave" tuning system.
  • Company will derive most of the revenue from electricity sales.  Although there is no much revenue currently if successful this can produce a stable source of revenue as power can be sold in long term contracts.
  • OPT and its partners won a major contract that provides $66.5 Million grant from Australian government for producing power from oceans.  This grant is for a 19 MW wave power project off the coast of Victoria. This is a significant win as this was the only ocean power project selected among the 4 clean energy projects which won approval.
  • Completed in-ocean trials of proprietary Underwater Substation Pod in Spain.
  • The company has 41 US patents and another 14 pending applications.
  • Strong network of partners include Lockheed, Iberdrola, Mitsui Engineering and Shipbuilding, and Leighton Contractors.
  • Successfully deployed its Power Buoy ® system at a US marine corps base in Hawaii.
  • OPT has a strong balance sheet with a cash balance of over $71 Million as of Jan 31, 2010. However, the company is not making money as of now.
  • The company has an order backlog of over $6 Million as of Jan 31 2010.

Risks

  • Business is capital intensive and project execution risk is always present in executing new power projects.
  • While the technology has come a long way it still does not have a long robust track record. So technology risk remains
  • Company not making money yet and has very minimal revenue
  • Due to the long time period required to develop one of these projects the company is always in need of cash to invest for which the company may have to tap capital markets or take on debt if the current cash balance is depleted significantly.
  • By its very nature renewable power economics is tied up to government incentives and subsidies.  This can change with time as is seen now in Germany and Spain which reduced incentives for renewable power impacting the valuation of companies exposed to those markets.