| | | | | This Week In Review was sent to Monty Bannerman on Tuesday 9 December. | |  | | E.ON splits up with itself, as Germany plans how to meet its 40% goal The European power sector was a-flutter last week after Germany's biggest utility, E.ON, announced plans to split itself in two: in particular, its conventional generation, and mid- and upstream businesses will be spun off into a new entity, while the 'new E.ON' will retain its renewables, distribution and retail units, with the last two activities accounting for over 80% of projected earnings. The restructure is due to be completed by H2 2016. Bloomberg New Energy Finance analysed the implications of the announcement: the new E.ON will still be one of the largest distribution network operators and energy suppliers in Europe. These activities will account for over 80% of the company's projected earnings, though the era of long-term predictable returns for grid businesses may be coming to an end. While renewables will be a runner-up in revenue terms, these technologies will be a core focus of the new E.ON, which will still be a top wind developer. It also said it would "strengthen its solar business", although it will start from a much more modest position in that sector. The new entity, separated off, will be one of the largest generators in Europe but will face the growing challenge from renewables, faltering power demand and unfavourable commodity market conditions. Observers have suggested the spin-off is equivalent of a 'bad bank': indeed, its generating fleet will be relatively old compared with its peers and the company will be left with E.ON's nuclear assets – together with the EUR 16.8bn provisions for nuclear waste management obligations. The question now is whether other energy companies will follow suit: in our view, E.ON's move does not mean the end of the integrated utility as some will continue to value having the natural hedge between generation and supply. E.ON will also be affected by another big development last week, after Germany's Cabinet passed a new climate package to ensure the country meets its 2020 target to reduce emissions by 40% from 1990 levels. The energy efficiency plan is expected to deliver the biggest cut in greenhouse-gas output, of 25-30Mt a year by 2020. But the power sector will still have to achieve a 22Mt annual reduction, though generators will be able to decide how to best to do this. Our Analyst Reaction published the following day found that generators will switch from hard coal with gas, a development that is likely to benefit smaller companies as they generally own a larger share of gas-fired generation. E.ON's split of assets suggests it would benefit more than some of Germany's other large generators. The package must now be approved by the Parliament next year. In addition, the government has said that an ambitious reform of the EU ETS would be required, suggesting the region's biggest economy will be willing to back the market stability reserve (MSR) in EU negotiations. If implemented, the MSR will likely mark a tipping point for the European carbon market. Our new market stability reserve model suggests that if Germany's proposal is implemented, carbon prices could reach EUR 20-30/t levels by the early 2020s, as the market prices in future scarcity. Under this proposal, the MSR begins in 2018 (rather than 2021, as suggested by the European Commission) and the 900m backloaded allowances will not be returned to the market. We expect the MSR to be passed into law next year, with a 2017 start date increasingly likely. Elsewhere in the world, South Korea's Hanwha SolarOne had a bumper week for announcements: on 2 December, it said it was building a factory in its home market for $12m. The facility will have enough capacity to make 230MW of panels a year, increasing the company's total capacity to 2.23GW. The following day, Hanwha announced it had delivered 20MW of modules to Haike Engineering Holding for solar projects in Gansu Province, China; and a day later the South Korean company said it had won an order to supply 20MW of modules to Hong Solar for a project in Inner Mongolia. This confirms the finding of the 2014 Climatescope report – that while China has robust value chains for clean energy, Asia more broadly is becoming a manufacturing hub for these technologies. In the Americas, two state-owned companies, Petrobras and Electrobras, secured all the contracts in the energy auction in Brazil on 5 December. They will receive BRL 3.2bn ($1.23bn) for selling nearly 16.4GW of power. The auction is one of the government's measures to reduce distribution companies' exposure to high power prices due to low hydro reservoir levels. If you are interested in reading more about Brazilian energy, see below for an extract of our interview with Antonio Tovar, head of the renewable energy department at the country's development bank, BNDES. In the meantime, nearly 200 countries are now in their second week of this year's UN climate talks in Lima. Continuing the negotiations' history of unfathomable jargon, Brazil has proposed "progressive caps" to help break the deadlock. What this would likely mean in practice is another get-out clause for developing countries to avoid committing to binding emission-reduction targets under a global framework. Read our guide to the UN climate talks, which end on 12 December. | |  | | Germany has been on a trajectory to miss its target to cut emissions (Mt) by 40% by 2020 on 1990 levels. |  | |  | | Q&A of the week BNDES adapts wind plan to build up Brazilian solar | | | The Brazilian development bank BNDES succeeded in seeding a domestic wind manufacturing industry by making available subsidised loans, and now intends to replicate that model in the solar industry – albeit with some changes. "For the solar sector, we have developed a more flexible methodology. The sponsor can choose the products to be produced in Brazil. For instance, if they choose to buy the junction box in Brazil – it is not a requirement – but if they choose, we can provide more credit for the project. If they produce the cells in Brazil, we can provide an even higher amount of credit," explained Antonio Tovar, head of the renewable energy department at BNDES. Brazil held its first solar auction in October 2014, securing supply of a little over 1GW of electricity. The government is likely to purchase the same amount of new capacity every year for the next three years, and there is demand emanating from smaller projects. The 100 percent state-owned BNDES funds solar projects on a project-finance basis and is also extending support to manufacturers. "We started a discussion with Canadian Solar, with SunEdison, Yingli and many other suppliers," said Tovar. More than BRL 24bn ($9bn) was disbursed to the green economy by BNDES in 2013. This includes disbursements to renewable energy generation projects (including
big hydroelectric plants) as well as loans to manufacturers. "For the next few years, we
are considering a growth of about 10-15% in disbursements to renewables. This
would include wind farms, small hydro, biomass and solar projects," he said. Q: Starting with wind, would you deem the plan to seed a domestic manufacturing industry successful? A: In the wind sector, our installed capacity will reach 5GW by December, doubling over the last two years. We will probably be the sixth-largest wind country, displacing the UK. The auctions in Brazil are successful, and our portfolio of projects is very near the results of the auctions. Today we have large companies manufacturing in Brazil such as Wobben, Gamesa, General Electric, Vestas, Alstom and Acciona, and maybe in the next year, we will have Suzlon and Siemens. We started with very low local content requirements, which were tightened every six months. Today the turbine, the blades and the towers must be produced in Brazil. Q: Is it the same formula for encouraging local manufacturing in the solar sector? A: A: For the solar sector, we have developed... | | | This is an excerpt from the Clean Energy & Carbon Brief published weekly. To subscribe to the Clean Energy & Carbon Brief, click here. | |  | | | | BNEF services | Contact BNEF | Unsubscribe Copyright © 2007-2014 Bloomberg Finance L.P. All rights reserved. This email has been sent to you by Bloomberg New Energy Finance, a division of Bloomberg Finance L.P. Please feel free to forward it to colleagues interested in renewable energy and energy technologies, provided it is complete and identifies Bloomberg New Energy Finance as the source. Bloomberg New Energy Finance does not purchase data from or to third parties. If you have received this from a colleague and would like to receive your own personal copy each week, please contact sales.bnef@bloomberg.net Please send any queries/comments to the Week in Review editor, and make sure you send us your own financial transactions in renewable energy and energy technology sector: editor.bnef@bloomberg.net.
This service is derived from selected public sources. Bloomberg Finance L.P. and its affiliates, in providing the service, believe that the information it uses comes from reliable sources, but do not guarantee the accuracy or completeness of this information, which is subject to change without notice, and nothing in this document shall be construed as such a guarantee. The statements in this service reflect the current judgment of the authors of the relevant articles or features, and do not necessarily reflect the opinion of Bloomberg Finance L.P., Bloomberg L.P. or any of their affiliates ("Bloomberg"). Bloomberg disclaims any liability arising from use of this document and/or its contents, and this service. Nothing herein shall constitute or be construed as an offering of financial instruments or as investment advice or recommendations by Bloomberg of an investment or other strategy (e.g., whether or not to "buy", "sell", or "hold" an investment). The information contained herein should not be considered as information sufficient upon which to base an investment decision. BLOOMBERG, BLOOMBERG PROFESSIONAL, BLOOMBERG MARKETS, BLOOMBERG NEWS, BLOOMBERG ANYWHERE, BLOOMBERG TRADEBOOK, BLOOMBERG BONDTRADER, BLOOMBERG TELEVISION, BLOOMBERG RADIO, BLOOMBERG PRESS, BLOOMBERG.COM, BLOOMBERG NEW ENERGY FINANCE and NEW ENERGY FINANCE are trademarks and service marks of Bloomberg Finance L.P. or its subsidiaries.
The data contained within this document, its contents and/or this service do not express an opinion on the future or projected value of any financial instrument and are not research recommendations (i.e., recommendations as to whether or not to "buy", "sell", "hold", or to enter or not to enter into any other transaction involving any specific interest) or a recommendation as to an investment or other strategy. No aspect of this service is based on the consideration of a customer's individual circumstances. You should determine on your own whether you agree with the content of this document and any other data provided through this service. Employees involved in this service may hold positions in the companies covered by this service. | | | | |
No comments:
Post a Comment