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Summit hears of shifts in Asian clean energy investing and green bond boom

Summit hears of shifts in Asian clean energy investing and green bond boom


Last week, as Bloomberg New Energy Finance held its Future of Energy Summit in Shanghai, shifts in investment in renewables continued to make news. In Asia, the renewables sector is starting to feel the impact of a sweeping efficiency drive, in which governments from China to Japan are scaling back subsidies to constrain a boom in installations. Investment in clean-power technologies in Asia dropped 41% to $70.1bn in the first nine months of the year, according to BNEF. The speed of the decline has taken many people in the industry by surprise. Part of the reason, of course, is benign – wind and solar technology is getting cheaper, so adding extra capacity costs fewer dollars. However, there has also been a real shrinkage in activity in recent months in China and Japan.

Officials in the two countries are getting smarter about how they stimulate the industry, threatening to slow growth in what has been some of the biggest markets for manufacturers from Trina Solar to Xinjiang Goldwind Science & Technology. Meanwhile, in the US, Southern Co. announced a change to where it spends money. About half of Southern’s annual $65m research and development budget has shifted to customer on-site generation and energy storage, CEO Tom Fanning said in an interview. More than 95% of R&D was spent reducing coal plants’ emissions with scrubbers and catalytic converters when Fanning became chairman in 2010. The shift reflects rapid change in electric use and public policy. The company is planning wind-power investments to drive earnings growth in the next five years.

Separately, in India, Prime Minister Narendra Modi needs at least $100bn more to finance India’s goals for clean energy, even after his government’s policies brought in record investment in wind and solar, according to BNEF. By way of comparison, some $10.5bn were invested in renewables in India for the fiscal year ended March 31, almost 60% more than the $6.6bn invested two years ago. Some 7.3GW of clean-energy projects were built for the latest fiscal year, or 71% more than the previous period. At the same time, pressure from Indian generators who say plans for $37bn of reforms in the energy sector are very difficult to implement, could mean the country eases its drive to cut pollution from coal-fired power plants blamed for causing the world’s worst air quality.

The deadline to meet all new standards may be pushed back beyond the original December 2017 target, said S.D. Dubey, chairman of the Central Electricity Authority and head of the panel drafting the road map for power producers to meet the new guidelines. Prime Minister Modi’s government proposed the limits on toxic emissions in December 2015. In the US, Tesla Motor’s Elon Musk may not be getting what he wants from regulators. After Tesla sold $139m of zero-emission credits in the third quarter, Musk complained that they should be worth more — if only California’s regulations were tougher. Instead, they may soon be worthless. The staff of the California Air Resources Board may propose that the state’s emissions targets remain largely unchanged through 2025 and then jump thereafter, according to three people with knowledge of their plans.

The extension of the status quo also would come as a blow for Musk, who funded Tesla to help create what he has called “a solar-electric economy.” He wants stricter zero-emissions standards that would boost demand for electric vehicles, including Tesla’s, and force other automakers to sell more of these models instead of using credits to meet their goals. Meanwhile, emissions in China are coming under further scrutiny. The country’s Ministry of Environmental Protection is launching special investigations into 39 companies for exceeding emissions in October in three northeast provinces, leaving one-tenth of the country shrouded in heavy haze. Coal-fired power, open burning of crop waste and straw, and vehicle emissions are the main contributors to the thick air pollution, according to a 6 November statement from the ministry.

Of the 39 companies named, 17 were in electricity generation, mostly coal-fired power, but also a few biomass-to-energy facilities. Cement and iron and steel producers also figured prominently on the list. In the UK, the government took steps to ensure the Green Investment Bank remains smog-free after it is sold off. The government chose five special shareholders who can vote on changes to the bank’s environmental mission. The trustees will have a special voting power via a new entity called the Green Purposes Company, according to the bank. The so-called golden share, created to ensure the bank maintains its obligation to invest “exclusively in accordance with its green purposes” will be issued once GIB is sold, the company said.

The government has selected Macquarie Group as the preferred bidder, according to people familiar with the deal. Meanwhile, the global green bond market is drawing an increasing proportion of its activity in China, rather than where it started – in Europe and the US. China has accounted for $21.9bn of the $61.1bn in global green bond sales so far this year, data compiled by Bloomberg show. China, which in 2015 sold less than $1bn of the debt, whose proceeds are earmarked for environmental projects, is accelerating regulation to channel funds toward reducing pollution, Moody’s Investors Service said in a report.

“When you live in Hong Kong or China, pollution is there, it bothers you,” said Vincent Duhamel, head of Asia in Hong Kong at Lombard Odier Darier Hentsch & Cie. Lombard Odier estimates that within three years green bonds will account for 20% of the $700bn annual investment needed under the Paris Agreement on climate change, which took effect 4 November. The New Development Bank, the so-called BRICS bank, which earlier this year sold 3bn yuan ($443m) of green bonds in China, is considering issuing notes in Indian rupees or other local currencies as it gears up to expand its support for sustainable projects.

Besides rupees, the Shanghai-based multilateral lender may issue bonds in at least one other currency, such as Russian rubles or South African rand, President K.V. Kamath said in an interview. “We want to open a strong window where we can meet local funding needs using local currencies,” he said. The bank, which started last year, was founded to support infrastructure and sustainable development initiatives in emerging economies. It counts Brazil, Russia, India, China and South Africa as founding members.

Q&A of the week
CCS is dark horse of industrial carbon mitigation: BHP
The use of carbon capture and storage (CCS) to reduce emissions in an industrial context could take precedence over its application for power generation, Fiona Wild, vice president for sustainability and climate change at BHP Billiton told BNEF’s Ben Vickers in an interview. “The focus needs to be on CCS application for industrial activity” such as steel and cement manufacturing processes where there is “literally no alternative” to reduce emissions, unlike in power generation, where it is possible to switch from coal to gas, Wild said.

Coal accounts for around 80% of total feedstock used in the steel industry, according to the US Energy Information Administration. The fossil fuel is heated to produce coke and breeze — two substances that are then used to fuel the blast furnace and to deoxygenate iron ore and turn it into wrought iron.

“CCS is the dark horse of [carbon] mitigation options… If the end game is limiting climate change and providing access to affordable energy you have got to have [it] in the mix,” Wild said in an interview at the Bloomberg New Energy Finance Summit in Shanghai last week. Provided that there is a source of CO2, a location to store it and a supportive policy framework to cover the long-term liability of geologically storing carbon, the technology can be cost effective, she said. “To unlock the full potential of CCS” it is also important to integrate experts across the full-value chain, so those who understand storage work alongside others with knowledge of transporting CO2, she added.

The world’s largest diversified mining company prefers to work in partnership with companies such as SaskPower International and with Peking University in China “to share some of the risk” of CCS project development, said Wild. The knowledge gleaned at SaskPower’s Boundary Dam project in Canada, the world’s first coal-fired power station with CCS, means that developers of subsequent projects could reduce costs by 30%, she said.

The following is an extract from the interview published in this week’s Bloomberg Clean Energy and Carbon Brief.

Q: How do you see renewables affecting the sectors where BHP Billiton works?
A: One of the interesting things we see is the connection between power and copper, so we have copper in our portfolio. As you get greater penetration of renewables you also have greater use of copper. Coal-fired power generation uses two kilos of copper per kilowatt, solar uses five kilos of copper per kilowatt. So there’s a really significant demand growth for copper.

Q: How can the economics for carbon capture and storage (CCS) be improved?
A: The economics around CCS differ significantly by location. You need a source of CO2, preferably at high concentration, a sink, a site to build the pieces of kit, and supportive policy. If you have got those in place you can get a cost-effective CCS up and running.

Absolutely CCS can be cost effective today. It’s a proven technology, the barriers are not technological, and in some instances they are not cost, it’s more about policy to allow for long-term storage of CO2.

Q: Is CCS being deployed fast enough?
A: We’ve got to find ways to accelerate the deployment of CCS. If we’d done this ten years ago it would have made the task easier, but that doesn’t mean it doesn’t have a role to play, and now the focus needs to be on CCS application for industrial activity where there is literally no alternative. People say in terms of power we can look to alternatives, we can shift from coal to gas — but for industrial processes like steel and cement we don’t have another alternative….

Anand Gupta Editor - EQ Int'l Media Network


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