Environmental awareness pervades the whole curriculum at Shawlands Academy in Glasgow
Jackie Kemp
The Guardian,
Tuesday October 21 2008
"Ca c'est typique! Tu ne comprends pas qu'on vit dans une société de consommateurs?" Pupils from Shawlands academy in Glasgow staged a play about the politics of conservation on an unused island in Pollok Park, an island they reclaimed themselves, wading out in welly boots to cut back the shrubbery and create a natural auditorium.
The Litter Pickers, which featured an argument between Greek goddesses Aphrodite and Hestia - in French - won the school a language award, and was gamely performed alfresco despite skies that threatened rain.
But as well as being a project that the school is proud of, The Litter Pickers typifies an approach to sustainability that tries to break down barriers between subjects and involve the whole school. That is the approach that has won the school this year's award for sustainable schools. The judges were impressed by a "clear shared vision among pupils and staff" on sustainability. "The initiative has enriched teaching and learning across a wide range of curriculum areas," they said.
Rich cultural mix
Shawlands, an inner suburb on Glasgow's southside, is a mixed area. Its traditional tenements in red and blond sandstone are relatively sought after and it is sometimes called the "new West End". A lively up-and-coming area, it has a diverse population and more than 50 languages are spoken by the 1,200 pupils. The most culturally mixed in Scotland, around half of its pupils are from ethnic minorities.
Within the school, many of the pupils themselves are concerned about the environment and dozens of them attend a thriving "eco club" that meets in a classroom at lunchtime.
Arriving with their sandwiches and drinks, the students share their concerns about climate change and what they can do about it. Although they exhibit a high level of awareness, they seem cheerfully positive, feeling that they're doing what they can in their own back yard. Teachers say children coming in from primary school are increasingly used to thinking about the environment and want to do more.
Hazel Anderson, 12, is one of the large number of first-years who have chosen to join the eco club. "I think we have to do what we can to keep our world clean, because it is what future generations will inherit."
"I just think it is really important that we act now because climate change is obviously happening," says David Johnstone, 13, "We need to try to combat it before it is too late. What we're doing in this club is recycling loads, and that must make a massive difference. If every school does what we're doing, I think it would make all the difference."
Sixth-former Daniel Chisholm, 16, is one of just two founder members who started the club four years ago. "I've seen a real difference in the school," he says. One of the biggest changes is in the careless dropping of litter at break and lunch times. "When we first started doing this, the amount of litter that was getting dropped was unbelievable. It is quite tidy now, compared to what it was."
The eco club was able to get funding from Clean Glasgow for handheld litterpickers and fluorescent jackets for volunteers, and one evening a week a group of them goes around the school and its environs picking up litter.
The group has installed a recycling system and once a week children sort out the recycling boxes from every area of the school, and take the collected material to a central point. The school recycled over 885kg of paper and plastic bottles last year, as well as mobile phones and printer cartridges. Unwanted shoes are also recycled and donated to Africa.
"We are trying to save the world, bit by bit," says Tegan Westwater, 14, a committed member of the eco group who was chosen to visit Sweden last year to represent the school as part of a Clean Europe forum. An advert for recycling stands in the hall: a large statue known as Medusa, which the group made from recycled wood, metal and other refuse. The statue was temporarily moved to a nearby church hall last year where the school held an eco convention on sustainability attended by more than 1,000 people.
The technology teacher, Grant Gellis, who helped with the statue, has also been part of a group that is in the process of creating a small herb and flower garden in a verge at the edge of the playground. Biology teacher Laura Bremner is already making use of it to study plants, and they hope that enough herbs might be grown in time to allow home economics students to flavour their cookery with them.
The head, Ann Grant, is keen to build on the community's strengths in this area. "There are a lot of young people in this school who are very committed to looking after the environment and to living in a more sustainable way. We're also trying to encourage them to look after the place and to look after the future."
Future plans
Grant plans to raise funding for solar panels and a wind turbine in the future to take them further in this direction - the building already has sensors on light fittings in the toilets to reduce electricity use. But Grant points to the head of the French department, Basia Gordon, as the real leader whose passionate commitment has set the ball rolling in this area. Gordon has worked indefatigably in many areas of the school's life to involve students in eco projects, including getting children involved in the bilingual support group to join eco club members in regular work sessions at Pollok Park, a large country park which until the extension of the M77 was the largest urban green space in Europe. As well as reclaiming the island, they have also planted 1,000 trees and do other voluntary work, clearing rubbish and "bashing rhoddies" (rhododendrons), which have taken over in places.
Gordon says the benefit of encouraging the children with English as a second language to be part of volunteering was twofold. "It is partly about them getting to know other children and find out what is going on in the school and outside it, but it also means they are learning English."
"We have come a long way in a short time. Four years ago, we only had two children in the eco group. Now there is a core group of 25 and a lot more who are involved in various things," says Gordon. For the past two years, the eco group has had an annual weekend away to an outdoor centre in the Cairngorms, where they have taken part in outdoor activities and learned more about the natural world.
Clearly passionate about sustainability, Gordon is sincere about helping students to engage with these issues "because this is the world they are going to inherit".
DCSF award for sustainable schools
Regional winners
Beckington CE first school (West); St Francis Xavier Catholic school (West Midlands); St Christopher's school (Wales); Upton Cross primary (South-west); Brill CE combined school (South); Ringmer community college (South-east); Shawlands academy (Scotland); Woodheys primary (North-west); Meanwood CE primary (North); Tollgate primary (London); Crosshall junior (East); Eureka primary (East Midlands); St Paul's junior high (Northern Ireland)
Wednesday, 22 October 2008
Going, going ... Britain's vanishing woodland
John Vidal, environment editor
The Guardian,
Wednesday October 22 2008
Ancient woodland in Britain is being felled at a rate even faster than the Amazonian rainforest, according to research by the Woodland Trust. It shows that almost half of all woods in the UK that are more than 400 years old have been lost in the past 80 years and more than 600 ancient woods are now threatened by new roads, electricity pylons, housing, and airport expansion.
The report comes as the government prepares to sign a compulsory purchase order to buy several acres of Two Mile Wood outside Weymouth to build a bypass. This remnant of ancient forest, known for its association with Thomas Hardy, is one of Britain's finest bluebell woods and is full of old beech, oak and hornbeam trees. In Essex, a new runway at Stansted airport would destroy five ancient woods and damage many more.
"Ancient woodland, designated as over 400 years old in England, is the UK's equivalent of rainforest. It is irreplaceable," said Ed Pomfret, campaigns director of the trust. "It's our most valuable space for wildlife, and home to rare and threatened species. Once these woods have gone, they will never come back. They are historical treasure troves."
The rate of loss of ancient woodland is one of the fastest in the world and compares unfavourably with the Amazon. Studies suggest that the Amazon has lost 15% of its area in the past 30 years and perhaps just 2% in the previous several thousand years.
Pomfret appealed to the government for better protection of the remaining woods. "If these woods were buildings they would be protected to the highest grading."
The report says that in the last decade 26,000 hectares of ancient woodland in the UK has come under threat. Overall, only 308,000 hectares survive in Britain. Few woods are larger than 20 hectares. Nearly half of those threatened are in the south-east, with more than 30 in East Sussex. There are 243 threatened by road schemes, 216 by power lines, 106 by housing, 61 by quarrying and 45 by airport expansion.
The Guardian,
Wednesday October 22 2008
Ancient woodland in Britain is being felled at a rate even faster than the Amazonian rainforest, according to research by the Woodland Trust. It shows that almost half of all woods in the UK that are more than 400 years old have been lost in the past 80 years and more than 600 ancient woods are now threatened by new roads, electricity pylons, housing, and airport expansion.
The report comes as the government prepares to sign a compulsory purchase order to buy several acres of Two Mile Wood outside Weymouth to build a bypass. This remnant of ancient forest, known for its association with Thomas Hardy, is one of Britain's finest bluebell woods and is full of old beech, oak and hornbeam trees. In Essex, a new runway at Stansted airport would destroy five ancient woods and damage many more.
"Ancient woodland, designated as over 400 years old in England, is the UK's equivalent of rainforest. It is irreplaceable," said Ed Pomfret, campaigns director of the trust. "It's our most valuable space for wildlife, and home to rare and threatened species. Once these woods have gone, they will never come back. They are historical treasure troves."
The rate of loss of ancient woodland is one of the fastest in the world and compares unfavourably with the Amazon. Studies suggest that the Amazon has lost 15% of its area in the past 30 years and perhaps just 2% in the previous several thousand years.
Pomfret appealed to the government for better protection of the remaining woods. "If these woods were buildings they would be protected to the highest grading."
The report says that in the last decade 26,000 hectares of ancient woodland in the UK has come under threat. Overall, only 308,000 hectares survive in Britain. Few woods are larger than 20 hectares. Nearly half of those threatened are in the south-east, with more than 30 in East Sussex. There are 243 threatened by road schemes, 216 by power lines, 106 by housing, 61 by quarrying and 45 by airport expansion.
Iran, Qatar, Russia Form Gas Alliance
Iran, Qatar and Russia have agreed to form an OPEC-style organization for gas-exporting countries, Iran's oil minister said Tuesday after a trilateral meeting in Tehran.
The move will give Russia a greater say in international sales of natural gas and comes on the same day that OPEC Secretary General Abdalla Salem El-Badri arrived in Moscow to meet government officials.
Observers are watching those talks closely for signs of exactly what Russia wants from closer ties with the cartel, although there is no suggestion at this stage that Moscow is seeking full membership or would participate in an expected supply cut to be discussed Friday.
"The meetings went well and big decisions were made, and the groundwork was laid for the creation of a technical committee," Iran's oil minister Gholam Hossein Nozari said after Tuesday's meeting with Qatar's oil minister, Abdullah bin Hamad Al-Attiyah, and the head of Russian energy giant Gazprom, Alexei Miller. Gas producers such as Russia, Iran, Qatar and Venezuela have been talking for some time about a "gas OPEC," mirroring the 13-member Organization of Petroleum Exporting Countries, which meet more than 40% of the world's crude oil demand.
Building a cartel to control gas prices will be difficult. Unlike the global oil market, gas markets remain fragmented and regional.
Volumes traded around the world, in the form of super-chilled liquefied natural gas, are relatively small compared with heavily traded oil markets. Most LNG is traded under long-term contracts between buyers and seller, often at prices pegged to oil. This makes it tough for a gas cartel to influence prices.
The move will give Russia a greater say in international sales of natural gas and comes on the same day that OPEC Secretary General Abdalla Salem El-Badri arrived in Moscow to meet government officials.
Observers are watching those talks closely for signs of exactly what Russia wants from closer ties with the cartel, although there is no suggestion at this stage that Moscow is seeking full membership or would participate in an expected supply cut to be discussed Friday.
"The meetings went well and big decisions were made, and the groundwork was laid for the creation of a technical committee," Iran's oil minister Gholam Hossein Nozari said after Tuesday's meeting with Qatar's oil minister, Abdullah bin Hamad Al-Attiyah, and the head of Russian energy giant Gazprom, Alexei Miller. Gas producers such as Russia, Iran, Qatar and Venezuela have been talking for some time about a "gas OPEC," mirroring the 13-member Organization of Petroleum Exporting Countries, which meet more than 40% of the world's crude oil demand.
Building a cartel to control gas prices will be difficult. Unlike the global oil market, gas markets remain fragmented and regional.
Volumes traded around the world, in the form of super-chilled liquefied natural gas, are relatively small compared with heavily traded oil markets. Most LNG is traded under long-term contracts between buyers and seller, often at prices pegged to oil. This makes it tough for a gas cartel to influence prices.
Cow burps are making a growing contribution to global warming
By Louise Gray, Environment Correspondent
Last Updated: 1:01pm BST 21/10/2008
Greenhouse gases produced by cow burps are growing at a faster rate than the man-made emissions responsible for global warming, according to the latest research.
Various studies have looked at the affect carbon dioxide produced by humans is having on climate change.
Methane emissions from cows burping are growing faster than CO2 emissions
But new research has found cows are just as bad by producing methane, a greenhouse gas with a longer lifetime in the atmosphere and therefore higher global warming potential.Dr Andy Thorpe, an economist at the University of Portsmouth, found a herd of 200 cows can produce annual emissions of methane roughly equivalent in energy terms to driving a family car more than 100,000 miles (180,000km) on more than four gallons (21,400 litres) of petrol.
He added that while carbon dioxide (CO2) emissions have increased by 31 per cent during the past 250 years, methane has increased by 149 per cent during the same period.
Methane in the atmosphere is believed to be responsible for one fifth of global warming experienced since 1750.
The main producers are domestic animals which emit large amounts of methane as they digest their food and then belch out most of it through their mouths.
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Dr Thorpe said three quarters of animal methane emissions came from developing countries due to growing affluence and the "hamburger connection" that encourages countries to keep meat to export to the developing world.
He added: "If anything, methane emissions in the developing world are likely to increase."
The research, published in the journal Climate Change, is likely to reignite the debate over whether eating less meat could help combat climate change - as recommended recently by the UN.
It will also inform the UK government's plans to reduce greenhouse gases by 80 per cent by 2050, including in the agricultural sector.
Last Updated: 1:01pm BST 21/10/2008
Greenhouse gases produced by cow burps are growing at a faster rate than the man-made emissions responsible for global warming, according to the latest research.
Various studies have looked at the affect carbon dioxide produced by humans is having on climate change.
Methane emissions from cows burping are growing faster than CO2 emissions
But new research has found cows are just as bad by producing methane, a greenhouse gas with a longer lifetime in the atmosphere and therefore higher global warming potential.Dr Andy Thorpe, an economist at the University of Portsmouth, found a herd of 200 cows can produce annual emissions of methane roughly equivalent in energy terms to driving a family car more than 100,000 miles (180,000km) on more than four gallons (21,400 litres) of petrol.
He added that while carbon dioxide (CO2) emissions have increased by 31 per cent during the past 250 years, methane has increased by 149 per cent during the same period.
Methane in the atmosphere is believed to be responsible for one fifth of global warming experienced since 1750.
The main producers are domestic animals which emit large amounts of methane as they digest their food and then belch out most of it through their mouths.
advertisement
Dr Thorpe said three quarters of animal methane emissions came from developing countries due to growing affluence and the "hamburger connection" that encourages countries to keep meat to export to the developing world.
He added: "If anything, methane emissions in the developing world are likely to increase."
The research, published in the journal Climate Change, is likely to reignite the debate over whether eating less meat could help combat climate change - as recommended recently by the UN.
It will also inform the UK government's plans to reduce greenhouse gases by 80 per cent by 2050, including in the agricultural sector.
Wal-Mart seeks green in China
By Jonathan Birchall in New York
Published: October 21 2008 20:58
In the Darwinian struggle for global manufacturing orders, the “Wal-Mart price” has generally been short-hand for shaving production costs to the bare minimum.
But on Wednesday in Beijing, Lee Scott, Wal-Mart’s chief executive, will tell hundreds of the company’s top Chinese suppliers that the retailer intends to use its market power to get more than just low prices – at a “sustainability summit” devoted to raising standards in its vast supply chain.
Attending the gathering will be AG Lafley, chief executive of Procter & Gamble, Fred Smith, head of FedEx, and Yuanqing Yang, chairman of Lenovo, who are keen to adopt a similar approach. Executives from Kimberly-Clark, Coca-Cola and Newell Rubbermaid will also be on hand for the most ambitious private sector drive yet to reduce waste and pollution in China’s export-focused manufacturing industries.
Mr Scott will set out a range of objectives for the company’s supply chain and for its Chinese retail operations, which will include targets for the reduction of water and energy usage, reductions in packaging, and commitments to develop more sustainable products.
“Our environmental footprint is primarily through our supply chain as a company,” says Matt Kistler, head of Wal-Mart’s global sustainability efforts. “So we have the ability to really build a world-class, better quality, better value supply chain.”
In the US alone, Wal-Mart is estimated to sell about $30bn of goods annually that are made by about 30,000 factories in China, or about 10 per cent of all US imports. In categories such as clothing, footwear and toys – worth $64bn last year – Wal-Mart’s share is far higher.
The retailer will also be promoting a new “Green Supply Chain Initiative” being led by the Environmental Defense Fund (EDF), a non-profit group that has worked with Wal-Mart on sustainability issues in the US. The project is aimed at working with individual suppliers on energy saving and other issues, and is expected to extend to other US and European retailers, covering another 20,000 factories.
“We will leverage the market clout of global retailers to help create a green playing field for China’s exporters,” says EDF.
In the US the retailer has embraced a series of environmental initiatives over the past three years, including developing solar power systems and promoting more sustainable products such as low-enegy light bulbs. This year, it introduced a packaging scorecard that evaluates the efforts of suppliers to reduce packaging waste, which is now being translated into Mandarin.
Jennifer Turner, head of the China Environment Forum at the Wilson Center in Washington, says that in China similar pressure from international companies could help counter the problems of enforcement that continue to dog central government efforts to enforce existing environmental laws.
“Local governments are not interested in enforcing laws, sometimes because they own the factories . . . I think this initiative from international companies to be crucial because it is a new kind of pressure on local government,” says Ms Turner. But the initiative also represents a shift in Wal-Mart’s traditional focus on securing the lowest possible price, which has helped shape the current supply chain and is blamed by critics for its social and environmental shortcomings.
Mr Scott told Wal-Mart managers at their annual meeting in Kansas City this year that “we will favour – and in some cases even pay more – for suppliers that meet our standards”.
However, Conrad McCarron, head of supply chain programme at As You Sow, which co-ordinates pressure on companies from ethical investors, questions how the new approach would work in a world where brands and retailers have played suppliers off against each other on price.
“If you go to a supplier that is already feeling the squeeze financially, and you say that they need to reduce energy and stop waste water, how do they do that given that Wal-Mart’s business model is basically to pay less year after year?”
The focus on raising environmental standards in China’s supply chain comes against the background of broader concerns over regulation of factories there, with a new scandal over the contamination of Chinese milk-products with melamine. Last year saw a crisis over the safety of Chinese-made toys, which was preceded by a massive pet-food recall in the US because of melamine contamination of Chinese made ingredients.
Ed Chan, head of Wal-Mart China, says the central government is giving the initiative “very active support”. “Sustainability is a top priority, and they have been encouraging Chinese and multi-national companies to really rethink the business model.”
Jeff Macho, the China-based head of Wal-Mart’s global procurement division, insists the company wants to view its supply chain “holistically”, including both environmental and social factors such as labour conditions with product quality. He also said that in keeping with Mr Scott’s professed readiness to pay more the company had recently moved a home fashion contract to a more expensive supplier because of concerns over standards at the original factory.
“I would say we are seeing an evolution to a new business model,” he says. “I think we are developing that relationship with suppliers, to look not only at price, but at all of these other elements.”
Copyright The Financial Times Limited 2008
Published: October 21 2008 20:58
In the Darwinian struggle for global manufacturing orders, the “Wal-Mart price” has generally been short-hand for shaving production costs to the bare minimum.
But on Wednesday in Beijing, Lee Scott, Wal-Mart’s chief executive, will tell hundreds of the company’s top Chinese suppliers that the retailer intends to use its market power to get more than just low prices – at a “sustainability summit” devoted to raising standards in its vast supply chain.
Attending the gathering will be AG Lafley, chief executive of Procter & Gamble, Fred Smith, head of FedEx, and Yuanqing Yang, chairman of Lenovo, who are keen to adopt a similar approach. Executives from Kimberly-Clark, Coca-Cola and Newell Rubbermaid will also be on hand for the most ambitious private sector drive yet to reduce waste and pollution in China’s export-focused manufacturing industries.
Mr Scott will set out a range of objectives for the company’s supply chain and for its Chinese retail operations, which will include targets for the reduction of water and energy usage, reductions in packaging, and commitments to develop more sustainable products.
“Our environmental footprint is primarily through our supply chain as a company,” says Matt Kistler, head of Wal-Mart’s global sustainability efforts. “So we have the ability to really build a world-class, better quality, better value supply chain.”
In the US alone, Wal-Mart is estimated to sell about $30bn of goods annually that are made by about 30,000 factories in China, or about 10 per cent of all US imports. In categories such as clothing, footwear and toys – worth $64bn last year – Wal-Mart’s share is far higher.
The retailer will also be promoting a new “Green Supply Chain Initiative” being led by the Environmental Defense Fund (EDF), a non-profit group that has worked with Wal-Mart on sustainability issues in the US. The project is aimed at working with individual suppliers on energy saving and other issues, and is expected to extend to other US and European retailers, covering another 20,000 factories.
“We will leverage the market clout of global retailers to help create a green playing field for China’s exporters,” says EDF.
In the US the retailer has embraced a series of environmental initiatives over the past three years, including developing solar power systems and promoting more sustainable products such as low-enegy light bulbs. This year, it introduced a packaging scorecard that evaluates the efforts of suppliers to reduce packaging waste, which is now being translated into Mandarin.
Jennifer Turner, head of the China Environment Forum at the Wilson Center in Washington, says that in China similar pressure from international companies could help counter the problems of enforcement that continue to dog central government efforts to enforce existing environmental laws.
“Local governments are not interested in enforcing laws, sometimes because they own the factories . . . I think this initiative from international companies to be crucial because it is a new kind of pressure on local government,” says Ms Turner. But the initiative also represents a shift in Wal-Mart’s traditional focus on securing the lowest possible price, which has helped shape the current supply chain and is blamed by critics for its social and environmental shortcomings.
Mr Scott told Wal-Mart managers at their annual meeting in Kansas City this year that “we will favour – and in some cases even pay more – for suppliers that meet our standards”.
However, Conrad McCarron, head of supply chain programme at As You Sow, which co-ordinates pressure on companies from ethical investors, questions how the new approach would work in a world where brands and retailers have played suppliers off against each other on price.
“If you go to a supplier that is already feeling the squeeze financially, and you say that they need to reduce energy and stop waste water, how do they do that given that Wal-Mart’s business model is basically to pay less year after year?”
The focus on raising environmental standards in China’s supply chain comes against the background of broader concerns over regulation of factories there, with a new scandal over the contamination of Chinese milk-products with melamine. Last year saw a crisis over the safety of Chinese-made toys, which was preceded by a massive pet-food recall in the US because of melamine contamination of Chinese made ingredients.
Ed Chan, head of Wal-Mart China, says the central government is giving the initiative “very active support”. “Sustainability is a top priority, and they have been encouraging Chinese and multi-national companies to really rethink the business model.”
Jeff Macho, the China-based head of Wal-Mart’s global procurement division, insists the company wants to view its supply chain “holistically”, including both environmental and social factors such as labour conditions with product quality. He also said that in keeping with Mr Scott’s professed readiness to pay more the company had recently moved a home fashion contract to a more expensive supplier because of concerns over standards at the original factory.
“I would say we are seeing an evolution to a new business model,” he says. “I think we are developing that relationship with suppliers, to look not only at price, but at all of these other elements.”
Copyright The Financial Times Limited 2008
Nasdaq to Get In on Emissions Contracts
New Energy-Trading Platform Aims to Capitalize on a Hot Market
By DOUG CAMERON
CHICAGO -- Nasdaq OMX Group Inc. is joining the push by financial exchanges into trading emissions contracts designed to reduce the global output of greenhouse gases.
The trans-Atlantic exchange operator is expected to announce Wednesday that it will use businesses acquired from Nord Pool, the Norwegian power exchange, to create a new Nasdaq OMX Commodities unit.
The launch of an energy-trading platform comes amid increasing interest in emissions contracts, with both U.S. presidential candidates supporting the cap-and-trade system implemented in the European Union and elsewhere.
Under such systems, companies are given allowances to emit limited amounts of carbon dioxide. Those that don't use all their allowances can sell them to others that exceed their limits.
Robert Greifeld, Nasdaq OMX's chairman and chief executive, said the commodities unit will develop standardized products for European and U.S. clients looking to manage and trade allowances for emissions such as carbon dioxide and sulfur dioxide.
"We believe a standardization of contracts is necessary for the carbon market," he said, pointing to issues such as unit size that remained to be resolved. "Things need to be perfected, and then the carbon market can develop in ways we don't envisage today."
Mr. Greifeld said most emissions trading in the Nasdaq contracts initially will be in over-the-counter contracts rather than exchange-traded products, although these would be centrally cleared.
Nord Pool already offers carbon-dioxide contracts under the European Union trading scheme, as well as a global carbon contract through the Green Development Mechanism organized by the United Nations.
The global carbon-trading market was valued around $64 billion last year, according to the World Bank. Point Carbon, an industry consultant, estimates this could rise to $3 trillion by 2020 if large polluters such as the U.S. and China introduce cap-and-trade schemes.
Bart Chilton, a commissioner at the Commodity Futures Trading Commission, forecast earlier this year that carbon could emerge as the largest commodity asset class.
The potential has attracted a series of ventures led by the four-year old Chicago Climate Exchange, which operates a voluntary cap-and-trade system in the U.S. alongside a regulated futures exchange and the European Climate Exchange.
CME Group Inc. entered the market in August after acquiring the Green Exchange as part of its purchase of Nymex Holdings. Eurex, the derivatives arm of Deutsche Börse AG, is active in the market through a deal with the European Energy Exchange.
Nasdaq OMX acquired Nord Pool's clearing and consultancy businesses as part of this year's purchase of OMX AB, the Stockholm-based exchange and technology group. Nord Pool will remain a standalone power exchange controlled by a group of regional utilities, but clear through Nasdaq OMX Commodities.
Mr. Greifeld said the "pioneer status" of Nord Pool as the largest European energy exchange by volume would see it continue its push outside Scandinavia after its successful launch of products in Germany.
Write to Doug Cameron at doug.cameron@dowjones.com
By DOUG CAMERON
CHICAGO -- Nasdaq OMX Group Inc. is joining the push by financial exchanges into trading emissions contracts designed to reduce the global output of greenhouse gases.
The trans-Atlantic exchange operator is expected to announce Wednesday that it will use businesses acquired from Nord Pool, the Norwegian power exchange, to create a new Nasdaq OMX Commodities unit.
The launch of an energy-trading platform comes amid increasing interest in emissions contracts, with both U.S. presidential candidates supporting the cap-and-trade system implemented in the European Union and elsewhere.
Under such systems, companies are given allowances to emit limited amounts of carbon dioxide. Those that don't use all their allowances can sell them to others that exceed their limits.
Robert Greifeld, Nasdaq OMX's chairman and chief executive, said the commodities unit will develop standardized products for European and U.S. clients looking to manage and trade allowances for emissions such as carbon dioxide and sulfur dioxide.
"We believe a standardization of contracts is necessary for the carbon market," he said, pointing to issues such as unit size that remained to be resolved. "Things need to be perfected, and then the carbon market can develop in ways we don't envisage today."
Mr. Greifeld said most emissions trading in the Nasdaq contracts initially will be in over-the-counter contracts rather than exchange-traded products, although these would be centrally cleared.
Nord Pool already offers carbon-dioxide contracts under the European Union trading scheme, as well as a global carbon contract through the Green Development Mechanism organized by the United Nations.
The global carbon-trading market was valued around $64 billion last year, according to the World Bank. Point Carbon, an industry consultant, estimates this could rise to $3 trillion by 2020 if large polluters such as the U.S. and China introduce cap-and-trade schemes.
Bart Chilton, a commissioner at the Commodity Futures Trading Commission, forecast earlier this year that carbon could emerge as the largest commodity asset class.
The potential has attracted a series of ventures led by the four-year old Chicago Climate Exchange, which operates a voluntary cap-and-trade system in the U.S. alongside a regulated futures exchange and the European Climate Exchange.
CME Group Inc. entered the market in August after acquiring the Green Exchange as part of its purchase of Nymex Holdings. Eurex, the derivatives arm of Deutsche Börse AG, is active in the market through a deal with the European Energy Exchange.
Nasdaq OMX acquired Nord Pool's clearing and consultancy businesses as part of this year's purchase of OMX AB, the Stockholm-based exchange and technology group. Nord Pool will remain a standalone power exchange controlled by a group of regional utilities, but clear through Nasdaq OMX Commodities.
Mr. Greifeld said the "pioneer status" of Nord Pool as the largest European energy exchange by volume would see it continue its push outside Scandinavia after its successful launch of products in Germany.
Write to Doug Cameron at doug.cameron@dowjones.com
Winds of change: A beacon of optimism
The Government claims Britain is ready for massive investment in wind energy, but the renewable energy sector warns there are big obstacles to overcome. Sarah Arnott reports
Wednesday, 22 October 2008
Wind is the new oil and the North Sea will be the new Gulf of Arabia. As the banking sector grinds to a halt and the real economy stutters gloomily towards recession, wind power is a rare beacon of optimism.
The UK has overtaken Denmark to become the world leader for offshore wind energy, the Prime Minister told the British Wind Energy Association (BWEA) conference in London yesterday. And the latest batch of turbines installed at the Whitelee onshore farm, being built by ScottishPower, has taken the UK's total installed capacity past three gigawatts (GW), enough to power 1.5 million homes.
"It is the coming of age of the renewables industry," Gordon Brown said. "We have known for a long time that Britain has the best wind and wave resources in Europe. Over the next 12 years, the North Sea will become to offshore wind what the Gulf of Arabia is to oil production."
Wind is central to green targets for renewable energy generation and ensuring security of supply. While nuclear power and clean technologies like carbon capture and storage will have a role to play, both are too long term to help meet the most immediate targets in 2010 and 2020. There are now enough wind farm developments on the stocks for 10 per cent of electricity to be generated from renewable resources by 2010 as planned, assuming building proceeds as intended. But the 2020 target for 15 per cent of all energy, or around one-third of UK electricity, to be renewable requires wind-power generation to soar by a factor of 10, from today's proud 3GW triumph.
The implications for the wind industry are enormous. Tom Delay, the chief executive of the Carbon Trust, said: "The UK has an amazing opportunity not just to lead the world but to be the dominant global player. By 2020 the UK market could represent almost half of the global market for offshore wind power."
The UK wind sector is already full of superlatives. Centrica's Lynn and Inner Dowsing development, off the coast of Skegness, Lincolnshire, is the biggest single offshore development anywhere in the world.
The proposed London Array is bigger still and once completed will generate enough electricity to power a quarter of the homes in Greater London. The pace of development is also accelerating. While the first GW of capacity took 14 years to come on stream, the nest two were up and running in just 20 months. There are 179 onshore farms online today, and another 34 under construction. Offshore, the UK has seven farms in operation, with another eight under construction. To help things along, the Carbon Trust has signed a £30m five-year deal with five international energy companies – RWE Innogy, Airtricity, ScottishPower Renewables, StatoilHydro and Dong Energy – to help tackle the rising cost of building offshore farms.
But, even with the Prime Minister's gushing support, there are major hurdles to expansion of the UK industry. One is the planning process. Centrica announced yesterday that its proposed Lincolnshire development – a 250MW scheme eight kilometres off the east coast – has been given the go-ahead. But such success is relatively rare.
Since January 2006, only 54 per cent of 167 applications to build onshore farms have received consent, a far cry from the 71 per cent approval rate for other major developments, such as housing, retail and general industrial. Even when successful, the process is long and slow. The average timespan from submission to decision is now pushing two years, and only 7 per cent of applications are determined within the statutory 16-week target, compared with 71 per cent overall.
Charles Anglin, from the BWEA, said: "It is not very sexy, but speeding up the planning process will make the difference to ensuring developments go ahead in the time needed." Another major issue is the UK's aging electricity grid system. Not only is the overall capacity insufficient – the network was designed to transmit 75GW of power, when by 2020 it will need to handle 120GW – but it is no longer appropriately configured. The existing infrastructure was built around large central power plants, rather than the North Scottish, Welsh and off shore locations favoured by the wind sector. The cost and complexity of building transmission capacity out to remote locations are significant, and can take up to 10 years.
Alongside the vagueries of the planning process, and the logistical issues of connecting to the grid, questions over long-term political support for the nascent sector are denting investor confidence and having a material impact on speed of development. When the current incentive system, centred on Renewables Obligations, was created in 2002, there was an immediate spike in wind farm development projects. But without a commitment to extend the scheme beyond 2027, the economic viability of such long-term infrastructure investments is less certain, and in 2007, planning applications were only half their 2004 level. Peter Osbaldstone, the manager of European gas and power research at Wood Mackenzie, said: "The incentive mechanism is a top priority for government. These are long-term investments and developers want a degree of certainty around their level of returns for up to 25 years."
Without certainty for investors, the UK will lose out to European rivals. "If the incentives are better elsewhere then major investors will not come to the UK," Mr Osbaldstone said.
Missing out British firms playing catch up
Wind power will become a major industry, worth tens of billions of pounds and employing tens of thousands of people, if the UK is to meet the Government's energy targets.
The Prime Minister predicted yesterday that the market for renewable energy sources would hit £100bn within a decade, creating up to 160,000 jobs. Bain & Company, an independent research group, estimates investment of £39bn in wind alone, with the creation of 60,000 jobs.
However, there is currently barely an industry at all. The wind sector employs only 5,000 people, and has only one turbine factory, on the Isle of Wight, run by Vestas, a Danish company. Not only do Germany, Denmark and Spain have a much higher installed capacity – accounting for 70 per cent of EU's 57GW total – but they have also created major industries, including industrial clusters for turbine manufacture, employing more than 133,000.
The North-east is touted as a good site for similar clusters. Great Yarmouth and Lowestoft, in Suffolk, are also possibilities. But, says Gordon Edge, from the British Wind Energy Association, the Government needs to take the lead, and work on bringing in the major international manufacturers.
The appetite amongst potential suppliers is already there. Clive Snowden, the chief executive of Umeco, which makes material for aircraft wings as well as turbine blades said: "Wind is a great market over the next 15-20 years and if it gets big enough there's a likelihood we would have our own manufacturing capacity here."
Wednesday, 22 October 2008
Wind is the new oil and the North Sea will be the new Gulf of Arabia. As the banking sector grinds to a halt and the real economy stutters gloomily towards recession, wind power is a rare beacon of optimism.
The UK has overtaken Denmark to become the world leader for offshore wind energy, the Prime Minister told the British Wind Energy Association (BWEA) conference in London yesterday. And the latest batch of turbines installed at the Whitelee onshore farm, being built by ScottishPower, has taken the UK's total installed capacity past three gigawatts (GW), enough to power 1.5 million homes.
"It is the coming of age of the renewables industry," Gordon Brown said. "We have known for a long time that Britain has the best wind and wave resources in Europe. Over the next 12 years, the North Sea will become to offshore wind what the Gulf of Arabia is to oil production."
Wind is central to green targets for renewable energy generation and ensuring security of supply. While nuclear power and clean technologies like carbon capture and storage will have a role to play, both are too long term to help meet the most immediate targets in 2010 and 2020. There are now enough wind farm developments on the stocks for 10 per cent of electricity to be generated from renewable resources by 2010 as planned, assuming building proceeds as intended. But the 2020 target for 15 per cent of all energy, or around one-third of UK electricity, to be renewable requires wind-power generation to soar by a factor of 10, from today's proud 3GW triumph.
The implications for the wind industry are enormous. Tom Delay, the chief executive of the Carbon Trust, said: "The UK has an amazing opportunity not just to lead the world but to be the dominant global player. By 2020 the UK market could represent almost half of the global market for offshore wind power."
The UK wind sector is already full of superlatives. Centrica's Lynn and Inner Dowsing development, off the coast of Skegness, Lincolnshire, is the biggest single offshore development anywhere in the world.
The proposed London Array is bigger still and once completed will generate enough electricity to power a quarter of the homes in Greater London. The pace of development is also accelerating. While the first GW of capacity took 14 years to come on stream, the nest two were up and running in just 20 months. There are 179 onshore farms online today, and another 34 under construction. Offshore, the UK has seven farms in operation, with another eight under construction. To help things along, the Carbon Trust has signed a £30m five-year deal with five international energy companies – RWE Innogy, Airtricity, ScottishPower Renewables, StatoilHydro and Dong Energy – to help tackle the rising cost of building offshore farms.
But, even with the Prime Minister's gushing support, there are major hurdles to expansion of the UK industry. One is the planning process. Centrica announced yesterday that its proposed Lincolnshire development – a 250MW scheme eight kilometres off the east coast – has been given the go-ahead. But such success is relatively rare.
Since January 2006, only 54 per cent of 167 applications to build onshore farms have received consent, a far cry from the 71 per cent approval rate for other major developments, such as housing, retail and general industrial. Even when successful, the process is long and slow. The average timespan from submission to decision is now pushing two years, and only 7 per cent of applications are determined within the statutory 16-week target, compared with 71 per cent overall.
Charles Anglin, from the BWEA, said: "It is not very sexy, but speeding up the planning process will make the difference to ensuring developments go ahead in the time needed." Another major issue is the UK's aging electricity grid system. Not only is the overall capacity insufficient – the network was designed to transmit 75GW of power, when by 2020 it will need to handle 120GW – but it is no longer appropriately configured. The existing infrastructure was built around large central power plants, rather than the North Scottish, Welsh and off shore locations favoured by the wind sector. The cost and complexity of building transmission capacity out to remote locations are significant, and can take up to 10 years.
Alongside the vagueries of the planning process, and the logistical issues of connecting to the grid, questions over long-term political support for the nascent sector are denting investor confidence and having a material impact on speed of development. When the current incentive system, centred on Renewables Obligations, was created in 2002, there was an immediate spike in wind farm development projects. But without a commitment to extend the scheme beyond 2027, the economic viability of such long-term infrastructure investments is less certain, and in 2007, planning applications were only half their 2004 level. Peter Osbaldstone, the manager of European gas and power research at Wood Mackenzie, said: "The incentive mechanism is a top priority for government. These are long-term investments and developers want a degree of certainty around their level of returns for up to 25 years."
Without certainty for investors, the UK will lose out to European rivals. "If the incentives are better elsewhere then major investors will not come to the UK," Mr Osbaldstone said.
Missing out British firms playing catch up
Wind power will become a major industry, worth tens of billions of pounds and employing tens of thousands of people, if the UK is to meet the Government's energy targets.
The Prime Minister predicted yesterday that the market for renewable energy sources would hit £100bn within a decade, creating up to 160,000 jobs. Bain & Company, an independent research group, estimates investment of £39bn in wind alone, with the creation of 60,000 jobs.
However, there is currently barely an industry at all. The wind sector employs only 5,000 people, and has only one turbine factory, on the Isle of Wight, run by Vestas, a Danish company. Not only do Germany, Denmark and Spain have a much higher installed capacity – accounting for 70 per cent of EU's 57GW total – but they have also created major industries, including industrial clusters for turbine manufacture, employing more than 133,000.
The North-east is touted as a good site for similar clusters. Great Yarmouth and Lowestoft, in Suffolk, are also possibilities. But, says Gordon Edge, from the British Wind Energy Association, the Government needs to take the lead, and work on bringing in the major international manufacturers.
The appetite amongst potential suppliers is already there. Clive Snowden, the chief executive of Umeco, which makes material for aircraft wings as well as turbine blades said: "Wind is a great market over the next 15-20 years and if it gets big enough there's a likelihood we would have our own manufacturing capacity here."
UK overtakes Denmark as world's biggest offshore wind generator
Completion of a 194MW windfarm off the coast of Lincolnshire sees the UK become the world leader in generating electricity from offshore wind
Alok Jha, green technology correspondent
guardian.co.uk,
Tuesday October 21 2008 15.36 BST
Wind turbines out at sea on the Danish Island of Samso. Photograph: Nicky Bonne
The UK now leads the world in generating electricity from offshore wind farms, the government said today as it completed the construction of a farm near the coast off Skegness, Lincolnshire.
The new farm, built by the energy company Centrica, will produce enough power for 130,000 homes, raising the total electricity generated from offshore wind in the UK to 590 megawatts (MW), enough for 300,000 UK homes.
The completion of 194MW of turbines at Lynn and Inner Dowsing means that the UK has overtaken Denmark, which has 423MW of offshore wind turbines.
"Offshore wind is hugely important to help realise the government's ambition to dramatically increase the amount of energy from renewable sources. Overtaking Denmark is just the start," said Mike O'Brien, a minister at the Department of Energy and Climate Change. "There are already five more offshore windfarms under construction that will add a further 938MW to our total by the end of next year."
But despite today's announcement, the UK is still near the bottom of the European league table when it comes to harnessing renewable energy, campaigners say.
Nick Rau, Friends of the Earth's renewable energy campaigner, said: "The government must stop trying to wriggle out of European green energy targets and put a massive effort into making renewable power the number one source of energy in the UK. The UK has one of the biggest renewable energy potentials in Europe - this must be harnessed to make this country a world leader in tackling climate change."
Maria McCaffery, the chief executive of the British Wind Energy Association, was enthusiastic but also urged more government action. "We are now a global leader in a renewable energy technology for the first time ever. Now is the time to step up the effort even further and secure the huge potential for jobs, investment and export revenues that offshore wind has for Britain."
Greenpeace chief scientist, Doug Parr, said the only downside was that many of the turbines for the UK windfarms were being manufactured abroad. "We need a green new deal for renewable energy, creating tens of thousands of new jobs and providing a shot in the arm to the British manufacturing sector. If the government now diverts serious financial and political capital towards this project it will put Britain in pole position to tackle the emerging challenges of the 21st century."
The UK currently gets 3GW of electricity from wind power, but 80% of that is from onshore farms. On Tuesday, the Carbon Trust detailed its plans to accelerate the development of offshore wind in the UK. The trust plans to work with major energy companies on a £30m initiative to cut the cost of offshore wind energy by 10%.
"The UK has an amazing opportunity not just to lead the world but to be the dominant global player," said Tom Delay, chief executive of the Carbon Trust. "Our research shows that by 2020 the UK market could represent almost half of the global market for offshore wind power. To make that happen it will be critical to improve the current economics of offshore wind power."
Alok Jha, green technology correspondent
guardian.co.uk,
Tuesday October 21 2008 15.36 BST
Wind turbines out at sea on the Danish Island of Samso. Photograph: Nicky Bonne
The UK now leads the world in generating electricity from offshore wind farms, the government said today as it completed the construction of a farm near the coast off Skegness, Lincolnshire.
The new farm, built by the energy company Centrica, will produce enough power for 130,000 homes, raising the total electricity generated from offshore wind in the UK to 590 megawatts (MW), enough for 300,000 UK homes.
The completion of 194MW of turbines at Lynn and Inner Dowsing means that the UK has overtaken Denmark, which has 423MW of offshore wind turbines.
"Offshore wind is hugely important to help realise the government's ambition to dramatically increase the amount of energy from renewable sources. Overtaking Denmark is just the start," said Mike O'Brien, a minister at the Department of Energy and Climate Change. "There are already five more offshore windfarms under construction that will add a further 938MW to our total by the end of next year."
But despite today's announcement, the UK is still near the bottom of the European league table when it comes to harnessing renewable energy, campaigners say.
Nick Rau, Friends of the Earth's renewable energy campaigner, said: "The government must stop trying to wriggle out of European green energy targets and put a massive effort into making renewable power the number one source of energy in the UK. The UK has one of the biggest renewable energy potentials in Europe - this must be harnessed to make this country a world leader in tackling climate change."
Maria McCaffery, the chief executive of the British Wind Energy Association, was enthusiastic but also urged more government action. "We are now a global leader in a renewable energy technology for the first time ever. Now is the time to step up the effort even further and secure the huge potential for jobs, investment and export revenues that offshore wind has for Britain."
Greenpeace chief scientist, Doug Parr, said the only downside was that many of the turbines for the UK windfarms were being manufactured abroad. "We need a green new deal for renewable energy, creating tens of thousands of new jobs and providing a shot in the arm to the British manufacturing sector. If the government now diverts serious financial and political capital towards this project it will put Britain in pole position to tackle the emerging challenges of the 21st century."
The UK currently gets 3GW of electricity from wind power, but 80% of that is from onshore farms. On Tuesday, the Carbon Trust detailed its plans to accelerate the development of offshore wind in the UK. The trust plans to work with major energy companies on a £30m initiative to cut the cost of offshore wind energy by 10%.
"The UK has an amazing opportunity not just to lead the world but to be the dominant global player," said Tom Delay, chief executive of the Carbon Trust. "Our research shows that by 2020 the UK market could represent almost half of the global market for offshore wind power. To make that happen it will be critical to improve the current economics of offshore wind power."
Momentum slows for alternative energy in U.S.
By Clifford Krauss
Published: October 21, 2008
HOUSTON: For all the support that the U.S. presidential candidates are expressing for renewable energy, alternative energies like wind and solar are facing big new challenges because of the credit freeze and the plunge in oil and natural gas prices.
Shares of alternative energy companies in the United States have fallen even more sharply than the rest of the stock market in recent months. The struggles of financial institutions are raising fears that investment capital for big renewable energy projects is likely to get tighter.
Advocates are concerned that if the prices for oil and gas keep falling, the incentive for utilities and consumers to buy expensive renewable energy will shrink. That is what happened in the 1980s when a decade of advances for alternative energy collapsed amid falling prices for conventional fuels.
"Everyone is in shock about what the new world is going to be," said V. John White, executive director of the Center for Energy Efficiency and Renewable Technology, a California advocacy group. "Surely, renewable energy projects and new technologies are at risk because of their capital intensity."
Senator Barack Obama and Senator John McCain both promise ambitious programs to develop various kinds of alternative energy to combat global warming and achieve energy independence.
Obama talks of creating five million new jobs in renewable energy and nearly tripling the percentage of the nation's electricity supplied by renewables by 2025. McCain has run television advertisements showing wind turbines and has pledged to make the United States the "leader in a new international green economy."
But after years of rapid growth, the sudden headwinds facing renewables point to slowing momentum and greater dependence on government subsidies, mandates and research financing, at a time when Washington is overloaded with economic problems.
John Woolard, chief executive officer of BrightSource Energy, a solar company, said he believed the long-term future for renewables remained promising, though "right now we are looking at tumultuous and unpredictable capital markets."
Venture capital financing for some advanced solar projects and for experimental biofuels, like ethanol made from plant wastes, is drying up, according to analysts who track investment flows.
At least two wind energy companies have had to delay projects in recent days because of trouble raising capital. Several corn ethanol projects have been delayed for lack of financing in Iowa and Oklahoma since last month, and one plant operator in Ohio filed for bankruptcy protection last week.
Tesla Motors, the maker of battery-powered cars, recently announced it had been forced to delay production of its all-electric Model S sedan, close two offices and lay off workers.
Investment analysts say initial and secondary stock offerings by clean energy companies across global markets have slowed to a crawl since the spring, and for the full year could total less than half of the record $25.4 billion for 2007.
Worldwide project financings for new construction of wind, solar, biofuels and other alternative energy projects this year fell to $17.8 billion in the third quarter, from $23.2 billion in the second quarter, according to New Energy Finance, a research firm in London. The slide is expected to be sharper in the fourth quarter and next year.
In the United States, financing for new projects and venture capital and private equity investments in renewable energy this year might still top last year's results because so much money was in the pipeline at the beginning of the year, but the pace has slowed sharply in the last month.
The next presidential administration, to make good on campaign rhetoric and continue supporting renewables, will have to choose alternative energy over other programs at a time of ballooning deficits. Analysts say that is no sure thing.
"Government funding for renewables is now going to have to compete with levels of government funding in other areas that were unimaginable six months ago," Mark Flannery, an energy analyst for Credit Suisse, said.
The central questions facing renewables now, experts say, are how long credit will be tight and how low oil and natural gas prices will fall. Oil and gas are still relatively expensive by historical standards, but the prices have fallen by half since July. Some economists expect further declines as the economy weakens.
Wall Street analysts say most utilities and other builders can profitably choose big wind projects over gas-fired plants only when gas prices are $8 per thousand cubic feet or higher. Natural gas settled Monday at about $6.79 per thousand cubic feet, down from about $13.58 on July 3.
"Natural gas at $6 makes wind look like a questionable idea and solar power unfathomably expensive," said Kevin Book, a senior vice president at FBR Capital Markets.
Government mandates already on the books, including state rules requiring renewable power generation and U.S. government requirements for production of ethanol, ensure that to some degree, alternative energy markets will continue to exist no matter how low oil and gas prices go. But the credit crisis means some companies that would like to build facilities to meet that demand are going to have problems. "If you can't borrow money, you can't develop renewables," Book said.
Renewable energy now meets 7 percent of the nation's energy needs, and public subsidies have promoted a leap for several alternative energy sources in recent years.
Ethanol is sold nationwide as a gasoline additive, and federal legislation aims to replace a major share of the oil now imported into the United States with domestically produced biofuels in the next 15 years. Enough new wind power was installed in the United States to serve the equivalent of 4.5 million households in 2007, the third year in a row the country led all nations in new wind power.
Renewable energy has become a big business worldwide, with total investment increasing to $148.4 billion last year, from $33.4 billion in 2004, according to Ethan Zindler, head of North American research at New Energy Finance. Zindler said the upward momentum had halted, and that total investment this year was likely to be lower than last.
In the 1970s, just as in recent years, high prices for fossil fuels led to rising interest in renewables. But when oil prices collapsed in the 1980s, the nascent market for renewable energy fell apart, too. Congress eliminated tax credits for solar energy, ethanol could not compete with cheap gasoline and a wind farm boomlet in California failed to catch on in the rest of the country.
The epicenter of investment and development moved to Europe, with its strong government support for renewables, and began shifting back only when heating oil and natural gas prices shot up again in recent years.
There are some differences this time. Coal, another major competitor of renewables, remains expensive and is facing increasing scrutiny over environmental concerns.
Most important, renewable energy entrepreneurs and experts say, is the growing government and public backing for renewable energy in the United States.
"What is driving the market this time is that we're at war and this is a security issue," said Arnold Klann, chief executive of BlueFire Ethanol, a California company that is planning to make ethanol out of garbage with the help of $40 million in financing from the Energy Department.
In its recent financial rescue package, Congress provided $17 billion in tax credits to promote various forms of clean power, for everything from plug-in electric vehicles to projects that will capture and store carbon dioxide from coal-burning power plants. Production and investment tax credits were extended for wind energy for one year, geothermal energy for two years and for solar energy for a full eight years.
Meanwhile more than 30 states have enacted standards demanding that utilities generate a minimum proportion — typically 10 to 20 percent — of their power from renewable sources in the next 5 to 10 years.
But some analysts say the government supports may not be enough to propel continued growth for renewables, noting that several states have already relaxed their goals.
"When they can't meet their targets," Book said, "they change them."
Published: October 21, 2008
HOUSTON: For all the support that the U.S. presidential candidates are expressing for renewable energy, alternative energies like wind and solar are facing big new challenges because of the credit freeze and the plunge in oil and natural gas prices.
Shares of alternative energy companies in the United States have fallen even more sharply than the rest of the stock market in recent months. The struggles of financial institutions are raising fears that investment capital for big renewable energy projects is likely to get tighter.
Advocates are concerned that if the prices for oil and gas keep falling, the incentive for utilities and consumers to buy expensive renewable energy will shrink. That is what happened in the 1980s when a decade of advances for alternative energy collapsed amid falling prices for conventional fuels.
"Everyone is in shock about what the new world is going to be," said V. John White, executive director of the Center for Energy Efficiency and Renewable Technology, a California advocacy group. "Surely, renewable energy projects and new technologies are at risk because of their capital intensity."
Senator Barack Obama and Senator John McCain both promise ambitious programs to develop various kinds of alternative energy to combat global warming and achieve energy independence.
Obama talks of creating five million new jobs in renewable energy and nearly tripling the percentage of the nation's electricity supplied by renewables by 2025. McCain has run television advertisements showing wind turbines and has pledged to make the United States the "leader in a new international green economy."
But after years of rapid growth, the sudden headwinds facing renewables point to slowing momentum and greater dependence on government subsidies, mandates and research financing, at a time when Washington is overloaded with economic problems.
John Woolard, chief executive officer of BrightSource Energy, a solar company, said he believed the long-term future for renewables remained promising, though "right now we are looking at tumultuous and unpredictable capital markets."
Venture capital financing for some advanced solar projects and for experimental biofuels, like ethanol made from plant wastes, is drying up, according to analysts who track investment flows.
At least two wind energy companies have had to delay projects in recent days because of trouble raising capital. Several corn ethanol projects have been delayed for lack of financing in Iowa and Oklahoma since last month, and one plant operator in Ohio filed for bankruptcy protection last week.
Tesla Motors, the maker of battery-powered cars, recently announced it had been forced to delay production of its all-electric Model S sedan, close two offices and lay off workers.
Investment analysts say initial and secondary stock offerings by clean energy companies across global markets have slowed to a crawl since the spring, and for the full year could total less than half of the record $25.4 billion for 2007.
Worldwide project financings for new construction of wind, solar, biofuels and other alternative energy projects this year fell to $17.8 billion in the third quarter, from $23.2 billion in the second quarter, according to New Energy Finance, a research firm in London. The slide is expected to be sharper in the fourth quarter and next year.
In the United States, financing for new projects and venture capital and private equity investments in renewable energy this year might still top last year's results because so much money was in the pipeline at the beginning of the year, but the pace has slowed sharply in the last month.
The next presidential administration, to make good on campaign rhetoric and continue supporting renewables, will have to choose alternative energy over other programs at a time of ballooning deficits. Analysts say that is no sure thing.
"Government funding for renewables is now going to have to compete with levels of government funding in other areas that were unimaginable six months ago," Mark Flannery, an energy analyst for Credit Suisse, said.
The central questions facing renewables now, experts say, are how long credit will be tight and how low oil and natural gas prices will fall. Oil and gas are still relatively expensive by historical standards, but the prices have fallen by half since July. Some economists expect further declines as the economy weakens.
Wall Street analysts say most utilities and other builders can profitably choose big wind projects over gas-fired plants only when gas prices are $8 per thousand cubic feet or higher. Natural gas settled Monday at about $6.79 per thousand cubic feet, down from about $13.58 on July 3.
"Natural gas at $6 makes wind look like a questionable idea and solar power unfathomably expensive," said Kevin Book, a senior vice president at FBR Capital Markets.
Government mandates already on the books, including state rules requiring renewable power generation and U.S. government requirements for production of ethanol, ensure that to some degree, alternative energy markets will continue to exist no matter how low oil and gas prices go. But the credit crisis means some companies that would like to build facilities to meet that demand are going to have problems. "If you can't borrow money, you can't develop renewables," Book said.
Renewable energy now meets 7 percent of the nation's energy needs, and public subsidies have promoted a leap for several alternative energy sources in recent years.
Ethanol is sold nationwide as a gasoline additive, and federal legislation aims to replace a major share of the oil now imported into the United States with domestically produced biofuels in the next 15 years. Enough new wind power was installed in the United States to serve the equivalent of 4.5 million households in 2007, the third year in a row the country led all nations in new wind power.
Renewable energy has become a big business worldwide, with total investment increasing to $148.4 billion last year, from $33.4 billion in 2004, according to Ethan Zindler, head of North American research at New Energy Finance. Zindler said the upward momentum had halted, and that total investment this year was likely to be lower than last.
In the 1970s, just as in recent years, high prices for fossil fuels led to rising interest in renewables. But when oil prices collapsed in the 1980s, the nascent market for renewable energy fell apart, too. Congress eliminated tax credits for solar energy, ethanol could not compete with cheap gasoline and a wind farm boomlet in California failed to catch on in the rest of the country.
The epicenter of investment and development moved to Europe, with its strong government support for renewables, and began shifting back only when heating oil and natural gas prices shot up again in recent years.
There are some differences this time. Coal, another major competitor of renewables, remains expensive and is facing increasing scrutiny over environmental concerns.
Most important, renewable energy entrepreneurs and experts say, is the growing government and public backing for renewable energy in the United States.
"What is driving the market this time is that we're at war and this is a security issue," said Arnold Klann, chief executive of BlueFire Ethanol, a California company that is planning to make ethanol out of garbage with the help of $40 million in financing from the Energy Department.
In its recent financial rescue package, Congress provided $17 billion in tax credits to promote various forms of clean power, for everything from plug-in electric vehicles to projects that will capture and store carbon dioxide from coal-burning power plants. Production and investment tax credits were extended for wind energy for one year, geothermal energy for two years and for solar energy for a full eight years.
Meanwhile more than 30 states have enacted standards demanding that utilities generate a minimum proportion — typically 10 to 20 percent — of their power from renewable sources in the next 5 to 10 years.
But some analysts say the government supports may not be enough to propel continued growth for renewables, noting that several states have already relaxed their goals.
"When they can't meet their targets," Book said, "they change them."
From hope to husk
By Kevin Allison and Stephanie Kirchgaessner
Published: October 22 2008 03:00
It was an American dream that has failed to become a reality. For much of the last decade, enthusiasts from President George W. Bush down have touted corn-based ethanol as something approaching a superfuel, a home-grown alternative to foreign oil that would help cut smog and bring hope to struggling farmers.
It has not worked out that way. Instead, the ethanol industry has undergone a great boom and bust in which a Financial Times analysis has found investors as savvy as Bill Gates, Microsoft's founder, have collectively lost billions of dollars.
Despite the billions more in taxpayers' dollars that was spent to subsidise it, ethanol now eats up nearly one-quarter of the US corn crop without so far fulfilling the hopes held for its beneficial effect either on the environment or US dependence on foreign energy.
It may have helped keep gasoline prices lower in the world's wealthiest nation, but a growing band of influential critics say it has also contributed to higher food prices in the world's poorest countries. So far, the only sure beneficiaries from the ethanol promise have been the investors clever enough to get into the industry early and the corn farmers who have enjoyed a lucrative new market for their grain.
In short, the story of ethanol is a cautionary tale of the unintended and costly consequences that can arise when the interests of politicians and influential industries collide.
Today, ethanol is a $32.5bn (£19.1bn, €24.6bn) a year business in the US. But for nearly three decades it was an obscure cottage industry run by farmers trying to scratch out a living in the corn belt in the country's Midwest. Americans had been making bourbon, a drinkable form of ethanol, from corn for centuries. But ethanol got its start as a fuel around the time of the 1970s Arab oil embargo, when a handful of early adherents started to argue that it could lower dependence on energy imports as well as help farmers.
Among these pioneers was a gangly, soft-spoken Minnesotan named Jeff Broin. In 1983, Mr Broin and his father set up an ethanol still on their farm, hoping to sell corn-based fuel to the few companies then operating that had begun blending ethanol into gasoline. Three years later, the Broins bought a disused ethanol plant in nearby South Dakota and went into commercial production. The younger Mr Broin, then just 22, could scarcely have imagined that the family company, known today as Poet, would become an ethanol powerhouse.
"We were simply trying to add value to grain," he says. "If someone had suggested that we would become the largest producer of ethanol in the world, we probably would have laughed at them."
Farmers such as the Broins had powerful allies in Washington. Chief among them was a coalition of 20 Democratic and Republican "corn state" senators including Tom Daschle, the former Democratic majority leader, and Chuck Grassley, a Republican senator from Iowa. But the ethanol boosters had a powerful adversary in big oil companies, which saw ethanol as a potential rival and argued that government support would be just another farm-state giveaway.
This argument resonated in the national capital during the 1980s and 1990s. President George H.W. Bush, for example, disparagingly referred to ethanol as "Daschle gas".
But the president's son thought differently. Mr Grassley remembers taking the younger Mr Bush on a tour of Iowa's cornfields during his first presidential campaign in 2000. "I was one-on-one with him with a couple of other people in a van and I spent two days talking to him about ethanol," says Mr Grassley. Mr Bush appeared to be impressed, Mr Grassley recalls. "He said, 'It's this simple. We've only got so much petroleum and we've got to have renewables. It's got to be ethanol.'"
Not long after Mr Bush took office in 2001, the September 11 terrorist attacks gave grim weight to the ethanol lobby's arguments. "Isn't it more sensible to spend $140 a barrel for ethanol than it is to ship $140 over to Arabia and let their Wahabis be trained to kill you and me?" asks Mr Grassley.
The economics of ethanol were also shifting as rising oil prices made ethanol and other alternative fuels more attractive. On Wall Street, clever investors began to take notice. In May 2003, Morgan Stanley Capital Partners, the private equity arm of the US investment bank, bought Aventine Renewable Energy, an ethanol producer with plants in Illinois and Indiana, for $75m. It paid itself nearly twice that in dividends only seven months later.
In 2004, lawmakers on Capitol Hill passed a law giving refiners an incentive to blend ethanol with gasoline by letting them claim a 51 cent per gallon tax benefit on each gallon of ethanol they used. By the following year, the politicians were under pressure to go even further. The price of a gallon of petrol had jumped over the $3 mark. Global warming worries were adding weight to the ethanol industry's claims that the fuel was an important source of renewable energy. Legislators began work on a law for a renewable fuel standard that would require gasoline producers to blend billions of gallons of ethanol into petrol each year.
Barack Obama, as a freshman Democratic senator from Illinois, a leading corn-producing state, was a big supporter. "If a terrorist hijacked a plane in Kuwait and crashed it into an oil complex in Saudi Arabia, it could take enough oil off the market and cause more economic damage in the United States than if a dirty nuclear weapon exploded in downtown Manhattan," he said in a Senate speech. "Instead of continuing to link our energy policy to foreign fields of oil, it should be linked to farm fields of corn."
Not everyone agreed. New York's Senator Chuck Schumer called the proposal a "boondoggle" and said: "There is no sound public policy reason for mandating the use of ethanol - other than the political might of the ethanol lobby." Big users of corn, such as meat processor Tyson Foods, worried it would lead to higher corn prices.
But ethanol supporters found an important, if unexpected, ally: their old rivals in the US oil industry. That was largely due to a fuel additive known as methyl tert-butyl ether (MTBE), which helped petrol burn more fully and thus lower smog emissions. Oil refiners had been using the additive for years, especially since clean air requirements were enacted in the 1990s.
By the early 2000s, however, MTBE had become a liability after scientists discovered that it lingered in ground water and polluted aquifers. California and other states banned it, leaving the oil industry searching for a substitute that would allow it to comply with environmental regulations and avoid billions of dollars in MTBE-related liabilities. Ethanol fitted the bill. "We saw ethanol as a viable product - it was a product that we knew," says Al Mannato, fuels issues manager at the American Petroleum Institute, the oil industry's leading lobby group.
The support of the API "significantly changed the political calculation on Capitol Hill", says Bob Dinneen, president of the Renewable Fuels Association, the ethanol industry grouping.
This was a turning point. That summer, Congress passed, and Mr Bush signed, the Energy Policy Act of 2005, which required refiners to blend 7.5bn gallons of biofuels into gasoline by 2012. Congress and the president created a multi-billion dollar market for corn-based ethanol virtually overnight. "Wall Street loved it," says Kevin Book, an analyst at Friedman, Billings, Ramsey & Co, an investment bank. "Suddenly, wingtips were covered in corn dust in every state."
Speculators poured into the industry. In November 2005, an investment company owned by Microsoft's Mr Gates struck a deal to pay $84m for a 27 per cent stake in Pacific Ethanol, a California group whose shares had begun trading on the Nasdaq stock market that year but had yet to produce a single drop of fuel.
Not long afterwards, two New York hedge funds - Greenlight Capital, headed by David Einhorn, and Third Point, managed by Daniel Loeb - invested nearly $75m in BioFuel Energy, a Colorado ethanol producer. Thomas Edelman, a Wall Street banker and oil and gas executive, chipped in $8.75m and was appointed chairman.
Ethanol futures prices shot up almost fourfold in the 12 months after the energy bill was signed. Meanwhile, the price of corn required to make a gallon of ethanol continued to languish thanks to surplus stores of the grain. The result was a bonanza for ethanol producers. Ethanol companies whose plants were up and running in time to catch this wave made fat profits for themselves and their investors.
In 1999, there were 50 ethanol plants in the US. By January 2007, there were 110, with 76 more under construction. Most early ethanol plants probably paid for themselves within one or two years, according to Ray Goldberg, a professor of agribusiness at Harvard Business School.
Ethanol's potential as an oil alternative had also begun to take hold in the popular imagination. Advertisements appeared on billboards alongside highways in Missouri showed a Missouri farmer standing next to a cornfield. Opposite him was a picture of the late King Fahd, the former ruler of Saudi Arabia, dressed in traditional Arab robes. Between the two men, in large block letters, was a question: "Who would you rather buy your gas from?"
The growing cost of ethanol production to US taxpayers went largely unnoticed, amid a hype that was reminiscent of the dotcom boom of a few years earlier. As several big ethanol producers announced plans to go public, ordinary investors, largely shut out from ethanol's early years, jumped at the chance to buy into the industry.
In May 2006, Thomas H. Lee Partners, a Boston private equity group, bought an 80 per cent stake in Hawkeye Renewables in a deal that valued the company at $1bn. THL almost immediately announced plans for an initial public offering. Morgan Stanley Capital Partners, which had been spun out of its parent bank and renamed Metalmark, reaped a tenfold return on its 2003 investment in Aventine Renewables when Aventine became one of several biofuel producers to float on the New York Stock Exchange in June. The biggest star was VeraSun of South Dakota, whose shares immediately jumped 34 per cent on their debut.
But the excitement proved to be short-lived. Investors had ignored some glaring warning signs. Few recognised it at the time, but the previous year's boom had also set the stage for a shift in the economics of the industry that would prove disastrous for those who came late to the game. In the same month as VeraSun's IPO, ethanol futures prices fell sharply, reversing the historical correlation between the price of ethanol and the price of a gallon of gasoline. By September, ethanol that had sold for $4 a gallon in June was trading at $1.75, according to DTN, a commodities research group.
The problem was one of oversupply. Dozens of ethanol plants had come online trying to capitalise on the boom, creating a glut that pushed down prices. Corn prices, meanwhile, were rising sharply, driven by increased demand for the crop for use in ethanol production and the rising cost of oil. In the space of just three months, ethanol had moved from boom to bust.
Some of the world's best-known investors were burnt. When Mr Gates' investment fund started disposing of its shares in Pacific Ethanol this April, it sold them at a steep loss. Deals such as the one Thomas H. Lee did with Iowa's Hawkeye Renewables in 2006, which valued Hawkeye's two ethanol plants at $1bn, began to look less wise. Some analysts say the plants could have been built for closer to $400m. When Colorado's BioFuel Energy finally went public in June 2007, it was forced to cut its offer price twice in one week. It eventually raised $101m after expenses in a combined public offering and private placement.
Even Mr Dinneen, the face of the ethanol industry in Washington, admits that, in hindsight, ethanol investors were suffering from "overblown exuberance". "There was a period of growth in the industry, and the economics were uncharacteristically favourable," he says. "People invested thinking every year was going to be like 2006, when history would tell you that was an anomaly. Clearly there was a lot of Wall Street money coming in - and I think it was with unrealistic expectations."
If ethanol were any other industry, it might be on its last legs today. But the dream of turning cornfields into car fuel refuses to die.
Tomorrow: The end that never came
Earnings stream becomes a trickle
Losers
Bill Gates: The best-known investor to lose money in the ethanol frenzy. Cascade Investments, the Microsoft founder's private investment company, paid $84m (£49m, €64m) for a 27 per cent stake in Pacific Ethanol in November 2005. The California company had a profitable business marketing ethanol made by other producers but had yet to produce a drop of the fuel itself.
By the time its first plant came online in October 2006, plunging ethanol prices and the rising cost of corn had squeezed the industry. When Cascade began divesting its stake in April this year, Pacific shares sold for less than $4 - compared with $9 when it announced plans to invest and a $42 boom-time high. As of this summer, Mr Gates had lost at least $37.9m on the investment.
Thomas H. Lee Partners:
When the Boston private equity group took its 80 per cent stake in Hawkeye Renewables in May 2006 - a deal that valued the company at $1bn - a fundamental shift in the economics of ethanol was already under way. THL was forced to pull its planned flotation of Hawkeye in September that year and the company has yet to go public.
Winners
Early investors:
Those who got in to ethanol before the spike in prices in 2005-06 made fat returns. They include Don Endres (right) who in 2001 founded VeraSun Energy, a leading US producer whose hugely successful June 2006 IPO marked the peak of the ethanol boom.
Farmers: Benefited from the surge in corn and land prices created in the boom. In addition, most ethanol plants are controlled by farmer-owned co-operatives. Those built before the end of 2005 are likely to have made a return. Associated industries such as tractor makers and seeds suppliers have also profited.
Copyright The Financial Times Limited 2008
Published: October 22 2008 03:00
It was an American dream that has failed to become a reality. For much of the last decade, enthusiasts from President George W. Bush down have touted corn-based ethanol as something approaching a superfuel, a home-grown alternative to foreign oil that would help cut smog and bring hope to struggling farmers.
It has not worked out that way. Instead, the ethanol industry has undergone a great boom and bust in which a Financial Times analysis has found investors as savvy as Bill Gates, Microsoft's founder, have collectively lost billions of dollars.
Despite the billions more in taxpayers' dollars that was spent to subsidise it, ethanol now eats up nearly one-quarter of the US corn crop without so far fulfilling the hopes held for its beneficial effect either on the environment or US dependence on foreign energy.
It may have helped keep gasoline prices lower in the world's wealthiest nation, but a growing band of influential critics say it has also contributed to higher food prices in the world's poorest countries. So far, the only sure beneficiaries from the ethanol promise have been the investors clever enough to get into the industry early and the corn farmers who have enjoyed a lucrative new market for their grain.
In short, the story of ethanol is a cautionary tale of the unintended and costly consequences that can arise when the interests of politicians and influential industries collide.
Today, ethanol is a $32.5bn (£19.1bn, €24.6bn) a year business in the US. But for nearly three decades it was an obscure cottage industry run by farmers trying to scratch out a living in the corn belt in the country's Midwest. Americans had been making bourbon, a drinkable form of ethanol, from corn for centuries. But ethanol got its start as a fuel around the time of the 1970s Arab oil embargo, when a handful of early adherents started to argue that it could lower dependence on energy imports as well as help farmers.
Among these pioneers was a gangly, soft-spoken Minnesotan named Jeff Broin. In 1983, Mr Broin and his father set up an ethanol still on their farm, hoping to sell corn-based fuel to the few companies then operating that had begun blending ethanol into gasoline. Three years later, the Broins bought a disused ethanol plant in nearby South Dakota and went into commercial production. The younger Mr Broin, then just 22, could scarcely have imagined that the family company, known today as Poet, would become an ethanol powerhouse.
"We were simply trying to add value to grain," he says. "If someone had suggested that we would become the largest producer of ethanol in the world, we probably would have laughed at them."
Farmers such as the Broins had powerful allies in Washington. Chief among them was a coalition of 20 Democratic and Republican "corn state" senators including Tom Daschle, the former Democratic majority leader, and Chuck Grassley, a Republican senator from Iowa. But the ethanol boosters had a powerful adversary in big oil companies, which saw ethanol as a potential rival and argued that government support would be just another farm-state giveaway.
This argument resonated in the national capital during the 1980s and 1990s. President George H.W. Bush, for example, disparagingly referred to ethanol as "Daschle gas".
But the president's son thought differently. Mr Grassley remembers taking the younger Mr Bush on a tour of Iowa's cornfields during his first presidential campaign in 2000. "I was one-on-one with him with a couple of other people in a van and I spent two days talking to him about ethanol," says Mr Grassley. Mr Bush appeared to be impressed, Mr Grassley recalls. "He said, 'It's this simple. We've only got so much petroleum and we've got to have renewables. It's got to be ethanol.'"
Not long after Mr Bush took office in 2001, the September 11 terrorist attacks gave grim weight to the ethanol lobby's arguments. "Isn't it more sensible to spend $140 a barrel for ethanol than it is to ship $140 over to Arabia and let their Wahabis be trained to kill you and me?" asks Mr Grassley.
The economics of ethanol were also shifting as rising oil prices made ethanol and other alternative fuels more attractive. On Wall Street, clever investors began to take notice. In May 2003, Morgan Stanley Capital Partners, the private equity arm of the US investment bank, bought Aventine Renewable Energy, an ethanol producer with plants in Illinois and Indiana, for $75m. It paid itself nearly twice that in dividends only seven months later.
In 2004, lawmakers on Capitol Hill passed a law giving refiners an incentive to blend ethanol with gasoline by letting them claim a 51 cent per gallon tax benefit on each gallon of ethanol they used. By the following year, the politicians were under pressure to go even further. The price of a gallon of petrol had jumped over the $3 mark. Global warming worries were adding weight to the ethanol industry's claims that the fuel was an important source of renewable energy. Legislators began work on a law for a renewable fuel standard that would require gasoline producers to blend billions of gallons of ethanol into petrol each year.
Barack Obama, as a freshman Democratic senator from Illinois, a leading corn-producing state, was a big supporter. "If a terrorist hijacked a plane in Kuwait and crashed it into an oil complex in Saudi Arabia, it could take enough oil off the market and cause more economic damage in the United States than if a dirty nuclear weapon exploded in downtown Manhattan," he said in a Senate speech. "Instead of continuing to link our energy policy to foreign fields of oil, it should be linked to farm fields of corn."
Not everyone agreed. New York's Senator Chuck Schumer called the proposal a "boondoggle" and said: "There is no sound public policy reason for mandating the use of ethanol - other than the political might of the ethanol lobby." Big users of corn, such as meat processor Tyson Foods, worried it would lead to higher corn prices.
But ethanol supporters found an important, if unexpected, ally: their old rivals in the US oil industry. That was largely due to a fuel additive known as methyl tert-butyl ether (MTBE), which helped petrol burn more fully and thus lower smog emissions. Oil refiners had been using the additive for years, especially since clean air requirements were enacted in the 1990s.
By the early 2000s, however, MTBE had become a liability after scientists discovered that it lingered in ground water and polluted aquifers. California and other states banned it, leaving the oil industry searching for a substitute that would allow it to comply with environmental regulations and avoid billions of dollars in MTBE-related liabilities. Ethanol fitted the bill. "We saw ethanol as a viable product - it was a product that we knew," says Al Mannato, fuels issues manager at the American Petroleum Institute, the oil industry's leading lobby group.
The support of the API "significantly changed the political calculation on Capitol Hill", says Bob Dinneen, president of the Renewable Fuels Association, the ethanol industry grouping.
This was a turning point. That summer, Congress passed, and Mr Bush signed, the Energy Policy Act of 2005, which required refiners to blend 7.5bn gallons of biofuels into gasoline by 2012. Congress and the president created a multi-billion dollar market for corn-based ethanol virtually overnight. "Wall Street loved it," says Kevin Book, an analyst at Friedman, Billings, Ramsey & Co, an investment bank. "Suddenly, wingtips were covered in corn dust in every state."
Speculators poured into the industry. In November 2005, an investment company owned by Microsoft's Mr Gates struck a deal to pay $84m for a 27 per cent stake in Pacific Ethanol, a California group whose shares had begun trading on the Nasdaq stock market that year but had yet to produce a single drop of fuel.
Not long afterwards, two New York hedge funds - Greenlight Capital, headed by David Einhorn, and Third Point, managed by Daniel Loeb - invested nearly $75m in BioFuel Energy, a Colorado ethanol producer. Thomas Edelman, a Wall Street banker and oil and gas executive, chipped in $8.75m and was appointed chairman.
Ethanol futures prices shot up almost fourfold in the 12 months after the energy bill was signed. Meanwhile, the price of corn required to make a gallon of ethanol continued to languish thanks to surplus stores of the grain. The result was a bonanza for ethanol producers. Ethanol companies whose plants were up and running in time to catch this wave made fat profits for themselves and their investors.
In 1999, there were 50 ethanol plants in the US. By January 2007, there were 110, with 76 more under construction. Most early ethanol plants probably paid for themselves within one or two years, according to Ray Goldberg, a professor of agribusiness at Harvard Business School.
Ethanol's potential as an oil alternative had also begun to take hold in the popular imagination. Advertisements appeared on billboards alongside highways in Missouri showed a Missouri farmer standing next to a cornfield. Opposite him was a picture of the late King Fahd, the former ruler of Saudi Arabia, dressed in traditional Arab robes. Between the two men, in large block letters, was a question: "Who would you rather buy your gas from?"
The growing cost of ethanol production to US taxpayers went largely unnoticed, amid a hype that was reminiscent of the dotcom boom of a few years earlier. As several big ethanol producers announced plans to go public, ordinary investors, largely shut out from ethanol's early years, jumped at the chance to buy into the industry.
In May 2006, Thomas H. Lee Partners, a Boston private equity group, bought an 80 per cent stake in Hawkeye Renewables in a deal that valued the company at $1bn. THL almost immediately announced plans for an initial public offering. Morgan Stanley Capital Partners, which had been spun out of its parent bank and renamed Metalmark, reaped a tenfold return on its 2003 investment in Aventine Renewables when Aventine became one of several biofuel producers to float on the New York Stock Exchange in June. The biggest star was VeraSun of South Dakota, whose shares immediately jumped 34 per cent on their debut.
But the excitement proved to be short-lived. Investors had ignored some glaring warning signs. Few recognised it at the time, but the previous year's boom had also set the stage for a shift in the economics of the industry that would prove disastrous for those who came late to the game. In the same month as VeraSun's IPO, ethanol futures prices fell sharply, reversing the historical correlation between the price of ethanol and the price of a gallon of gasoline. By September, ethanol that had sold for $4 a gallon in June was trading at $1.75, according to DTN, a commodities research group.
The problem was one of oversupply. Dozens of ethanol plants had come online trying to capitalise on the boom, creating a glut that pushed down prices. Corn prices, meanwhile, were rising sharply, driven by increased demand for the crop for use in ethanol production and the rising cost of oil. In the space of just three months, ethanol had moved from boom to bust.
Some of the world's best-known investors were burnt. When Mr Gates' investment fund started disposing of its shares in Pacific Ethanol this April, it sold them at a steep loss. Deals such as the one Thomas H. Lee did with Iowa's Hawkeye Renewables in 2006, which valued Hawkeye's two ethanol plants at $1bn, began to look less wise. Some analysts say the plants could have been built for closer to $400m. When Colorado's BioFuel Energy finally went public in June 2007, it was forced to cut its offer price twice in one week. It eventually raised $101m after expenses in a combined public offering and private placement.
Even Mr Dinneen, the face of the ethanol industry in Washington, admits that, in hindsight, ethanol investors were suffering from "overblown exuberance". "There was a period of growth in the industry, and the economics were uncharacteristically favourable," he says. "People invested thinking every year was going to be like 2006, when history would tell you that was an anomaly. Clearly there was a lot of Wall Street money coming in - and I think it was with unrealistic expectations."
If ethanol were any other industry, it might be on its last legs today. But the dream of turning cornfields into car fuel refuses to die.
Tomorrow: The end that never came
Earnings stream becomes a trickle
Losers
Bill Gates: The best-known investor to lose money in the ethanol frenzy. Cascade Investments, the Microsoft founder's private investment company, paid $84m (£49m, €64m) for a 27 per cent stake in Pacific Ethanol in November 2005. The California company had a profitable business marketing ethanol made by other producers but had yet to produce a drop of the fuel itself.
By the time its first plant came online in October 2006, plunging ethanol prices and the rising cost of corn had squeezed the industry. When Cascade began divesting its stake in April this year, Pacific shares sold for less than $4 - compared with $9 when it announced plans to invest and a $42 boom-time high. As of this summer, Mr Gates had lost at least $37.9m on the investment.
Thomas H. Lee Partners:
When the Boston private equity group took its 80 per cent stake in Hawkeye Renewables in May 2006 - a deal that valued the company at $1bn - a fundamental shift in the economics of ethanol was already under way. THL was forced to pull its planned flotation of Hawkeye in September that year and the company has yet to go public.
Winners
Early investors:
Those who got in to ethanol before the spike in prices in 2005-06 made fat returns. They include Don Endres (right) who in 2001 founded VeraSun Energy, a leading US producer whose hugely successful June 2006 IPO marked the peak of the ethanol boom.
Farmers: Benefited from the surge in corn and land prices created in the boom. In addition, most ethanol plants are controlled by farmer-owned co-operatives. Those built before the end of 2005 are likely to have made a return. Associated industries such as tractor makers and seeds suppliers have also profited.
Copyright The Financial Times Limited 2008
Investors suffer as US ethanol boom dries up
By Kevin Allison in San Francisco and Stephanie,Kirchgaessner in New York
Published: October 22 2008 03:00
Investors, such as Microsoft's Bill Gates, are sitting on billions of dollars in losses after buying into the corn-based ethanol industry that George W. Bush embraced as the answer to US energy woes.
Six of the biggest publicly traded US ethanol producers have lost more than $8.7bn (£5bn) in market value since the peak of the boom in mid-2006 and the beginning of this month, according to an analysis by the Financial Times. The boom followed a 2005 law requiring refiners to mix billions of gallons of the biofuel with petrol.
Investors who bought and held shares in hotly anticipated market listings of Aventine Renewable Energy, VeraSun Energy and other ethanol producers that have gone public since 2005, have seen the value of their holdings plummet as much as 90 per cent from their flotation price, in spite of billions of dollars of government support for the industry.
The losers in the ethanol investment frenzy, which some have compared to the dotcom mania of the late 1990s, include famous names, such as Mr Gates, Microsoft founder. His private investment firm has lost millions on its 2005 investment in a company called Pacific Ethanol. Mr Gates's firm, Cascade Investments, did not return calls seeking comment.
Other private equity firms and hedge funds that piled into the ethanol industry in the boom years of 2005 and 2006 have put in a mixed performance. Those who bought into ethanol and sold out at the earliest stages made substantial sums. Metalmark, the former private equity arm of Morgan Stanley, the US bank, reaped a 10-fold return on its 2003 purchase of Aventine when it went public in 2006.
Meanwhile, Thomas H. Lee Partners, a Boston-based private equity group, was forced to pull its planned float of Hawkeye Renewables, an ethanol producer it bought at the height of the ethanol boom. One person close to Thomas H. Lee defended the group's investment, arguing that Hawkeye was producing strong cash flow in spite of a difficult business environment that has dragged down the share prices of publicly traded rivals.
Both Metalmark and Thomas H. Lee Partners declined to comment.
Investor losses come as taxpayers have paid billions to support the ethanol industry. More than $11.2bn has been spent since 2005 on tax breaks for companies that blend ethanol into petrol. Billions more have been spent on direct state and federal subsidies for US ethanol production.
"We're looking at an industry that's cost $80bn to get to this point," said Bob Starkey, a fuels analyst at Jim Jordan & Associates, a research group in Houston.
However, ethanol has disappointed many who saw it as a wonder product that could reduce the US's dependence on foreign oil while cutting down on pollution. Worse, a growing number of influential critics now say ethanol is helping raise the price of food.
The industry's supporters still defend ethanol. Bob Dinneen, head of the Renewable Fuels Association, the industry's main lobbying group in Washington, said the fuel represented an opportunity for Americans to invest "here at home" rather than continue to "haemorrhage money ... to the Middle East".
"I'd challenge you to find any energy resource today that isn't dependent on government support," Mr Dinneen said. "If domestically produced energy is something that you want to have, then some of these subsidies are going to be necessary."
Hope to husk, Page 13 www.ft.com/ethanol
Copyright The Financial Times Limited 2008
Published: October 22 2008 03:00
Investors, such as Microsoft's Bill Gates, are sitting on billions of dollars in losses after buying into the corn-based ethanol industry that George W. Bush embraced as the answer to US energy woes.
Six of the biggest publicly traded US ethanol producers have lost more than $8.7bn (£5bn) in market value since the peak of the boom in mid-2006 and the beginning of this month, according to an analysis by the Financial Times. The boom followed a 2005 law requiring refiners to mix billions of gallons of the biofuel with petrol.
Investors who bought and held shares in hotly anticipated market listings of Aventine Renewable Energy, VeraSun Energy and other ethanol producers that have gone public since 2005, have seen the value of their holdings plummet as much as 90 per cent from their flotation price, in spite of billions of dollars of government support for the industry.
The losers in the ethanol investment frenzy, which some have compared to the dotcom mania of the late 1990s, include famous names, such as Mr Gates, Microsoft founder. His private investment firm has lost millions on its 2005 investment in a company called Pacific Ethanol. Mr Gates's firm, Cascade Investments, did not return calls seeking comment.
Other private equity firms and hedge funds that piled into the ethanol industry in the boom years of 2005 and 2006 have put in a mixed performance. Those who bought into ethanol and sold out at the earliest stages made substantial sums. Metalmark, the former private equity arm of Morgan Stanley, the US bank, reaped a 10-fold return on its 2003 purchase of Aventine when it went public in 2006.
Meanwhile, Thomas H. Lee Partners, a Boston-based private equity group, was forced to pull its planned float of Hawkeye Renewables, an ethanol producer it bought at the height of the ethanol boom. One person close to Thomas H. Lee defended the group's investment, arguing that Hawkeye was producing strong cash flow in spite of a difficult business environment that has dragged down the share prices of publicly traded rivals.
Both Metalmark and Thomas H. Lee Partners declined to comment.
Investor losses come as taxpayers have paid billions to support the ethanol industry. More than $11.2bn has been spent since 2005 on tax breaks for companies that blend ethanol into petrol. Billions more have been spent on direct state and federal subsidies for US ethanol production.
"We're looking at an industry that's cost $80bn to get to this point," said Bob Starkey, a fuels analyst at Jim Jordan & Associates, a research group in Houston.
However, ethanol has disappointed many who saw it as a wonder product that could reduce the US's dependence on foreign oil while cutting down on pollution. Worse, a growing number of influential critics now say ethanol is helping raise the price of food.
The industry's supporters still defend ethanol. Bob Dinneen, head of the Renewable Fuels Association, the industry's main lobbying group in Washington, said the fuel represented an opportunity for Americans to invest "here at home" rather than continue to "haemorrhage money ... to the Middle East".
"I'd challenge you to find any energy resource today that isn't dependent on government support," Mr Dinneen said. "If domestically produced energy is something that you want to have, then some of these subsidies are going to be necessary."
Hope to husk, Page 13 www.ft.com/ethanol
Copyright The Financial Times Limited 2008
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