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The locked IPO window is ready for a clean tech break in
The one good thing about a log jam of any persuasion is that when it breaks it tends to be pretty spectacular.
That will certainly be the hope for growing numbers of clean tech firms, who after 18 months staring at an IPO window that has been frozen firmly shut are beginning to wonder if floatation may once again represent a good way of financing expansion plans.
According to figures from the Cleantech Group, globally there were just four clean tech IPOs during the first quarter of this year, but since then there have been definite signs that the IPO market could be warming up once more.
As reported today, Canada-based geothermal specialist Magma Energy has raised double the C$50m it originally anticipated through its Toronto IPO, while energy efficient lighting outfit CRS Electronics also completed an IPO on the increasingly popular Toronto Exchange back in May.
SolarWinds, the US-based networking software specialist with sizable smart grid interests, also raised over $150m with an IPO on the New York Stock Exchange in May, and The Clean Tech Group has reported that a further 11 clean tech firms are currently undertaking IPO application processes on Canadian exchanges.
Meanwhile, across all industry sectors Morgan Stanley has predicted up to 40 firms could float in Europe over the next two years, Thomson Reuters reckons there are nearly 150 IPOs now being planned globally, and everyone is anticipating a surge in IPO activity in emerging markets such as China and Brazil.
It is as safe bet as Andy Murray choking in the Wimbledon final, that there are plenty of clean tech firms amongst those companies preparing to be in the first wave of IPOs that will mark the true onset of economic recovery.
The recession may have dealt a major blow to clean tech firms looking to scale up their operations, but for those planning an IPO the recovery could yet come at the perfect time.
It is easy to envisage a (perhaps optimistic) scenario where the IPO markets start to really hot up early next year, just as clean tech firms are in the perfect position to release compelling prospectuses detailing increased demand for low carbon technologies and the roll out of tough new environmental legislation in the wake of an international climate change agreement.
Given how long it can take to plan a well executed stock market floatation, any firm interested in following the IPO route would be wise to get their skates.
Don't knock Darling, this budget was greener than expected
So, was it green enough for you?
Was the budget's support for green businesses "timid" and "inadequate", as Adrian Wilkes of the Environmental Industries Commission argued, or was it, as Solar Century's Jeremy Leggett observed, a pretty good deal given the context of significant tightening elsewhere in the budget?
The answer, as is so often the case, contains both points of view.
The sad reality of the climate crisis is that we are already locked in to pretty dangerous levels of global warming over the next few decades. The most sensible course of action from a purely climatic perspective is to turn everything off and stop emitting greenhouse gases right now. Consequently, governments and businesses will never be able to secure unconditional praise from some green groups - the need to decarbonise the economy is so urgent means that whatever they do they could, and some will argue should, do much more.
Even measured against more pragmatic goals of cutting carbon emissions 34 per cent by 2020 and 80 per cent by 2050, the budget is a big disappointment.
Lord Stern has said that at least a fifth of countries' recovery packages should be earmarked for environmental spending, but even with the additional £1.4bn in funding announced in the budget yesterday the UK still fails this test. As Wilkes observes, other countries such as the USA and South Korea are investing far greater sums in clean tech and are threatening to leave the UK at a competitive disadvantage as new low carbon industries emerge.
Ministers claim time and time again that the UK has a leadership position in sectors such as offshore wind and CCS, but despite timely boosts for both technologies yesterday we still import all our offshore wind turbines and have no idea where our first CCS demonstration plant will be built. Other countries are forging ahead and there is a real chance that the UK will look back in ten years time and ask why the billions of pounds invested in renewable energy has been sunk into the pockets of European and US firms.
The commitments to deliver three quarters of a billion pounds for emerging technologies, over £400m each for energy efficiency and green manufacturing, £525m for offshore wind, £4bn from the European Investment Bank, and fresh funding for CCS, look impressive. But in a world where a single CCS demonstration project will cost £1bn and experts reckon we need £37bn to upgrade the grid, this new money is not going to stretch very far.
Moreover, new investment for clean technologies is undermined by the government's refusal to call an end to its love affair with carbon intensive industries. Money for green technologies is all well and good, but the attempt to pass off the £300m scrappage scheme for the car industry as an environmental initiative is simply cringe-worthy. It is a bail out pure and simple and the carbon savings will be somewhere between negligible and non existent.
And yet, despite its myriad failings, I'd argue that the environmental commentators lining up to knock the budget should also accept that there are a fair few positives to be found.
The green spending commitments may be insufficient, but given the woeful state of public finances they are still far greater than expected.
There are sweeping cuts (sorry, efficiency savings) on the horizon for large sections of the public sector, and as such it is encouraging that the Chancellor has ring fenced clean tech, health and education as a sheltered triumvirate, protected from the cost cutters. It is a case of being grateful for small mercies, but the fact that green businesses managed to wring any new money out of the Treasury in the current climate provides more evidence of the government's commitment to the sector than a hundred ministerial speeches on "green collar jobs" and "industries of the future".
The focus of the spending is also encouraging. The £45m earmarked for onsite renewable technologies through the Low Carbon Building Programme is hardly an earth shattering sum, but it shows that the government listened (albeit belatedly) to the industry's concerns about a funding gap and acted appropriately. Equally, the increased subsidy for offshore wind farms through the Renewables Obligation and new financing from the European Investment Bank, reveal that the government accepted the concerns of the wind energy sector and moved to avoid a potential crisis.
The government faced calls from thousands of vested interests in the run up to the budget and it is encouraging that the renewables industry appears to have the ear of at least some of Whitehall's power brokers.
Finally, and most importantly, the combination of the fiscal and carbon budget once again serve to hammer home the direction of travel for the UK's climate change strategy.
We may have to wait until the summer to find out exactly how the government plans to meet its target of a 34 per cent cut in emissions by 2020, but we know that the target is legally binding and will be used to inform all future policy and regulations, just as we know it could well be tightened further.
Equally, we know from the increase in the subsidy mechanism for offshore wind and the new proposal to support CCS plants through a feed in tariff that energy bills will inevitably continue their upward trend over the next decade. Just as we know that the planned increase in landfill tax will make recycling and waste-to-energy plants more financially attractive.
All of this means that firms are once again left in no doubt that efforts to enhance energy efficiency, tackle waste and curb carbon emissions will deliver long term returns, and make as much sense from a financial and risk mitigation perspective as they do from a purely environmental outlook.
Yes, it would be great to have seen plans for high speed rail and a commitment to ditch the third runway at Heathrow. Yes, it would have been nice to hear the government was willing to do something about the low price of carbon and limited availability of credit for green projects. And yes, it would have been fantastic to have seen a hand out to the auto industry replaced by a genuine green vehicle incentive scheme.
But all in all, this budget was greener than expected and proved once again that it is environmentally sustainable businesses that will prosper the most when the recovery eventually materialises.
What can green businesses expect from the Apprentice budget?
Every year it's the same. A motley crew of applicants turn up, deliver their best performance in front of a dismissive panel of ill-tempered judges, and wait to see if they have secured the opportunity to have a minor impact on the national consciousness.
No, I'm not talking about the Apprentice, but the run up to the budget.
For Sir Alan, Nick and Margaret, read Gordon Brown, Alistair Darling, and Mervyn King (I'll let you decide which is which). And for the wannabe apprentices, read the army of lobby groups that stalk Westminster.
This year the show seemed to start even earlier than normal with countless groups pleading their case and promising to deliver 110 per cent if only Chancellor Darling (Nick/Margaret?) and Prime Minister Brown (Sir Alan, surely?) would give them their big chance.
In the environmenal sector alone, we've seen car firms propose a "green" scrappage scheme, electric car firms call for the immediate introduction of planned incentives; the construction sector demand further financing for green building makeovers; the wind industry request urgent assistance to ensure expansion does not stall; energy firms make the case for more funding for carbon capture and storage; the microgeneration sector warn immediate action is required to plug a potentially catastrophic short term funding gap; and various environmental, business and political groups recommend everything from the launch of a national green infrastructure bank to the development of a high speed rail network.
And that's just the calls for additional green funding. When you consider that every single sector has a similar number of lobbyists meeting with ministers to set out their own budget wish lists you start to understand why MPs given themselves that three month summer holiday.
So, what can green businesses expect when the Chancellor finally opens his red box tomorrow?
Unfortunately, the answer is not a huge amount.
There will, of course, be the UK's first carbon budgets, setting carbon targets for the next 15 years. But as has been well documented, the public accounts will make for deeply depressing reading and as a result the Chancellor will have his hands tied as he seeks to deliver the investment that will required to ensure the new carbon budgets are met.
While South Korea tucks into its £23bn green new deal and US clean tech firms line up to apply for some of Obama's $100bn in new funding, UK companies can expect significantly less munificence.
The net result is that the really big ticket projects that the government has been mulling for years - high speed rail, smart grids, marine renewables and so on - will once again be kicked into the long grass. The best they can hope for is to be namechecked by the chancellor alongside vague promises for reviews or consultations - but they might not even get that given the necessary focus on the state of the short term economy.
Where progress is more likely is with those proposals that promise to cut emissions and bolster low carbon technologies without recourse to immediate direct government funding.
For example, there is an acceptance amongst ministers that urgent action is required to ensure that wind farm development does not stall as a result of the recession. It is not in a position to hand out grants to improve the viability of projects and, given the current economic climate, it will be reluctant to increase incentives that result in higher energy bills for consumers. But some form of loan guarantee scheme is more likely to gain approval and could help onshore developers' in particular access finance without forcing the Treasury to put its hand in its pocket.
Similarly, a low interest green home loan scheme that could actually make the government money in the long run has a better chance of getting the thumbs up than yet more grants for home insulation.
There could also be some direct funding for a number of sectors.
Darling has reportedly searched behind the sofas and been able to rustle up £500m in additional funding for green initiatives. It amounts to peanuts compared to some of the green stimulus plans proposed by other countries and would not even pay for half a CCS demonstration plant, but it should prove sufficient to keep the grants for onsite renewable technologies in place until a feed in tariff comes into effect next year. The money could also be used to fund some sort of green car incentive scheme or further accelerate the government's green home programme.
However, £500m in new funding is insufficient to resolve the uncertainty swirling around the government's largest and most vexed low carbon projects. Offshore wind and CCS - two of the most important pillars of the government's low carbon strategy - both look dangerously under funded at present and with each passing month the UK's claims that it retains a leadership position in these essential technologies look more and more shaky. The government may be able to keep pushing plans for smart grids and high speed rail ever further into the future, but we need these projects up and running sooner rather than later if there is to be any chance of meeting the UK's carbon targets.
The BWEA reckons somewhere in the region of £2bn in grants, tax breaks or incentives is needed to make increasingly vulnerable offshore wind projects viable, while a further £2bn is likely to be needed to make Ed Miliband's plans for an extra two CCS demonstration plants a reality.
The Treasury simply does not have that kind of money at its disposal, so while tomorrow will inevitably be characterised by the now traditional claims that we are getting a "green budget" the likelihood is that the really ambitious low carbon projects needed to ensure demanding emission reduction targets are met will be left in their current state of limbo.
Unless Darling pulls off some huge surprises, the large scale low carbon projects that the UK needs most urgently are the very projects that are going to get, if not fired exactly, then certainly sent on extended sabbatical.
Forget the credit crunch, it's time to prepare for the energy crunch
For much of the past two years one of the most compelling drivers behind green business investments has been the soaring cost of energy. So what happens when those energy costs begin to fall?
As the UK today has its recessionary status officially confirmed, businesses are facing a new energy landscape where bills are falling for the first time in years.
The price of oil has slumped, and even green energy providers such as Good Energy are now lowering their tariffs alongside conventional players such as British Gas. Moreover, the fall in industrial output has pushed the price of carbon to record lows, putting still more downward pressure on energy prices.
For business leaders falling energy bills mean the temptation to push energy efficiency issues back to the bottom of the corporate in-tray will become ever more beguiling. Many will understandably ask why they should fork out for more efficient technologies or buildings when their bills are already falling and capital is unbelievably hard to come by.
And yet there are compelling reasons for businesses to continue to curb energy use that go far beyond the obvious truism that during a recession you should look to control all operational costs as tightly as possible, even if they are already falling.
The fact is that those firms that don't address their energy use now could recover from the credit crunch and find themselves thrown right into an energy crunch characterised by soaring power bills.
There are already signs that a perfect storm is brewing that could well break just as we'd hope to see the economy surging forward again.
The most obvious basis for this prediction is the simple reality of supply and demand. The price of oil may have fallen over a $100 from its peak of around $140 last year, but that collapse in price is the result almost entirely of falling demand, not an increase in capacity.
When demand recovers to pre-recession levels or above - and while it might seem hard to believe at the moment the history of recessions tells us this will happen - then the oil price will soar again. In fact, with many of the oil giants scaling back investments in new capacity as the recession bites the situation will likely be even worse than it was in mid-2008 as supply inevitably struggles to keep pace with rising demand.
Rising oil prices would not only lead to increased transport fuel costs they would also have a knock on impact on wholesale electricity prices that will already be being forced upwards again as a result of the raft of green regulations that are scheduled to converge upon the energy sector between 2010 and 2013.
As a leaked Whitehall memo revealed this week, the UK government is concerned new EU legislation designed to limit air pollution from power stations could add as much as 20 per cent to energy bills. And that is before you even begin to consider that EU targets requiring the UK to cut emissions and generate 15 per cent of energy from renewables by 2020 mean that by the early 2010's work on a huge expansion in renewable and nuclear capacity will be well underway, leading to a predictable impact on energy bills.
Meanwhile, the current low price of carbon in the EU's emissions trading scheme is subject to much the same rules of supply and demand that will impact the oil market once the recovery materialises.
Prices have dropped in recent months because heavy industries are producing less, releasing less carbon into the atmosphere and therefore require fewer emission allowances. The number of carbon credits issued between now and 2013 however remains constant, so as the recovery materialises and production and emissions increase again the price of carbon will also rise placing further cost pressures on energy producers. Again, these pressures will become more pronounced from 2013 when the EU moves to impose still tighter emission caps on heavy polluters.
The net result is that companies that fail to address their energy use could find themselves climbing out of the credit crunch only to find themselves locked into an energy crunch characterised by 100 per cent plus increases in energy costs and fuel bills.
That is why businesses such as Tesco and Sainsbury's this week announced new stores and initiatives that display a continued commitment to addressing energy issues despite tough trading conditions, and why those companies that really want to position themselves to fully exploit the inevitable economic recovery would do well to follow their lead.
Schroders launches climate change investment fund
With the Stern Review predicting the low-carbon energy product market will be worth at least $500bn a year by 2050, investment management giant Schroders have unveiled a new fund.
Launched last week the Schroder Global Climate Change Fund will invest in companies that create products or offer services which help to mitigate or adapt to the effects of climate change.
Simon Webber, joint fund manager at Schroder, said that there was a growing need for climate change-related investments. "Climate change is set to drive an industrial transformation and is potentially the biggest investment theme of the next 20 years," he observed. "It is estimated that globally, $20 trillion will need to be spent on new power generation infrastructure by 2030 to meet the rising number of new laws demanding a reduction in the used of carbon-based power."
The fund's investment objective is to provide capital growth primarily through investment in equities and securities of worldwide companies connected with climate change adaptation or mitigation.
"Across all sectors, climate change will have a broad and lasting impact along the value chain," said Matthew Franklin, joint fund manager. "For the mainstream equity investor, now is the time to adopt a global approach to what will be a major investment theme for the foreseeable future."
The fund aims to provide long-term out performance of the MSCI World Index from a concentrated portfolio of 50 to 80 stocks comprising the best stock ideas from Webber and Franklin.
Actively managed, the fund benefits from global exposure and the portfolio has little overlap with other mainstream global equity funds, offering real diversification. It is long term and has exposure to equity risk.
Schroders' Fund will invest in companies specialising in energy efficiency, environmental resources like biofuels and low carbon fossil fuels.
Sustainable transport manufacturers Toyota and poly-silicon suppliers Wacker Chemie, who provide the raw material needed for solar panels, integral to the delivery of clean energy, are also included in Schroders' fund.
Webber said: "We believe that by following this climate theme, opportunities exist for investors to reap the rewards."
The launch of the new fund provides further evidence that investors are endorsing the Stern Review's conclusion that tackling climate change is a "pro-growth strategy for the longer term".
Sarah Griffiths
