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Clean Energy Spending Drops, Green Bonds Make Splash, New York Funds Projects

Clean Energy Spending Drops, Green Bonds Make Splash, New York Funds Projects


Global investments in renewable power dropped the most on record in 2016 as demand in China and Japan faltered, according to Bloomberg New Energy Finance research published on Jan. 12. Worldwide spending on clean energy fell 18 percent from 2015’s record high, to $287.5 billion. However, even as spending ebbs, the amount of wind and solar connected to power grids around the world is still climbing: the total jumped 6.6 percent in 2016, according to BNEF. That’s in part because investors are getting more for their money as competition and technological advances have dramatically reduced the price of photovoltaic panels and wind turbines. Spending in China tumbled 26 percent to $88 billion from an all-time high in 2015. China’s electricity demand has stagnated and the government has cut subsidies for wind and solar power. Spending in Japan slumped 43 percent to $22.8 billion.

Meanwhile, China was helping boost growth in other sectors, partly by cutting subsidies at home. BYD Co., China’s largest electric vehicle maker, is setting up two new factories in Latin America this year to produce electric buses as it seeks to overcome obstacles in selling them to more cities at home. The new factories will produce for the local markets and add to existing plants in the U.S., Hungary and Brazil. Expanding overseas has proven easier in some cases than expanding in China, said Senior Vice President Stella Li. Billionaire founder Wang Chuanfu started BYD as a manufacturer of handset batteries and is pushing the company into the mono-rail business, identifying it as its next major growth area after building the company into the biggest producer of electric vehicles in China.

Over in Europe, the year has started with a bang for so-called green bonds, or at least for planned green bond issues. In Italy, Enel SpA’s financing unit arranged its first green bond for institutional investors, with a 1.25 billion euro ($1.32 billion) offering to support renewable energy projects and power grids. The bonds will pay a 1 percent coupon and mature Sept. 16, 2024, according to a statement Jan. 9 from the Rome-based utility owner. The bonds are backed by a guarantee from Enel and received investment-grade ratings from three major agencies. The issue is expected to settle Jan. 16 and the notes will trade on the Irish and Luxembourg exchanges.

Separately, France plans to issue more than 20 billion euros ($21 billion) within three years of a class of bond that specifies proceeds must be used for environmental projects in areas like renewable energy, said Anthony Requin, chief executive of Agence France Tresor, the government office handling debt issuance. An initial offer of green bonds that began marketing last week will raise at least 2.5 billion euros, Requin said. Further sales will follow, amounting to 20 billion euros “over two to three years including 2017,” he added. The deal marks the second use of green bonds by a sovereign issuer, following Poland’s 750 million-euro sale in December. Beyond bonds, the past week has seen a few firsts in other new energy investments. In Latin America, the Brazilian city of Barueri will build the country’s first power plant to incinerate urban solid residential waste and turn it into electricity, the plant’s builder said Jan. 9.

Environmental consulting firm Foxx Haztec will begin construction of the $100 million power plant in the next few months and expects to complete it by early 2019. It will have the capacity to incinerate 825 metric tons of urban solid waste per day and generate 17.5 megawatt hours of electricity. Foxx Haztec will buy technology from Scandinavia. In the U.S., power generator NRG Energy Inc. and Japanese energy producer JX Nippon Oil & Gas Exploration Corp. completed the world’s largest system to capture carbon dioxide produced from burning coal at a power plant. The $1 billion Petra Nova project, which collects carbon emissions from an existing coal-fired power plant southwest of Houston, passed testing in late December and was turned over for operations, the companies said Jan. 10. The carbon dioxide is sent by pipeline to an oil field jointly owned by NRG, JX Nippon and Hilcorp Energy Co. where it can be used to draw crude out of the ground.

Also in the U.S., the prospect of newly designed nuclear reactors edged closer to reality when NuScale Power LLC applied for design certification for its 50-megawatt small modular reactor from regulators. But don’t hold your breath — the application submitted to the Nuclear Regulatory Commission contains 12,000 pages of technical information and is expected to take 40 months to review, the Corvallis, Oregon-based company said. In India, AES Corp. and Mitsubishi Corp. announced the first grid-scale storage project. They agreed to build a 10-megawatt system to support wider use of renewable energy on the grid operated by Tata Power Delhi Distribution Ltd. AES and Mitsubishi will own and operate the system, which will demonstrate the batteries’ ability to improve reliability, according to a statement Jan. 12.

Finally, and as Donald Trump’s inauguration as U.S. President approaches, New York and California both showed they have a renewables agenda of their own. New York Governor Andrew Cuomo agreed to provide $360 million for 11 clean- and renewable-energy projects that are expected to leverage almost $1 billion in private investment. The wind, solar and hydroelectric power plants will have as much as 260 megawatts of capacity and will sell electricity at an average cost of $24.24 a megawatt-hour under 20-year contracts, according to a statement Jan. 12 from New York State Energy Research & Development Authority, which is administrating the funds.

The investments will help New York meet its goal of getting 50 percent of its electricity from renewable sources by 2030, a key component of Cuomo’s effort to reduce emissions of greenhouse gases that cause global warming. California, for its part, is considering a system to protect projects that cut global-warming emissions from a market downturn that may worsen under a Trump administration. The state may guarantee the money these project developers get for emission-reduction credits by auctioning options that oblige California to pay a minimum price for them, based on measures the state’s considering. Having a buyer of last resort encourages private finance.

Q&A of the week

Mexico energy sector resilient to Trump-led US

The energy industry in Mexico will be resilient to any regulatory changes brought about by the incoming Trump presidency in the US because it is a net importer, not an exporter, of energy products. So said Luis Muñozcano, deputy general director for renewable energy at Mexico’s Secretariat of Energy. However, “there is a great potential for energy exports on both sides” of the Mexico/US border as the countries’ electricity grids grow more interconnected. Particularly with the opportunity to modernise the North American Free Trade Agreement, he said. The recent devaluation in the peso could cause some problems for renewable energy developers that won contracts in the second power auction “if they are buying machinery in dollars and selling the electricity in pesos.” However, the real impact will not be known until 2018 when the projects are commissioned and the exchange rate has stabilised, Muñozcano told Clean Energy and Carbon.

“Renewable energy in Mexico is developing very fast — independent of what is happening in the rest of North America,” said Muñozcano. The ambition of 50% clean energy in their region by 2025, set by the US, Mexico and Canada, is unlikely to change because specific programs have been put in place. Likewise, the integration of electricity networks between the US and Mexico should take place because it would be of mutual benefit to both countries, he added. The progressive deregulation of Mexico’s energy system, where independent energy companies are taking the place of state-owned oil and gas structures, will precipitate a fertile environment for distributed generation, said Muñozcano.

The vast majority of Mexican households still receive electricity subsidies, but the government is working to replace this system with subsidies for solar panels, he said. Removing the subsidy completely would be “politically suicidal”, but designing an alternative system whereby households produce their own energy locally would change the energy generation landscape for the better. According to figures published last week by Bloomberg New Energy Finance, Mexico invested $1bn in clean energy in 2016, split between wind, solar and energy smart technologies. This total was down from $2.5bn in 2015.

The following is an extract from yesterday’s Bloomberg Clean Energy and Carbon Brief.

Q: What impact has the devaluation of the peso had on Mexico’s energy industry so far or is it too soon to say?

A: We haven’t seen any changes yet. Renewable energy in Mexico is developing very fast — independent of what is happening in the rest of North America. We were behind in many aspects and now we are trying to catch up.

Canada, the US and Mexico [have signed a common goal] to reach 50% clean energy generation as a region by 2025. This goes with country specific programs and projects, so I don’t think this could change. We have been working to integrate the networks of the three countries — Canada and the US have totally integrated while Mexico hasn’t. I don’t see [why this shouldn’t] happen because [it would strengthen the network of both countries] when we move toward having more connection points. US companies are investing in Mexico because they see the value of selling their products here. It’s not like the car industry, where the components will be sold mainly in the US and Canada.

Q: Were import and export duties placed on products traded between Mexico and the US, what would be the potential impact on manufacturers based in Mexico like SunPower or Acciona?

A: Few energy products are produced in Mexico, aside from some solar panels, in most parts of the energy industry we are net importers — mostly from the US and China. In terms of energy, the US is not a big importer of parts or manufactured products and we don’t have a big exchange of energy between countries. There are just a couple of solar parks in the border with California. There is a great potential for energy exports on both sides of the border as our grids get more interconnected.

We see a lot of problems in many other industries, especially the car industry, but I would say the energy sector would face less problems…

Anand Gupta Editor - EQ Int'l Media Network


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