China and India have formally agreed to ratify the Copenhagen Accord, the global climate agreement which stemmed from last year’s U.N. climate change convention in Copenhagen.
Over 100 countries have already approved the Accord, which aims to limit the increase in global temperatures to no more than 2 degrees Celsius, or 3.6 degrees Fahrenheit, above pre-industrial levels. The Accord also calls for spending on the scale of $100 billion a year to assist emerging countries in making adaptations to climate change.
China and India are two of the world’s fastest growing economies, and in recent years their rates of energy consumption and carbon dioxide emissions have skyrocketed. By joining the Accord, China and India have added legitimacy to the treaty and have demonstrated to the rest of the world that they are serious about addressing these important climate issues.
Climate change investments hold both immediate and long-term potential for growth, says Deutsche Bank Climate Change Advisors in a new report.
Kevin Parker, DB’s Global Head of Asset Management, had this to say about this growing investment space:
“The shift to a low-carbon economy to mitigate global warming will require the creation of new technologies, industries and jobs on a massive scale. The absolute imperative to prevent climate change is therefore also, I believe, the economic and investment opportunity of a lifetime.”
“… In other words, climate change is not merely an investment sector that may hold future promise; it is a sector that has already delivered and is continuing to deliver. That is is why we believe institutional investors should be shifting their asset allocation towards climate change. For fidiuciary reason, if for no other, they should be seeking out this attractive source of alpha.”
A dramatic increase in investor resolutions dealing with climate change shows that awareness of these risks and how they tie into the business bottom line. This year, 95 such resolutions have been filed, representing a 40% increase over last year’s figures, says a recent study by Ceres, a coalition of investors, environmental groups and public interest groups working to promote sustainability issues. These resolutions have been filed with some of the largest coal, electric power and oil companies in the United States and Canada, including ExxonMobil, ConocoPhillips and Southern Company.
Jack Ehnes, CEO of the California State Teachers’ Retirement System with $131 billion in assets had this to say:
“We want our companies to closely look at the impact climate change legislation and regulation have on them, to realistically assess those risks, and to consider the indirect consequences of climate change-drive regulation and the business trend on their activities. The SEC’s interpretive guidance outlines exactly the kind of action we have been asking our portfolio companies to take with regards to the issues raised by climate change. It fits with our role as a long-term investor focused on providing lasting value for the educators of California and their families.”
In January, the Securities and Exchange Commission (S.E.C.) mandated that companies must disclose climate change-related risks to investors, a move that was welcomed by a wide-ranging group of investors, such as the one above, who had been pressing for disclosure of this type.
U.S. Energy Secretary Steven Chu announced $100 million in new stimulus funding for the Advanced Research Projects Agency – Energy, or ARPA-E.
Modeled after the successful military research initiative DARPA, ARPA-E aims to speed up the development and deployment of “transformational” energy initiatives in the United States. ARPA-E selects from thousands of grant applications to fund is multi-disciplinary, “out of the box” ideas which may help reduce U.S. carbon emissions, create jobs as well as improve national energy security.
At the inaugural ARPA-E Energy Innovation Summit, it was announced that ARPA-E’s third round of financing will focus specifically on Grid- Scale Rampable Intermittent Dispatchable Storage technologies (GRIDS), Agile Delivery of Electrical Power Technology (ADEPT), and Building Energy Efficiency Through Innovating Thermodynamics (BEET-IT).
Arun Majumdar, director of ARPA-E, says the “number of good ideas has been amazing, and we don’t even have all the intellectual horsepower of the U.S. into clean energy. We are not short of ideas – the question is, what happens next?”
Although Norway is one of the globe’s top producers of oil and gas, the nation is dedicated to advancing alternative forms of power generation. It currently generates most of its own power from large hydroelectric power plants, and scientists at the Norwegian company Sway are now working on building the largest wind turbine in the world.
According to working plans, the turbine would stand 533 feet tall, with a proposed rotor diameter of a staggering 475 feet. Because of its massive size, this wind turbine would be floated out in open ocean waters to capture strong winds. Sway plans to install this turbine in 2011, and will likely spend $65.7 million on the prototype.
Global Fund Exchange is pleased to present you with our March 2010 newsletter – “Investing in the Future of Energy.”
This month’s newsletter takes a close look at President Obama’s show of support for the U.S. nuclear energy industry, China’s growing energy demands and increased investment in smart grid technologies, as well as other headlines from the global energy sector.
Please click on the image to open our latest newsletter, or visit our Resources page.
Opalesque Exclusive: Highlight on energy (5) – Earth Wind and Fire Fund aims for uncorrelated portfolios in volatile sectors
From Kirsten Bischoff, Opalesque New York:
The philosophy behind investing in energy and resources is a simple one for Anric Blatt and Lauralouise Duffy, founders of Global Fund Exchange, the growing number of people around the globe is putting stress on the resources of our planet; smart investing in energy, clean energy and natural resources can drive positive environmental change and positive profits.
There are many factors placing stress on our resources, two of the biggest are population increases and development as the global economy reaches undeveloped nations.
- With the population growing by approximately 79 million every year, energy consumption in the developing world will overtake the amount consumed by the developed world in 2015. That’s a mere five years from now.
- As nations and economies develop over the next 25 years, global energy demand is estimated to increase by almost 60%.
Industry in transition
“We are in a bridge period,” Blatt says, regarding global efforts to change energy consumption habits. With traditional energy usage pegged at 96% and alternative energy hovering at only 4% (not to mention the slow pace of environmental regulation in many countries), change is going to be gradual.
“So we’ve come to this bridge period where traditional energy starts to become cleaner or more energy efficient, and where alternative energy becomes more cost efficient,” he says. “For those with a vision, these are really exciting times. This global energy transition offers the most significant investment opportunities my generation has ever seen. We’ve pioneered the concept of ‘Investing in the Bridge’ to take advantage of these profitable themes.”
Where is the money flow?
Deciding that the energy and natural resources space would provide opportunity to both invest in a positive future for the world and a profit, Blatt next determined on a strategy. Venture capitalism is high risk, and the firms with access to cash flows are not the small, emerging firms, but listed, public companies with access to stimulus money and targeted government-driven investments in the environment. Private equity difficulties include liquidity mismatches.
Tracking capital expenditures around the world is something the team does very carefully. Denmark, for example, has focused on wind technology, Germany and Spain on solar, Italy on solar and geo thermal, and South Korea has spent immense amounts of money on smart grid technology. China has recently surpassed the U.S. in allocations to smart grid technology.
“At the end of the day, all that funding goes into public markets,” he says. “So we made a conscious choice to find the best niche managers around the globe and run with them what is an energy hybrid portfolio.”
Targeting opportunity
New York-based Global Fund Exchange manages The Earth Wind & Fire Fund Ltd. with a mandate to utilize a diversified global macro, multi manager investment approach to investing in the world’s premiere specialists in all areas of the new energy revolution.
The fund focuses on clean energy, traditional energy, water, natural resources, carbon and agriculture, and then adds a hedging strategy to all of these to reduce both volatility and market-related risk. The focus of the fund crosses so many areas of energy because as Blatt points out, everything is interconnected.
“In order to produce energy you need water and in order to produce water you need energy. To convert commodities into a usable, commercial format you need energy. To convert energy into a usable format you need natural resources. Everything is interconnected and all of these things have climate implications.”
Building an uncorrelated portfolio in a volatile sector
Investing in any single area of the “Energy” space has two distinct risks: market exposures, especially during the financial crisis, have created additional volatility; and the risk of investing in a single sector where everything is correlated. To manage these risks one of the main focuses for the team is in calculating, tracking, and building a non-correlated portfolio.
Perhaps the best way to break down the portfolio is in terms of the three major working parts that it is comprised of. Investments have been identified as sensitive to equity markets (clean energy, water, and agriculture investments) and sensitive to commodity markets (energy, carbon, and natural resources). A third group of strategies, those that work to take the volatility out of the prior two groups are the trending and alpha strategies (systematic trading, a hedge portfolio, and a cash portfolio).
This focus on non-correlation within the sub-portfolio has seen the overall portfolio make solid gains during the three years since its January 2007 inception (annualized gains are +14.22%, with only three down months).
Private money is taking stakes in the future of the planet
While government spending in many countries has started to focus on alternative energy, there is additionally a shadow network of private money that has started to heavily invest in the space. Both environmental philanthropists and large businesses are positioning themselves with large stakes in this still-burgeoning industry.
“It has been a wonderful experience to focus not only on the profit aspect of business, but also on the impact of our actions on the planet and its people. Hence our philosophy – People, Planet, Profit.
Part Six: next Friday.
Part one (Tiburon: Wind and solar won’t save the world, hence the renaissance of nuclear) can be found here,
Part Two (ARP: Now we can all hedge power exposure intelligently) here,
On Saturday morning, Warren Buffett published his latest letter to Berkshire Hathaway shareholders.
Here are a few examples of how we apply Charlie’s thinking at Berkshire:
• Charlie and I avoid businesses whose futures we can’t evaluate, no matter how exciting their products may be. In the past, it required no brilliance for people to foresee the fabulous growth that awaited such industries as autos (in 1910), aircraft (in 1930) and television sets (in 1950). But the future then also included competitive dynamics that would decimate almost all of the companies entering those industries. Even the survivors tended to come away bleeding.
Reuters, 10 February 2010 – Nasdaq and an arm of Deutsche Bank launched a global alternative energy and clean technology stock index on Wednesday that attempts to provide a pure signal of how the business is performing.
DB Climate Change Advisors, the climate change investment and research branch of Deutsche Bank’s asset management business, and Nasdaq OMX Group, Inc said the DB NASDAQ OMX Clean Tech Index is comprised of 119 companies.
Mark Fulton, Deutsche’s global head of climate change investment research, said companies in the index derive at least a third of their revenues from clean technology. And 106 of the companies have more than half their revenues in the space.
“These are companies that have very definitely declared a large stake in the clean tech sectors,” Fulton told Reuters. “We tried to produce an index that sends a purer, concentrated set of signals.”
The index, the first between a global bank and a global exchange company, lists 30 companies in solar energy and 13 in wind power. It also includes companies in energy efficiency, transport, waste management and water companies.
The index is equal-weighted to offer greater exposure to smaller-cap companies. In addition to a price return index, it also calculates a total return version.
Deutsche Bank Asset Management had about $6 billion under management as of September 2009 in climate related investments.
(Reporting by Timothy Gardner; Editing by David Gregorio)
ABOUT THE INDEX – A QUICK SUMMARY FROM ANRIC BLATT
The index is comprised of 119 companies identified by DBCCA from a global universe of 4,000. Each stock must have at least one third of revenues derived from clean technology within investable geographies and exchanges identified by NASDAQ OMX. Of these companies, 106 have over 50% in clean tech revenues, using only demonstrated revenue from filed financial statements. Constituent companies must have a market capitalization of $250 million and over $1 million average daily dollar trading volume. The index is equal-weighted to offer greater exposure to smaller-cap companies
NOTE: Two subsidiaries of Deutsche Bank act as the custodian and administrator of some of the funds managed by Global Fund Exchange.
As part of the Renewable Energy Directive of 2009, the European Union pledged to generate 20% from renewable sources such as solar and wind by 2020. According to a new analysis by the European Wind Energy Association (EWEA), the EU is on track to meet those targets.
“Europe has witnessed a sea-change since the 2009 Renewable Energy Directive was agreed as in 2008 many countries were stating that their target would be difficult to meet – now the majority are forecasting that they will meet or exceed their national target,” said Justin Wilkes, Policy Director of EWEA.
A number of countries, including Spain and Germany, are expected to exceed their national targets. Spain, for example, is predicting a nearly 3% increase over its 20% target with 22.7% of energy coming from renewables by 2020.
The United States still leads in worldwide demand for oil, but at the rate China and the rest of Asia are growing, it may not hold that title for long.
The combination of economic stagnation and increased efficiency measures lead many analysts to believe any recovery in U.S. demand will happen slowly. Since reaching peak levels in 2005, U.S. oil imports have fallen over the past two years by 9%.
China’s oil imports, on the other hand, rose by 14% last year. This demand growth has impacted China’s relationship with Saudi Arabia, its main supplier.
Chinese purchases from the oil-rich Kingdom hit a record high of 1.2 million barrels per day (mbpd) in December of last year. Saudi oil minister Ali Al-Naimi predicts “Asia will be a huge market,” and says the Kingdom is leasing new storage facilities in Japan for easier shipments to Asian customers.
Before the year is up, Italian solar developers are planning to double the nation’s solar capacity. Favorable goverment tax incentives will expire at the end of the year, and projects are moving ahead at full speed to take advantage of these programs.
“This year, at least 800MW, if not 1,00MW will be added,” said Gerardo Montanino, head of operations at energy management agency GSE. ”It will be a year of a strong boom.”
GreenBiz.com, 11 February 2010 – Although many consider water to be “free,” its growing scarcity promises to carry a hefty price tag for the world’s businesses and for those who have invested in them.
Unfortunately, the vast majority of large publicly traded companies are failing to adequately manage and disclose the risks they face from water scarcity, an issue that will likely become more acute as the world’s population increases and the future impacts of climate change come to pass, according to new Ceres research.
The nonprofit investor advocacy group released a report today evaluating the corporate water disclosure practices of 100 large companies, while also offering a roadmap for reporting water data in a way that is useful for investors and stakeholders.
“This report makes clear that companies are not providing investors with the information we need to understand risk and opportunities from water scarcity,” Jack Ehnes, CEO of the California State Teachers Retirement System (CalSTRS), the nation’s second largest public pension fund, said Thursday during a press conference to launch the report.
Many have begun referring to water as the “new carbon” because of its anticipated prominence as an emerging business risk. In response to increasing investor concerns over water, the Carbon Disclosure Project , which solicits greenhouse gas emissions data from companies on behalf of institutional investors, recentlylaunched CDP Water Disclosure , adding to the growing list of impacts companies are being asked to report on. Coincidentally, the first Forest Footprint Disclosure report was released this week, evaluating how global companies are managing their forest impacts.
The new Ceres report found that some of the sectors most vulnerable to water stress were also the most advanced reporters. For example, the mining and beverage industry’s received the highest overall points. As a whole, the homebuilding sector lagged.
The highest sector performers were: Diageo (43/100 points, Beverage), Pinnacle West/Arizona Public Services (38/100 points, Electric Power), Unilever (34/100 points, Food), Xstrata (42/100 points, Mining), BP (35/100 points, Oil & Gas), Toshiba (35/100 points, Semiconductors), Mitsui (33/112 points, Chemicals) and KB Home (15/112 points, Homebuilding).
While most companies are reporting basic water information, such as for overall water use or water scarcity risks, the research showed they have a long way to go. The vast majority fails to disclose water risk or performance data in their financial reports, local-level water data — especially important in the context of their operations in water-stressed regions, or suppliers’ water performance, despite the fact that the majority of many corporate water footprints in found in supply chains.
It should be noted that a company’s lack of disclosure may not be a sign of unpreparedness. “As we read the report, we were pleased we did well,” said Ed Fox, vice president and chief sustainability officer at Pinnacle West, which owns Arizona Public Services, the top-scoring utility. “Most of the information being sought is information we already have but just haven’t reported.”
The risks posed by water scarcity are diverse. The physical risks, for instance, can disrupt business activity, evidenced by the multi-year drought in California, which led farmers to allow more than 100,000 acres of land to go unplanted or be simply abandoned. There are also threats to corporate reputations, where increased competition for water supplies can turn companies and communities against one another, especially in emerging markets where water scarcity issues are more acute.
The regulatory and legal fronts are not immune. As water scarcity becomes more of an issue, municipalities will increasingly move to institute more stringent policies, while companies may be forced to defend themselves in court over their impact on water supplies.
There are however, glimmers of hope. The U.S., for instance, is using less waterthan it did a generation ago. There are also opportunities that are being enjoyed by savvy companies, according to Brooke Barton, lead author of the report. “At the same time,” she said, “companies like Dow and DuPont see competitive advantages to making their products more water efficient.”
This article is reproduced with kind permission of GreenBiz.com.
For daily news and articles visit www.greenbiz.com.
A new report from Frost & Sullivan says the World Bank increased funding for large hydropower projects in 2009. The show of support stemmed from a pan-European agreement to further renewable energy initiatives by taking advantage of hydropower technology.
The World Bank’s investments in many other sectors fell across the board, however hydropower projects drew attention because of the long-term potential of the technology- it is cost effective and carbon-free.
“The European hydropower market has traditionally been viewed as a mature market with few opportunities and five years ago, maybe that perception was not so far off. However, with new opportunities for both new projects and refurbishment work are quickly undermining this perception,” remarked Jonathan Robinson, energy and power systems consultant for Frost & Sullivan.
AFP, 13 February 2010 – Microsoft co-founder Bill Gates has broken from philanthropic work fighting poverty and disease to take on another threat to the world’s poor — climate change.
“Energy and climate are extremely important to these people,” Gates told Friday a TED Conference audience packed with influential figures including the founders of Google and climate champion Al Gore.
“The climate getting worse means many years that crops won’t grow from too much rain or not enough, leading to starvation and certainly unrest.”
Gates said he is backing development of “terrapower” reactors that could be fueled by nuclear waste from disposal facilities or generated by today’s power plants.
He broke down variables in a carbon-dioxide-culprit formula, homing in on a conclusion that the answer to the problem is a source of energy that produces no carbon.
“The formula is a very straight forward one,” Gates said. “More carbon dioxide equals temperature increase equals negative effects like collapsed ecosystems. We have to get to zero.”
To dramatize his point, Gates pulled out a large jar of fireflies in playful flashback to when he unleashed mosquitoes on a TED audience a year earlier while discussing battling malaria.
“They won’t bite,” Gates joked of the fireflies. “As a matter of fact, they might not even leave this jar.”
Gates touted terrapower as more reliable than wind or solar, cleaner than burning coal or natural gas, and safer than current nuclear plants.
“With the right materials approach it could work,” Gates said. “Because you burn 99 percent of the waste, it is kind of like a candle.”
Nuclear waste fed into a terrapower reactor would potentially burn for decades before being exhausted.
“Today we are always refueling the reactor so lot of controls and lots of things that can go wrong,” Gates said. “That is not good. With this, you have a piece of fuel, think of it like a log, that burns for 60 years and it is done.”
Researching and testing terrapower will cost hundreds of millions of dollars, with the building of a test reactor likely to cost in the billions.
Once the technology is proven, market forces will drive down costs, Gates predicted.
Work on terrapower hos been done in France and Japan, and there has been interest in India, Russia, China and the United States, according to the famed philanthropist.
Gates said that if he were allowed a single wish in the coming 50 years, it would be a global “zero carbon” culture.
“If I could pick a president or a vaccine, which I love, this is the wish I would pick,” he said.
“We need energy miracles. The microprocessor and Internet are miracles.
This is a case where we have to drive and get the miracle in a short time-line.”
Gates dismissed climate change skeptics, saying terrapower would render arguments moot because the energy produced would be cheaper than pollution-spewing methods used today.
“The skeptics will accept it because it is cheaper,” Gates said. “The might wish it did put out CO2, but they will take it.”
The world is at “an extraordinary moment” in the struggle to save the climate balance, according to former US vice president Gore.
A vital step will be to put a price on carbon dioxide emissions so the cost of polluting the air gets factored into the global economy.
Legislation to do that has cleared the US House of Representatives and must fight its way through the Senate, where it needs only a few more supporters to send the law on to the willing pen of President Barack Obama, Gore said.
“A price on carbon dioxide emissions can help us make the right decision, not only on nuclear, solar, and wind but on the gamut of energy alternatives available to us,” Gore said.
Gore’s Alliance for Climate Protection has organized groups in 22 US states with “swing senators” in the hope getting the legislation passed “before the political season gets completely wild.”
“These next few months represent the last feasible political window for quite some time to get this done,” Gore said. “So much is at stake we have to double down.”
This article is reproduced with kind permission of Agence France-Presse (AFP) For more news and articles visit the AFP website.
President Obama speaking at the IBEW Local 26 in Lanham, Md. in support of American nuclear energy:
“We need to look no further than the workers and apprentices who are standing behind me to see the future that’s possible when it comes to clean energy.
It’s a future in which skilled laborers are helping us lead in burgeoning industries. It’s a future in which renewable electricity is fueling plug-in hybrid cars and energy-efficient homes and businesses. It’s a future in which we’re exporting homegrown energy technology instead of importing foreign oil. And it’s a future in which our economy is powered not by what we borrow and spend but what we invent and what we build.
That’s the bright future that lies ahead for America. And it’s one of–it’s a future that my administration is striving to achieve each and every day. We’ve already made the largest investment in clean energy in history as part of the Recovery Act–an investment that is expected to create more than 700,000 jobs across America–manufacturing advanced batteries for more fuel-efficient vehicles, upgrading the power grid so that it’s smarter and it’s stronger, doubling our nation’s capacity to generate renewable energy. And after decades in which we have done little to increase the efficiency of cars and trucks, we’ve raised fuel economy standards to reduce our dependence on foreign oil while helping folks save money at the pump…
“So make no mistake: Whether it’s nuclear energy, or solar or wind energy, if we fail to invest in the technologies of tomorrow, then we’re going to be importing those technologies instead of exporting them. We will fall behind. Jobs will be produced overseas, instead of here in the United States of America. And that’s not a future that I accept.”
Michael Kanellos of Greentech Media reports Saudi Arabia’s King Abdulaziz City for Science and Technology has begun work on a solar-powered desalination plant.
Population and industry demands combined with Saudi Arabia’s arid climate have placed great strain on local water resources. As a result, Saudi Arabia has grown into the world’s largest producer and consumer of desalinated water. Currently, the Kingdom accounts for 18% of desalinated water worldwide.
Because desalination plants are high energy consumers, it could turn out to be quite expensive to power such a plant via solar panels. However, the oil-rich nation has been taking active steps towards alternative energy technologies, and it will be interesting to see how this project develops, says Kanellos.
A dramatic increase in investor resolutions dealing with climate change shows that awareness of these risks and how they tie into the business bottom line. This year, 95 such resolutions have been filed, representing a 40% increase over last year’s figures, says a recent study by Ceres, a coalition of investors, environmental groups and public interest groups working to promote sustainability issues. These resolutions have been filed with some of the largest coal, electric power and oil companies in the United States and Canada, including ExxonMobil, ConocoPhillips and Southern Company.
Although Norway is one of the globe’s top producers of oil and gas, the nation is dedicated to advancing alternative forms of power generation. It currently generates most of its own power from large hydroelectric power plants, and scientists at the Norwegian company Sway are now working on building the largest wind turbine in the world.
Reuters, 10 February 2010 – Nasdaq and an arm of Deutsche Bank launched a global alternative energy and clean technology stock index on Wednesday that attempts to provide a pure signal of how the business is performing.
As part of the Renewable Energy Directive of 2009, the European Union pledged to generate 20% from renewable sources such as solar and wind by 2020. According to a new analysis by the European Wind Energy Association (EWEA), the EU is on track to meet those targets.
Before the year is up, Italian solar developers are planning to double the nation’s solar capacity. Favorable goverment tax incentives will expire at the end of the year, and projects are moving ahead at full speed to take advantage of these programs.
“We need to look no further than the workers and apprentices who are standing behind me to see the future that’s possible when it comes to clean energy.
Michael Kanellos of Greentech Media reports Saudi Arabia’s King Abdulaziz City for Science and Technology has begun work on a solar-powered desalination plant.