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Market Solutions to Global Climate Change•
Panel Detail:•
Wednesday, April 29, 2009
2:00 AM -
3:45 AM
•
Speakers:
Gregory Arnold, Co-Founder and Managing Partner, CE2 Capital Partners LLC
Gray Davis, Former Governor, State of California; Of Counsel, Loeb & Loeb LLP Chris Hunter, Vice President, Climate Change Capital
Joseph Pettus, Senior Vice President, Fuel & Energy, Safeway Inc.
Richard Sandor, Chairman and CEO, Chicago Climate Exchange Inc.; Senior Fellow, Milken Institute
ModeratorBob Moon, Senior Business Correspondent, "Marketplace"
Carbon dioxide emissions continue to climb
Million metric tons of carbon dioxide
0
200
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1200
1949
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020406080
100120140160
85 87 89 91 93 95 97 99 01 03 05 07 09
Oil prices remain volatile
1985-April 2009, 2007 US$
Aug 90:Iraq’s invasion of Kuwait and
Gulf WarJan 08: Oil
reaches $100 a barrel for first time
March 03: start of Iraq
war
July 08: Oil reaches
highest point, begins descent
Green funds impacted by global downturn
Net asset value, US$
0
5
10
15
20
25
30
35
40
2001 2002 2003 2004 2005 2006 2007 2008 2009
NBSRX
PortX
GCBLX
Global investment in new clean energy US$ billions
05
1015202530354045
2004
Q1
2004
Q2
2004
Q3
2004
Q4
2005
Q1
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Q2
2005
Q3
2005
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Q1
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Q2
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Q1
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Q2
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Q3
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Q1
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Q2
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Q3
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2009
Q1
Source: New Energy Finance.
The American Recovery and Reinvestment Act of 2009 addresses energy
Tax cuts$288B
Healthcare –
$148BEducation$90.9B
Low income aid$82.5B
Infrastructure$80.9B
Energy$49.7B
Housing $12.7B
Scientific Research $8.9B
Other $25.4B
Source: The American Recovery and Reinvestment Act of 2009.
The American Recovery and Reinvestment Act of 2009 Energy Expenditures
Energy efficient smart grid $4.5B
Transmission lines $6.5B
State and local energyInvestment $6.3B
Radioactive cleanup $6BWeatherizing medium incomeHomes $6B
Federal building Efficiency $4.5B
Carbon capture experiments $3.4B
Energy efficiency research (biofuels, Geothermal, alt fuels)$2.5B
Advanced car battery $2B
Energy efficiency andconservation grants $3.2 B
Other $3.7B
Source: The American Recovery and Reinvestment Act of 2009.
Sample matrix of asset classes
and environmental issues
Climate Change Energy Water Biodiversity
Conservation Pollution Agriculture Sustainable Development
Raw Material Usage
PublicEquity
Shareholder dialogue
Best in class screening
Best in classscreening
Private Equity
Alternative energy VC
Bio-Prospecting
VCBiotech VC Municipal bonds for
'smart growth'
BondsTax exempt
'green bonds'Screened corporate
bonds
Tax exempt private water filtration plant
bonds
Tax exempt 'green bonds'
Screened corporate
bonds
LoansCommunity
development loans
Credit Enhancement
Alternative energy project finance
guarantees
Water treatment project finance
guarantees
Sewage treatment project finance
guaranteesLoan insurance
Brownfield development portfolio
insurance
CO2 Trading Wetland banks Carbon sinks Nutrient trading; SOx trading Carbon sinks
Environmental issueEq
uity
Fixe
d In
com
e
Ass
et C
lass
Sample Matrix of Asset Classes and
Environmental Issues
New Approaches
Source:
Barclay’s Capital.
Renewable Investors’
Financing Structure Decision MatrixScenario Developer
can use tax
benefits
Developer can fund project costs
Developer wants to
retain stake in project
Developer wants easy
cash distribution
Project has low
projected IRR
Project already exists
Most suitable financing strategy
or structure
1 No No No Yes N/A No Sell project to strategic investor
2 Yes Yes Yes No No No Corporate
3 No Limited Yes No No No Strategic Investor Flip
4 No Limited Yes Yes No No Institutional Investor Flip
5 No Limited Yes No Yes No Cash Leveraged
6 No Limited Yes Yes No Yes Institutional Investor Flip
7 No Yes Yes Yes N/A Yes Pay as you go
8 No Limited Yes Yes Yes No Back leveraged
What Public Financial Incentives exist
beyond Federal Production Tax Credits?
Source: Clean Energy Group.
State
Renewable Energy
Production Incentive
Property Tax Exemption
Sales Tax Exemption
Other Tax Credits
AZ XCA X XCT XIL XMA X X X XMN X X XNJ XNY X XOH XOR X XPA XRI X XWA X X
Alternative fuel and electric vehicles
offer efficiency and lower emissions
Chevy Volt
Tesla
Plug-in
Prius
Plug-ins can deliver 100 mpg. Hybrids can also run on “flex fuels”
(gasoline, E85, CNG) to extend range.
Top public market transactions in first
quarter of 2009
Organization Country Name & country of stock exchange
Sector Type of transaction New equity raised (US$
millions)
Gintech Energy Corporation
Taiwan Taiwan Stock Exchange (Taiwan)
Solar Secondary 52.8
Wellington Drive Technologies
New Zealand
New Zealand Stock Exchange (New Zealand)
Efficiency Exercise of Warrants/Rights/
Options
5.4
GreenHunter Energy
United States
NYSE Alternext US Equities (US)
Biomass & Waste
Convertible 5
Polaris Geothermal Canada Toronto Stock Exchange
Geothermal Debt Equity Swap 0.9
Polaris Geothermal Canada Toronto Stock Exchange
Geothermal Secondary 0.4
Source: New Energy Finance.
Venture capital in cleantech Q1 2009
Stage/type of investment Amount (US$ billions)
No. of deals
VC early stage .2 17
VC late stage 0.2 10
PE expansion capital 1.1 16
PIPE/OTC 0.3 8
Total new investment in companies 1.8 48Source: New Energy Finance.
Total new investment in companies by
sector Q1 2009Sector Amount (US$ billions) No. of dealsWind 0.7 6Efficiency & low carbon services 0.4 18Solar 0.4 11Biofuels 0.2 8Geothermal 0.0 2Biomass and Waste 0.0 2Marine and Mini-Hydro 0.0 1Total new investment in companies 1.8 48Source: New Energy Finance.
20% wind by 2030 doable with $2 trillion in investment
Sources: U.S. Department of Energy.
Will new capacity meet
renewable targets set by states?
State Goal
? PA: 18%** by 2020
? NJ: 22.5% by 2021
CT: 23% by 2020
WI: requirement varies by utility; 10% by 2015 goal
IA: 105 MW
MN: 25% by 2025(Xcel: 30% by 2020)
TX: 5,880 MW by 2015
? AZ: 15% by 2025
CA: 20% by 2010
? *NV: 20% by 2015
ME: 30% by 200010% by 2017 - new RE
State RPS
HI: 20% by 2020
RI: 16% by 2020
? CO: 20% by 2020 (IOUs)*10% by 2020 (co -ops & large munis )
? DC: 20% by 2020
? NY: 24% by 2013
MT: 15% by 2015
IL: 25% by 2025
VT: (1) RE meets any increase in retail sales by 2012;
(2) 20% RE & CHP by 2017
? MD: 20% by 2022
? NH: 23.8% in 2025
OR: 25% by 2025 (large utilities )5% - 10% by 2025 (smaller utilities)
*VA: 12% by 2022
? *DE: 20% by 2019
? NM: 20% by 2020 (IOUs)10% by 2020 (co -ops)
? NC: 12.5% by 2021 (IOUs)10% by 2018 (co -ops & munis)
ND: 10% by 2015
SD: 10% by 2015
*UT: 20% by 2025? OH: 25%** by 2025
*MI: 10% + 1,100 MW by 2015
? MA: 15% by 2020+ 1% annual increase(Class I Renewables)
? MO: 15% by 2021
*WA: 15% by 2020
28 states have a RPS;
5 states have a RE goalSource:
Source:
DSIRE, Interstate Renewable Energy Council.
State Renewable Portfolio Standards and State Renewable Energy Goals
Financing options for renewable energy plants•
Sources of funds for power plants include: –
Equity–
Debt–
Guaranteed loans–
Secured and unsecured loans •
Debt to equity ratios as high as 80:20 are common, though most wind projects are funded by 40-60% debt.
•
In highly leveraged deals, the cost of debt is of prime importance.•
Tax regulations and available subsidies are essential to funding.Source: Booz, Allen and Hamilton.
Panelist slides
Governor Gray Davis Slides
Calit2 –
San DiegoQB3 –
San Francisco
CNSI –
Los Angeles CITRIS –
Berkeley
Governor Davis Creates California’s Four Institutes for Science and Innovation A bold public/private partnership that guarantees California’s global leadership in innovation
20
Milken Institute Global Conference -
Lessons from California: Clean Tech and Energy Innovation
•
Only 2.5% of available water is freshwater
•
WHO: 50% of world population facing water shortages by 2025
•
UN: by 2025, global demand for clean water will increase:+ 20% for agriculture+ 50% for industry+ 80% for domestic consumption
Researchers have created a membrane that reduces the cost of turning today’s seawater into tomorrow’s drinking water
Solutions for Global Water Shortage
Researchers at the California NanoSystems
Institute have created methods to store the equivalent of large room full of Hydrogen into the gas
tank of a small automobile.
Hydrogen Storage for Clean Energy
To reduce greenhouse gas emissions, technology is being developed to capture and safely store carbon dioxide released from power plants and automobile tailpipes before it reaches the atmosphere.
New materials are also being developed to safely store carbon dioxide below the earth’s surface.
Carbon Dioxide Capture
Researchers have developed new plastic solar cells which are ready for some portable electronics. In the future these “solar cells”
will be found everywhere, including building windows, house paints, and draperies to soak up solar power.
Solar Cells
California’s Progressive Energy Policy Under Governor Gray Davis (Ret.)•
Demonstrating Bold Leadership, Governor Davis:–
Signed America's first
law to address our greatest environmental threat of the 21st century —
Global Warming
–
Signed into law the Nation’s largest Renewable Resources Portfolio Standard
–
Established the Climate Action Registry
–
Signed into law an $850-million set of energy conservation and efficiency programs, the largest in CA history
–
Made the FLEX YOUR POWER
campaign a household mission, where all Californians became incentivized
to save energy, resulting in 1,468 MW of power savings in 2002 alone
25
Milken Institute Global Conference -
Lessons from California: Clean Tech and Energy Innovation
California’s Legislative Action Will Increase Innovation•
California is doing its part–
SB 1078 (2002)
–
calls for 1% annual growth in renewables from 2002-
2017, until 20% of electricity from renewables is reached
–
AB 1493 (2002)
–
requires CARB to develop carbon pollution standards for vehicles produced in model year 2009 and beyond
–
AB 32 (2006)
–
calls for the state to achieve 1990 emissions level by 2020
26
Milken Institute Global Conference -
Lessons from California: Clean Tech and Energy Innovation
Climate Innovation Promotes Economic and National Security•
Increasing America’s reliance on foreign oil contributes to the global climate crisis and leaves us more vulnerable to unstable regimes
–
America sends $700 billion each year to the Middle-East
Milken Institute Global Conference -
Lessons from California: Clean Tech and Energy Innovation
27
Climate and EnergyProjected economic growth in clean energy will increase by $225 billion over the next decade
Source: San Francisco Chronicle, March 7, 2007
Los Angeles Water Supply Sources —
Average Year
Milken Institute Global Conference -
Lessons from California: Clean Tech and Energy Innovation
Metropolitan Water District
53%
Local Groundwater
11%
Recycled Water
1%Los Angeles Aqueduct
35%
29
Chris Hunter slides
Climate Change CapitalClimate Change Capital (“CCC”) is an investment manager and advisor specialising
in the opportunities created by the transition towards the low carbon economy. Our activities aim to make the world’s environment cleaner while delivering attractive financial returns.
CCC is headquartered in London and has offices in Beijing, Boston and Washington D.C. with a focus on the EU, North America and Asia. Through the combined talents of investment professionals, market specialists, thought leaders and access to a significant capital
base, CCC is perfectly placed to deploy capital, at scale, to accelerate the transition to the low carbon economy. We call this Creating Wealth Worth Having®.
Carbon markets are here…
and here to stay
•
Value of worldwide market increased 84% in 2008 to $118bn
•
EU ETS accounts for vast majority of value (80%)
•
CDM Project Market accounted for most of remaining value (17%)
•
Other markets are marginal
Source: New Carbon Finance.
Carbon markets work (when the policy is right)•
Criticism: European left (CDM integrity), USA right (“biggest tax hike ever”)–
While some partial truths, largely miss the point•
Penalize “bad”
(internalize costs) vs. Subsidize “good”
(pick winners)–
Corrects market failure and allows enterprise to innovate–
Cap & Trade is more palatable for politicians (“tax”
is a four letter word)–
Absolute cap provides greater environmental certainty•
Business does not need price certainty in a risk-free environment–
But business does not cope well with massive policy uncertainty•
Government should build confidence by adhering to principles–
Credibility: clear vision & aligned frameworks–
Predictability: interventions based on pre-arranged technical criteria–
Long-term visibility: more than one or two years–
Simplicity: avoid high transaction costs–
Transparency: publicly available information