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News March 2005
The following are summaries of news stories that appeared in the March 2005 print edition of Environmental Finance magazine
Industry buoyed by latest CDM rulings
Carbon market participants say the latest decisions of the Executive Board of the Clean Development Mechanism (CDM) should give a major boost to the CDM process.
At its latest meeting in Bonn on 23–25 February, the Board registered two controversial HFC23 destruction projects that had been under review and together could generate up to 4.4 million certified emission reductions (CERs) a year. It also approved four new methodologies, including one for the destruction of nitrous oxide that could generate as many as 11.7 million CERs/year from a single project; and confirmed that developing countries are allowed to develop CDM projects unilaterally.
“The fact that the CDM Board is getting more business-like and making sensible decisions is good news for everyone,” says Steve Drummond, London-based managing director of broker CO2e. “The whole meeting was very positive.”
Emissions futures arriving in force
Sulphur dioxide (SO2) and nitrogen oxides allowance contracts are soon to be offered by the New York Mercantile Exchange (Nymex). The board voted to approve futures contracts for the two power plant emissions in early February, said spokeswoman Anu Ahluwalia.
The move follows the launch in December of the first SO2 futures contract, on the Chicago Climate Futures Exchange. But, brokers and dealers say, Nymex’s provision of clearing services – which eliminate credit risk between counterparties – and its existing relationships with many participants in the allowance markets, could give it the edge over its rival in Chicago.
GE to finance clean energy
GE Commercial Finance – the financial products arm of multinational conglomerate General Electric – has announced plans to offer financing for clean energy technology. The group will provide “working capital loans,” not tied to equity or purchase of GE equipment, according to spokesman Ned Reynolds.
GE will offer a “full range of financing products and services to companies that deliver clean or renewable energy directly, or develop new technologies for cleaner and more efficient energy generation,” according to a press release announcing the move. Those products and services include: debt financing, structured equity, leveraged leasing, partnerships and project finance.
UK dispute clouds start of EU ETS spot market
Germany and the Netherlands were due to follow Denmark in setting up ‘spot’ markets in EU Emissions Trading Scheme (ETS) allowances as Environmental Finance went to press in late February, marking the final stage in establishing the infrastructure for Europe’s emerging carbon market. But UK companies remain barred from spot trading, following a spat between the government and the Commission over London’s planned increase in its emissions target.
Last month, Shell Trading and Danish power company Energi E2 became the first companies to carry out a spot transaction, following Denmark’s creation of a register to track allowance movements, and its distribution of allowances to Danish companies covered by the ETS.
But UK companies are likely to be left out of the spot market for another couple of months, following the UK government’s much-delayed publication of its revised national allocation plan (NAP), which sets out the emissions targets for individual UK installations. The new plan, issued in mid-February, proposes an increase in overall allowances to 756 million tonnes (Mt) over the first three years of the scheme (2005–07), compared to the 735Mt set out in the UK’s draft NAP, which was approved by the Commission last July. The extra allowances, the government says, stem from revised projections of emissions from the power sector.
However, the Commission has taken a hard line with the UK government – fearful that such a revision to its NAP could open the floodgates to demands for changes across the EU.
US sees launch of SRI and clean energy ETFs
Fund manager Barclays Global Investors (BGI) has launched what it claims is the first US-based socially responsible investment (SRI) exchange traded fund (ETF). It will be followed, on 3 March, by the country’s first clean energy ETF.
San Francisco-based BGI’s iShares KLD Select Social Index Fund was listed on the New York Stock Exchange at the end of January and, to date, has attracted more than $20 million in investment, says a spokesman. It tracks Boston-based SRI research firm KLD Research and Analytics’ Select Social Index, which comprises companies from the Russell 1000 and S&P 500 indexes, weighted on the basis of their social and environmental performance.
The clean energy ETF will be offered by Illinois-based PowerShares Capital Management, and is based on the WilderHill Clean Energy Index, which was launched on the American Stock Exchange last August.
CIS challenges companies to look to wind
The UK’s Co-operative Insurance Society (CIS) has written to 40 companies in which it holds shares, urging them to copy a green energy deal it has struck with UK wind energy supplier Ecotricity.
Co-operative Financial Services (CFS), CIS’s parent company, agreed an eight-year deal with Ecotricity in October. The deal guarantees that CFS will receive electricity from renewable sources at less than the market rate for either clean, or fossil fuel-generated, electricity.
CIS has now written to 40 undisclosed companies – in which, collectively, it has more than £1.5 billion invested – asking them to consider a similar deal.
Two cleantech VC funds reach first close
Two clean technology venture capital (VC) companies have announced first closings of new funds – illustrating growing VC interest in the sector. San Francisco-based Expansion Capital Partners has raised $20 million into its Clean Technology Fund II, while Chrysalix, based in Vancouver, has attracted an undisclosed amount into Chrysalix Energy II.
“Our investors are looking for new and unique opportunities to invest in venture capital, and are looking for diverse venture capital allocations,” says Diana Propper de Callejon, a New York-based general partner at Expansion.
The majority of investors in the new fund are high net worth families or individuals, she adds, although the company is in discussions with a number of institutional investors, as it is moving towards a $50 million-plus closing by the end of the year.
Meanwhile, three financial institutions have backed the second fuel cell and hydrogen technology fund from Chrysalix. The first closing was led by the New York-based private equity group of WestAM, an affiliate of German bank WestLB, and Dutch asset manager Robeco, while the Ontario Teacher’s Pension Plan joined Mitsubishi Corp, BASF Venture Capital and Shell Hydrogen as co-investors.
The fund – which is aiming to raise $100 million this year – follows a C$40 million ($32.5 million) first fund, launched in 2001.
French reporting law slow to take effect
The majority of France’s largest companies do not provide “adequate” information on their energy use, despite it being a legal requirement, according to a study* by corporate social responsibility resource centre Novethic, a subsidiary of French bank Caisse des Dépôts et Consignations.
Despite the 2001 passage of the Nouvelles Regulations Economiques act, which requires listed companies to report on environmental and social issues, including energy consumption, “change has been slow in coming,” says Blaise Desbordes, head of research at Novethic. “And the results to date have been mixed at best.”
Industry welcomes UK support for wave power
The UK renewables sector has welcomed an innovative government support mechanism to promote wave and tidal energy technologies – but is calling for some details to be changed to ensure that projects go ahead.
“They’ve gone a long way towards meeting our needs,” says Philip Wolfe, chief executive of the Renewable Power Association. “Capital grants for infrastructure and revenue support for projects are spot on. But there are lots of details that need to be changed to get projects funded.”
Last August, the government announced £50 million ($96 million) to support companies looking to bring wave and tidal energy technologies to market. At the end of January, the Department of Trade and Industry set out the principles of its Wave and Tidal Stream Energy Demonstration Scheme. These include:
- capital grants covering 25% of facility construction costs, up to £5 million for any one project; and
- payments of £100 for each MWh of electricity generated by the project, for five years, in addition to the revenue from Renewable Obligation Certificates (currently trading at £47/MWh) that projects would be entitled to.
Goldman Sachs to take control of Nordex
Goldman Sachs – alongside a German private equity firm – is poised to take a controlling stake in troubled wind turbine manufacturer Nordex. At the German wind company’s 21 February annual general meeting, 99.8% of shareholders approved a complex recapitalisation proposal designed to put the company on course for a sale to a larger player.
“As financial investors, [Goldman Sachs and Germany’s CMP Capital Management Partners] plan to bring the company to growth and profitability, and then sell it within three to five years,” says Ralf Peters, a Nordex spokesman. “Three years is a reasonable timeframe to make Nordex profitable.”
Nordex, which had revenues of €221.6 million ($292.5 million) in 2003/04, has been turning away orders because of cashflow difficulties, Peters says. He adds that UK clients had pulled orders after their banks expressed concerns over the company’s financial position.
‘GOs’ boost renewable energy trade
The introduction of ‘guarantees of origin’ (GOs) by EU member states has resulted in a growing cross-border trade in certified green energy, according to the latest figures from the Association of Issuing Bodies (AIB). The overall volume of renewable energy certificates (RECs) issued and redeemed has also increased.
Since October 2003, when the EU Renewables Directive came into force, EU member states have been required to issue GOs, on demand, to generators of renewable power. These can then be sold on, and used to certify that electricity comes from ‘green’ sources.
In some countries, GOs have all but replaced their forerunner, the voluntary REC, says Phil Moody, development director at energy consultants Campbell Carr, and general secretary of the AIB. This is because GOs have a greater regulatory standing, he says.
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