Durban: breakthrough or damp squib?

The UN might be hailing Durban climate talks as a 'breakthrough,' but the reaction from the markets was distinctly damp. Plus solar prices continue to fall; EUAs lift; fracking in the US; hydro in Asia; and nuclear in China.

The climate talks in Durban that finished at the weekend were hailed as a "breakthrough" – a word used in the official statement on Sunday from the United Nations Framework Convention on Climate Change or UNFCCC. Justified or not? Well, the reaction in the markets was distinctly damp, with carbon prices actually falling 4 per cent on Monday.

The optimists gave as their first reason for claiming success at Durban the fact that the divide between the developed and developing countries in the emissions-control arena has narrowed and may soon close altogether.

Developing nations led by China and India pledged to work towards an agreement "with legal force" to limit their fossil fuel emissions for the first time. This agreement would be finalised no later than 2020, parties at the conference agreed.

Since this satisfied the "roadmap" requirement of the 27-nation European Union, the latter vowed to extend its emission reduction goals under the Kyoto Protocol beyond 2012. The US, which has not ratified the Kyoto pact, also came on board with President Barack Obama's envoy approving the accord in Durban.

Separately, the International Maritime Organization said it would consider how to set a price on emissions from ships next year. It will decide whether to impose a global levy or establish an emissions trading programme. And Japan said it may introduce a carbon tax to curb emissions as the use of fossil fuels to generate power increases in the once nuclear-power-intensive country.

However, as the clean energy sector has learned only too clearly over the years, there is a big difference between US agreement at talks, and the actual delivery of US legislation. The deal at Durban involves legal commitments due to come into force several years into the future at best, and in the meantime the danger of climate change is likely to escalate.

Three countries – Canada, Japan and Russia – have decided against extending their Kyoto commitments. There are no new binding targets as of now resulting from the Durban deal. In fact, there may be no new pledges until 2020 – the deadline year for the next pact.

In the renewable energy sector last week, the biggest news was the purchase of the $US2 billion Topaz PV solar project in California by Warren Buffett from First Solar, at a time when the industry has been battered by financial market disturbances around the world. The 550MW plant will be one of the world's largest when completed. The terms of the deal were not disclosed.

The price of polysilicon used to make solar panels meanwhile continued to decline. The average spot price dropped to $US27.64 in the first week of December, according to Bloomberg New Energy Finance. Prices are down 63 per cent this year.

MEMC Electronic Materials – the second largest US maker of polysilicon – said it would fire 20 per cent of its workforce, or about 1,300 people, and cut production. It said it would idle a facility in Italy, reduce capacity at a plant in Portland and scale back a factory it is building in Malaysia. It also lowered its sales forecast for the fourth quarter from a range of $US800 million to $US1.1 billion announced on November 2, 2011, to $US789-861 million.

The lower prices are being reflected in the tariffs being quoted by developers bidding to sell solar power in India. A national auction on December 2 saw Solairedirect – France's second largest producer – offering to sell electricity in India at the equivalent of $US147 per MWh. This is 38 per cent below the average price set in an earlier December 2010 auction.

The flux in the solar industry is also reflected in the growing investigations into dumping. The US International Trade Commission found that domestic solar equipment makers were being harmed by imports from China in what is being seen as a first step towards imposing added tariffs on these imports. The Chinese government uses cash grants, raw-material discounts, preferential loans, tax incentives and currency manipulation among tactics to boost exports of solar cells, according to a complaint filed by module-maker SolarWorld on October 19 to the trade commission and the US Commerce Department.

Carbon picks up from record lows as EU pushes climate talks

European and United Nations carbon allowances climbed back from record lows last week as negotiators at the Durban climate conference discussed a path to a new agreement. European allowances, or EUAs, gained 0.3 per cent last week, closing at €7.84/t compared with €7.82/t at the end of the previous week. They had slipped to a record low of €7.31/t at the end of last Monday’s session, as the market prepared for the European Investment Bank to sell its first tranche of emission allowances for 2013. United Nations Certified Emission Reduction credits, or CERs, for December 2011 dropped 0.9 per cent last week to close at €5.30/t, which was a significant improvement from a record low of €5.00/t on Monday. The carbon market came back to life in the second half of the week as the EU pushed for an extension of the Kyoto Protocol and a path to a new legally-binding treaty at the UN climate talks in South Africa.

Fracking under the spotlight, hydropower apace in Asia

A US Environmental Protection Agency investigation concluded that chemicals found in a drinking-water aquifer in Wyoming were connected to hydraulic fracturing, or "fracking", the Financial Times reported. Hydropower continued to makes headlines in Asia, with Cambodia inaugurating the $US280 million Kamchay hydropower plant, at 194MW the country’s largest, AFP said, and Taiwan opening the 61MW Pihai plant, the Taipei Times reported. However, approval for the 1,260MW Xayaburi dam on the Mekong river in Laos was further delayed by ministers from Cambodia, Thailand, Vietnam and Laos, the four members of the Mekong River Commission, Bloomberg News reported. Meanwhile, China Three Gorges invested $US269 million to take a majority stake in China Power New Energy, Bloomberg Businessweek said. Africa saw financing for irrigation projects last week, with the World Bank set to disburse $US115 million in Zambia, the Times of Zambia said, and Kenya securing a $US55 million grant from the Arab Bank for Economic Development in Africa, Kenya’s Daily Nation reported. Israel signed a $US400 million deal for a desalination plant in Ashdod, its fifth, which will be completed in 2013, the Jerusalem Post reported.

Nuclear to become 'foundation' of China's power

A senior official said nuclear will become the foundation of China’s power generation over the next 10-20 years, China Daily reported, with a 300GW increase in nuclear capacity requiring the country to spend around $US125 billion annually. Support for new nuclear was echoed in the Middle East, with Saudi Arabia announcing plans to spend over $US100 billion on 16 new plants, Arab News said, and the United Arab Emirates aiming to meet 25 per cent of its electricity requirements through nuclear power, with a first plant to be commissioned in 2017, the Wall Street Journal reported. Europe’s nuclear giants continued to retrench after Germany’s decision to close its nuclear reactors, with RWE’s share price plummeting last week on news it would raise €2.1 billion in a share sale to cut debt, and Eon signing a deal to sell off a subsidiary in Bulgaria as it seeks to divest €15 billion in assets, Bloomberg News reported. PGE, Poland’s leading utility, suspended plans to participate in the construction of a planned nuclear project in Lithuania with GE and Hitachi, Bloomberg Businessweek said. Elsewhere, China Guangdong Nuclear emerged as a $US2.2 billion bidder for Extract Resources, which owns the world’s fourth-largest uranium deposit, as a result of offering to take over Kalahari Minerals, its main shareholder, for $US988 million, Bloomberg Businessweek reported. Meanwhile Tokyo Electric Power, or Tepco, could face a state takeover if it needs a fresh capital injection to meet costs related to decommissioning its Fukushima plant, the Financial Times reported.