Post on 16-Jan-2016
description
Carbon Funds in the Emerging Carbon Market and the Role of the Prototype
Carbon Fund
Carbon Finance Conference
February 15th-16th, 2001, London
www.Prototypecarbonfund.org
PCF Status and Focus
Deal flow far exceeds funding - several carbon contracts now under negotiation
� >50 deals with $300m+ carbon purchases under review
� Targeting signed ERPAs of $35-40mm in Argentina, Chile, Cost Rica, Morocco, Uganda, Poland, Honduras, India by end-Summer, 2001
� Reserve ERPAs of $17-22mm in Hungary, Bulgaria, Jamaica, Guyana, Guatemala, Brazil
� conditional letters of intent to purchase to 6 others by end Feb, 2001
Constraints: Government Awareness and Resolve, Quality of Asset after baseline review
PCF Portfolio and Focus
• predominance of wind, waste management, small-hydro and bagasse/biomass co-generation
• strategic focus on building market infrastructure for aggregation and intermediation of small projects
• leaving space for PV, transport, fuel-switching, LULUCF (EITs) and Energy Efficiency
Typology of Funds/Plays
• Pure Carbon Funds (PCF, National Funds)• Private Equity Funds
Aimed at JI/CDM Projects New Energy, RE, EE Funds with Carbon Credits Forestry Funds with Carbon Credits Energy or Forestry Funds that Could Add Carbon Credits
• Mutual Funds with % in Private Equity• NGO Funds• Sustainability, Social, Ethical Mutual funds• Corporate “Funds” Earmarked for Carbon Credit
Investment
Summary Findings from Fund Manager Interviews
• About 5 private sector funds to capture JI/CDM C credits in all investments (UBS, Hancock, Commonwealth, Carbon Trader, Env Fin Prod)
• Handful of private equity funds also seeking carbon credit investors to raise IRR in deals
• Major forestry funds thinking about C credits• New energy private equity and mutual funds might seek C
credit deals if demand rises• Social funds use C as screening indicator• total capital driving C credits: $2.5-4 billion in Energy
sector; $1bn+ in forestry
Carbon Funds(All leverage private finance)
• PCF $145M + potential fund subscription by Participants up to $180m
• Netherlands Clean Development Funds: ~$230m over three to four years
• Commonwealth Bank’s Clean Fuel Program BP is first participant, other companies expected. Funded by consumer “checkoff.” Program invests in GHG mitigation projects in Australia. AGO certifies.
• National FundsAustralian government funds/initiatives The Netherlands – Eru-PT – government funded
Private Equity Funds Aimed at JI and CDM Projects
In PlanningAbout $50M: Aus investors in lead, to mkt Japan, Europe
To invest in C offset forestry projects in Australia
The Carbon Trader carbon unit trust
In planning$????Environmental Financial Products details confidential
In PlanningAbout $100JI Article 3.3. Forestry in US, Australia, NZ
Hancock New Forestry Funddetails confidential
In PlanningAbout $50
Swiss investors
JI & CDM RE, EE, Fuel Switching
UBSdetails confidential
Private Equity Energy Funds with JI/CDM Carbon Credits to Enhance IRR
To Seek Investors March 2001
$150-500MRE in EU, Turkey, E Eur
Black Emerald LeasingPartners
On Hold$400-500MGlobal
RE, EE
CreditLyonnais/
ArthurAnderson
Seeking Investors
$20-35MLatin Am
RE, EE, PC
LA Clean Tech Fund
Seeking Investors
$200-300ME&C Europe
RE, EF
Clean Energy Fund
Operating$70-100ME&C Europe RE, EF
Dexia/
FondElec
Operating$200MGlobal RE, EFREEF
New Energy Private Equity Fundswhich Could Have C Component
?Societa di Gestione Risparmia (Milano)
Launched 2000
US&Eur
RE,EE,other
$35MSAM (Switzerland & US)(includes food)
UnderwayFuel cellsNuveen Investments fuel cell unit trust (US)
ProposedEnergy tech$100MFirst Albany Corp (US)
Launched Clean tech$25MImpax Capital (UK & US)
New Energy Mutual Funds with % in Private Equity or Companies
with possible C Component
1st half 2001 start
Small% unlisted
$50M+
SAM Smart Energy Fund
Planning?$?Innovest New Energy(with C Component)
Launched 2000
75% in priv cos
$113MBank Sarasin New Energy Invest
Launched 2000
25% in priv cos
$300MMerrill Lynch New EnergyTechnology
Private Equity Forestry Funds with Carbon Credits to Enhance IRR
In Planning
No details
$M?US, global?
Environmental Financial Products(details confidential)
Started, one investment
In Planning
No details
>$100M in Brazil
$?M new global
Brazil
Global
Renewable Resources LLC
Two funds:(details confidential)
In Planning>$100MGlobalSylvan Capital Partners(details confidential)
NGO Forest Funds Which Include Carbon Prospect
So far $10M in Belize & SAfrica
$?GlobalFFI Arcadia Fund
Planning
Planning
$30M
?
Both in Latin Am SE Asia
TNC Catalyst Investment Fund
And Carbon Fund
$5M invested
Up to $100M
Southern Countries
CI Tropical Wilderness Preservation Fund
Types of Fund Investments in Projects with Carbon Credits
• PCF invests cash for C credits. Price of C and amount of credits negotiated with equity holders.
• UBS, Hancock, Carbon Trader to invest cash for equity and negotiate for C credits with other equity holders in projects. Investors get return plus C credit, or combination.
• REEF, FondElec, LA Clean Tech will invest cash for equity and negotiate for some/all of C credit with other equity shareholders. Fund may sell C credit to enhance fund returns.
Types of Fund Investments in Projects with Carbon Credits
(Continued)
• Black Emerald to provide equipment lease in return for cash return, depreciation and tax loss benefits, and C credit. May have to negotiate C credit with equity owners of project.
• Commonwealth Bank’s Program: Participants pledge revenues (BP’s penny checkoff on premium petrol). Program invests in projects in return for C credit. Credits owned by consumers and “retired.”
• NGO funds use donor money to buy land or bid on concessions. C credit may be sold and the proceeds reinvested.
Investor Carbon Market Sentiment
• Most fence sitting – waiting for national and international regulations
• Early movers in deals and funds:– have high carbon exposure and regulatory risk,– are seeking strategic positioning – are seeking to influence policy– are at an early stage– wish to capture upside speculative C benefit
• Mainstream investment, “big” money still skeptical
Other Players and Angles
• Investment banks: waiting for market development• Social/ethical/sustainability funds: use carbon as a
screening criteria• Some companies have internal “funds” for carbon
credit investments (e.g., Fortum, Sucor Energy)• Agribusiness companies (Syngenta, Monsanto)• Swiss consortium funding R&D in Africa
Carbon Market Observations IRelative Value of CDM/JI Carbon Financing
• Carbon Prices are NOT >$5/t/CO2 and unlikely to exceed this level before 2005
• At $3-5/t/CO2 Carbon Finance contributes:– typically 0.5-1.5% to Project Financial IRR– 5-10% of project finance in PV terms– Exceptions: Waste management (and methane-driven plays) and
merchant renewables plants cf. coal
• Conclusion:– carbon finance is no “magic bullet”– delicate balance between Protocol transaction costs and carbon
finance volume
Carbon Market Observations IIPrivate Capital and CDM/JI
• Private Capital Flows are Crucial to achieving Protocol objectives of:– technology transfer/sustainable development– climate change mitigation
• Current Financial Incentives are modest AT BEST• Hence, transaction volume/cost must be low and certainty
high to attract private capital• Current Decision Text and Proposals severely restrict
private investment in CDM. Barriers include: – Transferability, Fungibility and Eligibility
Impact of Current Decision Text on CDM/JI
project-based C Trade• Hampers or eliminates:
– secondary market outside of domestic regimes;
– greatly reduces investors incentives and market volume
– arbitrage between domestic regimes for CERs: may render “surplus” CERs worthless at end of Commitment period (fungibility constraint)
– Global Funds: ‘pooling’ of investment from mult-Annex I country investors (due to registration, transfer and eligibility uncertainties)
– much small-country, small project ER trade
– low cost CERs (due to possible baseline rules)
Annexed material
Features of the PCF
• Portfolio or fund structure– Minimize Project Risks
– Reduce Transactional Costs
– Enhance the Learning Experience• Governments: $10 m; Companies: $5 m• Total: US$145 million to be used in 25-30 projects• PCF Products:
– Competitively priced, high quality emissions reductions• target price outcome: $4-5/t-CO2 (= $20/t-C)• target cost of generating ERs: $3/t-CO2 (= $10/t-C)
– High value knowledge asset to help create competitive advantage for corporate investors and efficient market regulation for Parties
PCF Subscribers
Governments: (6)
Netherlands, Finland, Sweden, Norway, Canada, Japan (through Japan Bank for International Cooperation)
Private Sector: (17)
RWE - Germany, Gaz de France, Tokyo Electric Power, Deutsche Bank, Chubu Electric, Chugoku Electric, Kyushu Electric, Shikoku Electric, Tohoku Electric, Mitsui, Mitsubishi, Electrabel, NorskHydro- Norway, Statoil -Norway, BP-Amoco, Fortum, RaboBank, NL
($145 million)