Paris talks, fossil fuel divestment, Abengoa’s woes | RenewEconomy

Paris talks, fossil fuel divestment, Abengoa’s woes

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As Paris talks kick off, the economics of fossil fuels are coming under increased scrutiny as some investors consider long-term prospects and risks.

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The planet is halfway to dangerous levels of global warming, with the average temperature for 2015 set to eclipse last year’s record, the United Nations said, just days before the COP21 climate talks began in Paris.

This year’s average temperature will be “approximately” 1 degree Celsius (1.8 degrees Fahrenheit) above the 1880-1899 mean for the first time, the UN’s World Meteorological Organization said on  25 November. That compares with the 2-degree threshold beyond which scientists say the effects of climate change risk becoming catastrophic.

The data was released in time to spur envoys from 195 nations into action as they prepare for two weeks of talks on a new climate change deal intended to limit warming to 2 degrees. More than 130 world leaders gathered at the UN conference on 30 November to open the negotiations, six years after a similar attempt failed in Copenhagen.

China, the world’s second-biggest economy, has become a driving force for a possible deal in the French capital and has promised to cap emissions by 2030 and to cut carbon intensity by 60-65% from 2005 levels.

In 2014, China added 35GW of new renewable power generating capacity—greater than all the capacity online today in sub-Saharan Africa’s 49 nations combined, excluding South Africa and Nigeria—and attracted $89bn in all types of new clean energy capital, the report said.

Climate funding has become a theme in Paris. Industrial countries and the UN are shining a bit more light on how a key pledge to boost climate-related finance will reach $100bn by 2020.

Three separate announcements set out plans for $2.75bn to flow to poorer nations. That’s dwarfed by the at least $38bn that six development agencies pledged in support for the 2020 climate-aid goal, and those programmes have the potential to leverage billions more from other groups.

“Given the pledges we’ve received, reaching the $100bn goal is perfectly within reach,” French Finance Minister Michel Sapin said. The $100bn is a “floor” that may be looked at every five years as greenhouse gas targets are reviewed.

The economics of fossil fuels are coming under increased scrutiny as some investors consider long-term prospects and risks. German lenders with holdings in conventional power generation are being asked to justify the investments as companies like Allianz switch funds into cleaner forms of energy.

Europe’s biggest insurer has said it will reduce its coal investments and double its spending in renewables from about EUR 2bn ($2.1bn). The move is a gesture of support to the Paris climate talks and to “send a signal to our branch and to capital markets,” said Allianz’s chief investment officer Andreas Gruber in a ZDF television interview.

Allianz’s announcement adds to pressure on German lenders and investors to examine exposure to coal after Economy and Energy Minister Sigmar Gabriel said the nation will close all of its lignite plants, which supply about a quarter of German power. Germany’s biggest banks including Deutsche Bank, Commerzbank as well state lenders like BayernLB retain direct and indirect investments in lignite valued at EUR 8.7bn, the Urgewald climate lobby group said in a report.

“We are now thinking about our position about coal,” Frankfurt-based Commerzbank spokesman Martin Halusa said in an interview after Allianz published the report from Urgewald. Commerzbank has about EUR 3bn linked to lignite, according to Urgewald.

Across the border in France, Caisse des Depots & Consignations, the country’s largest state-controlled financial institution, said it plans to divest shares of companies that don’t make efforts to cut greenhouse-gas emissions. It aims to reduce the average carbon footprint of its listed-stock portfolio by 20% percent from 2014 to 2020, the Paris-based company said. The group and its CNP Assurances and Bpifrance units, which hold shares in 100 French companies listed on the SBF120 index, valued the portfolio at EUR 55bn ($58bn) at the end of last year.

“If the voluntary reduction of emissions by companies held in the portfolio is insufficient in the medium term, the group will reallocate” investments, Caisse des Depots chief executive officer Pierre-Rene Lemas said.

Demand for fossil fuels could wane, according to non-profit think tank Carbon Tracker. Oil, natural gas and coal producers are risking $2.2 trillion by investing in projects for which there will be no demand if the world meets a United Nations target of limiting the rise in temperature to less than 2 degrees Celsius, the group said.

No new coal mines are needed, oil demand will peak around 2020 and growth in gas will disappoint industry expectations, Carbon Tracker Initiative said in a report. The US has the greatest exposure with $412bn of projects at risk up to 2025, followed by Canada with $220bn, China $179bn, Russia $147bn and Australia $103bn, according to the think tank.

The world still needs a lot of coal, gas and oil and carbon-based fuels will meet three-quarters of energy needs over next 30 years, Exxon Mobil chief executive officer Rex Tillerson said 7 October in London.

The industry is divided. The head of Eni, one of the world’s biggest oil and natural-gas explorers, said it’s time to scrap the planet’s reliance on fossil fuels. The industry wants to be part of the solution to global warming but needs a consistent set of policies out of the Paris conference that encourages more climate-friendly fuels, Claudio Descalzi, chief executive officer at Eni, said during a forum on 23 November in New York.

“We have to change the model, a model we’ve built over the last 200 years, which is based on fossil fuels,” said Descalzi, whose Rome-based company is the world’s seventh biggest oil producer by market value.

In corporate news, Abengoa’s bonds and stock tumbled to records after the embattled renewable-energy company said it was seeking preliminary protection from creditors following the breakdown of talks with a new investor.

Abengoa, which employs more than 24,000 people worldwide, has been seeking to reassure investors that it can generate enough cash to service its debt pile of about EUR 8.9bn of consolidated gross debt.

Green bonds continued to make headlines, with HSBC Holdings issuing its first green bond, raising EUR 500m ($531m).

The senior unsecured debt will pay an annual coupon of 0.625%, maturing in five years. HSBC France was the issuer. HSBC joins a handful of commercial banks such as Credit Agricole Corporate & Investment Bank, DNB and National Australia Bank that have issued climate debt.

“This is HSBC’s debut green bond,” group treasurer Bryan Pascoe said. “The success of this trade shows the appeal of green bonds beyond the traditional investor base and shows how the private sector can play an important role in sustainable finance.”

In the UK, the government shed more light on its renewables policy, when Chancellor of the Exchequer George Osborne said spending on renewable heat subsidies will be capped and expenditure on energy efficiency measures will be cut in an effort to curb costs to consumers.

The U.K. also scrapped funding of GBP 1bn ($1.5bn) for a competition to spur carbon capture and storage, a blow to efforts to clean up fossil-fuel pollution from factories and power plants.

The cash will no longer be available for so called CCS technology, which takes emissions blamed for global warming and sequesters them underground, the Department of Energy and Climate Change said. The two groups competing for the funds were a partnership between SSE and Royal Dutch Shell, and another between Alstomand BOC Group.

Nuclear, however, was given a nod. The U.K. plans to build one of the world’s first small modular nuclear reactors in the 2020s, the Treasury said. Britain will plough GBP 250m ($378m) into research and development for the reactors over the next five years, the Treasury said. A competition for funding will be held “early next year,” it said.

Deals in the past week were dominated by Portuguese and French companies. EDP Renovaveis said it will sell its stake in a US wind portfolio with a net capacity of 340MW to a group of investors led by Axium Infrastructure.

The equivalent enterprise value is $590m based on the transaction price and the outstanding and expected tax equity liabilities of the projects, the Madrid-based renewables developer said. The US wind portfolio has seven wind farms with a total installed capacity of 1GW and long-term power purchase agreements. The stake sale is part of EDPR’s “asset rotation program” that generates funds for re-investment and growth.

Electricite de France, the biggest operator of nuclear plants, plans to keep spending EUR 2bn ($2.1bn) to EUR 2.5bn per year to build wind farms, solar parks and hydroelectric dams to almost double its renewable energy capacity by 2030.

The utility will boost that capacity to more than 50GW from its current 28GW by adding about 5GW in France and the rest mainly in Latin America, Asia, the Middle East and Africa, said Jerome Cahuzac, head of EDF’s renewable energies.

Funding announcements included the Inter-American Development Bank’s approval of $500m in financing for renewable energy in Costa Rica. The funding will focus on the construction of geothermal generation plants and other renewable energy projects and infrastructure, the Washington-based multilateral lender said.

The European Bank for Reconstruction and Development said it will invest as much as $500m in utility-scale solar photovoltaic plants in Egypt, with the goal of mobilizing $1.5bn from the private sector.

The London-based development bank plans to install about 700-800MW of solar energy in Egypt, starting next year, said Harry Boyd-Carpenter, a senior banker for power and energy utilities at the EBRD. The main recipient of the EBRD’s funds will be a 1.8GW solar park in Benban in the country’s southeast, he said.

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