PRESENTATION NAMECompany Name

Opportunities in GreenOpportunities in GreenExecutive Brief for Dubai HoldingExecutive Brief for Dubai HoldingBenjamin Carrion Schafer, Lance Shields, Ian WakefordBenjamin Carrion Schafer, Lance Shields, Ian Wakeford

Who and what?Who and what?

As a trade analyst team employed by Dubai Holding and reporting directly to CEO Mohammed Al Gergawi, the writers of this paper are tasked with writing a comprehensive analysis of the renewable energy and green tech segments from a global perspective to identify attractive investment opportunities.

Why green?Why green?

Part of the CEO’s rationale for considering investment in green is to offset the risk of the investment firm’s equity and loans in carbon intensive industries such as oil refining, automobiles and hotel construction.

The scope of projectThe analyst team is in this way tasked with reporting on three potential leading regions – the U.S., the EU and China – to identify the opportunities and risks due to each region’s government subsidies and trade policies, and the level of development in the growing green sector.

US?US?EU?EU?

China?China?

Global Renewable Trends

• In 2008 the EU and US added more capacity from renewables than from fossil-fuel and nuclear sources

• From 2004-2008 total global power capacity from renewables increased 75% to 280 gigawatts

• Wind power capacity grew 29% with the US overtaking Germany and China doubling capacity each year.

• Investors have put $120bn into renewables, a fourfold increase in just 5 years

CHINACHINA

VIDEO:From "Red Hot Green China", Used with permission from Red Dragon MediaFull clip: http://vimeo.com/3919447

Why China?Why China?Transition from communism

to GDPism with the attitude of “grow now, clean up later”

Impending environmental disaster is a driver for green

Government’s attempt to become a world leader in renewables and green tech

Useful Facts

9%9%

CO2CO2

#1#1

China's real GDP growth has averaged over nine percent per year since 1980, growing the economy ten times larger 30 years ago

Experts predict that it will become the world's largest consumer of energy soon after 2010

And because of its heavy reliance on coal, China already emits more carbon dioxide than any country on earth

A Toxic Nation

“Acid rain is falling on one third of Chinese territory, half of the water in our seven largest rivers is completely useless, while one fourth of our citizens does not have access to clean drinking water. Five of the ten most polluted cities in the world are in China. In Beijing alone, 70 to 80% of all deadly cancer cases are related to the environment. Lung cancer has emerged as the #1 cause of death.”

•Pan Yue, Deputy Minister of China’s State Environmental Protection Agency, March 2005 interview in the green journal Der Spiegel

Growth, Energy and CO2

• China’s GDP growth has averaged over nine percent per year since 1980, growing the economy ten times larger today than it was three decades ago

• Experts predict that it will become the world's largest consumer of energy and fossil fuels soon after 2010

• And because of its heavy reliance on coal, China already emits more carbon dioxide than any country on earth

China’s Reliance on Coal

Green GDPism

• Trying a top-down-bottom-up to pass green progressive efficiency laws

• Providing subsidies for clean energy research, empower journalists to spotlight polluters

• Granting Chinese citizens the legal tools to bring violators to justice whether they are companies or government

The Eleventh Five-Year Plan• A goal of reducing the energy consumption per unit

GDP, by 20% below the 2005 levels by 2010• This target is 5 times more ambitious than the

Kyoto Protocol

• Investing in green infrastructure and technologies equal to roughly $175 billion

Renewable Energy by 2020

Casestudy:• The benefits of the combination of low-cost labor and

subsidies offered by provinces has Suntech to become one of the world’s top 4 solar manufacturers

• The WSJ describes Suntech as “first world technology and developing world prices” and the key to their business is that it uses low-cost labor in place of high-tech machines.

• 90% of Suntech’s business today is abroad and while the company brings the price of solar cells down the market opens up allowing it to grow in scale and reduce prices

Risks to Multinationals

• REPUTATION: MNEs are viewed with suspicion. A major environmental accident can cause significant damage to a corporation’s reputation.

• COLLUSION: The widespread collusion between officials and Chinese companies can cause substantial obstacles.

• POLITICAL INSTABILITY: Due to the increasing power of the media and activist movements, demonstrations to close down company operations due to perceived harm to local crops or health issues can lead to significant losses to corporations.

E.U. - GermanyE.U. - Germany

The European Union (2008)

Europe: General Facts

Organization• An economic union: Economic integration including free flow

of products and factors of production, common external trade policy, common currency, common monetary and fiscal policy

– Established 7 February 1992 (Maastricht Treaty)– 27 member countries – Population 491,582,852 (July 2009 est.)

Economics• Advanced manufacturing and service economy• GDP $14.82 trillion (2008 est.)

Energy • Electricity : 2.93 trillion kWh (Prod: 3.1 trillion) • Oil : 14.4 million bbl/day (Prod:2.68 million)• Natural gas : 497 billion cu m (Prod:198 billion)

• (Consumption 2007 est)

EU Energy Demand

• 79% from fossil fuels • 54% of primary energy was imported• Russia is the largest supplier (18%)• Energy consumption increased 0.6%

a year• Renewable energy has highest

growth rate at 3.4% (LPG was 2.8%)• Import dependency expected to

increase through 2030 as fossil fuel sources within the EU are depleted

• Climate change is expected to alter energy demand patterns

(Source EEA, 2005)

An overview of regulatory support mechanisms for renewables

• Fixed feed-in tariffs ( Denmark, Germany, Spain)– Widely and successfully deployed throughout Europe, – Governments set a price at which the country’s electricity supply

companies must purchase all renewable energy delivered to the distribution grid.

• Competitive tender (France, Ireland)– Invites producers to bid to provide specific amounts and types of

renewable energy from the market at cap (maximum price) or below cap (lower) prices. Contracts are then signed with the lowest cost bid to deliver output over a number of years.

• Purchase obligations (Austria, Belgium, Italy, Sweden, UK)– Set targets for consumption of electricity (usually percentage

based) that should be sourced from a certain fuel source. Energy distribution companies must prove the origin of purchase, pay a penalty or produce the required amount themselves, creating an artificial demand and price premium for renewable generation.

– If the system target not met, prices rise until new market entrants are attracted.

(Source: Irish Government, Department of Communications, Marine and Natural Resources (2003), Options for Future Renewable Energy policy, Targets and Programmes)

An overview of regulatory support mechanisms for renewables

Types of energy subsidy Source: Table adapted from IEA/UNEP (2002).

Regulatory SupportRegulatory Support

Consumption of Fuel

Renewables 6.7%

Transport 20%

Contribution of RES to energy1 consumption

3.4%

6.7%

Implementation of Technology

• Renewables in 2005 accounted for 6.7% or energy consumption, up from 4.4% in 1990

• Wind power is dominant representing 75% of total installed capacity with Germany and Spain as growth leaders

• Germany accounted for 89% of installed solar photovoltaics

• The lead renewables consumer is Sweden with over 25%

• Electricity production from renewables increased in absolute terms by an average of 2.7% annually

Focus on Germany

• In Germany, the 2007 revised Renewable Energy Sources Act (EEG) was written to control subsidies.

• The Federal Ministry’s July 2007 progress report states that this law cost electricity consumers EUR3.2 billion.

• Germany mainly relies on feed-in tariffs guaranteed for 20 years

– The average feed-in tariff excluding solar is 8.5 c/kWh, – Solar PV can be up to 49 c/kWh. – Wind makes up nearly 50% of renewable input and

feed-in tariffs for new plans are usually 8.2c/kWh on land and 9.1c offshore.

– For comparison, electricity from coal costs about 4c/kWh

• The combined subsidy from consumers and government totals about EUR 5 billion per year for 6% of its electricity from wind and solar.

September election bring changes?September election bring changes?

Renewable electricity generation in selected countries and regions

(percentage of global total renewable electricity generation)

2030

2030

EU2005

1990

USA

CHINA

EU-Germany Conclusion

In conclusion, the EU has a advanced economy and a strong policy supporting RES. The commitment to high feed-in tariffs in Germany in particular make this an attractive location

U.S.U.S.

U.S. Overview

• The United States has the largest economy in the world (GDP was estimated as $14.2 trillion in 2008)

• Population of 290 million• Area about two and a half times

the size of Western Europe.

U.S. Sources of Energy• production: 4.157 trillion kWh (2007)• consumption: 3.924 trillion kWh (2007) • exports: 22.9 billion kWh (2004) • imports: 34.21 billion kWh (2004)

Energy PoliciesEnergy policies are the product of both individual State and Federal policies and may not be synchronized with Federal policies

Current Renewables’ StateAvalanche of venture capital has flowed in the US into start-ups developing technology

Geographical Renewable Centers• Most of the new company creation in Silicon

Valley and the Northeast U.S. • Midwest: Refineries to make biofuels in states

where corn and soybeans are turned into transportation fuels ethanol and biodiesel

Renewable Startups

Renewable Startups

Biofuel refinaries

Obama’s Stimulus Package

• Goal is to double renewable electricity generation in the U.S. in three years and to decrease the need for polluting fossil fuels

• U.S. government to set up a national renewable energy standard requiring 25% of energy to come from renewable energy by 2025

• The American Recovery and Reinvestment Act of 2009 includes more than $70 billion in direct spending and tax credits for clean-energy and transportation programs, including:

• Cut US oil demand by 4m barrels a day (equal to the combined consumption of France and Canada).

National Competitive Advantages: Porter’s Diamond

Main emphasis on the U.S. Government intervention

Factor Endowments

Firm Strategy, Structure and

Rivalry

Demand Conditions

Related and Supporting Industries

Chance

Government

RecommendationsRecommendations

Oil Price Impact on RenewablesOil price volatility hard to predict• In the short term, fossil fuel prices are being driven up by war,

political instability, natural disasters and other variables. • The long-term outlook is clearer: global supplies are dwindling

as demand soars, particularly in China and India

$80-$90 frontier

Recommendations• There is no straight cause-and-effect chain that perfectly

describes how policies affect the cost of renewable energy • Several elements that are of importance to the

development of renewable energy technologies

Political Settings

Policies and Measures

Risk and Risk Perception (Cost of Capital)

Cost of Renewable Energy

Cost of Technology

• EU is the safer places to invest in renewable energies followed by the US and lastly China, although China has a great potential

• EU as the country with lowest risk is its strong compromise with renewable energies for a long period of time, the size of its market and the amount of subsidies from each country and the EU government

Risk Assessment

Why Else Invest in the EU?Vestas (#1 in Wind turbines supplier)

Shipments of wind turbines [Vestas 2009 Q1]

Conclusion

• Germany is the most favorable country to invest in renewable energies

• US provide good opportunities for startup investments

• China presents higher risk, but should be considered if a local partner is found