JAKARTA (Reuters) – Indonesia’s state-owned enterprises minister said on Friday that a Chinese consortium would invest $5 billion in an electric batteries venture, which would include China’s Contemporary Amperex Technology (CATL).
Erick Thohir was speaking during a visit to China and was referring to a deal announced late last year, where CATL would invest $5 billion in a lithium battery plant in Indonesia and would start production in 2024.
LONDON (Reuters) – The booming market in green finance faces a test this year as more investors balk at lofty share price tags even on loss-making companies and a gradual economic recovery from the pandemic boosts returns on conventional energy assets.
Driven by government promises to deliver a low carbon recovery, flows into funds investing on environmental, social and corporate governance (ESG) principles doubled last year from 2019 to $326 billion, Morningstar data showed.
But that has also made ESG one of the most crowded trades, BofA’s latest investor survey released on Tuesday found, while the supply of green securities has failed to keep pace with demand.
Emmanuel Cau, head of European equity strategy at Barclays, has warned of a “regime change” if the cycle were to turn in favour of value sectors, which benefit from economic recovery, and away from high-quality, high-value assets that are more sensitive to higher bond yields.
Cau last year cut his overweight recommendation on ESG utilities and last month upgraded conventional energy stocks to overweight, citing depressed investor positioning and the sector’s ability to capitalise on a post-pandemic recovery.
While most investors see the green investing trend as here to stay, they have grown wary after the huge price run-up.
“Valuations in the (green) sector are significantly higher than what we want to pay so we won’t allocate as much as we’d like to,” Justin Onuekwusi, fund manager at Legal & General Investment Management, said.
Supply of clean energy assets, meanwhile, shows signs of becoming less tight.
Refinitiv data indicates equity raising by sustainable companies totalled $6.6 billion year-to-date, a 28% increase on year-ago levels, although it is still only 2.5% of total activity.
In the green bond market too, there are hints of a strong increase in supply this year after last year’s scarcity brought into focus the so-called greenium – the extra premium investors have to pay to secure a green bond.
Following last year’s heavily oversubscribed green bond issues, Nordic bank SEB predicts green bond sales will double this year to $500 billion. France tapped green markets on Tuesday, while the European Union and Britain are prepping deals.
Cumulative green bond issuanceThank, used for funding projects such as clean energy, surpassed $1 trillion in December, according to the Climate Bonds Initiative, though Spain’s BBVA estimates this is under 1% of the global bond market.
Such has been the supply-demand imbalance that the market value of renewables developer EDPR rose in January above that of its parent EDP.
The picture, says NN Investment Partners senior portfolio manager Oskar Tijs, is best described as euphoria.
“Companies, which in many cases have been lagging for years because their earnings were low or negative, have performed… Money flows have been so strong that in some cases, you can question if it is still reasonable,” Tijs said.
HARD TO SUSTAIN
At the height of the pandemic last year, more than 80% of sustainable equity indices outperformed non-ESG peers, the Institute of International Finance estimates.
Rising prices led one-year forward price-earnings multiples on a basket of 35 green stocks to expand by 24 points in the last year, analysis by Morgan Stanley found. Multiples at non-green peers expanded by two points.
Yet Refinitiv IBES data going back to 2016 shows two of last year’s top performing green stocks – fuel cell makers Plug Power and FuelCell Energy – have never turned a profit and are not expected to do so for years.
Carmaker Tesla enjoyed its first profit in 2020 and solar firm Enphase has been profitable for two years.
Yet these shares have rallied between 400% and 1000% in the past year.
Sharon Bentley-Hamlyn, investment director at Aubrey Capital Management, has 2%-3% of her portfolio in green energy.
“We’d love to have more but it’s difficult to find stocks that meet valuation criteria. We like to buy at 1.5-times PEG ratio or less but many of them are trading near 2-times,” she said, referring to the metric measuring share price, earnings and future growth prospects.
“You don’t want to bet the ranch on these types of businesses which are still loss-making.”
Graphic: EDPR’s market cap exceeds its parent company –
THE CRAZY GREENIUM
Investors often have to pay extra for green bonds, especially in sectors in which such issues are scarce and this greenium applies even when a green bond has a longer maturity than mainstream issues.
Dutch mail carrier PostNL’s 2026 green bond offers 41 basis points over swaps – a measure of a bond’s credit risk – 5 bps less than a mainstream bond maturing two years earlier..
Daimler’s 2030 green issue pays 10 bps below a conventional bond due earlier that year.
“This is crazy. You move along the curve, you take more risk, you get paid less,” said Shanawaz Bhimji, senior fixed income strategist at ABN AMRO.
Green issuers in the euro investment-grade market last year conceded an average 8 bps “new issue premium,” ABN AMRO estimates, less than half that paid across the broader market.
And investor demand exceeded issuance 5.5 times on average in 2020, versus four times on non-green bonds, ABN said.
Graphic: Cheaper for companies to issue green bonds –
For all the mounting caution, James Palmer, BofA’s head of EMEA equity capital markets sees supply-demand mismatches supporting prices for a while yet.
He is busy discussing with companies that own sustainable businesses “whether they can and should separate them to get the valuations that the market is prepared to afford”.
TOKYO (Reuters) – Tokyo Electric Power (Tepco) shares fell about 7% after Japan’s atomic regulator found safety breaches at the company’s Kashiwazaki Kariwa station and the industry minister said it was not likely to be able to restart the plant anytime soon.
Tepco shares had surged in recent months on hopes it would be able to restart Kashiwazaki Kariwa, the world’s biggest nuclear station, after years of trying to convince regulators and local residents it had learnt the lessons of the Fukushima disaster ten years ago.
(Reuters) – LG Energy Solution said on Thursday it plans to invest more than $4.5 billion in its U.S. battery production business through 2025 and add 4,000 jobs as it considers building at least two new U.S. plants, a company executive told reporters.
The South Korean supplier, a unit of LG Chem, said the investment will result in an additional 70GWh of U.S. battery production capacity. The company declined to say where in the United States it is considering a new battery manufacturing plant.
Denise Gray, president of LG Energy Solution’s Michigan unit, said the investment, which would indirectly create another 6,000 jobs during construction, was being made to respond to the growing electric vehicle market.
“We are eager to expand our production capacity so that it can meet the needs of the numerous global automakers across the U.S. and Europe,” Gray said.
LG is also in advanced talks with General Motorsto build a more than $2 billion second joint venture cell manufacturing plant in Tennessee that could be announced later this month. The first LG-GM JV plant is nearing completion in Lordstown, Ohio. Both companies have confirmed they are in discussions for a new plant.
LG Chem has been in a battle with cross-town rival SK Innovation after it alleged that SK stole trade secrets. The U.S. International Trade Commission (ITC) sided with LG Chem in February, but SK Innovation has lobbied the White House to overturn the decision, warning it would force it to halt production on a new factory in Georgia.
Company executives said Thursday’s announcement had nothing to do with the ITC review.
“This is more about (having a) very proactive and preemptive investment plan prior to confirmation of demand from our customers,” LG Energy Solution Senior Vice President Chang Seung-se said.
“By adding this capacity earlier… we can quickly respond to market demand and customers’ orders,” he told reporters.
Texas’ power grid operator Electric Reliability Council of Texas (ERCOT) made a $16 billion pricing error in the week of the winter storm that led to power outages across the state, Potomac Economics, which monitors the state’s power market, said.
ERCOT kept market prices for power too high for more than a day after widespread outages ended late on Feb. 17, Potomac Economics, the independent market monitor for the Public Utility Commission of Texas, which oversees ERCOT, said in a filing.
“In order to comply with the Commission Order, the pricing intervention that raised prices to VOLL (value of lost load) should have ended immediately at that time (late on Feb. 17),” Potomac Economics said.
“However, ERCOT continued to hold prices at VOLL by inflating the Real-Time On-Line Reliability Deployment Price Adder for an additional 32 hours through the morning of February 19,” it said, adding the decision resulted in $16 billion in additional costs to ERCOT’s markets.
The findings of Potomac Economics were reported first on Thursday by Bloomberg and the Texas Tribune.
Separately, rating agency Moody’s Investors Service downgraded ERCOT by one notch from A1 to Aa3 and revised the grid operator’s credit outlook to “negative” on Thursday.
On Wednesday, ERCOT’s board ousted chief executive Bill Magness, as the fallout continued from a blackout that left residents without heat, power or water for days.
The mid-February storm temporarily knocked out up to half the state’s generating plants, triggering outages that killed dozens and pushed power prices to 10 times the normal rate.
Many of ERCOT’s directors have resigned in the last week and the head of the state’s Public Utility Commission, which supervised ERCOT, resigned on Monday.
COPENHAGEN (Reuters) – In the tenth century, Erik the Red, a Viking from Iceland, was so impressed with the vegetation on another Arctic island he had found he called it “the green land.” Today, it’s Greenland’s rocks that are attracting outsiders – superpowers riding a green revolution.
The world’s biggest island has huge resources of metals known as ‘rare earths,’ used to create compact, super-strong magnets which help power equipment such as wind turbines, electric vehicles, combat aircraft and weapons systems.
The metals are abundant globally, but processing them is difficult and dirty – so much so that the United States, which used to dominate production, surrendered that position to China about 20 years ago.
As Greenland’s ice sheet and glaciers recede, two Australia-based mining companies – one seeking funding in the United States, the other part-owned by a Chinese state-backed firm – are racing for approval to dig into what the U.S. Geological Survey (USGS) calls the world’s biggest undeveloped deposits of rare earth metals.
The contest underscores the polluting side of clean energy, as well as how hard it is for the West to break free of China in production of a vital resource. Rare earth metals have many uses, and last year China produced about 90% of them, according to Toronto-based consultancy Adamas Intelligence. As U.S.-China tensions mount, President Joe Biden’s administration said last month it will review key U.S. supplies, including rare earths, to ensure other countries cannot weaponise them against the United States.
Each Greenland mine would cost about $500 million to develop, the companies say. Both plan to send mined material away for final processing, an activity that is heavily concentrated in China. The only rare earth mine now operating in the United States – Mountain Pass in California – is partly owned by a Chinese state-backed company that currently sends material mined in the U.S. to China for processing.
The Greenland sites are less than 16 km (10 miles) from each other at the southern tip of the island, near a UNESCO World Heritage Site. Debate on them has triggered a political crisis in the capital of Nuuk, forcing a general election on the island of 56,000, due in April. Many Greenlanders, while concerned about pollution, feel mining is key to develop their fragile economy. In a 2013 poll, just over half said they want raw materials to become the country’s main source of income.
The country may ultimately back either project, both, or neither, but for those Greenlanders open to mining, the two proposals boil down to a choice between one mine that would not produce radioactive material, and another that would.
The first mine, a private initiative from an Australian geologist who has presented it to U.S. officials, would not involve nuclear material. It has won preliminary environmental approval, but it needs cash and a processing plan.
The second one has already spent more than $100 million preparing to mine, has proven processing technology through its Chinese partner, and won initial political support from Greenland’s coalition government. But its plans include exporting uranium, a nuclear fuel, to China, and it recently ran into strong opposition, including from residents of the nearby town of Narsaq.
“As indigenous people we have lived in harmony with nature for many, many years,” said Mariane Paviasen, an opposition lawmaker who lives in the town. “We use these lands to hunt and fish.”
Greenland, a self-governing territory of the Kingdom of Denmark, has a gross domestic product of around $3 billion – similar to Andorra and Burundi. With its people living mostly on fishing and grants from Copenhagen, its government is keen to attract foreign investments.
It does not have an estimate for royalties from the first project, but expects around 1.5 billion Danish crowns ($245 million) each year from the Chinese-linked one – equivalent to roughly 15% of public spending.
Greenland’s government did not respond to requests for comment for this story. Acting Minister of Resources Vittus Qujaukitsoq said last month that if Greenlanders suddenly decide they don’t want the second project, “we’ll make a fool of investors. The credibility of the whole country is at stake.”
Greenland’s rare earth metals are also a chance for America and Europe to regain control of a strategic resource.
The island’s potential as a source of the raw materials needed for renewable energy technologies gained momentum in 2010, when China threatened to cut off its supply of rare earth metals to Japan, and tightened quotas to international buyers.
Prices for some of the metals have jumped in recent months, driven by surging demand for electric vehicles as well as concerns that Beijing may restrict sales.
Greenland’s position near the eastern flank of the United States makes it a sensitive location. Former U.S. President Donald Trump offered to buy the island in 2019, and he was not the first U.S. president to do so: In 1946 Harry S. Truman offered Denmark $100 million for it. A defence treaty between Denmark and the United States dating back to 1951 gives the U.S. military almost unlimited rights there, and Greenland houses the northernmost U.S. military base.
Friedbert Pflüger, a senior fellow at the Atlantic Council think tank, says the revenues generated by a major mine could give its owner leverage over policies in Greenland, and a strong Chinese presence there may pose strategic threats.
“The very presence of Chinese companies in Greenland could be used as justification for China to intervene,” said Pflüger, a former German politician and ex-deputy defence minister.
China’s foreign ministry said in a statement that such comments politicise economic and trade issues through “groundless speculation,” adding “China has always supported Chinese companies to carry out foreign economic cooperation in accordance with market principles and international rules.”
The U.S. State Department said: “We encourage our allies and partners to carefully review any investments… that could give China access to critical infrastructure in ways that compromise their security or allow China to exert undue, adverse influence over their domestic economies.”
Denmark, which handles foreign affairs and defence for Greenland, has in the past headed off Chinese involvement in infrastructure projects, which government sources say was because of security concerns. Foreign Minister Jeppe Kofod declined to comment on the security implications of China’s involvement. But he told Reuters that Copenhagen’s close ties with the United States “should not be seen as an obstacle to commercial investments in Greenland.”
China is a member of the International Atomic Energy Agency, so it can import uranium from Greenland. But since the fuel is used in nuclear weapons, that would be sensitive. Copenhagen, which has the final say, declined to comment.
Trump’s offer for Greenland aimed to help address Chinese dominance of rare earth supplies. Those involved say he was partly following up on talks between U.S. officials and a privately held company called Tanbreez Mining Greenland A/S. Tanbreez is the owner of the first Greenland site – Kringlerne, or Killavaat Alannguat in Greenlandic.
The company’s owner, Australian geologist Greg Barnes, told Reuters he had met U.S. officials weeks before Trump made the offer, and the company website shows Barnes with them and the former U.S. ambassador to Denmark on a site visit. The USGS confirmed its officials had visited the site in 2019; Washington and a representative for the former president declined to comment.
Barnes said he had put A$50 million ($38.6 million) of his own cash into the Greenland project. New York-based investment banker Christopher Messina, managing director at capital markets advisory services firm Mannahatta Partners, is trying to assemble more financing. He says Kringlerne is “such a huge deposit that what comes out of it could satisfy manufacturing demands in the U.S. for years to come.”
Whether or not that pans out, Barnes says the metals produced by his project can be processed outside China, although he has not yet decided where, and declined to say at what cost.
He said the royalties it would generate for Greenland would be roughly the same as those promised by the China-linked plan. “We’ve managed to get our capital costs down without Chinese technology,” Barnes told Reuters.
The only major plant outside China that does the complex work of separating individual rare earth elements is in Malaysia. But others – including the Mountain Pass mine in the United States – are planning or have started to build such facilities.
“For the foreseeable future, China is going to be the major player in all of these supply chains simply because it’s so far advanced and because it’s not stopping and waiting for alternatives to catch up,” said Ryan Castilloux, head of Adamas.Slideshow ( 4 images )
Tanbreez says half the rare earth metals it mines would be lanthanum and cerium – relatively plentiful metals used in telescope lenses and auto catalysts to cut emissions. About a fifth would be yttrium, which is in demand for lasers and the superconductors used in quantum computing.
Neither of the Greenland projects would be pollution-free. Both plan for mined rock to be locally crushed and separated into concentrates to send for final processing.
Tanbreez’s mining waste will be piped to a lake which, while it does not contain fish, feeds a river with a large population of Arctic char. Turbid water could impact the char, according to the company’s environmental report, which says it plans to dump some 550 tonnes a day of waste material into the lake and will dam it to prevent disruption downstream.
Tanbreez’s plan has passed the public consultations stage and received a government permit in September. Now the company is working on parliament approval.
Both the Greenland projects, though run from Australia, are part of a European Union initiative, the European Raw Materials Alliance, to boost Europe’s output of critical minerals and cut dependence on China for rare earth metals..
The alliance, funded by the EU, is coordinating investment and providing seed money for European mines, processing plants and industries such as magnets.
Last year, the EU kick-started 10 billion euros ($12 billion) of investment into rare earth and other green-energy-related projects, and it says its demand for rare earth metals could surge as much as tenfold by 2050. It says China currently makes up 98% of its supply.
“This is a very critical period of time,” says the Alliance’s head, Bernd Schäfer. “We in Europe are facing raw materials scarcity on many levels and also the need for action.”
The rival mountaintop site not far from Tanbreez is called Kvanefjeld, or Kuannersuit in Greenlandic. For John Mair, managing director of its owner, Greenland Minerals Ltd, it’s a world-class opportunity at the right moment.
Kvanefjeld’s main offer is neodymium, needed for wind turbines. Brussels says the EU’s demand for the metal may reach 13,000 tonnes per year by 2050, three times more than it used in 2015. Neodymium is also used in combat aircraft.
Greenland Minerals is a listed firm in which Chinese company Shenghe Resources is the biggest shareholder, with just under 10%. Shenghe, which also has a similar size stake in Mountain Pass, declined to comment for this story.
Greenland Minerals, which bought its concession from Barnes, says its planned mine will, at least initially, send minerals it produces to China for final processing. It says it plans to find a site in Europe, but has not said when.
The company has a strong hand. Back in 2011, the estimated costs for setting up Kvanefjeld were $2.3 billion. By 2019, these shrank to $505 million, the company says: Shenghe, whose biggest shareholder is a state-run Chinese mineral research institute, has helped boost efficiency.
But Greenland Minerals faces public opposition. It is one step behind Tanbreez in the environmental vetting process – and its ores include significant amounts of radioactive materials.
When Greenland Minerals embarked on public consultations this year, protests erupted. At one meeting in Narsaq on Feb. 10, locals both inside and outside the hall banged windows and played loud music to disrupt presentations.
As opposition mounted, a small pro-mining party, Demokraatit, triggered a general election by pulling out of Greenland’s coalition in early February.
Polls suggest Greenland’s main opposition party, Inuit Ataqatigiit (IA), which has a zero-tolerance policy for uranium, will become the biggest in parliament, so would be first to try to form a new coalition.
“Our aim,” IA lawmaker and Narsaq resident Paviasen told Reuters, “is to halt the (Kvanefjeld) mining project.” But IA says it has not expressed opposition to Tanbreez, which is seen as less of a threat to the environment.
Kvanefjeld would dump much more waste than Tanbreez – about 8,500 tonnes each day – into a lake on top of the mountain, the Greenland Minerals plan says.
Greenland Minerals says any increase in background radiation from its Kvanefjeld mine will be minimal. It plans to build a concrete 45-meter dam to contain the radioactive waste and to spray water on the ground to keep the dust from blowing away.
The dam will be built to international standards to “withstand even the worst imaginable seismic activity,” it said in a report submitted to Greenland’s government last year.
Even so, residents say they worry contaminated water will seep into nearby rivers or that the dam will fail entirely. They cite the collapse of a mining dam in Brazil two years ago that killed 270 people.
As the crisis has deepened, Greenland Minerals’ shares have dropped by more than 50%. If the mine goes ahead, Paviasen says, many people plan to move away.
Reporting by Jacob Gronholt-Pedersen in Copenhagen and Eric Onstad in London; Additional reporting by Ernest Scheyder in Houston, Humeyra Pamuk in Washington and Tom Daly; Edited by Sara Ledwith
Hedge funds have reduced their position in petroleum futures and options for the first time in 16 weeks, the first weekly net sales since the first successful coronavirus vaccine trials were announced in early November.
Hedge funds and other money managers sold the equivalent of 9 million barrels in the six most important petroleum futures and options contracts in the week to Feb. 23.
The sale comes after portfolio managers purchased a total of 548 million barrels over the previous 15 weeks, according to records published by ICE Futures Europe and the U.S. Commodity Futures Trading Commission.
After three months in which benchmark crude prices had risen by more than $26 per barrel or 68%, bullish positions had become stretched, increasing the probability of a reversal, at least in the short term.
Prior to the recent sales, the combined position across all six contracts had reached the 82nd percentile for all weeks since the start of 2013 – a lopsided position that is little changed even after the sales.
The most recent week saw small buying in NYMEX and ICE WTI (+3 million barrels) and Brent (+1 million) but selling in U.S. diesel (-6 million), U.S. gasoline (-4 million) and European gasoil (-2 million).
Even after the sales, combined crude positions are in the 83rd percentile for all weeks since the start of 2013, while fuel positions are in 70th percentile.
The pattern is consistent with an expectation of continued crude output restraint by OPEC+ but slightly more softness in the consumption of refined fuels as a result of the epidemic and lingering travel restrictions.
Energy prices will rise for millions of people across the UK in April, at a time when finances are squeezed.
Regulator Ofgem said the price cap for default domestic energy deals would be raised to cover suppliers’ extra costs.
The typical gas and electricity customer is likely to see their bill go up by £96 to £1,138 a year.
Charities say the timing is a “double whammy”, coming at a time when the government’s Covid-related support schemes are due to be wound down.
Ofgem said rising wholesale costs were behind the increase, adding that the existence of the price cap meant households saved £100 a year, and they could also switch to a better deal.
Jonathan Brearley, chief executive of the regulator, said: “Energy bill increases are never welcome, especially as many households are struggling with the impact of the pandemic. We have carefully scrutinised these changes to ensure that customers only pay a fair price for their energy.
“As the UK still faces challenges around Covid-19, during this exceptional time I expect suppliers to set their prices competitively, treat all customers fairly and ensure that any household in financial distress is given access to the support they need.”
Who is affected?
The price cap, set twice a year by the regulator, affects 11 million households in England, Wales and Scotland who have never switched suppliers or whose discounted deals have expired. Northern Ireland sets its own cap.
That accounts for about half of all UK households. The remainder are on so-called fixed deals, which will not be affected.
The cap for prepayment meter customers will go up by £87 to £1,156, affecting four million customers.
The caps set the prices that suppliers can charge for each unit of energy, but that does not mean there is a limit to how much people can pay. The more gas and electricity you use, the higher the bill.
Lockdown life means Lyn Clark, like so many others, has been spending a lot more time at home. Her energy bills have been rising as a result.
“I’m trying not to switch on heaters in the rooms that are not being used,” she said.
While prices are capped on default tariffs, the amount people pay in total is likely to have risen during more time at home.
Mrs Clark said she had been doing her best to keep the costs down.
“I find myself putting on extra layers,” she said. “I also go for a walk each lunchtime to make sure I’m warmer.”
Are people struggling to pay?
In October, Ofgem lowered the price cap by £84, but it has now more than reversed that with the rise scheduled for April.
The extra allowance for suppliers to raise prices is the result of greater costs on the wholesale markets.
It also includes an allowance to charge an extra £24 a year to cover bills that have not been paid. Ofgem said a further delay in recouping these costs would only create greater costs next winter.
Charities point out that raising prices for everyone on these tariffs is likely to increase the number of people unable to pay.
Citizens Advice said its research in December indicated that 2.1 million households were behind on their energy bills, a rise of 600,000 compared with before the pandemic.
It was concerned that the planned removing of assistance for recipients of universal credit, as well as other government financial support schemes being wound down, meant there were serious worries over debt.