1 S uccessful solar inverter manufacturers have emerged as the most desirable acquisition targets in the photovoltaic (PV) supply chain, as reflected by Switzerland-based power group ABB’s announcement in April that it has agreed to acquire US inverter maker Power One at a valuation of $1.03 billion. The deal is the fifth largest M&A transaction announced in the entire clean energy space this year, and is the largest acquisition of a pure-play solar technology company since French oil giant Total bought a controlling stake in US solar cell, panel and system maker SunPower Corp for $1.37 billion in June 2011. ABB said it aims to leverage Power One’s global business with its own operations to create the world’s largest supplier of PV inverters, a section of the market that has proven relatively resistant to the tide of bankruptcies and losses that have plagued solar module, cell and wafer makers over the past two years. A recent IHS study showed that aggregate revenue in the global inverter market hit $7.1 billion in 2012, a 5% increase on the previous year. SMA Solar, the current market leader, did report a 55% fall in consolidated net profit for 2012 due to solar subsidy cuts in Europe, but the key statistic in those results was that its net profit remained healthy at Eur75.1 million, a far cry from the enormous losses incurred by leading companies in other PV sub-sectors. The Power One takeover is just one of several M&A deals launched in the inverter sector this year. Colorado-based power conversion group Advanced Energy Industries paid Eur59 million ($76.6 million) to acquire German solar inverter maker REFUsol earlier in April, less than a month after SMA paid $37 million to acquire a 72.5% stake in Chinese counterpart Jiangsu Zeversolar New Energy. The reason that inverter makers have become so prized is that an inverter is a genuinely specialised product that can play a crucial role in improving the bankability and long-term profitability of a solar farm, as opposed to a module, which has essentially become a commodity. In a presentation at the launch of the Clean Energy Europe Finance Guide 2013 last month, SMA Solar Vice President of Sales Tomas Goetz said: “If you look at a PV plant today, you can pick between 10 and 15 Tier One modules and it’s justified to say modules are a commodity. You don’t get much of a difference whatever ABB BETS BIG ON SOLAR INVERTER MARKET WITH POWER ONE BUY CONTENTS Issue #14 May 2013 Editorial Review...............................1 { ABB bets big on solar inverter market with Power One buy Data..................................................3 Interviews & Analysis.......................5 { Clean energy investment drops to new four- year low in 1Q13 { LifeCos and Japanese banks fill Canadian project finance gap left by retreat of European banks { Valuations for German onshore wind farms have risen to all-time high { Cleantech VC investor Electranova seeks additional corporate partners { Apex Wind Energy aims to add asset management to development activities { Balance sheet investors dominate Alberta wind energy financing { German offshore wind market opens up for UK cable provider JDR { OneRoof Energy set to close new equity round and solar leasing fund within 90 days { ‘eBay for solar’ company offers streamlined approach to project M&A { Bidder intends to ramp up Suntech’s Goodyear plant to 100 MW { Germany’s cash incentive for energy storage systems approved and awaiting final details { Likelihood of Crown Estate Round 4 hinges on CfD implementation { NREL to diversify funding base post- sequestration and focus on systems integration { US energy conversion start-up targets $10- 15 million equity round { US waste heat company targets global acquisitions in bid for growth { Shale gas will not have major impact on UK energy market this decade { US gas prices set to rise as market evolves, but cheap shale gas is here to stay Headlines.......................................29 Events............................................31 Ronan Murphy Editor Clean Energy Pipeline A division of VB/Research Ltd. Centaur Media plc WELLS POINT 79 Wells Street London, W1T 3QN +44 (0) 207 251 8000 (EMEA) +1 202 386 6715 (Americas) Managing Editor: Estelle Lloyd Editor: Ronan Murphy Production Editor: Tom Naylor Sales Director: Sonja van Linden Tol www.cleanenergypipeline.com Subscription enquiries: [email protected] Monthly Clean Energy Investment Analysis & News Report MONTHLY REVIEW www.cleanenergypipeline.com Image courtesy of ABB Group
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1
Successful solar inverter manufacturers have emerged as the most desirable
acquisition targets in the photovoltaic (PV) supply chain, as reflected by Switzerland-based power group ABB’s announcement in April that it has agreed to acquire US inverter maker Power One at a valuation of $1.03 billion.
The deal is the fifth largest M&A transaction announced in the entire clean energy space this year, and is the largest acquisition of a pure-play solar technology company since French oil giant Total bought a controlling stake in US solar cell, panel and system maker SunPower Corp for $1.37 billion in June 2011.
ABB said it aims to leverage Power One’s global business with its own operations to create the world’s largest supplier of PV inverters, a section of the market that has proven relatively resistant to the tide of bankruptcies and losses that have plagued solar module, cell and wafer makers over the past two years.
A recent IHS study showed that aggregate revenue in the global inverter market hit $7.1 billion in 2012, a 5% increase on the previous year.
SMA Solar, the current market leader, did report a 55% fall in consolidated net profit for 2012 due to solar subsidy cuts in Europe, but the key statistic in those results was that its net profit remained healthy at Eur75.1 million, a far cry from the enormous losses incurred by leading companies in other PV sub-sectors.
The Power One takeover is just one of several M&A deals launched in the inverter
sector this year. Colorado-based power conversion group Advanced Energy Industries paid Eur59 million ($76.6 million) to acquire German solar inverter maker REFUsol earlier in April, less than a month after SMA paid $37 million to acquire a 72.5% stake in Chinese counterpart Jiangsu Zeversolar New Energy.
The reason that inverter makers have become so prized is that an inverter is a genuinely specialised product that can play a crucial role in improving the bankability and long-term profitability of a solar farm, as opposed to a module, which has essentially become a commodity.
In a presentation at the launch of the Clean Energy Europe Finance Guide 2013 last month, SMA Solar Vice President of Sales Tomas Goetz said: “If you look at a PV plant today, you can pick between 10 and 15 Tier One modules and it’s justified to say modules are a commodity. You don’t get much of a difference whatever
ABB BetS Big On SOlAr inverter mArket with POwer One BUy
COntentSissue #14 may 2013
editorial review...............................1 { ABB bets big on solar inverter market with
Power One buy
Data..................................................3
interviews & Analysis.......................5 { Clean energy investment drops to new four-
year low in 1Q13
{ LifeCos and Japanese banks fill Canadian project finance gap left by retreat of European banks
{ Valuations for German onshore wind farms have risen to all-time high
{ Cleantech VC investor Electranova seeks additional corporate partners
{ Apex Wind Energy aims to add asset management to development activities
{ Balance sheet investors dominate Alberta wind energy financing
{ German offshore wind market opens up for UK cable provider JDR
{ OneRoof Energy set to close new equity round and solar leasing fund within 90 days
{ ‘eBay for solar’ company offers streamlined approach to project M&A
{ Bidder intends to ramp up Suntech’s Goodyear plant to 100 MW
{ Germany’s cash incentive for energy storage systems approved and awaiting final details
{ Likelihood of Crown Estate Round 4 hinges on CfD implementation
{ NREL to diversify funding base post-sequestration and focus on systems integration
{ US energy conversion start-up targets $10-15 million equity round
{ US waste heat company targets global acquisitions in bid for growth
{ Shale gas will not have major impact on UK energy market this decade
{ US gas prices set to rise as market evolves, but cheap shale gas is here to stay
headlines.......................................29
events............................................31
ronan murphy
Editor
Clean energy PipelineA division of VB/Research Ltd.Centaur Media plcWELLS POINT79 Wells StreetLondon, W1T 3QN
+44 (0) 207 251 8000 (EMEA)+1 202 386 6715 (Americas)
managing editor: Estelle Lloydeditor: Ronan MurphyProduction editor: Tom NaylorSales Director: Sonja van Linden Tol
www.cleanenergypipeline.com
Subscription enquiries: [email protected]
Monthly Clean Energy Investment Analysis & News Report
MoNthly REvIEwwww.cleanenergypipeline.com
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e co
urte
sy o
f AB
B G
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2
lowered industrial output and created a surplus of allowances in the market.
In that sense, the failure of backloading could be beneficial in that it may force European legislators to address the complete restructuring effort needed to make the ETS viable. However, this task will be made all the more difficult by the political message sent out by the vote, which indicates that European Union governments willing to sacrifice climate goals in favour of protecting industry now outnumber those who are not.
Siemens maintains offshore wind dominance as vestas suffers fresh crisis
German engineering group Siemens secured a 924 MW contract in April to supply offshore wind turbines to three projects in Germany, cementing the industrial group’s dominance of the European offshore wind market.
At the same time, its main European offshore wind rival, Denmark-based Vestas, appointed its third chief financial officer (CFO) in 18 months in a bid to reverse heavy financial losses.
The Siemens order comprised 154 offshore wind turbines that will be delivered to Danish utility DONG Energy for the Gode Wind projects on Germany’s coast, which are expected to be built out from 2015.
DONG acquired the development-stage wind farms from PNE Wind last year.
Siemens will supply its 6 MW turbine model to DONG for the Gode Wind projects. Last year, the two companies agreed a Eur2.5 billion deal for Siemens to deliver 300 of the same models to DONG’s UK projects between 2014 and 2017.
The scale of the new contract means Siemens is well-placed to maintain its position as the largest supplier of offshore wind turbines in Europe. It accounted for 58% of the 4,995 MW of offshore wind capacity installed in the continent’s waters as of the end of 2012, according to European Wind Energy Association data. Siemens’ turbines also represented 74% of the 1,166 MW brought online during 2012.
In direct contrast, Vestas, the world’s second-largest manufacturer of offshore wind turbines by installed volume, did not install any offshore turbines in Europe last year despite providing 28% of the continent’s overall capacity to date.
Vestas’s attempts to catch up with Siemens in the offshore space were hindered by the company’s wider financial difficulties, which were exacerbated in April when CFO Dag Andresen stood down due to personal reasons after less than a year in the role.
Andresen was immediately replaced by Marika Fredrikkson, formerly the CFO of car safety equipment giant Autoliv. She takes on the daunting task of reversing the fortunes of a company that announced a post-tax loss of Eur963 million in 2012, following a Eur166 million loss the previous year.
Falling demand in the global onshore wind market has forced Vestas into an extensive restructuring and downsizing of its workforce. Its offshore business has been impacted in the form of delays to its next-generation 7 MW turbine. It confirmed last year that the first prototype of this design is now expected to be installed in Denmark in 2014 instead of 2013.
By contrast, Siemens is already trialling its own next-generation 6 MW wind turbine. The design was first tested in 2011 and in January this year trials started at the Gunfleet Sands III demonstration wind farm in UK waters.
Ronan Murphy Editor
you choose. At the end of the day it’s the inverter that makes the difference between a producing power plant and a distressed asset.”
Carbon market vote leaves european Union clean energy policy in disarray
The European Parliament’s rejection in April of a plan to boost the ailing carbon Emissions Trading Scheme (ETS) leaves serious doubt over the programme’s future, and the ability of Brussels to drive investment in clean energy.
A proposal to ‘backload’ the imminent release of 900 million new carbon emissions allowances to the end of the decade was voted down by 334 to 315, causing the price of carbon to subsequently fall 50% to a record low of Eur2.55 per tonne.
Although dramatic, in real terms the price fall made no difference, as the price of carbon has already been too low to incentivise low carbon investment for months. The high of Eur30 per tonne reached in 2008 was in reality merely the base minimum required for the scheme to have a viable impact on industry.
The backloading proposal was always a measure that would have deferred addressing the main issue - that the recession impacting the Eurozone has
editorial review
3
Data
DAtAVC/PE, M&A, Project / Asset Finance and Public Markets transactions from Clean Energy Pipeline’s premium databases
venture Capital & Private equity79 transactions tracked totalling $641.5 million - top 20 transactions by value displayed here
mergers & Acquisitions65 transactions tracked totalling $6.5 billion - top 20 transactions by value displayed here
Date Company Deal stageDeal value (USD mm)
Sector
15/04/2013 Babcock & Wilcox Co. Grant & Government Funding 79.0 Energy Efficiency
20/04/2013 Hefei Golden Sun Energy Technology Co. Ltd. Minority / Partnership 68.9 Solar
29/04/2013 NSL Renewable Power Pvt Ltd. PE - Development Capital 60.0 Wind
30/04/2013 Tox Free Solutions Ltd. PIPE 44.4 Recycling & Waste
08/04/2013 Clean Power Finance Inc. VC - Late Stage (Series D+) 37.0 Solar
02/04/2013 Aquion Energy Inc. VC - Late Stage (Series D+) 35.0 Energy Storage
06/04/2013 Orient Green Power Co. Ltd PIPE 27.5 Biomass
26/04/2013 LDK Solar Co. Ltd. PIPE 25.8 Solar
18/04/2013 Enlighted Inc. VC - Early Growth (Series A to C) 20.0 Energy Efficiency
11/04/2013 Genomatica Inc. Minority / Partnership 20.0 Advanced Materials & Technologies
17/04/2013 County Waste of Virginia LLC VC - Early Growth (Series A to C) 15.0 Recycling & Waste
22/04/2013 Ostara Nutrient Recovery Technologies Inc. VC - Early Growth (Series A to C) 13.0 Water & Waste Water Treatment
11/04/2013 Quantance Inc. VC - Late Stage (Series D+) 12.0 Energy Storage
11/04/2013 Aspen Aerogels Inc. VC - Late Stage (Series D+) 12.0 Energy Efficiency
08/04/2013 Cooltech Applications SAS VC - Early Growth (Series A to C) 10.3 Energy Efficiency
09/04/2013 Ideol VC - Early Growth (Series A to C) 9.1 Wind
02/04/2013 Elemental Holding SA PE - Development Capital 8.6 Recycling & Waste
17/04/2013 Recresco Ltd. VC - Early Growth (Series A to C) 8.4 Recycling & Waste
09/04/2013 China Solar Energy Holdings Ltd. PIPE 7.7 Solar
03/04/2013 GreenBytes Inc. VC - Early Growth (Series A to C) 7.0 Energy Efficiency
Date target AcquirerDeal value (USD mm)
target Sector
18/04/2013 ista CVC Capital Partners Ltd 4,070.0 Energy Efficiency
22/04/2013 Power-One Inc. ABB Group 1,028.0 Energy Efficiency
24/04/2013 Synagro Technologies Inc. EQT Partners AB 455.0 Water & Waste Water Treatment
23/04/2013 RAE Systems, Inc. Honeywell International Inc. 340.0 Environmental Services & Remediation
19/04/2013 WKN AG PNE Wind AG 121.4 Wind
30/04/2013 Wanless Enviro Services Pty Ltd., Smart Skip Pt... Tox Free Solutions Ltd. 87.8 Recycling & Waste
09/04/2013 RefuSol GmbH Advanced Energy Industries Inc. 75.7 Solar
09/04/2013 Solar plants (28.1MW) - Cornwall, Hampshire, D... Lightsource Renewable Energy Ltd. 52.0 Solar
11/04/2013 Solar plant (6MW) - Bennungen, Saxony-Anhalt... Wattner AG 48.4 Solar
15/04/2013 Huadian Fuxin New Energy Co. Ltd Undisclosed 35.5 Wind
05/04/2013 Wind farm (34.5MW) - Tamil Nadu Tulip Renewable Powertech Private Ltd. 34.6 Wind
09/04/2013 Sun Light Planet Ltd. Cheerful Heart Holdings Ltd. 28.3 Advanced Materials & Technologies
16/04/2013 LDK Anhui Hefei High-Tech Construction and Investment... 19.2 Solar
15/04/2013 Solais Lighting Inc. PowerSecure International Inc. 15.0 Energy Efficiency
01/04/2013 Aquacue Inc. Badger Meter Inc. 14.0 Water & Waste Water Treatment
22/04/2013 Affineon Digital Lighting Evolucia Inc. 12.0 Energy Efficiency
22/04/2013 Tower manufacturing plant - Brandon Undisclosed 11.7 Wind
18/04/2013 Biodiesel plant - Kuantan Port Felda Global Ventures Holdings Bhd (FGV) 11.5 Biofuels
05/04/2013 Wind farm (33MW) - Rajasthan Violet Green Power Private Ltd. 9.6 Wind
30/04/2013 Auhua Clean Energy plc Byte Power Group Ltd. 6.2 Solar
4
Data
Project / Asset Finance120 completed transactions tracked totalling $6.0 billion - top 50 transactions by value displayed here
Date Project Financing typeDeal value (USD mm)
Sector
08/04/2013 Wind farm (250MW) - Buffalo Dunes Tax equity finance 370.0 Wind
03/04/2013 Wind farm (300MW) - Halkirk Pre construction debt 340.2 Wind
22/04/2013 Solar plant (128MW) - Brandenburg Equity finance 261.0 Solar
02/04/2013 Solar plant (50MW) - Broken Hill Construction debt 209.0 Solar
12/04/2013 Waste to energy plants - China Government guarantee / finance 200.0 Biomass
18/04/2013 Solar plant (100MW) - Gulang Phase II Construction debt 192.2 Solar
02/04/2013 Solar plant (150MW) - Haian Construction debt 189.6 Solar
24/04/2013 Solar plant (50MW) - Rajasthan (Godawari Green) Construction debt 129.0 Solar
09/04/2013 Wind farm (50MW) - FWEL-II (Foundation Wind Energy-II... Construction debt 126.7 WInd
08/04/2013 Solar plant (50MW) - Hainan Zhou Construction debt 117.0 Solar
30/04/2013 Solar Plant (44MW) - Touwsrivier Project debt 111.0 Solar
16/04/2013 Solar plant (50MW) - Ganbala, Chuxiong Yi Autonomous... Construction debt 110.0 Solar
08/04/2013 Biomass plant (19MW) - Beckton Equity finance 107.2 Biomass
25/04/2013 Solar plant (30MW) - Aura solar I Government guarantee / finance, Pre constru... 100.0 Solar
17/04/2013 Biomass plants - China Construction debt 100.0 Biomass
16/04/2013 Solar plant (50MW) - Gansu Nantan Construction debt 99.4 Solar
17/04/2013 Solar plant (50MW) - Gulang Phase I Construction debt 96.8 Solar
27/04/2013 Solar plants (30MW) - Sukhothai Construction debt 94.8 Solar
30/04/2013 Wind farm (45MW) - Yereimentau, Akmola Government guarantee / finance 94.0 Wind
23/04/2013 Wind farm (50.4MW) - La Guajira Phase II Government guarantee / finance 93.7 Wind
15/04/2013 Solar plant (57MW) - Nakhonpathom and Suphanburi Construction debt 85.0 Solar
04/04/2013 Wind farm (38MW) - El Candal Construction debt 82.5 Wind
23/04/2013 Solar plant (20MW) - Atwell Island Project debt 80.0 Solar
08/04/2013 Solar plant (26MW) - Borrego Springs Project debt 80.0 Solar
12/04/2013 Wind farm (49.5MW) - Shiziping Construction debt 78.8 Wind
04/04/2013 Wind farm (36MW) - El Segredal Construction debt 78.1 Wind
02/04/2013 Solar plant (33MW) - Rajasthan Construction debt 77.2 Solar
01/04/2013 Hydro plant (48MW) - San Bartolo Pre construction debt 76.7 Hydro
08/04/2013 Wind farm (48MW) - Lulong Construction debt 73.3 Wind
24/04/2013 Wind farm (49.5MW) - Bayannur Construction debt 71.6 Wind
09/04/2013 Solar plant (30MW) - Binhai New Area, Haian County, Jia... Construction debt 70.2 Solar
02/04/2013 Solar plants (22MW) - Tulare Pre construction debt 70.2 Solar
02/04/2013 Solar plants - Tuticorin, China. Construction debt 69.0 Solar
07/04/2013 Wind farm (49.5MW) - Zijingshan Construction debt 67.9 Wind
15/04/2013 Wind farm (54MW) - Jaisalmer Construction debt 65.7 Wind
30/04/2013 Electricidade dos Açores 2011-2016 investment prog... Government guarantee / finance 65.1 Geothermal
02/04/2013 Solar plant (27MW) - M&B Switchgears Ltd Construction debt 63.2 Solar
09/04/2013 Wind farm (48MW) - Bijiashan, Jiangsi Pre construction debt 63.1 WInd
02/04/2013 Solar plant (30MW) - Laoying Yan Construction debt 61.5 Solar
11/04/2013 Solar plant (18MW) - Foothills Phase II Equity finance 57.4 Solar
11/04/2013 Solar plant (100MW) - Helios 1 and 2 Government guarantee / finance 55.3 Solar
16/04/2013 Solar plant (17MW) - Foothills Phase I Equity finance 54.2 Solar
17/04/2013 Solar plant (14MW) - El Salvador Government guarantee / finance 51.0 Solar
11/04/2013 Solar plant (16MW) - Davis-Monthan Air Force Base Government guarantee / finance, Pre constru... 51.0 Solar
16/04/2013 Wind farm (32MW) - Zhumadian, Henan Construction debt 48.0 Wind
23/04/2013 Wind farm (25.2MW) - La Guajira Phase I Government guarantee / finance, Pre constru... 46.9 Wind
17/04/2013 Solar plant (20MW) - Liuyuan Phase I Construction debt 46.8 Solar
02/04/2013 Solar plant (20MW) - Zoucheng Construction debt 46.8 Solar
27/04/2013 Wind farm (22MW) - Bieshan Construction debt 40.1 Wind
25/04/2013 Solar plant (20MW) - Uqturpan (Wushen) Longbai Construction debt 40.1 Solar
Public markets
Date issuer issue typeProceeds
(USD mm)Sector
23/04/2013 Alupar Investimento S.A. IPO 421.0 Energy Efficiency
16/04/2013 Biosev IPO 406.0 Biofuels
5
CleAn energy inveStment DrOPS tO new FOUr-yeAr lOw in 1Q13
Ronan Murphy
Investment in global clean energy fell to $46.1 billion in 1Q 2013, the lowest quarterly level since 2Q 2009, according to a preliminary data analysis released by Clean Energy Pipeline.
Total investment declined 35% sequentially from the $70.7 billion recorded in 4Q12 and 31% from $66.6 billion invested a year ago in 1Q12.
The decrease was attributable to a massive drop of more than 50% in clean energy project finance caused by an abrupt slowdown of activity in the US and South Africa.
US investment in wind energy, the country’s largest renewable power sector, fell from a record $5.8 billion in 4Q12 to $1.6 billion in 1Q13, the lowest quarterly volume recorded in the past four years. The dip was caused by Congress’s delayed renewal of the wind energy production tax credit (PTC), which caused developers to rush projects to financial close in the fourth quarter in fear of the incentive expiring on December 31.
Although the PTC was eventually renewed, the delay meant very few projects were sufficiently advanced to close financing in 1Q12. The uncertainty surrounding the PTC last year means that investment in wind projects is likely to remain depressed in 2Q13. Developers may bring projects closer to construction in 3Q and 4Q, but the sector is likely to record far less investment this year than last.
Project finance levels in the fourth quarter of 2012 were also heavily boosted by the first round of South Africa’s renewable energy tender, under which 28 projects totalling $5.7 billion reached financial close.
The second South African tender, which is estimated to represent $3.3 billion of investment, was originally slated to take place in 1Q13, but has been delayed to this summer at the earliest, leaving a gaping hole in global investment levels.
“At the end of last year a rush to finance US wind energy projects before the expected
from 4Q12 to $1.67 billion. Although the figure was 27% less than the $2.31 billion invested in 1Q12, it was still the first quarter-on-quarter increase since 3Q11.
The main driver for VC/PE activity was the biofuel sector, which received $319 million, or 19% of all investment. This is the first time that biofuel received the most VC/PE investment of any cleantech sector in a single quarter, and was attributable to a $292 million investment in January by Brazilian development bank BNDES in ethanol developer GraalBio (now known as GranBio).
Public market activity fell to a new four-year low of $586 million in 1Q13, despite two major deals in the form of US smart grid company Silver Spring Networks’ $93 million flotation on the New York Stock Exchange and UK wind energy investment fund Greencoat UK Wind’s $394 million offering on the London Stock Exchange.
The continued decline in spite of these deals was due to a virtual cessation of Chinese clean energy public market transactions, which is a role reversal from recent years, when Asia has propped up clean energy public market figures hit by a virtual freeze on European and North American activity. ■
expiration of the PTC and the closure of $5.7 billion financing for the first round of South African renewable energy projects artificially boosted investment volumes,” said Douglas Lloyd, Chief Executive Officer of Clean Energy Pipeline. “It was always going to be difficult to match this level of activity, particularly in the first quarter of the year.
“However, this sharp quarterly decline is not a one off. Total new investment has now fallen from a quarterly high of $88.3 billion in 4Q10 to $46 billion in 1Q13. Given ongoing subsidy cuts, low natural gas prices in North America and fragile capital markets, it’s hard to predict a reversal of this trend in the coming year.”
Global clean energy M&A activity tumbled to $11 billion in 1Q13, almost half the $20.8 billion recorded in 4Q12 and the $21.7 billion tracked in the corresponding period of 2012. The decrease was caused by an absence of large deals, with only three exceeding $500 million taking place during the quarter. Those transactions were valued at a combined total of $1.7 billion, significantly less than the $12.3 billion worth of similarly sized deals announced in 4Q12.
Clean energy venture capital and private equity (VC/PE) investment was the one industry bright spot in 1Q13, rising 1%
interviews & Analysis
total new Clean energy investment – 1Q09 to 1Q13
Source: Clean Energy Pipeline / VB/Research Ltd.
StAtiStiCS AnD trenDS
1Q13
4Q12
3Q12
2Q12
1Q12
4Q11
3Q11
2Q11
1Q11
4Q10
3Q10
2Q10
1Q10
4Q09
3Q09
2Q09
1Q09
Small-scale project investmentProject & asset finance
Venture capital & private equity (excluding buyouts) Public markets
0
20
40
60
80
100
Dea
l val
ue ($
bill
ion)
4-QUARTER MOVINGAVERAGE
6
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7
liFeCOS AnD JAPAneSe BAnkS Fill CAnADiAn PrOJeCt FinAnCe gAP leFt By retreAt OF eUrOPeAn BAnkS
Ronan Murphy
The renewable energy project finance market in Canada has remained buoyant despite a retreat from European banks thanks to increased participation from Japanese lenders and Canadian life insurance companies (LifeCos), according to a new quarterly report by KPMG and Clean Energy Pipeline.
European banks have lowered their exposure to Canadian renewables as a result of their overall lending capacity being impacted by the ongoing sovereign debt crisis in the Eurozone and the imposition of new financing regulations such as Basel III.
Japanese financial institutions increased their lending to renewable energy projects worldwide last year. Sumitomo Mitsui Banking Corp, Bank of Tokyo-Mitsubishi UFJ and Mizuho Corporate Bank were all in the top six debt providers for number of deals in Clean Energy Pipeline’s league table for renewable energy project financing in 2013.
These banks all raised their exposure to the Canadian market in 2012 and 2013, attracted by Canada’s continuing political stability and strong economy. Notable project finance deals supported by Japanese debt include the $700 million financing of Pattern Energy’s 270 MW South Kent wind farm in Ontario in March 2013; the $282 million financing of the British Columbia-based 99 MW Cape Scott wind farm in December 2012; the $300 million financing of Invenergy LLC’s 156 MW Des Moulins wind farm in Quebec in the same month; and the C$227 million financing in July 2012 of a 60 MW solar portfolio in Ontario owned by Northland Power.
Speaking in an interview for the report, Paul Bradley, Chief Financial Officer of Northland Power, told Clean Energy Pipeline: “The state of the project finance market is excellent for good projects. On the bank side a number of well structured renewable energy projects are still getting long-tenor money. The European banks have pulled away which left a bit of a void in the long
interviews & Analysis
tenor market but this has been picked up by the life companies and the Japanese banks have stepped up.
“Long-term money is certainly still out there. For example we just closed a C$227 million financing for our first six solar projects and we got an 18-year tenor from Union Bank, Bank Mizuho and CIT. It was harder to get but we got it none the less. There is a bit of a loss of financing capacity in the market but it’s only the very marginal projects that have lost out.”
Another increasingly prominent source of project finance for clean energy projects in Canada is Canadian life insurance (LifeCos) companies looking for long-term, predictable assets which they can lend to.
Michael Bernstein, President and Chief Executive Officer of Capstone Infrastructure, an investor in Canadian clean energy projects, explained that the LifeCos bolster the markets for financing of clean energy projects in Canada through private placements, and also offer the opportunity for increased participation from Canadian commercial banks.
“We have a pretty deep private placement market in the form of both underwriters who will go to smaller institutions to do either a rated or unrated 18-20 year (or even longer) bond placement, or the traditional Canadian LifeCos, such as Canada Life, Manulife and Sunlife, who were amongst the very first investors in renewable energy infrastructure,” he said. “Financing is still available through these avenues.
“Some of the Canadian banks are stepping up to a certain degree although these tend
to be the mini-perm structures with the idea that the take out is with the LifeCos or with a privately placed debt issuance.”
While LifeCos will invest in wind and solar projects, it is hydro that fits best with their desire for extremely long-term assets. Power purchase agreements for hydro facilities can be up to 40 years.
Jean Trudel, Chief Investment Officer of Canadian power producer Inngergex Energy, said: “[Hydro} is not a banking market but more of a life insurance company market. The last financing we closed in July 2012 was for an under-construction stage hydro facility where we got 39-year money at just over 5%, which was very compelling. Canadian bonds are so low right now that the all in rates are very attractive.”
Georges Arbache, Vice President, Global Power & Utilities, Transactions and Restructuring, at KPMG, stated that the amount of financing available per deal under private placements involving Canadian LifeCos is generally subject to a soft cap of $450-$500 million.
“With an attractive low rate environment, developers are rushing to secure favourable long-term financing structures, primarily filled by Life Insurance Company private placement solutions,” he said.
“While other options exist, non-Canadian LifeCo’s tend to be materially more expensive. Japanese Banks can be an option, however we rarely see more than 15-year debt being offered at wider spreads. That said, rated long-term bond solutions are becoming available, which may reduce some of the shortfall with tighter pricing.” ■
PrOJeCt FinAnCe
global Project / Asset Finance by Quarter and region – 1Q09 to 1Q13
Source: Clean Energy Pipeline / VB/Research Ltd.
1Q13
4Q12
3Q12
2Q12
1Q12
4Q11
3Q11
2Q11
1Q11
4Q10
3Q10
2Q10
1Q10
4Q09
3Q09
2Q09
1Q09
0
10
20
30
40
50
60
Asia PacificEurope North America Rest of the World Number of deals
Dea
l val
ue ($
bill
ion) N
umb
er of d
eals
0
100
200
300
400
500
600
8
vAlUAtiOnS FOr germAn OnShOre winD FArmS hAve riSen tO All-time high
Ronan Murphy
Valuations of onshore wind projects in Germany have risen to an “all-time high” due to increased appetite from municipal utilities and investors seeking a safe haven from volatility in other European markets, according to a leading investor in the sector.
Michael Ebner, Head of Infrastructure at investment firm KGAL GmbH, told Clean Energy Pipeline: “Prices of renewable energy projects are going up to all-time high levels. In the wind sector, where feed-in tariffs are relatively stable, prices have increased by 10%-15% during the past two years.”
Mergers and acquisitions (M&A) in the German wind farm sector increased significantly in 2012, with 27 German wind projects acquired for a total of $1.6 billion, a significant increase on the 19 projects totalling $971 million transacted in 2011, according to Clean Energy Pipeline data.
A Clean Energy Pipeline survey of more than 200 senior executives active in the German renewable sector concluded that operational onshore wind farms are currently being sold at between Eur1.5 million and Eur2.2 million per megawatt, depending on the characteristics of the location.
One of the main sources of demand that is driving up prices for clean energy projects, most notably onshore wind and solar farms, is the need for municipal utilities to acquire new generation assets to replace the coal and nuclear plants that are coming offline in Germany over the next two decades.
Baden-Wuerttemberg-based utility EnBW said in 2011 that it would invest Eur8 billion in clean power through to 2020 and closed a Eur822 million capital increase in June 2012 to achieve this goal.
Mannheim-based MVV Energie has committed to invest Eur3 billion by 2020 in renewable energy, efficient cogeneration of power and heat, and the maintenance and modernisation of existing power plants and grid infrastructure.
Bavarian utility Stadtwerke Muenchen aims to power the entire city of Munich
from renewable sources by 2025 and has earmarked a budget of Eur9 billion to do so.
The appetite for renewables among municipal utilities is more urgent than their large national counterparts such as RWE and E.ON, due in part to the fact that the major players are more advanced in building out their own renewable capacity.
Another major factor is that national players are not under as much pressure to meet political clean energy targets as utilities that are owned by federal states. EnBW, for example, is 46.55% indirectly owned by the federal state of Baden-Wuerttemberg, which is currently governed by a coalition between the Green Party and the Social Democrats.
“Utilities are one of the major acquirers of renewable energy assets,” said Ebner. “It’s not the big four German utilities such as E.ON and RWE, but the smaller municipality-owned utilities. They are very keen right now to acquire onshore wind and solar photovoltaic (PV) assets in Germany and even abroad. Their appetite has definitely increased in the past two years. There are political reasons for this as their owners want them to offer renewable energy to clients. The Munich utility for example has set a goal that 100% of its electricity will be produced by renewable sources by 2025. So they have to acquire.”
The municipal utilities face an array of other new entrants seeking to acquire German onshore wind farms. Due to a strong economy, stable feed-in tariff and steady financial support from state bank KfW, Germany remains a safe haven for investors fleeing from other European markets, which are enduring economic and regulatory pressures.
For long-term, low-risk institutional investors in particular, onshore wind assets are preferred ahead of every other renewable energy asset – 78% of respondents in a Clean Energy Pipeline survey of more than 200 industry executives said they believe that operational German onshore wind projects are attractive to long-term, low-risk institutional investors rather than operational solar PV (70%) and offshore wind projects (61%).
David Jones, Head of Renewables at Allianz Capital Partners, an investment unit of insurance giant Allianz, told Clean Energy Pipeline: “There is a lot of competition in German onshore wind M&A as new entrants have come to the market that were not there a few years ago. This includes municipal utilities, Swiss utilities, retail funds and also a lot of international investors such as ourselves.
“Appetite to acquire German onshore wind farms is currently very high. This is in part driven by a retreat to safety from the more peripheral countries in Europe. It is definitely a sellers’ market at moment. Prices are going up and returns are going down.”
The sheer demand for German onshore wind farms means that traditional developers are dominating the sellers’ market, with most utilities and investors disinclined to sell stable, long-term revenue-generating assets, according to Jones.
“There are some secondary sales by utilities and funds that are looking for liquidity, but the main sellers of onshore wind farms in Germany are still the developers,” he said. ■
interviews & Analysis
m&A to what extent do you agree that the following german assets are attractive to long term low risk investors?
Operating offshore wind projects
Operating utility-scale solar PV projects
Portfolios of operating small scale solar PV projects
Operating onshore wind projects
22%
15%
19%
13% 49% 30% 9%
51% 23% 8%
57%
56% 24% 6%
19% 3%
Strongly agree Agree Disagree Strongly disagree
Source: Clean Energy Pipeline / VB/Research Ltd.
9
ventUre CAPitAl
CleAnteCh vC inveStOr eleCtrAnOvA SeekS ADDitiOnAl COrPOrAte PArtnerS
Rob Lavine
Cleantech venture capital (VC) fund Electranova Capital is seeking additional corporate investors to enhance its strategic focus, Partner Nicolas Chaudron told Clean Energy Pipeline.
The France-based fund was launched in May last year with contributions of Eur30 million from French utility EDF and Eur10 million from German insurance giant Allianz. It aims to invest in new energy and environmental technologies and is managed by IdInvest Partners, a French private equity firm with more than Eur3 billion under management, for which Chaudron has overseen cleantech investments since 2006.
Chaudron said Electranova is seeking additional investors, and is currently in talks with “a couple” of prospective partners. It is focusing on corporates from different parts of the cleantech sector, and the economic barrier to entry is relatively low.
“For financial investors, it starts at Eur2 million,” he said. “But for corporate investors, since we are looking at one or two additional players, the number of spots is limited but the size is higher; it starts at Eur10 million.”
Electranova is particularly looking for investors able to bring a strategic element along with their financial contribution. Allianz’s investment forms part of its greater asset management activities but for EDF, the financial value of the venture is outweighed by the strategic aspect of being able to gain access to current cleantech innovation, and to source better technologies for its own business units.
“Allianz are not [making] direct investments in venture capital so this is a kind of investment strategy that they cannot develop internally,” Chaudron said. “The conviction of EDF is that they need to partner with a venture capital firm because they obviously have the industry knowledge, but they have less experience in dealing with investment cycles, particularly with start-ups.
“This is what they were seeking in IdInvest Partners. We have one of the best track records in venture capital in Europe in general and we have some experience in cleantech as well.”
IdInvest manages the investments of Electranova independently of its corporate partners, Chaudron said, but is open to feedback from EDF, and the two companies work closely on identifying new trends and prospective areas for growth within cleantech. Typically, EDF’s contributions to the fund generally come in three stages.
“The first one is that EDF brings us some additional deal flow, particularly outside of
Europe,” Chaudron explained. “They have people in the US and they have people in Asia. Number two: they bring industrial and technical expertise when we evaluate those investment opportunities. EDF has 2,000 R&D people, which means that there is almost always an expert within EDF about [each] specific technology and we get unlimited access to those resources.
“Point three [is], after we invest in a company we can open doors for it within EDF. Obviously there is no obligation for an EDF business unit to become a customer of a portfolio company if it doesn’t make sense for the business unit but when it makes sense we have the ability to accelerate the business relationship.”
Electranova aims to make four or five new investments each year. Typically, it will invest Eur2-5 million in the first round in which it participates, and then double that amount over the lifetime of each portfolio company. It is stage-agnostic, and has so far backed France-based smart grid technology provider Actility and Seatower, a Norwegian designer of foundations for offshore wind installations.
Chaudron said that the European cleantech VC sector differs from its American counterpart in the sense that, despite there being a sense of disillusionment hanging around cleantech investment in both regions, Europe is ►
interviews & Analysis
Obviously we were affected by the solar crisis and we lost money there but at the same time, in those days we were working on some exits in renewable energy companies as well, and with the kind of returns you expect from venture capital.
“
”
10
probably in less of a downturn right now because the hype around cleantech was less pronounced in the boom years, due to the European VC sector being less prone to hype cycles in general.
The decline of the European solar equipment industry over the last 18 months has impacted IdInvest, causing Odersun, one of its portfolio companies, to go bankrupt. Despite this, the wide range of industries covered by cleantech means that a firm with a diversified portfolio like IdInvest is unlikely to be hit too deeply by a failure in any single sector.
“So far this is actually the only bankruptcy in one of our cleantech portfolio companies,” said Chaudron. “Obviously we were affected by the solar crisis and we lost money there but at the same time, in those days we were working on some exits in renewable energy companies as well, and with the kind of returns you expect from venture capital.
“We build a portfolio [and] there are going to be winners and there are going to be some losers as well,” he added. “One of
interviews & Analysis
global venture Capital and Private equity investment - 1Q09 to 1Q13
Source: Clean Energy Pipeline / VB/Research Ltd.
100
50
0
150
200
250
300
0
1
2
3
4
5
6
PE - DevelopmentCapital
VC - Late Stage(Series D+)
VC - Early Growth(Series A to C)
1Q13
4Q12
3Q12
2Q12
1Q12
4Q11
3Q11
2Q11
1Q11
4Q10
3Q10
2Q10
1Q10
4Q09
3Q09
2Q09
1Q09
Number ofdeals
Dea
l val
ue ($
bill
ion) N
umb
er of d
ealsTBLI CONFERENCE™ USA 2013
“Rethink the past and move on”
In existence for over 15 years, TBLI CONFERENCE consists of two annual conferences. These two-day events are the prime annual global networking and learning event on Environmental, Social and Governance (ESG) and Impact Investing.
WHAT TO EXPECTMeet 350+ finance professionals on ESG and Impact Investing. Learn about recent developments in 16 Workshops and 2 Round tables. Find new business partners, Free mobile app networking platform.
Register Now: bit.ly/tbliconferenceusa2013
PROGRAM FEATURESOpening Keynote Speaker: Paul Rose - Vice President of the Royal Geographical Society, Explorer and Broadcaster.
Roundtable 1 - "Sandy, Climate Change and Impact Investing"Roundtable 2 - "Measurement of ESG and Impact Investing"
16 Workshops on Integrating ESG in Portfolios, Sustainable Forestry, Wealth Management, Microfinance, Green Building, Intergrated Reporting, and more...
Grand Dinner with two high-level keynote speakers, maximum 200 guests.
BECOME A SPONSORAre you interested in promoting your organization at TBLI CONFERENCE? Sponsor levelsstart at $ 5,000 and offer free passes, Grand Dinner invitations and exposure of your organization. For more information contact Frank Stevens at [email protected].
BECOME A SPEAKERThe provisional program is now online. Are you interested in speaking in one of the workshops? More information at www.tbliconference.com.
FIND OUT MORE ABOUT TBLISee who sponsored or visit www.tbliconference.com for the program. Also visitwww.tbligroup.com and learn more about other services of TBLI.
www.tbliconference.com
“The World will benefit when economy supports well-being”
the advantages, and one of the challenges of cleantech, is that cleantech is not an industry, it’s more a theme that [has] different versions in each of the industries you play.
“So you can get cleantech in the energy industry, in the building industry, in the transportation industry, and we [see] opportunities in each of those sectors today.” ■
11
TBLI CONFERENCE™ USA 2013
“Rethink the past and move on”
In existence for over 15 years, TBLI CONFERENCE consists of two annual conferences. These two-day events are the prime annual global networking and learning event on Environmental, Social and Governance (ESG) and Impact Investing.
WHAT TO EXPECTMeet 350+ finance professionals on ESG and Impact Investing. Learn about recent developments in 16 Workshops and 2 Round tables. Find new business partners, Free mobile app networking platform.
Register Now: bit.ly/tbliconferenceusa2013
PROGRAM FEATURESOpening Keynote Speaker: Paul Rose - Vice President of the Royal Geographical Society, Explorer and Broadcaster.
Roundtable 1 - "Sandy, Climate Change and Impact Investing"Roundtable 2 - "Measurement of ESG and Impact Investing"
16 Workshops on Integrating ESG in Portfolios, Sustainable Forestry, Wealth Management, Microfinance, Green Building, Intergrated Reporting, and more...
Grand Dinner with two high-level keynote speakers, maximum 200 guests.
BECOME A SPONSORAre you interested in promoting your organization at TBLI CONFERENCE? Sponsor levelsstart at $ 5,000 and offer free passes, Grand Dinner invitations and exposure of your organization. For more information contact Frank Stevens at [email protected].
BECOME A SPEAKERThe provisional program is now online. Are you interested in speaking in one of the workshops? More information at www.tbliconference.com.
FIND OUT MORE ABOUT TBLISee who sponsored or visit www.tbliconference.com for the program. Also visitwww.tbligroup.com and learn more about other services of TBLI.
www.tbliconference.com
“The World will benefit when economy supports well-being”
12
APex winD energy AimS tO ADD ASSet mAnAgement tO DevelOPment ACtivitieS
Rob Lavine
Virginia-based wind energy developer Apex Wind Energy plans to add asset management to its range of services, President and Chief Operating Officer Mark Goodwin told Clean Energy Pipeline.
Founded in 2009, Apex Wind acquires projects in the early stages of development before bringing them through construction and selling them on to operators. Typical of this approach is the 300 MW Canadian Hills project, which Apex completed in January having negotiated its sale eight months earlier to Atlantic Power Corporation, which provided $310 million in construction financing.
“It is relatively common for a developer such as ourselves to structure a deal, as we did with Canadian Hills, where we would sell a project either before or at close of construction finance,” Goodwin said. “In some cases we would continue to be the construction manager and finish development on a development services agreement through COD [commercial operation date].
“We’re thinking, long term, that Apex would evolve into a company that perhaps takes larger minority stakes in our projects and not only manages construction but also does asset management of a project on behalf of more financial-type investors. That may be possible in the short term, but I think a majority of the projects we’re working on right now have a structure similar to [Canadian Hills].”
Apex’s model has generally relied on it purchasing batches of development projects, such as the 500 MW of potential capacity acquired from IPA Wind Development last year. However, Goodwin confirmed that the developer is considering boosting its asset management portfolio through the acquisition of operational projects, and is assessing how the cash generation component of operational wind farms would fit into its business model.
“We would contemplate that [but] we would probably need an investor or a partner,” he said. “If we evolved down that
path we would have to keep in mind the financing structures and policies that are in place, including the PTC (Production Tax Credit) component.”
Apex has several wind projects ready to enter construction in the next year, Goodwin said, though some, particularly in Texas, still need to secure power purchase agreements (PPAs) through requests for proposals (RFPs). The developer is currently in bilateral talks concerning PPAs for other parts of its portfolio, and aims to scale up activity to three large-scale projects each year.
“Right now I think we’re carrying a pipeline of 5-6 GW and I would be optimistic that we’ll be successful in one, two, possibly three large projects a year pending policy,” Goodwin stated. “With consistent policy, maybe there’s not a skipped year – 2013 is probably a skipped year because the [PTC] extension came so late – so I would be very happy with 200-600 MW in a given year.”
The one-year extension of the PTC, seen as instrumental in the growth of wind energy installations in the US, came late but its renewal at the end of 2012 is still seen as a positive. Goodwin said that, despite inefficiencies and problems with the PTC, Apex still views it as a largely successful instrument.
“We have a number of projects that do very well with the way the PTC works - high-capacity-factor projects that bring a lot of PTCs to them,” Goodwin said, adding that Apex hopes for the introduction of additional financial structures for wind development, particularly Master Limited Partnerships (MLPs), which are already available to fossil fuel projects. A bill to make MLPs accessible to renewable developers was introduced in 2012 but is yet to become law.
“It’s a retail capital raising structure that would come in at project level and allow a company like Apex to raise equity for a specific project at a very competitive cost of capital,” said Goodwin. “It would also be helpful to the model where Apex is managing projects on behalf of those MLPs.”
In addition to targeting PPAs for its development portfolio, Apex is also seeking capital, Goodwin stated.
“In the immediate side of things, we have a very strong portfolio of late-stage projects and so the type of capital we’re looking for is for filling in the capital requirements of a late-stage project,” he said. “So the type and size of capital are along the lines that we would use at a project level for PPA security, interconnects, turbine deposits,” he added. “It’s in line with finding the right sponsors for these late-stage projects.”
Apex is also one of the few US-based developers actively exploring offshore wind, which Goodwin said it views as part of a long-term vision, but is concentrating on onshore wind for the time being.
Offshore would fit in with a development strategy that has seen Apex concentrate on large-scale projects, a preference that Goodwin said was partly driven by a focus on high-voltage grid connections where there is good transmission capacity.
“We also like the economies of scale in a larger project size,” he explained. “For a development company it’s almost as hard in some cases to develop a project that is 50 MW as it is to develop one that is 300 MW, so there’s obviously more bang for your buck to do a larger project.
“We started Apex in 2009 and we have been rolling up early and mid-stage development assets during that time and continue to do that, so we haven’t excluded certain regions where the project sizes are smaller, such as the mid-Atlantic or New England.
“We know we can’t do as big a project [in those markets] but we think of them as potentially a stronger power marketing environment where we can build successful projects as well,” he added. “It’s a balance but I think it’s correct to suggest that we lean toward larger projects.” ■
interviews & Analysis
T O R O N T O 20 3
COME AND NETWORK AT CANADA’S LARGEST
WIND ENERGY CONFERENCE
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CANADIAN WIND ENERGY ASSOCIATIONANNUAL CONFERENCE & EXHIBITIONTORONTO, ONTARIO | OCTOBER 7–10, 2013
This premier event will bring together over 2,500 experts from around the world to discuss opportunities in Canada’s growing wind energy industry. It will provide an exclusive opportunity to network and generate new business leads.
canwea-conf13-ad-CEP-1pg-print-v1.pdf 1 13-04-29 3:27 PM
winD
For a development company it’s almost as hard in some cases to develop a project that is 50 MW as it is to develop one that is 300 MW.
“”
13
T O R O N T O 20 3
COME AND NETWORK AT CANADA’S LARGEST
WIND ENERGY CONFERENCE
www.canwea2013.ca
CANADIAN WIND ENERGY ASSOCIATIONANNUAL CONFERENCE & EXHIBITIONTORONTO, ONTARIO | OCTOBER 7–10, 2013
This premier event will bring together over 2,500 experts from around the world to discuss opportunities in Canada’s growing wind energy industry. It will provide an exclusive opportunity to network and generate new business leads.
canwea-conf13-ad-CEP-1pg-print-v1.pdf 1 13-04-29 3:27 PM
14
BAlAnCe Sheet inveStOrS DOminAte AlBertA winD energy FinAnCing
Ronan Murphy
Power companies that finance projects from their balance sheets are the primary source of investment for wind farms in Alberta, according to Dan Balaban, Chief Executive Officer of developer Greengate Power.
Greengate announced in April that it sold the 300 MW Blackspring Ridge wind farm in Vulcan County, Alberta, to EDF EN Canada Inc. and Enbridge Inc., both of which will own 50% stakes in the project.
Balaban told Clean Energy Pipeline that Blackspring Ridge, which is expected to cost about C$600 million ($593.37 million), will now be financed from the buyers’ balance sheets.
“We worked hard on financing the project but ultimately the sale made more economic sense,” he said. “The execution complexity was far lower than putting the financing together.”
Blackspring Ridge will be Alberta’s largest wind farm once it is operational. Greengate also developed the biggest existing wind farm in the province, the 150 MW Halkirk Wind project, which was sold to energy group Capital Power in June 2011. Capital Power subsequently financed the Halkirk Wind Project from its balance sheet.
Alberta is the only deregulated energy market in Canada, which means power producers cannot sign conventional power purchase agreement (PPA) contracts with utilities. Instead, all energy is sold on the merchant market, which would traditionally
put wind at a cost disadvantage compared to fossil fuels.
For Blackspring Ridge, Greengate negated that merchant risk by signing a separate 20-year PPA for the sale of renewable energy credits generated by the project to Californian utility Pacific Gas & Electric (PGE). The additional revenue provided by the renewable energy credit sales makes the project more economically viable.
“We mitigated the merchant power aspect through the renewable energy credit PPA with PG&E, but there is still a merchant element and that is where a balance sheet player is handy, because financing for a merchant project is very complicated,” said Balaban, who emphasised that despite the complexity, it is still possible to secure project debt financing from a mixture of Canadian, US and European banks.
Balaban explained that the prevalence of balance sheet financiers for wind farms in Alberta is a consequence of the province’s vast oil and gas reserves, which mean it is home to energy groups with significant capital resources and an urgent demand for power to support their extraction activities.
“Alberta is the energy centre of Canada,” he said. “It is home to a lot of large energy companies and the power sector tends to be dominated by strategics like Enbridge and Capital Power. They are already familiar with the Alberta energy market and have home-field advantage.
“The other thing is that these wind farms are very large projects. Balance sheet players tend to have the capacity to do them.”
Power demand is growing by more than 3% per year in Alberta and is forecast to
continue doing so for the next 20 years. The province is heavily reliant on an ageing fleet of coal power stations that are scheduled to be retired on a mass scale over the next several years, which will create a gap that needs to be filled by multiple forms of energy generation.
Balaban is hopeful that Alberta could introduce new legislation to encourage energy groups to invest in renewable energy to offset the environmental cost of their fossil fuel activities. Extraction of oil from Alberta’s tar sands is a vital pillar of the province’s economic ambitions going forward but has been heavily criticised by environmental groups for its impact on global greenhouse gas emissions and the local landscape.
The impact of tar sands oil extraction could be offset to a certain extent if more renewable power was introduced into the mix that serves these energy-intensive operations.
“Every barrel of oil we produce requires additional power to be brought online,” said Balaban. “Right now that is mostly served by dirty coal facilities, so we have a dual problem of emissions from the oil sands and emissions from the power required to support production of oil.
“I have been advocating for Alberta to implement a clean electricity standard that would require a power product to be of a certain emissions intensity. That would allow PPAs to be issued that would encourage additional wind development based on provincial policy rather than outside jurisdiction.”
Greengate still has six projects totalling 850 MW under development in Alberta. Three are in the advanced stages and are now the company’s main priority: The 150 MW Paintearth project, the 150 MW Sterling Wind project and the 150 MW Wheatland Wind project.
All three of these wind farms are either adjacent or close to existing wind farms, which means the cost of grid connections is lower and the sites have proven to be viable in terms of wind generation and construction viability.
Balaban said the earliest any of the three wind farms will start construction is 2014. As with its previous projects, the company will pursue project financing but is also prepared to sell before construction begins. ■
interviews & Analysis
15
germAn OFFShOre winD mArket OPenS UP FOr Uk CABle PrOviDer JDr
Ronan Murphy
Germany’s offshore wind sector has emerged as a viable market for UK-based subsea transmission cable supplier JDR, the company’s Chief Executive Officer Andrew Norman told Clean Energy Pipeline.
JDR, which was the cable supplier for a series of major UK offshore wind farms such as London Array and Greater Gabbard, won its first German offshore wind contract in September 2012, when WindMW GmBH agreed to buy cables from the company for the 288 MW Meerwind project in the German North Sea.
German offshore wind, which JDR had previously considered to be not a viable market due to the dominance of German supply chain companies, is now an integral part of the company’s strategy, Norman said. This is due to a lull in UK development between the end of the Crown Estate’s Round 2 build-out and the anticipated start of Round 3 in 2014/15.
“We are actively pursuing German projects between Round 2 and 3,” Norman said. “It is a slightly different market in terms of the contractual norms, which are very stringent. They are very rigorous in terms of their supplier selection.
“They are more comfortable with German suppliers working around them, so we were very pleased to have broken into that market and I think we did that because we have the track record, we’ve got the technology and we’ve got the experience.”
JDR was brought into the Meerwind project relatively late in development. Cable suppliers are usually involved in a project right from the beginning, but JDR was contracted to supply Meerwind one year after the wind farm reached financial close in April 2011.
“We were brought in fairly late in that contract process but were able to ramp up and respond very quickly, from an engineering, contract negotiation and capacity point of view,” said Norman.
“The project was very much financially driven. There was a set of investors that
knew what they wanted to do. They knew what they wanted it to cost and they knew the window they needed to get it done to make a return. I think what they figured out was that the suppliers they had originally spoken to could not get them there. The driver for bringing us in was the commercial success of the project.”
JDR has a letter of intent in place for a second German offshore wind project and hopes to finalise the agreement imminently.
While Germany presents a valuable opportunity for JDR, Norman stressed that the company is well advanced in its preparation for UK Round 3, which represents the potential development of 25 GW of offshore wind capacity. JDR is confident that Round 3 projects are on course to come online from 2016/17 onwards, which would mean supply chain orders could start to be made from 2014 onwards.
“We are actively qualifying and developing the products for Round 3 in cooperation with the operators and engineering companies that will develop it,” Norman said. “I think those orders will start being placed next year, with production to begin sometime after that.”
The UK Department of Energy and Climate Change awarded JDR a grant of up to £1 million in March 2013 to invest in
the research and development of high-voltage array cabling that could lower the cost of offshore wind power.
Expansion into the offshore wind sector helped drive JDR to record revenues of £129.9 million in 2012, an increase of 56% compared to £83.2 million in 2011. It also announced record earnings before interest, tax, depreciation and amortisation (EBITDA) of £25.8 million in 2012, compared to a loss of £4.1 million the previous year.
The company is benefitting from the £35 million investment it made in its plant in Hartlepool, northern England, which last year completed an extensive upgrade that has granted JDR the extra manufacturing capacity needed to address growing demand in the offshore wind and oil and gas markets.
JDR already has international offshore oil and gas operations in Thailand and Houston, Texas, but the Hartlepool plant investment means it is capable of expanding further into nascent offshore wind markets in other geographies.
“Our strategic plan is to double the size of our business in the next four years,” said Norman. “What we are thinking about now is where do we go next? We have already had conversations in the US, where we’ve been talking actively about real projects, and there will be opportunities in Asia and China.
“What the UK can bring is the technology lead. Even though from a purely manufacturing view it is going to be highly competitive, can we create a technology advantage that can outweigh the benefits of low-cost local manufacturing? It’s a great opportunity in the UK.” ■
interviews & Analysis
Our strategic plan is to double the size of our business in the next four years.“”
16
OnerOOF energy Set tO ClOSe new eQUity rOUnD AnD SOlAr leASing FUnD within 90 DAyS
Rob Lavine
OneRoof Energy is set to expand its solar rooftop installation business into at least four new states over the next four months, in which time it will close another equity round and leasing fund, the company’s President and Chief Executive Officer David Field told Clean Energy Pipeline.
Headquartered in California, OneRoof installs solar systems on residential rooftops and offers leasing options through its SolarSelect financing programme. SolarSelect attracted $100 million in investment from Morgan Stanley and Main Street Power Company in March, and OneRoof is currently in the process of raising both additional lease financing and another equity round.
“Within the next 90 days we’ll be closing another round of equity and, net, it’ll probably be in the $20-30 million [range],” said Field. “We closed our most recent lease fund, with Morgan Stanley…recently [and] we’re continuing to talk to other parties to add to that.”
That additional capital will be used to drive geographic growth. OneRoof aims to expand from the three states in which it currently operates - Hawaii, California and Arizona – into Colorado, Connecticut, New York and New Jersey by late summer, though its future growth is likely to be limited to states that have hospitable regulatory conditions for solar installations.
“I think that on average there are eight to 12 states in the US that work well for residential solar,” Field said. “The top five states probably do about 80% of the business, so it’s the type of situation where as long as you’re focused on the top half, you’ve probably covered most of the available marketplace.
“That said, we’re starting to see opportunities in many other states because as the cost of solar comes down and you can achieve grid parity in non-traditional solar markets, it opens up new geographic markets.
“In some states like California you no longer need any subsidies because the price of electricity is at a level where solar is really competing on a grid parity basis…[but in] certain other states, if the utility rates are lower, you do need to have some kind of local incentive in order to drive solar adoption.”
OneRoof generally relies on one or two large partners to help it reach new areas but it also aims to leverage as many local installation partners as possible as it expands. Like its competitors, it sells its installations through local dealers, but it intends to increase the range of third party intermediaries through which it can operate in order to boost business.
“The whole idea on our side was how do you expand the pool, how do you expand the opportunity for solar in key markets,” Field explained. “The challenge was selling direct to the homeowner. We have found that unless you have a large presence it’s very hard to go direct to the consumer. Of the two companies that sell direct to homeowners, one is SolarCity, which does a very good job of it because they’ve got a large presence; the other is Sungevity, which sells via the internet.
“We’ll go to market with roofing contractors in some areas, and we’ve built our platform in order to enable a roofing contractor to sell and install solar. We’ll also go to market in some areas with an array of mortgage brokers or financial advisors that will actually be selling OneRoof leases, and again, we adapted our platform in order to facilitate a third party that really is not expert in solar to be able to sell solar on our behalf, and then we will actually do
the installations and manage the customer relationships.”
OneRoof’s most significant strategic partner is Hanwha, the Korean conglomerate that is also the parent company of China-based solar panel maker Hanwha SolarOne. Hanwha provided $30 million of development financing to OneRoof in January this year after contributing to the installer’s initial $50 million fund in 2011.
Field called the partnership “a very important relationship for us”, and revealed that Hanwha supplied 60% of the panels used in OneRoof’s installations last year. Although the US government imposed import tariffs on Chinese-made panels last year, the CEO dismissed the idea that the move would have much of an impact on panel prices in the US, simply because developers and installers can source cheap equipment made in alternative markets such as Taiwan.
“It’s unfortunate but to be quite frank, I don’t think it made any difference in the marketplace whatsoever,” he stated. “It may have made a couple of cents difference because it costs a couple or a few cents more to process Taiwanese cells, as an example, but I think at the end of the day it had little to no effect.”
Aside from geographic expansion into new states, OneRoof’s is also set to start meeting demand from commercial and industrial customers, markets Field said the company would probably target in the next year.
The CEO added that OneRoof was unlikely to be affected by recent difficulties in the solar sector since investors view his company as a financial services business as opposed to an upstream solar operator. A more crucial outcome from the solar manufacturing crisis is likely to be the fall in the cost of installing and financing its systems.
“I would say, when I look at the industry in general, that we’ve all benefited from a reduction in solar panel prices, but the greater benefits come from lowering the cost of capital that is used to finance solar leases,” Field said. “We’re seeing more [and] greater reductions in that than in the reduction in solar panel prices, and so that’s where the big opportunity is.” ■
interviews & Analysis
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Chris Hunt, Managing Director, Riverstone
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This conference, organised byGreen Power Conferences,
demonstrates that well organised, wellfocused events, and with the rightspeakers invited, is still the best way towin businesses and contact potentialclients and suppliersHead of Energy and Environmental Finance, KfW-IPEX Bank,Global Wind Power Finance & Investment Congress 2012
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12311 Global Wind Finance A4 Advert updates_8838 Offshore Wind USA Brochure 07/05/2013 12:24 Page 1
SOlAr
In some states like California you no longer need any subsidies because the price of electricity is at a level where solar is really competing on a grid parity basis.
“”
17
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� Make your projects bankable:Understand what attracts investors toprojects
Join us at THE premier annual windfinance gathering
4th annual
Global Wind Power Finance & Risk
Chris Hunt, Managing Director, Riverstone
Tom Murley, Head of Renewable Energy, HgCapital
Keiji Okagaki,Vice President,Marubeni Europower
Magnus Goodlad, Head of Renewables, Hermes GPE
Rui Teixeira,Chief Financial Officer,EDP Renewables
Dominik Thumfart, Managing Director, Infrastructure &Energy Finance, Deutsche Bank
Martin Neubert, Senior Director, Head of Partnerships, Wind Power, Dong Energy
Ian Berry, Fund Manager – Infrastructure andRenewable Energy, Aviva Investors
Tavraj Banga, Director, Terra Firma
Dima Rifai, Chief Executive Officer, Paradigm Change Capital
Organised by:Part of:Silver Sponsor:Gold Sponsor:
This conference, organised byGreen Power Conferences,
demonstrates that well organised, wellfocused events, and with the rightspeakers invited, is still the best way towin businesses and contact potentialclients and suppliersHead of Energy and Environmental Finance, KfW-IPEX Bank,Global Wind Power Finance & Investment Congress 2012
CONFERENCE AND EXHIBITION19-20 June 2013, London, UK
For more information or to register your place, visit www.greenpowerconferences.com/windfinancecall +44 (0)20 7099 0600Please quote VIP code CEP1
Silver Sponsor:
Gold Sponsor:
Dr Cord Landsmann, Chief Financial Officer, E.ON C&R
Robert Mansley,Managing Director,GIB
David Jones,Managing Director,Allianz CapitalPartners
Joseph Slamm, Partner, Hudson CEP
12311 Global Wind Finance A4 Advert updates_8838 Offshore Wind USA Brochure 07/05/2013 12:24 Page 1
18
interviews & Analysis
‘eBAy FOr SOlAr’ COmPAny OFFerS StreAmlineD APPrOACh tO PrOJeCt m&A
Ronan Murphy
German company Milk the Sun is pioneering a low-cost, streamlined online service for connecting sellers of solar photovoltaic (PV) projects with prospective buyers, Chief Executive Officer Felix Krause told Clean Energy Pipeline.
Launched in March 2012, Milk the Sun is a web-based platform on which owners of photovoltaic assets can essentially put them up for sale, in a manner broadly similar to online auction giant eBay. Milk the Sun vets information provided by the sellers, removing the layers of additional interlocutors typically required for a clean energy M&A deal.
Users of the platform are granted direct contact to the sellers along with immediate information collected by Milk the Sun on key project issues such as grid connection, feed-in tariff (FiT) access, performance data and lease details. Milk the Sun receives a small commission for every successful transaction.
Krause founded Milk the Sun following his own negative experiences with agent costs in the PV project development market.
“In 2009 I founded a company to develop solar projects in Germany and England,” he said. “We realised that the market is totally inefficient. We had an interesting project of 4 MW that failed because of a chain of agents, which cost the company a lot of money. For future projects, we were looking for an eBay-like service to promote them, but there wasn’t any such thing, so we decided in mid-2011 to do it ourselves.”
A major beneficial aspect of Milk the Sun is that it is accessible in four different languages – English, German, Italian and French – with more to come. This enables investors to target assets in markets that would otherwise have required the assistance of locally-based agents and advisors to make a deal.
“One important point is that with agents it was German people buying German projects,” said Krause. “There was no inter-state market. By providing a multilingual platform we enable people
from Scandinavia to buy projects in Italy or invest in England.”
Agreements to sell about 70 MW of solar projects have been arranged through the platform to date. The largest sold was a 9.8 MW asset in Germany and the smallest was a 9 kW installation. Assets across the entire range of development, from fully operational installations to project rights, can be sold on the platform.
Krause estimated that about 60% of the capacity sold on Milk the Sun since it launched has consisted of project rights, with the remaining 40% being operational assets on the secondary market, but he believes the latter is becoming increasingly popular.
“We see a trend moving towards operating installations because that offers security and lots of data on performance,” he said.
The typical sellers that use the Milk the Sun service for smaller installations are private individuals and developers looking to divest projects they no longer need. For larger projects, companies that need cash for new investments are particularly prevalent.
“It is the case that small and large development companies want to expand into new markets and want to continue with new ideas like energy storage, but they need cash to continue their business, so they are now selling their installations,” said Krause, who stated that the main
buyers for projects sold on the platform are private individuals and infrastructure funds. “Infrastructure funds were sceptical when we launched, but nowadays they are accepting us and using us,” he added.
Milk the Sun is rapidly expanding coverage from its initial focus on Italy and Germany to new geographic markets. As well as France and the UK, it is also active in Romania, Bulgaria, Ukraine and Canada.
In the next 12 months, both Latin America and North America will be officially added to the platform, while steps will also be taken to extend coverage to India and Australia.
“We are currently evaluating Mexican and Chilean projects,” said Krause. “We see huge potential because electricity is so expensive and the grid is so unreliable in these states.”
Milk the Sun is currently completely self-financed, but it would be open to private equity or venture capital investment to support its expansion in new geographic markets.
“We were recently approached by some companies wishing to support us,” said Krause. “We are evaluating this but there is no immediate need to do a deal. If we found the right partner for the right conditions that have the same goals we have then we are fully open to discussions, but it’s not our main focus right now.” ■
mergers & Acquisitions in europe - 1Q09 to 4Q12
Source: Clean Energy Pipeline / VB/Research Ltd.
0
20
40
60
80
100
120
140
0
5
10
15
20
4Q12
3Q12
2Q12
1Q12
4Q11
3Q11
2Q11
1Q11
4Q10
3Q10
2Q10
1Q10
4Q09
3Q09
2Q09
1Q09
Dea
l val
ue ($
bill
ion)
Num
ber o
f deals
Deal value Number of deals
19
interviews & Analysis
BiDDer intenDS tO rAmP UP SUnteCh’S gOODyeAr PlAnt tO 100 mw
Jessica Mills-Davies
The Arizona-based solar firm that bid in April to acquire ailing Chinese manufacturer Suntech’s solar panel factory in Goodyear, Monarch Power, intends to retain all 43 staff at the US plant and could ramp up its capacity to 100 MW in two years time, the company’s owner Joseph Hui told Clean Energy Pipeline.
Suntech is desperately trying to sell its assets after its major subsidiary Wuxi Suntech went bankrupt last month when it defaulted on $541 million of overdue debt repayments. It laid off the remaining staff at the Goodyear plant, its only US facility, earlier this month after reducing capacity at the Arizona-based factory from 45 MW to 15 MW last year.
The Goodyear plant provides an ideal opportunity for companies to buy up dormant solar manufacturing capacity in a market that is already highly oversaturated. Monarch made a verbal offer to acquire the facility in the second week of April, closely followed by an official bid, the size of which Hui declined to reveal.
“We made the offer to Suntech and they are in the process of reviewing it,” he said. “I plan to boost manufacturing of the Lotus Mobile there.”
The Monarch bid is one of at least two known offers received for the Goodyear plant and it may have the edge as it is not a straightforward monetary proposal. Hui has offered not only to pay a nominal consideration for the plant, but also to retain the last 43 staff and eventually boost the plant’s workforce by more than 365% to 200 employees.
“I would keep the same 43 employees because I think they are excellent staff as far as I have seen,” Hui said. “I toured the plant and talked to the staff. I think they are excellent people.”
Suntech’s ongoing difficulties mean that the sale process is likely to be protracted.
“[Suntech] say I probably have to wait because right now they are in the process of reorganisation,” said Hui. “I am waiting very keenly because [it] will be a tremendous boost to my
business, because it would [reduce the manufacturing ramp-up by] at least a year and it would cost millions of dollars for me to invest in a [new] manufacturing facility.”
Rumours that potential buyers including venture capitalist tycoon Warren Buffet were mulling an acquisition of Suntech have so far failed to materialise, just as Suntech’s apparent prior agreement with creditors failed to prevent Wuxi Suntech entering bankruptcy.
Even if Suntech successfully secures a takeover deal, Hui is confident that Suntech will still sell the Goodyear plant to relinquish itself of US government-imposed tariffs on imports of Chinese solar products that preclude it from importing parts from its Chinese operations.
“In the scheme of things, the Suntech plant is 15 MW [per year] at this point and that is peanuts in the gigawatt capacity that they have right now in China,” he said.
Monarch Power is prepared to put down 30% of the finance needed to acquire the plant and Hui expects to secure the remaining 70% in the form of a small business administration loan. Another potential means of raising funds, which remains a long shot, could arise from a prospective bill introduced in Congress by US Representative for Arizona Kyrsten Sinema (Democrat) that proposes a 30% tax credit for renewable energy capital equipment costs.
If Monarch’s bid is successful, Hui has grand designs to increase capacity at the Goodyear plant by more than six times from its existing nominal volume of 15 MW per year to 100 MW two years from now, provided it can prove a valid market for its lotus flower-shaped Lotus Mobile and Lotus Max solar modules.
An expansion of this size would cost Monarch Power in the region of $5-10 million in equipment costs, Hui estimates. The company would only be in a position to ramp up the plant to this extent if it secures sufficient orders to sustain the business.
“I won’t expand until I have the orders for it,” Hui said. “It’s easy to apply a further loan from banks or even funding from a venture capital investor…I may go for private investors through a 506 offering.”
Initially Monarch would resume the 45 MW of capacity that the Goodyear
plant reached last year using its existing equipment through an initial layout of approximately $1 million, which the company could self-finance.
The start-up is still in the midst of trying to prove the market for its modules by offering pre-order deals and through a campaign that would enable donations to be made to finance installation of the units in emerging markets. Hui said Monarch Power expects to have its first delivery in about two months.
Monarch Power’s bid for the Goodyear solar plant was ushered in with support from the Mayor of Goodyear, who sees the offer as an opportunity to preserve the town’s manufacturing capabilities.
“Goodyear is trying to find a lot of manufacturing [players] like Amazon and Fedex to locate there,” said Hui. “It also wants to build a solar corridor along the Interstate 10.”
If Monarch fails to win the bid for the Goodyear plant, Hui said the company may outsource production to Mexico or China, and even to Suntech itself, if the Chinese manufacturer found an acquirer.
“With my bid to Suntech I practically told them that if the bid works out with the Suntech plant, and if I have to sell my Lotus in China, I would have Suntech-outsourced production of the solar panels,” Hui said. ■
20
POliCy AnD regUlAtiOn
germAny’S CASh inCentive FOr energy StOrAge SyStemS APPrOveD AnD AwAiting FinAl DetAilS
Jessica Mills-Davies
Germany’s proposed cash incentive for energy storage systems tied to photovoltaic (PV) installations is fully approved and pending an internal decision by the government on how it will be structured, Germany Trade and Invest’s (GTI) Senior Manager of Renewable Energies Tobias Rothacher told Clean Energy Pipeline.
“[The incentive is] just [waiting on an] internal decision by the ministry on how to structure the funding for it,” he said in an interview.
The federal energy storage subsidy will provide funding for batteries that are installed alongside PV systems. The mechanism will be set at Eur600 per kilowatt of peak PV capacity on systems with a maximum capacity of 30 kW and the maximum output of the solar systems will be capped at about 60%, with the rest of the electricity used for charging the battery, Rothacher said.
Although it remains unclear when the incentive will be implemented, Rothacher said it does not require further approval from the German government’s Upper House. He reiterated industry speculation that the subsidy could be introduced as early as within the next few months.
“It is promised from the government, we already have their strategy, how they want to do [it], but it is pending the final approval by the ministries,” he said. “We hope it is [introduced] very soon, in between two or three months.”
A key function of the incentive will be to develop a foundation for service business models in the PV-with-energy-storage market, Rothacher explained. Battery installations will be required to adopt an open interface as protocol, which will allow them to be connected to the smart grid, though it is as yet unknown precisely how the interfaces will be manipulated.
“The battery must be accessible from the outside with an interface,” Rothacher said. “Think of a company
that can access thousands of battery systems installed in houses distributed in Germany; if you can control them remotely you can offer balancing power for the grid and utilities. Another idea may be that utilities are supporting the sale of batteries just to access those storage capacities later on.”
The subsidy could help reduce the cost of robust, long-life energy storage solutions that are deemed too exorbitant to be practical, such as lithium-ion batteries. Governmental banking institution KfW Bankengruppe will provide debt capital for up to 100% of the costs of battery installation, which will be accessible by regional banks at a 1% premium, Rothacher explained.
“[KfW] has some technical requirements for the battery,” he said. “The battery must have a life value guarantee of seven years, which is quite hard for lead acid battery manufacturers but very nice for lithium-ion battery manufacturers... The cash incentive is also designed to go directly into the KfW loan, so you will never hold this cash incentive in your hand. It will always be cleared with your debt at KfW.”
The new energy storage incentive mechanism is expected to be implemented despite Federal Environment Minister Peter Altmaier’s statement last month that described a significant shortfall of funds for Germany’s energy storage support package. It illustrates a transition in Germany’s policy from supporting technology developers through a high feed-in tariff (FiT), which Rothacher said the industry can now operate without, towards cash incentives distributed as part of loan packages.
The incentive will be important for energy storage start-ups, especially given that an important cash incentive programme for early stage companies due to be adjusted by the end of the year.
The integration of renewable energy onto the grid is a growing priority for the German government, according to Rothacher. In illustration of this, several German ministries have contributed to a Eur200 million fund to support energy storage companies with research and development capital, which published a second funding call at the start of this year.
“Integration is very important to us at the moment,” said Rothacher. “We are about to launch a website on demonstration projects, not finished projects but projects that are right now sounding out partners.”
The GTI plans to launch a portal within the next three months to attract foreign smart grid developers to demonstrate their projects in Germany, which could put the country in a powerful position when it comes to developing standardisation principles for the industry.
“You have international demonstration projects but not on a large-scale like we need to do now in Germany,” said Rothacher. “The problem is there is not harmonisation between the protocols in smart grid and also [there is a] lack of security standards for smart grids. The demonstration projects will help Germany be the first one defining those standards. When they are here they can define those standards that can be used in other countries as well.” ■
interviews & Analysis
The problem is there is not harmonisation between the protocols in smart grid and also [there is a] lack of security standards for smart grids.
“”
21
likelihOOD OF CrOwn eStAte rOUnD 4 hingeS On CFD imPlementAtiOn
Jessica Mills-Davies
The speed at which the UK government provides certainty on strike prices for feed-in tariffs (FiTs) with contracts for difference (CfDs) will determine how quickly a potential Round 4 of the Crown Estate’s offshore wind leasing programme will be realised, a Crown Estate official told Clean Energy Pipeline.
A spokesperson for the sovereign asset manager said The Crown Estate is not currently scoping for a potential Round 4, although it remains “very much” a future possibility.
With Round 2 halfway complete and consent submissions already made for the first four projects in Round 3, the possibility of a fourth Crown Estate leasing round is predicated on future demand, Alastair Dutton, Programme Manager for Wind Development at the Crown Estate, said in an interview.
“[The CfDs] will determine the pace at which the market rolls out and that will determine when such a Round 4 might arrive,” Dutton said. “As that starts to fall into place then developers’ plans fall into place, then the supply chain falls into place.”
Clarity on the market-based CfD mechanism that will replace the Renewables Obligation (RO) subsidy for large-scale renewable energy projects in 2017 is not only critical to future leasing rounds; it will also dictate when and where the supply chain scales to meet demand under existing rounds. Design factors such as the size of turbines and depth at which projects are built will be determined by the dynamic of the supply chain, according to Dutton.
“Developers [will] work up their consent plans and try and maximise opportunities so you would see them design [their projects for water depths of] up to 45 metres, and once they get consent they then close down their set of options,” he said. “[This] depends on what turbines are available in the market and the optimum size of the wind farm, including at what water depth it becomes too expensive.”
Larger turbines in deeper waters are expected to be deployed in Round 3
projects, according to Dutton, who said the development cycles for offshore turbines are now faster than seen in the past.
“You are already seeing 6 MW machines being tested at Gunfleet Sands,” said Dutton. “We know they are the basis of two projects coming forward in the near term; real projects where these will be deployed at scale [but] … people won’t develop [very] large turbines unless there is a market for them.”
The Crown Estate remains positive that the ecosystem of Round 3 will fall into place over the next year, when the government is expected to finalise the strike prices for CfDs. Meanwhile, uncertainty could lead some developers to rush projects through the consenting and early construction process to ensure they guarantee certificates under the existing RO mechanism.
Several Round 3 projects have already submitted planning applications in 2013 and another “substantial amount” are expected file additional applications this year. Following that, developers will begin drawing up planning applications for future development of larger Round 3 zones such as Dogger Bank.
While several developers are aggressively working to try and fall into the RO bracket, Dutton said the majority are being cautious. If they are too reticent, however, that could also throw up additional problems, such as delaying the signal for the supply chain to begin investing in new manufacturing capacity.
“Only a couple of them are likely, particularly if Round 3 specific, to get into the back of the RO,” Dutton said. “There are just a few developers who are being aggressive with their timetable because they believe that will give them an improved purchasing position when they need equipment for their projects.”
The transition to the new subsidy regime for offshore wind could require more financing players to come into the market to ensure the necessary capacity is in place to meet the demands of Round 3 projects.
“Bearing in mind [the CfD] was devised for a wider low carbon market and that the amount of equipment that
needs to be built in terms of power stations exceeds the balance sheets of the power companies, you need to increase the number of people who are interested in financing,” Dutton said. “That’s the very essential starting point.”
While there was a time that developers could finance offshore wind projects from their balance sheet and then refinance, syndication is increasingly common as institutional investors become accustomed to the risks associated with the £100 billion investment opportunity the industry represents.
“Up till now developers have been able to build off balance sheet and refinance [and] there are still lots of opportunities for that,” Dutton said. “It is well worth lower risk money coming in. It’s an interesting hedge because there are no fuel costs. It’s a sector that isn’t going to go down in terms of demand.”
Dutton said the Crown Estate has “not yet” seen costs fall for offshore wind projects since it unveiled a cost-reduction pathway last year. One factor critical to the future reduction of project costs will be the size of turbines, the report highlighted.
The cross-industry board appointed by the Department of Energy and Climate Change taskforce to deliver industry cost reduction is expected to identify opportunities to lower costs in the supply chain and pinpoint barriers to development by the spring, Dutton, who is a member of the board, said.
“We can see a real pathway to £100 per megawatt-hour and below and the offshore wind programme board is charged with delivering on that pathway,” he said. ■
interviews & Analysis
We can see a real pathway to £100 per megawatt-hour and below and the offshore wind programme board is charged with delivering on that pathway.
“”
22
nrel tO DiverSiFy FUnDing BASe POSt-SeQUeStrAtiOn AnD FOCUS On SyStemS integrAtiOn
Jessica Mills-Davies
The US National Renewable Energy Laboratory (NREL) will diversify its funding base and refocus on innovation rather than deployment in response to sequestration measures that have cut the agency’s annual budget by about 22%, Matthew Ringer, the Manager of NREL’s commercialisation programme, told Clean Energy Pipeline.
The NREL’s annual research budget for 2013 includes about $350 million of federal funds from the Department of Energy (DOE), compared to a yearly budget of about $450 million over the past five years, as sequestration measures take their toll on funding from the Obama Administration’s American Reinvestment and Recovery Act, Ringer explained.
“Our budget is a challenging aspect right now,” he said. “Renewables are a punching bag.”
The US Treasury announced cuts in March to renewable energy grants under Section 1603 of the Recovery Act as part of mandatory spending restrictions enforced automatically under the 2011 Budget Control Act in response to the burgeoning US deficit.
The loan guarantee programme under Section 1705 of the Recovery Act previously expired at the end of 2011 after the scheme came under fire from Republicans following the collapse of cylindrical solar module maker Solyndra, a loan recipient.
Cutbacks to the Recovery Act reduced the number of NREL-led projects, which are part-funded by the private sector and otherwise financed by the DOE, that focused on technology deployment.
“Under the Recovery Act investment programme, a lot of projects were related to deployment rather than research and development (R&D),” said Ringer. “Generally our budget is set for this year; it’s going to be relatively flat in comparison to where it was. Some things will be cut.
“The Recovery Act is about done; that money had a lifetime so most of those projects are ending. We now have competencies we have developed because
of that funding to help the laboratory go forward.”
The agency will increasingly look to broaden its funding sources in light of sequestration measures and bring on board other federal agencies and industry partners, Ringer said. About 10-20% of the NREL’s funding is sourced from private sector partners including large corporations such as General Electric and even start-ups, and that percentage is rapidly increasing.
“We try to work with everyone with viable projects,” Ringer said. “Our [partnered] projects are in negotiation. Our business development – where we look at non-DOE finance – has really taken off in the past two to three years. With uncertainty in the budget, you try to diversify the funding base. We have had success looking for agencies and working with partners.”
Energy systems integration will form the thrust of the NREL’s work over the next six months to a year. The integration of renewables onto the power grid is a relatively new area for NREL, which recently launched an energy systems integration facility (ESIF) that Ringer said “allows an integrated systems approach to technology”. The centre houses a supercomputer for advanced molecular modelling and simulations for modelling new materials and technologies that will have a critical bearing on cost.
“The biggest thrust is energy systems integration,” Ringer said. “ESIF is forming a central base for work we are planning to do in the future. It is a DOE-designated user facility, and is unique in that you can work with industries to utilise the unique equipment housed there.”
Energy storage will be a major focus for the systems integration unit, Ringer affirmed, as the facilities analyse how best to utilise energy storage and model the effects renewables have on the grid.
“We are partnering with industry to tackle intermittency when you have renewables integrated onto the grid,” said Ringer.
The NREL will investigate methods for energy storage and share expertise on advanced batteries with other government agencies such as the DOE’s Chicago-based engineering research house Argonne National Laboratory and the Lawrence Berkeley National Laboratory.
“All the knowledge we have will be applicable to ESIF,” said Ringer.
The maturation of traditional renewable energy industries such as wind, photovoltaics and biomass has shifted NREL’s focus onto emerging areas such as balance-of-system equipment, building energy management software and hydrogen-powered transportation. Drop-in biofuels are the new zeitgeist among the American energy-focused scientific community, while large-scale wind turbine integration is a pertinent focal area and the DOE and NREL are even “looking at offshore”, according to Ringer.
“We are looking at power electronics and how you can better design equipment,” he said. “Durability, such as gearbox reliability, is one of the biggest things we are focused on. On the building side, we are looking at windows, software solutions and building designs. We are also doing cost analysis models of fuel cells, looking at a hydrogen system from production to on board a vehicle.” ■
interviews & Analysis
18 - 20 juneBarcelona International Convention Centre (CCIB)
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Dipuo PetersMinister of Energy Department of Energy South Africa
Ali MihirigMinister for Electricity and Renewable Energy, Libya
Emmanuel Armah Kofi BuahMinister of Energy & Petroleum, Ghana
Onkokame Kitso MokailaMinister of Minerals, Energy and Water Resources, Botswana
Emma Francoise IsumbingaboMinister of State in charge of Energy and Water Ministry of Infrastructure, Rwanda
Alemayehu TegenuMinister of Water & Energy, Ethiopia
Taleb Ould AbdivalMinister of Petroleum, Energy & Mines, Mauritania
Salif KaboreMinister of Energy & Mines, Burkina Faso
Oluniyi Robbin-CokerMinister of Energy, Sierra Leone
Edward NjorogeManaging Director & CEO, Kenya Electricity Generating Company
James OlotuManaging Director, Niger Delta Power Holding Company, Nigeria
Augusto de Sousa FernandoExecutive Chairman, Electricidade de Moçambique
Felchesmi MrambaManaging Director, Tanesco, Tanzania
Jose Carlos Santos NevesChief Executive Officer, Empresa Nacional de Electricidade, Angola
Charles DarkuChief Executive Officer, Ghana Grid Company (GRIDCo)
Richard BadgerDirector for Thermal Generation, Volta River Authority, Ghana
Siengui Apollinaire KiDirector General, Société Nationale d’Electricité du Burkina (SONABEL), Burkina Faso
Rupert SoamesChief Executive Officer, Aggreko, United Kingdom
Naji NajjarEnergy & Utilities Industry Leader, Middle East & Africa, IBM, France
Peter KieranPresident & CEO, CPCS, Canada
Paul HinksChief Executive Officer, Symbion Power, United States of America
Mikael KarlssonChief Executive Officer, Globeleq, United Kingdom
Kribs GovenderGeneral Manager: Low Carbon Electricity Sasol New Energy, South Africa
John CampionChief Executive Officer, APR Energy, United States of America
Paul HanrahanChief Executive Officer, American Capital Infrastructure, United States of America
Confirmed Government Officials Include: Confirmed African Utilities Include: Confirmed Private Sector Leaders Include:
For the full speaker line up visit www.africa-energy-forum.com
For more information, please contact Amy Offord E: [email protected] T: +44 (0)20 7384 8068Please quote promo code CEP
EnergyNet Strategic Partners Lead Sponsors Pan-African Gold Media Partners
800 delegates including
90 African Ministers, Governm
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Dipuo PetersMinister of Energy Department of Energy South Africa
Ali MihirigMinister for Electricity and Renewable Energy, Libya
Emmanuel Armah Kofi BuahMinister of Energy & Petroleum, Ghana
Onkokame Kitso MokailaMinister of Minerals, Energy and Water Resources, Botswana
Emma Francoise IsumbingaboMinister of State in charge of Energy and Water Ministry of Infrastructure, Rwanda
Alemayehu TegenuMinister of Water & Energy, Ethiopia
Taleb Ould AbdivalMinister of Petroleum, Energy & Mines, Mauritania
Salif KaboreMinister of Energy & Mines, Burkina Faso
Oluniyi Robbin-CokerMinister of Energy, Sierra Leone
Edward NjorogeManaging Director & CEO, Kenya Electricity Generating Company
James OlotuManaging Director, Niger Delta Power Holding Company, Nigeria
Augusto de Sousa FernandoExecutive Chairman, Electricidade de Moçambique
Felchesmi MrambaManaging Director, Tanesco, Tanzania
Jose Carlos Santos NevesChief Executive Officer, Empresa Nacional de Electricidade, Angola
Charles DarkuChief Executive Officer, Ghana Grid Company (GRIDCo)
Richard BadgerDirector for Thermal Generation, Volta River Authority, Ghana
Siengui Apollinaire KiDirector General, Société Nationale d’Electricité du Burkina (SONABEL), Burkina Faso
Rupert SoamesChief Executive Officer, Aggreko, United Kingdom
Naji NajjarEnergy & Utilities Industry Leader, Middle East & Africa, IBM, France
Peter KieranPresident & CEO, CPCS, Canada
Paul HinksChief Executive Officer, Symbion Power, United States of America
Mikael KarlssonChief Executive Officer, Globeleq, United Kingdom
Kribs GovenderGeneral Manager: Low Carbon Electricity Sasol New Energy, South Africa
John CampionChief Executive Officer, APR Energy, United States of America
Paul HanrahanChief Executive Officer, American Capital Infrastructure, United States of America
Confirmed Government Officials Include: Confirmed African Utilities Include: Confirmed Private Sector Leaders Include:
For the full speaker line up visit www.africa-energy-forum.com
For more information, please contact Amy Offord E: [email protected] T: +44 (0)20 7384 8068Please quote promo code CEP
EnergyNet Strategic Partners Lead Sponsors Pan-African Gold Media Partners
800 delegates including
90 African Ministers, Governm
ent
Officials and Heads of Utilities
24
interviews & Analysis
US energy COnverSiOn StArt-UP tArgetS $10-15 milliOn eQUity rOUnD
Ronan Murphy
US energy conversion technology start-up Ideal Power Converters Inc. (IPC) plans to raise between $10 million and $15 million in equity funding this year, the company’s Chief Executive Officer Paul Bundschuh told Clean Energy Pipeline.
The capital will fund the expansion of Texas-based IPC’s portfolio of energy conversion products and its wider employee base. The equity raise follows on from IPC’s close of $4 million in convertible debt financing through a private placement to institutional investors in December 2012.
IPC is focused on providing inverter and power converter solutions to the markets for distributed photovoltaic (PV) power, distributed grid battery storage and electric vehicle charging.
The company’s offering is based on advanced software controls and semiconductor switches that take the place of conventional voltage-source topology, addressing the need for a transformer in the converter system.
In the distributed PV space, this means an IPC inverter is two to 10 times lighter than a conventional system, which translates to cost savings across the entire product lifecycle from shipping to installation.
IPC’s inverters also maintain the galvanic isolation necessary to prevent direct current-sourced faults from transmitting on an alternating current circuit.
“Today in the industry there are two fundamental approaches to doing inverters,” said Bundschuh. “There are transformer systems that have current isolation and non-transformer systems that don’t have isolation. Our system offers a lighter weight than transformer systems while still offering isolation.”
Because IPC’s solution is predominantly software-based, it is able to deliver different products within the same basic shell.
“Our PV inverter and battery inverter are exactly the same piece of hardware but
have different embedded software,” said Bundschuh.
IPC’s systems are built by a third party manufacturing partner. In the PV sector, the company is targeting traditional customers the commercial rooftop space, where its main customers are large commercial entities, retailers, municipal buildings, schools and car parks.
Although IPC is initially splitting its focus between PV, grid storage and electric vehicle charging, its eventual goal is to serve all these sub-sectors with a single system in order to enhance value.
“We think that the PV industry has done a good job in driving down costs, but I think we have not done a good job in expanding the value of platforms,” said Bundschuh. “The value of PV from a rooftop is basically the same as power from a utility.
“There is an opportunity to substantially change the value proposition by integrating storage and electric vehicle
charging so that you are not providing intermittent power, but are instead providing dispatchable power that can be released at peak times for commercial customers.”
The company is working on products to further its ambition of integrating energy storage and electric vehicle charging technology that could be realised as early as the end of this year. Its grid storage converters are capable of interfacing with a variety of battery technologies, and its technology will also allow electric vehicles to be used as batteries.
Bundschuh stated that commercial electric vehicle fleets in particular could serve as aggregators of energy to provide ancillary and emergency services to utilities.
IPC has been shipping commercial products for about one year. It is still in the start-up stage but has signed deals with customers including the University of Texas, for which it delivered seven 30 KW PV inverter systems. ■
energy StOrAge
25
US wASte heAt COmPAny tArgetS glOBAl ACQUiSitiOnS in BiD FOr grOwth
Jessica Mills-Davies
Publicly traded refuse-derived fuel (RDF) pellet manufacturer and waste heat-to-energy company GDT Tek Inc. continues to target acquisitions, mergers and strategic alliances in the clean technology space in a bid to expand its international presence and achieve market growth, its new Executive Vice President Maxine Pierson told Clean Energy Pipeline.
“Because we are a vertically oriented company we continue to look for mergers, alliances and acquisitions of other companies that could be a good fit for us,” Pierson said.
Florida-based GDT Tek announced in April that it has appointed Pierson, who has a background in both business and international development, to spearhead its pursuit of mergers and acquisitions.
She said in an interview with Clean Energy Pipeline that the firm’s budget for acquisitions will likely increase this year to support a more ambitious outlook on takeovers.
interviews & Analysis
GDT Tek’s acquisition drive will initially focus on the domestic US market but it will also evaluate opportunities in Europe and Asia.
“We are open to any sector, but we would especially like to amplify an international presence – that would be very positive,” Pierson said.
“Although we certainly are not averse to a domestic presence, which we already have, what we really hope is that our technology and whatever this other entity might have would complement each other and grow.”
Europe will be a focal point for GDT Tek’s international agenda due to the continent’s accommodating, although recently reduced, subsidy regimes for renewable energy companies. The widespread use of boilers in Central and Eastern Europe, for example, could provide attractive synergies with GDT Tek’s waste-heat-to-energy activities.
Foreign companies looking to establish a presence in the US could also benefit from GDT Tek’s growth plans. It is particularly interested in Asian companies seeking to enter the country and sidestep trade barriers levied on non-domestic producers. Pierson said GDT Tek will potentially consider acquiring companies in Eastern Europe or Asia on a “case-by-case” basis.
“Sometimes one may find that because we are a publicly traded company there might be another firm in another area, or not in the US, that would find joining us to have a public presence would be a huge plus; to become publicly traded and access the US market,” Pierson said.
GDT Tek is already in negotiations with multiple undisclosed US-based RDF and waste-to-heat companies concerning possible acquisitions, according to Pierson. She declined to disclose the valuation of the targets or say how the acquisitions would be financed, adding only that good acquisition candidates should have the same goals as the potential acquirer and each should bring something positive to the table.
“We have a couple more acquisitions that we plan [to make] that are actually in negotiation and we are very much interested in hearing from or being made aware of other possible acquisitions that we would be interested in,” Pierson said.
Previous GDT Tek buys include RTR Global Investments, a Florida-based waste heat company that held a long-term power purchase agreement with Pacific Gas and Electric Company.
GDT Tek, which itself operates waste-heat-to-electricity systems under power contracts, will continue to pursue acquisitions in the waste heat field, Pierson confirmed. She added that the company is also keen to establish project partnerships with public and government entities.
Its involvement in several adjacent markets could form a basis for future acquisition targets. It operates a no-sort landfill, which is very appealing to municipalities as it cuts down on manpower and reduces the burden of surplus poor-quality waste.
About 90% of the refuse from the site is recycled into RDF pellets, which GDT Tek manufactures and sells domestically and abroad, and the residual waste is sold to companies in the glass and plastics industries.
“In actuality, our base becomes a variety of industries,” Pierson said. “There is also an ash residue that, after the pellets are produced, can be utilised in the cement sector. We see a variety of sectors to which we can present our products.” ■
wASte-tO-energy
global mergers & Acquisitions - 1Q09 to 1Q13
Source: Clean Energy Pipeline / VB/Research Ltd.
Deals over $500 millionDeals under $500 million
Dea
l val
ue ($
bill
ion) N
umb
er of d
eals
Number of deals
0
5
10
15
20
25
30
35
40
1Q13
4Q12
3Q12
2Q12
1Q12
4Q11
3Q11
2Q11
1Q11
4Q10
3Q10
2Q10
1Q10
4Q09
3Q09
2Q09
1Q09
0
50
100
150
200
250
300
350
400
26
ShAle gAS will nOt hAve mAJOr imPACt On Uk energy mArket thiS DeCADe
Ronan Murphy
Shale gas drilling has significant potential in the UK with a regulatory regime already in place that is broadly fit for purpose, but is unlikely to have a dramatic impact on the UK energy market before 2020, law firm Reed Smith told Clean Energy Pipeline.
The UK is believed to have large reserves of shale gas and Chancellor George Osborne is a major proponent of tapping that supply, which he believes could generate the kind of cheap energy boom achieved in the US over the past four years. In March, he announced tax breaks for hydraulic fracturing (fracking) companies to develop gas fields.
Reed Smith Partner Lynne Freeman, an author of a recent regulatory update on UK shale gas, said that although shale gas is set to be a major energy source for the UK in the future, it will be slower to develop than in the US due to geographic and political barriers.
“There are undoubtedly various constraints in the UK market compared to the US that mean shale gas will develop in a slower way, particularly due to population density,” she said.
“At the moment I am not sure there is a consensus about how much gas we have got and how much will be accessible. There are some parts of the UK where it is thought there are massive amounts of shale gas but the fact they are in the densely populated south west probably means significant commercial investment
is unlikely in these areas. Any consultation period anywhere will be slow and laborious.”
Reed Smith Partner Nicholas Rock, co-author of the regulatory report, emphasised that the UK shale gas industry is in its infancy. Energy group Cuadrilla is the only company to have carried out fracking in the country to date, at a site near Blackpool in north-west England.
Fracking in the UK was halted after Cuadrilla’s operations were deemed to have caused a minor earth tremor around the Blackpool area in 2011. Energy Secretary Ed Davey subsequently lifted the suspension on fracking in December 2012, but imposed a series of regulations including the requirement that drilling must be halted at any site if seismic monitoring shows that tremors go above a certain level.
Rock argued that Cuadrilla and other potential shale gas companies have already been factoring in such safety practices into their future operations, and would have done so without Davey’s edict.
“Ed Davey’s announcements in November were designed to reassure public opinion and the sensationalist press rather than introduce a new regulatory approach, because the industry has already developed good practises to address environmental issues,” he said.
Cuadrilla has 10 licences for fracking sites, but is now undertaking full environmental impact assessments before proceeding with any future extraction, which will further delay its transition from exploratory testing to commercial production. Other potential participants in the UK market will have to undergo the same rigorous preparation in order to ease public
fears over further earth tremors and contamination of water supplies.
“We are not going to see large-scale shale gas production in the UK for quite a number of years,” said Rock. “We are at the very start of the exploration phase and a long way from commercial production, certainly two to three years.”
Freeman added: “Development will speed up once the first couple of commercial plants are operational and public opinion can be assuaged that the benefits outweigh real or potential issues, but I think it will be quite slow for the first couple of years.”
Shale gas is accordingly very far off from triggering the kind of decline in power prices enjoyed by the US in recent years that has harmed the investment case for wind energy. Rock said the increased US of conventional fossil gas in the UK will have a greater influence on energy prices and the viability of alternate forms of generation rather than shale.
Although the UK does not present the kind of gold rush-like opportunity seen in the US, it is one of several international shale gas markets that major gas players are looking to expand into.
“There are lots of companies, including majors, looking seriously at shale outside the States,” said Rock. “They are involving lawyers, which is always a sign they are moving to the next stage.”
Despite the present UK government’s enthusiasm for shale gas, the industry is certain to face heavy political opposition at the local level, from both environmentalists concerned over the technology’s impact on carbon emissions and water supplies, and from the same kind of rural citizens that have blocked wind farm development due to fears over their visual effect on landscapes.
“Public opinion is one of the big barriers,” said Freeman. “There are some people who are resistant to any change, some who jump on bandwagons and some who are scared about what it means for themselves or the environment. The majors would want to ensure they are not publicly associated with anything damaging to their brand.” ■
interviews & Analysis
ShAle gAS SPeCiAl
27
ShAle gAS SPeCiAl
US gAS PriCeS Set tO riSe AS mArket evOlveS, BUt CheAP ShAle gAS iS here tO StAy
Ronan Murphy
US production of cheap natural gas extracted from shale formations will be “a century-long phenomenon”, but several market developments are in motion that could ensure the price of gas will continue to increase from its current ultra-low level, according to Dwight Howes, Partner at Reed Smith, a leading law firm active in the sector.
The extraction of gas and oil from shale deposits through hydraulic fracturing “fracking” has revolutionised the North American power industry, sending natural gas prices plummeting 80% between 2008 and 2012 and heavily impacting the ability of renewable energy projects to secure economically viable power purchase agreements (PPAs).
However, in the first quarter of 2013, US natural gas prices rose to $4.00 per million British thermal units (mmbtu), the highest level in the past two years and more than 50% higher than the record lows of 2012.
This increase is simply a response to massive oversupply in the market. Howes explained that extraction companies are cutting back on drilling because it is not profitable in many locations, thus reducing the level of oversupply in the market and causing prices to self-correct.
There are two other significant future developments in the natural gas market that could drive down oversupply and raise prices, the most intriguing of which is the increased utilisation of compressed natural gas to fuel automotive vehicles.
“Ultimately, I think that in the US, natural gas will become more and more important as a transportation fuel,” said Howe. “For power generation you lose 40% of the energy just by firing up the turbines and another 40% running it through wires, so the direct use of gas in internal combustion engines is more beneficial. The price is good compared to gasoline and it is safer and cleaner.”
Fiat-Chrysler’s Chief Executive Officer Sergio Marchionne said this month that
natural gas is the “cleanest alternative available” to gasoline as a fuel for automotive vehicles.
Another market development that could see US gas prices rise is if the nation boosts its export of the resource to international markets, a subject which is currently a matter of intense debate. Fuel producers are eager to tap into the vast global demand for cheap natural gas, while US industries are opposed to any move that would increase their energy prices.
Aside from the political dispute, Howes argued that a lack of infrastructure capacity will constrain US exports of natural gas in the short to medium term.
One hurdle that must be overcome is a lack of refineries to process gas into liquid natural gas (LNG) suitable for exporting to overseas markets, which are the primary destinations for US gas due to the significant resources held by its immediate neighbours Mexico and Canada.
Because of this, Howes predicted that exporting may not cause US power prices to rise for many years.
“I do not know if the capacity is significant enough to drive prices up in the US,” he said. “The more likely impact is that it might drive prices down in the markets
into where the gas is sold. I don’t see a lot of new LNG coming online quickly because it takes a lot of capital, permitting and construction time to build those facilities.”
The sheer scale of the shale gas boom in the past five years has caused some industry observers to warn that an unsustainable bubble has been created that could imminently burst due to fears that the output of new wells is declining far faster than expected.
Howes disputed this outlook, stating that reduced production in existing major formations like the Marcellus on the US East Coast does not detract from the fact that vast quantities of gas are still coming online.
“I don’t think it is a bubble,” he said. “There is a steep decline curve on wells in the Marcellus, but it’s relative. They have come online producing at huge volumes. Over the course of the years they may decline by 40% but that is still 40% of a lot of natural gas.”
Another factor that will mitigate the accelerated exhaustion of existing deposits is that the evolution of fracking technology means extraction can take place from large shale formations that were previously not accessible, bringing fresh reserves of gas onto the market. ■
interviews & Analysis
28
3 - 5 JULY 2013Jakarta Convention Center | Jakarta - Indonesia
THE 5TH INDONESIA’S NO. 1 NEWAND RENEWABLE ENERGY INDUSTRY
AND TECHNOLOGY EVENT
Supported by
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PT. Napindo Media AshatamaJl. Kelapa Sawit XIV Blok M1 No. 10 Kompleks Billy & Moon, Pondok Kelapa, Jakarta 13450 Indonesia
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headlines
Policies & regulations
› European Parliament Rejects Plan to Bolster Carbon Price
› Obama Includes 40% Increase to Clean Energy Funding in 2014 Budget Proposal
› European Commission Launches Investigation into Chinese Solar Glass Subsidies
› Finland to Increase Renewables Subsidies by Eur145 Million This Year
› House of Representatives Introduces Legislation to Repeal Ethanol Targets
› Andhra Pradesh Sets $0.12 Per Kwh Price for Solar Tender
› New York State to Leverage 2.2 GW of New Solar as It Extends NY-Sun to 2023
› German Talks on Capping Renewables Surcharge Break Down
› Poland En Route to Miss 2020 Wind Targets Due to Lack of Stable Regulation
Corporate & industrial news
› Police Seize Eur1.3 Billion of Mafia-linked Italian Renewable Energy Assets
› Suzlon Issues $108.86 Million in Shares to Creditors, Signs Master Restructuring Agreement
› China Windpower, CNNC Agree 700 MW Renewables Pact
› LDK Solar Defaults on Debt Repayment
› Enel Green Power to Invest Eur6.1 Billion in New Projects by 2017
› Alstom Inks Eur450 Million of Eur1 Billion Supply Deal with Renova Energia
› Verizon to Partner with ClearEdge and Sunpower in $100 Million Renewables Investment
Fund intelligence
› Resonance Asset Management Raises £35 Million for Uk Wind Fund
› Terra Ventures Raises $20 Million for First Close of New Green It Fund
› L&T Infra Launches $500 Million Infrastructure Fund
venture Capital & Private equity
› Greenko Closes £100 Million Equity Investment from Singapore Fund
› Small Battery Tech Company Quantance Raises $12 Million Series D
› Energy Storage Developer Aquion Energy Reaches First Close of $35 Million Funding Round
› NSL Renewable Raises $60 Million in New Funding
› Clean Power Finance Closes $37 Million Funding Round
› Energy Efficient Lighting Firm Enlighted Raises $20 Million Series C
Project & Asset Finance
› Standard Bank, ICBC to Co-finance $2.17 Billion South African Renewables
› BNDES and FINEP Lead $1.5 Billion Brazilian New Energy Investment Plan
› GE and EGP to Jointly Finance 250 MW Buffalo Dunes Wind Farm
› Masdar to Invest Up to £1 Billion in Uk Renewables
› AFDB Approves Eur115 Million Loan for Lake Turkana Wind Farm
› 2oc Signs £200 Million Off-take Deal with Thames Water for Fats-based CHP Plant
› Inter-American Bank to Invest $350 Million in Chilean Renewables This Year
› Drax Secures £75 Million Biomass Loan Facility with Friends Life
› HSH Nordbank to Increase Renewables Exposure After Bumper 2012
Public markets
› BioAmber Sets IPO Range, Mid-range Priced at $128 Million
› PNE to Issue Eur100 Million in Bonds to Pay for Controlling Stake in Wkn
› Sugar and Ethanol Producer Biosev Raises $406 Million from IPO
› Soitec Issues R1 Billion in Bonds to Finance South African Cpv Project
› Hannon Armstrong Lowers Price Range for IPO
› Mytrah Energy Considers Listing Assets in Singapore
mergers & Acquisitions
› ABB to Acquire Solar Inverter Firm Power-One for $1.03 Billion
› BP Puts Wind Business Up for Sale
› First Solar Acquires 150 MW Solar Gen 2 Project
› EDF Renewable Energy Takes Full Control of 161 MW Texas Wind Project
› Clean Line Energy Partners Acquires 1.5 GW New Mexico Renewables Transmission Project
› Advanced Energy Pays Eur59 Million for German Solar Inverter Maker Refusol
› Renovalia Reserve Acquires 227.5 MW of Mexican Wind Farms
› AXA Private Equity Subsidiary Acquires Two Wind Farms
› Southern Company Buys First Solar’s 139 MW Campo Verde Project
› Greenbriar Agrees to Acquire 80 MW Utah Wind Farm
› Suntech Considers Sale of 88% Stake in Italian Fund Gsf Sicar
› Northlight Power Sells 60 MW Californian Solar Project to First Solar
› EDF and Enbridge Acquire 300 MW Alberta Wind Farm
APril 2013 in BrieF Top headlines this month selected from Clean Energy Pipeline’s news archive
3 - 5 JULY 2013Jakarta Convention Center | Jakarta - Indonesia
THE 5TH INDONESIA’S NO. 1 NEWAND RENEWABLE ENERGY INDUSTRY
AND TECHNOLOGY EVENT
Supported by
Ministry ofTrade
Ministry ofIndustry
Ministry ofEnvironment
Supporting Publications
PT. Napindo Media AshatamaJl. Kelapa Sawit XIV Blok M1 No. 10 Kompleks Billy & Moon, Pondok Kelapa, Jakarta 13450 Indonesia
Tel : +6221 8644756/85, 8650962, Fax : +6221 8650963 | Email : [email protected]
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