A British bond to the rescue?

"Remember, remember the fifth of November, gunpowder treason and plot" goes the rhyme recited on Bonfire Night in the UK to commemorate the group of conspirators who attempted to assassinate the king and parliament in 1605. 

Some 408 years later, the country’s Green Investment Bank has a plan that is also revolutionary (in its way) and that it hopes will be a lot more successful – that is to offer project bonds to spur clean energy deals. The bank could amass debt finance of several smaller UK projects for sale to the bond market, spurring similar deals, said GIB chief executive officer Shaun Kingsbury. 

Renewable project bonds have been slow to pick up in Europe, not helped by the poor performance of the Breeze securities issued on French and German wind farms in 2005-07. Some $US83 million worth of project bonds have been issued in the UK since 2011 compared with $US4.4 billion in the US, according to Bloomberg New Energy Finance data. But there have been more signs of interest recently: Pension Insurance Corporation and Lancashire County Pension Fund have both bought bonds linked to UK solar projects over the last 12 months, and Foresight Group issued a ₤60 million ($US96 million) bond earlier this year to refinance its UK PV assets.

At the other end of the globe, South Africa's Department of Energy said on October 29 that it has chosen 17 preferred bidders from 93 contenders in round three of its renewable energy tenders program. Like the first two tenders, the third round was over-subscribed, with increasing interest from international developers, which accounted for over three-quarters of the bids for solar PV and wind. As Bloomberg New Energy Finance anticipated, bidding prices have become more and more competitive. A total of 1500MW was awarded of which, just over half went to seven bidders for onshore wind farms, 30 per cent to six solar PV bidders, 13 per cent to two solar thermal bidders, and the remainder to three bidders for landfill gas and biomass projects. So successful was the round that the government is now considering whether to grant further awards.

The Department had been due to unveil the identities of the winners on October 29 but has postponed the announcement. However, some companies have revealed their own identities: Ireland's Mainstream Renewable Power was preferred bidder for three wind farms worth a total of ZAR 9 billion ($US912 million) with capacity of 360MW, it said in a statement. This is not its first foray into South Africa as it was awarded 238MW of wind and solar projects in round one of the tender program.

A South Africa virgin is China Longyuan Power, the country's biggest wind farm operator, which has won a bid to develop two wind projects totalling 244MW with local companies, according to a statement on its website. The bid is only Longyuan's second venture abroad though it may well not be its last, as it now has a strategy of "going global". Its first wind project outside China is in Canada, where it said in August it would begin construction on a 100MW wind farm in Ontario where such projects can benefit from an attractive feed-in tariff. 

Italy's Enel Green Power may well be one of the biggest winners of round three, being the preferred bidder for 314MW of solar PV projects and 199MW of wind farms. In line with the rules of the program, Enel has participated in the tender with local companies but will retain a 60 per cent controlling stake. For one 111MW wind farm worth ZAR 2.25 billion ($US224 million), it will work with Cape-Town-based Red Cap Investments.

As to other technologies, Spain's Abengoa has said it has been chosen to build a 100MW solar thermal plant, in a consortium with the South African Industrial Development Corporation, Public Investment Corporation and KaXu Community Trust. The project will benefit from a 20-year, €210 million loan from the European Investment Bank via the Rand Merchant Bank, a division of FirstRand Bank. This plant will be built next to another 100MW plant Abengoa is building in the Northern Cape. Altogether, the Spanish company's solar thermal portfolio will be the largest in the Southern Hemisphere.

Two more rounds are planned by end-2016, by which time South Africa plans to add 3725MW of renewable energy capacity. This should help state utility Eskom to reduce its dependence on emissions-heavy coal and meet the surging demand for power.

Future rounds are likely to see similar levels of interest from domestic – and in particular, international – developers, if the government implements similar conditions, according to Bloomberg New Energy Finance. Some market consolidation is anticipated as developers look for partnership opportunities, especially to meet the government's increasingly strict local content rules, and international companies seek a more solid foothold in this burgeoning market. A shortage of finance has not been much of an impediment to date; but commercial banks may grow wary of the size of their exposure to renewables, in which case development bank dollars – such as the ZAR 4 billion ($US401m) in additional funding that may be offered by the Development Bank of South Africa – would become even more important.

EU carbon

European Union Allowances (EUAs) for December 2013 finished the week 7.8 per cent down as traders cautiously awaited European Union member states to vote November 8 on a mandate to start talks with the bloc’s Parliament on a carbon market fix.

EUAs for delivery in December ended last Friday’s session at €4.62/t on the ICE Futures Europe exchange in London, compared with €5.01/t at the close of the previous week. Front-year permits were on a positive track at the start of the week, rising to an intraday high of €5.14/t on Wednesday morning. Prices slid again on Thursday, and eventually fell further down to an intraday low of €4.57/t on Friday, thanks to mixed messages about the German government’s support for backloading and the drawn-out coalition talks.

German power for delivery in 2014 ended Friday’s session at €37.30/MWh, down 1.6 per cent on the previous week’s €37.90/MWh close. UN Certified Emission Reduction credits (CERs) for December 2013 lost €0.03/t last week to end at €0.50/t.

Originally published by Bloomberg New Energy Finance. Republished with permission.