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.
Technorati Tags: cap-and-trade, carbon-tax, climate-change, energy, global-warming, oil-&-gas, renewable-energy
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.
Technorati Tags: cleantech, information-technology, renewable-energy, venture-capital
With fossil fuel prices well above historical average, geothermal energy is likely to increase substantially its share of the energy mix, according to Oxford Analytica.
Geothermal energy can be used to produce electricity, to provide heat and hot water for direct applications and indirectly by using geothermal heat pumps. Unlike wind and solar photovoltaic (PV), geothermal electricity is base load — ie, it is available 24 hours a day, 365 days a year with capacity factors often above 90% .
The world geothermal potential from conventional geothermal sources has been estimated at 70 gigawatts (GW). If engineered geothermal systems (EGS) technology becomes technically viable — a process where water is pumped to extreme depths to produce steam — geothermal energy potential could double to 140 GW. A recent Massachusetts Institute of Technology (MIT) study suggests an even higher world EGS potential. It found that EGS could supply the United States alone with 100 GW of electricity within 50 years.
As with all renewable energy sources, interest in geothermal development has increased with rising fossil fuel prices and global warming concerns. For example, the US Geothermal Energy Association reports that current US geothermal development projects are scheduled to more than double US geothermal electricity capacity in the next few years. In Germany over 100 areas are being explored for their geothermal potential.
Other countries are also increasing their geothermal capacity. In Xianyang, Shaanxi province, a Chinese and Icelandic partnership is replacing coal fired heating with a geothermal district heating system, which has the potential to become the biggest such system in the world.
In many cases geothermal proves to be very competitive with other sources of energy, especially if renewable energy incentives are available. Recent cost experience has shown that costs for geothermal electricity production typically range from 4.5 to 7.3 cents per kilowatt-hour (kWh).
Currently, geothermal development is restricted to areas where natural hydrothermal systems are available for utilisation. Such systems are mainly located along the Pacific Ring of Fire, along the Atlantic Ridge, in the African Rift Valley and in isolated places of high heat flows. Advances in technology in recent decades have enabled the production of electricity with lower temperature resources using binary technology. This has increased the feasible area for conventional geothermal energy production in countries such as Germany that before were not viable for geothermal electricity production but are now building geothermal plants.
If EGS becomes technically viable, geothermal energy could be harnessed everywhere in the world and no longer be limited to a few selected areas. The main technical barriers to EGS are increasing flow rates and sustaining high heat flows within the engineered reservoir for sustained periods of time. Work to overcome these barriers is being conducted in both Europe and the United States. Australia is at the forefront of these efforts with multiple private firms with millions invested in EGS development.
Conventional geothermal systems are utilised worldwide but rising drilling costs are affecting geothermal economic viability. For EGS development, the next few years will be critical in deciding whether the added influx of interest and investment will be enough to prove the EGS concept, lower costs and thus make geothermal electricity available worldwide.
Technorati Tags: EGS, geothermal energy, renewable-energy
Renewable energy development is falling far short of its potential and governments need to do much more to remove non-economic and other barriers, a major new report from the International Energy Agency says.
The IEA report, Deploying Renewables: Principles for Effective Policies, looks at the “realisable potential” for renewables, based on a long-term view of the technical potential adjusted to take account of unavoidable medium-term constraints on the rate of change, such as maximum market growth rates and planning constraints.
For most countries, the additional realisable potential to 2020 far outstrips the achieved deployment of renewables to date.
The aggregate additional potential to 2020 for renewable electricity (RES-E) in OECD countries and BRICS (Brazil, Russia, India, China) amounts to 6 271 TWh. This is equivalent to 41% of 2005 total electricity generation and represents almost 2.5 times the current RES-E generation. In absolute terms, China has the largest additional potential, followed by the EU-27, the United States, India, Russia, Canada and Brazil. Overall, BRICS account for 47% of the additional realisable potential among those countries analysed.
The ratio of additional potential to achieved generation in 2005 is even larger for renewable heat (RES-H).
For solar thermal and geothermal heat the additional potential is almost thirty times the achieved heat production from these sources.
In the case of renewable liquid transport fuels (RES-T), the estimated additional realisable potential of first-generation biofuels is more than five times the current production. This estimate is based on the conservative assumption that a maximum of 10% of current arable land would be used for energy crop cultivation in 2020, with a lower share (3.5-8.5%) assumed for the emerging economies (BRICS) due
to potentially stronger competition with food production and environmental pressures.
The report recommends:
- The removal of non-economic barriers, such as administrative hurdles, obstacles to grid access, poor electricity market design, lack of information and training, and the tackling of social acceptance issues (“not in my backyard” - NIMBY), with a view to overcome them - in order to improve market and policy functioning;
- A predictable and transparent support framework to attract investments;
- The introduction of transitional incentives, decreasing over time, to foster and monitor technological innovation and move technologies quickly towards market competitiveness;
- The development and implementation of appropriate incentives guaranteeing a specific level of support to different technologies based on their degree of technology maturity, in order to exploit the significant potential of the large basket of renewable energy technologies over time; and
- The due consideration of the impact of large-scale penetration of renewable energy technologies on the overall energy system, especially in liberalised energy markets, with regard to overall cost efficiency and system reliability.
Technorati Tags: Biofuels, electricity, oil-&-gas, renewable-energy, solar-energy, wind-energy
In this space last week we wrote that a financial hurricane awaited if Lehman Brothers was not bailed out over the weekend. But we had no idea quite what a momentous and tumultuous week lay ahead.
So there are no prizes for identifying the Zeitgeist this week: the most turbulent financial market action in many, many years that elicited rounds of name-calling, emergency actions and waves of real and rumored deals. It saw a rather generic statement by President George W. Bush that bizarrely coincided with the start of the strongest two-day stock market rally in history. The more the financial crisis unfolds, the less we seem to know what’s really going on. As last week, expectations are very high that some sort of government-backed “bad debt collector” will emerge from the huddle of regulators and congress, so again, the market could be in for a fall if they don’t deliver.
Visitors to Research Recap were interested in the ripples from the latest developments, with S&P’s report Lehman Failure’s Impact on European Banks (S&P) topping the list.
They also seemed to like our new “Ratings Roundup” that compiles recent moves by the ratings agencies, which were coming thick and fast this week. The first of these, Ratings Roundup: AIG, WaMu, BoA/Merrill,
was our second most popular.
Further worrying signs were found in the third most popular post, Moody’s US Credit Card Performance Continues on Downward Trend. And CreditSights’ Analysis of Recent Financial Deals was also well read, as was 24/7Wall Street’s Solar Energy Firms Taking Hit from Lehman Failure.
Research Recap Quote of The Week:
In other words, instead of deleveraging, the banks have just shifted a chunk of their risk to the central bank. - Bianco Research, as quoted by The Economist.
Technorati Tags: (AIG), (BCS), (BOA), (HBOS), (LEH), (LYG), (MER), (wm), asset-backed-securities, Bank-of-America, banking-system, Barclays, credit card debt, credit-crisis, credit-ratings, european-banks, Lehman-Brothers, Lloyds TSB, merrill-lynch, renewable-energy, solar-energy, structured-finance, subprime-mortgage, Washington-Mutual
The bankruptcy of Lehman Brothers (NYSE:LEH) a is going to hit a couple of solar stocks pretty hard according to 24/7 Wall Street. “Evergreen Solar (NASDAQ:ESLR) looks to be taking the bigger hit, but JA Solar (NASDAQ: JASO) will also feel the pain.”
“At Evergreen, Lehman was the lead underwriter for a $373.75 million senior convertible note offering back in July. The solar company lent Lehman some 30.9 million shares of new common stock in a capped call transaction. The new shares were to be reported as issued and outstanding for corporate law purposes.”
“According to the terms of the note, Lehman is obligated to return the shares by July 15, 2013. That transaction lifted the conversion price from $12.11 per share to $19.00 per share. To date, Evergreen has paid $39.5 million transaction fee.”
“Evergreen will have to write off the $39.5 million and, if the company can’t recall the 30.9 million new shares, Evergreen shareholders face a dilution of their stock by more than 20%. Evergreen says that it will adopt a wait-and-see position regarding Lehman’s ability to return the borrowed shares in 2013. While it’s waiting, Evergreen will not consider the shares to be outstanding “for the purpose of computing and reporting share results.”
[A summary of an Evergreen conference call on the topic Monday is available here.]
JA Solar is in the same boat, but there’s not quite as much water in it, 24/7 says. “The company lent the European division of Lehman 6.56 million new shares, also due in 2013. The original conversion price was set at $30.475/share. The capped call lifts the price to $37.375/share. JA has paid $16.2 million in a transaction fee, and it looks like shareholders face a dilution of about 4% if Lehman doesn’t return the borrowed stock. JA Solar also plans to treat these shares as non-outstanding.”
[In a conference call today, management said it did not expect the Lehman transactions will impact its 2008 and 2009 outlook. Transcript available here.]
Technorati Tags: (ESLR), (JASO), Evergreen Solar, JA Solar, renewable-energy, solar-energy
One of the aims of Research Recap is to provide educational background on financial and economic topics, so it is gratifying when our “Research Primers” attract attention. The latest of these, based on an article in the International Monetary Fund’s Finance & Development magazine, provides a useful history and explanation of Securitization. Indeed, the IMF publication is earning a reputation for this kind of thing. Its December explainer of the Role of Hedge Funds in the Subprime Crisis features among the top posts on a regular basis and this week was no exception.
The top post of the week by a considerable margin was Fitch Says Worst of Credit Storm is Over for US Banks, in which Fitch Ratings threw every meteorological metaphor in the book at the issue. Fitch also featured in another top post, noting that the decline in house prices was likely to accelerate resetting of payment rates on option adjustable rate mortgages to higher levels. In the same post, CreditSights wondered why delinquencies are running at a higher rate than they should be based on the pace of rate resets.
There’s no doubt that Sarah Palin captured the zeitgeist this week, and the inaugural edition of the WSJ glossy wealthy lifestyle magazine includes an interview with the Alaska Governor about her running (marathons, that is). Carried out before she joined the McCain ticket, the interview reveals that her biggest pitfall is breakfast. “I hate to admit it, but a skinny white-chocolate mocha is my staple in the morning.” Guess that takes the “latte factor” off the table as an attack weapon against Barack Obama.
Now that the euphoria of the Democratic and Republican conventions has been punctured by Palin and unemployment respectively, the focus should return to policy issues and what the respective tickets plan to do about a weak economy and fragile markets. First up, the much anticipated takeover of Fannie Mae and Freddie Mac.
Research Recap Quote of the Week:
Dependence on oil imports continues to be highest, reaching 95% in 2030. - International Energy Agency analysis of European Community energy policies.
Technorati Tags: banking, energy, Hedge-Funds, mccain, obama, palin, renewable-energy, securitization, subprime-mortgage, Zeitgeist
The challenge facing the European Community in reducing its dependence on imported fossil fuels is clearly illustrated in the International Energy Agency’s just published review of EU energy policies.
“The EU energy economy will become increasingly reliant on energy imports – with import dependence reaching 64% in 2020 and 67% in 2030 in business as usual projections, up from slightly more than 50% at present.”
Dependence on oil imports continues to be highest, reaching 95% in 2030.
Dependence on gas imports would rise substantially, from 58% at present to 84% in 2030. Similarly, solid fuel supplies would increasingly be based on imports, reaching 63% in 2030 (up from just under 40% today).
Oil, gas and coal production in the EU is set to decline significantly by 2030 and be only partially offset by increases in renewable sources of energy.
The EU’s renewable energy supply (RES) target of 20% for 2020 cannot be attained without strong additional policies, the report says.
…under currently implemented policies, the renewables share in final energy demand rises by 4 percentage points between 2005 and 2020, reaching 12.5% in 2020.
The report suggests the EU will need to enact more stringent enforcement of the targets. The challenge is made even more difficult by pressure to rescind or reduce the current requirement that 10% of liquid fuels come from biofuels.
In addition to urging the implementation of already agreed policiies, the IEA urges an substantial increase in R&D and a reallocation of R&D funding from nuclear power to renewables. Almost 40% of the energy funding is targeted at nuclear fusion, a technology that is only expected to contribute past 2050. “It will be important for the achievement of the EU climate change targets that this funding allocation is revised at the earliest possible opportunity, and that funding for non-nuclear energy research and development is increased significantly.”
Technorati Tags: Biofuels, energy, nuclear-power, renewable-energy
The credit crunch has so far had little impact on the attractiveness of renewable energy as an investment, according to Ernst & Young.
From March 2007 to June 2008, the Wilderhill Clean Energy Index (NEX) rose by 17%, compared with an 11% decline for the FTSE index. The solar sector has shown a rise of 56% during the period, while wind companies fell 7% and biomass stocks were down by 34% on average.
E&Y said the impact of rising oil costs is having a mixed effect on renewables. “On one side, fossil fuel costs are rising, making renewable energy more competitive; with the appeal of ‘free’ energy inputs (wind, solar or marine) gaining greater exposure. Conversely rising energy costs are putting pressure on governments to consider the cost of renewables – and its impact on the fuel poor in particular.”
The recent rise in oil prices has yet to factor into renewable equity prices.
China has displaced the UK in the top five countries in the Ernst & Young renewable energy country attractiveness indices for Q1 and Q2 2008. This is in spite of the UK’s renewable energy strategy proposals, which are yet to be translated into tangible benefit to the industry.
The US retains the top position despite there being no sign of a long-term support framework for the industry. Germany and India retain their second and third positions.
Technorati Tags: renewable-energy, solar-energy, wind-energy
Greentech is expected to lead the way in a turnaround of IPO activity, but not until 2010, according to a survey by KPMG.
Venture capitalists don’t expect to see a consistent flow of IPOs again until 2010 and report that their firms, as a result of the slumping US economy and unstable markets, have extended exit timelines by 12 months or more.
In polling 297 venture capitalists, corporate buyers, bankers and entrepreneurs, KPMG found that 79 percent of respondents expect a strong stream of IPO activity to begin in 2010. Forty percent expect a turnaround in 2010, 24 percent in 2011 and 15 percent in 2012. Interestingly, only nine percent think activity will pick up in 2009. And 12 percent don’t think future IPO activity will ever reach historic annual average levels again.
When asked which industry will be on the front end of the IPO turnaround, greentech was the runaway favorite with 44 percent of the responses, while mobile and the digital entertainment sectors garnered 16 percent and 13 percent of the responses, respectively. KPMG conducted the survey in collaboration with AlwaysOn, the venture capital new media organization.
When asked to identify the industries that would receive the most venture funding in 2009, 27 percent indicated greentech, which was followed by digital entertainment at 23 percent, mobile at 20 percent, and life sciences at 16 percent.
The digital entertainment industry will also remain an attractive investment opportunity for venture capitalists in 2009, and 43 percent of respondents expect the bulk of the funding to go toward the mobile applications sector, followed by social media at 25 percent and content development at 20 percent.
Venture capitalists also indicated that they expect to see an increase in sector and geography-specific venture funds next year, similar to those recently launched by numerous VC firms that focus on greentech, mobile and China. In fact, 55 percent of respondents indicated that they expect the number of niche funds to increase by 15 percent or more in 2009
In addition to China and India, the KPMG study also found that investors expect other emerging markets to become attractive venture capital investment opportunities over the coming years. In fact, 41 percent of respondents indicated that beyond China and India, Brazil will be the most attractive market five years from now. Russia (19 percent), Israel (14 percent) and Qatar (9 percent) are also expected to be attractive investment geographies for venture capitalists five years from now.
Technorati Tags: green-tech, renewable-energy, venture-capital, wind-energy