Argentina’s renewables boom, green bonds, China’s coal glut

Argentina has become one of the latest markets to draw investors in renewables. This week developers won contracts in the second round of a government auction to sell about 1,282MW of clean energy, taking the total commitments made this year in the country’s renewables industry to $4bn.

Wind-power companies including Genneia and Isolux Ingenieria agreed to provide 765MW of capacity across 10 projects, Renewable Energy Undersecretary Sebastian Kind said at an event on 25 November in Buenos Aires. Solar developers including Isolux and JinkoSolar Holding won contracts for 516MW across 20 projects.

The average price the winning bidders will pay to produce energy was $53.34 a megawatt-hour (MWh) for wind and $54.94/MWh for solar.

Argentina is trying to get on the renewables map by jump-starting the industry with annual auctions over the next decade. The auctions are expected to increase output from renewables over that period by 10GW, with investment in the sector estimated at $15bn. More than 80% of Argentina’s capacity today comes from fossil fuels, compared to 1% from wind and almost nothing from solar. The country’s next renewable energy tender is expected in May 2017.

Enel, a strong investor in renewables in South America, made headlines when it announced a new strategy for renewable energy projects that allows it to expand its programme with less investment. The Italian utility cut its target for growth in capital spending for clean energy by almost a third, saying it will invest EUR 5.2bn ($5.5bn) instead of EUR 7.3bn by 2019.

The company plans to recycle capital by selling majority stakes in its projects once power plants are commissioned. The strategy was dubbed “build, sell, operate.” Potential buyers include institutional investors and pension funds. Other utilities in Europe such as Energias de Portugal and Vattenfall already operate in a similar way, choosing to free up capital to invest in new projects rather than retain full ownership of assets.

Meanwhile, spending on combatting climate change in the European Union hasn’t been living up to expectations. The EU is falling short of its goal to spend at least one-fifth of its budget on projects and measures that combat global warming, the European Court of Auditors (ECA) said in a 22 Nov. report.

Although there is time to make up the shortfall before the current budgetary period closes in 2020, there is a serious risk that the EU’s target of spending at least one euro in every five on climate action will not be met, said Phil Wynn Owen, a member of the court of auditors.

The EU budget is planned in seven-year cycles, with the current cycle running from 2014 through 2020. The bloc’s budget during this period amounts to about 1 trillion euros ($1.06 trillion) in commitments, of which around EUR 212bn ($225bn) should be spent on climate-related policies and measures, ECA said in Special Report No. 31/2016.

In contrast, investments that were made this past week include another so-called green bond from Germany. IKEA of Sweden and TIAA Global Asset Management were among over 50 investors that bought $1.5bn of green bonds issued by German development bank KfW.

The five year security paying a 2% coupon was issued 22 November and attracted investors from Europe, the Americas and Asia, according to the bank. The oversubscribed bond, with an average placement of $30m, was also purchased by central banks and insurance and pension funds, according to KfW. Bank of America and Goldman Sachs Group led the sale.

At the same time, overspending has been a concern in China, in this case on unneeded coal-fired power plants. China risks wasting $490bn by building more coal power plants than it needs as slower power demand growth and less-polluting energy sources squeeze coal generation out of the power mix, according to a study from an environmental think tank.

As of July, the country had 895GW of operating coal capacity being utilised less than half the time, with another 205GW under construction, London-based Carbon Tracker Initiative said. The study echoed findings of the International Energy Agency in September that showed China may be investing too much in coal power and suggests generators haven’t responded to the government’s ambition to scale back on the pollution causing global warming.

China installed a record 46.9GW of solar and wind last year, according to Bloomberg New Energy Finance, reflecting the government’s pledge to ratify the Paris accord on climate change and bring greenhouse-gas emissions to a peak no later than 2030. Despite the country’s efforts to clean up the energy industry, coal still accounts for a majority of the country’s power needs.

Part of the solution to pollution levels generated by China’s power system may be in stricter controls. In a new measure, China will put a greater onus on power plants and big industries to track and limit their environmental damage, requiring them for the first time to get government permission—in the form of licenses—to pollute the air and water.

In addition to setting a licensed limit for certain pollutants, the programme will allow the government to impose fees or other sanctions when a company surpasses its limit.

Excessive coal generation is also a concern in Germany. Berlin’s new city administration pledged to pull out of lignite-fired power next year and hard coal by 2030, impacting hard coal plants owned and run by Vattenfall’s German unit.

The capital, one of three city states in Germany, elected a new coalition this summer, made up of the Social Democrats, the Greens and the Left Party. The alliance’s manifesto shows it won’t wait for Chancellor Angela Merkel to announce a national phase-out for coal power and is setting its own schedule. The city will “exhaust every legal possibility” to tie local utilities to phase-out plans, according to the plan.

Source: BNEF. Reproduced with permission.