Green swan, Black swan: No matter as long as it reduces stranded spending
by Prashant Vaze, The Climate bonds Initiative
In January, authors from several institutions under the aegis of BiS, published The Green Swan Central banking and financial stability in the age of climate change setting out their take on the epistemological foundations for, and obstacles against, central banks acting to mitigate climate change risk.
The book’s early chapters provide a cogent and up-to-date analysis of climate change’s profound and irreversible impacts on ecosystems and society. The authors are critical of overly simplistic solutions such as relying on just carbon taxes. They also recognize the all-too-evident deficits in global policy to respond to the threat.
In short, they accept the need for central banks to act.
The Two Arguments
The paper makes two powerful arguments setting out the challenges central banks face using their usual mode of working.
Firstly, climate change’s impact on financial systems is an unknowable unknown – a...
Terraform Power Issues $800m High Yield Green Bond
by the Climate Bonds Team This week the yieldco TerraForm Power (TERP) issued a huge high-yield green bond; seeing more high-yield bonds is a sign that the green bond market is continuing to mature. In addition to TerraForm, more green bonds from repeat issuers OPIC, World Bank, IFC and Credit Agricole have been announced and will be closing in the coming weeks. For today, let’s dig deeper into the latest green high-yield offering. The US-based renewable energy company TerraForm Power Operating has issued US$800m of senior unsecured green bonds (debentures), making it the largest green bond of 2015...
Power REIT’s Preferred Stock Offering: A Hedge That Pays 7.75%
Power REIT's preferred stock offerning (NYSE:PW-PRA) is an excellent hedge for the legal risks borne by the holders of its common stock (NYSE:PW.)
Sunny Climate For Solar Income Up North
Tom Konrad CFA Disclosure: I am long PW and HASI. In a rational world, the sunniest places would have the warmest reception for solar technology and investment. While solar is having its day in the sun in Hawaii, state incentives make the economics of photovolatics equally attractive in Vermont, a state not known for its sunny skies. And while California is famous for its rapid deployment of solar, the economics are at least as good in Washington state, New York, New Hampshire, and chilly Maine. It’s not only the economics of solar which can counter-intuitively get better...
Trash Stocks Trashed: An Income Opportunity?
Tom Konrad CFA Dumpster diving for high yielding gems. An earlier version of this article was written at the end of July and published on my Forbes blog, before the August market implosion. I've updated it here to reflect the new stock prices and some recent company news. Renewable energy has many advantages over fossil energy. One of the most important is that it's renewable. As supplies of Oil and other fossil fuels are used up, they become harder and more expensive to extract, while renewable energy is generally getting cheaper over time,...
Why This German Solar Executive Is Skeptical About American YieldCo Assumptions
by Tom Konrad CFA Ever since the first YieldCo, NRG Yield (NYSE:NYLD), went public in 2013, it and other similar YieldCos have been reshaping the market for operating renewable energy assets, especially wind and solar PV farms. A YieldCo is, to put it simply, a publicly traded subsidiary of a developer and operator of clean energy farms that uses the cash flow from its assets to return a high current dividend to shareholders. Most large, publicly traded clean energy developers have already launched or are preparing to launch a YieldCo. The current crop includes NRG Yield, Pattern...
Buffet Bet Comes Out for Solar
by Sean Kidney Warren Buffet is a famous proponent of value investing and he surely received a sign of the value in solar investments over fossil fuels last week. The MidAmerican Energy $850m Topaz solar project bond we mentioned a couple of weeks ago was so successful that a second tranche is expected to cover the remaining debt of the project. The offer was oversubscribed by $400m which would have mopped up the total $1.2bn of debt in the project; Buffet's Berkshire Hathaway (BRK-A) controls MidAmerican. In contrast, Buffet’s investment in $2bn of bonds from gas company...
Q1 Earnings Roundup: Yieldcos (AGR, BEP, CWEN, GPP)
By Tom Konrad, Ph.D., CFA
This is a roundup of first quarter earnings notes shared with my Patreon supporters over the last week. If there is any theme, it’s that low interest rates and increased interest in green investments is lowering Yieldcos’ cost of capital to the benefit of stock investors.
Avangrid Earnings
Avangrid's (AGR) Q1 earnings report showed solid progress. Key items of note were:
Increased outlook for full year 2021 Adjusted EPS a little over 5%
Key environmental approval for 800 MW offshore wind farm Vineyard Wind. Expected to begin construction later this year, with expected completion in 2024. Avangrid...
Funding The Energy Transition at Clean Energy Credit Union
by Tom Konrad, Ph.D., CFA
With interest rates as low as they have ever been, I believe there is little point in small investors investing in bonds or bond funds, even if an allocation to fixed income is needed to match their investments to their ability and desire to take on risk. With little potential upside from interest, I believe it is better to take advantage of the added safety of federally backed insurance by depositing money in a bank or credit union savings account or certificate of deposit (CD) ladder.
We can do that and avoid having our deposits fund...
Why is Terraform Power Trading at a Premium to the Brookfield Renewable Merger Value?
Tom Konrad, Ph.D., CFA
A reader asked:
Read your recent article on Pattern Energy (PEGI). Great summary and thoughts.
Would like to ask your view on TERP potential takeover by BEP (via shares swap) and whether you reckon the recent run-up on TERP is too excessive?
It's a good question, and one that Robbert Manders on Seeking Alpha did a thorough analysis of here. For the details of the merger, I refer you to his work.
While his analysis is careful and complete, I disagree with his conclusion. TERP shares are not trading at a significant premium to the merger value. The reason is...
Four Clean Green Dividends
by Debra Fiakas CFA The recent pullback in stock prices in the U.S. equity market has opened the door to some interesting dividend yields. Investors with a taste for environmentally-friendly businesses have some particularly interesting alternatives that can pump up the purse as well as protect Mother Earth. AES Corporation (AES: NYSE) is a world-class power generator from mixed portfolio of conventional and renewable power sources. About 28% of its 29,352 megawatts of generation capacity is from renewable fuel sources, including hydro, biomass, solar and wind, and another 33% from plants using natural gas. The balance of...
Are Aspiration’s Deposits Really Fossil Fuel Free?
Fossil Fuel Free Claims
If you are reading this, you've probably also seen advertisements for Aspriation's “Fee-free and fossil fuel free” banking services. Like the advertisements the company's product page encourages visitors to “Earn high interest on what you save with an account that is fee-free and fossil fuel free.“
As a professional green money manager, I know that “fossil fuel free” is in the eye of the beholder. For many mutual funds, “fossil fuel free” simply means avoiding the 200 largest fossil fuel companies, but investing in the 201st largest fossil fuel company, even if its primary business is mining...
US Yieldcos Will Survive
by Susan Kraemer As unrealistic expectations of dividend growth are scaled back, yieldcos are now on a more sustainable path. Weaknesses in the US yieldco model came into sharp relief this summer as share prices fell along with oil and gas stocks. This was in part due to investor confusion about energy stocks but also in response to a flaw in US yieldco expectations. Manager of the Green Global Equity Income Portfolio and AltEnergyStocks.com editor Tom Konrad Ph.D., CFA had warned of the looming potential for exactly this kind of market correction in a conversation a...
Climate Bond Standard to be Released This Week
Tom Konrad CFA Conserving the planet for conservative investors. Investing in clean energy stocks has an (often well-deserved) reputation for risk. Although energy efficiency and more inclusive progressive energy indexes have held up fairly well over the last few years, the performance of narrower clean energy sectors has been dismal, and some industry observers feel that the declines in wind and solar are structural (and hence permanent) as opposed to cyclical (and therefor temporary.) This presents a conundrum for investors with long time horizons who not only need their investments to earn a steady return...
Hannon Armstrong Declines to Raise Dividend, Sets 3 Year Guidance
Investors did not like Hannon Armstrong's (NYSE:HASI) fourth quarter earnings announcement last night. While core earnings were a little weaker than expected, that is not what has the stock trading down 11% today. What shocked investors is the fact that the company did not raise the dividend this year for the first time since the REIT went public, and it gave 3 year guidance which likely disappointed many investors.
Last month, I wrote,
I expect that Hannon Armstrong will continue to be a well run and conservative business in 2018, and that management will raise the dividend at the lower end...
Five Pioneers Mining the Sun for Income
by Jared Wiedmeyer For the past few years, solar industry stakeholders have imagined a future where the general public has the ability to invest in pure-play renewable energy real estate investment trusts (REITs) that finance and construct both utility-scale and distributed photovoltaic (PV) projects in the United States. While these stakeholders wait for this reality to come to fruition, existing REITs already have several options to own or develop solar projects that still allow them to comply with the IRS's asset and income tests. This past May, Chadbourne & Park's Kelly Kogan and Scott Bank moderated a roundtable with...
