Greening the Stimulus Packages

Global economies are currently at a juncture in their approach to combating climate change and preserving the environment. In the face of the economic crisis and low fossil fuel prices, the investments needed now in clean energy are being threatened. On a global basis, the biggest contributor to CO2 emissions is power generation (33%). In Europe, Germany is the largest carbon polluter, with some 40% of the country's CO2 emissions coming from the power generation sector, while the lion's share (55%) of power assets is fueled by coal and lignite - the dirtiest means of electricity production. Over the next 25 years, German generation capacity will decline by over two thirds, which is similar situation to many other European countries, as in the US. Until then, approximately, 60 per cent of the lignite and 50 per cent of coal plants will have reached the end of their operating lives and will be retired. Capacity replacement decisions clearly represent both a big opportunity, and a big risk for the companies and investors involved. This particular example highlights the perils facing the clean energy sector, but fortunately public spending plans from governments could turn the tide in favour of a sustainable future. Barack Obama, the chief proponent of a green stimulus, has pledged $150b of in investment in low carbon infrastructure and his kill two birds with one stone approach is being followed.

In the UK, Lord Mandelson commits to a £2.3 billion rescue for Britain’s carmakers with all funds tied to investment in low carbon initiatives to produce lower-emission cars.

Smart grid could be early winner in U.S. stimulus package

Lawmakers propose $54B for cleantech, including $11B to the smart grid sector.

Support from Democratic lawmakers in the U.S. could mean the smart grid sector will finally have the traction it needs for widespread adoption amongst global utilities, industry leaders said today.

Democrats from the U.S. House of Representatives yesterday unveiled an $825 billion plan to stimulate the American economy, including $54 billion for renewable energy, energy efficiency and smart grid projects.

Smart grid projects pulled one of the biggest chunks of the cash, with $11 billion being proposed. The numbers are far from final as the money must be approved by the U.S. Senate and President-elect Barack Obama, but it indicates that tides could be turning for one of the lesser-known sectors of cleantech.

“The new administration hasn’t taken office, and already we see a sign that momentum is building for utilities and other stakeholders to adopt the smart grid,” Michael Jung, policy director of Redwood City, Calif.-based Silver Spring Networks, told the Cleantech Group. “Utility regulators are very cautious, so for them to see this leadership coming from the policy front, this is a vote of confide and will encourage them to see it’s not just R&D, it’s the real thing.”

The U.S. electric grid loses roughly 7 percent of energy production through faulty transmission lines, theft and mechanical problems. But utilities don’t have a way to track where energy is lost, when energy is consumed or where outages occur. Lost electricity accounts for about $20 billion in unrealized revenue a year, drives up the cost to produce energy and causes additional power plants to be needed.

Although much attention in cleantech has been focused on new energy generation or ways to lower consumption, smart grid technology looks to improve the system of distribution.

However, that has started to change. Smart grid technology raised an all-time high of $202 million in venture capital in the third quarter of 2008, led by a $120 million round by by GridPoint (see Masdar makes another move in cleantech). The sector averaged less than $30 million a quarter in the previous 10 quarters (see Cleantech investment breaks all-time record).

The U.S. leads the world in utilities adopting smart grid technology. There are about 100 million electric meters in the U.S., and 40 percent to 60 percent are in communities that say they are interested in deploying smart grid technology.

Jung said the U.S. government’s investment into the sector could prompt other countries to adopt the technology, much of which is developed and manufactured by American companies.

“If we figure out how to scale this correctly, there’s no reason we shouldn’t be the leader in the global marketplace,” he said.

Smart grid differs from other cleantech sectors because its adoption must be widespread to have any impact, requiring the industry to agree on platforms. Silver Spring and Fat Spaniel Technologies are among the companies that have promoted an IP-based system on which companies can build platforms and applications to manage the power grid.

“It has to be a ubiquitous kind of thing,” Jung said. “If the smart grid technology only reaches 40 percent of the grid, it wouldn’t provide enough of a benefit, whereas solar and wind can come on in different increments.”

Once the standard system is established, applications of smart grid technology can be added over time, such as metering or distribution optimization, Jung said.

Money from the stimulus package would go to utilities to spend in the sector. Eric Dresselhuys, a vice president at Silver Spring, said the stimulus spending on smart grid technology would help already-supportive utilities such as Pacific Gas & Electric, Florida Power & Light, Oklahoma Gas & Electric and American Electric Power to accelerate their smart grid projects in the works, while the money could draw other utilities to make their first foray into the smart grid.

“One things that got smart grid in the stimulus package is that these are shovel-ready projects. The technology is available and people are ready to go,” he said. “There’s so much momentum around smart grid right now that I hope the stimulus spending happens in a way to give utilities a very quick turnaround on whatever the process is.”

The House version of the proposal calls for the money to be distributed as grants to utilities, but Jung warned such a process could slow the spending by about six months. He encouraged lawmakers to come up with standard requirements so that utilities could start projects and file for reimbursement.

The proposed stimulus package also sets aside $6.7 billion to improve the energy efficiency of federal buildings, $4 billion for research in renewable energy and advanced batteries, $6.2 billion for improving energy efficiency of homes through weatherization, $6.9 billion in renewable energy block grants, and $8 billion in renewable energy loans. Renewable energy providers would be able to choose whether to receive tax credits or grants under the proposal, which could expand the options available to developers to finance projects.

The package also contains $9.5 billion for clean water and $300 million in rebates for consumers buying energy efficient appliances.

Ian Tharp, senior analyst of cleantech and renewable energy with Toronto-based Dundee Capital Markets, noted in a report released today that Canadian-listed geothermal companies with projects in the U.S. are likely to benefit from the stimulus, including U.S. Geothermal, Nevada Geo, Western GeoPower and Sierra Geothermal, because of the proposed extension of the eligibility period for receipt of the renewable energy Production Tax Credit.

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Obama's stimulus plan: The energy debate

It is evident that 2009 will mark a turning point in the United States and hopefully the world, to begin thinking long term and acting more responsibly. I suggest you watch the speech within the article below, that addresses Obama's plan for 'investing in the future' and renewable energy.

Shortly after President-elect Barack Obama set a goal of doubling the country's renewable energy in three years, the jockeying over the energy portions of his administration's stimulus plan began.

At a speech at George Mason University on Thursday, Obama repeated his intention to promote the development of clean-technologies such as solar and wind energy, and to upgrade the electricity distribution system to enable smart-grid technologies. Obama said:

To finally spark the creation of a clean-energy economy, we will double the production of alternative energy in the next three years. We will modernize more than 75 percent of federal buildings and improve the energy efficiency of 2 million American homes, saving consumers and taxpayers billions (of dollars) on our energy bills.

In the process, we will put Americans to work in new jobs that pay well and can't be outsourced--jobs building solar panels and wind turbines; constructing fuel-efficient cars and buildings; and developing the new energy technologies that will lead to even more jobs, more savings, and a cleaner, safer planet in the bargain."

More details on how to fund energy-related programs trickled out after Obama's talk.

In response to a query from The Wall Street Journal, an Obama transition aide said doubling renewable-energy production in the United States is possible through a combination of loan guarantees and, ultimately, a national renewable portfolio standard (RPS).

There are a number of state-level RPS policies mandating that utilities get a certain percentage of their electricity from renewable technologies; the targets in California have set off a race to build up solar-power plants there. During the campaign, Obama had advocated a national RPS at 10 percent by 2012 and 25 percent renewable energy by 2025.

Renewable energy from wind, solar, and geothermal is about 24,000 megawatts, according to the aide, which represents about 1 percent of all power generation in the country.

"By providing significant loan guarantees and ultimately, later down the road, a national (renewable portfolio standard), we are confident we will get the wind industry back on track. In addition to the 20,000+ megawatts of wind, we are confident that with the same combination of support and renewable standards, the geothermal and solar industries can install 4,000MW of new power," the aide told the Journal.

After his talk, members of Obama's economic team met with members of Congress, who voiced their concerns with the plan.

"Energy is way underrepresented here in the package that has been discussed," said Sen. Kent Conrad, according to a report at Energy and Environment Daily (subscription required).

That sentiment was echoed by Sen. John Kerry: "I'm very confident that some adjustments are going to be made...We positively--absolutely in my judgment--need to spend more on energy, and I made that point and will continue to make that point."

The entire stimulus plan put forth is structured so that 40 percent of the money comes from direct tax cuts, 40 percent from direct investments in initiatives such as efficiency, and 20 percent directed at states, according to reports.

Overall, renewable-energy companies are optimistic on the potential for policy changes under Obama. In response to Thursday's speech, the American Council on Renewable Energy said it is issuing a call to action to its 600 members to issue plans on how to double renewable energy output in the next three years.

The auto sector is also angling to secure loan guarantees and incentives to establish electric-car manufacturing in the United States, according to a report earlier this week in the Detroit News.

Advocates of underground storage of carbon dioxide at coal-fired power plants are also hoping to restart investment in the Department of Energy-sponsored FutureGen project.

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California Scheming

Clean Technology: As Obama prepares to take office, Silicon Valley is sensing a change to land backing for an array of project that us IT to boost green energy and help create jobs.

Barack Obama has expressed support for a 'smart grid' to optimize electricity transmission and save power. It should be capable of carrying power from the place where it can be created - the windy centre of the US, the sunny south-west and the geothermal hot spots in the Rockies - to the coastal cities where it is most needed. I am currently investigating the technology and processes behind 'smart grids' and geothermal power plants, and will hopefully have a synopsis of both up shortly.


California Scheming

By Richard Waters in San Francisco

Published: January 14 2009 19:58 | Last updated: January 14 2009 19:58

A new Silicon Valley is being born. The northern Californian region that brought the world microprocessors, personal computers and Google now has its sights set on another technological revolution: one founded on photovoltaic solar cells, sources of biofuel such as algae and the application of information technology to improve energy efficiency.

Yet this new green technology industry needs help. As Barack Obama prepares to take office as US president next week, Silicon Valley has sensed that a turning point is at hand. It has been working overtime to convince the incoming administration of the strategic importance of these developments – and their need for financial backing.

To hear Valley notables describe it, the answers to some of the biggest issues facing the US can be found there. These range from climate change and America’s lack of energy independence to the need to create jobs and ensure long-term competitiveness in the next big strategic industry, the one geared to weaning the world from its reliance on fossil fuels...MORE

The Rise of Environmental Funds in the Downturn

As the dust is beginning to settle, it is promising to see environmental funds rising from the maelstrom and leading the charge in sustainable and responsible investing.

London-based fund is expected to take advantage of downturn to invest in solar, agriculture, and waste-to-energy.

A new venture capital fund is launching in early 2009, with the goal of raising $5 billion in the next five years to invest in energy security and climate change.

London-based Earth Capital Partners is spearheaded by former Man Group chief Stanley Fink. The fund is expected to be run by Rufus Warner, formerly of Close Investments.

The group's first funds are expected to focus on solar, waste-to-energy, agriculture, and new technologies. Later funds are planned for infrastructure, forestry, carbon trading and energy arbitrage.

The environmentally focused fund has reportedly secured $250 million in seed investment. Earth Capital Partners expects to attract institutional investors such as pension
funds.

The company said environmentally focused funds are finding it easier to raise money than other funds.

The fund is awaiting government approval.

Other major funds have launched in recent weeks with the expectation that environmental technologies could perform better than other investments during the economic downturn (see Cleantech funds worth $1.9B lead the week).

Among them, U.K.-based Aviva Investors announced plans to raise a €500 million ($625 million) fund for cleantech investing in Europe (see Aviva creates €500M fund for European cleantech). London-based investment firm Climate Change Capital announced that it plans to invest in China for the first time, setting aside RMB 5 billion ($732 million USD) to take advantage of deals during the economic downturn (see Climate Change Capital plans $732M for Chinese cleantech).

And venture capital investment fund CMEA Ventures has launched a $400 million late-stage fund focused on alternative energy.

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Clean-Tech Stocks Set for Rebound

Clean technology stocks are set to rebound in the next three months, following a dismal performance in 2008, according to a report from Banc of America Securities-Merrill Lynch.

But the rally will be “within the context of a continued bear market”. Bank analyst Steven Milunovich said earnings revisions from the sector in 2009 are likely to remain negative, as funding remains difficult to secure and competition heats up.

Meanwhile, he expects the flurry of government spending – much of which is to be directed at environmental infrastructure – “to prove as ineffective as it was during the Depression/New Deal” and that sustained improvement is unlikely before 2010-11.

The Cleantech Perspective report published on Tuesday cited several reasons for the bounce: optimism regarding US President-elect Barack Obama’s support of renewable energy, a bounce back from extremely poor performance, clean-tech being inexpensive relative to the market average price/earnings and price/earnings-to-growth ratios, and technical support based upon many sectors breaking above their 50-day moving average – which is often interpreted as a bullish signal.

Solar energy stocks delivered the worst performance of the clean-tech sectors in 2008 – falling 69%, according to the bank’s index – but solar is now expected to lead the rally. Candidates for a snap-back include Q-Cells and REC, Milunovich suggested.

He is also over-weighting geothermal energy, “a more promising renewable than many perceive” and energy efficiency, for its quick project payback in a tough economy and relatively low correlation with other sectors.

However, Milunovich is less optimistic about the prospects for alternative fuels, water and energy storage. “Little good is likely to happen until second-generation biofuels arrive,” he said, while the water sector will suffer from poor earnings revisions, and it is “too soon” for the technologies of energy storage to make an impact, he added.

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Establishing ESG Issues in Analysis

I am currently working with the of CFA Society of the UK Energy and Sustainable Investments special interests group to advocate the integration of ESG issues into investment analysis and aid in developing the standards and techniques for this form of valuation. Here is an excellent list of resources to aid in adapting these standards, provided for by the CFA Institute as they are beginning to recognize the increasing importance that non-financial factors plays in determining performance.

Why are ESG Issues Important?

* Analysts need to understand nonfinancial factors that affect the longer-term viability of companies
* Individual investors are increasingly calling on their financial advisers to take advantage of available ESG opportunities
* Companies that incorporate ESG exposures into long-term strategic planning will provide a more complete picture of their prospective value

Why is CFA Institute Interested?

* We’re charged with educating our members about current developments in the investment landscape and ESG issues are increasingly important factors in the markets
* Money managers and financial analysts who can interpret and relate ESG factors to a company’s future prospects may potentially develop a competitive advantage
* ESG-related disclosures can improve the transparency of the global capital markets through more thorough reporting of the long-term issues facing publicly traded companies
* The implementation of ESG reporting standards is in the early stages around the world, and we want to ensure that investors are aware of and involved in these efforts.

Carbon Trading: Can Money Grow on Trees

There is a new wave of entrepreneurs aiming to get rich by 
saving the rainforests. Richard Lofthouse reports

Ever wanted to get rich by doing absolutely nothing? In a bizarre way that’s what a bunch of new entrepreneurs and large corporations are trying to do. The formula is ridiculously simple: buy up or lease a tract of rainforest, prop up a deckchair and watch it grow. Put a financial price on its mere existence and sell a range of ‘products’ – called ecosystem services – to polluters. If trees could hear, they’d be setting up trade unions.

Is this the last and most crucial frontier in addressing climate change or a slightly daft get-rich-quick scam? Proponents stick one big uncomfortable fact to the pioneers of clean-tech, namely, that the most cost effective way to put the brakes on global carbon emissions would be to halt deforestation today rather than pour vast sums of money into whizzy new technologies, low emission cars and solar panels in Germany that would be 20 times more effective in the Sahara desert. They add that deforestation is accelerating, and that no government or charity has succeeded in halting it. 


Take money-man-turned-tree-hugger Hylton Murray-Philipson, whose London-based Canopy Capital recently struck a historic deal with the Iwokrama Reserve in Guyana, investing an undeclared sum of money to protect and manage a tract of 370,000 hectares of pristine rainforest. Terrified of the rapidly disappearing forest and acutely aware of the implications for his 11-year-old son, the 
ex-investment banker laments: “When conservation comes up against money, money always wins.”


Yet he wants a private sector, for-profit solution on the same basis, with one source of private capital trumping the other, turning the tide away from lucrative deforestation to even more lucrative conservation. “Unlike currencies, commodities or the share prices of banks, ecosystem services, with incalculable planet-wide significance, are presently rated at nil. The market in natural services that have an increasingly clear economic value can therefore only go up,” he says.


He and a dozen co-investors believe they will eventually reap a financial profit from ‘products’ offered by the forest, recognising that it regulates climate, stores water, sequestrates carbon dioxide, generates rainfall and preserves wildlife and biodiversity. These are the ‘ecosystem services’ that the forest provides. Now they just have to be valued monetarily, says Philipson. Historically, none of these planetary lifelines have been valued at all. Instead, the whole universe of investment and capitalism has revolved around exploitation of the natural world with none of the so-called ‘external costs’ of pollution being taken into account.
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A Year of Hope

The world is currently is struggling with the consequences of over-valuing its financial assets in wake of the credit crunch. There however looms a more pressing crisis ahead, as the under-valuing of environmental assets, which serve as the basis of all life and prosperity shall result in an ecological credit crunch as human demands on natural capital reach unsustainable levels. In the past three decades, one third of the planets resources, its “natural wealth” has been consumed. Fortunately, I believe that the winds of change are upon us, and one of the positive effects of the global credit crisis has been to cause investors to take a long hard look at the credit crunch, and the short-termism practices that caused it, and decide they can benefit from a more comprehensive analysis of investment risk, one which incorporate environmental, social and governance issues (ESG). In November alone, owners representing more than $1,500bn (£914bn, €1,160bn) of assets signed up to the United Nations six principles of better long-term equity ownership, which brought the total above $18,000bn. This practice continues to gain traction in light of the broader acceptance of climate change as an environmental threat, which brings with it previously unidentified risk and opportunities.

I believe 2009 is the beginning of a new hope for the world as we must tackle the challenges facing us or reap the consequences of our actions, as Al Gore reminds us, “Nature does not do bailouts.” Although I remain optimistic about the future, I should remind you of a quote by Edmund Burke, "All that is necessary for the triumph of evil, is for good men to do nothing.” The onus is on all to ensure we start acting and investing sustainably. Speaking of hope, President-elect Barack Obama comes to mind, who wants to spend $150 billion over the next decade to promote alternative energy sources, a proposal, he says, that would create millions of "green collar" jobs. He has also called for an 80 per cent reduction in greenhouse gas emissions by 2050 through a cap-and-trade program. Although policies and measures are increasing worldwide to combat climate change, I only hope that the scale of investment and action will be sufficient at this critical juncture. The unraveling of debt-heavy investment banking firms and the demise of Wall Street icons Lehman Brothers and Merrill Lynch, means that financing for large-scale renewable energy projects has gotten harder and more expensive. Sector-wise, wind farms will most likely be hit the hardest by the squeeze in credit as they are more mature along with solar and geothermal projects. Although companies that require public markets for financing have less attractive options, the private equity side of the business has showed much less sign of distress. Companies that require late-stage financing could have trouble going from product development to commercialization, and rather than trying to tap public markets or investment banks for capital, clean-tech companies may look to other sources like hedge funds, private equity firms or large corporations. Additionally, money allocated to bailout plans has possibly reduced the amount that would have been invested by governments into adopting cleaner energy sources. This has also not been helped by the deep slump in oil prices, which makes fossil-fuel energy look more attractive. In general though, long-term trends point to demand for clean technologies and supportive government policies.

Voluntary action remains a major driver in tackling the climate crisis, and fortunately in a recent UNEP survery, nearly 90 per cent of young people across the globe said they urge world leaders to do, "whatever it takes" to tackle climate change. If you are looking to take action I ask that you consider that the loss of natural forests around the world contributes more to global emissions each year than the transport sector, and curbing deforestation is a highly cost-effective way to reduce emissions. Seven billion trees - to be planted by the end of 2009 -are the target of UNEP’s Billion Tree Campaign. More than 4,319,593,340 trees have already been pledged and 2,599,045,202 planted. The worldwide campaign encourages people, communities, business and industry, civil society organisations and governments to enter tree planting pledges online in a call to further individual and collective action.