Fwd: Week in Review: Canada’s solar bond sale, Siemens-Gamesa conjoin, wind stirs in Russia

Monty Bannerman
ArcStar Energy
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Date: Tue, Jun 21, 2016 at 10:06 AM
Subject: Week in Review: Canada's solar bond sale, Siemens-Gamesa conjoin, wind stirs in Russia
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Canada's solar bond sale, Siemens-Gamesa conjoin, wind stirs in Russia By Ben Vickers, Bloomberg New Energy Finance This week, a bond to fund Canada's largest solar-power project, located on aboriginal land in Ontario, proved a magic combination for investors who scooped up the new green debt. The C$613 million ($475 million) of notes maturing in 2035 with a 3.926 percent coupon to finance the Grand Renewable Solar Project represent Canada's largest solar-bond sale, according to data compiled by BNEF. They were bought by institutional investors, said Gail Prins Visser of Connor, Clark & Lunn Financial Group Ltd., a partner in the project with Samsung Renewable Energy Inc. and Six Nations of the Grand River Development Corp. This deal comes as solar-power projects expand globally, with as much as 15 gigawatts of new installations expected in North America alone this year, said Carter Driscoll, an analyst at FBR Capital Markets. Total world clean-energy capacity is estimated to be more than 830 gigawatts. See BNEF's 2016 New Energy Outlook here. Solar-power debt can be "extremely attractive" for investors, especially when compared to sovereign debt of similar maturity, Driscoll said, because of the long-term power-purchase agreements that typically provide 20 years of guaranteed revenue from electricity production. "People are desperate for yield," he said. About $27.8 billion in green bonds have been issued globally this year, compared with $35.7 billion in all of 2015, according to data on credited issuance compiled by Bloomberg. BNEF, which forecasts a record $55.8 billion for this year, gives its roundup of 2015 issues here. Indeed, green bonds may grow exponentially in the next few years into a $1 trillion conduit for global climate investments after 2020, according to Citigroup Inc. banker Michael Eckhart. Green bonds "will grow very rapidly once the market framework matures, growing first into hundreds of billions post-2020 and then eventually into a trillion-dollar market," said Eckhart, who helped write the initial voluntary rules that evolved into the Green Bond Principles and will attend the GBP group's annual meeting in London on July 16. Meanwhile, the latest mechanism designed to support solar power around the world is proving wildly successful in squeezing down the cost of energy. And it's also creating new challenges, and hazards, for the renewable-energy industry. From India to Mexico and the United Arab Emirates, authorities are moving away from making fixed subsidy payments for clean energy and toward a system of auctions. The new system forces companies to compete for contracts to sell electricity and has resulted in offers to supply photovoltaic power at record-low rates this year. Bigger markets including Germany and Japan will start the practice next year. Governments shifted toward auctions to rein in the uncontrolled booms that came everywhere that traditional subsidies were tried. While the new mechanism has produced a bonanza of contracts for well-capitalized developers, industry executives are concerned that many of the projects won't make money or get built, endangering company finances and national green targets. "You don't want to end up in a situation where companies go bust and you have a non-sustainable way of setting the right price level in the industry," said Samuel Leupold, vice president of Denmark's biggest utility Dong Energy A/S. Auctions typically have developers bidding down the price at which they're willing to sell power from their planned projects. The lowest bids win long-term contracts to sell energy at that price, and the companies can then move forward with building the plants. In March, a unit of top Italian utility Enel SpA agreed to sell solar in Mexico for $35.50 a megawatt-hour. And in May, Masdar Abu Dhabi Future Energy Co. and Abdul Latif Jameel of Saudi Arabia bid for a photovoltaic project in the United Arab Emirates that set a global record with offers to supply solar power for as little as $29.90 a megawatt-hour. Fortum OYJ won recent auctions in India, pushing a sharp drop in prices there. As utilities come under pressure from the rise of renewables, they are reconsidering their business models and corporate structures. Last week South Korea said it plans to list the shares of eight state-run energy companies as part of a plan to reform the public sector. The companies to be listed include five power generation units of Korea Electric Power, Korea Hydro & Nuclear Power and Korea Gas Technology. Stakes of 20 percent to 30 percent will be offered, with the government retaining at least 51 percent of the companies. The government said it will list the shares from 2017, depending on the state of equity markets. BNEF gives its view on the reforms here. Korea's energy market reform announcement follows recent similar actions in China and Japan. If these reforms are successful, over the next decade, the power sector across Northeast Asia is set to move away from reliance on few vertically integrated energy suppliers to more competitive markets, according to BNEF. In a similar vein, a committee of U.K. lawmakers recommended that National Grid Plc should lose its role of managing the nation's power network and be replaced by an independent operator. The company should be stripped of its grid manager status amid concerns over conflicts of interest with its division that owns international power cables, the Energy and Climate Change Committee said in a report June 17. How the network is managed is coming under increasing scrutiny as the U.K. is set for record-low supply margins next winter, prompting National Grid to keep backup capacity on standby. Among the top deals this past week, Vestas Wind Systems A/S struck what may become its biggest – with a unit of Warren Buffett's Berkshire Hathaway Energy Co. The news lifted the Danish manufacturer's shares the most in more than four months. The preliminary agreement was made with MidAmerican Energy Co. to supply 2 gigawatts of turbines to the Wind XI project in Iowa, according to a statement. The $3.6 billion project is still pending approval with the Iowa Utilities Board. The deal includes supplying and commissioning the turbines and a five-year service period, which could be extended to 10 years. Vestas would supply 1,000 of its V110-2.0 wind turbines, and the transaction could be valued at $1.6 billion, according to BNEF. Still in turbines, consolidation is back on the cards after Siemens AG and Gamesa Corp. Tecnologica SA agreed to combine their wind-turbine manufacturing businesses, creating a company that will be one of the largest in the industry. Europe's largest engineering company will own 59 percent of the capital of the new business, Gamesa said June 17. Gamesa, based in Zamudio, Spain, gets 41 percent and a 1 billion-euro ($1.1 billion) cash payment of 3.75 euros a share from Siemens. That represents 26 percent of Gamesa's share price on Jan. 28 before the two disclosed their negotiations. Together, the two would have about 69 gigawatts of turbines installed worldwide, putting them in a position to surpass Vestas and General Electric Co. Elsewhere, Russian nuclear energy producer Rosatom Corp. plans to spend 83 billion rubles ($1.3 billion) building wind-power generation in Russia. Read the reaction of BNEF analysts here. The investment will go to wind parks generating 610 megawatts by the end of 2020, Kirill Komarov, first deputy chief executive officer for global business development, said in an interview at the St. Petersburg International Economic Forum. The company will recalibrate existing plants to manufacture equipment for wind turbines, he said. Small-scale energy storage costs to fall ~75% by 2040 (US$/Wh) The price for residential energy storage systems is currently around $1.2/Wh and less than $1/Wh for commercial systems. BNEF expects these costs to fall roughly 75 percent by 2040 to less than $0.28/Wh and $0.22/Wh respectively, as detailed in BNEF's New Energy Outlook 2016. Rising electric vehicle sales will help drive down battery pack costs as will greater availability and competitiveness of storage-enabled inverters. The falling cost of residential energy storage will mean that batteries become increasingly important, but BNEF does not expect complete grid defection to be an option for any but the most hardcore adopters.   Enel to add storage to 'more and more' wind and solar The number of battery storage projects set up to supplement variable wind and solar generation is "already growing faster than people expected" and will accelerate as costs come down, according to Enel, the Italy-based utility. Riccardo Amoroso, head of innovation and sustainability for Enel Green Power, which is one of the world's largest renewable energy investors, said in an interview that the company aims to put storage, over time, on "more and more" of its on-grid wind and solar projects. Amoroso, speaking to Clean Energy & Carbon Brief, said that such on-grid applications for batteries would enable renewables "to better dispatch electricity to the grid, and to provide ancillary services." Storage would also develop in two other areas, he said. One would be in micro-grids with wind, solar and diesel generators in emerging markets, and the other would be in conjunction with small-scale and rooftop solar. Bloomberg New Energy Finance, in its long-term forecast to 2040, published on 13 June, predicted that this third category, of behind-the-meter energy storage, will grow exponentially. Capacity will increase from just 400MWh worldwide now, to nearly 760GWh by 2040, on the back of $250bn of investment, BNEF said. Riccardo Amoroso, head of innovation and sustainability for Enel Green Power, spoke to Angus McCrone of Bloomberg New Energy Finance about the future of energy storage, at Enel's headquarters in Rome. The following is an extract from the weekly Bloomberg Clean Energy and Carbon Brief. Q: What do you see as the outlook for energy storage as a complement to variable renewable generation sources? A: Wind and solar costs are going down and they are winning tenders, beating oil and gas on cost. The one issue they have is intermittency. Storage bridges the intermittency issue. I see three pillars of the development of storage in the next few years. The first is on-grid applications. On more and more Enel's wind and solar projects that are on-grid, as costs come down, the aim is to put storage in. This will enable them to better dispatch electricity to the grid, and to provide ancillary services. The second is off-grid applications: renewable energy sources, typically solar, coupled with storage to provide a micro-grid. The typical one is a combination of solar, storage and a diesel genset because, given current storage costs, you are not better off sizing the system using just storage. So about 10 percent of the energy is provided by diesel generation. The third is retail. On-grid, small-scale renewable power plants, mostly solar. If it is rooftop solar, then put the battery storage in the basement to use better the electricity you generate, maximize your self-consumption and minimise how many kilowatts you need to be available from the grid. Q: What is Enel doing in terms of investing in battery storage projects? A: We are working to develop a number of pilot projects to understand the business models and the different technologies. Different countries have their own rules on net metering, grid connection limits and so on. When we have done that, we will be ready to mass-deploy. Now, we have five storage projects in operation, and five more in construction. With the two utility-scale plants in Italy — one of 2MW and 2MWh and linked to a wind farm, and the other of 1MW and 2MWh and linked to a solar plant — the feedback is that they work very well... BNEF services | Contact BNEF | Unsubscribe Copyright © 2007-2016 Bloomberg Finance L.P. All rights reserved. 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