Who Is Eyeing Clean Energy?

Leo Kolivakis's picture


Submitted by Leo Kolivakis, publisher of Pension Pulse.

Reuters reports that Barclays pension fund eyes clean energy:

The
15 billion pound ($24 billion) defined-benefit pension scheme of UK
banking group Barclays Plc is poised to make a foray into clean energy
investments, its chief investment officer said.

 

Tony
Broccardo said the pension scheme was considering alternative energy
investments, including via private equity firms which finance green
energy projects.

"Clean technology is an area that could be a big allocation for us in the future," Broccardo told Reuters.

 

Broccardo,
appointed last year as the fund's first chief investment officer, said
the fund will seek exposure to alternative energy as part of its
"opportunistic" investment program.

 

Last
year, the strategy prompted allocations to corporate credit in the
United States and Europe, which increased its overall risk profile but
netted 20 percent returns.

 

Broccardo
said the fund had about 500 million pounds annually to investing
opportunistically. Combined with emerging markets and technology, he
said the pension scheme could allocate over 10 percent in clean
technology.

 

The scheme is
also poised to increase its investments in active management. "We have
had good experience with hedge funds and more active management.
Skilled managers will do quite well," he said.

Good
for Barclays. At least some pension funds are thinking carefully about
the big themes that will shape the future of energy. Clean energy is
definitely one of them.

And it's not just Barclays. After being
relentlessly negative on the solar industry since the summer of
2008, investment bank HSBC is starting to warm up to the sector again:

The
upshot: The worst of the solar sector’s woes may be behind us. That
doesn’t mean the good times are here yet—but it does open the door to
selective investments in companies that can weather the three years or
so of storms that still lie ahead, the bank says in a new report.

 

The
thesis of “Global Solar Power: Solar Eclipsed?” is straightforward: The
supply glut that has plagued the sector all year will persist until
2012. That will keep pushing prices down—bad news for corporate
profits, good news for the sector as a whole as it becomes more
competitive with traditional sources of power generation.

 

HSBC’s
winners include Yingli Green Power, Sharp, Solar World, and REC. The
bank doesn’t care as much for Suntech Power and LDK, among many others.

 

[Note: I like them all, including LDK, Suntech and Trina Solar.]

 

What’s
really interesting about HSBC’s new report is how solar power stacks up
today against other ways of generating electricity—it doesn’t. That is,
all the other power-generation technologies are in roughly the same
neighborhood, even wind power—but not solar.

 

For instance,
HSBC estimates costs per megawatt for different options: Combined-cycle
gas, 43 euros; regular coal, 62 euros; onshore wind, 58 euros; nuclear
power, 48 euros; geothermal, 43 euros. Photovoltaic solar power costs
290 euros per megawatt; concentrated solar power 181 euros.

 

Or
put another way: What price would oil or gas have to be for each
technology to be break-even without subsidies, using combined-cycle gas
turbines as the low-cost yardstick?

 

Geothermal is the cheapest:
It is competitive with natural gas at $5.16 per million BTUs or oil at
$57 a barrel. Nuclear power breaks even at $6.26 and $69.

 

Traditional,
onshore wind power breaks even with gas at $8.33 or oil at $92.
Offshore wind still needs a push: It requires gas at $17.14 or oil at
$189.

 

In contrast, solar thermal needs to see natural gas at
$35.66 or oil at $393. And good old photovoltaic solar, like the kind
on rooftops? Natural gas needs to be at $59.61 or oil at $657 a barrel.

 

Quick reality check: Gas today is at $3.93 and oil is at $66.

 

That’s not to say there’s no hope for solar power. There’s always the government.

Thanks
to price supports, HSBC expects solar power to reach retail “grid
parity” in some places—California and New York—as soon as next year.
That means solar power will generate electricity that’s competitive
with what you pay on your bill every month. It will take another five
years or so for solar to reach wholesale grid parity—when it becomes a
no-brainer investment for big utilities.

There is a
clean energy revolution going on and it's just in its infancy. Those who
can't see it are either blind or hopelessly ignorant. If pension funds
are smart, they will start thinking about investing opportunistically
in this sector now.

***UPDATE: Supply Glut Putting the Heat on Solar Stocks?***

Just so I am not accused of pumping solar stocks, read this Barron's article, Supply Glut Will Put the Heat on Solar Stocks.
I agree with some comments (I am not as bullish on FSLR relative to
other solar stocks), but respectfully disagree with other comments made
in the article. Looking ahead, I see PV supply chain revenues rebounding as demand picks up and credit concerns ease.