EU goes bearish on 2030 targets; Kenya's wind win

The week in clean energy saw debate on European 2030 targets delayed by Russia woes, financing for Kenya's 300 MW wind project and hesitancy at start of EU backloading.

The European Union sought to review its energy dependence on Russia following developments in Crimea, the UK Chancellor George Osborne froze the carbon price support rate at £18 per tonne, and, earlier this week, a record $US870m was mobilised from a dozen investors for the 300MW Lake Turkana wind plant in Kenya.

The first debate on 2030 targets for Europe was overshadowed last week by the concerns about reliance on oil and gas imports from Russia through Ukrainian pipelines. As Russian President Vladimir Putin signed legislation completing the process to annex Crimea, European Union leaders asked the European Commission - the bloc's executive - to determine ways to diversify energy sources away from Russia within three months. A decision on the proposed 2030 carbon-reduction target of 40 per cent from 1990 levels was delayed to October at the two-day summit held in Brussels last week. “We are serious about reducing our energy dependency…it’s clear we need to be moving towards an energy union,” EU President Herman Van Rompuy told reporters.

EU chiefs agreed that their new emissions goal for 2030 will be in line with the long-term aim of cutting greenhouse gases by at least 80 per cent by 2050, EU Climate Commissioner Connie Hedegaard said in an e-mailed statement. To achieve that remit in the most cost-efficient manner, the EU should lower pollution by 40 per cent by 2030, according to analysis by the Commission.

In the UK meanwhile, Chancellor Osborne capped carbon price support until 31 March 2019. Analysis by Bloomberg New Energy Finance shows that despite the cap, UK power companies will have to pay £35.05 per tonne of carbon in 2016-17, which is substantially more than the expected £17.05 per tonne carbon price in Europe, and the £28.95 per tonne that the government has been aiming for. This is because the two-year forward prices used to calculate the support price do not capture the full additional cost of backloading of carbon permits.

In Australia, the Senate voted to reject Prime Minister Tony Abbott's bid to repeal the country's price on carbon. Labor and Greens senators joined forces to block the repeal package. New laws need approval in the Senate, where Labor and the Greens hold a combined majority until 1 July 2014. After that a new upper house will sit.

Last week also saw a bunch of financing announcements, with a prominent one finalised earlier this week in Kenya. It is the biggest renewable energy project in the world to secure funding this quarter and one of Africa's largest on record, Bloomberg New Energy Finance data show. The €620m ($US854m) Lake Turkana wind farm will be funded through about €151m of equity, €433m of 15-year senior debt and almost €37m of mezzanine debt, said Helen Tarnoy, managing director of Aldwych International. Aldwych and KP&P Africa, a Dutch developer that started the project, will invest €33.5m each, she said. The rest of the equity finance will be from Denmark’s Industrial Fund for Developing Countries, the Norwegian Investment Fund for Developing Countries, the Finnish Fund for Industrial Cooperation and turbine maker Vestas Wind Systems.

The African Development Bank is leading the lending group, which includes European Investment Bank, Standard Bank Group, Nedbank Group, France’s Proparco and Deutsche Investitions und Entwicklungsgesellschaft. The installation will sell power to state-run Kenya Power & Lighting under a 20-year power purchase agreement using a new government-funded transmission line.

Back in Europe, the Overseas Private Investment Corporation (OPIC) of the US approved a $US250m loan for the 110MW Negev Energy-Ashalim solar-thermal power project in Israel led by Abengoa. This would be its first funding for a concentrated solar plant, which uses mirrors to focus sunlight to produce steam that then powers turbines. The European Investment Bank may lend €150m to the $US1bn project. “This project advances one of OPIC’s key strategic priorities to support the development of renewable resources, and also uses an innovative solar technology,” chief executive officer Elizabeth Littlefield said in the statement.

The UK's Green Investment Bank announced an investment of £51m in a plant in Norfolk in the east of the country that will generate power from trash.

Lastly, Chinese panel maker ET Solar Group said it is planning an initial public offer for its project development unit in the US to raise £250m in the first quarter of 2015, after "seeing more positive signs from the US capital market on downstream solar companies," said chief executive Dennis She in an interview. The unit backed by Tsing Capital and NewMargin Ventures expects to close a round of private financing in April to raise $US30-40m, he said.

EU carbon

European carbon finished the week 1.9 per cent lower even as backloading started curbing supply on the EU’s common auction platform.

European Union allowances (EUAs) for delivery in December 2014 ended the Friday session at €6.25/t, compared with last week's close at €6.37/t.

Front-year allowances had a bearish start to the week, reaching an intra-day low of €5.66/t Monday afternoon. The benchmark contract for EUAs continued to trade below previous week’s close, but recovered on Wednesday as members of the European Parliament’s environment committee rejected a deal to exclude international aviation from the scheme.

ICE Futures Exchange in London handled record option trade volumes to sell EU carbon permits, a move which may suggest that traders are hedging positions for a more pronounced bearish movement. A total of 15Mt changed hands on Tuesday, shattering the previous record by an additional 1.3Mt.

UN Certified Emission Reductions (CERs) for delivery in December continued the bearish trend, closing the week at €0.14/t, down from last week’s €0.16/t. The absolute spread between CERs and Emission Reduction Units (ERUs) reached €0.02/t on Thursday, its lowest point in over a year, as both contracts declined in value.

German power for delivery in 2015 ended the week at €35.5/MWh, down 0.14 per cent from the previous Friday.

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

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