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Renewable Money Blog (Please Note, 3rd Party Articles and Twitter Retweets have not be approved as Financial Promotions by Kession Capital)

30
Jan

EIS Outcomes

Likely EIS Outcomes – Park Lane Or Brick Lane, Monte Carlo or Bust

Posted By: Andrew Walker

Original Author: Nicholas Dimmock

Source: 350 PPM Ltd

Compliance Status: This article has been approved by Kession Capital as a Financial Promotion.

Status / Reproduction Status: (either)

  1. This article has been written and compiled by 350 PPM Ltd which is an Appointed Representative of Kession Capital Limited (FRN: 582160) which is authorised and regulated by the Financial Conduct Authority in the UK.

About the Author:

Nick Dimmock worked in the city up to January 2002, latterly as a Trainee Institutional Equity Salesperson in the UK office of Raymond James Financial, Inc (then a 2 Billion USD capitalised investment banking house listed on Nasdaq and NYSE: https://www.nyse.com/quote/XNYS:RJF/company).

Post 9/11, he left Raymond James to found Azure Films Ltd, which operated a number of Section 42 and Section 48 Tax Based Limited Liability Partnerships (LLPs). These partnerships along with other budget components, allowed Azure to Executive Produce a number of commercial films for both cinematic release and television.

All Section 42 and Section 48 investor claims have been honoured by HMRC as of this date and there is no reason to believe that this won’t continue; as the films were genuine commercial opportunities and the tax reliefs were utilised in the manner in which the government intended.

Nick completed an Executive MBA at Cass Business School between 2005 and 2007 and sold out of the Film business in 2007 to join Tullett Prebon’s Emissions Trading Desk. Azure filed for bankruptcy at some point in 2010.

In 2008, he left Tullett Prebon to found Carbon 350 Ltd, which was initially capitalised with £190,000, £90,000 of which was raised under the UK’s Enterprise Investment Scheme. He founded Solar 350 Ltd (a solar developer) in 2013, which has so far raised circa £500,000 under the Enterprise Investment Scheme, and 350 PPM Ltd (a corporate finance house specialising in environmental opportunities) in 2016.

All investor EIS Claims have been honoured by HMRC with investors receiving their tax benefits and very significant increases in Net Asset Value with those that have exited recording gains of over 50% tax free plus their income tax rebates. Actual increases in NAV are £13.50 to £200 for Carbon 350, £2.5 to £17.38 for Solar 350 not taking into account tax reliefs.

Nick’s specialisation is matching highly commercial environmental opportunities, mostly related to The Paris Agreement, with the UK’s Enterprise Investment Scheme.

So, Park Lane or Brick Lane:

The strange thing about the Section 48 Tax Legislation that produced the movie boom of the early noughties was that based on only minor adaptations of the way the legislation was intended to be used, the best outcomes for the investor were either a run away hit / box office smash or a total calamity.

Of course, the tax industry kept pushing the envelope and inventing their own tax schemes based loosely on the legislation which lead to schemes offering huge tax refunds in year 1, which paid huge commissions to introducers, which as soon as the Conservatives got back into power were investigated and thrown out.

There are numerous examples of the above, but here is one: http://moneyweek.com/tax-avoidance-scheme-the-635m-tax-dodge-that-went-wrong/

During my time in the film business, we came up against these weird and wonderful schemes and often lost to them. I suspect the investors were seduced by the upfront tax refunds, although how they could ever think that HMRC would put up with this was beyond me.

I do know a couple of very aggressive film small tax schemes that have up until this time, got away with “murder”, but most of the larger ones are now under investigation or have been challenged and the tax reliefs they provided were provided were either never honoured or have been rescinded, leading to huge unexpected losses for the investors

Our schemes offered from memory a 40% net gain in the first year, this then started to ebb away in year 3 as the movie started to produce receipts. The returns were negative for a short period in the third year and then picked up again during cinematic release . We aimed for huge hits, won Best Film at Berlin for Ae Fond Kiss, Best Comedy Screenplay at Aspen for Keeping Mum but we never had our runaway success.

Under DMCS (Department of Media, Culture and Sport) rules, the government agency that approved the schemes, a film did have to be “made” to access the investor’s tax reliefs. They had their version of what constituted “being made”.

However, a  bit like The Producers, making “Spring Time For Hitler”, a much better strategy could have been to inflate the budget of the movie, snaffle away the budget on fees and make the worst film possible that subsequently bombs. No profits, no worries; the investors leave with their upfront tax reliefs and everything is over in a couple of years.

In a slightly different way, the return characteristics of the Enterprise Investment Scheme are similar.

Enterprise Investment Return Outcomes

Let’s look at some scenarios involving increases in Net Asset Value, effectively the valuation of the company, either produced by increasing revenues, increasing forecasts or the company’s ability to sell the shares at a higher price>

First, let’s say the company goes bust: The maximum downside is 38.5% (based on a 45% tax payer) if everything goes wrong and the company goes bust.

This is how this would work: 30% income tax relief upfront and then loss relief on the remaining 70% at the investors highest rate of tax, in this case 45%. Thus 30% + (45%* 70%) = 61.5% reliefs against 100% original investment means only 38.5% of any EIS investment is actually on the risk. 38.5% is thus the maximum downside for the high rate tax payer.

Second, let’s say the company goes nowhere. These are the doldrums. The ship has not sunk, but its not moving. Let’s say you invest £100K in one company. The Market Cap is say £10 Million on entry, for example. The company invests the money it has raised. In terms of Market Cap or NAV from 100% of the original NAV though to probably 200% in two years. Do remember that these are small companies. It shouldn’t take much to double in size. The business is never, potentially, going to have the cash buy your shares back, nor does it have the explosive growth potential to arrange a trade sale or the cash and prospects to list, both of which could provide you with an exit. Thus, you’re stuck. You have invested 100k, 30% income tax has come back, but 70% is invested and going nowhere. Your stuck and in the doldrums. At least if they would have the decency to go bust you could get another 31.5% back.

If you invest in lots of these business, indiscriminately, relying on the statistical probability that one will be a runaway success making up for all of the others, it could be a case of death by a thousand cuts

Above 200% NAV (Net Asset Value), within 2 years, the business is at least getting some decent traction and has some prospects.

On this basis, really, to make effective use of the EIS, you’re looking for businesses that have the potential to get into the stratosphere or go bust. At least then you have some closure. Park Lane or Brick Lane, Monte Carlo or Bust.

If I Was An Investor

If I was an investor, my thinking would be: ok, based on a a company having a competent and committed management team and some additional cash, where is the next rising economic tide going to come from?

Do I really want to use hindsight to select my companies and follow existing trends? Do remember that many of these businesses are start-ups and so even if the tide is rising quickly, they still have to build their boat.

Or do I want to pick out the next big trend? What domestic or global policy is really going to fuel a sectors growth for the next twenty to fifty years?

What is the biggest trend fast approaching, where I can invest in a young company now and find my 10 to 20 baggers? As you may know 50% of a company’s stock market success is due to its sector so what is the is the paradigm shift in thinking or legislation that is going to give this sector the metaphorical “beans”?

In short, do I want to use Foresight or Hindsight to select my investments?

Of course it is a rhetorical question, but investing is a lot more comfortable when your just following the crowd using existing investment themes.

There are obviously a lot of other things to consider, but as detailed above, you’re looking for Monte Carlo or bust, Park Lane or Brick lane Scenarios; companies that will shepherd in new global revolutions, not just companies that can join established competitive industries.

In Silicon Valley, they encourage business to succeed or fail fast. Maybe the VC’s just want to prepare the budding entrepreneurs for the potential outcomes and provide faster closure for themselves.

Regardless, the chart below shows the realistic return characteristics of investment in the Enterprise Investment Scheme. Those that have the potential to provide an exit.

 

eis investment performance

 

 

So, what is my point.

My points are as follows:

        1. having a few 100% losers is preferable to companies that go nowhere.

        2. Net Asset Value Increases need to be significant to create an exit opportunity for investors.

        3. Based on the fact that 50% of a shares performance is based on the sector it operates in and the fact that investors are financing new companies, it is my opinion that investors really need to look to the future to see the next big trend as opposed to chasing existing trends.

DISCLAIMER AND RISK WARNINGS

The information contained in this article is prepared for general circulation and is intended to provide information only. It is not intended to be constructed as a solicitation for the sale of any particular investment nor as investment advice and does not have regard to the specific investment objectives, financial situation, and particular needs of any person to whom it is presented. In particular, the information contained on this site is not intended for distribution to, or use by, any person or entity in the United Stated of America (being residents of the United States of America or partnerships or corporations organised under the laws of the United States of America or any state of territory thereof) or any other jurisdiction or country where such distribution or use would be contrary to law or regulation or which would subject 350 PPM Ltd or any affiliates to any requirement to be registered or authorised within such jurisdiction or country. The information contained herein is not intended to be passed to third parties without our prior content and may not be reproduced in whole or in part, without the permission of 350 PPM Ltd. The value of your investments and the income from them can fall as well as rise. An investor may not get back the amount of money invested. Past performance and forecasts are not reliable indicators of future results. Currency denominated investments are subject to fluctuations in exchange rates that could have a positive or adverse effect on the value of, and income from, the investment. Investors should consult their professional advisers on the possible tax and other consequences of holding such investments. Your capital is at risk. Tax treatment is dependent upon individual

9
Jan

EIS Companies- Annual Report

Annual 350 Report on Individual 350 Enterprise Investment Scheme Companies For Renewable Money Blog

Posted By: Andrew Walker

Original Author: Nicholas Dimmock

Source: 350 PPM Ltd
Compliance Status: This article has been approved by Kession Capital as a Financial Promotion

  1. This article has been written and compiled by 350 PPM Ltd which is an Appointed Representative of Kession Capital Limited (FRN: 582160) which is authorised and regulated by the Financial Conduct Authority in the UK.

 

Dear 350 Investor,

Please find below the annual report on the 350 EIS companies.

This is set out in chronology of when the businesses started trading, from Carbon 350 in 2009, Solar 350 in 2013 and 350 PPM in 2016.

Additionally, in the future this report will also cover EIS companies that are incubated by 350 PPM Ltd. Currently we are developing two such opportunities: DBI Biomass and Waste Conversion Services Ltd.

I have provided a brief of the two EIS companies below for your interest.

 

DBI Biomass Ltd

According to DBI, DBI will shortly be acquiring the Forestry Management Licence for over 263,000 hectares of prime forest, which we plan to develop as a Biomass Resource.

The licence is due to be novated from “Darnmore Bayupermai Industries PVT”, which is an Indonesian domiciled business. It is the principals of Darnmore Bayupermai Industries PVT, that have formed DBI Biomass Ltd in the UK, for the commercial exploitation of the Forestry Management Licences which are apparently owned by Darnmore Bayupermai Industries PVT and will apparently be novated to DBI Biomass Ltd in due course. I say apparently as we still have to complete full due diligence.

You may have noticed that Drax has just converted its third boiler to Biomass. It’s our opinion that this process / fuel switch represents a true solution to climate change for countries that are not blessed with high and consistent levels of solar irradiation.

There is nothing wrong with cutting older tress down if you replant, especially if your cutting 1 to replant 5. Plus, the Fuel Switch from Coal to Biomass utilising existing infrastructure is believed to be a cheap solution to climate change and the power produced could be the non-intermittent baseload craved by the national grid as opposed to intermittent wind and solar.

There is also a significant reduction in emissions and thus as the crediting systems come back on line via The United Nations Framework Convention on Climate Change, I am sure this process and fuel stock will be a potential winner going forward.

The only other way to deal with the intermittency issue is with batteries, but I can’t see that we can achieve enough capacity. In Q1 2016, the UK generated 92.52 TWh’s of electricity.

(Source: Page 9:https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/532938/Press_Notice_June_16.pdf) A Terawatt Hour is 1,000,000 Megawatt Hours.

The rumour is that to hold just 1 MWh, you need batteries which will stretch from the moon and back, so I cannot imagine that energy storage is cheap.

The report as cited above, also details how much energy was utilised. In the case of Q1 2016, 82.99 TWh’s are consumed, meaning that 10.3% goes to waste ((92.52-82.99)/92.52)*100). I assume some of this wastage is due to various technologies providing power to the grid when it is not needed.

I also don’t believe that this industrial battery storage technology can develop at the rate of Moore’s law, which everyone seems to be saying, and thus, due to the costs of storage, I am a fan of Biomass over Batteries.

There will be a full analysis of this in a future article on the Renewable Money Blog in January titled:

Elon Musk Versus God’s Batteries, which basically compares the use of batteries to Biomass. God’s batteries being trees.

 

Waste Conversion Services Ltd

Waste Conversion Services has the propriety use of a new technology which can “implode” substances, breaking them down into their component parts. I am due to visit the technology provider in January for a demonstration but apparently, the party trick, is that municipal solid waste is poured into the machine and powder and water are the outputs. The demonstrator then drinks the water, so I hope he’s got his resonance calculations right.

The technology works though analysing the molecular vibration of the substance due to be imploded and then replicating sound waves I suspect at just a slightly higher frequency. This increases the vibration and oscillation of the atoms within the molecules, very quickly breaking down the molecule into its constituent parts, which is then separated though a vortex which acts like a centrifuge.

There are many uses for this technology, but this could sit well with DBI Biomass Ltd, as imploding wood down to powder, removing the water would make shipping considerably cheaper.

Apparently, this can implode steel, but I am sceptical until I see this with my own eyes and he drinks the water. The main concerns are does it work and is it reliable. I have briefly investigated some elaborate hoaxes before including a domestic renewable energy solution that doesn’t work unless its plugged in. This made it as far as a working model in a Renewable Energy Conference.

Now onto the company reports:

 

Part 2 – The EIS Companies

Carbon 350 Ltd

The Carbon company landscape is looking rather like a Vietnam platoon. Meaning that while there are some new recruits coming in – some new companies entering this specialist field in view of the developments of The Paris Agreement, the original field is decimated.

Of the original EIS Companies trailblazers, Ecosecurities (http://uk.reuters.com/article/us-jpmorgan-ecosecurities-idUSTRE58D37020090915), Tricorona (http://www.tricorona.se/), Trading Emissions (http://www.hl.co.uk/shares/shares-search-results/t/trading-emissions-plc-ordinary-1p/share-charts) , Climate Change Capital (http://carbon-pulse.com/2974/), Camco (http://www.camcocleanenergy.com/), Grue og Hornstrup A/s (http://www.g-h.dk/), it is only Tricorona and the two latter engineering consultancies that are still operational or independent.

The new interest in the market is due to Article 6 of The Paris Agreement, (in force since November 4th 2016). Article 6 is all about “Internationally Transferred Deterred Outcomes”, which is effectively emissions trading and the trading of carbon offsets.

Source: The Paris Agreement Text, Article 6: https://unfccc.int/resource/docs/2015/cop21/eng/l09.pdf

Of course, Carbon 350 hasn’t succumbed, but the big news is that our main client, a large US Hedge Fund, has filed for Chapter 11. The administrator has taken over and they are liquidating and unwinding what they can. This of course is a doubled edged sword for us.

On the negative side:

      1. they owed us £37,500, which is annoying, and;
      2. we will most likely miss out on some future commissions on some of the projects they financed and we developed and accredited. Unless we can find another buyer, which is of course possible.

On the positive side:

      1. Because they were generally in such a rush to make money, with a lot of the transactions they completed with us, they left the assets in our name, via a connected company to Carbon 350 and then held a debenture over that company just in case we didn’t do what they said / as contracted. This means that hypothetically as long as they don’t liquidate the assets via the administrator, these assets will remain in our names and so rather than a 9% commission, we get a 100% commission (Held in assets). A number of other points should be considered:
        1. They haven’t and shouldn’t be able to liquidate their carbon assets as long as prices stays. They have been trying.
        2. Some of the projects are half financed and thus they would need to add further funding to liberate them.
        3. The crediting periods of many of the projects stretch 21 years forward and as such is this in their interest for the administrator.
        4. Their carbon portfolios are a tiny fraction of their overall portfolios, so can they be bothered.
        5. Are we really going to give the projects up without a fight? And if so, in their present predicament is the administrator willing to spend additional money to wrestle back control of the projects with the current state of the carbon markets.
        6. The whole stream of commissions to us (21 years) becomes due if they sell on the projects, so unless we can secure this in Escrow, I can’t see that we will give up control.
      2. This gives us an opportunity, potentially, in due course, to get stuck into the carcass.

The hedge fund operated in two markets through us: The Clean Development Mechanism producing United Nations Certified Emission Reductions and The Chinese Emission Trading Scheme producing Chinese Certified Emission Reduction for the domestic Chinese mandatory emissions trading market which is due to go live in January 2017.We control most of their large Clean Development Mechanism Projects. The Chinese Emission Trading Projects were done through our partners in China.

In the Chinese Emission Trading Scheme, the hedge funds are around half way through funding these but a typical transaction looks like this.

A typical transaction might look like this:

$40,000 Development and Accreditation Cycle Costs

50,000 Emission Reductions per Year per project

21 Year Crediting Period

75%/25% Split of Offset Value between Project Owner and Accreditation Financier, (although the later transactions moved further into the favour of the project owner with 85%/15% becoming the standard).

$2.36 Per Chinese Certified Emission Reduction (although this is variable).

In other words, the hedge fund invested $40,000 and is set to make:

50,000 Emission Reduction @ $2.36 (the price) * 25% (the hedge fund’s share = $29,500 per year for 21 years, if prices hold.

Our commission is circa 9% of what they make.

Chinese CCER Prices Haven’t Held

In my view, the problem of late is that CCER (Chinese Certified Emission Reduction) prices have been falling due to overallocation of emission trading allowances, oversupply of CCERs and reductions in the substitution limits (emission trading schemes are made up of Emission Allowances and Emission Credits. The substitution limits are the proportion of emission credits to emission allowances that can be used / retired to hit the polluters emission targets).

These factors were the same issues as were experienced by the European Union Emissions Trading Scheme, only with the Chinese market there is no facility to hedge prices forward.

We will have to see how things eventually play out in regard to the Chinese Emission Trading Scheme, as the regional pilot scheme are now being combined into a National Emissions Trading Scheme (http://carbon-pulse.com/17057/) and of course, The Paris Agreement is now in force.

There is now quite a lot of reform going on in the European Union Emissions Trading Scheme (EU ETS) (Source: http://ec.europa.eu/clima/policies/ets/reform_en) and this should lead to higher prices of allowances and offsets. Specific to Certified Emission Reductions, the substitution limit on the European Union Emissions Trading Scheme supposed to be increased from circa 8% to 50% and then 100% based on the agreement of a new global treaty with all nations participating.

Well this has happened now, so why isn’t the substitution limit increasing?

In short, it is all about how the world seeks to solve the problem: are we going for international trade and co-operation or isolationism and protectionism.

Whichever way, it’s my belief that emissions trading the best mechanism to solve the problem.

Carbon Pricing and Mandatory Emission Trading Schemes

According to the World Bank, “Already, about 40 national jurisdictions and over 20 cities, states, and regions are putting a price on carbon”.

(Source: World Bank, State and Trends of Carbon Pricing 2016. http://documents.worldbank.org/curated/en/598811476464765822/pdf/109157-REVISED-PUBLIC-wb-report-2016-complete-161214-cc2015-screen.pdf) .

Pricing in mandated schemes currently ranges from less than 1 USD to 131 USD in Sweden. Source as above.

In my mind, Carbon pricing and offsetting is the most effective subsidy mechanism to reduce emission and thus fight global warming. If you wish to lose weight, the best idea is to target the root cause of the problem; calorie intake. The principle is the same for emission.

If you want to reduce emissions, attack the root cause; put a price on carbon and incentivise emission reducing projects. If this is done via the United Nations, it should stop individual countries continuously changing the rules to suit themselves which has happened in environmental markets throughout the world.

By the way, many projects are still being registered under The Clean Development Mechanism

Here are the latest projects from June 2016 to be registered with the United Nations Framework Convention on Climate Change under the Kyoto Protocol. Surely, they are not just doing this for the experience.

7 Jun 16 Implementation of Co-generation plant for Production of Potable Water in Qeshm Island Iran (Islamic Republic of) AM0102  135445 10161
15 Jun 16 Replacement of Main Oil Line (MOL) Pumps at Neelam & Heera Asset of ONGC India AMS-II.D. ver. 13  10539 10302
15 Jun 16 Sogamoso Hydroelectric Project Colombia ACM0002 ver. 16  1386355 10236
14 Jun 16 Waste Heat Recovery based power generation by Shree Cement Limited at Ras, Rajasthan, India India ACM0012 ver. 6  97005 10189
13 Jun 16 Energy Efficiency measures in Buildings of the Mindspace Airoli Project, Navi Mumbai developed by Serene Properties Pvt. Ltd India AMS-II.E. ver. 10  15641 9457
09 Jun 16 4 MW Small Hydro Project by Shansha Hydro Power Project Co-Operative Society Ltd. India AMS-I.D. ver. 18  18725 10112

 

Accordingly, there still seems to be a belief that this market will continue post 2020 as The Paris Agreement’s reign starts and the Kyoto Protocol hands over to The Paris Agreement.

 

Carbon 350 Summary

Carbon 350 fortunately has very low overheads and thus we have been able to ride out these market fluctuations. Having acted as broker as opposed to principal has also helped.

Regarding the demise of the hedge fund, we are down £37,500 GBP, and probably quite a few commissions, but our share of the large CDM projects is up from 9% to 91% and it is my feeling that the high quality, fully fungible United Nations Credits could increase in value first as the market recovers. The quality assets always recover first and UN Certified Emission Reductions are just this.

Carbon 350 shares started at £13.50 and we raised £90,000 to get us going under the EIS (Enterprise Investment Scheme). In the boom years, Net Asset Value per share was easily over £1,000 and is now sitting at £200 per share although we haven’t run the calculation as yet to reflect the hedge fund’s demise.

Unfortunately, we have no immediate strategy for Carbon 350 although we are exploring a very interesting Oil and Gas project which involves recycling components from decommissioned oil rigs.

Hopefully, by next year we should have greater clarity in regards to how things will play out.

For now, we continue to sit on our hands.

Solar 350 Ltd

While there has been very little development of Solar Power in the UK and Europe of late, the rest of the world has been booming. According to REN 21 Global Status Report (Source: Page 19, http://www.ren21.net/wp-content/uploads/2016/10/REN21_GSR2016_FullReport_en_11.pdf) globally there has been an increase in installed capacity for Solar Photo Voltaic of 50 GW from 2014 to 2015.

Based on the rule of thumb of $1M per MW constructed, this is:

50 GW (new installed capacity in 2015) * 1000 (to get from GW to MW) * 1,000,000 United State Dollars (costs per MW for installing) =

$5,000,000,000 or 5 Billion USD worth of solar installed in 2015.

The main contributors to this have been:

        1. China: +15.2 GW (although they have been putting in 20 GW per year over the last 5 years), so this is dropping as subsidies decrease.
        2. Japan: +11 GW (this has been running at about 10 GW per year)
        3. United States: 7.3 GW (pretty standard per year for the US).

Source: http://documents.worldbank.org/curated/en/598811476464765822/pdf/109157-REVISED-PUBLIC-wb-report-2016-complete-161214-cc2015-screen.pdf

The International Energy Agency (IEA) estimates to achieve the objectives of the Paris agreement, global investment in renewables needs to increase by $36 trillion above the base case scenario between 2016 and 2050. Based on an immediate increase in investment, breakeven should be achieved by at 2025, and by 2050, $100 Trillion will have been saved in fossil fuel input costs”. Source: International Energy Agency: http://www.iea.org/Textbase/npsum/ETP2012SUM.pdf

Solar’s share of this renewable energy spend, if present ratios hold (but are more likely to increase as awe see the demise of wind), would be 28.5%.

It is against this backdrop that we are currently negotiating a Memorandum with an offshore Chinese investment company connected to one of the largest renewable energy companies in China (+10,000 employees, listed in multiple jurisdictions, multiple technologies, manufacturer & EPC, 10+ GW installed capacity worldwide).

The first test transaction is now complete and by early next year we intend to sign Memorandum of Understanding for them to invest a further £200,000 with a view to extending their investment by $10,000,000 per project subject to us making considerable progress with the £200,000.

Based on a finance plan to construct all the projects we are developing as follows: 10% Equity,65% Debt, 15% Mezzanine Debt (from Chinese sourced equipment), 10% Project Rights (the Ready to Build Asset with all planning and permits), their investment and assistance should allow us to not only develop the sites to ready to build, but as evident construct and operate the plants.

Basically, in simple terms, if this was housing, a brick manufacturer is investing in us, will provide the equity we need to build the houses and will provide preferential credit terms on the bricks we use.

What is their rationale for doing this? Well in China, from what we are hearing, the solar sun is setting, the government is not paying out on its PPA promises and the lack of aggregate demand in their domestic market means that they have excess inventory. Of course, they are going to want their pound of flesh, but as there are also private investors invested in the company which is offshore, this also allows Chinese investors to gain invest outside China.

Making the Most of Their Investment in Us

To make the most of the £200,000 we intend to secure, Solar 350 plans to Crowdfund, using the Chinese Investor as a cornerstone investor via Syndicate Room. Syndicate Room is the only platform that requires Crowdfunding companies to provide cornerstone investors for 25% of the targeted raise. We have looked at quite of few of the Crowdfunding Sites and Syndicate Room, is in my opinion, and although we still have to Crowdfund, is one of the best. (https://www.syndicateroom.com).

They have also avoided a lot of the criticism of other platforms as detailed on Rob Murray Brown’s Blog, The Truth About Equity Crowdfunding” (Source: http://fantasyequitycrowdfunding.blogspot.co.uk/).

Our Reorganisation

As you know, Solar 350 had a bit of a reorganisation in July to cut costs so we could devote more money to project development and less to operating overheads. The accounts for June 31st 2016 should shortly be available and I will provide them to you all on this blog. For the record, my takings in this year, June 2015-2016, were roughly zero, accordingly to our accountant.

The reorganisation also involved transferring basic funding requirements to a separate company, namely 350 PPM Ltd. For this reason, we could rid ourselves of the office and run a leaner and meaner operation, thus diverting more resources to project development.

350 PPM Ltd is headed by Tim Hyett and is now an Appointed Representative of Kession Capital, which is Authorised and Regulated by The Financial Conduct Authority.

Project Development and Strategy

From one project at Indicative Study and one Ready to Build Optioned, we intend to greenlight 1 utility scale development project every three months. As detailed above, it is our intention to go on and construct and operate these plants subject to funding.

Our main focus is planned to be Mexico as we see this as the gateway to the rest of South America. There are many compelling reasons why Mexico can be the centre of solar development over the next 5-10 years. The main ones being; rapidly developing economy, right wing government, rapidly expanding industrial and manufacturing sector, lax labour laws, recently deregulated power markets, existing reliance on Gas, and accordingly high power prices, low interest rates, high levels of solar irradiation, supportive subsidization, and a nascent carbon market.

The increasingly isolationism of The United States via President Trump, probably aids our cause and I have no issue with the US mining its own coal as opposed to importing from China. In fact, its emission reducing.

Solar 350 Summary

In summary, Solar 350 was always going to require more funding to get going than Carbon 350. It has not benefitted in the same way from the rapidly “rising economic tide” (which hopefully is just around the corner) and has required more co-ordination than when we were simply acting as a broker.

However, the Chinese input as well as additional financiers we are in touch with should make a real difference in the number of projects we could develop and accordingly, so long as the Memorandum is signed, which it should be by January, Solar 350 should take off nicely in 2017.

From one project at Indicative Study and one Ready to Build Optioned, we intend in greenlight 1 utility scale development project every three months. As detailed above, it is our intention to go on and construct and operate these plants subject to funding.

In terms of Share Price genesis, we raised very small amounts in the early years under SEIS at £2.50 and while there hasn’t been much activity of late, the Chinese investment company price on the trial transaction that has now banked was £17.36 on 21st December.

350 PPM Ltd

Tim Hyett, FSCI (Fellow of The Chartered Security Institute) and ex Equity Dealing Director of Foreign and Colonial Investment Management Ltd, and formed Member of The London Stock Exchange, joined 350 PPM Ltd as Managing Director in November 2015.

Although 350 PPM Ltd had been an Appointed Representative earlier, we finally got clearance from Kession Capital in August 2016 and the business is planned start trading in earnest early next year.

350 PPM Ltd is billed as:

.. an environmental incubator for early stage Environmental Developers, Projects and Technologies that 350 PPM believes will benefit substantially from the implementation of The Paris Agreement.

350 PPM identifies such companies and facilitates the acceleration of the business’s development across 5 distinct phases. The five phases are:

  1. Application, Market Analysis & Feasibility, Refining the Business Plan.
  2. Networking and Market Testing.
  3. Goal Identification, Niche Identification and Gap Resolution.
  4. Raising Capital and Execution of the Business Plan.
  5. Generating Revenue & Listing.

 All companies raising funding on this website undergo the same process. For more information on incubated companies please visit the Investor Centre.

Source: http://350ppm.co.uk/

The Incubation Model

The incubation model works very different to the majority of crowdfunding models in that we may have been working with a company for 2 years, providing “keep going” funding before the company actually crowdfunds.

If you look at some of the horror stories of Fantasy Equity Crowdfunding (Source: http://fantasyequitycrowdfunding.blogspot.co.uk/), some of these businesses are chasing existing trends playing catch up; the next “Uber”, or a new web based service for Mums, a new app, a web based estate agent for example.

They write a business plan, provide forecasts, raise cash and then try to operate at 100% from the start and typically run out of money before they have really developed the business or found out the gaps in their capabilities.

Or alternatively, the business was never commercially viable from the start and would need vast scale to actually work. Of course, the way to get scale cheaply, is to be the first mover, but as we have discussed many of the businesses crowdfunding are chasing an idea or theme and to enter the market at this point requires a lot of cash. Ironically, it is only because the sector is hot in investor’s minds that they fully fund. In reality everyone else has left the start line and is two laps ahead.

The same problem is inherent with many financial brokers. The financial opportunities that are believed to be easiest to place with clients probably exist in booming industries and while they still may appreciate in value,AlanAlan they are still chasing the market.

350 PPM Ltd Summary

Thus 350 PPM’s approach, by providing some early stage financing (very nominal amounts), in regard to opportunities with The Paris Agreement, is much more of a value investor play, as opposed to momentum investment.

Regardless, 350 PPM Ltd is designed to assist in the development of such business in just the same way that Solar 350 has developed or Carbon 350 before it. We intend to develop the technological aspects of the company in much the same way that crowdfunding companies do, with the exception being that we only wish for a limited number of client companies that we focus on until they are, metaphorically speaking “in the air and flying”.

At present, come January 2017, 350 PPM Ltd plans to begin actively market Solar 350 across digital channels. The objective being to build additional cornerstone investors in anticipation of Solar 350’s debut on Syndicate Room. Effectively, Syndicates Room’s policy is that cornerstone investors must invests 25% of the target amount after which Syndicate Room’s investors will take over and accordingly the bigger we can build Solar 350’s internal book, the more we can raise from Syndicate Room. Of course, with any luck we will start with the £200k from China.

350 PPM Ltd intends to of course promote additional opportunities in the coming months and years such as the opportunities detailed at the start of this report, but initially full focus will be on Solar 350.

Part 3 – The Enterprise Investment Scheme Update

Enterprise Investment Scheme

Everyone should now have received their SEIS 3’s or their EIS 3’s. As you know, these are the certificates that can allow you to reclaim your income tax rebates, avoid CGT, IHT etc.

Please note, do not send these into HMRC. They might lose them and may never return them. All you need is the code on the front to put on your tax return. We have already submitted your names and all the details of the transaction, which apparently go into the core database at The HMRC / Small Companies Enterprise Centre. Thus, they know you are eligible to claim already – all you need to do is provide them the number.

For those of you that did subscribe in November and December, all the applications will have been made by Friday 24th December. Cater Chartered Accountants (our EIS Administrator) will try to hurry these along, so we can provide you with your SEIS/EIS3 3’s before end of January, just in case you wish to submit these to count against tax liabilities of the previous tax year 14/15. EIS Investors info here

Part 4 – Overall Conclusions

We are going to be posting this annual report on our Renewable Money Blog. In the time between the Summer and Winter reports and in absence of any telephone contact, which I acknowledge has been a little lacking late, this is where you can find the latest 350 developments and news on the environmental sector: http://350ppm.co.uk/blog/.

If you would like us to email you directly with new articles and updates, all you have to do is subscribe for our Newsletter. All you need to do is enter your email address at the top right of the page in the box above the “SUBSCRIBE” and the website does the rest.

For the latest news on the environmental sector, the twitter feed which is just below the SUBSCRIBE button on the right-hand side, details all the latest news from the environmental sector. If you click on “VIEW ALL TWEETS”, just below actual twitter feed, this opens up a new page, showing the tweets and links in their entirety.

Or you can just click here for ease: http://350ppm.co.uk/tweets-by-nickd350/

So, in finishing, thank you for all your kind words of support. While I don’t always reply to these emails, I find them very encouraging.

Wishing you a wonderfully exceptional 2017,

Yours Sincerely, 

eis companies

 

 

 

Nick Dimmock

350 Founder

DISCLAIMER AND RISK WARNINGS

The information contained in this article is prepared for general circulation and is intended to provide information only. It is not intended to be constructed as a solicitation for the sale of any particular investment nor as investment advice and does not have regard to the specific investment objectives, financial situation, and particular needs of any person to whom it is presented. In particular, the information contained on this site is not intended for distribution to, or use by, any person or entity in the United Stated of America (being residents of the United States of America or partnerships or corporations organised under the laws of the United States of America or any state of territory thereof) or any other jurisdiction or country where such distribution or use would be contrary to law or regulation or which would subject 350 PPM Ltd or any affiliates to any requirement to be registered or authorised within such jurisdiction or country. The information contained herein is not intended to be passed to third parties without our prior content and may not be reproduced in whole or in part, without the permission of 350 PPM Ltd. The value of your investments and the income from them can fall as well as rise. An investor may not get back the amount of money invested. Past performance and forecasts are not reliable indicators of future results. Currency denominated investments are subject to fluctuations in exchange rates that could have a positive or adverse effect on the value of, and income from, the investment. Investors should consult their professional advisers on the possible tax and other consequences of holding such investments. Your capital is at risk. Tax treatment is dependent upon individua

 

 

 

20
Dec

EIS-INVESTMENTS

Article Name: Green Investing Solutions through The Enterprise Investment Scheme

Posted By: Andrew Walker

Original Author: Nicholas Dimmock

Source: 350 PPM Ltd

Compliance Status: This article has been approved by Kession Capital as a Financial Promotion.

Status / Reproduction Status: (either)

  1. This article has been written and compiled by 350 PPM Ltd.
  2. 350 PPM Ltd is an Appointed Representative of Kession Capital Limited (FRN: 582160) which is authorised and regulated by the Financial Conduct Authority in the UK.
  3. Tax treatment is dependent upon individual circumstances and may be be subject to change in future.

 

Green Investing Solutions through The Enterprise Investment Scheme

An excerpt from the Government’s Review of the Enterprise Investment Scheme is detailed below:

Start of Excerpt:

2.2 Enterprise Investment Scheme – EIS Investments

EIS – The Number of EIS Companies and Amount of EIS Investments

Since EIS was launched in 1993-94, over 24,500 individual companies have received investment through the scheme, and over £14 billion of funds have been raised.

The numbers of companies raising funds under EIS and the level of investment have shown similar trends since the scheme was introduced [fig. 1]. The number of companies raising funds peaked at 3.315 in 2000 – 1 [which reflects the dot com boom in 2000] compared to 3,130 companies raising funds in 2014-15. The amount of funds raised in 2014-15 [£1,663 million] is higher than in any previous year. Read the full article HERE

20
Dec

Green Investing?

Green Investing?

Original Author: Nicholas Dimmock

Source: 350 PPM.co.uk 

Compliance Status: This article has been approved by Kession Capital as a Financial Promotion.

Status / Reproduction Status: 

  1. This green investing and green investment solutions article has been written and compiled by 350 PPM Ltd.

  2. 350 PPM Ltd is an Appointed Representative of Kession Capital Limited (FRN: 582160) which is authorised and regulated by the Financial Conduct Authority in the UK.

  3. Tax treatment is dependent upon individual circumstances and may be be subject to change in future.

Green Investing ?

I was invited to a Green Conference a few months ago,

Apparently, the company that had advised the Government on Renewable Energy / Green Issues  was going to be there and their Managing Director was going to be presenting and speaking on their experts panel. Read the rest of the article here.  GREEN INVESTING

15
Sep

Stranded Assets and Potentially The Next Economic Shock

THE ECONOMIC CYCLE

I subscribe to the 18-year economic cycle theory. I studied Behavioural Finance during my MBA and then completed my Thesis on The Cycle of Investor Emotions.

As such, bearing in mind that we remember the last 3 years most clearly, it is no surprise to me that reliably, about every 7 years we (the human race) get ahead of ourselves and every 14 years, every significantly ahead of ourselves.

Most of these shocks start with a crisis of confidence, maybe a fear of heights, but the crisis of confidence is based on some factor or another and at this point everyone realises how crazy everything is getting and the fear machine then feeds on itself in a kind of sickening spiral; a feedback loop if you like.

This generally results in two types of economic shock: a market shock that doesn’t get any government assistance and then a larger shock often related to the housing market that does need government assistance to put things right.

So the dates and times don’t fully conform with the 7-year expansion, hiccup, 7-year expansion and then 4-year recession, but looking at the figures below, you can see that it just about works.

cycle

Source1: Nicholas Dimmock, 350 PPM Ltd, based on Google Search: “7 Year Economic Cycle” or google search “18 Year Economic Cycle”.

The a more complete chart detailing just the 18 year intervals, is detailed below:

18-year-economic-cycle

Source2: The Epoch Times: Economists Explain Why Our Economy Crashes Every 18 Years: http://www.theepochtimes.com/n3/2000510-economists-explain-why-our-economy-crashes-every-18-years/

Obviously there are some considerable events related to specific years here, but it is logical to assume that roughly every seven years, we get ahead of the economy and there is a correction.

This leaves me wondering what will happen to upset the proverbial apple cart in 2017-2018 and how can we (350) prepare ourselves for it.

I have haven’t discounted Brexit totally and this is a very considerable worry, but actually, it doesn’t affect our business and this is more of a domestic problem. The shocks detailed above are much more global.

However, for quite a while the fossil fuel divestment campaign has been gaining strength and is no longer gaining traction just based on environmental, we need to save the planet/tree/forna/flora concerns. Its gaining traction on very significant financial concerns about fossil fuel company valuations:

HYPOTHESIS BASED ON THE PARIS AGREEMENT

My hypothesis (and probably a number of other people’s as well) is as follows:

  1. The Paris Agreement, which has now been signed by 177 countries, is designed to keep average global temperatures within 2 degrees of pre-industrial times. Source: The Paris Agreement, Article 2, Point 1, A: https://unfccc.int/files/meetings/paris_nov_2015/application/pdf/paris_agreement_english_.pdf
  1. Because CO2 levels and temperatures are highly correlated, this creates a carbon budget; an amount of CO2e (carbon dioxide and equivalent greenhouse gases) that we can pollute the atmosphere with and still stay under the 2 degrees. Source: National Climatic Data Centre: http://www.ncdc.noaa.gov/paleo/globalwarming/temperature-change.html
  1. Fossil Fuel companies are partly/mostly valued on the reserves they have in the ground. However, to keep within 2 degrees only about a third of what they have in the ground can be taken out and burnt. Based on this, there is a significant mispricing of these companies. Carbon Tracker: Section 19: https://www.carbontracker.org/wp-content/uploads/2014/09/Unburnable-Carbon-Full-rev2-1.pdf
  1. As fossil fuel companies represent such a significant portion of our global GDP, the re-pricing may in turn cause a very significant economic shock across all economies. Source: Forbes: http://www.forbes.com/sites/quora/2013/04/03/what-are-the-top-five-facts-everyone-should-know-about-oil-exploration/#22e8fce1127d
  1. The term used to describe these assets, which make up a fossil fuel companies valuation, yet cannot be utilised and burnt, is Stranded Assets. Source: Carbon Tracker: http://www.carbontracker.org/report/stranded-assets-danger-zone/

OTHER CONTRIBUTORS

Carbon Tracker (http://www.carbontracker.org/) , estimates $2.2 trillion worth of fossil fuel company’s assets are potentially stranded assets. i.e. they can’t be used. And because they can’t be used, they shouldn’t hypothetically contribute to a company’s value. Accordingly, this could mean that fossil fuel companies are mispriced.

And now specific fund management groups are establishing themselves: http://www.theguardian.com/environment/2015/may/06/climate-change-must-be-tackled-by-the-markets-say-city-grandees

In addition, other companies are establishing themselves to help institutional investors manage risk and maximise returns in a carbon constrained world. Further information on one such company can be found here. Source ET Index: http://etindex.com/

Here is the list of divestment commitments gained so far: http://gofossilfree.org/commitments/

Of course these things start slowly, but if you look at a chart of The Dow Jones Oil and Gas Index, there is nothing too impressive here (in my personal opinion).

dj-oil-and-gas-index

Source: http://markets.ft.com/research/Markets/Sectors-And-Industries/Oil-and-Gas

RISK WARNING

The information contained in this website is prepared for general circulation and is intended to provide information only. It is not intended to be constructed as a solicitation for the sale of any particular investment nor as investment advice and does not have regard to the specific investment objectives, financial situation, and particular needs of any person to whom it is presented.

In particular, the information contained on this site is not intended for distribution to, or use by, any person or entity in the United Stated of America (being residents of the United States of America or partnerships or corporations organised under the laws of the United States of America or any state of territory thereof) or any other jurisdiction or country where such distribution or use would be contrary to law or regulation or which would subject 350 PPM Ltd or any affiliates to any requirement to be registered or authorised within such jurisdiction or country. The information contained herein is not intended to be passed to third parties without our prior content and may not be reproduced in whole or in part, without the permission of 350 PPM Ltd.

The value of your investments and the income from them can fall as well as rise. An investor may not get back the amount of money invested. Past performance and forecasts are not reliable indicators of future results. Currency denominated investments are subject to fluctuations in exchange rates that could have a positive or adverse effect on the value of, and income from, the investment. Investors should consult their professional advisers on the possible tax and other consequences of holding such investments.

19
Apr

$2.5trn of global financial assets at risk from climate change

$2.5 trillion of global financial assets are at risk from the effects of climate change, according to a report.pound

The report, produced by the London School of Economics and Political Science (LSE), the Grantham Research Institute and Vivid Economics, looks at the value at risk (VaR) associated with financial assets should global temperatures increase by 2.5°C by 2100.

This warming figure is believed by the report’s authors to be the ‘business-as-usual’ emissions path if all of the commitments made at December’s landmark Paris agreement are implemented. The summit concluded with an agreement to limit global warming to 2°C but the commitments made by countries so far are insufficient to meet this target.

The report says that climate change can damage the value of financial assets in two ways, directly or indirectly. First, it can directly destroy or accelerate the depreciation of capital assets, for example through extreme weather events.

Second, it can change (usually reduce) the outputs achievable with given inputs, which amounts to a change in the return on capital assets, in the productivity of knowledge, and/or in labour productivity and hence wages.

The $2.5 trillion of assets at risk through this business as usual scenario is equivalent to 1.8% of the value of global financial assets.

The report also found that uncertainties in estimating the ‘climate VaR’ mean that there is a 1% chance that warming of 2.5°C could threaten as much as $24 trillion, or 16.9%, of global financial assets in 2100.

“Our results may surprise investors, but they will not surprise many economists working on climate change because economic models have, over the past few years, been generating increasingly pessimistic estimates of the impacts of global warming on future economic growth,” said Simon Dietz, the report’s lead author.

“But we also found that cutting greenhouse gases to limit global warming to no more than 2°C substantially reduces the climate Value at Risk, particularly the tail risk of big losses.”

The reports authors estimate that limiting global warming to 2°C – the target laid out in the Paris agreement – would, on average, reduce climate VaR by 0.6% to $1.7 trillion.

The report also found that when factoring in the costs of making the transitioning to lower carbon economy of limiting emissions to below 2°C that climate VaR would still be 0.2% below the business-as-usual emissions path, or $2.2 trillion.

“When we take into account the financial impacts of efforts to cut emissions, we still find the expected value of financial assets is higher in a world that limits warming to 2°C. This means risk-neutral investors would choose to cut emissions, and risk-averse investors would be even more keen to do so,” said Dietz.

They argue that much of the research on stranded asset risk is focused on fossil fuel companies, and that more research needed to be done on the effects of climate on the broader economy.

Hamza Ali

19
Apr

Mexico solar capacity to surge 521% this year, says GTM Research

Encouraging PV performance in the country’s first Clean Energy Auction prompts GTM to revise its forecast; analysts now expect Mexico to add 646 MW of PV in 2016.

Mexico’s large-scale solar sector could be transformed this year, forming the bulk of the estimated 646 MW of new PV capacity.

Solar PV’s dominance of Mexico’s inaugural Clean Energy Auction – in which it claimed 74% of the contracts offered – has compelled analysts at GTM Research to revise their installation forecasts upwards for 2016 to 646 MW.

Last year, Mexico added 104 MW of solar PV, meaning this year’s revised forecast represents a growth rate year-over-year of 521%. This bullish revisit stems from solar PV’s performance in the country’s auction, in which seven leading developers secured 1,860 MW of solar PV capacity, with all 11 projects receiving four million Clean Energy Certificates (CELs) in the process.

Solar picks up the pace
GTM Research’s Latin America PV Playbook, in which it analyzes the nation’s solar portfolio and plans, found that Mexico ended 2015 with 246 MW of cumulative solar PV capacity installed. The analysts had forecast growth of 382 MW of new solar for 2016, of which the bulk – 300 MW – would be in the large-scale sector. All of this capacity was expected under projects “grandfathered” under the now-discontinued new energy transition law, with no further demand for the year anticipated.

Even prior to March’s auction, GTM expected solar to secure not more than 200 MW back in January, but quickly increased that estimate to 500 MW following a burst of interest from large international developers in the then-forthcoming auction.

In securing more than 1.8 GW of PV projects, however, solar has outperformed all forecasts, prompting the GTM revision upwards for the year to 646 MW of new capacity. In 2017, that figure is expected to reach 1,513 MW – a growth rate of 134% as opposed to a previous 77% growth forecast.

Also noteworthy, GTM Research said, was the average contract price of $50.7/MWh, which was described as “very aggressive”, particularly considering its broad range: Enel Green Power’s proposed 437 MW solar project was awarded a strike price of $35.44/MWh, while Photoemeris Sustentable’s 29 MW farm closed at $67.5/MWh.

In comparing these average large-scale prices to other enigmatic solar markets, Mexico comes out favourably, besting the likes of India, Peru and a pre-ITC extension U.S.

“Clearly the solar industry globally has seen an opportunity in Mexico that has already been acknowledged by the likes of SolarCity last year,” wrote GTM’S Mohit Anand. “Low labor costs, excellent irradiation, a stable economy, and a strong PPA by a government-backed utility in the auction are some of the common reasons why local developers and experienced international players alike have flocked to Mexico for a piece of the solar pie.”

Based on government clean energy ambitions – Mexico is targeting 35% renewable penetration by 2024, rising to 45% by 3036 – GTM Research adds that cumulative solar PV in the country could be between 4-6 GW by 2030.

Mexico’s strength lies in its attractive internal rates of return (IRR) for developers, while the country’s ties and proximity to the U.S. make international, low-cost financing easier to come by, particularly as many contracts are secured on a U.S.-dollar-denomination basis. The size of the projects awarded in the auction – average 150 MW – is also helping to keep costs down, GTM’s analysis added.

The auction’s completion deadlines of January-March 2018 could add pressure on some developers, and there may be a delay or overspill of around 300 MW of projects into 2018, the analysts add, but the general consensus is one of unstinting positivity that the ball really is rolling now for Mexico’s solar market.

Research:  https://www.greentechmedia.com/research
Read more: http://www.pv-magazine.com/news/details/beitrag/mexico-solar-capacity-to-surge-521-this-year–says-gtm-research_100024029/#ixzz452zXifUF

19
Apr

Financial firms join forces to raise $8bn for sustainable investments

Bank of America has formed a new partnership within its Catalytic Finance Initiative (CFI) that aims to direct $8 billion to “high-impact sustainable investments”.

Partners joining the initiative include investment manager AllianceBernstein; Babson Capital Management (a subsidiary of insurance company MassMutual); Credit Agricole; the European Investment Bank; HSBC; the International Finance Corporation; and Mirova (a subsidiary of French bank Natixis). All have pledged capital and expertise to develop “innovative financing structures” for investments in clean energy and other sustainability focused projects.

In addition, several long-term institutional investors within the recently-formed Aligned Intermediary group, will collaborate with the partnership on specific investment opportunities.

The main aims of the partnership will be to promote the UN’s sustainable development goals, including acting on climate change and improving access to clean energy and water.

“By providing $8 billion in commitments, we can help to advance new investment opportunities in clean energy as well as other sustainable development goals and achieve the necessary scale for a positive impact on climate change,” the partnership said in a joint statement.

The CFI was launched by Bank of America in 2014 with a $1 billion commitment and a goal tostimulate at least $10 billionin new investment into high-impact clean energy projects. It has subsequently expanded to include other financial organisations with their own capital commitments and expertise in various areas of specialist finance.

A major initial goal was to widen the institutional investor base by de-risking opportunities in the clean energy sector, through the use of structures such as ‘first loss’ and mezzanine tranches, risk guarantees and new insurance products.

Other financing structures deployed by the partners include green bonds, project finance, green asset-backed securities, and blending public and private finance.

The expansion of the CFI complements Bank of America’s pledge, in July last year, to increase its own ‘environmental business initiative’ to $125 billion by 2025 from $50 billion. This commitment includes advisory services, capital raising and other financial services, as well as lending.

Graham Cooper

19
Apr

$2.5trn of global financial assets at risk from climate change

$2.5TRN OF GLOBAL FINANCIAL ASSETS AT RISK FROM CLIMATE CHANGE

$2.5 trillion of global financial assets are at risk from the effects of climate change, according to a report.pound

The report, produced by the London School of Economics and Political Science (LSE), the Grantham Research Institute and Vivid Economics, looks at the value at risk (VaR) associated with financial assets should global temperatures increase by 2.5°C by 2100.

This warming figure is believed by the report’s authors to be the ‘business-as-usual’ emissions path if all of the commitments made at December’s landmark Paris agreement are implemented. The summit concluded with an agreement to limit global warming to 2°C but the commitments made by countries so far are insufficient to meet this target.

The report says that climate change can damage the value of financial assets in two ways, directly or indirectly. First, it can directly destroy or accelerate the depreciation of capital assets, for example through extreme weather events.

Second, it can change (usually reduce) the outputs achievable with given inputs, which amounts to a change in the return on capital assets, in the productivity of knowledge, and/or in labour productivity and hence wages.

The $2.5 trillion of assets at risk through this business as usual scenario is equivalent to 1.8% of the value of global financial assets.

The report also found that uncertainties in estimating the ‘climate VaR’ mean that there is a 1% chance that warming of 2.5°C could threaten as much as $24 trillion, or 16.9%, of global financial assets in 2100.

“Our results may surprise investors, but they will not surprise many economists working on climate change because economic models have, over the past few years, been generating increasingly pessimistic estimates of the impacts of global warming on future economic growth,” said Simon Dietz, the report’s lead author.

“But we also found that cutting greenhouse gases to limit global warming to no more than 2°C substantially reduces the climate Value at Risk, particularly the tail risk of big losses.”

The reports authors estimate that limiting global warming to 2°C – the target laid out in the Paris agreement – would, on average, reduce climate VaR by 0.6% to $1.7 trillion.

The report also found that when factoring in the costs of making the transitioning to lower carbon economy of limiting emissions to below 2°C that climate VaR would still be 0.2% below the business-as-usual emissions path, or $2.2 trillion.

“When we take into account the financial impacts of efforts to cut emissions, we still find the expected value of financial assets is higher in a world that limits warming to 2°C. This means risk-neutral investors would choose to cut emissions, and risk-averse investors would be even more keen to do so,” said Dietz.

They argue that much of the research on stranded asset risk is focused on fossil fuel companies, and that more research needed to be done on the effects of climate on the broader economy.

Hamza Ali

4
Apr

The Future of Renewable Power in Mexico

Mexico’s solar and wind sectors have experienced triple-digit growth rates over the last 10 years, outpacing the growth of renewable power generation in most developed countries. Will that explosive growth continue?

 not such a great investment?

The abundance of diverse renewable energy resources, growing demand for power, macroeconomic stability, and historically high electricity prices continue to position Mexico as one of the most attractive destinations for investments in renewable power generation.

Despite enjoying some of the highest wind and insolation levels in the world, Mexico has yet to develop most of the potential of its renewable energy sources.  As of 2013, thermal sources represented 75 percent of Mexico’s installed capacity, followed by hydropower generation, which accounted for 19 percent of total capacity, while other renewable sources, such as wind, solar and geothermal energy represented less than 6 percent of electricity generation in Mexico.

Mexico’s solar and wind sectors have experienced triple-digit growth rates over the last 10 years, outpacing the growth of renewable power generation in most developed countries.  However, the real opportunity for renewables lies ahead, as the country will require an additional 22 gigawatts of power generation in the next ten years and its government is set on transforming the country’s power mix in order to reach the goal of generating 35 percent of total electricity from clean sources by 2025.

Energy prices in Mexico have been historically very high compared to those of developed nations.  By some estimates, electricity costs in Mexico for commercial and non-subsidized residential users are 25 percent higher than in the U.S., while Mexican industrial users pay electricity prices that are almost 85 percent higher than those paid in the U.S.  The combination of high energy prices and the decrease in the cost of new solar and wind systems has allowed Mexico to become one of the few countries to have reached grid parity in wind and solar power.  This, coupled with some of the highest wind and insolation levels in the world is turning Mexico into one of the most attractive markets for renewable power generation and the first sizeable market in which the development of renewable projects is not dependent on special feed-in tariffs, tax credits or other subsidies.

Starting at the end of 2013 and continuing through 2014, Mexico enacted a series of sweeping reforms to its energy sector, aimed primarily at increasing private investment into the country’s oil and gas and power generation sectors.  Some of the key reforms affecting the power sector are the streamlining and simplification of the permitting process for new generation projects and the creation of a wholesale electricity market, which will allow large industrial customers to purchase electricity directly from the wholesale market.  These changes, along with the creation of a new system of tradable clean energy certificates, are expected to further support the development of new renewable generation projects, even though the reforms do not create any specific fiscal incentives or feed-in tariffs for this type of projects.

The cost of generating power through wind farms in Mexico is already competing with the cost of natural gas powered plants (approximately $75 MW/hr) and is expected to decrease in the coming years.  This is one of the reasons why most analysts believe that onshore wind generation will attract the largest investments in the sector.  Some estimates project that wind power generation will attract investments of up to $2 billion a year for the next 25 years, which represent almost a third of the total investment in power generation in Mexico over that period.  If these forecasts are correct, Mexico would double its current wind capacity (66 GW at the end of 2014) to reach 152 GW by 2040.  Despite the security concerns and other social issues affecting these states, Oaxaca and Tamaulipas, where some areas enjoy average capacity factors as high as 45 percent, are considered the regions with the most potential for this type of projects, followed by Baja California, where some of the largest projects are being developed mostly for export purposes.

Mexico’s PV market also offers attractive opportunities, with some analysts expecting it to become the strongest PV market in Latin America over the next 5 years.  The number of solar power developers has soared since 2010, going from 46 to more than 600 and the country’s installed PV capacity is expected to grow from roughly 67 MW at the end of 2014 to more than 1,300 MW by the end of 2018.  Not surprisingly, most of this new installed capacity will come from utility-scale projects, while commercial and residential projects are expected to represent less than 23 percent of the total additions.

Despite all of this, investments in the power generation sector since the energy reforms were passed have been slower than expected.  Paradoxically, some of this is the result of the uncertainty created by the same energy reforms about the future of the Mexican energy landscape.  For instance, the rules for the wholesale electricity market created by the reforms and which is due to begin operating on the last day of 2015 have not yet been finalized, and the application forms for generation permits under the new law were not ready until last April, eight months after the new legislation was enacted. There are also some concerns about the real value of the new clean energy certificates, which will come into effect in 2018.  Some developers believe that the target of 5 percent clean or renewable generation set by the government is too low, while the fact that cogeneration facilities and other high-efficiency fossil-fuel projects may also receive credits dilutes the value of the certificates for smaller projects.

There are also structural issues for renewable projects, which the reforms do not fully address.  One of them is the lack of transmission capacity in areas with high potential for renewable sources, as well as a historically slow and bureaucratic process for obtaining interconnection agreements.  Heavily-subsidized retail electricity rates are another concern, as they make it difficult for developers to find offtakers willing to lock in longer contracts.  This, in turn, makes it difficult for smaller renewable projects to attract capital at attractive rates.

Developers in Mexico also face some of the challenges that come with doing business in emerging markets, particularly in Latin America.  Rampant corruption, for example, especially in regulated industries such as power generation, is a major concern for developers and foreign investors in Mexico despite recently enacted anticorruption legislation.  Another obvious concern is the crime-related violence affecting certain areas of the country, including some of the border states, like Tamaulipas, which have the greatest potential for renewable projects.  Also, complex property rules and deficient public land records in rural areas make it difficult for developers to procure the land for their projects and provide certainty to investors.  And local opposition in recent years to some major renewable projects, such as the Mareña wind farm in the State of Oaxaca, has also given developers and investors reason to pause before committing to some of these projects.

Nevertheless, most people would agree that the opportunities for developing renewable projects in Mexico in the coming years and the potential upside of these projects far outweigh the risks involved, but investors would be well advised to partner with developers and advisors with specific experience in Mexico in order to help them navigate the new energy landscape and mitigate some of these risks.

 


Partner, McDermott Will & Emery