CreditSights has issued a pair of reports summarizing the 6th Annual Renewable Energy Finance Forum in New York. The conference brought together skeptics, optimists, and pessimists, but all attendees were hopeful of an encouraging end result of the industry stimulus brought on by the American Recovery and Reinvestment Act (ARRA), according the reports. Topics discussed included financing at the debt and tax equity levels, the impact of renewable energy on the power markets and the prerequisites to bring more renewable energy to market.
A few general themes CreditSights took note of were:
frustration with the Treasury’s slow response to act on rules for the 30% investment tax credit grant program,
lack of risk appetite for projects without long-term PPAs in place, and
scarcity of players involved with the tax equity markets.
Without investor certainty, capital will wait on the sidelines, for the most part.
In part one, CreditSights explores the government’s role and the role of financial players in this re-emerging sector. Part two covers renewable energy providers, new sector innovations and the participation from utilities.
Jeffrey Holzschuh of Morgan Stanley gave the institutional investor’s view of renewable energy investing. After a period of optimism and investment from 2005-2007 in the space, we are now in a period of rationalization and optimization, according to Holzschuh. After this period, he expects there to be a long monetization period, when he expects photovoltaic solar will reach grid parity and large scale solar thermal plants to start ramping up. He also foresees a shift in focus to transmission and distribution from generation.
Credit Sights looks at the challenges facing utilities in “going green” in a pair of new reports. Despite those challenges, there are some signs of progress, CreditSights notes.
CreditSights visited the recent Shields & Co./Berenson & Co. transmission conference in New York. “Much is happening on the transmission front as access to green power is becoming a viable business model for utilities and transmission developers. However, it is not easy to get these projects built. Not only must transmission line routes be sited and approved, but the method of cost allocation must be determined as well. Siting lines has proved very difficult for utilities even along existing rights-of-way and no utility customer wants to pay for these projects, despite the limited impact on the customer’s bill.”
The reports discuss transmission projects involving American Transmission, Arrowhead Weston, Northwestern Energy, Westar Energy, NSTAR and Consolidated Edison.
Although execution risk is large with transmission given challenges with respect to siting, utilities are having some success as evidenced by the completion of the SW Connecticut projects at NU, for example.
The solar energy market is at the leading edge of a massive correction, but lower prices will prime the market for recovery and growth, according to Lux Research.
In a new report “Finding the Solar Market’s Nadir,” Lux projects that the available capacity of solar cells and modules will measure twice the demand in 2009, while the overall market could shrink from last year’s $36 billion over 5.5 GW to $29 billion over 5.3 GW this year.
“While oversupply in the solar market has been looming for some time, the correction has been more aggressive due to the economic crisis,” according to Ted Sullivan, Senior Analyst at Lux Research, and the report’s lead author. “In order to reduce inventories, suppliers will have slashed their cell and module prices by 25% or more.”
While this spells a shakeout in the near term, the price reductions will push solar closer to grid parity and prime the market for recovery and growth.
Lux’s report finds that:
Cell and module capacity will overshoot demand by twofold in 2009 to reach 10.4 GW, precipitating a shakeout that will eliminate all but the top players.
Silicon availability will become increasingly irrelevant as module players seek to cut inventory. But the resulting price reductions will flatten out by 2011, bringing solar closer to grid parity and enabling the market to grow to $70 billion across 18.5 GW in 2013.
As the most readily financeable technology, crystalline silicon will continue to dominate the market this year. But competing thin-film technologies, including amorphous silicon and CdTe, will continue to grow aggressively, and CIGS also stands to gain overall despite expectations of widespread company failure.
As the Spanish market dwindles, Germany will again become Europe’s buyer of last resort. The U.S. market growth, meanwhile, will depend heavily on the government stimulus package just signed.
The Aite group has issued a useful primer on the carbon emissions market that examines its regulatory and voluntary frameworks. The report looks at the Kyoto Protocol as well as various regional initiatives. It considers probable regulatory developments, and outlines execution and clearing processes for the carbon emissions market.
The growth that the carbon industry saw in 2008 will be a high point as the global economic slowdown will take its toll in 2009 and beyond.
Among the report’s highlights:
The two houses of the U.S. Congress are expected to introduce similar “green” legislative bills, both containing accommodation for a CO2 (aka carbon dioxide) cap-and-trade approach.
The issue of counterparty risk in the carbon market is similar to other commodity and financial markets. This fact has forced the market to adapt to clearing transactions through a futures-style centralized clearinghouse model.
Regulation in the United States will involve multiple agencies with the Environmental Protection Agency (EPA) monitoring the registration and the Commodity Futures Trading Commission (CFTC) monitoring secondary trading activity.
Despite skepticism about its commercial viability, hydrogen has potential to be a clean, sustainable fuel, according to Oxford Analytica. However, a variety of obstacles must be overcome for this to be realized, OxAn says in a new report.
Current technologies seek to generate hydrogen in fuel cells via electrolysis of a renewable material such as water or biomaterial. Nonetheless, the electrode design, catalysts and electrolyte materials used in fuel cells pose technical problems that limit power and longevity.
Electrolysis currently is used to split water into oxygen and hydrogen for fuel cells. However, this is an expensive process, and because it is powered by diffuse solar energy, large tracts of land need to be covered with solar panels to produce sufficient quantities of hydrogen.
Photoelectrolysis is the direct splitting of water into hydrogen and oxygen using light. Such ‘artificial photosynthesis’ could reduce capital costs and increase the efficiency of hydrogen production. Sunlight is the only energy input and hydrogen is evolved without external current flow. Development of a new catalytic film has made viable the process, which is a step towards efficiently generating hydrogen for fuel at low cost and with negligible environmental impact. However, substantial development remains necessary.
Logistical issues are associated with implementation of hydrogen as a widely used fuel source. Storage of hydrogen in porous materials in part would provide a solution. However, the ultimate goal is to carry hydrogen as a liquid, as cars running on fuel cells could use stations employing roughly the same liquid-fuel infrastructure as already exists.
Some 14% of global greenhouse emissions come from the transport sector. In the developing world, this proportion is growing rapidly. Hydrogen fuel could allow transport growth to have minimal effect on the atmosphere. Furthermore, the volatile price of oil has helped ensure that the push for alternative transportation technologies is well funded and has international support.
Initiatives launched in the United States, Japan and the EU suggest a promising future for the hydrogen energy industry.
A spike in interest and projected research investments has begun to create career opportunities in academia and industry for chemists, physicists and engineers.
While the EU has lagged behind Japan and the United States, investment now is forthcoming. Pilot schemes already are underway. Large corporations also are investing huge amounts of capital into hydrogen fuel technologies.
Hydrogen fuel has clear potential to be a clean and sustainable fuel source. Presently several issues still must be overcome. However, technologies are advancing swiftly enough to encourage corporations and governments to invest heavily. The result not only could have environmental benefits, but also may create significant employment opportunities.
New nuclear power plants are unlikely to be built without financial incentives from governments, according to Oxford Analytica.
A so-called nuclear renaissance has been underway for some years now, OxAn says. It has taken three broad forms, namely:
the predominantly state-led and financed continuation of nuclear construction in countries with an existing industry, such as South Korea, China, India and Russia;
renewed support for nuclear power in countries that have existing industries but that have not seen any newbuild in decades, the most notable in this regard being the United Kingdom and United States; and
a host of potential newcomers to the nuclear market, the most substantial groups being emerging economies in Asia and the Middle East.
However, in practice, outside countries where nuclear is state-subsidised and driven by government-set targets, new nuclear is making little progress, despite increasingly supportive policy environments. Moreover, the financial crisis is having various impacts on the industry, the most critical of which is likely to be the increased cost of capital.
Increased borrowing costs are likely to more than outweigh the impact of the decline in basic commodity prices. Even if central bank rates have fallen, the cost of project finance has not.
For project financiers working in energy, wind, solar or natural gas-fired plants, remain much safer investments than nuclear. Smaller-scale projects also suit the current conservatism in project lending.
On the other hand, governments, faced with recession, are committing themselves to a huge range of public spending initiatives, and promotion of so-called ‘green jobs’, which are undermining previous commitments not to engage in forms of state aid. A lack of bank lending is also pushing borrowers towards state banks, export-import banks and multilaterals. Both these trends could benefit nuclear, as governments become more amenable to providing the cheap finance that new nuclear requires. As such, the financial crisis may increase the chances of state support for new nuclear.
Nevertheless, the main new nuclear building programmes are taking place in China, Russian and India — all countries where the government has mandated targets and is building new units through state-owned companies. In addition, South Korea and Japan, which are already heavily dependent on both nuclear power and imported fuels, have major construction programmes. In South Korea, all of the country’s nuclear reactors are owned by a subsidiary of the state-owned Korea Electric Power Corporation. By contrast, only two nuclear plants are under construction in Western Europe and none in the United States.
It would appear that the risks associated with new nuclear in liberalised, or liberalising, markets are too high to attract capital at a price that makes new nuclear viable.
Without additional state support, new nuclear will have to be built from existing utility revenue streams, which in some cases could damage credit ratings.
Meeting both carbon emissions and supply security goals will be difficult, if not impossible, if an established low-carbon base-load technology like nuclear is ignored, OxAn concludes. However, newbuild does not look viable in current market conditions. State support is needed and may be more forthcoming from governments faced with recession.
Although $40-a-barrel oil has taken some of the wind out of the sails of the green energy movement, in the longer term renewables are certain to grow. The International Energy Agency has just released a handy guide to wind power, Renewable Energy Essentials: Wind.
The brochure notes that production costs onshore range from $75/MWh to $97/MWh at high to medium quality wind sites. Onshore wind is competitive at sites with good resource and grid access. Offshore wind can produce up to 50% more electricity than onshore, but hardware and installation are more expensive.
The IEA suggests that by 2050, wind power could supply up to 12% of world electricity with concentrated effort and technological innovation.
In a survey of the history of wind power and its prospects, The Economist says wind power is poised to make a significant contribution to curbing greenhouse gas emissions. “In America alone, about 35% of new electricity-generating capacity in 2007 came from wind power. The IEA projects that by 2030 wind power will produce 14% of the electricity in the European Union, accounting for 60% of its growth in electricity generation (though additional policy measures could increase this share even further).
From a zero-fuel-cost, zero-carbon perspective, notes Victor Abate, vice-president of renewables at GE Energy, wind power is currently the most cost-effective and scalable technology available to mankind.
“Wind power has made great progress, but the industry faces new growing pains. One of these is the need to win greater public acceptance for the technology. As well as complaining that wind turbines spoil the view or make too much noise, opponents of wind turbines also worry about the danger they pose to birds. (Proponents respond that many more birds are killed annually by cats, vehicles and buildings.)”
“But perhaps the greatest obstacle to the wider adoption of wind power is the need to overhaul the power grid to accommodate it. Transmitting wind power from rural areas with strong winds to populated areas with high demand will require expensive new transmission lines.”
The International Energy Agency has issued 25 policy recommendations it says would cut greenhouse gas emissions by 20% per year.
The IEA projects global primary energy demand could grow by 55% from 2005 to 2030, raising serious energy security and environmental sustainability concerns.
Global energy-related CO2 emissions, which account for 61% of global greenhouse gas emissions, show no sign of decline. The latest complete data of CO2 emissions indicate a 33% rise between 1990 and 2006. Between 2005 and 2006, all of the growth in these emissions took place outside the OECD region.
The dramatic fall in energy prices in recent months has helped provide breathing space for the depressed economy, but could cause delays in investment in new production, leading to a supply crunch in the medium term as energy demand grows, and slow progress in energy efficiency and the development of cleaner alternative technologies.
By adopting new energy efficiency measures, constructing green energy infrastructure and taking steps to integrate cleaner energy into the power grids, governments can lock in sustainable technologies and reduce CO2 emissions by almost 40% relative to the projected baseline emissions for 2030.
To advance global energy efficiency efforts, the IEA developed a set of 25 policy recommendations that, if implemented, could reduce global CO2 emissions by 20% per year (8.2 GtCO2/yr) by 2030. The recommendations aim to:
The International Energy Agency’s latest World Energy Outlook offers a stark reminder of the challenges of reducing carbon dioxide emissions.
The IEA’s “WEO-2008″ analyses policy options for tackling climate change after 2012, when a new global agreement – to be negotiated at the UN Conference of the Parties in Copenhagen next year – is due to take effect. The analysis assumes a hybrid policy approach, comprising a plausible combination of cap-and-trade systems, sectoral agreements and national measures.
On current trends, energy-related CO2 emissions are set to increase by 45% between 2006 and 2030, reaching 41 Gt, the IEA says.
Three-quarters of the increase arises in China, India and the Middle East, and 97% in non-OECD countries as a whole.
“Stabilising greenhouse gas concentration at 550 ppm of CO2-equivalent, which would limit the temperature increase to about 3°C, would require emissions to rise to no more than 33 Gt in 2030 and to fall in the longer term. The share of low-carbon energy – hydropower, nuclear, biomass, other renewables and fossil-fuel power plants equipped with carbon capture and storage (CCS) – in the world primary energy mix would need to expand from 19% in 2006 to 26% in 2030.”
This would call for $4.1 trillion more investment in energy-related infrastructure and equipment than in the Reference Scenario – equal to 0.2% of annual world GDP.
Most of the increase is on the demand side, with $17 per person per year spent worldwide on more efficient cars, appliances and buildings, the IEA says. “On the other hand, improved energy efficiency would deliver fuel-cost savings of over $7 trillion. The scale of the challenge in limiting greenhouse gas concentration to 450 ppm of CO2-eq, which would involve a temperature rise of about 2°C, is much greater. World energy-related CO2 emissions would need to drop sharply from 2020 onwards, reaching less than 26 Gt in 2030.”
Our analysis shows that OECD countries alone cannot put the world onto a 450-ppm trajectory, even if they were to reduce their emissions to zero.
US venture-capital investment shifted from information technology to clean and renewable energy as total investment sank 7.1% last quarter compared to the same period last year, according to Dow Jones VentureWire.
The $7.3 billion invested in 583 financing rounds last quarter is down from the $7.9 billion put into 673 rounds during the same time in 2007, according to VentureSource, a research unit of VentureWire. The 583 financing rounds was the lowest third-quarter total since the third quarter of 2004, when there were 549, the data show.
Meanwhile, the $22.2 billion invested in 1,916 rounds for the year so far is down only 4% from last year’s $23.2 billion deployed in 2,082 rounds through nine months. But the relatively steady performance is a prelude to a considerable fall-off that’s coming this quarter, some investors said.
The financial meltdown is prompting firms to spend more time with existing companies than on new deals, and with stock prices plummeting, some say their next new investment will likely be in a public company, not a start-up.
One sector falling especially hard: information technology, where just $2.7 billion was invested in 270 financing rounds last quarter, down 20.6% from the $3.4 billion injected into 342 rounds in the third quarter of 2007.
The drop-off in IT investing also reflects growing interest in a new sector, clean and renewable energy. Venture firms pumped $1.1 billion in 32 financing rounds in this market last quarter, up 90.7% from the $619.5 million invested in 35 rounds during the corresponding period of last year. The $2.4 billion firms have invested in 86 rounds this year already exceeds last year’s full-year total of $1.6 billion in 97 financings.
CreditSights has issued a pair of reports summarizing the 6th Annual Renewable Energy Finance Forum in New York. The conference brought together skeptics, optimists, and pessimists, but all attendees were hopeful of an encouraging end result of the industry stimulus brought on by the American Recovery and Reinvestment Act (ARRA), according the reports. Topics discussed included financing at the debt and tax equity levels, the impact of renewable energy on the power markets and the prerequisites to bring more renewable energy to market.
Credit Sights looks at the challenges facing utilities in “going green” in a pair of new reports. Despite those challenges, there are some signs of progress, CreditSights notes.
The Aite group has issued a useful primer on the carbon emissions market that examines its regulatory and voluntary frameworks. The report looks at the Kyoto Protocol as well as various regional initiatives. It considers probable regulatory developments, and outlines execution and clearing processes for the carbon emissions market.
Despite skepticism about its commercial viability, hydrogen has potential to be a clean, sustainable fuel, according to Oxford Analytica. However, a variety of obstacles must be overcome for this to be realized, OxAn says in
Although $40-a-barrel oil has taken some of the wind out of the sails of the green energy movement, in the longer term renewables are certain to grow. The International Energy Agency has just released a handy guide to wind power, 
In a survey of the history of wind power and its prospects, 
US venture-capital investment shifted from information technology to clean and renewable energy as total investment sank 7.1% last quarter compared to the same period last year, according to 