market solutions to global climate change...market solutions to global climate change • panel...

Market Solutions to Global Climate Change•

Panel Detail:•

Wednesday, April 29, 2009

2:00 AM -

3:45 AM

•

Speakers:

Gregory Arnold, Co-Founder and Managing Partner, CE2 Capital Partners LLC

Gray Davis, Former Governor, State of California; Of Counsel, Loeb & Loeb LLP Chris Hunter, Vice President, Climate Change Capital

Joseph Pettus, Senior Vice President, Fuel & Energy, Safeway Inc.

Richard Sandor, Chairman and CEO, Chicago Climate Exchange Inc.; Senior Fellow, Milken Institute

ModeratorBob Moon, Senior Business Correspondent, "Marketplace"

Carbon dioxide emissions continue to climb

Million metric tons of carbon dioxide

0

200

400

600

800

1000

1200

1949

1951

1953

1955

1957

1959

1961

1963

1965

1967

1969

1971

1973

1975

1977

1979

1981

1983

1985

1987

1989

1991

1993

1995

1997

1999

2001

2003

2005

2007

020406080

100120140160

85 87 89 91 93 95 97 99 01 03 05 07 09

Oil prices remain volatile

1985-April 2009, 2007 US$

Aug 90:Iraq’s invasion of Kuwait and

Gulf WarJan 08: Oil

reaches $100 a barrel for first time

March 03: start of Iraq

war

July 08: Oil reaches

highest point, begins descent

Green funds impacted by global downturn

Net asset value, US$

0

5

10

15

20

25

30

35

40

2001 2002 2003 2004 2005 2006 2007 2008 2009

NBSRX

PortX

GCBLX

Global investment in new clean energy US$ billions

05

1015202530354045

2004

Q1

2004

Q2

2004

Q3

2004

Q4

2005

Q1

2005

Q2

2005

Q3

2005

Q4

2006

Q1

2006

Q2

2006

Q3

2006

Q4

2007

Q1

2007

Q2

2007

Q3

2007

Q4

2008

Q1

2008

Q2

2008

Q3

2008

Q4

2009

Q1

Source: New Energy Finance.

The American Recovery and Reinvestment Act of 2009 addresses energy

Tax cuts$288B

Healthcare –

$148BEducation$90.9B

Low income aid$82.5B

Infrastructure$80.9B

Energy$49.7B

Housing $12.7B

Scientific Research $8.9B

Other $25.4B

Source: The American Recovery and Reinvestment Act of 2009.

The American Recovery and Reinvestment Act of 2009 Energy Expenditures

Energy efficient smart grid $4.5B

Transmission lines $6.5B

State and local energyInvestment $6.3B

Radioactive cleanup $6BWeatherizing medium incomeHomes $6B

Federal building Efficiency $4.5B

Carbon capture experiments $3.4B

Energy efficiency research (biofuels, Geothermal, alt fuels)$2.5B

Advanced car battery $2B

Energy efficiency andconservation grants $3.2 B

Other $3.7B

Source: The American Recovery and Reinvestment Act of 2009.

Sample matrix of asset classes

and environmental issues

Climate Change Energy Water Biodiversity

Conservation Pollution Agriculture Sustainable Development

Raw Material Usage

PublicEquity

Shareholder dialogue

Best in class screening

Best in classscreening

Private Equity

Alternative energy VC

Bio-Prospecting

VCBiotech VC Municipal bonds for

'smart growth'

BondsTax exempt

'green bonds'Screened corporate

bonds

Tax exempt private water filtration plant

bonds

Tax exempt 'green bonds'

Screened corporate

bonds

LoansCommunity

development loans

Credit Enhancement

Alternative energy project finance

guarantees

Water treatment project finance

guarantees

Sewage treatment project finance

guaranteesLoan insurance

Brownfield development portfolio

insurance

CO2 Trading Wetland banks Carbon sinks Nutrient trading; SOx trading Carbon sinks

Environmental issueEq

uity

Fixe

d In

com

e

Ass

et C

lass

Sample Matrix of Asset Classes and

Environmental Issues

New Approaches

Source:

Barclay’s Capital.

Renewable Investors’

Financing Structure Decision MatrixScenario Developer

can use tax

benefits

Developer can fund project costs

Developer wants to

retain stake in project

Developer wants easy

cash distribution

Project has low

projected IRR

Project already exists

Most suitable financing strategy

or structure

1 No No No Yes N/A No Sell project to strategic investor

2 Yes Yes Yes No No No Corporate

3 No Limited Yes No No No Strategic Investor Flip

4 No Limited Yes Yes No No Institutional Investor Flip

5 No Limited Yes No Yes No Cash Leveraged

6 No Limited Yes Yes No Yes Institutional Investor Flip

7 No Yes Yes Yes N/A Yes Pay as you go

8 No Limited Yes Yes Yes No Back leveraged

What Public Financial Incentives exist

beyond Federal Production Tax Credits?

Source: Clean Energy Group.

State

Renewable Energy

Production Incentive

Property Tax Exemption

Sales Tax Exemption

Other Tax Credits

AZ XCA X XCT XIL XMA X X X XMN X X XNJ XNY X XOH XOR X XPA XRI X XWA X X

Alternative fuel and electric vehicles

offer efficiency and lower emissions

Chevy Volt

Tesla

Plug-in

Prius

Plug-ins can deliver 100 mpg. Hybrids can also run on “flex fuels”

(gasoline, E85, CNG) to extend range.

Top public market transactions in first

quarter of 2009

Organization Country Name & country of stock exchange

Sector Type of transaction New equity raised (US$

millions)

Gintech Energy Corporation

Taiwan Taiwan Stock Exchange (Taiwan)

Solar Secondary 52.8

Wellington Drive Technologies

New Zealand

New Zealand Stock Exchange (New Zealand)

Efficiency Exercise of Warrants/Rights/

Options

5.4

GreenHunter Energy

United States

NYSE Alternext US Equities (US)

Biomass & Waste

Convertible 5

Polaris Geothermal Canada Toronto Stock Exchange

Geothermal Debt Equity Swap 0.9

Polaris Geothermal Canada Toronto Stock Exchange

Geothermal Secondary 0.4

Source: New Energy Finance.

Venture capital in cleantech Q1 2009

Stage/type of investment Amount (US$ billions)

No. of deals

VC early stage .2 17

VC late stage 0.2 10

PE expansion capital 1.1 16

PIPE/OTC 0.3 8

Total new investment in companies 1.8 48Source: New Energy Finance.

Total new investment in companies by

sector Q1 2009Sector Amount (US$ billions) No. of dealsWind 0.7 6Efficiency & low carbon services 0.4 18Solar 0.4 11Biofuels 0.2 8Geothermal 0.0 2Biomass and Waste 0.0 2Marine and Mini-Hydro 0.0 1Total new investment in companies 1.8 48Source: New Energy Finance.

20% wind by 2030 doable with $2 trillion in investment

Sources: U.S. Department of Energy.

Will new capacity meet

renewable targets set by states?

State Goal

? PA: 18%** by 2020

? NJ: 22.5% by 2021

CT: 23% by 2020

WI: requirement varies by utility; 10% by 2015 goal

IA: 105 MW

MN: 25% by 2025(Xcel: 30% by 2020)

TX: 5,880 MW by 2015

? AZ: 15% by 2025

CA: 20% by 2010

? *NV: 20% by 2015

ME: 30% by 200010% by 2017 - new RE

State RPS

HI: 20% by 2020

RI: 16% by 2020

? CO: 20% by 2020 (IOUs)*10% by 2020 (co -ops & large munis )

? DC: 20% by 2020

? NY: 24% by 2013

MT: 15% by 2015

IL: 25% by 2025

VT: (1) RE meets any increase in retail sales by 2012;

(2) 20% RE & CHP by 2017

? MD: 20% by 2022

? NH: 23.8% in 2025

OR: 25% by 2025 (large utilities )5% - 10% by 2025 (smaller utilities)

*VA: 12% by 2022

? *DE: 20% by 2019

? NM: 20% by 2020 (IOUs)10% by 2020 (co -ops)

? NC: 12.5% by 2021 (IOUs)10% by 2018 (co -ops & munis)

ND: 10% by 2015

SD: 10% by 2015

*UT: 20% by 2025? OH: 25%** by 2025

*MI: 10% + 1,100 MW by 2015

? MA: 15% by 2020+ 1% annual increase(Class I Renewables)

? MO: 15% by 2021

*WA: 15% by 2020

28 states have a RPS;

5 states have a RE goalSource:

Source:

DSIRE, Interstate Renewable Energy Council.

State Renewable Portfolio Standards and State Renewable Energy Goals

Financing options for renewable energy plants•

Sources of funds for power plants include: –

Equity–

Debt–

Guaranteed loans–

Secured and unsecured loans •

Debt to equity ratios as high as 80:20 are common, though most wind projects are funded by 40-60% debt.

•

In highly leveraged deals, the cost of debt is of prime importance.•

Tax regulations and available subsidies are essential to funding.Source: Booz, Allen and Hamilton.

Panelist slides

Governor Gray Davis Slides

Calit2 –

San DiegoQB3 –

San Francisco

CNSI –

Los Angeles CITRIS –

Berkeley

Governor Davis Creates California’s Four Institutes for Science and Innovation A bold public/private partnership that guarantees California’s global leadership in innovation

20

Milken Institute Global Conference -

Lessons from California: Clean Tech and Energy Innovation

•

Only 2.5% of available water is freshwater

•

WHO: 50% of world population facing water shortages by 2025

•

UN: by 2025, global demand for clean water will increase:+ 20% for agriculture+ 50% for industry+ 80% for domestic consumption

Researchers have created a membrane that reduces the cost of turning today’s seawater into tomorrow’s drinking water

Solutions for Global Water Shortage

Researchers at the California NanoSystems

Institute have created methods to store the equivalent of large room full of Hydrogen into the gas

tank of a small automobile.

Hydrogen Storage for Clean Energy

To reduce greenhouse gas emissions, technology is being developed to capture and safely store carbon dioxide released from power plants and automobile tailpipes before it reaches the atmosphere.

New materials are also being developed to safely store carbon dioxide below the earth’s surface.

Carbon Dioxide Capture

Researchers have developed new plastic solar cells which are ready for some portable electronics. In the future these “solar cells”

will be found everywhere, including building windows, house paints, and draperies to soak up solar power.

Solar Cells

California’s Progressive Energy Policy Under Governor Gray Davis (Ret.)•

Demonstrating Bold Leadership, Governor Davis:–

Signed America's first

law to address our greatest environmental threat of the 21st century —

Global Warming

–

Signed into law the Nation’s largest Renewable Resources Portfolio Standard

–

Established the Climate Action Registry

–

Signed into law an $850-million set of energy conservation and efficiency programs, the largest in CA history

–

Made the FLEX YOUR POWER

campaign a household mission, where all Californians became incentivized

to save energy, resulting in 1,468 MW of power savings in 2002 alone

25



California’s Legislative Action Will Increase Innovation•

California is doing its part–

SB 1078 (2002)

–

calls for 1% annual growth in renewables from 2002-

2017, until 20% of electricity from renewables is reached

–

AB 1493 (2002)

–

requires CARB to develop carbon pollution standards for vehicles produced in model year 2009 and beyond

–

AB 32 (2006)

–

calls for the state to achieve 1990 emissions level by 2020

26



Climate Innovation Promotes Economic and National Security•

Increasing America’s reliance on foreign oil contributes to the global climate crisis and leaves us more vulnerable to unstable regimes

–

America sends $700 billion each year to the Middle-East



27

Climate and EnergyProjected economic growth in clean energy will increase by $225 billion over the next decade

Source: San Francisco Chronicle, March 7, 2007

Los Angeles Water Supply Sources —

Average Year



Metropolitan Water District

53%

Local Groundwater

11%

Recycled Water

1%Los Angeles Aqueduct

35%

29

Chris Hunter slides

Climate Change CapitalClimate Change Capital (“CCC”) is an investment manager and advisor specialising

in the opportunities created by the transition towards the low carbon economy. Our activities aim to make the world’s environment cleaner while delivering attractive financial returns.

CCC is headquartered in London and has offices in Beijing, Boston and Washington D.C. with a focus on the EU, North America and Asia. Through the combined talents of investment professionals, market specialists, thought leaders and access to a significant capital

base, CCC is perfectly placed to deploy capital, at scale, to accelerate the transition to the low carbon economy. We call this Creating Wealth Worth Having®.

Carbon markets are here…

and here to stay

•

Value of worldwide market increased 84% in 2008 to $118bn

•

EU ETS accounts for vast majority of value (80%)

•

CDM Project Market accounted for most of remaining value (17%)

•

Other markets are marginal

Source: New Carbon Finance.

Carbon markets work (when the policy is right)•

Criticism: European left (CDM integrity), USA right (“biggest tax hike ever”)–

While some partial truths, largely miss the point•

Penalize “bad”

(internalize costs) vs. Subsidize “good”

(pick winners)–

Corrects market failure and allows enterprise to innovate–

Cap & Trade is more palatable for politicians (“tax”

is a four letter word)–

Absolute cap provides greater environmental certainty•

Business does not need price certainty in a risk-free environment–

But business does not cope well with massive policy uncertainty•

Government should build confidence by adhering to principles–

Credibility: clear vision & aligned frameworks–

Predictability: interventions based on pre-arranged technical criteria–

Long-term visibility: more than one or two years–

Simplicity: avoid high transaction costs–

Transparency: publicly available information

market solutions to global climate change...market solutions to global climate change • panel...

Documents