World is Green

John O’Brien, a friend of mine and the Managing Director of Australian Cleantech launched the Australian Clean Tech Index. This is the first time anybody has grouped together all the sectors which comprise clean technology and environmental services in Australia.  

Mr John O’Brien, Managing Director of Australian CleanTech, said concerns about climate change and energy consumption have led to greater interest in the cleantech industry and an increase in the economic value of clean technologies.

“For the first time we will be able to provide a picture of the Australian cleantech industry’s growth in a single measure,” Mr O’Brien said.“In 2007 a trialled ACT Australian Cleantech Index outperformed both the ASX 200 as well as the ASX Small Ords,” he said.

“The growth of the renewable energy sector in Australia will be driven by the Federal Government’s commitment to achieve 20 per cent of energy generation from renewable sources by 2020.”

The ACT Australian Cleantech Index includes over 75 companies, large and small, from Sims Metal Group with a market capitalisation of over $3 billion to Skydome Holdings with a market capitalisation of $5 million – plus a few outstanding performers with CBD Energy posting a 147 per cent increase in returns over a six-month period to December 2007.

I am planning a new series of interviews with people working in the Green sector. In the coming weeks, John O’Brien will be interviewed.

Rediff has an interview with Joseph Massey, Deputy Managing Director, MCX in India which recently started trading in Carbon credits.

India and China are likely to emerge as the biggest sellers and Europe is going to be the biggest buyers of carbon credits.

Last year global carbon credit trading was estimated at $5 billion, with India’s contribution at around $1 billion. India is one of the countries that have ‘credits’ for emitting less carbon. India and China have surplus credit to offer to countries that have a deficit.

India has generated some 30 million carbon credits and has roughly another 140 million to push into the world market. Waste disposal units, plantation companies, chemical plants and municipal corporations can sell the carbon credits and make money.

Carbon, like any other commodity, has begun to be traded on India’s Multi Commodity Exchange since last the fortnight. MCX has become first exchange in Asia to trade carbon credits.

Economic incentives are strong motivations to change the behaviour of consumers. One such incentive is being rolled out in South Australia.

The SA government has passed the Feed-in-tariff bill in both the houses and this has led to an opportunity to increase the solar power installation in households across the state.

What is the feed-in-tariff. According to Wikipedia:

A Feed-in Tariff (FiT, FiL, Feed-in Law or solar premium^[1] is an incentive structure that boosts the adoption of renewable energy through government legislation. The regional or national electricity utilities are obligated to buy renewable electricity (electricity generated from renewable sources such as solar photovoltaics, wind power, biomass, and geothermal power) at above market rates.

This difference in price covers the cost disadvantages of adopting renewable energy sources, and the rate differs between the different forms of power generation.

In SA’s case, the legislation covers for solar systems installed by small customers (this includes households and small businesses). The legislation ends on 30 June 2028 giving a period of 20 years from this June to recover the cost.

The legislation mandates energy retailers to pay these customers a charge of $0.44 per KwH compared to the current cost of $ 0.18 per KwH for energy in South Australia for energy usage in excess of consumption. In European schemes and other countries, the charge is mandated for all energy created by the solar systems.

In addition to this there is the  Photovoltaic Rebate Program (PVRP) by the Federal government which provides $8/W of installed capacity upto a maximum of $8,000 or 1KW of installed capacity.

This can be enhanced by the Renewable Energy Certificate (RECs) which provides you with a “carbon credit” for the renewable energy used. REC is created for each megawatt-hour of eligible renewable electricity generated or deemed to have generated. The price of RECs change on a daily basis. These can be used for Solar, wind or small hydro electric. They can also be used for Solar hot water systems. You can find the registered list here.

Various government rebate information can be found at the Solar Shop.

In the end, what is the payback for solar systems?

A sample solar power payback calculated by Eenrgy matters which show a simple payback period of 13.69 years without the feed-in-tariff. A more detailed and better analysis is conducted by Mike Bassett-Smith and Shane Robinson of Powersmart NZ. This was conducted for NZ which take into account one-on-one price provided by the utility (no feed-in tariff), no federal government rebate, no RECs but consider the reduction in electricity costs and increased value of property. The result: a payback in 10 years. Mike worked in the investment banking industry before founding Power Smart and he basis his product (grid connected solar systems) as an investment with comparable returns to a government bond and other investments.

It will be really interesting to see the real pay back in South Australia for a similar analysis.

Sustainability is turning up new niche areas of business opportunity. One major area is finance. I came across this bank today called - Ekobanken from Sweden. They have squarely targeted the growing understanding among consumers for sustainability and the increasing innovation from businesses in this field.

This is created in the form a member bank or what in Australia can be called a credit union with the participation of consumers as members or shareholders in the bank. In essence, the goals of users and owners are the same.

They work in the areas which increases social, environmental and cultural initiatives for a sustainable society. It says, “The public good and the benefit of our members is our main driving force and the reason why Ekobanken finances initiatives within the social economy. We are also interested in sustainable business that takes the environment and human being into account.”

In order to target the areas of finance which their members want; Ekobanken has created a unique set of accounts which use the deposits in these accounts to fund projects in that area. For example: savings in the Ecology Account “are used for loans to alternative energy, ecological and biodynamical agriculture, conservation, research and other ecological projects” whereas savings in the Culture account “finances loans to culture houses, artistic projects, community colleges, publishing, production of periodicals and adult education.”

At the time of joining the bank, members can choose to inform the bank to use their bank in all of their initiatives or as the example above suggests to a particular target area. These areas are broadly classified into Ecology, Culture, Healthcare, Child and Youth, The Way Out, Fair Trade and Sustainable development in the local area.

In the area of reporting they are very, very transparent. They produce a loans report every year, (latest is 2006, PDF Download) which takes a few areas of their work like Food, Pre-school and Micro-credits in the 2006 edition and explain their thinking in that field, examples of projects that they have funded and some links. At the end of the report they provide a list of all the projects that they have funded in each of the target areas. An amazing degree of transparency for a bank.

In terms of financial performance, the bank has been growing its deposits steadily, in fact almost doubling in the five years ending 2006; operating revenue growing a decent pace and profits more than doubling in the same period.

The banks vision, theme, products and marketing are all centered around the growing sustainability sector. A fine example of innovation and working in a market niche in this area.

A good presentation by Dr Ian Woods from AMP Capital Investors. This was presented in Oct 2007 in Sydney at the Financial Services public forum of the Garnaut review.

If the link above does not work, you can read it at Slideshare.net.

The Australian fund managers, especially the pension funds are investing $1 trillion dollars and they are interested in the effect of Environmental, Social and Governance (ESG) aspects on the financials and future of large organizations in Australia. They set up Regnan to work in this area.

Their latest study conducted with the help of Monash Sustainability Enterprises (MSE) has come with some interesting information.

From the ABC:

Research conducted for Regnan estimates that 43 of Australia’s biggest 200 companies would suffer a significant loss in earnings under a carbon trading scheme in which carbon was priced at $30 per tonne.

Erik Mather is Regnan’s managing director.

“For the analyst community we’re saying, ‘Now is the time to get on top of this issue,’” he said.

“There is no longer a question of whether we are going to be facing a carbon-constrained future.

“It is just a question of price, and now is the time to understand all the variables - and there are many - that are going to impact that future valuation.”

Regnan’s news release (PDF)has some more facts including that there could be some 50 winners due to Climate Change in the ASX 200.

Key results from the study include:
 Greenhouse Gas (GHG) intensity issues are more widespread than previously thought. Forty three
companies within the S&P/ASX200 index have GHG intensities above 1750 tonnes CO2-e per $M EBITDA,
over 5% of earnings at a carbon price of $30/tonne. 5% of earnings is a common accounting benchmark for material impact.
 Twenty-two of the most GHG-intensive companies in the S&P/ASX200 index do not disclose GHG emissions
to the market.
 Only 36% of S&P/ASX200 index companies that currently disclose historical GHG emissions show declining GHG intensity.
 25% of S&P/ASX200 companies were identified as having greater opportunity than risk from weather related or market changes.
 More than half of the S&P/ASX200 companies fail to provide any evidence of climate change risk
assessment.
 Clear and comprehensive consideration of climate change risks and opportunities in company strategy is
evident in only ten S&P/ASX200 companies.
 Weather impacts on earnings are rising as drought and extreme weather cause production stoppages,
project delays, impacts to supply chains, rising input costs, reduced sales and increased underwriting costs.
In some cases the earnings impacts were greater than 30% in 2006/07.

Rana Rosen on the rising cleantech venture funding in India by VCs.

Private equity (PE) investors, including early-stage venture capitalists, have poured more than $433 million (Rs1,775 crore) into environment-related businesses, primarily wind energy and clean fuel, in the country since 2001.
[...]
So far, investors have put down an average of $33 million into companies that, for example, turn sugar into clean fuel or make cars that run on an electric battery. Overall, investments favoured wind energy, which saw four companies receive funding worth $224 million, and clean fuels, where five companies got $141 million (see accompanying table).
[...]
Most investors are driven by the domestic need for power and water in India, and making that energy supply sustainable as the country develops. “People are looking at India as a market for things, not as a source for things,”
[...]
“India has already seen its wind industry develop rapidly, and looking at China, where solar production and installation are increasing rapidly, India certainly has great potential here,” says Dan Kammen, professor in the energy and resources group at University of California, Berkeley. Many investors see India’s potential in tapping solar energy as even greater than wind, given that its sunny days are around 93% of the year and can be more easily distributed. Companies doing work in biofuels also will continue get attention.

“Anyone who has a biofuel plan, they are sold out,” said Buch. “They sell every litre they manufacture.”

This continues to show the growing market for energy in India. Energy efficiency, Uranium, Wind, Solar, Bio Fuels, Coal, Gas and Oil. India needs all of these and some more .

Irrespective of the correct number it is prudent to remember that VC investing is always the tip of the iceberg in most markets. One good source for this fact is the annual Inc 500 listing. This year they have taken a big step forward and created the Inc 5000 listing. The funding strategy for these high growth companies? Only 7% of them relied on VC funding. If this is true for the US, then India should be even lesser considering the smaller VC market.

The end point: Using the above reasoning, the clean tech venture market in India may have received $8-$9 billion dollars($433m*20 times) from 2001 till now.

Erik Mather, managing director of Regnan:

…there were parallels between the subprime meltdown in US markets and questions about carbon exposure and prices. In both cases, he said, risks and exposures were spread so wide that no one knew exactly where they lay.

Institutions would put pressure on companies for fuller disclosure because the market demanded certainty, he said.

“What we have learned is that markets are good at pricing risk but they are lousy at pricing uncertainty,” Mr Mather said. As a result, superannuation funds with holdings across the entire market were now more likely to put more heat on companies for disclosure on environmental, social and governance issues. The issue of carbon pricing and carbon taxes alone could affect share prices.

Carbon trading has started in Australia with the launch of the Australian Climate Exchange (ACX).

The Herald Sun reports:

Total turnover might have been a thin $13,610 and the initial price $8.50 per tonne of carbon but from small acorns such as this grow lots of trees.And those people growing the trees will be one of the main targets as the carbon credits market tries to gather depth and volume.

Tim Hanlin, managing director of the Australian Climate Exchange (ACX), admitted that the carbon credits market would be “supply constrained” for some time.

In other words, there are plenty of businesses wanting to buy carbon offsets for their emissions and claim to be clean, green and carbon neutral.

The demand for Carbon Credits are mainly from companies which want to voluntarily reduce their emissions and even go with being carbon neutral so as to gain a marketing edge.

One way to do that is to participate in the Australian government sponsored Greenhouse Friendly™ scheme which will certify specific products or services as Carbon neutral.

The Greenhouse Friendly scheme consists of two parts.

One part relates to product and service certification, whereby certified products and services are eligible to be labelled with the Greenhouse Friendly™ logo…Greenhouse Friendly™ product and service certification creates part of the demand for the second part of the initiative - that is, abatement from Greenhouse Friendly™ approved abatement projects.

In Green jobs with Growth potential; I wrote that; “Makower has some good advice. It is important to gain a skill and then have a green tinge to it and not get pigeonholed into a environmental division… In that sense, environmental divisions will become redundant. The environmental lens will become part of the other lenses used by executives.”

Now ‘The forex blog has more on how to green (environmental and social aspects) your financial career:

If you’re interested in a financial career, you might be curious about how your interests can lead to reconciliation between your job and your belief system…Social finance means that financial instruments are used to promote social goals. Financial instruments used to accomplish these goals include credit, savings, investments, and loans, among other devices.

[...]

Social finance careers have expanded to the point where you can attend a school in London that focuses solely on social entrepreneurship. Whether your interests lie in a nonprofit or for profit participation in this specialized industry, you might wonder where your opportunities lie. Some social finance positions might include:

Community Investor: The community investor works with other individuals to gather, oversee, and direct capital to community investment opportunities in local or regional areas or abroad.

Micro-Financier:This individual seeks to provide impoverished individuals or communities with the means to invest or borrow money for business or community development.

Nonprofit Sector: The nonprofit sector is also the most diverse when it comes to opportunities. While some individuals are content to volunteer for nonprofit efforts, you can also seek a career as an executive or work as a freelance grant writer or project coordinator.

Social Entrepreneur: Unlike venture capitalists, social entrepreneurs provide innovative solutions to difficult social problems usually without seeking personal profit.

[...]

If you want to incorporate a social angle to your career objective, you will also need to expand your skills and experience through education and work. You can expect to gain the following:

Interdisciplinary Skills:You can also focus on technological, environmental, or leadership facets to social financial careers. Your interdisciplinary needs will depend upon whether you want to focus more on social or financial aspects within this field.

Leadership Opportunities: Social financing is a means to create innovative ways to improve social environments, and this field needs creative leaders who can take the initiative in many situations.

Flexibility: Careers in social financing currently may be definitive or broad and fairly undefined. You many find a way to travel the globe, or you may seek a situation where you’re alone and surrounded by books and archival materials.

Global Knowledge: Even if you end up in a back office surrounded by social financing accounting books, you will learn much about how people live in other communities around the world