By Sarah Arnott
Thursday, 3 February 2011
Europe must bridge a €2.2trillion (£1.9trn) "carbon capital chasm" if it is to meet 2020 carbon emissions reduction targets.
The EU needs to invest €2.9trn in changes to its buildings, energy and transport infrastructure to reduce emissions. And given the state of public finances most of that will have to come from financial institutions, a study from Accenture and Barclays Capital said.
The headline number is equivalent to about 2 per cent of Europe's GDP, while finance to the low-carbon sector has fallen by around three-quarters since before the global financial crisis. But with tweaks to government policy and new financial instruments such as "green bonds", the 2020 target can still be met, Accenture's managing director of sustainability, Peter Lacy said.
"The problem is that because of the downturn capital flow trends are heading in the wrong direction," he said. "But if governments and financial institutions get behind this, then there's room for cautious optimism."
In part the situation reflects investor concerns over policy uncertainty. But there has also been an impact from some of the financial reforms in the wake of the global crisis that militate against riskier investment by banks.
To break the jam governments must implement long-term financial incentives – such as capital gains tax credits for low-carbon investments – as well as continuing support for subsidies such as feed-in tariffs (rewards for producing green electricity) and green car grants.
The study said Europe needs a secondary market in "green bonds" – constructed by securitising debt from the low-carbon sector – to unlock capital. Partnerships between banks and technology companies, and the creation of new advisory services within the financial institutions would also help.
Mr Lacy said: "Early action comes with a premium not only in terms of the carbon targets, but also in terms of Europe becoming a leader in global low-carbon finance."
Thursday, 3 February 2011
France focuses on wind with €10bn tender
3 February 2011
The French government’s plans to launch a €10 billion ($13.8 billion) tender for offshore wind developments signals a shift away from solar energy toward large-scale wind projects. However, questions remain over financing and profitability.
Régis Oreal, a finance partner with law firm Herbert Smith in Paris, says the scale of the wind tender and the recent roll-back of support for solar photovoltaic (PV) installations indicates the government is looking at large-scale wind farms rather than solar projects to meet its renewable targets.
The French solar market was taken by surprise in December when the government announced plans to impose a four-month moratorium on awarding feed-in tariffs for some new solar PV installations, in order to restrain industry growth.
While France’s solar and onshore wind industry centres predominantly around smaller scale projects, Oreal says the offshore tender – which aims to fund the construction of 600 turbines totalling 3GW of capacity off France’s Atlantic and English Channel coastlines – indicates a move toward large-scale renewable power generation.
“The feeling we get is that the government wants to replace the very fast developing solar industry,” he said, adding that the government may consider a few large-scale projects “easier to control” than a string of smaller solar and onshore wind installations.
Given the considerable value of the tender, Oreal said it will likely attract syndicates of sponsors, arranged through the major French banks. However, that financing will be a challenge, he added.
“It’s not that easy in the market at the moment, so this may raise questions,” he said.
France plays catch-up but profitability questioned
Lawyers at Cameron McKenna said France lags behind the rest of Europe on offshore wind development “and these ambitious plans will help France to catch up with European leaders such as Germany and the UK”.
Bidders submitting to the tender must propose a rate at which the electricity generated can be purchased by utility EDF. However Cameron McKenna says that some investors say purchase rates – currently fixed at €130 per megawatt hour (MWh) for the first 10 years and between €30 and €130/MWh for the following decade – are “too low to ensure profitability”.
“The scale of this opportunity is bound to attract the heavy-weights of the European renewables market, as well as increasing the involvement of French industry in the sector. It will be important for these investors to ensure that they are armed with the necessary local knowledge to give their bids the best chance of success,” the law firm said.
Arnaud Bouillé, a UK-based director in consultancy Ernst & Young’s renewable energy group, welcomed news of the tender but expressed disappointment in the scale of the development.
He said France’s 3GW offshore wind ambition is “very much small fry”, particularly compared with larger-scale wind developments in countries such as the UK and Germany.
The tender was originally due to launch in September but the consultation process saw it pushed back to May. Project commissioning is scheduled from 2015.
France hopes to source 23% of its electricity from renewable sources by 2020.
Charlotte Dudley
The French government’s plans to launch a €10 billion ($13.8 billion) tender for offshore wind developments signals a shift away from solar energy toward large-scale wind projects. However, questions remain over financing and profitability.
Régis Oreal, a finance partner with law firm Herbert Smith in Paris, says the scale of the wind tender and the recent roll-back of support for solar photovoltaic (PV) installations indicates the government is looking at large-scale wind farms rather than solar projects to meet its renewable targets.
The French solar market was taken by surprise in December when the government announced plans to impose a four-month moratorium on awarding feed-in tariffs for some new solar PV installations, in order to restrain industry growth.
While France’s solar and onshore wind industry centres predominantly around smaller scale projects, Oreal says the offshore tender – which aims to fund the construction of 600 turbines totalling 3GW of capacity off France’s Atlantic and English Channel coastlines – indicates a move toward large-scale renewable power generation.
“The feeling we get is that the government wants to replace the very fast developing solar industry,” he said, adding that the government may consider a few large-scale projects “easier to control” than a string of smaller solar and onshore wind installations.
Given the considerable value of the tender, Oreal said it will likely attract syndicates of sponsors, arranged through the major French banks. However, that financing will be a challenge, he added.
“It’s not that easy in the market at the moment, so this may raise questions,” he said.
France plays catch-up but profitability questioned
Lawyers at Cameron McKenna said France lags behind the rest of Europe on offshore wind development “and these ambitious plans will help France to catch up with European leaders such as Germany and the UK”.
Bidders submitting to the tender must propose a rate at which the electricity generated can be purchased by utility EDF. However Cameron McKenna says that some investors say purchase rates – currently fixed at €130 per megawatt hour (MWh) for the first 10 years and between €30 and €130/MWh for the following decade – are “too low to ensure profitability”.
“The scale of this opportunity is bound to attract the heavy-weights of the European renewables market, as well as increasing the involvement of French industry in the sector. It will be important for these investors to ensure that they are armed with the necessary local knowledge to give their bids the best chance of success,” the law firm said.
Arnaud Bouillé, a UK-based director in consultancy Ernst & Young’s renewable energy group, welcomed news of the tender but expressed disappointment in the scale of the development.
He said France’s 3GW offshore wind ambition is “very much small fry”, particularly compared with larger-scale wind developments in countries such as the UK and Germany.
The tender was originally due to launch in September but the consultation process saw it pushed back to May. Project commissioning is scheduled from 2015.
France hopes to source 23% of its electricity from renewable sources by 2020.
Charlotte Dudley
Utilities warn political opposition may undermine Obama’s clean energy target
2 February 2011
Utilities can get behind US President Barack Obama’s proposed clean energy standard (CES), but the devil is in the details and the political obstacles may be insurmountable, executives said.
In his State of the Union address last week, Obama proposed a target that 80% of US electricity should come from ‘clean energy’ sources by 2035, including nuclear, natural gas and clean coal, as well as renewable resources. Secretary of Energy Steven Chu said the US is already halfway toward meeting that goal, with the other half achievable through targeted R&D and spurring investment in clean energy projects.
Xcel Energy is “intrigued” by the president’s proposal, Frank Prager, vice-president of environmental policy and services at the firm, told attendees of the Energy, Utility & Environment Conference in Phoenix, Arizona this week.
“We support and think a clean energy standard has a lot of value,” he said. “The details matter a lot and how it’s designed matters a lot. We’ll see how those types of things develop.”
Former senator’s proposal could provide a blueprint - Xcel
“It’s a great opportunity for us to promote clean technology and emission reductions by providing a role for a variety of clean technology options,” Prager continued. “We think it will ultimately prove to be a very cost-effective approach.”
Xcel worked with the then-senator Norm Coleman in 2006-07 on his clean energy portfolio standard, an idea that had “a lot of promise”, Prager said. Coleman’s proposal would have required electricity suppliers to increase their share of sales generated using clean energy resources such as non-hydro renewable resources, new hydroelectric or nuclear resources, fuel cells and fossil-fired plants that capture and sequester carbon dioxide emissions. The requirement would have started at 10% for the 2010-14 timeframe, gradually rising to 60% in 2025-30.
Coleman’s proposal would have also allowed electricity suppliers to comply by purchasing tradable clean energy generation credits from other sellers or by buying credits from the federal government at a price of 2.5 cents per kilowatt per hour.
“We hope folks will take a look at that as the debate goes forward in Washington,” Prager said.
Pursuing a broader CES including nuclear, natural gas and clean coal has several advantages, observed Linda Whelan, senior director, energy and environment policy for generator Dynegy.
“This widens the spectrum, it eliminates some of the regional divides you have over a renewable energy standard and it makes it more palatable to a broader group of states,” she said.
Electricity price worries, climate change deniers to block CES?
But implementing any type of mandate will be difficult in the new Congress, particularly when one third of the freshmen members do not believe climate change is a problem, Whelan said.
“There’s sensitivity to the cost impacts that consumers will bear,” she said. “We’re also seeing new emphasis on reducing the size of government and reducing government mandates, so the whole concept of a clean energy standard is at odds with those folks that feel strongly about reducing government.”
“Irrespective of whether or not you think [Obama’s goal is] realistic, it appears ... that it’s unlikely they are going to make a hell of a lot of progress in getting a clean energy standard out in this Congress,” said David Hunter, US policy director for the International Emissions Trading Association (IETA).
But IETA is examining potential ways to incorporate market-based mechanisms to create regulatory flexibility, such as accepting offsets into a CES or linking between a California cap-and-trade programme and a nation-wide CES.
Gloria Gonzalez
Utilities can get behind US President Barack Obama’s proposed clean energy standard (CES), but the devil is in the details and the political obstacles may be insurmountable, executives said.
In his State of the Union address last week, Obama proposed a target that 80% of US electricity should come from ‘clean energy’ sources by 2035, including nuclear, natural gas and clean coal, as well as renewable resources. Secretary of Energy Steven Chu said the US is already halfway toward meeting that goal, with the other half achievable through targeted R&D and spurring investment in clean energy projects.
Xcel Energy is “intrigued” by the president’s proposal, Frank Prager, vice-president of environmental policy and services at the firm, told attendees of the Energy, Utility & Environment Conference in Phoenix, Arizona this week.
“We support and think a clean energy standard has a lot of value,” he said. “The details matter a lot and how it’s designed matters a lot. We’ll see how those types of things develop.”
Former senator’s proposal could provide a blueprint - Xcel
“It’s a great opportunity for us to promote clean technology and emission reductions by providing a role for a variety of clean technology options,” Prager continued. “We think it will ultimately prove to be a very cost-effective approach.”
Xcel worked with the then-senator Norm Coleman in 2006-07 on his clean energy portfolio standard, an idea that had “a lot of promise”, Prager said. Coleman’s proposal would have required electricity suppliers to increase their share of sales generated using clean energy resources such as non-hydro renewable resources, new hydroelectric or nuclear resources, fuel cells and fossil-fired plants that capture and sequester carbon dioxide emissions. The requirement would have started at 10% for the 2010-14 timeframe, gradually rising to 60% in 2025-30.
Coleman’s proposal would have also allowed electricity suppliers to comply by purchasing tradable clean energy generation credits from other sellers or by buying credits from the federal government at a price of 2.5 cents per kilowatt per hour.
“We hope folks will take a look at that as the debate goes forward in Washington,” Prager said.
Pursuing a broader CES including nuclear, natural gas and clean coal has several advantages, observed Linda Whelan, senior director, energy and environment policy for generator Dynegy.
“This widens the spectrum, it eliminates some of the regional divides you have over a renewable energy standard and it makes it more palatable to a broader group of states,” she said.
Electricity price worries, climate change deniers to block CES?
But implementing any type of mandate will be difficult in the new Congress, particularly when one third of the freshmen members do not believe climate change is a problem, Whelan said.
“There’s sensitivity to the cost impacts that consumers will bear,” she said. “We’re also seeing new emphasis on reducing the size of government and reducing government mandates, so the whole concept of a clean energy standard is at odds with those folks that feel strongly about reducing government.”
“Irrespective of whether or not you think [Obama’s goal is] realistic, it appears ... that it’s unlikely they are going to make a hell of a lot of progress in getting a clean energy standard out in this Congress,” said David Hunter, US policy director for the International Emissions Trading Association (IETA).
But IETA is examining potential ways to incorporate market-based mechanisms to create regulatory flexibility, such as accepting offsets into a CES or linking between a California cap-and-trade programme and a nation-wide CES.
Gloria Gonzalez
GE, NRG, ConocoPhillips form $300m energy tech fund
3 February 2011
Three US corporate giants have committed $300 million to an energy technology investment company to fund “potentially game-changing technologies”.
GE Capital, the investment arm of GE, power generator NRG Energy and oil and gas firm ConocoPhillips are backing Energy Technology Ventures, which aims to fund around 30 venture- and growth-stage companies over the next four years.
The company will focus on renewable power generation, smart grid, energy efficiency, oil, natural gas, coal and nuclear energy, emission controls, water and biofuels, primarily in North America, Europe and Israel. It will seek to take “significant minority investments”, a spokesman said.
It has announced its first investments: solar photovoltaic materials firm Alta Devices, coal-to-methane company Ciris Energy, and advanced biofuels firm CoolPlanetBioFuels.
The three partners have “complementary capabilities and significant strategic interests in the development of next-generation energy technology”, they say, and will help start-ups develop and commercialise their technologies.
“Partnering with major energy companies such as NRG Energy and ConocoPhillips enables us to pool our financial resources and technological expertise – along with our extensive relationships – to provide more than money to emerging energy technology companies,” said Kevin Skillern, leader of venture capital at GE Energy Financial Services.
His team has invested about $200 million in 27 early- and growth-stage energy-related technology companies since January 2006, including four that have gone public: battery company A123 Systems, Codexis, power technology firm Orion Energy Systems and wind turbine component maker China High Speed Transmission.
Meanwhile, the venture is the first corporate investment programme by both ConocoPhillips and NRG Energy.
Mark Nicholls
Three US corporate giants have committed $300 million to an energy technology investment company to fund “potentially game-changing technologies”.
GE Capital, the investment arm of GE, power generator NRG Energy and oil and gas firm ConocoPhillips are backing Energy Technology Ventures, which aims to fund around 30 venture- and growth-stage companies over the next four years.
The company will focus on renewable power generation, smart grid, energy efficiency, oil, natural gas, coal and nuclear energy, emission controls, water and biofuels, primarily in North America, Europe and Israel. It will seek to take “significant minority investments”, a spokesman said.
It has announced its first investments: solar photovoltaic materials firm Alta Devices, coal-to-methane company Ciris Energy, and advanced biofuels firm CoolPlanetBioFuels.
The three partners have “complementary capabilities and significant strategic interests in the development of next-generation energy technology”, they say, and will help start-ups develop and commercialise their technologies.
“Partnering with major energy companies such as NRG Energy and ConocoPhillips enables us to pool our financial resources and technological expertise – along with our extensive relationships – to provide more than money to emerging energy technology companies,” said Kevin Skillern, leader of venture capital at GE Energy Financial Services.
His team has invested about $200 million in 27 early- and growth-stage energy-related technology companies since January 2006, including four that have gone public: battery company A123 Systems, Codexis, power technology firm Orion Energy Systems and wind turbine component maker China High Speed Transmission.
Meanwhile, the venture is the first corporate investment programme by both ConocoPhillips and NRG Energy.
Mark Nicholls
Five EU emissions registries to reopen Friday – but effects to linger
3 February 2011
EU Emissions Trading Scheme registries in France, Germany, the Netherlands, Slovakia and the UK are set to reopen on Friday – but the effects of the EU allowance (EUA) theft that caused their shutdown are set to linger, say traders.
The five registries “have given reasonable assurances that the minimum security requirements are in place”, the European Commission said. Other registries are expected to file reports on security measures in the coming days.
More than 3 million EUAs, worth around €45 million, have been stolen from registries in Austria, the Czech Republic, Estonia, Greece and Romania, which hold and track the transfer of EUAs used for compliance with the EU ETS. Some of these allowances will have been transferred to other national registries as they were sold to unwitting buyers.
On 19 January, the Commission ordered registries to shut down, putting a halt to spot trading of EUAs, but futures trading – which accounts for the vast majority of transactions – has continued.
Meanwhile, the UK Environment Agency, operator of the country’s emissions registry, has been served with an injunction to recover stolen EUAs, according to Carbon Finance. Lawyers in London said they understood the agency is subject to a “disclosure order” from the court, that was applied for by someone who wants to recover stolen EUAs that are currently held in the UK’s registry.
A spokeswoman for the Environment Agency, when asked specifically if the agency had been served with such an injunction, replied: “Investigations are ongoing.”
While traders have welcomed the imminent reopening of the registries, the effects of these thefts could be felt for months, as uncertainties over the legal nature of EUAs raise ongoing risks even once security is tightened at Europe’s emissions allowance registries.
“Currently, we won't trade spot or forward over the-counter with intermediaries, or take delivery of a long position from a futures exchange until there is complete resolution,” said Louis Redshaw, the head of environmental markets at Barclays Capital in London, one of the most active participants in the carbon market.
Stolen EUAs still in circulation
With stolen EUAs likely to be still in circulation, traders risk unwittingly receiving allowances that could be claimed back by their original owners. “We’re probably going to be out of the exchange-based spot market for months. It shackles our business,” Redshaw added.
The International Emissions Trading Association offered a list of ongoing problems caused by the EUA thefts, including “unwitting purchase of stolen and potentially reclaimable allowances, damage claims for non-respect of contractual arrangements that require delivery of allowances at a specific date and money laundering charges if stolen allowances are unwittingly passed on. This could significantly harm liquidity in the market, without necessarily demonstrating effects in the near term.”
BlueNext, the Paris-based exchange which runs the leading physical market for EUAs, “will only restart the [spot] market when we’ve filtered out all of the questioned permits,” said spokesman Keiron Allen. “We need a list of all those that are questionable.”
The main issue is the differing legal treatment of EUAs by different member states and the lack of a centralised response from the European Commission, which has limited powers over member states regarding the operation of the EU ETS.
Coordinated response needed
“There needs to be a coordinated response,” said a spokesman for the European Federation of Energy Traders (EFET). “Otherwise, when the registries come back online, the spot market will remain dead.”
EFET is calling for the publication of a list of the serial numbers of the stolen EUAs, coordinated by the Commission, and clarity on the legal implications of holding and trading stolen allowances. “No-one in the market has a clear view – if you ask three lawyers, you get at least three opinions,” the spokesman said.
In some jurisdictions, such as the UK, stolen EUAs must be returned to their rightful owner, even if they are bought unwittingly. In Germany and the Netherlands, however, buyers of EUAs bought in good faith are assumed to hold ‘good title’ over the allowances – although this interpretation has not been tested in court.
Barclays and other banks would like to see EUAs treated as cash, placing the onus on holders to prevent theft. If this happens, “the ownership debate goes away,” said Redshaw.
Looking forward, Barcap has proposed limiting access to registries to emitters and regulated financial firms, to avoid “irreversible damage and a slide to disorder” caused by the access to the carbon market of “criminal elements”.
“The heart of all of the problems affecting the carbon market is that criminal elements have access to the market. Anyone wanting to engage in criminal activity can open up an account in a registry, take delivery of EUAs, transfer them on and receive payment. This facilitates VAT fraud, out and out theft, and leaves the door wide open to money laundering,” the bank says.
Christopher Cundy and Mark Nicholls
EU Emissions Trading Scheme registries in France, Germany, the Netherlands, Slovakia and the UK are set to reopen on Friday – but the effects of the EU allowance (EUA) theft that caused their shutdown are set to linger, say traders.
The five registries “have given reasonable assurances that the minimum security requirements are in place”, the European Commission said. Other registries are expected to file reports on security measures in the coming days.
More than 3 million EUAs, worth around €45 million, have been stolen from registries in Austria, the Czech Republic, Estonia, Greece and Romania, which hold and track the transfer of EUAs used for compliance with the EU ETS. Some of these allowances will have been transferred to other national registries as they were sold to unwitting buyers.
On 19 January, the Commission ordered registries to shut down, putting a halt to spot trading of EUAs, but futures trading – which accounts for the vast majority of transactions – has continued.
Meanwhile, the UK Environment Agency, operator of the country’s emissions registry, has been served with an injunction to recover stolen EUAs, according to Carbon Finance. Lawyers in London said they understood the agency is subject to a “disclosure order” from the court, that was applied for by someone who wants to recover stolen EUAs that are currently held in the UK’s registry.
A spokeswoman for the Environment Agency, when asked specifically if the agency had been served with such an injunction, replied: “Investigations are ongoing.”
While traders have welcomed the imminent reopening of the registries, the effects of these thefts could be felt for months, as uncertainties over the legal nature of EUAs raise ongoing risks even once security is tightened at Europe’s emissions allowance registries.
“Currently, we won't trade spot or forward over the-counter with intermediaries, or take delivery of a long position from a futures exchange until there is complete resolution,” said Louis Redshaw, the head of environmental markets at Barclays Capital in London, one of the most active participants in the carbon market.
Stolen EUAs still in circulation
With stolen EUAs likely to be still in circulation, traders risk unwittingly receiving allowances that could be claimed back by their original owners. “We’re probably going to be out of the exchange-based spot market for months. It shackles our business,” Redshaw added.
The International Emissions Trading Association offered a list of ongoing problems caused by the EUA thefts, including “unwitting purchase of stolen and potentially reclaimable allowances, damage claims for non-respect of contractual arrangements that require delivery of allowances at a specific date and money laundering charges if stolen allowances are unwittingly passed on. This could significantly harm liquidity in the market, without necessarily demonstrating effects in the near term.”
BlueNext, the Paris-based exchange which runs the leading physical market for EUAs, “will only restart the [spot] market when we’ve filtered out all of the questioned permits,” said spokesman Keiron Allen. “We need a list of all those that are questionable.”
The main issue is the differing legal treatment of EUAs by different member states and the lack of a centralised response from the European Commission, which has limited powers over member states regarding the operation of the EU ETS.
Coordinated response needed
“There needs to be a coordinated response,” said a spokesman for the European Federation of Energy Traders (EFET). “Otherwise, when the registries come back online, the spot market will remain dead.”
EFET is calling for the publication of a list of the serial numbers of the stolen EUAs, coordinated by the Commission, and clarity on the legal implications of holding and trading stolen allowances. “No-one in the market has a clear view – if you ask three lawyers, you get at least three opinions,” the spokesman said.
In some jurisdictions, such as the UK, stolen EUAs must be returned to their rightful owner, even if they are bought unwittingly. In Germany and the Netherlands, however, buyers of EUAs bought in good faith are assumed to hold ‘good title’ over the allowances – although this interpretation has not been tested in court.
Barclays and other banks would like to see EUAs treated as cash, placing the onus on holders to prevent theft. If this happens, “the ownership debate goes away,” said Redshaw.
Looking forward, Barcap has proposed limiting access to registries to emitters and regulated financial firms, to avoid “irreversible damage and a slide to disorder” caused by the access to the carbon market of “criminal elements”.
“The heart of all of the problems affecting the carbon market is that criminal elements have access to the market. Anyone wanting to engage in criminal activity can open up an account in a registry, take delivery of EUAs, transfer them on and receive payment. This facilitates VAT fraud, out and out theft, and leaves the door wide open to money laundering,” the bank says.
Christopher Cundy and Mark Nicholls
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