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Friday, December 18, 2009

U.S. Overseas Private Investment Corporation Reopens In Ukraine



After 10 years of being closed over an insurance claim dispute, the U.S. Overseas Private Investment Corporation (OPIC) has restored its programs in Ukraine.  The December 16 signing of an agreement between the Ukrainian government and OPIC officers will now pave the way for millions of dollars in potential U.S. private sector investment in the country.

“OPIC is pleased to once again make available its support for U.S. investment in Ukraine, a development which we anticipate will send a highly positive signal to prospective investors in the country,” said OPIC Acting President Dr. Lawrence Spinelli. “This historic occasion is indicative of Ukraine’s ongoing efforts to improve its investment climate, and we commend the Ukrainian government for its hard work in bringing about this result. We look forward to working with both U.S. and Ukrainian businesses to facilitate new levels of American investment in Ukraine.”

Vice President Joe Biden said during a prior visit to Ukraine earlier this year, “I was pleased to learn that the government has taken the final decision necessary to bring the Overseas Private Investment Corporation back to Ukraine. That will make it easier for American companies to reinvest in Ukraine, and invest in the first place, which will help both our economies in the current downturn."

OPIC is now able to provide financing and political risk insurance to American companies investing in Ukraine. OPIC has previously provided over $254 million in financing and insurance to 21 projects in Ukraine, in sectors ranging from manufacturing and construction to energy and financial services.

This landmark reopening event can be expected to significantly raise U.S. companies' investment levels and risk appetite for Ukraine, and marks a major inflection point in the investment relations between the two countries over the past decade. But due to the Ukrainian Presidential elections in January (and possible complete government turnover), American obervers remain "cautiously optimistic" about this week's progress and will withhold final celebrations until after the 2010 government is finalized and things become more clear for the December 16 agreement's long-term recognition.

Analysts predict that the agreement will survive the 2010 elections safely, and I certainly hope that this is the case. I will continue to monitor these events as they unfold and report on a rolling basis. 

Monday, December 7, 2009

Ukraine Sells 3 Million AAUs to Spain, Expects Another 100 Million in Private Sales Volume



Ukraine’s government has recently sold 3 million carbon credits, called assigned amount units (AAUs), to Spain. The deal has been confirmed by Ukraine’s National Environmental Investment Agency, however the Agency did not state the price paid for these AAUs. A government source further stated that the Agency is in final stage discussions with private institutional buyers for additional sales of undisclosed AAU volumes for delivery within the next 2 months, rumored to be as high as 100 million credits or more.

The transaction was completed under Ukraine’s green investment scheme (GIS), whereby all proceeds from the AAU sale will be invested into environmental projects that reduce the effect of climate change. Such projects include, but are not limited to, energy efficiency, fuel switching and alternative energy projects.

Last month Spain reportedly undertook another AAU transaction with Poland, supposedly worth €25 million. Spain also has previously bought AAUs from the Czech Republic, Hungary and Latvia.

Ukraine, the world’s second largest supplier of AAUs, has a vast surplus of carbon credits due to the economic restructuring during the 1990s. It has already sold over 30 million AAUs to Japan.

Monday, November 23, 2009

New U.S. Ambassador to Ukraine: John F. Tefft



The United States Senate on Friday, November 20, 2009, confirmed John F. Tefft's nomination as Ambassador of the United States of America to Ukraine. 

The new U.S. Ambassador is expected to arrive in Kyiv between the first and fourth of December. 

John F. Tefft has been a career Foreign Service Officer for 37 years.  He most recently served as United States Ambassador to the Republic of Georgia from 2005-2009.  Prior to that assignment Mr. Tefft served as Deputy Assistant Secretary of State for European and Eurasian Affairs and was responsible for US relations with Russia, Ukraine, Belarus and Moldova.  From 2003-2005 Mr. Tefft was the International Affairs Advisor at the National War College in Washington, DC. 

He served as the United States Ambassador to Lithuania from 2000 to 2003.  He was Deputy Chief of Mission at the US Embassy in Moscow from 1996 to 1999, and served as Charge d’affaires from November 1996 to September 1997.  His other Foreign Service assignments include:  Jerusalem, Budapest and Rome.   Mr. Tefft holds a Bachelors Degree from Marquette University and a Masters Degree from Georgetown University.

Monday, November 9, 2009

Who Will Be The New Energy Captains of Industry?


Energy – a word that sums up the foundation of the world as we know it. Every part of the global economy runs off of some form of electricity, gas or fuel. One hundred and fifty years ago the original economic paradigm shifted from manual labor to the industrial revolution… and fortunes were made and lost by the original captains of the fuel industry to supply the world’s power. The world and people’s lives changed forever in a new direction.

Fossil fuels were the big news then. Previously semi-worthless coal and gas made billions of sudden dollars for the original energy captains of industry, and they continue to do so today. But now things are changing in the face of concerns over climate change and a related scientific revolution… fossil fuels are still going strong but are expected to be on the permanent decline with the real energy needs of the future being met by clean and renewable means. The winds of change now blow into a turbine and the new sun rises on a reflective solar farm.

This raises an interesting question: who will be the new energy captains of industry, and how will traditional notions of vertical integration and trading markets be affected by this? Part of the answer seems wide open and large market players recognize this. We see automakers like Toyota, Kawasaki and SAIC in China developing plans for global battery and battery charging station initiatives. The day will come when you drive your Prius into a Toyota-owned filling station to top off your electric car battery which is also made by Toyota. No more independent gas station will be required to break up the money cycle for Toyota’s shareholders. Other car makers will soon follow suit if they see success from Toyota’s forward thinking. Single companies can control every aspect of your personal travel and can monopolize the customer service elements attached to that travel.

Fossil fuel companies are working hard to develop similar clean tech initiatives so they won’t be left in the dark fifty years from now, but they know that they can quickly become extinct in the new market unless they become innovation leaders in some way, and the playing field is fairly level. Exxon, BP and Shell are investing billions into bio-fuel concepts and renewable energy. The Middle Eastern oil producing countries are doing likewise, the largest example being the 400 biillion Euro ‘Desertec’ renewable energy project announced this year. All of these groups stand to lose and be replaced by energy market creative destructionism unless they get moving and stay ahead of the curve.

Commodity traders will also need to switch their business models over time, in a manner that could bring more or less market security. Their staple trading products, oil, coal and gas, probably will not be in very high demand within 30 years. And renewable energy is not as transferable as fossil-fuel generated energy is, at least for the moment, so that changes how it can be traded also on the market in spark spreads et cetera. Solar power is not easily exported over long distances, for instance, even with the best storing battery system. It typically goes into the local grid or is used for local power supply. As the trading markets adjust to the new energy economy, will they create more or less market risk?

The world is finally on the path to energy efficiency and clean energy technology, and this is a wonderful thing. The new direction means all the old rules are changing and a new energy economy is coming soon. It will be interesting to see who is left after this big shake-up, and who gains or loses as a result.

Sunday, October 25, 2009

More Fight, Less Fuel? US Military To Become Cleantech, Energy Efficient


The United States Army is going solar... and the Navy is launching energy efficient amphibious attack ships... research is underway to take kinetic energy from boots and turn it into battery power... research is underway for hair stand-like instant spray on solar panels for improvized power cells wherever the need arises... it seems like next generation warfare and supply chains may soon be here.  See the links below, starting with the Department of Defense's now publicly available report from last year:  http://www.acq.osd.mil/dsb/reports/2008-02-ESTF.pdf

The Army news about solar sprays is some of the most cutting edge stuff I have seen in the cleantech space... promising a very large and significant commercial application once it becomes available.

I guess we civilians must wait for sun spray batteries to cross over to commercial markets after the generals and admirals have played with them enough in situation games.  But it seems to be worth the wait!

The bottom line is that once national security bodies begin switching to cleantech and alternative energy, it means the technology and energy is rock solid reliable from the security experts' point of view.  No country will risk its military taking the field with faulty power.  So these cool tech concepts and applications will have a good standing endorsement when they finally emerge in the commercial sector.  Strong military research and endorsement represents a high showing of trust from national security decision makers, and this looks good from a technology risk angle in the eyes of investors and financial institutions.

So the day may come when we no longer use fossil fuels and simply spray our cars each morning for their daily fuel!  For more information and some overall interesting reading, check out:

http://www.rgs.uky.edu/odyssey/fall07/energy.html

http://www.grist.org/article/2009-10-14-us-military-battle-to-wean-off-oil/

http://www.navy.mil/search/display.asp?story_id=49147

http://www.reuters.com/article/GCA-GreenBusiness/idUSTRE59E5KO20091015

Tuesday, October 13, 2009

EnergyStart Investment Fair -- Pairing Ukrainian Green Startups with Investment Opportunities


Greencubator (www.greencubator.info) has announced that the Ukrainian Renewable Energy Forum on October 15-16 will also host the EnergyStart investment fair: a launch-pad event for Renewable energy / Cleantech companies seeking investments. Organized by the Greencubator team, EnergyStart will take a core group of Cleantech start-ups and give them the opportunity to present themselves to investors within the Ukrainian Renewable Energy Forum investment section.

The EnergyStart investment fair will bring together entrepreneurs and investors in such sectors as solar energy, wind-power, biomass and biofuels, geothermal energy, energy efficiency and distribution, IT solutions for energy sector, as well as others.

Speakers and evaluators will include renewable energy experts from the World Bank, Horizon Capital, Astrum Investments, IMEPOWER Consulting, Association of Private Investors of Ukraine, NUSEP and other Ukrainian and international investment institutions such as Anemone Clean Energy.

EnergyStart updates, programs and the event registration form are available at www.greencubator.info/energystart.

Contacts:
Participant registration - Andrij Zinchenko
andrez@greencubator.info
+380 67 7441580

Partnership and sponsorship - Roman Zinchenko
roman@greencubator.info
+380 67 4492876

Media accreditation and interview inquires - Ganna Yakovenko
media@greencubator.info
+380 67 2771019

Monday, August 24, 2009

One Person's Chicken Waste Is Another Person's Clean Energy


There is a new technology on the horizon to help meet Ukraine’s energy challenges, and it comes from chickens.

Swiss company Alter Energy Group AG (www.alterenergygroup.com) is working to implement a sophisticated waste to energy process in Ukraine that converts poultry manure into clean, environmentally safe, industrial scale electricity and heat.

This is a highly uncommon type of energy project, and upon completion Alter Energy Group’s Ukrainian projects will join a tiny handful of similar projects worldwide.

The company’s technical approach involves burning chicken manure to create large amounts of electricity and heat. This heat and electricity then is supplied to Ukraine’s wholesale energy market and the surrounding population. It all sounds simple enough, however the process is in fact highly complex due to poultry manure’s tricky ammonia content and ash problems.

Poultry manure contains so much ammonia that it routinely destroys normal project equipment. It also causes toxic pollutants to be released into the air during the incineration process unless handled in a very delicate manner. The ash resulting from burned poultry manure also is uniquely disruptive. For this reason, only about seven commercial scale poultry waste to energy projects have been completed anywhere in the world thus far.

Alter Energy Group claims to have carefully dealt with all these chicken challenges by using a waste to energy methodology with a proven poultry-specific track record. In addition to heat and electricity, their projects will also produce large quantities of nutrient rich bio-fertilizers and animal feed for sale.

Ukraine is a country of large Soviet style poultry farms, and Ukrainian farmers presently have limited commercial use for their livestock waste. An opportunity therefore exists, with the right technology, for Ukrainian farmers to work with companies like Alter Energy Group to create a profitable new renewable energy niche market. Alter Energy Group’s first Ukrainian chicken projects could be completed sometime during early 2010, if all goes well. These types of projects qualify for Ukraine’s Green Tariff as biomass energy and also for carbon credits under the Kyoto Protocol.

Making clean energy from chicken manure is a relatively uncommon thing. Even in the most advanced renewable energy countries these projects are relatively unknown. It will be interesting to observe how things unfold in Ukraine with Alter Energy Group's chicken projects, and to watch whether similar projects are undertaken in neighboring CIS countries.

I will continue to monitor this area and report new developments as they arise.

Ukraine Plans To Privatize 15 Energy Distribution "Oblenergos" (With Detailed Chart)


In a move perhaps motivated in part by the desire to raise pre-January election funds for the government, Ukraine’s Cabinet of Ministers has recently taken steps to open the way for near term privatization and auctioning of 15 regional power distribution companies (“oblenergos”). See Cabinet Resolution Number 894-р of July 29, 2009.

Specifically, Prime Minister Yulia Tymoshenko has instructed the Ministry of Fuel and Energy to transfer controlling stakes in these state owned oblenergos from the National Energy Company to the State Property Fund – which thereby opens the way for subsequent privatization through auctions.

So far there has been no positive or negative feedback from President Viktor Yushchenko on this recent Cabinet Resolution. Earlier in the year President Yushchenko had attempted block a similar resolution allowing privatization of the state owned power generating companies Dniproenergo, Donbasenergo, Zakhidenergo and Centrenergo – only to have his decree overruled by Ukraine’s Constitutional Court on April 30, 2009.

If there is no blocking attempt by the President then controlling shares of the 15 oblenergos in the table below could be set for auction before year end. The government has specified controlling share amounts for auctioning in order to maximize potential investor interest. However, market analysts nonetheless have expressed no estimation about whether these shares actually can or will be purchased by investors prior to the Presidential elections in 2010.

Cabinet Resolution Number 894-р specifies the following 15 oblenergos for privatization:


Regardless of its timing, the further privatization Ukraine’s aging and outdated energy infrastructure is a positive and important step for Ukraine. Ukraine has roughly one third the energy efficiency of its European neighbors, and it even trails Russia in this regard. Privatizing the regional power distribution companies and raising them to market efficiency will benefit Ukraine’s commercial and private sectors, and it can also pave the way for the country’s future ability to become an energy exporter.

I will continue to monitor these developments and provide updates as they occur.

Tuesday, August 4, 2009

Cool Fuel


A bioengineering company called Joule Biotechnologies, Inc. (www.joulebio.com) has recently unveiled a bold new possible means to create fuel from the sun and carbon dioxide. If commercially successful, this type of process could revolutionize the world of fuels.

Alternative fuels have always been an attractive option from an environmental point of view. However, they have never really become competitive with fossil fuels on cost and ease of production. They are generally more expensive and harder to generate than oil, coal and gas – or they require massive expensive new infrastructure to operate in society. But now, according to this month’s Reuters and Business Wire, Joule Biotechnologies may have solved all of that in a completely different way than previously contemplated.

They have developed an innovative energy solution called Helioculture™ technology. This technology harnesses sunlight to directly convert carbon dioxide into liquid energy that works just like fossil fuels, can be distributed from a station pump in the same manner as gas or diesel, on the same production level as gas, oil or coal and probably even at a slightly cheaper cost. According to Business Wire, “This eco-friendly, direct-to-fuel conversion requires no agricultural land or fresh water, and leverages a highly scalable system capable of producing more than 20,000 gallons of renewable ethanol or hydrocarbons per acre annually—far eclipsing productivity levels of current alternatives while rivaling the costs of fossil fuels.”

Joule Biotechnology’s new liquid energy supposedly meets today’s vehicle fuel specifications and infrastructure, and the company anticipates cheap commercial production costs at less than $50 per barrel. The company’s first product offering, SolarEthanol™ fuel, should be ready for commercial production sometime in 2010.

I look at this and think, “Wow, could this be a major alternative fuel breakthrough?” I guess that we will wait and see what happens next year!

Cheers,
Jon

Monday, July 27, 2009

Answer to the Question "What are Green Tariffs?"


Green Tariffs are an important factor in alternative energy investment decision making. Nations seeking to incentivize alternative energy investment, such as European Union countries and Ukraine also, establish higher electricity sales prices (and therefore revenues) for alternative energy power producers compared to traditional fossil fuel based power producers.

From a project investor's point of view, an alternative energy business plan must be financially attractive and typically must "stand on its own two feet" aside from any carbon credit component. Carbon credits are expected and documented, but an investor does not typically invest into an energy power project to collect carbon credits alone.

Green Tariffs increase the sales revenues from alternative energy power projects; likewise, they reduce the payback period and investment risk for such projects in emerging market economies. Alternative energy projects that otherwise would be regarded as difficult or risky for technology, cost or country risk reasons can experience refreshed interest and activity levels due to corresponding Green Tariff revenues. It is clear, for instance, that Ukraine's new Green Tariff has sustained foreign investors' interest in its clean and renewable energy markets during the present financial downturn.

Countries develop Green Tariffs on an independent basis. In Ukraine, the Green Tariff is set by the National Electricity Regulatory Commission (NERC). It covers alternative energy production facilities such as wind power plants, hydropower, biomass, biogas, and other methane utilization projects (except blast-furnace and coking gases). There is no present capacity cap on Ukraine's Green Tariff except for hydropower plants, where an eligible facility cannot exceed 10 MW in capacity.

Carbon credits and Green Tariffs together create an excellent incentive stew for new alternative energy project finance. In countries like Ukraine, where the Green Tariff roughly doubles historic project revenues and a streamlined Track 1 JI approval process eliminates international bureaucracy, investment conditions have never been better.

Please feel free to contact the Foundation for the Development of Environmental and Energy Markets to discuss specific questions or opportunities with regard to European Green Tariff structures and alternative energy markets. For Ukraine's Green Tariff rate schedule, please see my prior post entitled "Ukraine's New 2009 Green Tariff Rates" and refer to the end table.

Cheers
Jon

Thursday, July 23, 2009

Ukraine's New 2009 Green Tariff Rates


Greetings all!

Ukraine’s government has been quite proactive during the first half of 2009 with regard to the renewable energy and carbon sectors. In April, the President approved a "revised" Green Tariff rate calculation methodology... resulting in even higher prices than before for alternative energy producers. Also the government has been working to complete Ukraine’s Green Investment Scheme through the National Agency for Environmental Investments, and has sold 30 million AAUs to Japan. In the coming weeks, Ukraine will most probably complete transactions for over double this amount to additional buyers.

The higher green tariff rate schedule, along with the government’s activity to complete Ukraine’s Green Investment Scheme and to undertake ambitious AAU trades, means that right now we see the most fertile environment for Ukraine’s alternative energy sector growth since the country’s 1991 independence.

New green tariff prices are paid directly by Ukraine's Wholesale Energy Market as the counterparty buyer, which is good. It means that under the present Green Tariff mechanism there is no necessary "purchase price negotiation" (at this moment) between local alternative energy providers and the local oblenergos – distribution companies – that power providers must link into.

I will keep my eye on things as they develop or change. Also I will monitor how individual alternative energy companies fare, in terms of application and payment under this system.

But as you can see from the current price calculations below, alternative energy sales prices make it very attractive to invest. It is important to note that these rates are only available to new projects that are built from 2009 onwards. Click on the chart below and it should increase the viewing size.

Cheers,
Jon

10 Common Carbon Credit Buyer Questions -- What Every Seller Must Know


You’re a project owner or developer with a fresh project generating valuable carbon credits under the Kyoto Protocol. Perhaps this is your first project, or maybe you’ve already established your track record in the market.

No matter what your prior experience level, you know that 2012 is fast approaching and you want to obtain the best possible terms for selling your carbon credits. This means locking in a great price before market prices dip farther south. But for some reason whenever you try having serious talks about your project with prospective buyers they give only noncommittal signals of interest.

What is happening? Why are your sales talks hitting road blocks this year, when last year was smooth sailing and you could take your pick of any number of interested buyers from just a few phone calls? You’ve heard the market is getting tough as the 2012 Kyoto deadline approaches, but you’ve got a great project whose carbon credits should be easy to sell. You’re confused.

The recent lack of success may be due in part to your failure to show today’s nervous buyers that you have pre-identified and addressed their main risk areas. This is becoming increasingly important in 2009, as the market seems to be swinging from a seller’s to a buyer’s market. The pre-identification exercise not only allays investors’ fears, it also paints you in a highly positive light as an enlightened and responsible seller.

In order to achieve the best price and avoid painfully drawn out contract negotiations, you should be prepared to answer key questions from the very first serious discussion with a buyer. From the first phone call with a major bank, company or carbon fund, you should know how to respond to the 10 items below… even if you can only give a partial answer.

1. What is the project’s full reference name, host country, and approved baseline methodology number?

2. What documentation stage is the project at (PIN, PDD, validation report etc.)?

3. What approval stage is the project at (FSR, LOE, LOA, Track 1 or UNFCCC registered)?

4. What is the full project owner and project developer name, and what track record do they have for previous carbon projects?

5. What is the financing source for the project’s construction and equipment costs? Is financing complete or secure?

6. When should the project begin validation? Has a time slot been pre-arranged with a particular DOE?

7. When is the expected project commissioning date?

8. When is the expected project registration date?

9. What are the expected annual ERU/CER volumes? What portions of these volumes are available for sale? If not 100%, then who has rights to the remainder and what priority status is the piece available for sale?

10. What are the “get it done” purchase price terms … where if a buyer agrees, you can both cut the small talk and proceed directly into exclusive ERPA contract negotiations?

The best Kyoto Protocol projects are great for the environment but good for your bank account also. If you can answer the 10 questions above, you have an excellent shot to complete a carbon credit sales transaction on your terms and on your timeline.

Good luck, here’s hoping to your success in 2009 and to the success of all carbon credit projects worldwide!

Jon

Saturday, January 10, 2009

CDM Project Validation Issues

Carbon Credits, Like People, Can Have Validation Issues

Jon M Queen, Las Vegas NV (17 December, 2008)

As 2008 comes to a close, investors and project developers in the carbon market are asking a common question. How can the validation process for projects under the Kyoto Protocol’s Clean Development Mechanism (“CDM”) be improved?

That question, raised but left unanswered at December’s 14th Conference of the Parties to Climate Convention, is essential to address. Project developers now can wait six months or longer before receiving validation services. Extended project validation queues reduce a CDM project’s carbon credits for compliance purposes under Kyoto, because CDM projects first must be: (i) validated by a specially designated auditing company called a Designated Operational Entity (but commonly referred to either as a “DOE” or a “validator”); and (ii) registered at the CDM Executive Board under the United Nations Framework Convention on Climate Change.

Given that CDM is an important tool and catalyst for beneficial new technology transfers and energy improvements for less developed countries, the long (and often inconsistent) CDM project validation processes undercut and even obviate many of these positive externalities. CDM project validation wait times can range from several months to over a year! These delays create market uncertainty and inefficiency, reducing CDM’s effectiveness as a weapon against climate change and as a high profile vehicle for large countries, companies and financial institutions to become engaged in the clean and renewable energy space.

Despite the serious validation delays in today’s CDM market, one simply cannot speed things up and blindly accelerate the validation process. Doing so would erode the important environmental due diligence and auditing function that validation is designed to provide in the first place.

The last thing that anyone wants is a systemic carbon credit credibility dilemma. The environment does not benefit from emissions reductions achieved solely on paper. Likewise, interest in new green energy projects will drop if a glut of hastily (or sloppily) validated carbon projects drives down the value of carbon credits to zero.

The small group of environmental auditing companies approved to perform CDM validation services under the Kyoto Protocol say it is impossible for them to keep pace with the large number of new projects submitted to them for validation each month. There are simply too many projects and not enough trained personnel to provide validation services.

Looking at the large number of new carbon projects originating in countries like China, India and Russia each month, it is easy to see the truth in this statement. But by the same token, these companies are not small shops; many are the crème de la crème of the commercial environmental auditing industry. These companies are, by and large, highly experienced and reputable multi-national firms with long histories of auditing services for large deals all over the world.

So why are the same firms so short-staffed and unable to meet demand for their services, in what clearly is a boom market for them?


While it is true that CDM projects are cropping up at high rates, employee attrition is a key part of why validators cannot keep pace with the demand for their services. Carbon funds and financial institutions often pay premiums for experienced project validation professionals to defect from their companies and join new investment or risk management teams. By the time a validator trains someone to perform their job effectively and assume a degree of personal responsibility and self-management, the employee is most likely entertaining several job offers for higher salaries.

This is, I suspect, a new type of problem for validators. Before CDM and the Kyoto Protocol, top environmental auditing companies faced relatively low risk of their employees being poached by a major banks or similar clients. The specialized expertise held by these professional auditors generally had little direct relation to the qualifications needed to be a commercial success in a banking, trading or investment firm.

This traditional divergence ceases to exist with CDM, where nowadays a 25 year old person with decent people skills, a good work ethic and 3 years of strong project validation experience can compete against MBA candidates for spots working under an investment bank’s managing director.


The attrition challenges presently confronting CDM validators are not new or unique over time. They are the exact same challenges that large corporate law firms experience everyday due to interaction between their best young associates and the wealthy business clients and institutions they represent. If CDM validators start making the types of salary adjustment decisions that big corporate law firms make for their associates and partners, it would directly address their attrition problem.

Big law firms typically do not pay associates and partners at the same levels as investment banks, yet they are not understaffed and can grow to match client demand. They commonly experience widespread attrition among young to mid-level associates, but this attrition is manageable from a business point of view because more experienced senior associates and partners generally stick around. Law firms maintain and slowly grow out their partner and senior associate base, while calculating junior associate hiring numbers to reflect a degree of expected attrition.


Validators should simply admit that CDM is a multi-billion dollar industry heavily focused on the skills and expertise their employees possess. Their personnel are therefore highly valuable, and they should re-assess the financial packages presently being offered to mid-level and senior employees. Adjustments should be made that create more of a “brass ring” structure that incentivizes employees to have a long-term career with the company.

When this happens validators will see their attrition rates decrease to manageable levels, and the CDM market will witness a decline in the delays and lag times for project validation work. Salary adjustments for validators’ employees will result in higher prices for validation services, but what of it? What is wrong with a little price bump, given the present alternative? Most validation costs are directly paid today by off-take purchasers, not the original project owners or developers. Is it not better to deter projects with low projected emission reductions from seeking validation, via increased prices for validation services, than for thousands of projects to be brought to a worldwide standstill because too few qualified validation professionals exist to service the market?

Validators should transition into a more commercially oriented employee compensation mindset to set the CDM validation and registration process back on track. That is the best and most direct solution to the present bottleneck.

Until the day when validators’ technical experts can reasonably decline banking job offers with roughly similar skill requirements, there will always be frustrating delays and lost market value arising from the CDM “validation issue.”

Thursday, January 8, 2009

Thoughts on Ukraine's "Green Tariff"

Hello again! 2009 promises to be an interesting year for clean and renewable project investment. On the one hand, the markets are in extreme difficulty and cash is hard to find. On the other hand, certain countries have devised new economic incentives for foreign direct investment into new green energy projects. So while the markets are bad and money is a tight, countries like Ukraine seek to overcome the inertia by adopting new special tariffs and similar laws that promise to double the normal revenues investors can get from green power projects.

Is it for real, will these measures succeed in practice, or will they stumble and work better on paper? It's too early on to say. But regardless of how each individual country's efforts pan out, it is great news that several governments have made clean and renewable energy a priority investment target in 2009 -- especially in countries like Ukraine that have no significant regulatory emissions abatement issues under the Kyoto Protocol.

I wrote a short piece on this topic, specifically on Ukaine's "Green Tariff" in response to investor questions and general buzz on the subject at the end of last year. It shall be interesting to see observe whether that buzz will continue to grow. We can only cross our fingers and see!



Ukraine’s Green Tariff: Great News in 2008 But What Happens in 2009?

Jon Queen, Dallas TX (16 December, 2008)


2009 will be an interesting year for clean and renewable energy investment. On one hand, the global financial downturn plays somber backdrop as funding sources dry up and cash grows hard to find. On the other hand, certain international markets are attacking the credit crunch with heavy new incentive packages that aim to boost investment interest in alternative energy to its highest level ever. So although times are tight, countries like Ukraine seek to overcome investment inertia with new laws purporting to double the revenues from green power projects.


Government efforts to jumpstart alternative energy investment aren’t happening only in the former Soviet Union; numerous legislative incentives are in either force or under review on four continents. The United States may soon join this group under President-elect Barack Obama and his emphasis on forward thinking components to energy policy.


Do these new laws have a decent chance of success, or will they stumble in their transition from paper to practice? It's too early to judge and each case is unique. Energy markets are complex and Adam Smith’s invisible hand sometimes can grasp new variables in an unpredictable manner. But regardless of how each individual country case works out in 2009, the fact that governments are making this type of effort is a strong positive industry signal.


This article highlights Ukraine’s Green Tariff due to the country’s potential foreign direct investment (FDI) draw with regard to clean and renewable energy. Ukraine is a large country, roughly the size of Texas, that could theoretically develop into a major energy exporter based on its abundance of natural materials for alternative energy production. Ukraine is motivated to increase new domestic energy production for sovereignty and national security reasons, and its power grid is largely outdated. On the surface Ukraine offers privatization and new energy investment opportunities that, in light of the country’s strategic geopolitical importance, make it unquestionably attractive for FDI. But Ukraine also has an intermittent difficulty converting opportunities and resources into successful business transactions with foreign parties and investors.


Last September, Ukraine’s Parliament adopted the Law “On Amendments to Certain Laws of Ukraine Concerning the Introduction of a Green Tariff” by an overwhelming 292 vote margin. Nicknamed the “Green Tariff” within the local investment community, the law aims to jumpstart new FDI into Ukraine’s clean and renewable energy space by allowing power suppliers to charge higher electricity tariffs to the wholesale energy market than ever before.


The Green Tariff covers wind power, hydropower, biomass, biogas, and several methane capture power producing activities. With regard to hydropower, only stations with 10 MW or less in capacity may participate. According to the Green Tariff’s language the National Electricity Regulatory Commission of Ukraine (NERC) will roughly double the amount of money that energy producers in these areas could normally charge for the next 10 years. Specific tariff levels can be revised annually by NERC as needed, but essentially the Green Tariff allows eligible Ukrainian energy producers to charge double the previous year’s average wholesale market energy rates, so long as these prices do not more than double current average wholesale market energy rates.


By and large, Ukraine’s Green Tariff can be viewed as a landmark effort to take Ukraine’s energy sector into the advanced twenty first century. The high tariffs should trigger more investment activity and a corresponding new inflow of technology transfers, energy supply, export possibilities, and capital injection into the economy. To actually attain these goals, however, further work is required to take the Green Tariff from a conceptual legislative stage to a practical working stage.


As an initial matter, NERC and the government have yet to determine the exact Green Tariff prices, and they still must articulate how the Green Tariff will operate from a functional point of view. The investment community has present concerns about the likelihood being able to collect full Green Tariff rates in practice. Ukraine is in the middle of a banking and currency crisis, and one of the government’s most stable features is, ironically, political instability. Some regional energy companies are so much in debt that they swap energy production for debt relief. In such an environment, the success and credibility of the Green Tariff as an investment incentive will depend in large part on the safeguards added in to ensure the collectability of new rates once they are applied.


The basic definition of what constitutes renewable energy probably also should be revisited with some minor clarifications. For example, the 10 MW capacity ceiling for hydropower facilities has no apparent relation to the Joint Implementation Mechanism under the Kyoto Protocol, where the market typically does not discriminate between hydropower projects until they exceed 20 MW. These types of counterintuitive discrepancies create continuity gaps that can confuse or deter FDI.


The investment community has responded positively thus far to Ukraine’s Green Tariff despite acknowledging that it needs some further work to become a functional market mechanism. Traditionally overlooked energy sectors in Ukraine, such as wind power, are now enjoying a newfound level of interest and activity. From a more grass roots point of view, it is clear that the Green Tariff buzzword has sustained FDI interest in Ukraine’s clean and renewable energy markets during the financial downturn; that is something many other countries cannot claim at the moment.


The Green Tariff may even place Ukraine in a very strategic investment position compared to neighboring countries if it is finalized and implemented properly. Theoretically the Green Tariff could help create an alternative energy renaissance in heart of the former Soviet Union. Pareto optimality could occur for the Ukrainian government, investors, individual energy consumers, and the environment. But clearly without proper finalization the Green Tariff could fall short of its intended effect and, in the worst case, perhaps even represent a disappointing failure.


Ukraine has had occasional difficulties capitalizing on FDI opportunities in the energy sector. As a case in point, consider Ukraine’s multi-billion dollar unsold national stockpile of Kyoto Protocol carbon allowances. Ukraine got this highly valuable stockpile, at one time worth around 50 billion dollars, as a byproduct of Russia’s hard negotiations with Europe before signing the Kyoto Protocol. By setting Kyoto Protocol carbon targets at 1990 indexes (the year before the Soviet Union’s 1991 collapse), Russia deftly avoided the costly compliance burden now faced by other large European economies.


If Ukraine had sold or pre-sold part of this stockpile last year at competitive prices, it could have satisfied the world’s demand for carbon credits and the Ukrainian government would be a global leader in energy and environmental policy today. The sales revenues would have averted Ukraine’s financial crisis and could have reversed the country’s present fortunes. This is not hyperbole; if it sounds farfetched, ask a carbon market analyst. Despite this historic unique opportunity, Kiev policy makers have been unable to complete a major national carbon allowance deal because they are unhappy with market price levels.


By failing to grasp that decreasing carbon market prices are the terminal result of reduced international demand, limitless supply and an expiring Kyoto Protocol period, Ukraine soon could miss its window to cash a multi-billion dollar free check. This sort of misstep is not specific to Ukraine and the European Union countries made similar mistakes during Phase 1 of the European Union Emissions Trading Scheme when carbon allowance prices dropped from 30 Euros in June 2006 to zero in 2007.


So what will be the Green Tariff’s future in Ukraine, and how will it impact the 2009 energy markets? Will the Green Tariff succeed and create a working blueprint for other countries to emulate, or will it miss the mark? Everything depends on the Green Tariff’s finalization process before this spring; both the degree of domestic political stability and the participation by seasoned energy market experts will be crucial factors.


Regardless of what happens in the coming months, right now the Green Tariff – like the type of energy it covers – represents a bold step in the right direction. Hopefully the Kiev lawmakers will accomplish precisely what they set out to achieve, and the Green Tariff will become a success story that inspires several neighboring countries to follow suit. If Ukraine and other governments create successful stimulus packages this year, 2009 could witness a steady rate of new FDI into alternative energy projects and new clean technologies despite international snags with liquidity.


Given all of the negative economic and market commentary that is floating about, it is nice to see one space where the investment outlook may be looking up, not down.

Common CER Buyer Questions

(Jon's update: please see the newer January 14 blog post that expands on this subject for both CDM and Joint Implementation projects... the carbon markets are difficult right now and investment banks or funds don't show the patience they used to have for vetting new projects and partners. So this checklist might make a positive difference in discussions with these groups -- as always, good luck out there in project land! The original January 7 blog post follows below.)

From time to time, project owners and developers sometimes ask "what do carbon credit buyers want to know in order to make an investment decision?" In today's difficult economic climate, knowing what investors want is an important thing. So with that in mind, I wrote up a list of some of the common questions that I have come across in the market.

I don't claim to have any secrets or all the answers. Individual investors and carbon offset buyers have their own focus and emphasis areas. Most of what I write about is common sense. But perhaps something in the following article can help a green project to pair with a good financial partner, if yes then I'm happy to have been of service! Cheers.


10 Common Questions You Should Know How To Answer When Talking To Potential Carbon Credit Purchasers

Jon Queen, London UK (30 November, 2008)

You’ve got an exciting new CDM project that is ready for ERPA negotiation with a CER purchaser. Congratulations, great job! The best CDM projects are ones that are great for the environment and good for your bank account also. So with that in mind, it is important to prepare for all conversations with prospective CER purchasers. You should be prepared to respond to these 10 basic questions commonly asked by CER purchasers, even if you can only give a partial answer.

1. What is the project’s name, host country, and approved methodology number?

2. What documentation stage is the project at (PIN, PDD, Validation Report etc.)?

3. What approval stage is the project at (FSR, LOE, LOA or UNFCCC Registered)?

4. Who is the project owner and the project developer, and what track record do they have for undertaking carbon projects?

5. What is the financing source for the project’s construction and equipment costs? Is financing complete?

6. When will the project begin validation? Has a time slot been pre-arranged with a particular DOE?

7. When is the expected project commissioning date?

8. When is the expected project registration date?

9. What are the expected annual CER volumes? What portions of these volumes are available for sale? If not 100%, then who has rights to the remainder and what priority status is the piece available for sale?

10. What are the “get it done” purchase price terms … where if I agree to them we can cut the small talk and proceed directly into exclusive ERPA contract negotiations?

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