Nathan Lim

Evidentia Group is proud to celebrate the retirement of Nathan Lim, after an impressive 30-year career, shaping investment strategies and driving innovation in financial services.

Nathan currently serves as Chief Investment Strategist at Evidentia Group, shaping the firm’s market voice, leading the Lonsec Investment Solutions (LIS) portfolio management team and driving strong client outcomes. During his tenure as Chief Investment Officer at LIS he and the team drove portfolio construction and asset allocation. Previously, he held senior roles at Australian Ethical, championing responsible investing, and at Morgan Stanley, delivering world-class research and client solutions.

As Nathan transitions into retirement, he is working closely with Darren Beesley, Evidentia Group’s Chief Investment Officer, to ensure a seamless handover. There are no changes to the portfolio management of any client portfolios, with all Evidentia Group’s Portfolio Managers remaining in place (including Deanne Baker, Dan Moradi and Nick Field, all who have extensive tenures with LIS). The portfolio management team forms part of Beesley’s broader Investment division, ensuring stability and continuity for clients. Beesley has 20 years’ experience in funds management and asset consulting, most recently leading AMP Capital’s $80 billion multi-asset portfolio team, and previously managing diversified strategies at Perpetual. Executive Director of Investment Management, Troy Swann continues to focus on the group’s go-forward strategy and governance framework.

Reflecting on his career, Nathan says, “For more than 30 years, I have had the privilege of serving my clients to the very best of my ability. It has been an honour to have so many place their future in my hands, and in the hands of the teams I’ve been fortunate enough to work alongside. Thank you to all our clients for your trust, your confidence, and your collaboration. And to the markets—especially volatility—thank you for keeping every day interesting.”

“I’m grateful for the opportunities I’ve had to contribute to this dynamic industry and excited about the next chapter of my life. I’m incredibly proud to be leaving behind a larger, newly combined investment team that has never been stronger, where our clients continue to be in excellent hands.”

CEO of Evidentia Group, Mike Wright commented, “Nathan has been a real asset to the Lonsec Group, Evidentia Group, our clients and the broader investment community. His depth of knowledge and strategic thinking have left a lasting impact in our industry. We thank Nathan for his contributions and wish him, his wife Claire and their family every success in the future.”

Looking ahead, Mike Wright continues “We are committed to build on the Group’s strong foundation as the undisputed leader in managed accounts, growing through trusted relationships — so our clients and people can thrive in business and life. With Darren at the helm of our larger combined investment team, we are well-positioned to navigate the future with confidence and clarity, delivering an exceptional experience trusted by advisers, valued by investors, and powered by a culture of excellence.”

Evidentia Group has commenced the recruitment process for a Senior Investment Strategist and is expected to make an announcement regarding this new appointment in the new year.

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Edwina Maloney

The latest Blend portfolios bring together BlackRock’s multi-asset investment expertise and global custom model portfolio technology with Lonsec Investment Solutions’ investment manager research and selection capabilities.

North is the only platform in Australia to offer this range to advisers with unique technology to support the North ‘Buy, Badge, Build and Blend’ capability.

North is announcing the evolution of its model portfolio offering with its new ‘Blend’ capability, as the first in a series of enhancements aimed at democratising access to model portfolios for advice practices large and small.

For advisers who have traditionally been left out when it comes to accessing model portfolios, North is helping to bridge the gap with a solution that, in a market-first, means asset customisation of a model portfolio can now be realised at the advice practice level.

Expected to be the first of many, this new ‘Blend’ opportunity will appeal to those advice practices who want to generate efficiencies, but don’t want to have a full tailored solution.

Announced yesterday in collaboration with BlackRock and Lonsec Investment Solutions, the new series highlights the market-leading customisation of North as a contemporary platform for advisers, with North uniquely placed with its technology to deliver the ‘Blend’ capability.

The latest portfolios use BlackRock’s multi-asset investment expertise and global custom model portfolio technology, together with Lonsec’s investment manager research and manager selection capabilities to deliver portfolio customisation at scale to advice practices.

Breaking down traditional barriers to adoption

Leveraging the portfolio construction expertise of two of Australia’s leading investment managers, North Blend is available to all advice practices directly and exclusively through North. By helping an adviser bring their investment strategies to life, it addresses many of the traditional barriers to adoption – including personalisation, incumbency and scale.

Advisers will have access to portfolio performance tracking and dedicated content support allowing them to monitor their holdings, performance, and access trade notices and market commentaries that can be white-labelled for their client base.

Tailored with ease

North has seen a 50% increase in advisers using MyNorth model portfolios over the last two years, with North now being the third largest and fastest growing managed account platform provider in the market with over $20 billion in funds under management.

North Blend offers eligible advisers the ability to tailor the portfolios to meet the needs of their advice practice within agreed guardrails.

The new series follows the introduction of existing client account level asset customisation launched together with BlackRock and Lonsec last year.

Katie Petering, Head of Investment Strategy, BlackRock Australasia said: “We are delighted to continue our collaboration with AMP and Lonsec through the launch of tailored model portfolio solutions on the North platform.

“Drawing on our 30+ years of experience in managing multi-asset portfolios and global technology for customising model portfolios, this collaboration enables advisory practices to tailor highly sophisticated managed accounts to suit their end-clients’ investment preferences– something that was previously out of reach.

“As pioneers of model portfolios in Australia, we are excited to continue innovating to democratise access to these portfolios and accelerate the adoption of managed accounts in the industry.”

Nathan Lim, Chief Investment Officer at Lonsec Investment Solutions said: “We are thrilled to work with AMP and BlackRock to bring this solution to the Australian adviser market. This new managed portfolio solution will enable practices using North to create a suite of tailored portfolios – a first-of-its-kind solution to be offered by an Australian platform.

“The Blend portfolios will be supported by Lonsec Investment Solution’s unrivalled manager selection and consulting expertise, as well as our broader end-to-end managed account capabilities supporting licensees, financial advisers, and their clients. We expect this solution will enable more advice practices to be able to reap the benefits of managed accounts for their businesses and clients.”

David Hutchison, AMP’s General Manager of Managed Portfolios and Investments said: “Not all advice practices want an off-the-shelf or full-tailored solution.  To date, these practices have been ‘forgotten’ by platforms.  We’re really excited to support advice practices large and small with a tailored entry point into managed accounts, by providing them with the capability to tailor portfolios without a full build – and create a way they can benefit from model portfolios, while still using their current approach to portfolio construction as part of their advice proposition.
“The new Blend solution, only available on North, creates opportunities for advisers who don’t fully outsource investment selection to step into model portfolios for the client and adviser benefits.

“North is there to support advisers no matter how they want to build portfolios and we are the only platform with manager-level customisation of model portfolios, accounting for 16% of all advised assets and a fast-growing segment that has been totally untapped by model portfolios to date.”

Edwina Maloney, AMP Group Executive, Platforms said: “At North, we’re focused on helping practices deliver great advice to their clients more efficiently. That’s why we’re thrilled to be extending our collaboration with BlackRock and Lonsec to help more advice practices across Australia bridge the gap between off-the-shelf and fully tailored private label model portfolio solutions.”

“Through this innovative new offer, we’re helping practices accelerate their efficiency by creating tailored, high-quality investment portfolios for their clients which are governed, managed and administered by world class asset managers utilising world class tech.

“In less than four years, our managed portfolios have grown tenfold and continue to be the fastest growing offer in market thanks to the support from our advisers, asset consultants and fund managers we work with.”

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Nathan Lim

Lonsec Investment Solutions (LIS) has announced the launch of a new and unique investment solution designed exclusively for advisers and their high-net-worth clients.

With private markets showing strong positive trends, LIS has developed a distinct approach that enhances portfolio diversification whilst offering a flexible investment structure via a Managed Discretionary Account, allowing for a high level of portfolio personalisation.

This exclusive investment solution – the LIS Growth Alternatives (LGA) Individually Managed Account (IMA) accesses the recently announced partnership between Netwealth and iCapital to deliver a wholesale IMA focused on Alternatives Assets.

LGA will leverage the administration services of Netwealth’s off-platform reporting to allow a unified view of the client account and provide an annual tax report.

With a minimum entry point of $500,000 into these sophisticated investments, advisers can help high-net-worth clients begin their investment journey into Alternative markets with a foundational portfolio composed of alternative strategies including private equity, hedge funds, real assets, gold and private credit. The portfolio can also be customised at an individual client level.

The solution will allow high-net-worth clients through their advisers, to act with speed in accepting global and domestic opportunistic deal flow through the Netwealth and iCapital partnership. iCapital is a leading global fintech platform providing advisers with unrivalled technology, education and access to alternative assets by removing certain practical frictions often associated with private asset investing process. Access to opportunistic deal flow is granted once an investor’s LGA portfolio reaches $2.5 million.

Nathan Lim, Chief Investment Officer of LIS is excited about launching the new offer saying, “The development of this solution comes off the back of rapidly increasing client demand for portfolios with a high level of personalisation, whilst giving effortless access to the world of alternative assets. LGA provides advisers with an investment vehicle to easily unlock unique opportunities for their high-net-worth clients.”

Matt Heine, CEO and Managing Director of Netwealth, said, “Our partnership with Lonsec Investment Solutions and delivery of the LIS Growth Alternatives IMA is a significant development. We have combined their portfolio management expertise with Netwealth’s diverse range of alternative and private market investment options including our Non-Custodial Asset Administration Service and our exclusive partnership with iCapital. The combination will simplify access and provide greater options to wholesale investors whilst also driving efficiency.”

This new solution follows the recent announcement of the acquisition of Evidentia by Generation Development Group, resulting in the merger of LIS and Implemented Portfolios with Evidentia, to form the newly named entity – Evidentia Group.

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Jason Entwistle

As part of HUB24’s commitment to deliver innovative solutions that empower advisers to meet the needs of clients throughout their wealth accumulation and retirement journey, the HUB24 Discover offer has been launched, to complement the existing Core and Choice offers and is now available on HUB24 Invest, Super and Pension.

Demographical trends such as the intergenerational wealth transfer and ageing population are providing opportunities for advisers to evolve their advice proposition to meet the needs of early-stage wealth accumulators, later stage retirees or clients with less complex needs.

HUB24’s Director of Strategic Development, Jason Entwistle said Discover strengthens HUB24’s competitive position and supports further growth by giving advisers access to an investment solution purpose-built for client segments with simple investment needs. HUB24 Discover encompasses a range of passive, active and ESG managed portfolios from leading portfolio managers including AZ Sestante, Betashares, Blackrock iShares, Elston, Lonsec, Morningstar, Vanguard, and Zenith.

“We’re excited to be launching our new HUB24 Discover solution. Discover complements our existing Core and Choice offers and expands our reach, providing a unique solution for advised clients seeking simplicity and affordability in their investment options – whether they’re starting out on their advice journey with their first portfolio or entering the drawdown phase.

“What’s great about Discover is the quality of the investment managers delivering a streamlined list of managed portfolios coupled with our award-winning platform features, and a competitive simplified fee structure. It’s also truly portable so as their clients’ needs evolve, advisers can easily transition them across to our Core and Choice offers with minimal unintended or costly insurance or tax consequences.”

Designed in conjunction with portfolio managers, HUB24 Discover is a cost-effective platform and investment solution, providing a streamlined selection of managed portfolios.

Elston Asset Management’s Head of Adviser Services, Mark Smith said: “We’re excited to be working with HUB24 in launching their new Discover offer, a cost-effective and complementary solution to our existing managed portfolios available via HUB24.

“The Discover offer opens up new opportunities for advisers to engage with clients on their investment journey and leverages our existing infrastructure and our ten-year track record of supporting advisers and their clients through our HUB24 managed portfolio solutions.”

Lonsec Investment Services Chief Investment Officer, Nathan Lim said: “We’re pleased to be a foundation managed account provider for HUB24 Discover. We’ve used our deep research and portfolio construction skills to build five portfolios that will meet the needs of both large and small investors. We look forward to bringing these portfolios to our adviser network and their clients.”

Vanguard Australia’s Head of Financial Adviser Services, Balaji Gopal said: “The ability to offer Vanguard’s Diversified Managed Account Strategies through HUB24’s new Discover platform simply means more choice of high-quality investment solutions for financial advisers and their clients.

“Providing low-cost, instant exposure to over 16,000 securities through a range of asset classes, our Diversified Managed Account Strategies harness Vanguard’s global portfolio management expertise and proven strategic asset allocation approach.”

Chantal Giles, Head of Wealth at BlackRock Australasia said: “BlackRock is excited to see the addition of its Enhanced Strategic Model Portfolios and ESG Model Portfolios to HUB24’s Discover menu options. These low-cost diversified investment solutions are key examples of how BlackRock can deliver quality portfolio construction guidance to help advisers build better portfolios for their end clients. Ultimately, it gives everyday Australians access to institutional-quality portfolios that best meet their desired investment goals.”

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Nathan joins from Morgan Stanley Private Wealth Management Asia where he was Co-Head of Investment Management Services. While at Morgan Stanley, Nathan developed Morgan Stanley’s award winning multi-asset investment approach for both the Australian and Asia wealth management divisions. Nathan started his career in 1995 and has extensive experience in asset management, research and stockbroking that has taken him across Asia, North America, the Middle East and Australia. Prior to Morgan Stanley, Nathan managed Australian Ethical Investment’s International Shares Fund, where he developed a passion for responsible investing.

Commenting on the appointment, Lonsec CEO Mike Wright said “We are delighted that Nathan is joining Lonsec to lead the Investment Solutions business as he brings considerable international expertise in multi-asset strategies and a particular interest in responsible investing.

Nathan joins the business at an exciting time as we continue to grow our expanding managed accounts business. This includes renewing our commitment to partner with quality advice businesses to support them with tailored managed account solutions.”

Nathan echoes these sentiments, saying “I am excited to be joining Lonsec as I have long admired their reputation and commitment to helping clients achieve their financial goals. I look forward to leading a great team of investment professionals and getting back to my responsible investing roots.”

As CIO, Nathan will join the Product and Investment Oversight Committee, Asset Allocation, Manager Selection, Direct Equities and Tailored Portfolio committees, which oversee the Lonsec Investment Solutions portfolios. These committees are a hallmark of the Lonsec portfolio management approach.

Deanne Baker has been appointed to the newly created position of Deputy CIO. Deanne will also continue in her role as Portfolio Manager Multi-Asset Portfolios, managing the multi-asset, retirement and sustainable portfolios. Deanne has been with Lonsec for 15 years, working across both Lonsec Research and Lonsec Investment Solutions. Deanne will be assisted by Eleanor Menniti who rejoins Lonsec as Associate Portfolio Manager, Multi-Asset Portfolios, after five years at BlackRock.

Deanne comments “I am excited to have Nathan join Lonsec as his shared values, investment experience and leadership qualities make him a great fit for our team. I am looking forward to working with him to continue delivering strong outcomes for our clients.

I am equally excited about the return of Eleanor Menniti to the team, bringing with her new skills and insights from a leading global fund manager.”

The Chairman of Lonsec’s Product and Investment Oversight Committee (PIOC), Dr Steve Garth, was also pleased with the new appointments, saying, “We are thrilled to have Nathan join the Lonsec team, and I look forward to working closely with him on the PIOC. We are also very grateful to Deanne Baker for her contribution as interim CIO and her contributions to the PIOC.”

Veronica Klaus will head up the newly named Tailored Solutions business as Head of Tailored Investment Solutions. Assisted by a team of Portfolio Managers, Veronica will lead Lonsec’s renewed focus into bespoke and tailored investment solutions for larger self-licenced Advice firms and large licensees. Veronica has been with Lonsec for 12 years.

Nathan will commence the position of Chief Investment Officer and Executive Director, Lonsec Investment Solutions in August 2023.

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Nathan Lim

It is a mistake to think utilities will disappear with the growth of distributed generation. Australian Ethical’s International Equities Portfolio Manager, Nathan Lim, explains.

Tesla-hysteria

With renewable energy now reaching households in the form of rooftop solar and battery storage (like Tesla’s new Powerwall), the chorus calling for the demise of the traditional utility has become deafening.

The rise of distributed generation will cause massive load and grid defection that will lead to a loss of revenue by the utilities. As a result, utilities will be hobbled by the democratisation of electricity generation or so the narrative goes. Rising self-generation from increasing solar rooftop penetration and load shifting via home batteries will lead to a utility death spiral from an ever-shrinking customer pool. These disruptive impacts are indeed occurring, but we believe it is too early and also unlikely to say traditional utilities are dead men walking.

An analogy to the current situation is the evolution of the telecom sector. Back in the late 1990s, wireless communication and the Internet was going to relegate the incumbent telcos to the history pages as their fixed line customers all switched to wireless and consumed media via the internet. Fast forward nearly two decades and the incumbents are still here and in fact thriving. Indeed, wireless communications and services like Netflix have become mainstream but the incumbency adapted and embraced changed. The same will happen again.

Distributed generation needs more connectivity not less

By its very nature distributed generation needs flexibility. There is an increased need for interconnects between suppliers and consumers of electricity, with energy flowing both ways. This is in contrast to the traditional hub-and-spoke utility model where energy is essentially delivered in a linear fashion. Increased connectivity is preferable to islands of generation assets because it is simply more efficient. An example of this efficiency (or lack thereof) was recently reported by the Business Times where the Danish Energy Association said that up to 71% of its clean energy is being rejected by Germany because of a lack of transmission capacity. This problem of missing connections will extend even at the neighbourhood level where we see the rapid penetration of solar rooftops take hold. This is where the Utilities can take advantage of their existing market positions; by providing these neighbourhood connections.

Utilities will leverage off their strengths

Utilities have numerous strengths so that means they should not be written off:

• Huge balance sheets – Transforming the power sector will need investment and these companies are already in a position to be able to do this on a large scale.
• Ready access to capital – Whether through new equity or debt, utilities have no problem accessing the capital markets for funds at very attractive rates. Their size and history afford them a cost of capital advantage over newcomers to the sector.
• Existing customer relationships – A good idea still needs a path to market otherwise it will remain unfulfilled. Utilities have that path in that they already have a commercial relationship with virtually every household and business in their geographic area.
• Technical expertise – Having built and managed the biggest piece of machinery in any country (the grid network), they have an intimate and deep understanding of how it all works and where the existing problems are.
• Existing regulatory and political relationships – Utilities have been operating under the same regulator, in some cases, for decades. These relationships are critical at a time when the status quo is being challenged as utilities can speak to the key decisions makers in a language they understand.

Live examples where utilities are doing something

With all these strengths, there are already examples where utilities are adapting to their changed circumstances.

New Jersey Resources, a natural gas distribution utility, started offering residential solar solutions in 2010. The company now has new commercial relationships with over 3,000 customers who save on average $25 a month on their previous electricity bill.

About three years ago, NRG Energy launched a solar leasing product and has deployed over 53 megawatts so far. This year they target to exit with approximately 40,000 cumulative customers, more than doubling the number of customers it had at the end of 2014.

In November 2014, Southern California Edison contracted for 250 megawatts of distributed solar, behind-the-meter-batteries and automated demand response system from numerous vendors as part of its 2.2-gigawatt grid modernisation plan. In effect, SoCal has partnered with the technology disruptors in a commercial fashion that is beneficial to all.

Pinnacle West was one of the first utilities to get regulatory approval to apply a monthly charge to customers who had installed solar on their roof.  Shortly after that in December 2014, the utility followed up with another approval to be allowed to rent an existing customer’s rooftop space so Pinnacle could install their solar equipment. Households will earn a rental fee as long as Pinnacle’s panels are on their roof, and Pinnacle is free to direct this electricity back into its network.

This year in Australia, AGL has launched a solar rooftop and battery storage product. Customers agree to sign-up for either a seven or 12-year contract thus ensuring AGL retains these customers as the industry environment evolves.

The focus will be on reliability

Solar panels, batteries, smart meters, wind turbines and demand response were all vague and distant threats to the centuries-old utility business model only just a few years ago. Seemingly overnight, these “science experiments” have asserted their rise and now threaten to topple the incumbency. This does not mean the traditional utility will disappear. Rather, we can expect the most progressive ones to evolve with their changed circumstances and embrace these new technologies. Simultaneously, regulators will be rewriting industry rules to correctly compensate all participants. We believe First Solar’s CEO, Jim Hughes, said it best when he recently suggested the future compensation for industry participants will be driven by what they add to system reliability. This perfectly captures the essence of the trend towards distributed generation. Ultimately the customer does not care how electricity is delivered, just that it is and when it is needed.

Instead of writing off the incumbency, be ready for their response because it is coming.

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International Equities Portfolio Manager, Nathan Lim, provides this month’s update:

“It’s services, stupid”

The only US indicator we track that is showing any sign of weakness is the Manufacturing Purchasing Manager’s Index (PMI). Since peaking in October 2014, the indicator has slid continuously each month to the current reading of 51.5, suggesting that manufacturing in the US is nearing stalling conditions. Some of this might represent the abrupt slowdown in oil and gas drilling activity caused by the sudden fall in the oil price which would be unfortunate but not fatal to the recovery. Jobs and cargo traffic growth remains robust, and the Services PMI remains well into expansion territory. Recall the US economy remains largely driven by the services industry, so weakness in manufacturing thus far looks manageable.

Europe has hit its bottom and looks to be turning for the better

While previously Europe was seen as the economically strong north and feeble south, it now looks like everyone got invited to the recovery party (except for France and Greece). Second only to Germany, France still represents about 15% of Europe’s Gross Domestic Product (GDP) so its economic pains will impact its neighbours. We believe this largely explains the uneven sentiment across the region and muted recovery to date. Alternatively, at about 1.5% of GDP, Greece is not a major economic contributor. The European economy, however, will be impacted from the fallout from Greece exiting the Euro if it happens. Looking at our indicators, the Manufacturing PMI for Europe has abruptly arrested its steady decline through 2014 and has clearly hit its bottom for 2015. We note that tax receipts in the UK and Germany continue to strengthen and employment conditions remain good. Overall, we are regaining our confidence in Europe after some months of doubt about whether they would be able to avoid stalling.

Chinese New Year impacts China reading

Our indicators were impacted by the timing of Chinese New Year as it occurred in February this year versus January in 2014. This made it hard to get a good read on our indicators. We did note that the government seems to be applying targeted stimulus again to help the economy achieve its soft landing. This is consistent with its approach to date and warrants our continued “Neutral” assessment.

Has Japan lost its mojo?

The Manufacturing PMI seems to have lost its momentum threatening our “positive” assessment for the country. While employment conditions remain good and cargo traffic improved, we note that the Service PMI is already in contraction. If manufacturing starts to stall; the economic momentum for the country will look to stall as well.

Are more apartments and lower gasoline price enough to carry Australia?

We noted last month that the indicators we track suggested Australia had taken a worrisome turn. Interestingly, shipping container traffic has since risen sharply but the timing of Chinese New Year might have impacted the data. Our other indicators remained subdued with the unemployment rate making an unremarkable improvement from 6.4% to 6.3%. The increased construction activity and lower gasoline prices have so far blunted the slowdown in the resources sector but will it be enough? At this time, we maintain our “Neutral” assessment.

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Australia, go solar and save money… really!

Despite the ongoing policy uncertainty introduced by the government’s review of the Renewable Energy Target (RET), solar rooftop growth continues unabated. Updates from network operators show that households are taking up rooftop solar, even though financial assistance is falling. Previously overly generous Feed-in-Tariffs (FiT) that were as high as $0.60 per kilowatt hour in some states have fallen to less than $0.08. We continue to point out that the unsubsidised economics of solar work for households because of our high electricity prices. If you have not done so already, get a quote from a solar installer today!

Renewables strike back in the US

The rollout of solar power is creating odd bedfellows with the ultra-conservative Tea Party joining with environmentalists and libertarians to allow solar leasing in Florida. Florida has one of the best solar resources in the country, but legislation prevents homeowners from buying energy from anyone other than a utility. This has prevented companies from entering the market with solar lease packages that help to defray the substantial upfront cost of the solar system and provide long-term price certainty. In a similar vein, SolarCity has sued an Arizona utility for implementing a punitive pricing policy that it claims discriminates against solar households and amounts to anti-competitive behaviour. Bloomberg quoted a representative from the Arizona utility as saying solar households were saving “about a $100 a month” which was impacting their cost recovery business model. Regardless of the outcome of the lawsuit, we find it instructive that the utility put such a definitive value on solar that only bolsters our view that the economic benefit to households instaling solar is real and robust.

UK CfD auction shows renewables are cheaper than natural gas-fired power stations

The successful completion of the UK’s first Contract-for-Difference (CfD) auction produced some surprising results. Most notable in our mind was that bidding for some onshore wind and solar photovoltaic projects was at levels cheaper than a new build natural gas-fired power station. This development should further drive public support for renewable energy because the “high cost” argument against renewable energy is simply no longer true. We also note that always progressive Germany is now considering financial support for renewable energy heating. Heating is generally a household’s largest source of energy consumption, and Germany wants to encourage the take-up of solar-powered heating, pellet heating and geothermal systems.

Intent is not leading to action in China

The release of the documentary film ‘Under the Dome’ has sparked critical dialog amongst the 200 million people who have already seen it. Widely reported stories of the poor air quality in China had already led to sweeping policy announcements by the government. This resulted in tentative evidence that the country was serious about reducing coal usage, the main culprit behind China’s poor air. However, the documentary reveals how enforcement of these new laws has been lax and the shocking extent of the pollution across the nation. While the air quality remains poor, we believe that the existence of such a film is a strong signal that attitudes are changing for the better in China.

Energy efficiency flexes its muscle in Japan

Bloomberg reports that in the four years following the Fukushima disaster; Japan has purchased 73 million LED light bulbs, or approximately one-third of all bulbs sold there. A previous study conducted by the Institute of Energy Economics, Japan in July 2011 indicated that if Japan switched all its lighting to LEDs, it could cut power consumption by 9%. We estimate that power consumption has fallen approximately 8% since the Fukushima disaster, and this is the result of only a partial contribution from LED lighting. Japan is demonstrating that energy policy cannot ignore efficiency and conservation mandates because they represent a significant opportunity to change the energy equation with very little investment.

India targets 175 gigawatts of renewables and ‘net zero’ tipped for Paris

India has formally announced that it will target 175 gigawatts of renewable energy by 2022. This will be composed of 100 gigawatts of solar photovoltaics, 60 gigawatts of wind, 10 gigawatts of biomass and five gigawatts of hydro. Widely seen as an ambitious target, it implies a near four-fold increase in the current rate of renewable construction. Nevertheless, when faced with energy poverty for 300 million people, a big solution is needed for such a big problem.

Given that the world appears poised to exceed its carbon budget in the next decade, the ‘Net Zero’ concept is being discussed for inclusion in the Paris climate talks in December. The idea is emissions would need to fall to zero between 2040 and 2070 and keep falling below zero after that. This means a slower rate of emission reduction in the short term can be offset by negative emission technologies in the future. There is skepticism around this strategy given the limited success carbon capture and storage has achieved to date.

The month’s developments in detail

Australia

• Energex reports that Queensland households install solar by the thousand’s despite negligible government incentives.
• New South Wales and Victoria health officials object to Federal wind farm conclusion – claim political
• SA Power Networks reports that 23% of homes in South Australia have installed rooftop solar.
• AGL becomes first big retailer to offer a solar PPA plan.
• Labour rejects Liberals offer to reduce Renewable Energy Target to 31,000 gigawatt hours.

North America

• Colorado anti-fracking movement has failed in the state legislature, courts, and ballot boxes.
• The Senate failed to override President Obama’s veto of the legislation approving the Keystone XL pipeline.
• A Goldman Sachs report calculates that even assuming natural gas at US$0.25 per million British Thermal Units (essentially free gas) to produce electricity in California, New Jersey, Massachusetts, Colorado, and New York, the economics to households in each state still favours rooftop solar.
• US Environmental Protection Agency (EPA) considering pushing back implementation of new carbon rules for utilities from 2020 to 2030.
• There is growing anticipation that the Inland Revenue Service (IRS) will expand the scope of real estate investment trust (REIT) legislation to favour solar.
• Canada creates a $250 million disaster fund to deal with consequences of a crude derailment. Funding is coming from shippers who use trains to transport crude oil.
• In Florida, the Tea Party and environmentalists are jointly lobbying to allow solar leasing in the state.
• US proposes first rules for drilling in Arctic Region.
• Mexico will not cut US$3.5 billion earmarked for wind investments despite national budget cuts due to the falling oil price.
• SolarCity sues Arizona utility for anti-competitive behaviour. New fees negate benefit of instaling

Europe

• UK shale gas ambitions have not materialised. Scotland and Wales have passed bans on fracking, and there is no active shale drilling currently in the country.
• The leading UK political parties made a joint commitment to confront the challenges of climate change regardless of who wins the elections in May.
• Italy’s constitutional court rules ‘Robin Hood Tax’ is unconstitutional. May help solar operators.
• EU Commission has sued Germany claiming it needs the Commission’s approval for the subsidies Germany provides to the renewable energy sector.
• Poland, finally, passes renewable energy law.
• EU Commission reveals ‘Energy Union’ plan that calls for more natural gas storage, renewables, and coordinated renewable energy subsidy policy.
• UK announces results of first ever Contract-for-Difference (CfD) auction. The Department of Energy & Climate Change (DECC) estimates the auction reduced the cost of renewable energy by £110 million per year than it would have without the competitive bidding process. Both solar and onshore wind bid prices that were lower than a new build natural gas-fired power station.
• Italy has connected its grid to France, Austria, and Slovenia, becoming part of the Multi-Regional Coupling (MRC). Links to Switzerland and Greece to follow. The MRC allows the creation of a day-ahead wholesale energy market further integrating the European energy complex making it more efficient.
• Germany to launch first auction of land for solar power. Winning bid will be guaranteed its proposed rate for 20 years.
• French Senate passes watered down nuclear phase-out plan, but the language remains supportive for renewable energy.
• German government said to be considering subsidies for renewable energy heating.
• Negotiations around the specific mechanics of the EU carbon fix proposal are expected to wrap up by mid-2015.
• German renewables represent8% of total power in 2014 versus 25.4% in 2013.

China

• Some form of greenhouse gas scheme will cover 48% of global Gross Domestic Product (GDP) once China starts its carbon trading market in 2016 says the International Carbon Action Partnership (ICAP).
• China restarts its nuclear build out with the approval of two reactors, the first since the Fukushima disaster.
• The film Under the Dome, a documentary about China’s air pollution, is viewed by at least 200 million people in its first week. It reveals the extent of air pollution in the country and how regulation has yet to result in real action.
• Government expected to enact first laws to curb soil pollution.

Japan

• Domestic solar shipments rose 10% to 2,239 megawatts in the fourth quarter of 2014 against the same period last year.
• The Ministry of Economy, Trade and Industry (METI) has proposed a 16% cut to solar tariffs to ¥27 from ¥32 currently.
• Electricity consumption continues to fall in Japan despite an improving economic backdrop as impact of conservation and efficiency efforts continue to flow through.
• Japan’s Cabinet releases legislation to separate electricity distribution from generation assets. Parliament will now debate the new legislation.

Global

• Adani Enterprise to build 10 gigawatts solar park in Rajasthan, India.
• Ships designed to carry natural gas are idled as prices collapse. Asian LNG is selling for US$6.90 per million British Thermal Units versus mid-teens in previous two years.
• ‘Net Zero’ option being discussed for Paris climate according.
• Brazil developers register 19 gigawatts of projects for the July energy auctions. Wind is competing directly with natural gas on an unsubsidised
• India’s Ministry of Power is tasked with the job to develop 15 gigawatts of grid-connected
• India doubles the tax on coal to fund renewables and electric vehicles.
• India’s Finance Minister during the budget speech says India is targeting 175 gigawatts of renewables by 2022.

Nathan Lim, International Equities Portfolio Manager, Australian Ethical Investments.

The post Australia: save money with solar appeared first on AdviserVoice.

India’s demand for renewable energy strong: Australian Ethical

Australian Ethical is investing in renewable power generation companies working in India

Prime Minister Narendra Modi is looking at renewable energy to bring 300 million people out of energy poverty, how can an investor participate in this development?

Australian Ethical’s International Equities Portfolio Manager, Nathan Lim, explains:

Today, 300 million Indians live without access to electricity – that is 13 times the entire population of Australia. As astonishing as this figure is, it is actually an improvement since 1991 when there were an estimated 499 million living without electricity. Lifting nearly 200 million out of energy poverty has been notable but the distribution of access has clearly favoured urban centres where 94% of residents have electricity versus 67% in rural areas. Electricity is just another indicator of the growing wealth divide in India, an issue Prime Minister Narendra Modi has decided to tackle head on.

Following up on our earlier article on the policy steps Modi has taken in the first seven months of his government, we highlight two companies that should benefit from the increasing use of renewable energy in India:

First Solar Inc (NYSE: FSLR)

First Solar is the first thin-film photovoltaic module manufacturer to install 10 gigawatts of capacity globally. This remarkable achievement has been driven by its ability to consistently deliver bankable, low-cost solar power for utilities. Just recently, First Solar was the panel supplier to a consortium that won two 100 megawatt projects at the Mohammed bin Rashid Al Maktoum Solar Park in Dubai. The winning bid on the second project was a world record low of $58.40 per megawatt hour. This rate is cheaper than the $90 per megawatt hour electricity costs from the existing natural gas power plants it is displacing and will be delivered with no government subsidy. First Solar entered the India market in 2014 and repeated the feat in Dubai by being the lowest bidder on two 40 megawatt projects in the state of Andhra Pradesh. Being the cost leader in the development of utility scale solar power should aid First Solar in capturing a sizeable share of the 100,000 megawatts of solar capacity India wants to install.

Gamesa Corporacion Tecnologica SA (Madrid: GAM)

Gamesa is a leader in the wind turbine industry. For the nine months ending September 2014, India was responsible for 27% of the company’s total turbine sales, which is up from 18% last year. It should have given Gamesa a market share of approximately 25%. Gamesa is so optimistic about the Indian market that it has recently committed to spend €100 million to build out its production capabilities there. The expansion will allow the introduction of Gamesa’s latest turbine design and increase annual production capacity to 1,700 megawatts. For context, India installs about 2,000 megawatts of wind power each year. Also, with the re-introduction of the accelerated tax depreciation credit in July, the market is expecting annual new builds to exceed 3,000 megawatts going forward.

Renewable energy is making deeper inroads into world markets. This is because it is becoming increasingly cost competitive and dovetails into government policy to promote lower emissions intensive technologies to overcome the challenges of climate change. Australian investors seeking to benefit from this secular trend should look overseas so to escape the political inertia around climate change in Canberra.

The post Meeting between President Obama and Prime Minister Modi shows investors need to look at India appeared first on AdviserVoice.

Nathan Lim

Since breaking the psychological US$100 level in September, Brent crude oil has fallen 34%. Strangely, the Ardour Solar Index has also fallen the same amount over this same period. What the heck does the oil price have to do with solar?

Only 5% of crude oil is used to produce electricity globally and much of this is occurring in the Middle East where crude oil is cheap and abundant. Crude oil power generation is simply not a significant end market because it is not growing and is utilised mostly in regions with unique circumstances i.e. an abundance of cheap oil.

Crude oil is significant in transportation with 64% of it used to move planes, trains, ships, cars and trucks. This is clearly one area where solar has little influence at this point in time as electric cars remain well below 1% of the global vehicle fleet (perhaps even as low as 0.1%).

Electricity generation is the strongest area of growth for solar. Rooftop solar installations are by far the most exciting area given that unsubsidised panels are becoming increasingly competitive globally. This dynamic has been dubbed “grid parity” by solar supporters. For example in Australia, even without any financial assistance, the retail price of electricity is so high that the payback on a typical solar installation is well under 10 years  and can be as short as 6 years with small scale technology certificates (STC). Homeowners are recognising that using solar to meet even a portion of their total energy needs makes financial sense. It is this change in mindset that is driving adoption.

At the wholesale level, Dubai has just set a new global low for the price of electricity generated from solar, signing a power purchase agreement at 5.98 cents per kilowatt hour. This is cheaper than either coal or natural gas power generation. This follows auctions in Brazil that achieved a price of 8.7 cents which is only modest higher than the 7.8-8 cents signed with fossil and biomass fuelled power plants.

Solar has nil emissions so in an environment where governments are seeking to lower the emissions intensity of their economies, renewable energy already has a well-defined role in future planning.

The permitting and construction time for even large scale solar projects is a fraction of the time needed for conventional power plants. A conventional power plant can see the permitting process stretch out for years as rigorous environmental studies need to be conducted to protect wildlife and safeguard against emissions. The low environmental footprint of a large scale solar project (never mind the virtually nil impact of a solar panel on a rooftop) helps to speed along the permitting process. This means projects can be deployed quickly and with minimal impact on the environment or the neighbourhood. From a developer’s point of view, a solar project has lower execution risk than say a coal-fired power plant.

In summary:

• Solar does not compete with crude oil for electricity generation
• Solar dovetails into government policy seeking to reduce the emissions intensity of the economy
• Solar is becoming increasingly price competitive in more places around the world without subsidy
• Solar projects are lower risk and relatively quick to build

Given this, it makes no sense to see solar shares being sold off with the fall in the oil price.

Nathan Lim, Australian Ethical Investment’s International Equities Trust 

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