5 May 2011
If regulators give the green light to a proposed merger of US utilities Exelon and Constellation Energy, the combined company will be in a better position to finance the continued transition to cleaner energy sources, which in the US goes beyond renewables to include natural gas and clean coal.
Utilities are pursuing potential consolidations in the face of Environmental Protection Agency (EPA) regulations that will force them to consider closing or retrofitting coal-fired units, a capital-intensive effort. The Exelon-Constellation Energy proposed merger comes just months after Duke Energy and Progress Energy announced plans to form a super-utility to replace their aging coal fleet.
“I think this represents a trend that will continue in the utility industry,” said Clinton Vince, Washington-based chairman of the energy-transport-infrastructure practice at law firm SNR Denton. “I think scale matters in this day and age.”
The market capitalisation of a combined Exelon and Constellation Energy would be around $34 billion, with an enterprise value of $52 billion. Constellation’s shareholders will receive 0.930 shares of Exelon common stock in exchange for each share of Constellation common stock. Based on Exelon’s closing share price on 27 April, the value would be $38.59 per share, or $7.9 billion in total equity value.
The total power generating capacity of the combined company would be 34.4GW, with 55% derived from nuclear generation, 24% from natural gas, 13% from oil and coal facilities, and 8% from renewables and hydro.
“It maintains our focus on clean energy,” said Exelon chairman and CEO John Rowe. “We see value in clean fleets. This transaction adds more clean generation to the mix.”
Media reports have speculated that the proposed merger would revive Constellation Energy’s abandoned plans to build a nuclear unit at its Calvert Cliffs facility in Maryland. “That is simply not the case,” Rowe said. “At today’s gas prices, you can’t build a new nuclear plant in a competitive marketplace.”
Divestment and ratepayer rewards offered to satisfy regulators
The companies anticipate finalising the merger in early 2012, if they secure approval from shareholders and regulators. Several state and federal regulators must give the deal the green light, including the Federal Energy Regulatory Commission, the Nuclear Regulatory Commission and the Maryland Public Service Commission.
“There’s nothing that leaps out as a huge problem from their filing,” Vince at SNR Denton said.
The companies believe they will be required to divest three Constellation generating stations located in the Pennsylvania-New Jersey-Maryland territory, the only market where there is a material generation overlap. The stations include baseload coal-fired generation units plus associated gas and oil units, and have a total capacity of 2,648MW.
“This is a modest portion of our combined expected 2012 generation,” said Constellation chairman, president and CEO Mayo Shattuck, who will become executive chairman of the combined company while Exelon president and COO Christopher Crane becomes president. Rowe plans to retire.
The companies have also committed to directly invest more than $250 million in Maryland, including providing a $100 credit to each customer of utility Baltimore Gas & Electricity (BGE), $5 million for a state programme to assist low-income customers, $10 million in annual charitable giving for 10 years and a pledge not to cut BGE jobs for at least two years.
“Usually state regulators want to see some benefits shared with the ratepayers,” Vince said. “It looks like the merging partners have already begun to address that so the question is will the state regulators think that’s generous enough.”
The companies seem determined to avoid the fate of Constellation Energy’s proposed acquisition by FPL Group, which collapsed in 2006 amid concerns about skyrocketing local electricity rates, a key focus for state regulators.
“It’s almost like a 50-50 type track record” for utility mergers, said Paul Fremont, managing director of investment bank Jefferies.
Gloria Gonzalez
Friday, 6 May 2011
Revival of Green Bank plan in the US?
5 May 2011
A ‘Green Bank’ would provide more flexibility and financing tools than popular US policies such as the loan guarantee and Treasury grant programmes, financing experts said.
Senate energy and natural resources committee chairman Jeff Bingaman (D-New Mexico) and ranking member Lisa Murkowski (R-Alaska) may revive plans to set up such a bank – known as the Clean Energy Deployment Administration (CEDA) – to help clean energy projects access low-cost capital. So far, CEDA has failed to gain traction despite bipartisan support.
The nonpartisan Congressional Budget Office has said CEDA would need about $9.6 billion in start-up capital and legislators must find a way to offset the entire amount, Murkowski said.
“An offset will not only help CEDA become a reality, it will help us hold the line on new spending and ensure we do not make our deficit any worse,” she said. “But despite the high initial costs … I believe CEDA is a smarter way for the federal government to promote clean energy technologies.”
Congress took a major step toward addressing the persistent inability of clean energy projects to obtain financing by creating the Department of Energy’s (DOE) loan guarantee programme in 2005, but it has been “less than perfect” in terms of its implementation, Murkowski argued.
Independent observers have been impressed with the recent progress and professional skills of the DOE team, but remain concerned about the multi-agency review process and the uncertainty of the yearly budgeting cycle, said Dan Reicher, executive director of the Steyer-Taylor Center for Energy Policy & Finance at Stanford University.
“Commercialising energy technology requires a new, more effective approach and that approach is CEDA,” he said. “Congress needs to enact CEDA this year.”
CEDA would have the flexibility to administer different types of credit instruments such as loan guarantees, insurance products and clean energy backed-bonds to accelerate private sector investment, Reicher said.
Green Bank cheaper than other policies in the long run?
CEDA would only need a one-time appropriation, becoming a self-sustaining entity based on “profit participation” mechanisms that would allow it take a financial stake in the projects it backs.
“This, in my view, is fiscally responsible,” said Kassia Yanosek, a founding principal of energy investment and advisory firm Tana Energy Capital.
In comparison, the Section 1603 Treasury grant programme is uncapped and will cost about $10 billion through the end of 2011.
While CEDA would be established as an agency within DOE, it would have a separate administrator and a board of directors, a similarly independent structure to the Federal Energy Regulatory Commission, which “will provide a nimbleness which has eluded DOE’s loan guarantee programmes”, Yanosek added.
CEDA would make compliance with a national Clean Energy Standard, which the committee is considering and US President Barack Obama supports, much more affordable, by expanding the use of innovative technologies and driving down costs, Reicher said.
“That’s why I am, to be honest, frustrated with the Obama administration not stepping up in support of CEDA as a complement to the clean energy standard which it is strongly supporting and advocating,” he added.
Even the US Chamber of Commerce, known for its anti-government policies, supports passage of CEDA.
“I must be clear, the label ‘clean energy’ is not reserved solely for renewables, but must be accurately applied to any and all new technologies and processes that reduce environmental impact, whether it be clean coal, advanced biofuels, natural gas vehicles or natural gas transportation fuel, advanced nuclear or energy storage,” said Christopher Guith, vice-president for policy at the Institute for 21st Century Energy, an affiliate of the US Chamber.
Gloria Gonzalez
A ‘Green Bank’ would provide more flexibility and financing tools than popular US policies such as the loan guarantee and Treasury grant programmes, financing experts said.
Senate energy and natural resources committee chairman Jeff Bingaman (D-New Mexico) and ranking member Lisa Murkowski (R-Alaska) may revive plans to set up such a bank – known as the Clean Energy Deployment Administration (CEDA) – to help clean energy projects access low-cost capital. So far, CEDA has failed to gain traction despite bipartisan support.
The nonpartisan Congressional Budget Office has said CEDA would need about $9.6 billion in start-up capital and legislators must find a way to offset the entire amount, Murkowski said.
“An offset will not only help CEDA become a reality, it will help us hold the line on new spending and ensure we do not make our deficit any worse,” she said. “But despite the high initial costs … I believe CEDA is a smarter way for the federal government to promote clean energy technologies.”
Congress took a major step toward addressing the persistent inability of clean energy projects to obtain financing by creating the Department of Energy’s (DOE) loan guarantee programme in 2005, but it has been “less than perfect” in terms of its implementation, Murkowski argued.
Independent observers have been impressed with the recent progress and professional skills of the DOE team, but remain concerned about the multi-agency review process and the uncertainty of the yearly budgeting cycle, said Dan Reicher, executive director of the Steyer-Taylor Center for Energy Policy & Finance at Stanford University.
“Commercialising energy technology requires a new, more effective approach and that approach is CEDA,” he said. “Congress needs to enact CEDA this year.”
CEDA would have the flexibility to administer different types of credit instruments such as loan guarantees, insurance products and clean energy backed-bonds to accelerate private sector investment, Reicher said.
Green Bank cheaper than other policies in the long run?
CEDA would only need a one-time appropriation, becoming a self-sustaining entity based on “profit participation” mechanisms that would allow it take a financial stake in the projects it backs.
“This, in my view, is fiscally responsible,” said Kassia Yanosek, a founding principal of energy investment and advisory firm Tana Energy Capital.
In comparison, the Section 1603 Treasury grant programme is uncapped and will cost about $10 billion through the end of 2011.
While CEDA would be established as an agency within DOE, it would have a separate administrator and a board of directors, a similarly independent structure to the Federal Energy Regulatory Commission, which “will provide a nimbleness which has eluded DOE’s loan guarantee programmes”, Yanosek added.
CEDA would make compliance with a national Clean Energy Standard, which the committee is considering and US President Barack Obama supports, much more affordable, by expanding the use of innovative technologies and driving down costs, Reicher said.
“That’s why I am, to be honest, frustrated with the Obama administration not stepping up in support of CEDA as a complement to the clean energy standard which it is strongly supporting and advocating,” he added.
Even the US Chamber of Commerce, known for its anti-government policies, supports passage of CEDA.
“I must be clear, the label ‘clean energy’ is not reserved solely for renewables, but must be accurately applied to any and all new technologies and processes that reduce environmental impact, whether it be clean coal, advanced biofuels, natural gas vehicles or natural gas transportation fuel, advanced nuclear or energy storage,” said Christopher Guith, vice-president for policy at the Institute for 21st Century Energy, an affiliate of the US Chamber.
Gloria Gonzalez
Solar firms struggle in tough first quarter
5 May 2011
Solar manufacturers have started reporting first quarter results, with policy uncertainty among the factors lowering profits and leading to a gloomy outlook for the next three months.
First Solar manufacturing plant in Perrysburg, Ohio
First Solar’s share price trades as low as $124.70 on Nasdaq yesterday, after it announced net quarterly profits of $115 million, down from $172 million in the first quarter of 2010. The share price was down more than 6% from yesterday’s close of $134.66.
The firm dampened its expectations for the second quarter, but still expects to hit its earnings target for 2011, of $9.23-9.75 per share.
Adam Krop, New York-based senior solar analyst at Ardour Capital, told Environmental Finance that he is confident the 2011 expectations can be met – although there is more risk for investors given the firm’s performance in the first three months of the year.
“They have a strong North American 2.4GW pipeline that they’re executing on,” he noted, as well as looking to additional markets such as India and Australia.
“There’s more risk there, sure,” he added. “I’m still confident.”
Yesterday also saw rival solar manufacturer REC report a NOK 84 million ($15.8 million) loss in the first three months of the year, compared to a NOK 1.1 billion profit in the previous quarter, blaming “reduced sales volumes of all products”.
Revenues dropped from NOK 4.9 billlion in the last four months of 2010 to NOK 4.1 billion in the first three months of 2011. However, 2011 started much stronger for REC than 2010, when the manufacturer reported revenues of NKr 2.4 billion.
Uncertainty over subsidies for solar projects in Italy impacted on REC’s performance, the firm said, as well as pressure to reduce solar module prices towards the end of the three-month period.
Watch out for Chinese solar results - analyst
Thomas Maslin, associate director for solar research at IHS Emerging Energy Research, said: “The solar market is still heavily reliant on subsidies so it’s at the whim of political will.”
Last week, Dutch manufacturer Evergreen Solar released a limited amount of preliminary information on its first quarter performance, reporting sales of around 18MW of capacity, priced at $1.86 per watt. This is a drop on the last three months of 2010, when Evergreen sold 47MW at an average of $1.90 per watt.
“While the first quarter has historically been slow for the industry, the sluggish demand has unexpectedly continued early into the second quarter,” said Evergreen president and CEO Michael El-Hillow. “This longer than expected slowdown, combined with the continued worldwide capacity expansion, has contributed to a significant increase in solar panel inventory throughout the distribution channel.”
First quarter results from a handful of China-based solar manufacturers will supply more information about the sector, he noted, because Chinese firms supply around 60-70% of the market.
Firms such as First Solar and SunPower offer more differentiated technology, he said. “How they’re competing with the Chinese is a really interesting dynamic to watch,” Maslin added.
Jess McCabe
Solar manufacturers have started reporting first quarter results, with policy uncertainty among the factors lowering profits and leading to a gloomy outlook for the next three months.
First Solar manufacturing plant in Perrysburg, Ohio
First Solar’s share price trades as low as $124.70 on Nasdaq yesterday, after it announced net quarterly profits of $115 million, down from $172 million in the first quarter of 2010. The share price was down more than 6% from yesterday’s close of $134.66.
The firm dampened its expectations for the second quarter, but still expects to hit its earnings target for 2011, of $9.23-9.75 per share.
Adam Krop, New York-based senior solar analyst at Ardour Capital, told Environmental Finance that he is confident the 2011 expectations can be met – although there is more risk for investors given the firm’s performance in the first three months of the year.
“They have a strong North American 2.4GW pipeline that they’re executing on,” he noted, as well as looking to additional markets such as India and Australia.
“There’s more risk there, sure,” he added. “I’m still confident.”
Yesterday also saw rival solar manufacturer REC report a NOK 84 million ($15.8 million) loss in the first three months of the year, compared to a NOK 1.1 billion profit in the previous quarter, blaming “reduced sales volumes of all products”.
Revenues dropped from NOK 4.9 billlion in the last four months of 2010 to NOK 4.1 billion in the first three months of 2011. However, 2011 started much stronger for REC than 2010, when the manufacturer reported revenues of NKr 2.4 billion.
Uncertainty over subsidies for solar projects in Italy impacted on REC’s performance, the firm said, as well as pressure to reduce solar module prices towards the end of the three-month period.
Watch out for Chinese solar results - analyst
Thomas Maslin, associate director for solar research at IHS Emerging Energy Research, said: “The solar market is still heavily reliant on subsidies so it’s at the whim of political will.”
Last week, Dutch manufacturer Evergreen Solar released a limited amount of preliminary information on its first quarter performance, reporting sales of around 18MW of capacity, priced at $1.86 per watt. This is a drop on the last three months of 2010, when Evergreen sold 47MW at an average of $1.90 per watt.
“While the first quarter has historically been slow for the industry, the sluggish demand has unexpectedly continued early into the second quarter,” said Evergreen president and CEO Michael El-Hillow. “This longer than expected slowdown, combined with the continued worldwide capacity expansion, has contributed to a significant increase in solar panel inventory throughout the distribution channel.”
First quarter results from a handful of China-based solar manufacturers will supply more information about the sector, he noted, because Chinese firms supply around 60-70% of the market.
Firms such as First Solar and SunPower offer more differentiated technology, he said. “How they’re competing with the Chinese is a really interesting dynamic to watch,” Maslin added.
Jess McCabe
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