18 December 2013

Looking back at 2013

Stranded assets, retroactive subsidy cuts and backloading were among the themes that dominated the markets in 2013. Peter Cripps looks back on some of the highs and lows of the past 12 months.

Stranded assets gain traction with investors

The concept that the valuations of fossil fuel companies may be set for a sharp correction if the international community steps up its efforts on climate change has gained traction among investors in 2013.

This was helped by some excellent work by the Carbon Tracker Initiative think-tank, which calculated that as much as 80% of the proven fossil fuel reserves may need to be left in the ground if the 2°C target is to be met.

There is growing anecdotal evidence that investors are starting to buy into the idea that fossil fuel assets may be overvalued. In October, a coalition of investors worth $3 trillion wrote to 45 of the biggest oil and gas companies demanding to know how they are dealing with the issue.

But the big questions are: will they divest, and will they reallocate towards cleaner alternatives?

The pain in Spain falls mainly on … the entire renewables industry, everywhere

When Mariano Rajoy needed to start slashing the economically hobbled country's costs, the renewables industry was a sitting target.

Spain continued its pernicious retroactive subsidy cuts in 2013, casting a shadow over the entire renewables industry.  From Texas to Timbuktu, the first thing renewables developers are asked about by investors is Spain.

Muchas gracias, Mariano! Fortunately, in many parts of the world renewables are now competitive in their own right.

Tony Abbott's win undermines Australia's green credentials

Tony Abbott: reviewing green policies (Photocredit: Flickr/DonkeyHotey)The 'Mad Monk' took over the asylum Down Under in September. Within weeks of victory Tony Abbott, who once branded climate change "absolute crap", has already threatened to trample over much of the country's green economy.

He has pulled the rug from under the carbon price mechanism, been accused of hindering progress at the latest climate talks in Warsaw, and is reviewing the country's 2020 emissions targets.

Now many fear Spanish-style retroactive subsidy cuts. Time to start praying.

Warren Buffett renews his vows on renewables

Warren Buffett: putting money into renewables (Photo: Flickr/MarkGregory007)He is arguably the most famous investor in the world, so Warren Buffett's deals in the renewables space this year added kudos to the sector.

MidAmerican, which is part of the Berkshire Hathaway empire run by Buffett, in January agreed to buy the 579MW Antelope Valley Solar Projects in Kern and Los Angeles counties in California from SunPower Corporation. The deal for the projects – set to be the world's biggest photovoltaic plant – was reportedly worth more than $2 billion.

He followed this up in June with a $1 billion bond issue to finance the project.

And in December, MidAmerican placed an order for 1,050MW of wind turbines from Siemens. Worth about $1 billion, it was believed to be the industry's largest order for land-based gear.

Buffett is no green evangelist – after all, Berkshire still invests in companies that use and transport coal – but the fact that 'the Sage of Omaha' is throwing his weight behind renewables is proof that they increasingly make sound economic sense.

Elon Musk wins over investors

Elon Musk: the driving force behind Tesla and SolarCity (Photo: Flickr/kqedquest)It's been an exciting year for Elon Musk – the brains behind solar leasing firm SolarCity and electric car trailblazer Tesla, who helped inspire the depiction of the lead character in the film Iron Man.

Musk seems to have won over the much of the financial community despite many having had their fingers burned in the past by the renewables and clean-tech sectors.

First, Tesla tapped investors for more than $1 billion and then SolarCity raised more than $200 million.

The solar firm later issued $54 million in securitised bonds, with one analyst saying it would open the gates for securitisation in the solar sector.

IPO fever

The UK market saw a spate of renewables IPOs in 2013. It started with Greencoat Wind raising £260 million in March, and ended with private equity giant Terra Firma taking its Infinis wind and landfill gas business public in November, valuing the company at £780 million.

The London market has bounced back after years of being virtually closed to renewables. And there are hopes the trend may spread to Europe.

Renewables exits

The flow of capital in the renewables/clean-tech space has been clogged up by a lack of exits for funds in recent years.

That's why two deals from London-based Platina Partners were significant – the private equity firm in June claimed it had become the first in Europe to exit a renewable energy fund when it sold the last remaining project in its €56 million Mistral Wind Farm I Fund to an unnamed buyer.

It claimed it had secured an overall internal rate of return of more than 40%, which it described as "outstanding". And it followed that with a second fund exit when it sold a Northern Irish wind farm in November.

The bond market starts 'fizzing'

There has been much talk about fixed income being the next major source of green finance, and it began to show signs of delivering some of its potential in 2013.

The year started well, with the first ever $1 billion issue, from the International Finance Corporation. And it was followed by a spate of issues from multilateral development banks (MDBs) and corporates.

Climate Bonds Initiative CEO Sean Kidney claimed the market was "fizzing" after Bank of America's $500 million paper in November made it the first US bank to issue green bonds.

With Zurich Insurance having allocated $1 billion to help the green bond market scale up, and a coalition of investors setting up a working group to bring more confidence to the market, there should be more activity in 2014.

COP out

Despite the Polish government's attempts to turn the Warsaw climate talks into a 'coal COP', delegates cobbled together the loosest of agreements to keep a 2015 deal within grasp.

Just don't ask about finance. Or the Clean Development Mechanism. Or 'commitments' to mitigating climate change.

China and the US put their heads together on HFCs

A deal between the US and China to reduce the use of hydrofluorocarbons (HFCs), a group of potent greenhouse gases found in refrigerants, was in June struck by US president Barack Obama and China's President  Xi Jinping.

"This is a significant step forward for the two nations that are the largest emitters of greenhouse gases," said Fred Krupp, president of NGO the Environmental Defense Fund. "It's the kind of international cooperation we'll need to drive a comprehensive solution."

Could this be a sign of things to come?

Backloading finally gets the go-ahead

More than a year after it was first proposed, a plan to temporarily boost prices in the EU's emissions trading system was finally agreed in December.

The 'backloading' plan involves the delay of 900 million allowances in a bid to ease the oversupply problem that has seen prices plunge to around €4-5 ($5.50-6.90) for most of this year, from a 2011 peak of more than €17.

It is hoped that backloading will soothe some of the pain in the market while longer-term reforms are agreed. Just don't hold your breath waiting for an agreement.

California goes strong

California: has it learned from the mistakes for the EU ETS?While the EU's carbon market has been bumping along the bottom, its counterpart in California has seen a solid first year of trading.

There has been relatively little volatility in pricing, liquidity has been good relative to the size of the market and some of the legal challenges overshadowing the market have been seen off.

And from the start of 2014, Quebec will link with it.

Enter the Dragon – China starts carbon trading

China has fired the starting gun on four of its seven pilot trading systems in 2013.

Shenzhen got the ball rolling in June, followed by Shanghai and the capital Beijing in November.

Trading started in Guangdong, the biggest of the markets, in December.

However, it's early days for China's emissions trading regime and many remain sceptical that it will hit its target of rolling trading out nationally to become the world's biggest carbon market from 2016.

Coal lending from MDBs

Several multilateral development banks retreated from financing coal-burning power plants. The European Investment Bank, the World Bank, the European Bank for Reconstruction and Development and the US Export-Import Bank all made a stand.

Have we missed anything? Have your say – leave a comment below.