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Don’t Give Up

Don’t Give Up

Don’t give up. Not now. We’re too close.

I know a lot of people are frustrated and disillusioned with the state of politics and world affairs. I share those frustrations. But never before have the problems, and the solutions, been brought into to light in such a transparent and accountable manner. This, unfortunately, is the painful part about getting to the truth.

There is only one way to resolve that pain. We know the truth and now it is time for action.

Climate Volatility is a mathematical fact that requires our action. High waste streams and heat-trapping emissions are and will continue to alter the way we live for generations to come. There will be migrations and challenges to the food system but there is an action plan. We must go all-in on renewable energy, mandate ultra-efficient new building and build a sustainable agricultural system around soil-based organic farming, greenhouses and vertical farms.

Progress is being made. Over a trillion dollars has gone into renewable energy in the past three years and that pace is accelerating. In 2015, Solar energy installations in the US passed natural gas for the first time ever. This is in the face of direct and indirect opposition from a multitude of sources and not just the usual suspects (Warren’s Buffett’s utility interests in NV were protected by retroactive legislation against solar; Bill Gates continues to push a ‘more research is needed’ party line). We don’t need more research – We need implementation and a level playing field. But even without it, deployment is happening and it’s happening with a subsidy program that pales in comparison to fossil fuels. Clean energy is winning because its smarter, safer and cheaper and it will continue to make gains but more support is needed. There’s much more work to do and already the job growth in clean energy is outpacing other industry at record rates.

Bridge

The organic food movement has been growing rapidly for years and your choices have and will continue to reshape supermarket shelves and other delivery mechanisms. Co-ops and local foods movements’ are thriving and we are seeing the first hundreds of millions in investment go into Vertical Farming. Future Bright’s research points to a $600B opportunity in infrastructure alone for Vertical Farming.

Transforming our food and energy systems to be clean and resilient in the face of climate volatility is a priority but we have other pressing challenges and we are making progress.

Inequality is a mathematical fact that requires our action. Like you, I want to live in a world where people can work hard and do well. Right now, we have great challenges to that progress due to technological trends and structural impediments. If we don’t address these and provide a system for folks to work hard and do well, the money the ultra-wealthy have won’t mean much. We can keep pushing for an equitable and accountable tax system. It should be proportional or flat and smart people shouldn’t require personalized loopholes. This dialogue is making progress. We can’t call the market free if it’s not, if we are no longer the land of opportunity, then we must acknowledge that and act to change it.

There are other ways we can address the risk of inequality. One way is to support companies who are mandated to promote healthy social and environmental systems.

Good Companies are being born everyday. B-corporations are companies who promote healthy social and environmental systems. Co-ops and small business are, by definition, focused on people. Local businesses, as opposed to franchises, keep dollars in the communities where they are spent. Sustainability geared companies are easy to start because the problems and solutions are again so transparent and actionable.

I’ve started four efforts I’d love you to know about:

Future Bright LLC – a think tank and advisory that supports sustainable consumer products companies and investment strategies

Perpetual Sustainability – large-scale sustainable infrastructure

Future Bright Foundation – a non-profit effort – details coming soon, and

Sonic Bomb – a creative company that produces music and media in support of sustainability and positivity. I couldn’t be more excited for what we will release this summer!

Will all these work? Maybe, maybe not but I can tell you that each effort is designed around a different strategy to help restore social and economic systems and as risk mitigation for climate volatility. So should they? I would hope they should. I’d love your support and would love to support your efforts in our common goal. That’s right – we’re in this thing together, whether we like it or not. Get fired up, it’s the time of legend.

Crowdfunders and other circumventional finance pathways are flocking to good ideas and this brings me to my next point. The ‘No’s’ are becoming a smaller and lonelier crowd and technology will continue to build around these impediments.

Wallace

We can circumvent the corruption. Have you heard of Aspiration, the investment company that pays deposit interest 10X what your bank does and promotes sustainable investing. They’ve formed a partnership with Sierra Club and they let you ‘pay what’s fair’ for their services. How about Greenbacker, a renewable energy investment fund with a relatively low minimum investment threshold. Did I mention Thrive markets or hundreds of organic and superfoods companies you can support directly. Gather By is one I am connected to, that supports pollinator and earth restoration and here is the kicker, the product tastes great and is good for you.

Do you see your investment portfolio taking shape? Reach out…

Let me list a few other great ideas. Industrial hemp can clean up our soil and create a domestic manufacturing industry resulting in jobs and economic growth. Electrification of everything from vehicles to lawnmowers is a boon to innovators everywhere. These trends all point to enormous opportunities for liquid investors as well.

All these great and necessary shifts are happening now to take us to the sustainability platform, the new economy, one that works. Don’t think governments and large corporations aren’t noticing this. While many may be trying to hold sustainable change back…

Politicians, at all levels, are picking up the platform. It would be hard for anyone to say that Bernie Sanders platform isn’t popular and infectious. Popular is a hard quality to dispel but the ideas listed above are just what’s being carried out today by good men and women around the world. Bernie says it best, ‘It’s not about him or any one person, its about us and our children.’ The children believe in and support our efforts, and I’ve received more than enough personal confirmation of that to know it’s true.

They are watching. They are hoping.

There’s only one choice and it will be hard but it’s the one we’ve got.

The sustainability platform is the only platform that supports all people and the planet and allows for wealth creation.

This is an epic time to be alive. The thought revolution is now the action oriented sustainability evolution. There are now millions of young Bernie Sanders’, Elon Musks’ and Dalai Lamas’ planning, preaching, peace-ing and producing around the world. The pollination of the future happens now. Support it. Be it. 

To quote one more from Carl Sagan: “Don’t sit this one out. Do something. By chance of fate, you are alive at an absolutely critical moment in the history of the planet.”

Sagan

Models for Localization

Models for Localization

Down the road from where I sit writing this post, a prudent example of localization and education is taking root at Samuel Staples Elementary School in Easton CT. This month, the town activated a ground mounted solar array capable of providing one half of the schools electricity needs. The project was financed entirely by the CT Green Bank and is phase one of a plan to make Samuel Staples the first fully solar powered school in Connecticut.

The story illustrates many fine points in the story for sustainability.

For one, the Easton school’s renewable energy aspirations are more of a next step than a first one.

The school already recognized the educational benefits of displaying food systems front and center in the eyes of young minds. For years, the school has leased school grounds to farmers for a wide variety of crops. This is an early imprint for young minds on where food comes from and possibly how it should be grown. Food that comes from the community travels less and is often organic lending itself to high nutritional density, health benefits and a reduction in spending on imported food.

With renewable energy, Samuel Staples is taking the next logical step to localizing its energy dividend as well. The school receives a lower energy bill, higher energy security and can point to the installation as a foundation of the local economy.

How the project was financed is another illustrative point for our evolution towards sustainability.

The Connecticut Green Bank, like its New York counterpart, represents the next step in circumventional finance in a sound strategy of localization. The Green Bank model is designed to stimulate private capital into infrastructure investments in clean energy and technology. I’d like to see that mandate expanded to food systems as both food and energy systems are the foundation of stable economies and societies. Regardless, the green bank model is proving to be successful in its early stages in forging private-public partnerships and in going it alone for smaller project like the Samuel Staples ground array.

The Green Bank model targets market rate investment returns to maintain capital preservation and re-invest returns. The school and town building model is a prudent one because the Green Bank, in theory, knows a lot about its counterparty and each participant has a vested interest in the others success.

Green Banks’ are tasked with investing in technology and infrastructure that is proven and typical enjoys a long life of paying dividends to all stakeholders. In the case of Easton’s solar array, the asset should offer energy savings and returns to investors for 25 years or more. Also, those returns are highly predicable and not subject to economic volatility outside of the town’s border.

Shouldn’t we be doing this at all our schools and on every town building? If we can invest public money at a market rate of return; if the investments create jobs and contribute to establishment of a low-carbon asset base; the answer becomes obvious rather quickly. Even ignoring environmental and health benefits completely; the economic arguments to localize our food and energy dividends stand on their own.

Returning to the education benefit. Isn’t this the type of thing we should be teaching our children? I imagine a young child looking to his father and pointing to the fields of food and the solar panels powering the school, “What’s that Daddy?” He asks.

The dad smiles and replies, “That’s the economy son and it’s our future.”

For more on the CT Green Bank – click here

Future Bright: The CT Green Bank should raise a dedicated fund and allow savers and private investors to participate in renewable energy build out for all schools in Connecticut. Later iterations of this series vehicle could include vertical farming infrastructure, design and local textile manufacturing and more.

SSE

Disclosure: Future Bright is a think tank and advisory in sustainability and investing. Future Bright has worked with renewable energy developers, energy efficiency funds, assets managers and vertical farmers on progressing solutions towards sustainability. This note is not an offer of services or investment of any kind. This is a blog post for informational purposes only. Those interested in consulting services, design work or industry analysis should contact Future Bright directly. (www.futurebrightblog.com)

Future Bright

Future Bright

Future Bright’s focus has been on evolving pathways for institutional investment into sustainable infrastructure, equity and credit strategies.

By focusing the farthest upstream on the supply of food and energy these solution areas unlock shared savings for higher value added economic growth downstream.

For investors, the concept can be described as localizing our food and energy dividend using proven technology that reduces supply chain risk.

The three pillars of food and energy localization are energy efficiency, renewable energy and controlled environment agriculture a.k.a. Vertical Farming. For Infrastructure, the investments must satisfy three conditions.

Infrastructure Focus

  • Growth Markets with compelling economics
  • Markets where structure and financial innovation can unlock value
  • Investment that offer co-benefits / risk mitigation of social and environmental issues

Energy Efficiency assets are created when third party finance funds invest in energy efficiency retrofits for commercial, residential or industrial hosts. The retrofits can include LED lighting, insulation, HVAC and smart grid technologies The fund vets energy services companies and approves projects within the pipeline that meet criterion for credit quality, project scope and investment viability. The market size for C&I retrofits in the US alone is estimated to be around $300B, capable of unlocking shared savings of over $1T. Energy Efficiency Assets solve a market inefficiency and deliver returns in the form of highly predictable shared savings with upside optionality to investors. Returns attributable to investors can range from high single digits to the 30%+ on individual projects. As the market evolves, securitization, strategic buyers, improving technology and policy mandates will drive growth and sustain returns.

Additional co-benefits include keeping retrofits off-balance sheet, improved Quality of Life improvement for building occupants, cost predictability in capital budgeting, a reduction in carbon footprint and unlocked downstream savings to spend on higher value economic growth.

See Future Bright, ‘The Sleeping Giant’ for more on Energy Efficiency as an asset class.

Renewable Energy projects represent one of the fastest areas of growth for infrastructure worldwide. The deployment of proven technology in wind and solar PV is creating an investable asset class in the form of project equity, tax equity and project finance debt that can deliver attractive returns to investors. Additionally, the elimination of an operational supply chain and close to zero marginal cost of productivity are core de-risking features for renewable energy investors. Revenue is predictable and visible often for decades into the future. Renewable Energy project returns vary by class, location, size and other factors but generally can range from high single digits to mid-20’s unlevered with aggregate portfolios targeting returns in the low teens. Annual investment is averaging around $300B.

Additional benefits include a reduction in the carbon footprint, predictability in energy costs, job growth, energy security and access.

FB1

Solar and Wind made up >60% of US installed capacity in the first 9 months of 2015. Oil, Hydro and other sources were zero or sub-1%.

Controlled Environment Agriculture (CEA) or Vertical Farming is a growth area targeting rising demand for clean, local and secure food supply. 15 commercial scale farms are in operation in the US with dozens more expected to come online in the near future. Falling technology costs, improved growing methodology and the need for resource efficient solutions in agriculture is driving growth and economics for CEA. An economic baseline has been reached for about a dozen varietals of leafy greens with value added potential in nutriceutical and consumer packaged goods (CPG’s) markets. The market for local fruits and vegetable was $7B in 2014. To reduce the carbon footprint of grid tied CEA, both renewables and efficiency can be applied.

Benefits include food security, health benefits, consistency, urban renewal, reduces water and transportation costs.

CEA1

Join the Future Bright distribution list or reach out for more on the CEA space.

Turning now to equity and credit themes, the focus becomes a factorized approach to both positive and negative drivers with respect to sustainable business models. Increasingly, investors are recognizing sustainability or ESG factors as being important to current bottom lines and future viability. Future Bright expects a long-term tailwind to shape both equity and credit market valuations guided by these and other factors:

Sustainability Factors

  • Energy / Revenue: Businesses can achieve a strategic advantage when they lower their cost per unit of energy required for one dollar of revenue. With renewable energy integration, many corporates are recognizing this benefit (see, Solar Power Growth Story).
  • Water / Revenue: Water supplies are increasingly at risk and strained throughout the globe presenting a particular risk to social and environmental system. High water user and businesses predicated on high water use are at risk. Efficiency technologies and business that create revenue with lower water intensity are set to benefit.
  • Useful Life / Replacement Cycle: With resources running out, businesses need to pay close attention to the replacement cycle for natural capital stocks their operations depend on. Sustainable fibers can right-size the useful life mismatch for industries in paper, plastics and other durable goods.
  • GHG Footprint / Revenue: It is recognized that increasing the intensity of carbon, a heat trapping gas, in the atmosphere increases the volatility of weather including rainfall and raises the probability of drought conditions and powerful storms. These factors affect economic activity directly. The global community is moving to address this risk to economic, social and environmental systems. Businesses that get ahead of the carbon curve will experience less disruption. Solution providers will benefit.
  • Future Waste Liability: Companies with high waste stream and large extraction footprints should be moving to address scarcity and detrimental waste impacts. Awareness is growing as to the health impacts and costs of toxins in food and energy systems.
  • Physical Supply Chain: Globalization only works when environmental and social systems are unaccounted for. However, these systems are required for healthy economic systems. Localization feeds vibrant economies while reducing transportation, health care and storage costs. Long supply chain credit is at risk.
  • Subsidy Risk: Subsidies exist in nearly every major industry. In mature industries they are embedded downstream with consumers, in developing industries they are embedded upstream with project developers.Carbon
  • Political Transparency: Sustainability is becoming a political issue as facts about health costs, climate change and public governance become more transparent. There is no reason to expect this trend to reverse given increasing access to information. Political systems can take decades to reshape but the early stages of recognizing the private sectors impact on social and environmental capital is taking shape. Businesses that recognize scarcity and waste streams, as a mathematical driver and risk factor should benefit. Politicians that do the same will be increasingly supported. It’s time to remove ideology from progress towards prosperity, by focusing on the math; we can.

 

Future Bright is looking for its next assignment. Does your organization want to explore these mega-trends in detail, build models, meet practitioners, make investments, design product and forge private-public partnerships? Let’s collaborate. ken@futurebrightllc.com

Disclosure: Future Bright is a think tank and advisory in sustainability and investing. Future Bright has worked with renewable energy developers, energy efficiency funds, assets managers and vertical farms on progressing solutions towards sustainability. This note is not an offer of services or investment of any kind. This is a blog post for informational purposes only. Those interested in consulting services, design work or industry analysis should contact Future Bright directly. (www.futurebrightblog.com)

 

Goldman: Solar = Yes / Coal = No

Goldman: Solar = Yes / Coal = No

If you saw Future Bright’s post earlier today on Goldman’s Coal divestment, you understand the second part of the title.

As for the first, Goldman and Sunedison (SUNE) today announced a joint $1B investment vehicle warehouse to construct and purchase operating renewable energy assets. Goldman’s investment vehicle West Street Infrastructure Partners III (WSIP) will invest $300M of equity while Bank of America, Deutsche Bank and Morgan Stanley will offer up $700M in debt commitments.

The investment warehouse is expandable up to $2B if certain conditions are met. It is the second such investment warehouse established between Sunedison and various partners to develop the company’s sizable project pipeline.

Sunedison’s equity has been under pressure lately, falling roughly 40% since announcing earnings earlier this month, amidst concerns of the impact of falling oil and gas prices on solar and wind development and the company’s ambitious growth strategy, including the acquisition of Vivant Solar (VSLR).

With the Goldman warehouse, the company should be able to meet its growth plans through 2016.

In terms of positive catalysts for solar and wind development, there are a number to point to:

  • The Clean Power Plan calls for a drastic reduction in the carbon footprint of the United States energy infrastructure. Solar and Wind will benefit from state plans to meet this goal. See Future Bright’s blog post – ‘Clean Power Plan in 5 Pictures’
  • A $140B pledge by blue chip corporations including Goldman, Apple, Berkshire Hathaway and others points to continued private investment in renewables.
  • The cost to install Solar and Wind energy assets continues to fall while the efficiency of the technology continues to rise. For more on the Solar Power Growth Story, click HERE.

Equity markets, built on perception and the valuation yardstick a la jour will most likely continue to remain volatile. Still, given the catalysts and momentum for real asset growth in renewables, beaten down equities of solar and wind developers might warrant closer inspection.

Given growth prospects and misunderstanding of what might possibly the most elegant of asset classes from a long-term revenue stability, secular momentum and security standpoint, Future Bright prefers real asset ownership. Connect to learn more.

Roadside Array

Disclaimer: Future Bright is a think tank and advisory in sustainability and investment themes. Future Bright has worked with renewable energy developers, energy efficiency funds, assets managers and vertical farms on progressing solutions towards sustainability. This note is not an offer of services or investment of any kind. This is a blog post for informational purposes only. Those interested in consulting services, design work or industry analysis should contact Future Bright directly. (www.futurebrightblog.com)

Goldman sells $600M Coal investment for <$10M

Goldman sells $600M Coal investment for <$10M

For many, the etchings on the mine wall are clear; coal is in terminal secular decline. The message is clear – one option remains to divest from coal assets and that is to walk away.

Effectively, that’s what Goldman has signaled in August when the firm ended its 5-year investment into Colombian coal mines. The company announced it would sell assets, originally purchased for roughly $600M, for less than $10M to private US coal company Murray Energy. After four years of operation, Goldman estimates it lost $200M on the deal.

Murray, for its part, is attempting to diversify assets outside of the US to ‘ensure survival’ as coal has come ‘under attack’ in the US. It won’t be so easy.

The global economy is pivoting away from coal given the availability of cleaner, cheaper alternatives and potential future waste liabilities. Coal assets have largely become unsalable (see Future Bright’s thesis on Future Waste Liabilities for corporate valuation). The market has revealed this to be true as over the past few years, coal equity valuation has plummeted. Unable to sell equity or assets, the bankruptcies have begun.

Coal_Stocks

– In earlier August, Alpha Natural Resources filed for the industries biggest bankruptcy yet.

– Many other coal companies have filed for bankruptcy over the past two years including, Walter Energy, James River Coal and Patriot Coal. Two others, Arch Coal (ACI) and Peabody Energy (BTU) could potentially be next.

Why Coal won’t be coming back

1.) Future Waste Liabilities: A cornerstone of the Future Bright investment thesis is the looming recognition of Future Waste Liabilities (FWL’s). FWL’s will be tied to global greenhouse gas (GHG) emissions, fabricated and synthesized products with toxic qualities, water, air and other forms of pollution that affect real estate value, human health and bio diverse ecosystems.

  • In 2014, the state of North Carolina sued Duke Energy over and accident that spilled 39,000 tons of coal ash into the Dan River. It is estimate that clean up could cost the company over $10B. Duke’s market cap at the time of this writing was $52B
  • Estimates of the economic value add of coal are 1/2 that of the externalized costs of environmental destruction and health costs.
  • It is estimated that 500k to 1.6M people lose their lives annually to air pollution in coal-heavy China.

2.) Cheaper: The Coal industry first had to battle off the natural gas boom, an industry that will prove to carry its own sizable future waste liabilities. Now, Coal is losing an outright battle of economic parity to renewable energy sources, which have installation/technology costs which have mirrored the steep decline in the price of coal itself (~80% over 4 years). Contrary to coal how, renewables have no fuel costs or near zero marginal cost of production.

Lcoe

Graph displays sample LCOE (Levelized Cost of Energy) for 2014 utility scale projects (NREL).

3.) Cleaner: Renewables and Natural gas are winning in price and, in the case of renewables in particular, cleanliness. Renewable often have zero operational supply chain and little to no GHG (Global Greenhouse Gas) emissions. As the global economy races to de-carbonize to improve air and water quality and combat climate change, Coal’s kissing cousins of oil and gas will be forced into transformation or face a similar fate.

2012Emission_bySector

THINK TANK: Will Oil and Gas companies see the ghost of Christmas future in the mirror and pivot before their own equity implosion begins. Key inflection points like battery pricing could signal the tipping point when joined to conditions like rising vehicle efficiency, millennial trends and liability from spills and earthquakes.

Stay tuned to Future Bright for more on this subject and others related to the trillion dollar sustainability option.

Sources: EIA, Bloomberg, Future Bright, NREL

Disclaimer: Future Bright is a think tank and advisory in sustainability and investment themes. Future Bright has worked with renewable energy developers, energy efficiency funds, assets managers and vertical farms on progressing solutions towards sustainability. This note is not an offer of services or investment of any kind. This is a blog post for informational purposes only. Those interested in consulting services, design work or industry analysis should contact Future Bright directly. (www.futurebrightblog.com)

Solar in 5 Pictures

Solar in 5 Pictures

1.) Solar Penetration is low making large market share gains possible. That’s been exactly what’s happening in terms of new capacity. Solar and Wind accounted for 74% of new capacity in the 1st half of 2015 (Cleantechnica)

PowerMix

2.) Solar has steadily exhibited rising efficiency with falling costs (CAPEX efficiency) while end consumer power prices have risen. A sampling of project shows total installed costs fell by more than half from 2011-2014.

Avg_Cost

3.) Overall Demand for electricity is expected to rise dramatically. Much of this demand will come from non-OECD countries where renewables are the cheapest form of new capacity.

Elec_Demand

4.) Countries are responding to multiple signals. Cheapest to deliver, low security costs, public demand, pollution mitigation and climate change are all factors driving an influx of solar PV to the grid around the world.

1H_GW

The top countries investing in renewables have announced between $30-60B in utility scale Solar PV projects through the first half of 2015 (Cowen). But public sector investment dollars aren’t the only ones betting on renewables,

5.) Corporate Demand is Increasing too

Corp_adoption

Given the relative balance sheet conditions between governments, consumers and businesses, the corporate pivot towards renewables is significant and necessary.

Many of these company’s are adding to their renewable portfolio and making that pledge publicly and in partnership with the White House.

A $140B pledge to invest in climate change mitigation between 13 blue chip companies and the White House was announced at the end of July. Those companies included: Bank of America, Goldman Sachs, Microsoft, Google, Apple and Berkshire Hathaway among others.

Clean Power Plan in 5 Pictures

Clean Power Plan in 5 Pictures

Future Bright’s summary of the US administrations Cleans Power Plan (CPP) and implications for investors.

The White House released its final proposal on the Clean Power Plan on Monday August 3rd.

Bottom Line: Emissions of carbon dioxide (CO2) from power plants are to be reduced 32% below 2005 levels by 2030. State plans must finalize and agree their implementation plans with the federal government by 2018 with the compliance period beginning in 2022. If states do not submit a plan they will be assigned the Federal Implementation Plan (FIP).

Here’s how the plan breaks down in five pictures.

Building Blocks in the final plan were altered to exclude energy efficiency from the FIP given questions around the reach beyond the corporate borders of utilities of the EPA’s authority. Still, Efficiency is available as a cornerstone of state plans and could be seen an attractive option for investors (See Efficiency www.futurebrightblog.com )

CPP1

Through its three remaining building block, coal plant efficiencies, renewables and natural gas, the EPA devised guidelines for plant level emission reduction.

 

Setting Standards

The EPA took a average of 2012 emission by power plant type across three main regions (East, West, Texas ERCOT) and then choose the region with the least penal forecast emission cuts; Eastern Interconnect. With the Eastern Interconnect as a model, EPA applied their three building blocks to determine what cost-effective plant level reductions could be.

CPP2

The results (above) were then applied to all plants by state to come up with state level reduction targets.

How each state is affected depends obviously on the current capacity mix generation. States with a higher dependence on coal power and in particular homes to inefficient plants or lacking in a renewable footprint will require more investment and retrofitting.

The Top 25 states in terms of % reduction are:

CPP3

South Dakota will have to establish a plan to reduce CO2 emissions from power plants by 48%, Montana by 47% and so on.

The Bottom 25 look like this:

CPP4 Some states without high CO2 generating capacity or already with significant renewables infrastructure have less work to do. Connecticut must reduce CO2 emissions by 7%, Maine 11% and Vermont is so far below the baseline – their work is already done.

Future Bright notes that Vermont’s renewables integration has been driven by a Feed-In Tariff system modeled after Germany (the world leader in Solar Power as a % of demand). More can be learned about the Vermont Plan at VTSPEED.

Opportunities for Investors abound. Whether states view the CCP as a challenge or an opportunity, investors looking to capitalize on the trend towards renewables and efficiency should first understand how those investments stack up vs. substitutes. Grid parity is a concept utilities use when deciding to invest in new capacity. In the case of mandated investments for CPP compliance, it is important to understand that many forms of renewable energy have or will soon reach grid parity. In the graph below, Future Bright displays, as one roadmarker, a grid parity forecast for Solar PV for 2019. A positive number indicates a net savings (positive NPV) from adding solar to the grid for a particular state.

CPP5

Takeaways: Solar is at or near economic parity with substitutes in nearly all US states which should lower risk for private capital looking to fund the replacement cycle mandated by CPP. Additional features of solar asset ownership, like zero marginal cost of production (a security feature and economic volatility dampener), are discussed HERE.

Utility disruption could be a prevalent theme as the push toward clean power meets with resistance in some areas and is welcomed in others.

Wind power is below grid parity in most regions with there is resource availability (OK, TX, ID). The benefits of adding wind power can be seen in the case of states like Idaho, who will now have low hurdles for CPP compliance and could find robust opportunities in exporting existing excess capacity as other states seek compliance.

Sources

Environmental Protection Agency www.epa.gov

Energy Information Agency www.eia.gov

Future Bright www.futurebrightblog.com

Utility Dive www.utilitydive.com

Disclaimer: Future Bright is a think tank and advisory in sustainability and investing. Future Bright has worked with renewable energy developers, energy efficiency funds, assets managers and vertical farms on progressing solutions towards sustainability. This note is not an offer of services or investment of any kind. This is a blog post for informational purposes only. Those interested in consulting services, design work or industry analysis should contact Future Bright directly. (www.futurebrightblog.com)

 

Future Bright’s SR-Investor – July 2014

Future Bright’s SR-Investor – July 2014

Future Bright’s SR-Investor – July 2014

One to Watch:

The long awaited ‘YieldCo’ will arrive on the Solar landscape this Thursday with the IPO of Terraform (TERP:NASDAQ). Terraform is a spinoff of completed and operational utility-scale solar installations from Sunedison (SUNE:NASDAQ). If you’ll remember, Sunedison and its founder, Jigar Shah, are largely credited with opening the investment landscape for rooftop solar with their boilerplate solar services agreement.

The Key Points:

  • Terraform will operate largely like a REIT distributing income from electricity sales instead of rent.
  • Terraform will have access to a pipeline of new projects from its proven developer and parent, SUNE. Through initial allocation and call-right exercise, Terraform expect around 740MW of power assets in 2015 and the company forecasts $162M in revenue or around $218K per MW. This is an important benchmark and comparable for similar structures.
  • Assuming SUNE gets a 50% dividend and the other 50% is distributed a valuation based on a div yield of 3%-4.5% would give TERP a market cap between $930M – $1.4B.
  • Future Bright believes an analysis of utility, commercial and residential defaults would show a lower comparable risk profile to many REIT’s. A point for follow up research.

In short, TERP’s reception in the secondary marketplace in an important event for energy investors and the development and maturation of the solar segment as a staples investment for any SRI portfolio.

Notable Investments:

KKR’s renewable investment – On June 24th, KKR announced a one-third stake in the renewable energy arm of Spain’s Acciona for $567. The transaction gives the renewable component of the business a E2.6B enterprise value making the deal one of the largest to date in the sector. Plans for a YieldCo are in the works, so the transaction can largely be seen as an entry point for mature private equity.

Deutsche Bank Invests in Japan Solar – The German bank, whose home country derives more than 30% of end-use electricity from solar power, is betting on the trend continuing and focusing on Japan. Deutsche Bank plans to lend up to $1B to finance Japanese solar projects taking advantage of 20-yr Feed-In Tariff (FIT) of 32Y or 310MW/0.31Kwh US equivalent. For comparison, the highest, longest duration repeatable US FIT’s are in VT at $0.24/kwh for 25 years.

UBS invests in Texas wind – 50% stake in 161MW wind farm (terms undisclosed).

Bottom Line: Large players are circling in the water and the deal flow will be characterized by 1.) Large portfolios of performing assets and 2.) A race to lock in high value, long duration subsidies.

The Blindside:

Like it did in the semiconductor industry, I fully expect Moore’s law to throw some exciting pitches in the SRI ballgame. I most expect these in solar efficiency and conversion, investment vehicle innovation and grid/battery technology. Three different areas. Three different opportunities.

o   Solar Conversion Efficiency: At a recent PV conference, three separate companies claimed to beat the long-standing efficiency record for PV panels of 25%. Typically, PV panels in production are between 15-20% efficient at converting the sun energy that hits them into Kwh’s. Efficiency is one of the core, direct to bottom line, drivers of Solar Park profitability.

o   Investment Vehicles: let’s not stop at YieldCo’s. Real-Option analysis shows us there are many applications for valuing embedded options, floating outcomes and in new markets that should wet the appetite of the equity and volatility communities as well.

o   Battery Technology: What happened for Solar costs between 2008-2012, is happening for batteries right now. As a result of competition and innovation, costs are falling and new technologies are achieve breakthroughs that would seem incredible framed in last’s years expectation. That’s the system at work and private equity has already taken notice.

 

This note was published by Ken Coulson and Future Bright for educational and informational purposes only. It is not a solicitation to invest nor an endorsement of any investments discussed. Future Bright is a think tank and advisory in Sustainability and has worked with solar developers, renewable energy technologies, vertical farmers and investors. www.futurebrightllc.com

 

Future Bright’s IPCC summary

Future Bright’s IPCC summary

Future Bright’s Summary of the IPCC, UN Climate Report 2014

Future Bright – kcoulson@optonline.net

The summary for policy makers and the full report can be found here: http://www.ipcc.ch/report/ar5/wg3/

The IPCC working group was charged with assessing scientific research related to the mitigation of climate change. One of there key findings was that current trajectory of economic activity, GHG (global greenhouse gas) emissions and mitigation is inconsistent with widely discussed goals of limiting global warming at 1.5 to 2 degrees above pre-industrial levels.

The purpose of this post is to condense the summary for policy makers and to suggest possible business opportunities embedded in the necessary mitigation strategy.

Below is my summary of the key points of the IPCC report along with notes, suggestions, business ideas or investment opportunities associated with the finding. Future Bright is an advisory and think tank on sustainability looking at economic, social and cultural investment opportunities.

Sustainable Development: Best case mitigation calls for rapid improvement for energy efficiency, tripling of low carbon or renewable energy sources, nuclear, fossil fuel with carbon capture and growth in bio energy land use and afforestation.

o Business Opportunity: A banking structure whose mandate is to invest in local community infrastructure and efficiency. Offers substantially above market dividend.

Mitigation Policy: could devalue fossil fuel activities and assets

o Investment Opportunity: Future Bright’s equity thesis is focuses on capturing risk in future unrealized waste liability while benefiting from investing in sustainable business models. A long short portfolio of top ten Solar (L) vs. Fossil Fuels (S) returned > 60% in 2013. The ratio of market capitalization of these two groups is still well over 100:1.

Energy efficiency: Efficiency gains in retrofitting of buildings and existing structure can range between 16%-70%. Best case mitigation scenarios calls for reduced final consumption of energy use of 20%-30% in building and industry.

o Conclusion: The opportunity for securitization and scaling in energy efficiency is huge. Market size is between $500B to $1T (Deutche Bank 2012)

Renewable Energy: Half of all new energy supply in 2012 was from renewable sources (RE). Best case scenarios call for growth of share from RE to 30% by 2030 and 80% by 2050.

 o Conclusion: RE investment funds focusing on mature segment plus new technologies and infrastructure growth should benefit. This is Future Bright’s central thesis.

AFOLU: Agriculture, Forest and Other Land Use play a central role in food security and sustainable development. Afforestation, grazing land management and restoration of organic soils are keys to effective mitigation.

o Investment Opportunity: Organic healthy food systems and indoor farming technologies have experienced significant growth over the last decade. Opportunities for early cycle investment exist. Contact Future Bright to learn more. Think large scale production orientation of EDEN PROJECT

Investment Flows: Over the next two decades annual investment in fossil fuels is expected to decline by $30B, Low carbon electricity supply investment is expected to increase by $147B and investment in energy efficiency is expected to increase by $336B.

o Conclusion: Follow the cash flows. Renewable Energy equity, securitization, storage technologies, efficiency funds should all benefit from shifts in investment flows.

Other Key IPCC Points
Integrated Approach: An Integrated design approach is necessary: institutions both public and private must focus on societal and cultural dividends as well as economic goals to achieve success in GHG mitigation.
Global Cooperation: A global approach is necessary. Mitigation efforts can be derailed by independent pursuit of economic goals with a disregard for coordinated GHG reduction.
Current State: Amidst the technological advancements in efficiency and clean technology, global GHG emission have accelerated in absolute terms between 2000-2010
Coordination: Mitigation today can avoid self-perpetuating climate change.
Low Carbon Energy Sources: Worse case scenarios assume market share from low carbon sources to increase 105% by 2030 to ~20% and 190% by 2050 to ~42%. Best case scenario, described above as necessary to avoid greater than 2 degree temperature increase, call for increased share of low carbon sources of 145% by 2030 to 25% and 310% by 2050 to 60%.

o Conclusion: Renewable Energy is past the bubble stage. It is a proven technology that is in the deployment and growth phase.

Targeted Reductions: Scenarios to keep temperature increase below 2 degrees call for 40-70% lower GHG emission in 2050 relative to 2010.
AFOLU: Best case mitigation scenario calls for widespread adoption of afforestation and bioenergy with CCS (Carbon Capture Sequestration) in the later half of the century.
• “Delaying mitigation efforts beyond 2030 will substantially increase the difficulty in transitioning to lower long term emission levels while narrowing the options consistent with maintaining a temperature change below 2 degrees relative to re-industrial level (high confidence)”
Costs: Best case scenarios costs in consumption growth, assuming global cooperation, technological availability and single carbon price, are estimated at 0.04% to 0.14% against a scenario where consumption growth is 300%-900% over the century.
Development: Infrastructure lock-in for high GHG vs. low GHG assets will be a key determinant in adopting mitigation and policy framework.

o Conclusion: This should be a transparent election issue.

Urban Migration: The next two decades present an opportunity for integrated urban planning based on sustainable development.

o Business Opportunity: City planners, builders and policy makers that embrace integrated design and balancing economic with societal and cultural dividend should benefit.     Operational costs savings, Clean and local food production, clean transport and service based durable goods providers should benefit.

TaxBased Policy: In some countries, tax based policy had proven to weaken the link between GHG and GDP.
Policy: Credit insurance, feed-in tariff, power purchase agreements and rebates have all proven effective at promotion private investment in mitigation measures.

Other Conclusions
• Technology that focuses on resource productivity and transparency of resource use should be in high demand.
• Operational Cost Savings (OCS) opportunities exists across energy supply, industry, building and residents segments.
• Accountant embracing Full Cost or other forms of closed loop balanced accounting should be in high demand.
• Energy collectives, Investment Trusts and other forms of financial instrument innovation are ripe for development.

Sources

– IPCC WGIII AR5: Summary for Policy Makers
– Natural Capitalism (2001, Hawkins, Lovins)
– Homeenergysaver.gov

 

Future Bright is an advisory and think-tank in sustainability started by Ken Coulson to assists innovators in project development and financial presentation, study sustainability and develop tools for understanding a natural economic paradigm. Future Bright is developing framework and visualizations as it pertains to investing and the formulation of investment products. Contact Ken Coulson at kcoulson@optonline.net

Gazebo

Now is a good time to talk about Micro-grids

Now is a good time to talk about Micro-grids

Now’s a good time to talk about Micro-grids

Hurricane Sandy has dealt a harsh blow to the northeast in loss of human life, property, infrastructure and sustained damage to the centralized electricity grid. In the wake of the devastation it is important that the northeast population familiarize themselves with Micro-grids and renewable energy parks. Understanding what they are and how they have been successfully employed is the first step.

A Micro-grid is a distributed power supply providing electricity for a small number of ratepayers.

A renewable power source is one generating from a renewable clean and limitless energy source like the sun or wind.

In their simplest forms, Renewable Micro-grids are local area networks built with a combination of solar PV, geothermal and wind energy. These micro-grids can be supplemented with some natural gas and biomass energy production. They are generally connected to the centralized grid but can operate independently in the case of an outage. Many states and countries have already illuminated a clear path to the successful use of micro-grids and renewable energy.

Distributed Micro-grids in commercial and open space settings in places like Westport CT could provide a long-term secure source for maintaining supply chains, safety, and security in the event of natural disasters.   

Close to home, Sikorsky is a stellar example of a progressive American company with respect to renewable energy. Sikorsky is its’ own Micro-grid with over 10 megawatts of renewable energy installed on their site in Stratford, CT. Renewable energy powers 85% of their 2 million square foot campus. As a side note, Sikorsky is also close to completion the worlds first zero gas helicopter. Now, that is awesome!

We should expect our legislators to look for successes which to follow. Germany, Vermont, Mass and California are a few examples of enacted laws with proven success in the renewable space. Germany derives 40% of their power from renewable sources showing a clear understanding of scarcity and security dynamics as well as environmental impact. Your local legislature should be encouraged to look to replicate the success of the structures in place in these environments. Regulation has been holding development of renewable energy parks back until recent years. But,.

The trend is your friend. Microgrids are expected to increase production 5 fold over the next 6 years from about 1GW to 6GW of energy production representing $4 billion in energy revenue. Grid tied renewable energy installations are seeing good growth numbers as well.  

Many people ask me how these projects can work economically speaking. They can be funded a number of ways from community or business sponsorships to public and private investor partnerships. Based on the current CT laws, sponsorship by the largest commercial property owners may be the best model, where local residences can also be included within the Micro-grid. Building owners can sign long term power purchase agreements with their tenants and homeowners and receive the federal tax credit as well (30% of installation cost). As stand alone private investments, renewable energy parks should be able to conservatively deliver 4-7% returns over long time frames (6-25 years). These advancements to our energy supply need to happen so I am confident they will. My hope is that our community, Fairfield County, CT takes up the reigns and begins the necessary march towards a distributed clean and locally owned energy supply.

To address security, safety, and environmental balance, renewable micro-grids are a necessary part of the solution.  

For more informations on Future Bright’s efforts with renewable energy investments, email ken@kencoulson.com