10 February 2011
Republicans in the US House of Representatives have proposed gutting popular government programmes that have eased financing of renewable energy projects.
House Republicans determined to curb government spending have released their proposal for a continuing resolution (CR) to fund the US federal government, which aims to cut spending by $74 billion from now until October. A CR is a type of appropriations bill used by the Congress to fund government agencies if a formal appropriations bill has not been signed into law by the end of the Congressional fiscal year. It provides funding for existing federal programmes at current or reduced levels.
One provision would cut $900 million from the Department of Energy’s (DOE’s) Office of Energy Efficiency and Renewable Energy (EERE), which provides project grants, and the remaining $1.4 billion from the DOE’s loan guarantee programme.
“It’s an effort to kill the EERE and to do away with the loan guarantee programme,” John Pierce, a partner with law firm Wilson, Sonsini, Goodrich and Rosati, told attendees of the Geothermal Energy Finance Forum in New York on Wednesday.
“If those programmes are undercut, it obviously undermines other renewables, but frankly it undermines what little the geothermal industry is getting,” he added.
There is a reserve that allows the DOE to write a certain amount of loan guarantees, but taking $1.4 billion out of the programme would force the DOE to collect credit subsidies, effectively charging premiums for writing guarantees, said Keith Martin, co-head of the project finance group of law firm Chadbourne & Parke.
“All we have are numbers at this point,” he said. But “I think that’s an issue.”
Projects with conditional commitments at risk
A major concern, if the proposal becomes law, is what this means for renewable energy projects that only have conditional commitments from the loan guarantee programme, Martin said. The DOE has issued 10 conditional commitments, including a $102 million commitment for a 22MW project by US Geothermal.
“Would they have to now pay a large premium?” he asked.
But Martin cautioned that the House changed hands to the Republicans in the 2010 midterm elections.
“The House is largely irrelevant to the process,” he said. “It was irrelevant when it was in Democratic hands. Everything is decided in the Senate where you need 60 votes. This is the first round. We’ll see what happens in the Senate.”
Gloria Gonzalez
Monday, 14 February 2011
Geothermal power must address drilling, resource risks - financiers
11 February 2011
Renewable energy financiers are bullish on the geothermal sector, but resource and drilling risks still make them skittish.
Total investment in the clean energy sector reached a record $243 billion in 2010, but only $1.8 billion, or 0.76%, was directed at the geothermal sector, Mark Taylor, head of the finance team at Bloomberg New Energy Finance, told attendees of the Geothermal Energy Finance Forum in New York on Wednesday.
The US geothermal sector will need $29 billion in financing over the next six years, said Arni Magnusson, executive director of international industries for Iceland-based Íslandsbanki, which finances geothermal projects worldwide. US geothermal capacity is about 3GW, or 30% of the world’s total, with more than 2.3GW of new capacity expected by 2015, Magnusson said.
John Hancock Financial Services previously had exposure to more than 70% of existing US geothermal capacity through loans, all of which performed well, said Recep Kendircioglu, senior managing director for the firm.
“Based on our good track record, we would like to put more money at work,” he said. “We like geothermal. We are looking for long-term, durable assets, which geothermal seems to fit the bill.”
The Department of Energy’s (DOE’s) loan guarantee programme was a “very good opportunity for us to put some meaningful dollars at work”, Kendircioglu said. John Hancock applied for and received a $78.8 million loan guarantee as a senior debt lender to Nevada Geothermal Power (NGP) to finance a 41.5MW geothermal plant and has several additional applications with the department.
But resource, drilling and construction risks persist in the geothermal sector and investors are often unwilling to take on all these risks, said Brian Harenza, senior vice-president for San Francisco-based investment bank Hannon Armstrong.
Drilling risk puts off financiers
“Drilling risk is really where the rubber meets the road,” he said. “There are a lot of providers of capital who are interested in start-up and operation, but no one wants to finance the drilling risk.”
Banks and international agencies are very concerned about the possibility of drilling a well to disappointing results or getting a power plant online only to see the resource degrade, said Subir Sanyal, president and manager of reservoir engineering of consultancy GeothermEx. The company is talking to European reinsurers about the possibility of insuring resource risk for geothermal projects, he said.
John Hancock is able to take on construction risk, but does not want resource risk, Kendircioglu said. “Until you can take away the resource risk, the capital is going to get expensive,” he said.
Hannon Armstrong closed debt and equity financing worth $400 million last May for Hudson Ranch, a 50MW geothermal project in California that addressed all three major risks, Harenza said. For example, the project was based in the Salton Sea area, one of the most prolific areas for geothermal in the world, addressing concerns about adequate resources, he said. “It’s not as easy as sticking your thumb in the ground and getting steam, but it’s pretty damn close,” Harenza said.
But what was missing was a one-stop advisory firm for the arrangement and placing of geothermal project financing so Hannon is partnering with Íslandsbanki’s newly formed US unit Glacier to form GeoBanc, which aims to fill this gap, Harenza said. “We’re getting involved in your project when you’ve done enough development with equity dollars that it’s real,” he added.
Gloria Gonzalez
Renewable energy financiers are bullish on the geothermal sector, but resource and drilling risks still make them skittish.
Total investment in the clean energy sector reached a record $243 billion in 2010, but only $1.8 billion, or 0.76%, was directed at the geothermal sector, Mark Taylor, head of the finance team at Bloomberg New Energy Finance, told attendees of the Geothermal Energy Finance Forum in New York on Wednesday.
The US geothermal sector will need $29 billion in financing over the next six years, said Arni Magnusson, executive director of international industries for Iceland-based Íslandsbanki, which finances geothermal projects worldwide. US geothermal capacity is about 3GW, or 30% of the world’s total, with more than 2.3GW of new capacity expected by 2015, Magnusson said.
John Hancock Financial Services previously had exposure to more than 70% of existing US geothermal capacity through loans, all of which performed well, said Recep Kendircioglu, senior managing director for the firm.
“Based on our good track record, we would like to put more money at work,” he said. “We like geothermal. We are looking for long-term, durable assets, which geothermal seems to fit the bill.”
The Department of Energy’s (DOE’s) loan guarantee programme was a “very good opportunity for us to put some meaningful dollars at work”, Kendircioglu said. John Hancock applied for and received a $78.8 million loan guarantee as a senior debt lender to Nevada Geothermal Power (NGP) to finance a 41.5MW geothermal plant and has several additional applications with the department.
But resource, drilling and construction risks persist in the geothermal sector and investors are often unwilling to take on all these risks, said Brian Harenza, senior vice-president for San Francisco-based investment bank Hannon Armstrong.
Drilling risk puts off financiers
“Drilling risk is really where the rubber meets the road,” he said. “There are a lot of providers of capital who are interested in start-up and operation, but no one wants to finance the drilling risk.”
Banks and international agencies are very concerned about the possibility of drilling a well to disappointing results or getting a power plant online only to see the resource degrade, said Subir Sanyal, president and manager of reservoir engineering of consultancy GeothermEx. The company is talking to European reinsurers about the possibility of insuring resource risk for geothermal projects, he said.
John Hancock is able to take on construction risk, but does not want resource risk, Kendircioglu said. “Until you can take away the resource risk, the capital is going to get expensive,” he said.
Hannon Armstrong closed debt and equity financing worth $400 million last May for Hudson Ranch, a 50MW geothermal project in California that addressed all three major risks, Harenza said. For example, the project was based in the Salton Sea area, one of the most prolific areas for geothermal in the world, addressing concerns about adequate resources, he said. “It’s not as easy as sticking your thumb in the ground and getting steam, but it’s pretty damn close,” Harenza said.
But what was missing was a one-stop advisory firm for the arrangement and placing of geothermal project financing so Hannon is partnering with Íslandsbanki’s newly formed US unit Glacier to form GeoBanc, which aims to fill this gap, Harenza said. “We’re getting involved in your project when you’ve done enough development with equity dollars that it’s real,” he added.
Gloria Gonzalez
Voluntary carbon market opens up – survey
9 February 2011
Winners of Environmental Finance’s annual survey of the voluntary carbon markets report growing interest in carbon offsetting as the economic outlook begins to lift, and see the development of a carbon market in California as boosting ‘pre-compliance’ trading in North America.
But the competitive landscape in the market has opened up this year, with US investment bank JP Morgan – which, with its recently-acquired subsidiaries EcoSecurities and ClimateCare dominated last year’s survey – disappearing from sight.
This year, publicity-shy energy trading house Vitol won the Best Trading Company category, followed by German asset manager First Climate.
Best Project Developer was won by South Pole Carbon Asset Management, displacing EcoSecurities, with US-based Blue Source in second place. And Best Offset Retailer, last year won by ClimateCare, went to The CarbonNeutral Company.
Elsewhere, US verification firm First Environment knocked TÜV SÜD out of the Best Verification Company slot, while ICF International replaced First Climate as Best Advisory/Consultancy.
There was more continuity in other categories, with Evolution Markets remaining Best Broker, according to survey respondents, and Baker & McKenzie holding on to the Best Law Firm title. Markit was again voted Best Registry Provider.
“Last year was a tough one in the voluntary carbon markets, in common with wider environmental trading,” said Mark Nicholls, editor of Environmental Finance. “But winners in our survey report a pick-up in interest and activity, as the economic clouds begin to lift and as North American participants ready themselves for a carbon market in California.
“And there’s all to play for: certainly, among the readers of Environmental Finance, JP Morgan’s aggressive move into the carbon markets has not, for the time being, paid off. For whatever reason, our readers are favouring smaller and perhaps more nimble developers and traders.”
Some 500 votes were received in the survey which was conducted separately from Environmental Finance and Carbon Finance’s annual market survey, which polls readers on mandatory carbon markets, renewable energy finance, weather risk management and sulphur and nitrogen oxides allowance markets. Those results were announced in December.
Environmental Finance defines ‘voluntary carbon’ as carbon credits bought or sold to help organisations or individuals offset carbon emissions where they are not required by regulation to do so. This may be to help meet self-imposed emissions goals, or to gain experience ahead of carbon regulations – an important part of the voluntary carbon market in the US.
The results are published in the February 2011 issue of Environmental Finance. Click here to read the editorial feature.
Winners of Environmental Finance’s annual survey of the voluntary carbon markets report growing interest in carbon offsetting as the economic outlook begins to lift, and see the development of a carbon market in California as boosting ‘pre-compliance’ trading in North America.
But the competitive landscape in the market has opened up this year, with US investment bank JP Morgan – which, with its recently-acquired subsidiaries EcoSecurities and ClimateCare dominated last year’s survey – disappearing from sight.
This year, publicity-shy energy trading house Vitol won the Best Trading Company category, followed by German asset manager First Climate.
Best Project Developer was won by South Pole Carbon Asset Management, displacing EcoSecurities, with US-based Blue Source in second place. And Best Offset Retailer, last year won by ClimateCare, went to The CarbonNeutral Company.
Elsewhere, US verification firm First Environment knocked TÜV SÜD out of the Best Verification Company slot, while ICF International replaced First Climate as Best Advisory/Consultancy.
There was more continuity in other categories, with Evolution Markets remaining Best Broker, according to survey respondents, and Baker & McKenzie holding on to the Best Law Firm title. Markit was again voted Best Registry Provider.
“Last year was a tough one in the voluntary carbon markets, in common with wider environmental trading,” said Mark Nicholls, editor of Environmental Finance. “But winners in our survey report a pick-up in interest and activity, as the economic clouds begin to lift and as North American participants ready themselves for a carbon market in California.
“And there’s all to play for: certainly, among the readers of Environmental Finance, JP Morgan’s aggressive move into the carbon markets has not, for the time being, paid off. For whatever reason, our readers are favouring smaller and perhaps more nimble developers and traders.”
Some 500 votes were received in the survey which was conducted separately from Environmental Finance and Carbon Finance’s annual market survey, which polls readers on mandatory carbon markets, renewable energy finance, weather risk management and sulphur and nitrogen oxides allowance markets. Those results were announced in December.
Environmental Finance defines ‘voluntary carbon’ as carbon credits bought or sold to help organisations or individuals offset carbon emissions where they are not required by regulation to do so. This may be to help meet self-imposed emissions goals, or to gain experience ahead of carbon regulations – an important part of the voluntary carbon market in the US.
The results are published in the February 2011 issue of Environmental Finance. Click here to read the editorial feature.
Solar companies mull legal challenge to Huhne
By Sarah Arnott
Monday, 14 February 2011
Solar power companies are considering a legal challenge to Government plans for a review of the "feed-in tariff" (FIT) scheme, set up last year to boost investment in green energy schemes.
After months of uncertainty, the announcement by the Energy Secretary Chris Huhne last week of a fast-track review has created "pandemonium" in the industry, critics claim, leaving all but the smallest domestic projects "impossible to finance" and costing Britain's stuttering economy anything up to 18,000 new jobs.
The Government says the review is vital to avoid large-scale solar "farms" hogging funding and squeezing the domestic market for which the subsidy was intended. Solar companies are incensed. Not only does the move create yet more uncertainty for a nascent industry struggling to establish itself, they claim, but including projects of more than 50 megawatts (MW) in the review will catch out community solar schemes from schools, hospitals and housing associations, as well as truly large-scale farm installations.
"This is bad news for the solar industry and bad news for the big society," said Jeremy Leggett, the executive chairman of Solar Century. "What the Government is doing is going to be really damaging for companies and investor confidence."
Under the original scheme, smaller roof-mounted solar projects faced a likely subsidy cut from 2013, giving the fledgling industry time to gain momentum. But the latest review, due to conclude in July, now covers both ground and roof panels, and has investors slamming on the brakes at all levels. Industry experts were forecasting 18,000 new jobs thanks to the FIT. But companies are now freezing hiring plans and existing jobs may be at risk, such as the 300 new hires by Sharp Solar for its factory at Llay, near Wrexham in Wales.
"There is pandemonium because this is not just about large-scale projects any more," said Ken Moss, the chief executive of mO3 Power.
The saga over FITs has been rumbling almost as long as they have existed. Within months of their introduction in April 2010, looming public spending cuts were causing concern. And although the scheme largely escaped the Chancellor's axe in the October Spending Review, the inclusion of a cap on the amount of solar power that could be added each year set alarm bells ringing. Within weeks, the Government voiced fears that the FIT was in danger of being dominated by industrial-scale farms and investment slowed.
Now any project reliant on bank or private equity finance will simply grind to a halt, warn insiders. "This is a disaster for the industry – it will be simply impossible to finance solar projects now," said a source at a private equity company that has already pulled out of some solar investments and will hold back on any more in the immediate future.
More than 50 solar companies will attend a second crisis meeting today to finalise a letter to Mr Huhne, spelling out the problems caused by the review. Although some high-profile figures, including Mr Leggett, do not back a legal challenge, insiders do not rule out a recourse to law and discussions with lawyers are being pursued in parallel with efforts to build bridges.
Monday, 14 February 2011
Solar power companies are considering a legal challenge to Government plans for a review of the "feed-in tariff" (FIT) scheme, set up last year to boost investment in green energy schemes.
After months of uncertainty, the announcement by the Energy Secretary Chris Huhne last week of a fast-track review has created "pandemonium" in the industry, critics claim, leaving all but the smallest domestic projects "impossible to finance" and costing Britain's stuttering economy anything up to 18,000 new jobs.
The Government says the review is vital to avoid large-scale solar "farms" hogging funding and squeezing the domestic market for which the subsidy was intended. Solar companies are incensed. Not only does the move create yet more uncertainty for a nascent industry struggling to establish itself, they claim, but including projects of more than 50 megawatts (MW) in the review will catch out community solar schemes from schools, hospitals and housing associations, as well as truly large-scale farm installations.
"This is bad news for the solar industry and bad news for the big society," said Jeremy Leggett, the executive chairman of Solar Century. "What the Government is doing is going to be really damaging for companies and investor confidence."
Under the original scheme, smaller roof-mounted solar projects faced a likely subsidy cut from 2013, giving the fledgling industry time to gain momentum. But the latest review, due to conclude in July, now covers both ground and roof panels, and has investors slamming on the brakes at all levels. Industry experts were forecasting 18,000 new jobs thanks to the FIT. But companies are now freezing hiring plans and existing jobs may be at risk, such as the 300 new hires by Sharp Solar for its factory at Llay, near Wrexham in Wales.
"There is pandemonium because this is not just about large-scale projects any more," said Ken Moss, the chief executive of mO3 Power.
The saga over FITs has been rumbling almost as long as they have existed. Within months of their introduction in April 2010, looming public spending cuts were causing concern. And although the scheme largely escaped the Chancellor's axe in the October Spending Review, the inclusion of a cap on the amount of solar power that could be added each year set alarm bells ringing. Within weeks, the Government voiced fears that the FIT was in danger of being dominated by industrial-scale farms and investment slowed.
Now any project reliant on bank or private equity finance will simply grind to a halt, warn insiders. "This is a disaster for the industry – it will be simply impossible to finance solar projects now," said a source at a private equity company that has already pulled out of some solar investments and will hold back on any more in the immediate future.
More than 50 solar companies will attend a second crisis meeting today to finalise a letter to Mr Huhne, spelling out the problems caused by the review. Although some high-profile figures, including Mr Leggett, do not back a legal challenge, insiders do not rule out a recourse to law and discussions with lawyers are being pursued in parallel with efforts to build bridges.
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