wind.energy-business-review.com
23 February 2011
E.ON has secured exclusive right to explore the land owned by Forestry Commission Scotland (FCS) for new wind power projects. The German utility has been awarded two lots of FCS land located in the north and west of Scotland. E.ON said that the two lots have the potential to produce enough electricity to power over 270,000 homes annually.
E.ON managing director of European renewable business Michael Lewis said that wind is an important part of the future energy mix in the UK and as schemes get larger and larger, so too does the contribution they make towards renewable energy targets, which is why they are so vital. The utility already operates 18 onshore wind farms with a total capacity of 175 MW across the UK, and has over 1500 MW capacity within the planning and development phases.
Thursday, 3 March 2011
Livermore Labs roll out hydrogen-powered vans
livermore.patch.com
22 February 2011
What do two Ford shuttle buses, a 2006 Toyota Prius and a mobile electric light stand have in common? They are examples of hydrogen powered technologies developed by the US Department of Energy and showcased in Livermore on Tuesday by Lawrence Livermore and Sandia California national laboratories.
Officials from the two labs were joined by DOE representatives in a parking lot next to the Bankhead Theater to introduce residents to two hydrogen gas powered Ford E 450 passenger vans. They arrived this month as part of a demonstration project at Sandia and LLNL. The 9 passenger vehicles will ferry passengers from building to building on the two sprawling campuses.
The demonstration will test how well the hydrogen powered vans and their fueling stations stand up to normal wear and tear. They will replace conventional diesel fuel burning taxis, resulting in roughly a 50% reduction in emissions of CO₂, a gas closely linked with global warming, Leonard Klebanoff, Ph.D., a principal member of the Sandia California lab said in an interview.
The arrival of the shuttles provided an opportunity for LLNL and Sandia lab officials to educate the public about the safety and environmental advantages of hydrogen as a fuel, he noted. Public outreach will involve Las Positas College and area high schools and elementary schools. "This is a celebration of our hydrogen technology programs", Klebanoff said.
The alternative fuel technologies powering the vans did not originate at LLNL and Sandia, however. Ford Motor Company in Detroit modified its internal combustion engine and added a special hydrogen tank pressurized to 5,000 pounds per square inch (ppsi) for gas storage at room temperature. Air Products and Chemicals, Inc., is providing hydrogen gas fuel. It also built and installed hydrogen fueling stations at the LLNL and Sandia campuses.
The vans have a range of 150 miles between refuelings. The only byproduct of hydrogen as a fuel is water vapor, making it an attractive alternative to CO₂ producing gasoline, according to Robert Glass, Ph.D., hydrogen program leader at LLNL.
The shuttles also served as technical baselines for innovations that officials at the two labs plan to implement soon. That's where the Toyota Prius factors in, noted Timothy Ross, a senior technician with the hydrogen storage program at LLNL. The experimental hydrogen powered car has a potential range of 650 miles, thanks to a compact hydrogen tank developed at LLNL. It generates extra mileage by pressurizing the gas to 5000 psi but also cools it to minus 423° Fahrenheit.
The storage unit underwent rigorous safety testing to earn Department of Transportation approval, Ross said. The tank survived high impact car crashes, bonfires and even gun fire from an armor piercing bullet, he said. The energy storage and conversion group in the energy and environment directorate at LLNL developed the tank. Costs were covered by the DOE hydrogen program and a hydrogen fuel initiative started by the George W. Bush administration, Ross said.
The mobile light stand demonstrated Sandia lab's ongoing work on fuel-cell energy technologies. From a practical standpoint, the fuel-cell approach substitutes for diesel generated electricity for mobile lights that illuminate highway construction, airport operations and movie production, said Mike James, Sandia's communications officer. But this clean energy source also has powered mobile external lighting over the red carpets outside recent Academy and Golden Globe awards, he said.
During formal comments Tuesday, Robert Carling, director of the Transportation Energy Center at Sandia, contrasted the performance of diesel generators that he characterized as "noisy and smelly" with odorless fuel-cell electrical generation "that you can barely hear".
Fuel-cell technology has been used to power experimental lift trucks and cell phone telecommunications towers. Its development is financed by $42 million in federal economic stimulus money from the American Recovery and Reinvestment Act of 2009 and matching funds from Federal Express and other companies that adopt the technology, said John Garbak, technology development manager with the DOE's fuel-cell technologies program.
22 February 2011
What do two Ford shuttle buses, a 2006 Toyota Prius and a mobile electric light stand have in common? They are examples of hydrogen powered technologies developed by the US Department of Energy and showcased in Livermore on Tuesday by Lawrence Livermore and Sandia California national laboratories.Officials from the two labs were joined by DOE representatives in a parking lot next to the Bankhead Theater to introduce residents to two hydrogen gas powered Ford E 450 passenger vans. They arrived this month as part of a demonstration project at Sandia and LLNL. The 9 passenger vehicles will ferry passengers from building to building on the two sprawling campuses.
The demonstration will test how well the hydrogen powered vans and their fueling stations stand up to normal wear and tear. They will replace conventional diesel fuel burning taxis, resulting in roughly a 50% reduction in emissions of CO₂, a gas closely linked with global warming, Leonard Klebanoff, Ph.D., a principal member of the Sandia California lab said in an interview.
The arrival of the shuttles provided an opportunity for LLNL and Sandia lab officials to educate the public about the safety and environmental advantages of hydrogen as a fuel, he noted. Public outreach will involve Las Positas College and area high schools and elementary schools. "This is a celebration of our hydrogen technology programs", Klebanoff said.
The alternative fuel technologies powering the vans did not originate at LLNL and Sandia, however. Ford Motor Company in Detroit modified its internal combustion engine and added a special hydrogen tank pressurized to 5,000 pounds per square inch (ppsi) for gas storage at room temperature. Air Products and Chemicals, Inc., is providing hydrogen gas fuel. It also built and installed hydrogen fueling stations at the LLNL and Sandia campuses.
The vans have a range of 150 miles between refuelings. The only byproduct of hydrogen as a fuel is water vapor, making it an attractive alternative to CO₂ producing gasoline, according to Robert Glass, Ph.D., hydrogen program leader at LLNL.
The shuttles also served as technical baselines for innovations that officials at the two labs plan to implement soon. That's where the Toyota Prius factors in, noted Timothy Ross, a senior technician with the hydrogen storage program at LLNL. The experimental hydrogen powered car has a potential range of 650 miles, thanks to a compact hydrogen tank developed at LLNL. It generates extra mileage by pressurizing the gas to 5000 psi but also cools it to minus 423° Fahrenheit.
The storage unit underwent rigorous safety testing to earn Department of Transportation approval, Ross said. The tank survived high impact car crashes, bonfires and even gun fire from an armor piercing bullet, he said. The energy storage and conversion group in the energy and environment directorate at LLNL developed the tank. Costs were covered by the DOE hydrogen program and a hydrogen fuel initiative started by the George W. Bush administration, Ross said.
The mobile light stand demonstrated Sandia lab's ongoing work on fuel-cell energy technologies. From a practical standpoint, the fuel-cell approach substitutes for diesel generated electricity for mobile lights that illuminate highway construction, airport operations and movie production, said Mike James, Sandia's communications officer. But this clean energy source also has powered mobile external lighting over the red carpets outside recent Academy and Golden Globe awards, he said.
During formal comments Tuesday, Robert Carling, director of the Transportation Energy Center at Sandia, contrasted the performance of diesel generators that he characterized as "noisy and smelly" with odorless fuel-cell electrical generation "that you can barely hear".
Fuel-cell technology has been used to power experimental lift trucks and cell phone telecommunications towers. Its development is financed by $42 million in federal economic stimulus money from the American Recovery and Reinvestment Act of 2009 and matching funds from Federal Express and other companies that adopt the technology, said John Garbak, technology development manager with the DOE's fuel-cell technologies program.
AGL puts brake on renewables
Adelaide Advertiser
24 February 2011, Page: 52
AGL Energy is likely to delay billions of dollars worth of renewable energy projects until there is greater certainty around carbon pricing and better prices for renewable energy credits. The company yesterday posted a 30.4% rise in first half statutory net profit and said it expected a similar performance from its retail and wholesale electricity businesses in the second half. The electricity and gas retailer said lead sales for January and February were up about 25%, after the company added 42,000 electricity customers in the first half of 2010 11.
Its net profit was $239.6 million for the six months to December 31, 2010, up from $183.7 million in the first half of 2009. Underlying profit, which excludes significant items, fell 3.7% to $226.2 million after worse than expected earnings from the Loy Yang coal fired power station in Victoria because of mild temperatures. AGL Energy maintained guidance of underlying profit for the full year of between $415 million and $440 million. "We are expecting in the second half a very strong performance from the retail business and certainly a higher result than they achieved in the second half last year", chief executive Michael Fraser said.
Earnings for the retail division grew by 5.6% in the first half, reflecting an increase in the gas and electricity gross margin. Mr Fraser said AGL Energy would increase its marketing spend to attract another 400,000 to 500,000 customers in NSW, after it missed out on any assets in the NSW electricity privatisation last December. AGL Energy, which is developing the largest wind farm in the southern hemisphere in Victoria, said it would hold off approval of further renewable energy projects until a carbon price was introduced. AGL Energy declared an interim dividend of 29¢ a share, unfranked.
24 February 2011, Page: 52
AGL Energy is likely to delay billions of dollars worth of renewable energy projects until there is greater certainty around carbon pricing and better prices for renewable energy credits. The company yesterday posted a 30.4% rise in first half statutory net profit and said it expected a similar performance from its retail and wholesale electricity businesses in the second half. The electricity and gas retailer said lead sales for January and February were up about 25%, after the company added 42,000 electricity customers in the first half of 2010 11.
Its net profit was $239.6 million for the six months to December 31, 2010, up from $183.7 million in the first half of 2009. Underlying profit, which excludes significant items, fell 3.7% to $226.2 million after worse than expected earnings from the Loy Yang coal fired power station in Victoria because of mild temperatures. AGL Energy maintained guidance of underlying profit for the full year of between $415 million and $440 million. "We are expecting in the second half a very strong performance from the retail business and certainly a higher result than they achieved in the second half last year", chief executive Michael Fraser said.
Earnings for the retail division grew by 5.6% in the first half, reflecting an increase in the gas and electricity gross margin. Mr Fraser said AGL Energy would increase its marketing spend to attract another 400,000 to 500,000 customers in NSW, after it missed out on any assets in the NSW electricity privatisation last December. AGL Energy, which is developing the largest wind farm in the southern hemisphere in Victoria, said it would hold off approval of further renewable energy projects until a carbon price was introduced. AGL Energy declared an interim dividend of 29¢ a share, unfranked.
Monday, 28 February 2011
Carbon way is cheapest
Herald Sun
23 February 2011, Page: 31
TERRY McCrann's criticisms of the carbon tax ("Carbon tax pain", February 22) are in my opinion simplistic and narrow minded. In the long run, a price on carbon combined with support for renewable energy and energy efficiency will keep electricity prices lower for households and consumers. The transition to renewable energy is already happening.
With strong government support in places such as California, renewable energy has already become as cheap as fossil fuel based electricity from the grid. The ever stronger global consensus on climate change means fossil fuels are no longer a good investment, and Australians will suffer higher electricity prices if we are left clinging to our coal power stations to the bitter end.
The impact of a carbon tax will be small compared with the increases due to billions of dollars of upgrades to the existing transmission network. Energy efficiency can counteract all these price rises. For example, the VECCI Carbon Down program has helped businesses reduce their bills despite switching them to more expensive Green Power.
Paul Murfitt, CEO, Moreland Energy Foundation
23 February 2011, Page: 31
TERRY McCrann's criticisms of the carbon tax ("Carbon tax pain", February 22) are in my opinion simplistic and narrow minded. In the long run, a price on carbon combined with support for renewable energy and energy efficiency will keep electricity prices lower for households and consumers. The transition to renewable energy is already happening.
With strong government support in places such as California, renewable energy has already become as cheap as fossil fuel based electricity from the grid. The ever stronger global consensus on climate change means fossil fuels are no longer a good investment, and Australians will suffer higher electricity prices if we are left clinging to our coal power stations to the bitter end.
The impact of a carbon tax will be small compared with the increases due to billions of dollars of upgrades to the existing transmission network. Energy efficiency can counteract all these price rises. For example, the VECCI Carbon Down program has helped businesses reduce their bills despite switching them to more expensive Green Power.
Paul Murfitt, CEO, Moreland Energy Foundation
Big tax breaks for 'greening' buildings
Age
23 February 2011, Page: 10
TAX cuts that pay for up to half the cost of "greening" commercial buildings are available under the federal government's program to cut greenhouse emissions in the property sector. Mark Dreyfus, parliamentary secretary for climate change and energy efficiency, said commercial buildings accounted for more than 10% of national greenhouse gas emissions. "Businesses that improve the energy efficiency of their existing buildings from two stars or lower NABERS rating to four stars or higher will be able to apply for a one off bonus tax deduction of 50% of the cost of the eligible assets or capital works", Mr Dreyfus said.
"The tax deduction will cover specified capital expenditure incurred as part of a qualifying retrofit of an existing office build ing, hotel or shopping centre". Mr Dreyfus's comments came in opening a forum on green buildings by the Royal Institution of Chartered Surveyors in Melbourne. "This initiative is expected to provide a boost of almost $1 billion over the life of the scheme", he said. "The design of the scheme is currently being developed".
A public consultation paper had been prepared to explain the key features of the proposed program in particular, eligibility criteria and assessment and certification processes, he said. Submissions closed last week, and the government would consider feedback before introducing legislation before July 1 when the scheme starts. Mr Dreyfus said the measure of mandatory disclosure, introduced last year, was already changing the way business was done in Australia. "Building owners, tenants and financiers are demanding greater information on energy performance to be available", he said.
Under the disclosure, most sellers or lessors of office space with a net lettable area of 2000 m² or more must obtain and disclose an up to date NABERS energy efficiency rating. Mr Dreyfus said improvements to the Building Code of Australia also meant future buildings would meet minimum energy performance requirements. This program set a pathway for better buildings and a consistent set of rating tools. Mr Dreyfus said the Green Building Fund had already committed $85 million for 232 projects. The fund had been extended by $30 million, he said.
23 February 2011, Page: 10
TAX cuts that pay for up to half the cost of "greening" commercial buildings are available under the federal government's program to cut greenhouse emissions in the property sector. Mark Dreyfus, parliamentary secretary for climate change and energy efficiency, said commercial buildings accounted for more than 10% of national greenhouse gas emissions. "Businesses that improve the energy efficiency of their existing buildings from two stars or lower NABERS rating to four stars or higher will be able to apply for a one off bonus tax deduction of 50% of the cost of the eligible assets or capital works", Mr Dreyfus said.
"The tax deduction will cover specified capital expenditure incurred as part of a qualifying retrofit of an existing office build ing, hotel or shopping centre". Mr Dreyfus's comments came in opening a forum on green buildings by the Royal Institution of Chartered Surveyors in Melbourne. "This initiative is expected to provide a boost of almost $1 billion over the life of the scheme", he said. "The design of the scheme is currently being developed".
A public consultation paper had been prepared to explain the key features of the proposed program in particular, eligibility criteria and assessment and certification processes, he said. Submissions closed last week, and the government would consider feedback before introducing legislation before July 1 when the scheme starts. Mr Dreyfus said the measure of mandatory disclosure, introduced last year, was already changing the way business was done in Australia. "Building owners, tenants and financiers are demanding greater information on energy performance to be available", he said.
Under the disclosure, most sellers or lessors of office space with a net lettable area of 2000 m² or more must obtain and disclose an up to date NABERS energy efficiency rating. Mr Dreyfus said improvements to the Building Code of Australia also meant future buildings would meet minimum energy performance requirements. This program set a pathway for better buildings and a consistent set of rating tools. Mr Dreyfus said the Green Building Fund had already committed $85 million for 232 projects. The fund had been extended by $30 million, he said.
Calls for renewable energy enquiry not supported by facts
Clean Energy Council
22 February 2011
The Clean Energy Council has responded to claims by Shadow Environment Minister Greg Hunt that $113 million in renewable energy credits had been "scrapped" in 2010, saying calls for an enquiry into the Renewable Energy Target scheme were not supported by the facts.
Renewable Energy Certificates (RECs) are an incentive designed to support the renewable energy industry by bridging the gap between the cost of black and green energy. Clean Energy Council Policy Director Russell Marsh said RECs invalidated by the Renewable Energy Regulator in 2010 were nothing out of the ordinary.
"This occurred as part of standard compliance procedures, which were tightened last year by Parliament to maintain the high standards of the renewable energy industry and to protect consumers", Mr Marsh said. "Invalidated credits do not equal lost or wasted money. If declared invalid for reasons of non compliance they can be re activated once the issue has been rectified".
Renewable Energy Regulator Andrew Livingston told a Senate estimates hearing on Monday that more than 3 million Renewable Energy Certificates (RECs) had been cancelled. Mr Livingston's testimony referred to a 10 year period and the cancellations represent 3.5% of the total number of RECs created during this period. RECs are cancelled for a variety of reasons, from incorrect paperwork and IT lodgement errors to the company creating the RECs asking for them to be cancelled.
"In 2010 1.1 million RECs were invalidated, representing 3.2% of the total created. Although numerically higher than in previous years, this figure is proportional to the number of solar power systems being installed. "There were more than 100,000 solar power systems installed in 2010, which is more than the rest of the decade put together.
"The Regulator is strictly enforcing the standards and that is entirely appropriate. The compliance system is working well and comparisons with the Federal Government's Home Insulation Program are not warranted", Mr Marsh said.
For more information, contact the Clean Energy Council's Media Manager Mark Bretherton on 0413 556 981 or 03 9929 4111.
22 February 2011
The Clean Energy Council has responded to claims by Shadow Environment Minister Greg Hunt that $113 million in renewable energy credits had been "scrapped" in 2010, saying calls for an enquiry into the Renewable Energy Target scheme were not supported by the facts.Renewable Energy Certificates (RECs) are an incentive designed to support the renewable energy industry by bridging the gap between the cost of black and green energy. Clean Energy Council Policy Director Russell Marsh said RECs invalidated by the Renewable Energy Regulator in 2010 were nothing out of the ordinary.
"This occurred as part of standard compliance procedures, which were tightened last year by Parliament to maintain the high standards of the renewable energy industry and to protect consumers", Mr Marsh said. "Invalidated credits do not equal lost or wasted money. If declared invalid for reasons of non compliance they can be re activated once the issue has been rectified".
Renewable Energy Regulator Andrew Livingston told a Senate estimates hearing on Monday that more than 3 million Renewable Energy Certificates (RECs) had been cancelled. Mr Livingston's testimony referred to a 10 year period and the cancellations represent 3.5% of the total number of RECs created during this period. RECs are cancelled for a variety of reasons, from incorrect paperwork and IT lodgement errors to the company creating the RECs asking for them to be cancelled.
"In 2010 1.1 million RECs were invalidated, representing 3.2% of the total created. Although numerically higher than in previous years, this figure is proportional to the number of solar power systems being installed. "There were more than 100,000 solar power systems installed in 2010, which is more than the rest of the decade put together.
"The Regulator is strictly enforcing the standards and that is entirely appropriate. The compliance system is working well and comparisons with the Federal Government's Home Insulation Program are not warranted", Mr Marsh said.
For more information, contact the Clean Energy Council's Media Manager Mark Bretherton on 0413 556 981 or 03 9929 4111.
Sunday, 27 February 2011
RMIT's $1.2m bid to feed home solar to grid
Australian
22 February 2011, Page: 31
RMIT University researchers and local inverter manufacturer MILSystems have begun work on a $1.2 million project to better integrate home generated solar power into the electricity grid. Households with renewable energy generators such as solar panels and wind generators are helping to reduce emissions.
However, surplus energy from household renewable energy sources fed back into the grid could cause issues for electrical distribution networks to deliver a high quality electricity supply at a regulated voltage. "The issue that is beginning to emerge both around the world and also in Australia is that when you put larger numbers of these conversion systems, these energy injection systems, back into your electrical distribution grid you essentially muck up the way the grid works", RMIT researcher Grahame Holmes said.
There can be significant challenges in controlling the voltages between the utility substations and consumers. Voltage levels may exceed safe limits in the grid and the electrical supply to that part of the network may fail. Professor Holmes and his power and energy research group within the RMIT Platform Technologies Research Institute are embarking on a two year project with MILSystems to address the problem.
They will develop a leading edge reactive power control (RPC) inverter to better regulate the flow of power within the grid that results from energy injected from renewable systems. The project has been supported by a $647,000 grant from the Victorian Department of Primary Industries Sustainable Energy Research and Development.
MILSystems will develop the advanced inverter for their part of the project and RMIT will explore how to control and co ordinate large numbers of these inverters. "It is translating the principles of control from small numbers of large capacity technology, which is the present approach, to large numbers of small capacity technology", Professor Holmes said. "Secondly, it is adapting the control strategies of one way energy flow, which is the present understanding of power systems, to a two way energy flow".
Professor Holmes, who is Innovation Professor in Smart Energy Systems at RMIT, said solar injection systems were causing operational problems. He said once the work was completed, appropriate regulatory standards related to solar power systems could be amended to allow the implantation of RPC inverters in the community within the next few years.
22 February 2011, Page: 31
However, surplus energy from household renewable energy sources fed back into the grid could cause issues for electrical distribution networks to deliver a high quality electricity supply at a regulated voltage. "The issue that is beginning to emerge both around the world and also in Australia is that when you put larger numbers of these conversion systems, these energy injection systems, back into your electrical distribution grid you essentially muck up the way the grid works", RMIT researcher Grahame Holmes said.
There can be significant challenges in controlling the voltages between the utility substations and consumers. Voltage levels may exceed safe limits in the grid and the electrical supply to that part of the network may fail. Professor Holmes and his power and energy research group within the RMIT Platform Technologies Research Institute are embarking on a two year project with MILSystems to address the problem.
They will develop a leading edge reactive power control (RPC) inverter to better regulate the flow of power within the grid that results from energy injected from renewable systems. The project has been supported by a $647,000 grant from the Victorian Department of Primary Industries Sustainable Energy Research and Development.
MILSystems will develop the advanced inverter for their part of the project and RMIT will explore how to control and co ordinate large numbers of these inverters. "It is translating the principles of control from small numbers of large capacity technology, which is the present approach, to large numbers of small capacity technology", Professor Holmes said. "Secondly, it is adapting the control strategies of one way energy flow, which is the present understanding of power systems, to a two way energy flow".
Professor Holmes, who is Innovation Professor in Smart Energy Systems at RMIT, said solar injection systems were causing operational problems. He said once the work was completed, appropriate regulatory standards related to solar power systems could be amended to allow the implantation of RPC inverters in the community within the next few years.
Wrestling with a climate conundrum
Sydney Morning Herald
19 February 2011, Page: 16
It's maddening. We have brilliant renewable energy resources, brilliant innovators and a vast pool of superannuation savings looking for opportunities beyond our overvalued, over analysed, ticket clipped top 50 listed companies.
We also have growing recognition that climate change poses a unique risk to traditional investment management strategies particularly here in Australia, where up to 40% of a typical share portfolio might be concentrated in sectors such as resources, which are heavily exposed to a rising price on carbon.
Why can't we join the dots, for example, between a report like Zero Carbon Australia's Stationary Energy Plan, which last year called for investment of $370 billion over a decade to switch this country to 100% renewable energy by 2020, and a report out this week by the actuarial consultants Mercer, called Climate Change Scenarios Implications for Strategic Asset Allocation, urging super fund trustees to divert up to 40% of their investments to so called climate sensitive assets, those suited to a low carbon economy, for the potential upside and because it could reduce portfolio risk.
Why can't we? Why can't we? Why can't we? Many reasons can be advanced, of course and some of them are sound.
A lot of it comes back to traditional approaches to investment portfolio construction, often guided by actuaries such as Mercer. This is why its global report developed over the past 18 months by 14 institutional investors (including VicSuper and AustralianSuper) with $US2 trillion in assets, with advice from the research team who worked on the landmark Stern Review in 2007 is so significant.
Super fund trustees do not worry as much about absolute returns the percentage movement up or down in your super fund balance in any given year as they do about risk. Principally, the risk of being unable to meet their liabilities as members redeem their funds. For super funds investing about $1.2 trillion of our retirement savings on behalf of millions of us, that is a long term proposition as many of us hope to quit work and live off our savings, income guaranteed, perhaps for decades.
The favourite way to manage risk is diversify your assets, although the US investment legend Warren Buffett once said diversification was simply "protection against ignorance,.. it makes very little sense for those who know what they're doing". As super funds grow beyond a certain size they come to own every class of asset domestic and international shares, property, bonds and cash plus a small but growing suite of alternative assets like infrastructure, hedge funds and private equity.
Notwithstanding the reputation that prominent stock pickers such as Buffett acquire, Mercer cites research showing decisions about which asset class to invest in so called strategic asset allocation account for 90% of the variation in portfolio returns. That is intuitive: it is very hard to make money on shares in a bear market, for example. Better to put your money in cash, fixed interest or property.
After diversifying by asset class, the super fund diversifies by manager, each of which has an investment process or "style". The chosen managers create their own diversified portfolio actively buying and selling this or that share, bond, property trust or building, or piece of infrastructure. Or they slash their management fee and passively track a so called index, or basket of representative assets. Layer upon layer of diversification buries risk after risk so if something goes bad, it is a tiny part of the portfolio.
The upshot: being harsh, it is unthinkable for a super fund trustee to invest a large chunk of a portfolio in, say, a series of new solar thermal power stations to be built at an uncertain cost using an unproven technology and valued,.. how? But in climate change we face a crisis unlike any we have faced before. Mercer writes that while some climate sensitive assets may be traditionally deemed as more risky on a standalone basis, selected investments could reduce portfolio risk.
Modelling the impacts of climate change on the different asset classes in a typical portfolio over the next 20 years is difficult, but Mercer tries. It runs four scenarios: from climate breakdown (business as usual, we do nothing, likely 3° of warming by 2050) to Stern action (emissions halve by 2030, carbon price $110/tonne, likely 1.8° of warming). Most asset classes fall in value if we do nothing. Most rise if we take tough action. Under two more probable, middling scenarios a delayed response, or a regionally divergent response the impact is patchier. An underlying theme is evident: delay now, pay more later.
If we are to climate proof our super funds, Helga Birgden of Mercer thinks our traditional approach to portfolio construction "isn't going to stack up a lot of decisions are made on historical quantitative analysis whereas a lot of climate change risk requires qualitative, forward looking input". Julian Poulter of the Climate Institute, who has developed a methodology to help super funds assess climate risk, cites Deutsche Bank estimates that just 06 2% of our super funds assets are lowcarbon.
To lift that to 40%, Poulter says, we are talking $486 billion of investment. "Even over a long time this should start to give market people an idea of the portfolio reconstruction required as a result of climate change. [Super fund] trustees could be in breach of their fiduciary duties if they do not proactively hedge this risk, in the same way they do inflation or interest rates".
paddy.manning@fairfaxmedia.com.au
19 February 2011, Page: 16
It's maddening. We have brilliant renewable energy resources, brilliant innovators and a vast pool of superannuation savings looking for opportunities beyond our overvalued, over analysed, ticket clipped top 50 listed companies.We also have growing recognition that climate change poses a unique risk to traditional investment management strategies particularly here in Australia, where up to 40% of a typical share portfolio might be concentrated in sectors such as resources, which are heavily exposed to a rising price on carbon.
Why can't we join the dots, for example, between a report like Zero Carbon Australia's Stationary Energy Plan, which last year called for investment of $370 billion over a decade to switch this country to 100% renewable energy by 2020, and a report out this week by the actuarial consultants Mercer, called Climate Change Scenarios Implications for Strategic Asset Allocation, urging super fund trustees to divert up to 40% of their investments to so called climate sensitive assets, those suited to a low carbon economy, for the potential upside and because it could reduce portfolio risk.
Why can't we? Why can't we? Why can't we? Many reasons can be advanced, of course and some of them are sound.
A lot of it comes back to traditional approaches to investment portfolio construction, often guided by actuaries such as Mercer. This is why its global report developed over the past 18 months by 14 institutional investors (including VicSuper and AustralianSuper) with $US2 trillion in assets, with advice from the research team who worked on the landmark Stern Review in 2007 is so significant.
Super fund trustees do not worry as much about absolute returns the percentage movement up or down in your super fund balance in any given year as they do about risk. Principally, the risk of being unable to meet their liabilities as members redeem their funds. For super funds investing about $1.2 trillion of our retirement savings on behalf of millions of us, that is a long term proposition as many of us hope to quit work and live off our savings, income guaranteed, perhaps for decades.
The favourite way to manage risk is diversify your assets, although the US investment legend Warren Buffett once said diversification was simply "protection against ignorance,.. it makes very little sense for those who know what they're doing". As super funds grow beyond a certain size they come to own every class of asset domestic and international shares, property, bonds and cash plus a small but growing suite of alternative assets like infrastructure, hedge funds and private equity.
Notwithstanding the reputation that prominent stock pickers such as Buffett acquire, Mercer cites research showing decisions about which asset class to invest in so called strategic asset allocation account for 90% of the variation in portfolio returns. That is intuitive: it is very hard to make money on shares in a bear market, for example. Better to put your money in cash, fixed interest or property.
After diversifying by asset class, the super fund diversifies by manager, each of which has an investment process or "style". The chosen managers create their own diversified portfolio actively buying and selling this or that share, bond, property trust or building, or piece of infrastructure. Or they slash their management fee and passively track a so called index, or basket of representative assets. Layer upon layer of diversification buries risk after risk so if something goes bad, it is a tiny part of the portfolio.
The upshot: being harsh, it is unthinkable for a super fund trustee to invest a large chunk of a portfolio in, say, a series of new solar thermal power stations to be built at an uncertain cost using an unproven technology and valued,.. how? But in climate change we face a crisis unlike any we have faced before. Mercer writes that while some climate sensitive assets may be traditionally deemed as more risky on a standalone basis, selected investments could reduce portfolio risk.
Modelling the impacts of climate change on the different asset classes in a typical portfolio over the next 20 years is difficult, but Mercer tries. It runs four scenarios: from climate breakdown (business as usual, we do nothing, likely 3° of warming by 2050) to Stern action (emissions halve by 2030, carbon price $110/tonne, likely 1.8° of warming). Most asset classes fall in value if we do nothing. Most rise if we take tough action. Under two more probable, middling scenarios a delayed response, or a regionally divergent response the impact is patchier. An underlying theme is evident: delay now, pay more later.
If we are to climate proof our super funds, Helga Birgden of Mercer thinks our traditional approach to portfolio construction "isn't going to stack up a lot of decisions are made on historical quantitative analysis whereas a lot of climate change risk requires qualitative, forward looking input". Julian Poulter of the Climate Institute, who has developed a methodology to help super funds assess climate risk, cites Deutsche Bank estimates that just 06 2% of our super funds assets are lowcarbon.
To lift that to 40%, Poulter says, we are talking $486 billion of investment. "Even over a long time this should start to give market people an idea of the portfolio reconstruction required as a result of climate change. [Super fund] trustees could be in breach of their fiduciary duties if they do not proactively hedge this risk, in the same way they do inflation or interest rates".
paddy.manning@fairfaxmedia.com.au
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