Business always comes down to money - and, "He who pays the piper calls the tune." Consequently, electric utilities soon may start singing a greener song when seeking loans to finance power plants and other major projects. No public utility commission will approve a power plant project without solid financial backing. Are any coal plants proposed for your region? Now's the time to ask hard questions about their financing.
On Feb. 4, 2008, three of the world's largest financial institutions (Citi, JPMorgan Chase, and Morgan Stanley) agreed to adopt three "carbon principles" that take greenhouse gas emissions into account when assessing risks associated with financing US electric utility projects. These principles were jointly developed by the Natural Resources Defense Council, several major utilities (American Electric Power, CMS Energy, DTE Energy, NRG Energy, PSEG, Sempra, and Southern Company), and Environmental Defense.
The carbon principles talk a lot about voluntary, qualitative efforts - but they do also include some specific guidance that can make the economics of coal and other fossil fuel plants far less attractive.
Most importantly, the banks have agreed to consider projected electric demand reduction from investments in energy efficiency, renewables, and distributed generation projects in their "enhanced diligence process" - a key part of deciding whether to fund a project, and on what terms. Also, investments in fossil fuel power plants (conventional or advanced technology) will be recognized as more financially risky.
- Full-text statement on the carbon principles and their intent.
- Citi release. Press: Stephen Cohen, 212-816-5300.
- JPMorgan Chase press: Brian Marchiony, 212-270-2596.
- Morgan Stanley release. Press: Jennifer Sala, 212-762-6885.
- NRDC release. Press: Jon Coifman, 212-727-4535.
- Environmental Defense release. Press: Dan Cronin, 202-572-3354.
CRUNCHING THE NUMBERS
The "enhanced diligence process" actually means putting into action the Global Climate Disclosure Framework for electric utilities recently published by the Institution Investors Group on Climate Change (an offshoot of Ceres). This is a pretty intriguing and surprisingly readable and compact document, well worth a perusal.
The framework calls for very specific types of data on capacity and production and emission inventories. It includes ready-made spreadsheets for collating and comparing data. This actually is a pretty good template for journalists who are evaluating proposed electric utility projects.
- Ceres/IIGCC release.
- IIGCC: Stephanie Pfeifer (+44 7790-580-177) or Joanne Saleeba (+61 300-794-047).
- Ceres: Peyton Fleming, 617-247-0700 x20; or Jim Coburn, 617-247-0700 x19.
The upcoming Ceres conference in Boston (Apr. 29-30, 2008) might be a good opportunity to catch up on what various major financial institutions from around the world are doing to adapt their finance strategies to climate change.
On Jan. 10, 2008, Ceres also published a report ranking 40 leading US and European banks in terms of how well they're adapting their lending strategies to climate change. Release. Most banks didn't do so well: "Using a 1-100 point scoring system, the two highest scoring banks were European-based HSBC Holdings and ABN AMRO with 70 points and 66 points, respectively. More than half of the 40 banks scored under 50 points, with a median score of 42 points."
RiskMetrics, which was commissioned by Ceres to create that report, blogged about it and the new carbon principles on Feb. 8, 2008.