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Global Fund Exchange is an asset management business specializing in a diversified global macro approach to investing in dynamic opportunities across all sectors of the New Energy Revolution.
Featured in this issue:
Global Commodity Surge World’s Largest Solar Thermal U.S. & China Coal Dependency Japan’s New Carbon Mandates Water Storage & Food Security $100bn Climate “Green Fund”
SPOTLIGHT ON: COMMODITIES SURGE
Global Trends & Supply Fears Contribute to Price Increase
Commodities have been a top concern for investors heading into the fall. Goldman Sachs recently published forecasts for commodity sector returns over the next twelve months, with energy commodities reigning at the top of the list. The investment giant predicts a 27% rise in energy over the coming year, as well as 17% increase in precious metals and 15% in industrial metals. China’s drive to reduce pollution and close inefficient and unsafe mines has resulting in higher prices for coal, lead, tin and rare earth metals, as well as littleknow commodities such as antimony, a metal used for fire-proofing. China controls 90% of the world market. Since its sweeping mine closures, the price of antimony has increased 150% since Jan 2009 to nearly $11,000 a ton. Goldman Sachs, however, does not have high expectations for agricultural commodities. In fact, analysts expect losses over the next 12 month period. Despite this overall unfavorable outlook, Goldman Sachs did take special exception to corn, cotton, Arabica and raw sugar when it raised its 3-month outlook for these particular commodities. Corn and cotton prices in particular have responded to a confluence of global events. Flooding has devastated cotton crops in Pakistan, one of the world’s top five cotton producers. In conjunction with increased demand from China, some estimates foresee global cotton prices increasing by as much as 15% in 2010/2011. An unimpressive U.S. harvest has likewise spurred a jump in corn prices. Corn has risen to its highest trading levels since 2008, with a 40% rally since July 2010.
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RENEWABLE ENERGY NEWS
Cellulosic Ethanol Producers & ‘Big Oil’ Companies Sign Joint Ventures in Brazil
Two major partnerships have taken shape between global oil conglomerates and smaller cellulosic biofuel companies in Brazil, including a $12 billion joint venture between Shell and Brazilian ethanol producer Cosan, and an $11 million deal between Petrobas and KL Energy Corporation to expand Brazilian operations. Besides providing a major boost to the Brazilian cellulosic ethanol industry, these deals will allow the smaller companies to access broader markets and sources of capital, and provide evidence of Big Oil’s continued interest in “next-generation” biofuels, which many see as the wave of the future. Unlike corn-based ethanol, which has been criticized for competing with food crops for land space and its large carbon footprint, cellulosic ethanol can be made from just about any crop or plant matter that has a high concentration of cellulose. This means discarded waste crops, stalks, leaves and husks can be turned into fuel. Technology developments and a drop in the price of necessary enzymes for the fuel conversion process has helped cellulosic ethanol production more economical, and therefore more practical as a major-scale substitution for gasoline-based liquid fuels.
Regulators Approve World’s Largest Solar Thermal Plant in California Desert
S-to-N Transfer Project Source: ChinaEnvironmentalLaw.com
Blythe Solar Power Project
Source: California Energy Commission
Energy regulators in California have granted a license for the world’s largest solar thermal power plant in the Mojave Desert. The 1,000 MW solar complex, called the Blythe Solar Power Project, will cover 9.3 square miles in the Southern California desert. The plant will use long rows of parabolic troughs to reflect sunlight on liquid-filled tubes which lead to a central power block. The super-heated liquid is used to create steam which drives a turbine to generate electricity. “Given the challenge of climate change at this time, it is very important to reduce fossil fuel use by moving forward with the largest solar project in California,” remarked Robert Weisenmiller of the California Energy Commission. At peak output, the Blythe plant will supply enough electricity to power 800,000 homes. By the end of this year, the Commission will make decisions on a number of solar projects that together would produce another 2,829 MW of electricity. In comparison, the total amount of installed solar capacity in the United States last year was a mere 481 MW, a fraction of what could be coming on the slate in the years ahead. These new developments in California could help transform “renewable energy from a small portion of our energy base to becoming the backbone of the state’s power base,” said Alice Herron, a senior director at Solar Millennium, the Germanybased developer of the Blythe project.
South Korea Expands Off-shore Wind Efforts with 1,000 New Turbines
As part of a major new venture into off-shore wind, South Korea announced the launch of a $7.8bn offshore wind turbine testing ground in the Yellow Sea. This testing facility is the precursor to South Korea’s planned installation of 1,000 new off-shore turbines to be built over the next ten years. Located nearly 30 km off shore, these turbines would generate roughly as much power as four nuclear reactors. South Korea’s new energy plans also encompass the launch of a domestic electric vehicle market, increased solar power installations and construction of new nuclear power plants. By 2030, South Korea aims to build eleven new reactors to add to the nearly twenty currently in operation. Eight reactors are already under construction.
TRADITIONAL ENERGY NEWS
China’s Clean Energy Future Depends on Coal
With 32 New Plants, U.S. Coal Industry Experiences Largest Growth in 20 Years
The U.S. coal industry has experienced its largest expansion in over twenty years. Since 2008, thirty-two new coal-fired power plants have been built or are currently under construction in the United States. All together, these coal plants will generate approximately 17,900 MW of electricity - enough to power 15.6 million homes, or roughly the combined number of homes in California and Arizona. They will also emit about 125 million tons of greenhouse gases every year - the equivalent of adding 22 million vehicles to the nation’s roadways.
Price of coal important in Chinese clean energy development
The success or failure of China’s $736 billion plan to invest in solar, wind, biofuel and nuclear energy is likely to depend on one thing – the price of coal. Supplying 80% of all electricity for its growing economy, China is the world’s #1 coal user. It constructs, on average, one new coal-fired power plant every week. Switching away from such a plentiful albeit highly polluting resource in favor of clean energy technologies will be difficult for the economic giant. Also added to the equation are new technology developments that make coal combustion processes cleaner. Called supercritical plants, these new generators produce approximately 15% less carbon dioxide than conventional plants at a cost of about $500-$600 per kW less than in developed OECD nations. China has overtaken the U.S. as the world’s top greenhouse gas emittor, and it faces tremendous pressure from the international community to wean itself off its coal addiction and get serious about reducing its emissions levels. However, policy and industry analysts warn that if the costs of new energy technologies are not commensurate with, China’s clean tech push may fizzle and fail to attract the private sector investment it needs for long term success, especially as coal becomes cleaner. “The government must gradually lift fossil fuel prices while granting incentives to non-fossil fuels to establish a long-term price signal,” said Wang Yi, deputy head of Policy and Management at the China Academy of Science. Without changes in tariff structures, there would be little incentive for private firms to invest. State-run firms would be the only ones able to operate at a loss as “they are the ones who can afford to lose money,” said Lin Boqiang, head of Center of Research on Energy Economics at Xiamen University. “The private sector can’t afford waiting around for 5 to 10 years operating at a loss.”
Public awareness of the social and environmental costs of fossil fuels has increased after the BP oil spill and the tragic coal mine accident in West Virginia. However, this public sentiment has not translated into legislation which would dissuade the coal industry from expanding. On the contrary, the failure of U.S. lawmakers to enact tough carbon emissions legislation has kept the industry comfortable in the status quo. As Severin Borenstein, director of the Energy Institute at UCBerkeley says, “Building a coal-fired power plant today is betting that we are not going to put a serious financial cost on emitting carbon dioxide.” Despite the Obama administration’s dedication of $3.4 billion in stimulus funds to “clean coal” research, none of the thirtytwo new plants incorporate this experimental technology, which filters out carbon before it can be released into the atmosphere. New investments in traditional coal plants, on the other hand, amount to more than $35 billion.
Strategic Location May Propel Indonesia to World’s Largest Exporter of Coal
To satisfy growing demand, energy-hungry nations such as China and India have begun looking to their southern neighbor Indonesia as important source of thermal coal. Desperate for foreign investment to help achieve major infrastructure overhauls, Indonesia is a willing partner and has recently signed blockbuster deals with its energy-hungry partners. Indonesian production levels are predicted to rise nearly 90% to 480 million tons by 2020. Indonesia has set a target of attracting $160 billion in foreign investment over the next few years. China and India have agreed to finance billions of dollars worth of Indonesian infrastructure projects- including railways, road, ports and bridges – in exchange for coal. The nature of the agreements is similar to the controversial “minerals-for-infrastructure” deals China has entered across Africa to secure access to that continent’s resources.
Japan to Mandate CO2 Trading Scheme for High-Emitting Companies
According to a report obtained by Reuters, Japan is planning to institute a mandatory carbon trading program in 2013. Reviving a climate protection law that had previously been scrapped earlier this year, the legislation would require the country’s largest emitting companies and industries to comply with carbon emissions quotas. Any emissions above the set levels would require purchases of carbon credits from either domestic or overseas reductions projects. Japan is the world’s fifth-largest emitter of carbon dioxide. In an effort to reduce emissions and become a leader in the clean energy industry, Japan has increased its focus on clean energy technologies and climate change mitigation measures. Earlier this spring, Toyko launched its own carbon trading initiative, becoming the first Asian metropolis to do so. This cap-and-trade system is operated separately from the proposal national scheme. Under the first phase of the program, which runs until 2014, participating organizations must trim carbon emissions by 6%.
Insufficient Water Storage Poses Risk to Global Food Security
Energy regulator says UK needs energy reform
Source: Daily Mail
According to a report by the International Water Management Institute (IWMI), the world’s food security and economic growth prospects are in jeopardy due to insufficient water storage capacity. Changing climate and rainfall patterns have hit many of the world’s agricultural production regions hard, especially in regions of Africa and Asia. Despite advances in irrigation technology, it is estimated that 66% of Asian agriculture is dependent on rainfall, and in Sub-Saharan Africa, that percentage is as high as 94%. Experts are urging policy makers to help farmers improve storage systems and develop better water management skills. “For millions of people dependent on rain-fed agriculture, reliable access to water can make all the difference between chronic hunger and steady progress toward food security,” said hydrologist Matthew McCartney. “Just as modern consumers diversify their financial holdings to reduce risk, smallholder farmers need a wide array of ‘water accounts’ to provide a buffer against climate change impacts.” The report warns against over-dependence on one source of water, and encourages governments in vulnerable regions to consider storage solutions big and small, from large-scale dams to local ponds, tanks and reservoirs. “Even small amounts of stored water, by enabling crops and livestock to survive dry periods, can produce large gains in agricultural productivity and in the wellbeing of rural people,” said McCartney.
Water Scarcity Threatens Chinese Crops
China is faced with a daunting food challenge that has been getting worse as the population expands. The nation possesses only 7% of global arable land, but must feed 22% of the world’s people. Its per capita water supplies are only 25% of the world’s average levels. China’s northern regions hold 18% of total water supplies and 65% of the nation’s arable land, but the climate in those areas has become drier over the years. Chinese scientists warn that rising temperatures could accelerate evapo-transpiration and limit freshwater supplies for agriculture. By the end of 2015, China’s population is expected to reach 1.39 billion, requiring a 4 million ton increase in annual grain supply over the next decade, but according to the Nature article, water limitations may reduce rice yields by 4 to 14%, wheat by 2 to 20% and corn by 0 to 23% by the middle of this century. By 2050, total crop yields may be reduced by as much as 13%. China’s agriculture minister acknowledges the nation faces a “formidable task” in meeting food demand in the face of growing resource scarcity.
CLIMATE POLICY NEWS
U.N. Climate Talks – Progress on $100bn “Green Fund”
Looking ahead to U.N. climate talks in Cancun, Mexico this winter, environment ministers and senior officials from over 50 nations have made headway on a “green fund” which would aid developing nations coping with climate change and the shift away from fossil fuels. U.N. climate chief Christiana Figueres calls this fund a “golden key” to the negotiations and an important way to reassure poor nations that wealthy countries are serious about global warming mitigation. The Fund aims to raise $100 billion a year in climate aid by 2020. Although there is little hope of securing a binding legal treaty in Cancun, negotiators are optimistic about this “Green Fund” proposal. However, Mexico’s Foreign Minister Patricia Espinoza warned that the climate aid fund is only one part of a broader climate package which needs attention. Unresolved issues remain, including methods for clean energy technology sharing and mechanisms to protect vulnerable forest land.
Source: Julian Rotela
U.S. climate envoy Todd Stern concurred. “We are not going to move on the Green Fund, and the $100 billion, if issues central to the Copenhagen Accord, including mitigation and transparency, don’t also move.” Stern reiterated President Obama’s commitment to reducing U.S. greenhouse gas emissions by 2020, despite the Senate’s lack of progress in passing comprehensive climate legislation. The U.S. is the world’s only major developed nation without a legal cap on greenhouse gas emissions.
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