Australian Ethical assesses energy policy as part of the investment process for the award-winning International Equities Trust. The assessment looks through the lens of primary energy consumption in all regions the Trust seeks to invest. For each type of energy source, the policy is assessed to be either being supportive, neutral, or negative with assessments updated continuously.
International Equities Portfolio Manager, Nathan Lim, provides this month’s update:
Canada comes around, announces emission reduction target ahead of Paris climate talks
The political support for lowering emission intensity is building in North America. Canada has now committed to cut greenhouse gas emissions by 30 percent below 2005 levels by 2030 joining the US, who earlier pledged to cut its emissions 28 percent below 2005 levels by 2025. These early announcements by major, non-European nations ahead of the UN Climate Change Conference in Paris in December provide optimism that some form of global agreement on emissions will be forthcoming.
We saw more actions by US regulators and state governments in Georgia, Nevada, Kansas, Southern Carolina, and California that on balance still reveal a positive trend to greater acceptance of renewable energy. For example, while Nevada advanced a bill to impose fees on rooftop solar owners, California advanced legislation to lift renewable energy usage to 50 percent, double fuel mileage requirements and make buildings twice as energy efficient. Our sense is the growing bipartisan support for renewables and for lowering the nation’s emissions intensity remains well entrenched. It also helps that renewables are becoming more cost competitive which makes the political support easier to deliver. The Institute for Local Self-Reliance has calculated that six of the largest metropolitan areas are at grid parity without subsidies (nearly 10% of the country).
We also note that the US Environmental Protection Agency (EPA) finally passed its Renewable Fuel Standard rulings for 2014, 2015, and 2016. It accepted the widespread concern over the “blend wall” and kept the biofuel quota under 10 percent of the nation’s total expected fuel consumption. While the final quotes were less than what the biofuel industry wanted, we note the rise in the cellulosic biofuel quota which reflects growth in second generation biofuels. Recall that non-food, waste streams are the feedstock for second generation biofuels, a more sustainable choice.
Wind power to come under pressure in the UK, an opening for tidal?
The UK elections surprised many with a decisive victory for the Tories. Unfortunately, their policy platform included a strong stance against further onshore wind development on largely aesthetic concerns. We expect to see retreating support for wind power in the UK in particular which will put the country at odds with its broader decarbonisation plans. Some analysts suggest that nuclear and tidal power will see increased support going forward if the UK is to reach its legislated emission targets.
Germany has recorded 109 hours of negative electricity year to date – double the hours for the same period last year. While free electricity sounds like a good thing, we wrote about the perils of free energy on Merit Order here. Merit order pricing is used nearly universally to set wholesale electricity prices, but it suffers from revenue leakage as fixed payments to households circumvent the pricing mechanism.
The glow of nuclear may not be so bright in Japan
In conjunction with details of its energy mix policy, Japan has said it will reduce greenhouse gas emissions by 26 percent from 2013 levels by 2030. This target assumes nuclear power will represent 22 percent of its energy mix, a level cast into doubt by Bloomberg New Energy Finance (BNEF). BNEF highlights the political and social resistance to nuclear power and suggests Japan will likely lean heavily on natural gas and renewables to power the nation going forward.
A tale of woe, Australian style
The compromised Renewable Energy Target legislation has moved into the Senate where debate on the inclusion of burning native wood waste promises to extend the review.
The results of the recently concluded first round auctions for the Emissions Reduction Fund (ERF) are being criticised given that 107 of the 144 successful projects were pre-existing. Pundits have highlighted that the ERF was meant to create new sources of carbon abatement. Created under the Carbon Farming Initiative, polluting industries originally paid for these pre-existing projects. By paying for these projects out of ERF, the cost of the abatement was transferred from the polluting company to the taxpayer. Taxpayers in effect are paying for someone else’s pollution, and achieving no incremental abatement.
A few other observations
China produced more energy from the wind than nuclear for the first time in 2014. Recall it plans to build out its wind fleet to 250 gigawatts by 2020 from about 115 gigawatts today.
Jordan solar tender confirms that US$0.06-0.08 per kilowatt hour is the new cost benchmark for solar. Jordan is showing that areas with ample solar irradiance can erect solar projects today that are very cost competitive against conventional generation without subsidy.
India’s largest energy conglomerate, NTPC, and the states of Uttar Pradesh and Maharashtra are rising to Prime Minister’s call for 100 gigawatts of solar by 2022. The NTPC will buy 15 gigawatts of solar projects through a reverse auction. Uttar Pradesh has introduced net metering for solar customers, and Maharashtra will add 14.4 gigawatts of renewable energy by 2020.
Media enquiries
Nathan Lim CFA
Portfolio Manager
Australian Ethical Investment
(02) 8276 6271 0400 300 819
nlim@australianethical.com.au
www.australianethical.com.au