Tag Archives: alternative
Biomass Power To Reach $11.5 Billion In Annual Revenue By 2020
Taylor Scott International News Taylor Scott International Taylor Scott International, Taylor Scott Continue reading
Sharing The Risks/Costs Of Biomass Crops
Sep. 4, 2013 — Farmers who grow corn and soybeans can take advantage of government price support programs and crop insurance, but similar programs are not available for those who grow biomass crops such as Miscanthus. A University of Illinois study recommends a framework for contracts between growers and biorefineries to help spell out expectations for sustainability practices and designate who will assume the risks and costs associated with these new perennial energy crops. “The current biomass market operates more along the lines of a take-it-or-leave-it contract, but in order to encourage enhanced participation and promote a more sustainable, stable biomass supply, a new kind of contract needs to be created,” said Jody Endres, a U of I professor of energy and environmental law. Endres said that a good contract gives everyone more certainty. “Incomplete contracts are the hazard,” she said. “We need to develop contracts that nail down all of the details and are transparent about who’s taking on the risk and who’s paying for it. If we get these considerations into the contracts, those who finance this new biomass crop industry will have more certainty to invest.” The study identifies considerations that should be included in the framework for a biomass contract, including a control for moral hazard, risk incentive tradeoff, existing agricultural practices, and risk and management tools to make the industry more sustainable financially and environmentally. Endres said that if biorefineries receive money in the form of carbon credits for reducing pollution, incentives for farmers should be included in contracts because they are the ones who are bearing the risks associated with sustainability practices. “Suppose a sustainability contract lists that the default should be integrated pest management rather than application of traditional pesticides,” Endres said. “The farmer takes on some risk to provide a sustainable product, but the biorefinery gets carbon credit for those sustainable practices. This should be worked into the contract — that if the farmer assumes the risk of IPM as opposed to traditional pesticide options, there has to be some sort of up-front payment or incentive in the contract to account for this risk. Due to the power relationships in this industry, the onus is on the biorefinery to be the leader in developing contracts in this new landscape.” The perennial nature of biomass crops also makes developing contracts challenging. “We’re in a unique environment, and traditional agricultural contracting structures just don’t apply,” Endres said. “Crop insurance is not currently available for farmers who grow biomass crops so they take on additional risk. Likewise, landowners see high prices for traditional commodity crops and do not want to be locked into a multi-year contract with a lessee to grow a perennial biomass crop. It’s complicated,” she said. Endres said that although sustainability requirements are important, having an adequate supply of biomass is important as well. “We’re trying to envision a future in which we have a lot of biomass and one way to secure that is to recognize all of the risks and costs, especially when it comes to sustainability practices. It’s unique, and we do not yet have contracts for this aspect of the industry,” she said. A newly forming biomass standards group, in which Endres holds a leadership role, is looking at how the value of sustainability practices can be measured at the watershed, eco-shed, or air-shed level rather than on the scale of individual farms. Endres said that the working group will examine how to ensure that balance is achieved between producers and consumers of biomass, including through contracts. “I’m optimistic that it can be done,” she said. “Growers and refiners right now are concerned with the industry being financially sound. “There’s also a real need for education in both developed and underdeveloped countries about biomass contracting,” Endres said. “We’re trying to shift the paradigm from traditional agriculture to something that’s more sustainable–and that takes knowledge. If we don’t have that knowledge here in the United States and we’re trying to draft contracts in our very developed system, how is this going to be rolled out in say, Africa, or other areas where the use of production contracts are much more rare, especially in the small farm context?” The research was supported by funding from the Energy Biosciences Institute and USDA National Institute of Food and Agriculture, Hatch Project No. ILLU-470-309. Continue reading
Property: Is This Just Another Bubble?
Is it time to ditch property just five months after one of the biggest boosts to the sector in decades? By Nick Reeve | Published Sep 02, 2013 The introduction of the government’s Help to Buy scheme in April triggered huge gains for housebuilders and other property-related stocks, which in turn has helped UK small and mid-cap managers – who have the widest selection of such stocks – to record strong 2013 performances. The average performance of the 10 biggest mid-cap focused funds so far this year has easily outstripped the wider IMA UK All Companies sector, according to FE Analytics – 23.4 per cent from mid-cap portfolios compared with 16.6 per cent from the sector. A big part of this outperformance has been exposure to the housing sector, whether through housebuilders or other companies indirectly linked to this area. Star mid-cap managers such as Franklin Templeton’s Paul Spencer and Old Mutual’s Richard Watts have been particularly vocal in their support for the housing sector. It’s easy to see why. Investment Adviser’s research into the top holdings of 10 UK mid-cap funds found that between them they invest in 22 property-related firms. Of these firms, 20 have posted share-price gains of more than 25 per cent in 2013 alone. Examples held by several managers, including both Mr Watts and Mr Spencer, include Ashtead Group, a provider of heavy-duty construction equipment, which has gained 42 per cent so far this year; and kitchen-maker Howden Joinery, which is up 51 per cent. But there are increasing signs that the property recovery may have run its course already, and it may be time for the likes of Mr Spencer and Mr Watts to cash in on their profits. Last month property fund managers from Aberdeen and Henderson told Investment Adviser that the easy money may already have been made from property, with Aberdeen’s Sanjeet Mangat warning investors in her £176.2m Property Share fund not to expect its strong performance track record to be repeated. Ms Mangat’s fund is a member of the Investment Adviser 100 Club of outperforming funds and providers (see page 29). John McClure, manager of the top-performing Unicorn UK Income fund, said in June that he was steering clear of most housebuilders and developers as they were “structurally flawed” and did not have any substance. Miton’s Martin Gray, manager of the £883m CF Miton Special Situations fund, believes the “run has happened” and, while acknowledging some upside may remain, says he “wouldn’t buy in now”. City Financial’s David Crawford – who runs the firm’s top-performing long/short UK Equity fund – points out that strong performance based almost exclusively on government stimulus is bound to be short-lived. Investors only need look at the reaction of the equity and bond markets to the potential slowing of another form of stimulus, quantitative easing, to see that such catalysts cannot last forever. The UK government is desperate to prove it can help more people onto the housing ladder, and with Help to Buy it is helping first-time buyers to secure mortgages with deposits of as little as 5 per cent. Many of the same companies held by UK managers have specific ‘Help to Buy’ pages on their websites, detailing what aid there is available for first-time buyers – and giving a strong hint that this scheme has directly benefited them. “In a properly free market the value of houses would drop,” Mr Crawford says, adding that banks are still not lending prudently to borrowers trying to get on the housing ladder. He highlights banks that are granting mortgages equivalent to eight or nine times an individual’s salary, as opposed to two or three times. Martin Gray adds that the Help to Buy scheme “sounds to me like electioneering, which is a little worrying”. But for those still surfing the wave of housing-related stocks, the end is not yet in sight. Patrick Newens, small-cap fund manager at F&C, argues that the “electioneering” by the government through Help to Buy is likely to mean the scheme will last until at least the next election in 2015. He adds that house price-inflation has only just started feeding into companies’ figures and analysts’ forecasts. “Housebuilders are all seeing earnings upgrades and their margins are going up,” he says, leaving room for “decent upgrades” still to come. In addition, Aviva Investors’ Toby Belsom says it is not all about property prices and first-time buyers. He points to St Modwen Properties, LSL Property Services and Paragon Group – all top holdings in his UK Smaller Companies fund – as examples of property-focused companies that are not dependent on house prices. Instead the companies operate in longer-term projects, renting, and the secondary market. For these reasons Mr Belsom says he is “comfortable” with the stocks’ valuations, in spite of some very strong numbers so far this year. Opinion is split between those that did back housebuilders and have benefited from the move, and those who by their own admission have not, including Mr Gray and Mr Crawford. The debate is likely to continue for as long as the stocks themselves keep pushing higher, but with specialist property managers already having to hunt ever harder for attractive valuations, investors should be at least wary of increasing their exposure. Continue reading
