29/10/2007
Simon Shaw, whose EEA Fund Management group handles the investments made by carbon credits player Trading Emissions, expects the company’s profits to fall significantly from the £152 million pre-tax chalked up in the company’s first full year of operations since floating on AIM two and a half years ago. And he is perfectly content at this prospect, as the investment company switches its focus to asset growth and future profits.
He explains that Trading Emissions, which is based on the Isle of Man, has profited from buoyant prices of Certified Emission Reductions (CERs) and the related European Union Emission Allowances (EUAs) since the company was established in 2005. Trading Emissions then raised £135 million through broker Cenkos Securities and nominated adviser Numis as ‘a price play on carbon markets, geared to the energy regime established in Europe, Japan and elsewhere (though not the USA) by the Kyoto Protocol’.
At that time, recalls Shaw, CERs, each awarded for a one-tonne reduction in C02 emissions, were trading at around ?6 (428p) apiece. Now the price is heading for ?15 a tonne, while EUA, ‘which we expected to buy at ?8 and sell at ?12, trade at around ?22 a tonne’.
That has provided something of a bonanza for the company, whose chairman is Neil Eckert, former head of fully listed Brit Insurance Holdings and now also chief executive of Climate Exchange, another Man-based AIM counter which itself specialises in emissions trading. However, investing in carbon credits generated from projects in emerging markets was only part of Trading Emissions’ strategy, explains Shaw, a former fund manager at the Clerical & Medical group who set up EEA four years ago and ran Climate Exchange until a restructuring last year backed by Wall Street colossus Goldman Sachs.
The intention has always been to use the carbon credits profits and the portfolio’s value to back and lend to clean energy projects, which should in due course generate not only electricity but also fresh carbon credits of their own. Although a cold winter could cause a short-term ‘spike’, Shaw argues the carbon credit price boom is tailing off for now, as more providers come into the market – a view supported by analysts at broker KBC Peel Hunt – and says Trading Emissions intends to put at least half the surplus it has been achieving directly into renewable energy projects themselves.
The company, which says it is ‘on target’ to complete contracts for carbon purchase and acquisition ‘sufficient to deliver a portfolio of 66 million carbon credits between 2008 and 2012’, recently took a stake in Korat Waste Energy, a Thai cassava processor boasting one of the largest biogas plants in Asia. Other projects include a Peruvian hydro-electricity scheme and biodiesel operations in Brazil.
China, where 750,000 die each year from pollution and melting Himalayan glaciers are flooding the plains, is a key market. Trading Emissions is backing wind, hydro, biomass, waste heat recovery and landfill gas projects there and, despite delays in validating deals, the company has signed contracts with three Chinese biomass projects aiming to use waste straw and maize cobs to generate power.
If a post-George W Bush USA decided to sign up to the Kyoto Protocol or some equivalent, Shaw does not expect more than a moderate immediate impact on carbon credit prices. But after four or five years, it could be ‘very profound’.
According to Shaw, Trading Emissions has 52 million tonnes of carbon credits and should add another 40 million through the projects it is backing. Following the recent conversion of two types of share into one, KBC puts the potential value of existing assets at 193p a share.
That compares with today’s 155p and does not reflect asset increases likely to come from latest and prospective projects. Trading Emissions, which boasted cash and cash equivalents of £267 million at the end of June, is currently valued at £209 million and could reward a speculative purchase.
| AIM | £273.67m |
97.75p
|
-3.75p
|
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