Wednesday, February 03, 2010

Second wind for renewables financing

The current edition of Envirotech & Clean Energy Investor magazine has a cover feature by myself on renewables project finance:
Renewable energy project finance gets a second wind
Long-term financing for renewable energy projects was all but halted by the credit crunch, but stimulus measures and state-backed investors are helping the market move again.

As part of the research for the feature, I carried out a very informative interview with Christopher Knowles, head of energy, environment and investment funds at the European Investment Bank, which has become a key lender to renewable energy projects following the general financial crash. There was only space for a fraction of the interview in the magazine feature so, as I thought it was of sufficient interest to anyone interested in clean energy development and investment (or, indeed, in European policy), I've put up a full transcript at my Clean Ventures news blog.

Also due to appear shortly is a feature looking at financing and support for innovative businesses spinning out of UK universities, in the ICAEW's Corporate Financier magazine.

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Sunday, January 10, 2010

Forteans out for a Burton

The following is a letter I've written to the Fortean Times regarding the editorial column in the current issue (258). The FT is a magazine which I've read for close to 20 years, and contributed many book reviews to, and which generally has high standards of factual accuracy and impartiality. This editorial, mostly a summary of 'controversies' around climate change, failed to meet those standards, being a largely fact-free witter deploying a lot of spurious arguments and biased language familiar from many common denialist sources - whether that was intentional, or just the result of sloppy writing, I don't know. I could have launched into a general argument about the column's bent (especially as I've recently been reading Hoggan and Livermore's Climate Cover-Up: The Crusade to Deny Global Warming, a well referenced exposé of the industry lobby groups behind much denialist blether), but decided to settle for a factual rebuttal of some of its central claims. For general reference, here's what I wrote:

Dear Editors,

I was disappointed to find that your reporting and commentary in the editorial column of FT258 on Justice Burton's legal ruling on philosophical belief is inaccurate and misleading in a number of respects. The inaccuracies are very similar to those seen in a lot of the newspaper commentary on the ruling at the time, but I would expect better of FT.

You say that: 'Mr Justice Michael Burton concluded that "a belief in man-made climate change... is capable... of being a philosophical belief for the purposes of the 2003 Religion and Belief Regulations."'

Those obvious elisions led me to seek out the actual ruling, to see what you'd missed out - a natural sceptical response, I'm sure you'd agree. I found the full text of the ruling with a few moment's googling (via Bindmans).

Here's what the ruling's summary actually said:
"A belief in man-made climate change, and the alleged resulting moral imperatives, is capable, if genuinely held, of being a philosophical belief for the purpose of the 2003 Religion and Belief Regulations."

As the full ruling explains in some detail, it's those "alleged resulting moral imperatives" that make it a philosophical belief under the terms of this law, not the belief in climate change per se. Those 'moral imperatives', as stated by the claimant Tim Nicholson, are not necessarily accepted by everyone who gives credence to the overwhelming evidence for man-made climate change.

Your 'inevitable conclusion' that the case for man-made climate change is 'not a matter of scientific fact but of faith' is anything but inevitable. According to the ruling, the scientific nature, or otherwise, of the basis for the belief is irrelevant in judging whether it is a 'philosophical belief' in the terms of the law. Burton says: "In my judgment, if a person can establish that he holds a philosophical belief which is based on science, as opposed, for example, to religion, then there is no reason to disqualify it from protection by the Regulations."

You say that 'our belief in atoms or electricity has required no such special status'. That would be because they've not been subject to any similar proceedings under this law. However, Burton rules that other scientific theories may also be the basis for philosophical beliefs. With reference to the case "exemplified in the play Inherit the Wind", he notes: "Darwinism must plainly be capable of being a philosophical belief, albeit that it may be based entirely on scientific conclusions (not all of which may be uncontroversial)."

Equally, he says that Creationism could also be a philosophical belief for the purposes of these regulations, as could belief in political philosophies such as "Communism or free-market Capitalism". The way is already open for Flat-Earthers, or even climate change Denialists, to seek protection under the same law, so long as they can show that their beliefs are "genuinely held". There could indeed be some interesting cases ahead.

The ruling is a great deal more subtle, and arguably fortean, that you give it credit for. No doubt it could be criticised from a legal or philosophical viewpoint, but misrepresenting the contents of the ruling does nobody any favours. At the least, it's a very disappointing lapse from FT's usual standards of accuracy and impartiality.

At the time of the ruling, some newspapers did predict that it would likely be distorted by the denialist lobby to use as a rhetorical weapon against the scientific consensus. A similar thing happened with a previous ruling from the same Justice Michael Burton, in which he ruled against an attempt to prevent the film 'An Inconvenient Truth' from being shown in British schools. Burton approved the film for educational use, on the proviso that it be accompanied by notes highlighting nine instances where it potentially overstated the scientific consensus - a judgment that was spun by the denialist lobby to seem like a condemnation of the film and its arguments, even though the plaintiff (backed by industrialist and political activist Robert Durward) decisively lost his case. For details, see

As ever, it's worth looking at the primary material (the text of the ruling, in these cases), rather than just depending on contemporary media coverage.


Tim Chapman

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Wednesday, August 19, 2009

So has Taleb gone nuts?

Last evening, I caught a rather bemused-seeming Nassim Nicholas Taleb appearing at the end of Newsnight, apparently following some kind of meeting with David Cameron. When he could get a few words in between Kirsty Wark and some chap from the Times talking about Cameron's intellectual credentials (such as they are), Taleb was making his usual points about risk in the economy and other areas. Here's something he said:
"We have to be more conservative with some classes of risk, like the climate - we have to be more worried about the climate than people traditionally have."

So it's slightly puzzling to read this morning's papers and see Taleb presented as a climate change denier (see the Scotsman, for instance - although it is strangely satisfying to see even the Sun portraying denialism as the hallmark of a crank).

The implication is that Taleb (and by extension, Cameron, who shared a platform with him at the RSA event) has joined that weird lobby of evidence-denying dishonest do-nothings. From what I've read of his work, that seems rather unlikely.

For example, there's this from an essay on the Edge:
Correspondents keep asking me if the climate worriers are basing their claims on shoddy science and whether, owing to nonlinearities, their forecasts are marred with such a possible error that we should ignore them. Now, even if I agreed that it was shoddy science; even if I agreed with the statement that the climate folks were most probably wrong, I would still opt for the most ecologically conservative stance. Leave Planet Earth the way we found it. Consider the consequences of the very remote possibility that they may be right—or, worse, the even more remote possibility that they may be extremely right.

Here's what he reportedly said at the RSA, as per the London Evening Standard:
"I'm a hyper-conservative ecologically. I don't want to mess with Mother Nature. I don't believe that carbon thing is necessarily anthropogenic"

[EDIT, 20/8: Having now listened to the recording of the meeting, available from the RSA page linked above, it's clear that what Taleb actually says is "Even if I don't believe that carbon thing is necessarily anthropogenic, I just don't want to mess with Mother Nature." Which is obviously quite different. Shame on the Standard.]

It's grossly unfair to paint Taleb as part of the denial lobby, when his message is that even if you don't accept the evidence, we should be doing all we can to reduce greenhouse emissions because the potential cost of not doing so will be devastating. That's a long way from the do-nowt bleating of the fossil fuel industry shills and the genuine fruitloop fringe.

I strongly suspect Labour party briefings are behind this morning's stories. That not only seems deeply unfair on Taleb (but then, if you lie down with dogs, etc), but also rather unnecessary, as you really don't need this kind of spin to suggest that Cameron's a bit of a twat.

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Thursday, April 16, 2009

On the futility of carbon trading

The New Scientist has a provocative comment piece on the shortcomings of carbon trading from Andrew Simms of the New Economics Foundation:

Unless the parameters for carbon markets are set tightly in line with what science tells us is necessary to preventing runaway warming, they cannot work. That palpably did not happen with the ETS, which initially issued more permits to pollute than there were emissions and now, in the recession, is trading emissions that don't exist - so-called hot air.
Carbon markets cannot save us unless they operate within a global carbon cap sufficient to prevent a rise of more than 2 °C above pre-industrial temperatures.
Governments are there to compensate for market failure but seem to have a blind spot about carbon markets. They could counteract the impact of low carbon prices by spending on renewable energy as part of their economic stimulus packages, yet they have not done so. The UK, for example, has spent nearly 20 per cent of its GDP to prop up the financial sector, but just 0.0083 per cent in new money on green economic stimulus.
Price mechanisms alone are unable to do the vital job of reducing carbon emissions. They are too vague, imperfect, and frequently socially unjust.

It's more than just a criticism of current trading schemes, it's pretty much a broadside against a large portion of environmental economics. I await the response, not least from these guys.

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Wednesday, April 15, 2009

Without the hot air

Inspired by the glowing review in the Economist, I've just been reading David MacKay's Sustainable Energy - without the hot air (available as a book through the usual sources, or as a free download under a Creative Commons licence). Like the Economist, I'd strongly recommend the book for anyone interested in sustainable energy.

MacKay might seem like an unlikely person to write such a book - a physics professor from Cambridge, he's primarily a specialist in information theory, with a sideline in international development. It's maybe that off-centre viewpoint that allows him to use some simple tools from physics and maths to address the most basic question - can renewable (or, at least, sustainable) sources replace fossil fuels for the UK?

Along the way, he demolishes some of the wilder, waftier claims of industry boosters and environmental campaigners, as well as many of the tedious objections of the climate change deniers and do-nothings.

It's mostly to do with totting up the energy consumption and potential renewable resources for the UK, based on pretty basic material considerations. There's very little about what would usually be considered as the economics of the problem - the marginal costs, externalities, public preferences, game theories, discounted cost-benefit analyses, etc - but the book is, at heart, pure economics: how we can make best use of limited resources to achieve a social goal.

I've written a longer review over at Clean Ventures.

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Friday, November 28, 2008

Flawed analysis

Some new research from Newcastle Business School leads to an obvious objection.

Accountancy reader Richard Slack surveyed mainstream financial analysts, and found that they pay no attention to the social and environmental disclosures in the annual reports of UK banks. This, he says, 'will trigger fears over capital market analysts’ understanding of the broader challenges facing business and their attitudes to issues such as climate change'.

Mr Slack said the study, conducted jointly with Newcastle University, left question marks over analysts’ attitudes to the environmental challenges facing business. “Social and environmental reporting was universally considered irrelevant and incapable of influencing a financial forecast,” he revealed. “There was total dismissal of the importance of environmental issues in taking decisions such as giving loans to potential polluters, for example, and I would suggest that analysts are not taking potential climate change and environmental impact seriously enough.”
Mr Slack continued: “Our findings show that analysts are dismissive of anything other than financial metrics, and they deem large sections of voluntary narrative reporting as useless or worse. Analysts have been shown up to be narrow in their approach, often formulaic and rules-driven, and highly unlikely to be a source of change in respect of social and environmental issues. Their approach should be a major concern to wider market participants given analysts’ crucial role in the information supply chain.”

While, there's little doubt that analysts can be too focused on narrow metrics of questionable relevance to anything resembling real market conditions, it might be unfair to blame them for ignoring environmental and CSR reporting. Repeated studies by academics and pressure groups have shown that such reporting efforts are often meaningless, and little more than greenwash. Obviously there's exceptions to that, but ignoring the stuff that runs closer to self-promotion than to disclosure is hardly damnable behaviour. Still, it's never a bad idea to look beyond the analysts for information...

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Tuesday, May 06, 2008

What, me, worry?

When it comes to masterplans for a global reduction in carbon emissions, it's usually taken as read that the world's richest economies will take the lead. Not only are they (well, we) best resourced to lead the necessary technological investment, and have the necessary economic and political stability to achieve their targets, they're generally also the ones responsible for large amounts of historical emissions. In short, it's their fault there's a problem, and they're the ones bet placed to help provide a remedy.

Of course, thing's are never that simple. Particularly when, it seems, the richest and most polluting countries are the least inclined to see the need to actually do anything.

That's long been a strong suspicion for many, but it's one that's borne out by new research by Hanno Sandvik of the Norwegian University of Science and Technology. Sandvik's paper, forthcoming in Climatic Change, finds a strong inverse correlation between the level of concern in a country’s population about the costs of climate change, and that country’s gross national product and greenhouse gas emissions.

Sandvik's explanation is primarily a psychological one. From the university's press release:
“People are all too willing to repress unpleasant truths, particularly if one is responsible for something that’s not good. I had a theory that the countries that contribute the most to global warming might perhaps have a population that would rather not believe so much in the dangers from climate change,” Sandvik says.

When Sandvik compared data on level of concern to data on emissions, he found support for his theory: the more responsibility a country had for causing global warming, the greater the tendency of its citizens to explain away or ignore the problem. And as a country’s emissions levels increased, the level of concern sank even further.
The five richest countries in the dataset were Norway, the United States, Ireland, Denmark and Canada. All of these countries are also considered to be among the worst in terms of greenhouse gas emissions. That consequently doubles the fertile ground for the lack of worry. Researchers were not particularly surprised by the findings. All “idealism research” shows that those who are most well off are always the least willing to contribute.

“If you take global warming to heart, you understand that you have to sacrifice something. And the richer you are, the less willing you are to sacrifice. It’s far more pleasant to decide that you actually don’t quite believe in the climate threat”, Sandvik says.

This also gives the lie to the line, occasionally parroted by the climate change denial lobby, that reducing emissions is the preoccupation of a wealthy minority who don't care about the wealth of developing countries. Like virtually all their arguments, that's demonstrably utter bollocks.

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Tuesday, December 11, 2007

Of fat-tailed catastrophes

Estimating the long-term costs of climate change has become something of a stumbling block in determining what we should be doing now to mitigate the worse effects. There's continuing debate about whether the short-term costs of mitigation outweigh the uncertain long-term costs of doing nowt - something complicated by questions about what the appropriate discount rate should be, as noted below. In the US, industry lobby groups have deployed cost-benefit analysis (CBA) to argue that it's just not cost-effective to do anything to reduce emissions now - given the long time horizons, it'll be better to deal with any problems if and when they happen, even if the cost is many times that of acting now. Basically, prevention isn't better than treatment.

Martin Weitzman, of Harvard's economics department, has now countered that device with a paper considering the possibility (however low) of a genuinely catastrophic event resulting from a failure to act now. Such events are usually ignored in standard CBA, mainly because they're a bit difficult to work with. Weitzman's model does include the possibility of extreme events (which he terms 'fat-tailed catastrophes'), and the results significantly shift the balance of costs. When applied to the current knowledge relating to climate change and emissions, Weitzman's analysis shows that mitigation investment makes a hell of a lot of sense in minimising expected future costs.

As Weitzman concludes:
Even just acknowledging more openly the incredible magnitude of the uncertainties that are involved in climate-change analysis - and explaining better to policy makers that the artificial crispness conveyed by conventional IAM-based CBAs here is especially and unusually misleading compared with more-ordinary non-climate-change CBA situations - would in my opinion go a long way towards elevating the level of a reality-based public discourse concerning what to do about global warming.

The fairly technical paper is available in draft as a PDF here. For the less technically inclined, New Scientist gives a good summary.

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Friday, November 09, 2007

'Climate hoax' advocates hoaxed

News, via Reuters, of an entertaining hoax on a certain group of conspiracy theorists -
A hoax scientific study pointing to ocean bacteria as the overwhelming cause of global warming fooled some sceptics on Thursday who doubt growing evidence that human activities are to blame.
Laden with scientific jargon and published online in the previously unknown "Journal of Geoclimatic Studies" based in Japan, the report suggested the findings could be "the death of manmade global warming theory".
Sceptics jumped on the report. A British scientist e-mailed the report to 2,000 colleagues before spotting it was a spoof. Another from the US called it a "blockbuster".

A wee bit of investigation finds that the supposed journal site is registered to one David Thorpe, who comics geeks of a certain age will remember as the creator of Doc Chaos, and is now apparently an environmental journalist.

Nice work, AuThorpe! Though next time it might be an idea to use an anonymous site registration service to help keep the joke going a little longer. Still, it seems to have put the wind up the wingnuts anyway.

UPDATE, Friday pm: Thorpe's acknowledged his involvement, but says he didn't write it himself:
I did not write the content of the site. Someone else did. I designed the site because I was asked to by someone who knew I would be sympathetic to the joke. I appreciate it looks as though I wrote it. I even wish I had written it, because it's very funny. But I didn't.
Fair play.

UPDATE, Monday 12/11: Thorpe's written an extensive and elegant blog post about the reasons for and response to the hoax:
What the hoax showed is that there are many people willing to jump on anything that supports their argument, whether it's true or not.
What we wanted to emphasise is that it's necessary to achieve scientific validity using the peer-review model. Proper climate science makes every attempt to do this, and is a constantly evolving and self-refining process, as all science is.
So, when commentator posted on my blog - sarcastically - "....And we do all have to go with the "scientific consensus" don't we?" - I can only say, if we haven't got the scientific consensus then what have we got?

Meanwhile, Nature snares an interview with the still-anonymous author of the fake paper:
Its purpose was to expose the credulity and scientific illiteracy of many of the people who call themselves climate sceptics. While dismissive of the work of the great majority of climate scientists, they will believe almost anything if it lends support to their position. Their approach to climate science is the opposite of scepticism.

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Tuesday, October 30, 2007

A Stern response to the bubble question

One year ago, the UK Treasury published the Stern Review on the Economics of Climate Change to intense media interest. Unlike previous surveys or popular accounts of climate change, Stern put a financial cost on both action and inaction in cutting emissions of greenhouse gases and moving to a low-carbon economy.

The work was of obvious relevance to the clean energy industry, which can't always convince potential customers that its products and services make economic sense, and generally hailed as good news. Specialist financial information provider New Energy Finance welcomed the Review as "good news for investors in the renewable energy and low carbon technologies sectors", highlighting Stern's calls for a stronger price signal for carbon emissions, greater international cooperation, and increased funding for low carbon R&D, "all of which will boost clean technology companies". Stock tippers on personal investment websites also saw the Review as positive news, posting 'Buy' recommendations on selected clean energy stocks.

At the time, there were concerns about a speculative investment bubble in the sector, manifest in both venture capital activity and in the valuations of publicly listed companies. Such concerns continue to date. While some bubble-like behaviour is hardly unexpected in an emerging and potentially revolutionary sector, a bubble and burst would be likely to cause medium-term financial problems that could seriously damage the prospects of clean energy companies.

From an economics point of view, it's virtually impossible to say whether a market is actually in a bubble situation until some time after it's burst - not a very useful situation for current investors. Previous bubbles have however demonstrated the role played by the media in feeding 'irrational exuberance' and inflating bubbles, with stock prices moving in an irrational fashion in response to high-strength but low-weight news events.

The release of Stern Review can be considered as such an event. The Review did not contain any new information about the nature of the climate change problem or related policy or technological issues. Despite the NEF's comments, it also contained nothing that could meaningfully affect the prospects of individual companies or the clean energy sector as a whole.

So could the stock price response of listed clean energy companies to the Stern Review and its accompanying media hype shed any light on the much-debated clean energy bubble?

That's the question I addressed in some recent research (completed as my dissertation for a Master's degree in Economics & Finance), using event study methodology to test the reaction of a portfolio of AIM-listed clean energy companies.

The findings were largely negative, which is fairly encouraging. A small minority of clean energy firms (notably those dealing in carbon trading) did show abnormal returns around the release of the Stern Review, but there was no significant portfolio-wide response that would indicate irrational exuberance among investors. There is no indication of a runaway bubble of the kind seen in the dotcom era, a period to which the current cleantech boom is sometimes compared.

Although the research methodology can't claim to be conclusive (and is relatively untested in its application to a non-company-specific event such as this), its conclusions are encouraging for the sector. Investor interest in clean energy, and the broader cleantech sector, appears to be rational and reasonable. That can only be good for its longer-term prospects.

The dissertation, 'Evidence for a speculative bubble in the clean energy sector: an event study', is available as a 1.2Mb PDF here.

For the latest news on clean energy and cleantech VC, see my Clean Ventures blog.

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Tuesday, September 11, 2007

Prisoners of Bali

Interesting new paper from New Energy Finance on the lessons of game theory for international emissions-reduction agreements. It's an easy introduction to the problem of international cooperation considered as the familiar form of the Prisoner's Dilemma - basically, individual countries can not bother to cut their own emissions in the faith that other countries will do enough to avert the worst effects of climate change. The problem, obviously, is that if everyone does that, nowt gets done.

The NEF paper quite sensibly points out that the real world situation isn't a one-off game, as in the classic case, but a repeated game - a player who acts selfishly in one round can find himself punished in subsequent rounds. Back in the '80s, US political scientist Robert Axelrod showed this tit-for-tat strategy could reach a sustainable equilibrium, and boiled it down to four rules, with clear equivalents in the emissions-cutting game:
Be nice (start by cooperating - cut your emissions unilaterally);
Be retaliatory (if another player isn't nice, punish the bastard - sanctions, tariffs or other economic hurt);
Be forgiving (if he mends his ways, restore cooperation - help them with tech transfer if appropriate); and
Be clear (make sure your oppo knows what you're doing, so he knows what he has to do - the UN may have a role in education and communication here).

As the big global players get ready to head to Bali to knock out the successor to the not-entirely-successful Kyoto Protocol, their lessons according to this analysis are clear: the US needs to be nice; Europe needs to be retaliatory; the developing world needs to forgive the developed's past sins; and everyone needs a good deal more clarity.

The NEF paper is available as a PDF here.

The application of simple game theory models like the Prisoner's Dilemma to such problems of international cooperation isn't new, of course. The problems of coordination and free-riding become more acute as the number of participants increases, a particular problem for sumnative technologies such as carbon emissions. Still, there's some optimistic findings in the economic literature - this 2006 paper from Manfred Milinski et al finds that individuals can behave altruistically to help protect the global climate, with the basic level of altruistic behaviour increasing if the decision-makers are given expert information on climate research, and if they gain social standing by so doing. Let's see how that plays out in Bali.

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Wednesday, August 22, 2007

A Stern response

I've just caught up (via the Environmental Economics blog) with an interesting paper from the good chaps at Resources for the Future responding to some of the more considered criticisms to the Stern Review on the economics of climate change.

Thomas Sterner and U. Martin Persson focus on the criticism raised by William Nordhaus (who I've mentioned before) on Stern's assumption of a near-zero discount rate when considering the future costs of long-term climate change (this is a common economist's device based on the principle that a pound today is preferred to a pound tomorrow). I've not been convinced by Nordhaus' argument - while a significant discount rate is certainly applicable in cold financial decisions, it's less so when considering wider social criteria. If someone argues that we shouldn't invest now to try and reduce potentially catastrophic climate change because the current costs of doing so outweigh the discounted future costs of not doing so, then there's an obvious question to ask them: what generation of your own descendents are you willing to sacrifice for your own current comfort? By revealed preference, that should give some idea of their real social discount rate.

Anyway, Sterner and Persson use a few well established bits of economic theory to argue that, even if one takes a higher discount rate than Stern, the same conclusions are still justified.
We argue that nonmarket damages from climate change are probably underestimated and that future scarcities that will be induced by the changing composition of the economy and climate change should lead to rising relative prices for certain goods and services, raising the estimated damage of climate change and counteracting the effect of discounting.

The moderately technical paper can be downloaded as a PDF here.

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Friday, July 06, 2007

A change in the wind

Are two middling-sized wind turbines less intrusive than one large one? Apparently so. The new 'Factory of the Future' development at the Advanced Manufacturing Park on the Sheffield/Rotherham border, has secured planning permission for two 56 metre turbines. That should help the development achieve its aim of being the UK's first totally carbon neutral factory building.

As previously noted, the original plan was for a single turbine of around 90 metre. Peel Airports, part-owners of the former Sheffield City Airport nearby, objected to this on the grounds that it could potentially endanger aircraft (extremely low-flying aircraft, that is) heading towards the airport - a curious objection, given that Peel has been busy closing the airport down to redevelop as a business park. Other objections were scarecely less ludicrous - another AMP tenant apparently complained that the turbines would be distracting to its own staff when they ate their butties outside.

The AMP happily avoided serious damage during the recent floods in South Yorkshire (despite Catcliffe, the nearest village, being swamped), thanks to being on the slightly higher ground of the former Orgreave colliery. As climate change is likely to make such extreme weather events more common, one hopes that even Peel Airports can begin to see the point of carbon-neutral development.

Meanwhile, here's a CNN report on the Factory of the Future and the work of the Advanced Manufacturing Reseach Centre, focusing on their work with Boeing. The commentary seems a bit Sesame Street to local ears ("On the site of this nasty coal strike..."), but it's a decent overview of what's going on.

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Thursday, June 07, 2007

Clean Ventures blog

I've just launched a new blog, Clean Ventures, focusing specifically on clean technologies and cleantech venture capital. There's a number of US blogs on a similar theme of course, but I'll be doing it from a UK and European perspective. I'll be documenting VC deals in cleantech companies, new research and analysis on the sector, and policy news of interest; pointing to emerging technologies, companies and services; and exploring issues such as the possible investment bubble in listed cleantech businesses, and what that might mean for companies and investors. It's starting out quite modestly, but I'm aiming to introduce new services and content as things develop.

Regular readers of this blog may have noticed an increasing number of posts on cleantech and related concerns in recent months. If you've found these interesting, I hope you find the new blog to be a welcome addition to your personal blogosphere - and if you've not been that interested, it's also good news as there'll be less of that here.

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Tuesday, June 05, 2007

Solar scale

Good feature in Business 2.0 on the (mostly US) companies pushing big solar power projects:
This is not Jimmy Carter's energy crisis, when government subsidies ran ahead of market realities and launched a thousand solar projects that never saw the light of day. Their rusting hulks can still be seen scattered around the test fields: 1970s-vintage solar dishes, a 200-foot solar tower, parabolic mirrors surrounded by the detritus of bygone experiments.
This is the real deal. This is industrial-strength solar energy, sold to public utilities in 20-year contracts measured in gigawatts.

Author Todd Woody is putting up extra information that couldn't fit into the main feature on his blog, the unfortunately named Green Wombat. There's a very good point raised in his initial post focusing on Stirling Energy Systems:
[Stirling VP Bob Liden] argues that scaling up from the six dishes the company currently operates in New Mexico to tens of thousands of dishes isn't as daunting as it seems. "If you’re talking to a finance guy, he might take a look at it and say this going to be absolutely impossible to make happen," says Liden. "But if you take someone who comes out of manufacturing, like at Ford or GM, they say, hey, we do this all the time. Yeah, you have to start some place, with some hand-built units. That’s what they do when they build a new car. Once you figure that out, you turn it over to the guys who know how to do the manufacturing engineering, the industrial engineering, and before long, bango, before long you can put these things out pretty darn fast."

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Low AMPage

Official word on another addition to the Advanced Manufacturing Park on the Sheffield-Rotherham borders, and another sign of an increasing appetite for all things cleantech -
Yorkshire Forward has announced plans to begin construction of its £8.7 million incubator building to support businesses entering the emerging low carbon energy technologies market.
The Environmental Energy Technology Centre (EETC), to be built on land adjoining the Innovation Technology Centre on the Advanced Manufacturing Park, with investment from the European Regional Development Fund, and will support more than 30 enterprises engaged in the development of products that will aid the transition to a low carbon energy economy. Work is expected to start on site in the next month, and be completed by Autumn 2008.
Companies located in the building will be able to tap into the expertise in cutting edge manufacturing techniques and other technologies that exist within the Advanced Manufacturing Park. The EETC is also planned to be the home of the Dti’s Environmental Technology Institute (ETI) should the University of Sheffield’s bid for the ETI be successful later this year.

All good stuff, but hardly a great leap forward for the AMP. As noted in this feature I wrote in 2003, the AMP aimed to attract £650 million of investment from private and public sources by 2007. That hasn't happened. It's got the hub of research centres, and already has a small business centre (sorry, 'innovation technology centre') backed by public money. But the big private sector investment that the AMP was meant to attract is still conspicuous by its absence. Informal word says that's not entirely due to lack of inquiries, but perhaps more to do with issues with the scheme's handlers at Yorkshire Forward. One awaits news to the contrary.

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Sunday, June 03, 2007

Environmental economics blog

Here's a good blog, simply called Environmental Economics, by a couple of economics profs who get their teeth into many of the issues I've been nibbling at recently - not least the relative merits of carbon trading versus carbon taxes. A good overview of recent developments is here:
I really don't get the debate by economists between a carbon tax and marketable carbon permits. At the first level, as economists, we've won! We've convinced nearly everyone that regulation using economic incentive-based policies is a preferred approach. The squabbling amongst us over the best economic incentive-based policy can't help get one of these policies implemented.
I understand the squabbling by others ... since there is a lot of money at stake.

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Saturday, June 02, 2007

Sustainable chaos

Interesting short paper by Jacques Nihoul of the University of Liège on the role of chaos theory in models of sustainable development, which ties in with a number of subjects recently mentioned here. From the journal press release:

Current approaches to sustainable development do not fully involve complete methods and techniques for using, recycling, and replacing natural resources. Moreover, they do not take into consideration the effects of ongoing economic policies and fluctuating human populations. This is where the butterfly effect of chaos theory fame must be resurrected, says Nihoul [...]
Chaos theory is a major component of the computer models used by climatologists and weather forecasters as well as economists seeking patterns in the rise and fall of stock market values. However, Nihoul explains that while these models can provide useful information to feed into a global sustainable development policy, they must also take into account those butterflies on the periphery too. "Models of sustainable development on the ten-year and century-long timescales, must take into account both the diversity and the ‘turbulence’, the fluctuations on much shorter and more local scales," explains Nihoul.
Nihoul has developed a new modelling approach to climate, resources, economics, and policy, that sees the world system as interconnected local happenings rather than taking the smoothed global view favoured in much simpler studies. The earth cannot be modelled as a whole, he says, but rather as a mosaic of different systems, each with its own network of smaller systems and so on. Such an approach recognises the importance of global effects but also of the tiny deviations, the exquisite flapping wing of a butterfly as having a potentially enormous effect, chaotically speaking.

Jacques C.J. Nihoul, "Chaos, diversity, turbulence and sustainable
development", Int. J. Computing Science and Mathematics, 2007, Vol. 1, No. 1, pp 107-114
available here.

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Friday, May 25, 2007

Cleantech bubbles again

Following the recent cleantech report from US analysts Lux Research (as mentioned below), Rob Day of the excellent Cleantech Investing blog sits down with Lux's Matthew Nordan to talk about possible bubbles:

It’s certainly true that the press loves downside stories. We’ve tried to be pretty specific about the two subsegments where we see an excessively high ratio of money and enthusiasm to opportunity: solar and biofuels. It’s hard to look at, for example, New Enterprise Associates’ pursuit of SolFocus and not see flashbacks to the Internet in the late 1990s[...]
Solar and biofuels get outsized attention because they are easy to understand (everyone’s seen a solar cell and everybody’s pumped gas), they’re both experiencing big technology shifts (crystalline silicon to thin-film and corn/cane to cellulosic), they both have government incentives and news flow working in their favor, they both have established valuation comparables (you’re not creating a new category), and they both have enormous headroom for growth – solar was 0.02% of U.S. energy last year! There aren’t many other subsegments where all of these factors line up.

A very good point. Not that this particular corner of the press is overly fond on 'downside stories', of course...

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Monday, May 21, 2007

Carbon politics, and alternative introductions

As always, some interesting papers in the new issue of the Post-Autistic Economics Review.

Donald MacKenzie of the University of Edinburgh discusses (in a paper originally published in the London Review of Books) the political economy of emissions trading, a subject I discussed immediately below. It's an interesting look at the political machinations behind the introduction and implementation of such schemes, notably the US sulphur-dioxide programme and the more recent European Emissions Trading Scheme. He doesn't spend much time on the pros and cons of trading versus the alternative approach of taxation, apart from noting the greater political difficulties of the latter:
What pushed Europe towards trading rather than the initially preferred carbon tax is in good part an idiosyncratic feature of the political procedures of the European Union. Tax measures require unanimity: a single dissenting country can block them. Emissions trading, in contrast, counts as an environmental, not a tax matter. That takes it into the terrain of ‘qualified majority voting’ [...] A plan for a Europe-wide carbon tax had foundered in the early 1990s in the face of vehement opposition from industry and from particular member states (notably the UK), and its advocates knew that if they tried to revive it the unanimity rule meant they were unlikely to succeed.

MacKenzie also addresses some of the instinctive objections to emissions trading:
many people, especially on the political left, have an instinctive dislike of the idea of emissions trading. Amongst its roots is a variant of what the economic sociologist Viviana Zelizer calls the ‘hostile worlds’ doctrine. She’s concerned with the worlds of economic relations and of intimacy. There, the ‘hostile worlds’ doctrine is that the intrusion of economic considerations corrupts intimacy, and conversely that kinship and other intimate relations need to be stopped from corrupting what should be impersonal economic transactions [...] In my view, Zelizer’s open-mindedness should also be applied to emissions trading. Just as economic relations and intimacy aren’t necessarily at odds, we shouldn’t assume a priori that market pricing is detrimental to environmental stewardship.

Meanwhile, the PAER leads with an update from Arjo Klamer, Deirdre McCloskey and Stephen Ziliak on their alternative introductory textbook for economics, The Economic Conversation:
We want to produce a book that reflects the actual conversation of economics, Samuelsonian to Post-Autistic. Our web site intends to nurture an already worldwide community of teachers and students who believe there's more than one way to skin an intellectual cat - and that a fair and public hearing of the alternatives is crucial to the health of the economic conversation.
We don't expect to be the next Samuelson. Market share would be nice - we openly admit to a profit motive! - but it’s not our main goal. After all, that's one of the leading points in the Post-Autistic movement, that human goals are multiple and cannot be reduced in most cases to Prudence Only or to Mr. Max U or to any of the other formulas for sociopathy recommended by the Samuelsonians.

Sounds like exactly the kind of introductory text I wanted not too long ago.

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Tuesday, May 15, 2007

Carbon trading - not all that great

The Guardian reports on Blair-backed proposals for a new generation of international carbon trading schemes to help reduce greenhouse gas emissions. Even Dubya's close to getting on side on this one, apparently:
The plan would involve setting up a network of carbon trading schemes and is one of five main proposals drawn up by the Germans and British ahead of the G8 summit next month[...]
Under the new trading plans, China and India would not face binding targets; instead they would be allowed to continue their extraordinary economic growth in exchange for a commitment to establish national cap and trade schemes to cover some of their most heavily polluting industrial sectors, such as metals processing and cement manufacturing.
Companies in these sectors would be granted permits to emit carbon dioxide and other gases, in the hope they would rather reduce pollution than pay for permits. The idea is based on a scheme covering power generators and heavy industry that operates in Europe under Kyoto.
Further cap and trade schemes - this time with binding targets and penalties for non-compliance - would be set up to cover carbon pollution in developed countries, including the US and Australia, which have refused to sign up to Kyoto. These could be along national, regional or sectorial lines, officials said, with carbon credits eventually traded between different schemes using exchange rates similar to currency conversions, with the goal of placing a global price tag on pollution.

Last week's Economist also had a favourable story on carbon trading schemes, based on a recent World Bank report:
The benefit of this approach over regulation is that the businesses which can reduce their emissions at the lowest cost do the bulk of the adjustment. Perverse incentives that can often hamper environmental regulations may also be avoided.
These schemes are large, and growing. Last year, carbon-trading markets grew to $30 billion, three times bigger than the previous year. Trading was dominated by permits issued under Europe’s emissions trading scheme but a voluntary private market worth $100m has also evolved.

Funnily enough, many economists (primarily in the US) are arguing that such a Coasian rights-based approach isn't actually all that suitable for tackling global greenhouse gas emissions, largely because of the size and complexity of the market. More attention is again being paid to straight taxation on carbon dioxide and the other GHGs, in something closer to the classic Pigovian approach.

William Nordhaus of Yale University, for instance, argues in this discussion paper that the structure of costs and benefits of the climate change problem innately favour a price-based approach - a combination of non-linearities in emission reductions, costs and benefits, and remaining (and probably unavoidable) uncertainties means that trading schemes are likely to create much more undesirable volatility in carbon pricing, reducing the effectiveness of any international scheme. Nordhaus rather advocates a harmonised carbon tax, "a dynamically efficient Pigovian tax that balances the discounted social marginal costs and marginal benefits of additional emissions". Such a tax would increase real carbon prices by between two and four per cent per annum, he estimates.

Inevitably, politics rears its head here. A globally harmonised carbon tax is likely to be resisted by governments protective of their national powers - given a choice between a carbon tax and a less efficient market scheme, policy-makers may opt for the latter as there is less obvious cost to the electorate. And in general, national policy-makers are likely to be deterred by the potential costs of implementing any pricing scheme if the benefits are unlikely to be felt before the next electoral cycle – or indeed in the next generation.

Meanwhile, carbon trading has been embraced by corporates who've figured that with a little lobbying resulting in less than perfect market design, as with the early European emissions trading scheme, it can be a nice little earner without actually requiring much work to clean up their act. And now it seems the White House is putting its weight behind such schemes. If I can be excused a touch of cynicism, it doesn't exactly inspire confidence in achieving the necessary reductions, does it?

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Cleantech bubbles on

Couple of weeks late on this one, but the Guardian only picked it up yesterday - further warnings about a developing cleantech investment bubble:
According to Lux Research, which has just completed a comprehensive report on the sector, "the warning signs of a bubble are flashing in the energy technology segment, where initial public offering values and venture capital deployments more than doubled last year – setting the stage for a boom and bust".
Lux reported around 930 startups in global solar energy and biofuels arena and that some 200 of them have received some venture capital money[...]
Says Michael Holman, a senior analyst at Lux: "I think from looking at the sheer amount of money that is being invested right now we have to think that a lot of that money is now chasing after some opportunities it wouldn't be in a more sober climate."
Later stage institutional investors have also been caught up in the hype. Lux reported that in the energy segment where IPO value rose from $1.6bn in 2005 to $4.1bn in 2006.

Lux press release here, and further info here.

As I mentioned below, I'll shortly be working on a dissertation examining share price characteristics in the UK listed cleantech sector. The worry isn't that the companies winning too much investment are actually crap, as was the case in the dotcom bubble, but that when the bubble bursts, some decent companies developing much-needed technologies will be taken down with it. The costs of the bubble bursting will be high - what it needs is just to have a some (clean) air taking out of it.

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Thursday, March 08, 2007

Cleantech feature

I've just received the latest copy of 3i's iSight magazine, which focuses on various technology areas which 3i sees as interesting. This one is the first to focus on the emerging area of clean technology. From the blurb:
Clean technology is poised to become one of the biggest creators of wealth and employment in the 21st century. Encompassing energy, air and water treatment, industrial efficiency improvements, new materials and waste management, the products and services which fall under the 'cleantech' banner are playing an increasingly large part in the global economy - with corresponding opportunities and rewards for venture capital investors.
According to one widely-quoted study, the cleantech market is predicted to grow from $25 billion in 2000 to $186 billion by 2012. At the halfway mark, it's certainly entered the mainstream of venture capital investment. In 2006, total venture investment in North American and European cleantech topped $1 billion per quarter for the first time, according to figures compiled by Cleantech Venture Network (CVN)

I wrote the lead article, introducing the cleantech sector and looking at the opportunities and strategy for venture investment (and, inevitably for such a contract publication, explaining why 3i are ideally positioned to back the best companies). The mag is available as a PDF download from here.

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Monday, February 26, 2007

Green investment, dirty money

A big day for the cleantech investment sector, with news (reported here in the Guardian) that the (new) world's biggest buyout will be of a deep green hue -
A proposed $44bn (£22bn) buyout of Texas energy firm TXU, which is tipped to be the world's largest private equity takeover, will include an environmental commitment to scale back coal power stations and limit greenhouse gas emissions.
Kohlberg Kravis Roberts and Texas Pacific are putting the finishing touches to a purchase of TXU - a power generator which has been described as "public enemy number one" by US green lobbyists because of its aggressive programme of building coal plants.
It emerged yesterday that the two private equity buyers have held talks with environmental groups to win support for the takeover. To the delight of green organisations, the buyers have offered a radical change in direction - including scrapping seven of 11 new coal power stations and implementing clean air initiatives.
It was also hailed by green campaigners yesterday as a sign that powerful Wall Street and private equity financiers are taking environmental issues more seriously and that they recognise that polluting projects have become a significant business risk.
Tony Juniper of Friends of the Earth said the proposed deal made it clear that going low carbon would be one of the big business drivers of the next decade.

(later reports suggest the deal is pretty much sewn up).

The Guardian's headline - Private equity plays the green card in US - reflects the tone of the current row in the papers about private equity and its role in asset-stripping and anti-worker practices. While there's certainly questions about the activities of some of the big highly-leveraged deals, it's a shame to tar the whole industry which does provide some economically and socially desirable services in supporting innovative businesses or rescuing failing ones.

The current complaint about some VC grandees providing donations to the Labour party seems particularly daft. Of the names accused, I don't know Nigel Doughty or Jonathan Aisbitt, but Ronald Cohen is definitely one of the good guys - for a feature about socially-focused VC, including an interview with Cohen, I wrote back in 2003, see here.

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Wednesday, November 29, 2006

Wind and fury

Peel Airports, part-owners of the former Sheffield City Airport and owners of the slightly more active Finningley (sorry, Robin Hood Airport Doncaster Sheffield), have lodged a curious objection to a proposed wind turbine at the Advanced Manufacturing Park on the Sheffield/Rotherham border.

The Star reports:
AIRCRAFT could be put in danger by a giant wind turbine set to be built near Sheffield airport, it was claimed today.
Worried aviation bosses fear the 270ft high structure, with 90ft blades, could potentially lead to a disaster near Sheffield Parkway.
Peel Airports says the turbine, near the approach funnel for the runway, would "constitute a serious obstacle to the safe operation of aircraft".

The curious thing is that Peel has done pretty much all it can to stop planes flying into Sheffield City - last time I spoke to them, their plans involved a massive expansion of the business park and housing across the runway, retaining only a heliport. Their investment in the site during the run-up to their development of Finningley raised a few eyebrows at the time. (To be fair, Sheffield City Airport was never an entirely viable venture - it seems typically Sheffield endeavour to have an international airport with a runway too short to take most commercial aircraft).

Knowing the topography of the site, I'd also guess that any plane in danger of hitting a 80m windmill (which is, after all, outside the approach funnel) would also be in danger of scraping trucks on the nearby Parkway dual carriageway. Or, with a sudden gust of wind, reenacting 9-11 on the Tinsley twin towers (each barely 4m shorter than the proposed windmill).

Local residents are also reported to have objected about the plans, which they believe will lead to an overbearing presence and possible noise pollution. Yes, keep those unsightly windmills off our slagheaps! God knows what they'd say if anyone threatened to re-open the collieries, or even to fly planes over their heads.

I'd love to see a wind turbine on the site, particularly if the Tinsley towers are finally demolished. It'd be a great landmark for Sheffield, and a statement of intent for the new Factory of the Future development which will have a large focus on developing more environmentally-friendly technologies.

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Sunday, November 05, 2006

Market environmentalism

The Observer has an interesting interview with James Cameron of specialist investor Climate Change Capital. This comes in the wake of the Stern report on the economics of climate change which, even if it didn't exactly tell us anything new, seems more likely to get the message across to those who are more susceptible to economic than scientific argument -

If [Cameron] and his team at CCC, which invests in building green energy facilities to reduce greenhouse gas emissions, succeed they will, he says, 'show we can reduce emissions, and prove that money can be made from doing that'.
It sounds very grand, and this tall 44-year-old sometimes says things that sound overblown. But who doesn't when they're talking about the environment? At least he's honest. On the one hand, he says that he could change the world. On the other, he says: 'I have no interest in putting on a hair shirt. I don't want to be told I can't live well.'
Cameron's insight is that environmental damage is behavioural and the best way of changing behaviour is not by regulating people but by offering individuals the chance to win and lose through their own decisions.
'Stern is absolutely critical in terms of the necessary shift in consciousness in the upper echelons of political and business decision-making,' he says.
Excuses for inaction from politicians and businessmen exasperate him, as do those who say the UK produces only 2 per cent of global emissions, and that the developing world, particularly India and China, is not listening to Stern or anyone else. 'One persistent lie is that China and India are not part of Kyoto. They are, but their response is differentiated. They have hundreds of millions of people living on less than a dollar a day.'
He is haunted by the possibility of failure, but the fact that big money has arrived has given him confidence that he is no longer in the wilderness. He is not a boastful man, but does have an air of vindication about the compromises he has made to bring environmentalism and capitalism together.
As he puts it: 'The tree-huggers were right. We have to tip our hats to them and get on with the solution, which frankly we would not trust them to implement.'

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Wednesday, September 13, 2006

Barnsley biomass

Today's Society Guardian highlights another aspect of environmental innovation in South Yorkshire, with an increasing use of biomass power in the former coalfields -

Instead of following its neighbours, which long ago replaced coal boilers with gas equivalents, Barnsley is now installing wood heating in all new public buildings and refurbishments, embracing biomass fuel as a preferred energy source.
Because wood is considered carbon neutral - any CO2 released in the combustion process is mopped up by growing trees - the move could slash the council's CO2 emissions by 60% by 2010, 40 years ahead of the government's 2050 target.
For [Barnsley MBC chief engineer, Dick] Bradford it is a simple equation. "From an environmental point of view, heating goes from being highly polluting to no carbon," he says. "It's a no-brainer."
Bradford says Barnsley's plants, which burn 6,500 tonnes of coal a year and generate 15,000 tonnes of CO2, will eventually be replaced with biomass, including the new town hall and nine new secondary schools, which will be replaced with new biomass-heated buildings under the Building Schools for the Future programme. The town's coal is currently sourced by UK Coal from various pits to create a "Yorkshire blend". "Soon, we won't be burning coal any more," says Bradford.
Like the one-time coal economy, biomass could provide a real boost to a depressed regional economy, says Bradford. It could provide employment - an estimated 15 jobs for every megawatt generated; bring neglected woodland into active management; and turn wood waste, which would otherwise be sent to landfill, into a commodity. "We get those big wins and we make the carbon savings targets 40 years ahead of where we should be making them. That's not bad."

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Wednesday, September 06, 2006

Clean tech, big money (and the JAMBOG trap)

Interesting news feature in the new Real Deals on VC funds specialising in clean technology, centred on a round table discussion involving three managers of such funds. As well as specialist funds, big players like 3i and Apax Partners are also increasing their exposure to the sector. As James Cameron of Climate Change Capital notes:
"Wind energy, solar energy and biofuels are each bigger markets globally, at $13bn, than e-commerce, at $11bn."
That's an eye-opening statistic, given the hype given to the likes of Amazon, and the continued disdain from some quarters for anything smacking of environmentalism or that dread word 'sustainability'.

There's also a piece by Real Deals editor Ross Butler on the importance (or otherwise) of regional offices for private equity firms. As I've noted in countless previous features, there's been a general retrenchment away from the regions, with a few firms such as Isis as notable counter-examples. Ross did ask me to write a side-piece for this article on the Leeds market, which unfortunately I couldn't fit into the schedule - mainly because I was deep into another long deals piece for the sister mag, Real Business, this time looking at expansion or development capital. That's a market that's been largely ignored in recent years, but many of the advisors and VCs I spoke to reckon that there's more money moving back in. In large part, that's because the VCs need to secure themselves a niche in a crowded market and not just be seen as JAMBOG - an acronym, we also learn from this RD, for 'just another mid-market buy-out group'.

Seems slightly odd that something as innovative as the latest clean technologies, and something as traditional as mid-market minority-stake development capital, are both seen as niches. Maybe it says more about the state of the mainstream.

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Wednesday, June 29, 2005

Pennies in the wind

Interesting report from the New Economics Foundation on renewable energy sources. Advocates have often claimed that all the world's energy needs can potentially be sourced from renewable sources - wind, solar, geothermal, etc. The UK is particularly well placed for wind power, both offshore and on. Small wind farms are an established feature of the Pennines along the Yorkshire-Lancs border, a graceful addition to the moorland landscape of old mills and viaducts. I use a renewables electricity suppler at home, so it's fair to say that all my writing is wind-powered (including the odd feature on this very subject).

The NEF report largely focuses on micro-generation - household or community scale generation, such as small wind or solar projects, or CHP boilers. Key to the spread of these technologies is the simple fact that they can pay for themselves in a few years, and then be cash-generative as you sell excess generation back to the grid.

The case is charmingly illustrated by the islanders of Gigha, who bought their island in 2002 and have now installed three second-hand wind turbines named Faith, Hope and Charity. The Guardian report quotes the no-less-charmingly named spokesman, Willie McSporran: "You just hear a little swish as the blade passes overhead. You can speak beside them as you would normally ... . When you hear the noise, it's saying pennies, pennies. It's making money for the community all the time."

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