REFFconferrence & Changing Face of Wind Power India

REFF conference Mumbai 20th November and 21st November.

The global financial crisis has not dented the interest in Renewable Energy in India, as that was quite evident from the presence of participants from various geographies, various fields and with special interest to participate in various capacities (debt, equity, CDM off taker, Developer) etc.
Day one’s highlight was presence of Dr Pramod Deo, Chairman, CERC who is considered to be one of the evangelists, about Renewable Energy. During his leadership at MERC, Maharashtra came out with one of the most supportive RE Policy specifically for Wind Power which resulted in addition of over 1000 MW in wind power in last 3-4 years. He himself remembered those days and the kind of opposition the policy had to face when the policy was christened. But in the hindsight not only he is happy but also proved his opponent that he was correct. Economic times of 21st November, refers to hike in power tariff for Mumbaikars by over 1 Rupee per Unit. As I remember, my electricity bill from Reliance Energy Limited already quotes around 3 to 3.5 Rupees per Unit which I believe will soon touch the 5 Rupees tariff against which the Wind Power Tariff is 3.5 Rupees per Unit which is so called Feed in Tariff or preferential tariff. I think message from Pramod Deo was quite clear, support RE by giving policy which supports its growth which will ensure the Energy Security in longer term.
Also on the day one there was important discussion on Generation Based Incentive (GBI) by none other than Debashish Majumdar, CMD, IREDA, the nodal agency under MNRE for the said scheme, which is said to be first step in direction to incentivize the Generation based RE Power in country against the Depreciation based capital investment in RE. Although when the questions came about the applicability of GBI, its extension, air was not clear. One thing that was made clear was that the first 49 MW quota is already exhausted. About the extension, IREDA, CMD stated that it has already been submitted for further discussion and the decision is expected to be out with in one or two month. He also hinted that proposal is to extend GBI up to 2010-2011 year instead of having outer limit of MW. Frankly I believe the second phase of wind power has to come from IPP (Independent Power Producer) and GBI, REC instruments are going to play major role for the same.
Second days highlight was the introduction of Renewable Energy Certificates by Balwant Joshi, Managing Partner, ABPS Infrastructure. Definitely there are some last minute hurdles that needs to be sorted out to pave the way for such revolutionary (although this small cousin of CER (written from right to left REC)) and hopefully the concept will see the light of the day may be in coming days during the first budget of new (or congress) government.
Further on the second day a developer’s voice was also interesting to note. Mr. Mahesh Makhija, Vice President, Renewables, CLP India gave a true picture how and why the wind power market in India is developing in very balanced manner. Probably he still is loyal to his old manufacturer’s day as he lightly discussed during the networking session. The important aspect that he touched upon was the non inclusion of Cost associated with development of Power Evacuation for the new wind farms that were getting developed which usually do not get captured in the Modest Per Mw cost that goes in Tariff determination by various SERCs.

OPEN ACCESS:

the other important discussion that hog the limelight of abscence of implementation of Open Access in letter and spirit.

Changing face of Wind Power in India

Most of the discussion in the two days conference was concentrated on dissecting the past and the way wind power industry got developed in India with support of Tax incentive (Well it was also said that instead of paying tax, a tax payer can invest 30 % as equity in wind power and rest debt finance). But then question arise was this something that has happened first time in the world? Isn’t it similar to the likes of benefits/subsidy given by various governments around the world to promote various industries, leave apart Renewable (wind) energy? Had it not been these benefits could India would have been on the map of Wind Power as it is today? The famous remark doing round was : though it is being said that “Glass is half filled but had it not been the Suzlon or Enercon there would have been the Glass at all”.
What about future: Definitely future lies in IPP going forward and this is well established without any doubt. Today, Suzlon has got a special team which focuses primarily on IPP with special focus on Investments from International Investors. The IPP team not only discuss Energy Yield Assessment but host of aspects such as Operation & Maintenance, Health Safety Society and Environment (HSSE), Corporate Social Responsibility (CSR), independent third party wind resource assessment , Garrad Hassan (GH) verification, Wind Sector Management, Power Evacuation (PE) etc which were un heard of in last few years. Things are changing. Things are changing fast.
Sites with installation of above 50 MW will be a reality. In fact there are plans to have wind power complexes with 1000MW at single location. Probably this is the new face of wind power, new face of Suzlon.
Views expressed are strictly personal and are of writer himself and not of the organization he belongs to.

Financial Crisis || Politics || Insider @ Play

Events/Acts/Actions that speaks for "relationship of politics and money and consequently/unfortunately about the crisis: Past, Present and may be Future.....

Past:
1) November 1999 : Repeal of the 1933 Glass-Steagall Act passed and signed by Bill Clinton ( Democrat), bill presented by congress senator, Phil Gramm of Texas ( a Republican)2) Commodity Futures Modernisation Act of 2000

Present:
Democrates:
Robert Rubin (ex- Goldman Sacs) adviced Clinton on economic front. Robert Rubin supported clinton pushing NAFTA(1994) and bail out of Mexico's banks(1998) both act allegedly helped Goldman Sacs. Rober Rubin moved to Citibgroup and later Citigroup acquired Mexico's major bank Banamex, a sale facilitated by NAFTA. Rubin is now adviser to Obama.
Republican:
McCain is adviced by Gramm.
Bush Administration:Henry Paulson, ex-Goldman Sachs( he holds 523.5 million USD in the company's stock), proposed 700 bn USD will definitely (Privatise the gain, socilize the pain), lift the ailing Goldman and will protect Paulson's money. Going a leaf ahead, not only finacially but the proposed move seems to be seeking to protect "involved" not only from oversight but also from prosecution in the case of wilful mismanagement. The act reads " Decisions by authority (read paulson) are non-reviewable and committed to agency discreation, and may not be reviewed by any court of law or any administrative agency": surprisingly this is worlds leading democracy.

Future:
The most difficult of all the three but defnitely cannot be different from the first two.

Background: Details about the GSA & Banking Holding Act
In 1933, in the wake of the 1929 stock market crash and during a nationwide commercial bank failure and the Great Depression, two members of Congress put their names on what is known today as theGlass-Steagall Act (GSA). This act separated investment and Commercial Banking activities. At the time, "improper banking activity", or what was considered overzealous commercial bank involvement in stock market investment, was deemed the main culprit of the financial crash. According to that reasoning, commercial banks took on too much risk with depositors' money. Additional and sometimes non-related explanations for the Great Depression evolved over the years, and many questioned whether the GSA hindered the establishment of financial services firms that can equally compete against each other.

Reasons for the Act - Commercial SpeculationCommercial banks were accused of being too speculative in the pre-Depression era, not only because they were investing their assets but also because they were buying new issues for resale to the public. Thus, banks became greedy, taking on huge risks in the hope of even bigger rewards. Banking itself became sloppy and objectives became blurred. Unsound loans were issued to companies in which the bank had invested, and clients would be encouraged to invest in those same stocks. Effects of the Act - Creating BarriersSenator Carter Glass, a former Treasury secretary and the founder of the US Federal Reserve Syste, was the primary force behind the GSA. Henry Bascom Steagall was a House of Representatives member and chairman of the House Banking and Currency Committee. Steagall agreed to support the act with Glass after an amendment was added permitting bank deposit insurance (this was the first time it was allowed).As a collective reaction to one of the worst financial crises at the time, the GSA set up a regulatory firewall between commercial and investment bank activities, both of which were curbed and controlled. Banks were given a year to decide on whether they would specialize in commercial or in investment banking. Only 10% of commercial banks' total income could stem from securities; however, an exception allowed commercial banks to underwrite government-issued bonds. Financial giants at the time such as JP Morgan and Company, which were seen as part of the problem, were directly targeted and forced to cut their services and, hence, a main source of their income. By creating this barrier, the GSA was aiming to prevent the banks' use of deposits in the case of a failed underwriting job. The GSA, however, was considered harsh by most in the financial community, and it was reported that even Glass himself moved to repeal the GSA shortly after it was passed, claiming it was an overreaction to the crisis.Building More WallsDespite the lax implementation of the GSA by the Federal Reserve Board, which is the regulator of U.S. banks, in 1956, Congress made another decision to regulate the banking sector. In an effort to prevent financial conglomerates from amassing too much power, the new act focused on banks involved in the insurance sector. Congress agreed that bearing the high risks undertaken in underwriting insurance is not good banking practice. Thus, as an extension of the Glass-Steagall Act, the Bank Holding Company Act further separated financial activities by creating a wall between insurance and banking. Even though banks could, and can still can, sell insurance and insurance products, underwriting insurance was forbidden.

The argument for preserving Glass-Steagall (as written in 1987):

1. Conflicts of interest characterize the granting of credit – lending – and the use of credit – investing – by the same entity, which led to abuses that originally produced the Act

2. Depository institutions possess enormous financial power, by virtue of their control of other people’s money; its extent must be limited to ensure soundness and competition in the market for funds, whether loans or investments.

3. Securities activities can be risky, leading to enormous losses. Such losses could threaten the integrity of deposits. In turn, the Government insures deposits and could be required to pay large sums if depository institutions were to collapse as the result of securities losses.

4. Depository institutions are supposed to be managed to limit risk. Their managers thus may not be conditioned to operate prudently in more speculative securities businesses. An example is the crash of real investment trusts sponsored by bank holding companies (in the 1970s and 1980s).

The argument against preserving the Act (as written in 1987):

1. Depository institutions will now operate in “deregulated” financial markets in which distinctions between loans, securities, and deposits are not well drawn. They are losing market shares to securities firms that are not so strictly regulated, and to foreign financial institutions operating without much restriction from the Act.

2. Conflicts of interest can be prevented by enforcing legislation against them, and by separating the lending and credit functions through forming distinctly separate subsidiaries of financial firms.

3. The securities activities that depository institutions are seeking are both low-risk by their very nature, and would reduce the total risk of organizations offering them – by diversification.

4. In much of the rest of the world, depository institutions operate simultaneously and successfully in both banking and securities markets. Lessons learned from their experience can be applied to our national financial structure and regulation

Source & referrence: Frontline Magazine, October 24, 2008 , Investopedia, WikiPedia

Financial Crisis and way forward

The recent financial crisis and the consequent crisis management specifically by US has become hot topic for discussion. To add to the confusion the world has become so dynamic that the debate/discussion before people(not the immediate) can read, the perspective changes broadly.

One of the recent article "The Argentine Way" by Jayati Ghosh in Frontline issue October 24, 2008 is good example of what is happening and in fact "How fast it is happening"? The said article praised the way Argentine Economy fought the financial crisis in Year 2001 wherein the country was hit with declining employment & output, increasing poverty rates and political instability. The article does also touches upon rather in sarcastic way the role of IMF in speeding up the fall of Argentines economy. Then the article praises the rise of government of Nestor Kirchner and consequent remarkable recovery to become one of the fastest growing economy.

Changed times: Now comes the twist in story by the time people reads the article the news are doing the round that Argentina has failed to make a debt repayment to the World Bank that fell due on 14 November. Well such is the fast pace of world and rather financial world or to say the kind of integration that a article/discussion/debate losses its importance/meaning by the time it get consummated.

Frankly i am not sure whether the neoliberal supporting/promoting liberalization, deregulation, privatisation of public assets and giving more thrust on role of "foreign capital' for any country to develop or the the said way in which Argentina brought back (at least till 2008) the economy by keeping the exchange rate constant encouraging exports, discouraging exports and helping the domestic consumption to feed the economy rather than relying on "external capital" or in fact defying the neoliberal vision that external capital can help improving the economy but virtually insulating the imports and "foreign investments".

But one conclusion can be definitely made and is that no strategy can remain correct always and strategy needs constant revision based on the underlying scenario and developments.

Source & referrence: Frontline Magazine, October 24, 2008

Young Turks

EARLIER YOU TRUSTED THE COMPANY TO MAKE THE MOVES FOR YOU. TODAY WE GIVE PEOPLE THE RESPONSIBILITY FOR THEIR OWN CAREERS

Time has probably came to own your own career moves. Probably the today's New Young Manager probably ready and interested but do the corporates. It would be going to be long way before things can move. Its going to be toughest challenge for the growing Indian Corporates who are also facing the Global Credit Crisis. Probably as said by many that we might come out least. I am little more optimistic that probably this will give india a chance to come out as leader. Probably the forecasting of BRIC and its accendense might not have thought of this kind of Global Episode but than who knows probably India can !!!!. Definitely a little more time to develop infrastructure would have made this definitely possible but i am still optimistic.

Coming back to the Young Turk or todays young managers i could find a nice article in Economic times.

Leader Of The Pack
MORE THAN 450 OF INDIA INC’S CXO S HAVE HINDUSTAN UNILEVER ON THEIR CV — MAKING IT INDIA’S MOST PROLIFIC CEO FACTORY EVER. NOW, AFTER A PERIOD OF DEEP INTROSPECTION, THE COMPANY HAS REVVED UP ITS SYSTEMS TO ONCE AGAIN RECLAIM ITS POSITION AS INDIA INC’S TOP TALENT MAGNET. CD’S ARATI MENON CARROLL TAKES YOU INSIDE LEVERS’ LEADERSHIP LAB
WHEN IT RAINS it pours and in 2003, the adage was coming home to Hindustan Unilever (HUL). For two years, the company had been tossed around by intense competition, price wars and growth was in low single digits. Morale was at its lowest and HUL’s reputation as talent’s dream destination was starting to unravel, what resulted later in some of its star performers leaving, people like D Shivakumar now with Nokia, Uday Khanna for Lafarge, Anand Kripalu for Cadbury and VS Sitaram for Dabur. HUL’s leadership culture needed to be re-energised, fast. What the company could really benefit from was some introspection. The problem was that the UKbased leadership coaches who were identified would cost “an arm and a leg”, at a time when businesses themselves needed fire fighting. That didn’t stop HUL from putting 70 of its top leaders through some serious soul searching. It is with some pride that CEO Nitin Paranjpe alludes to this example to illustrate the company’s focus on people issues. “It would have been easy to say ‘forget the coaching, let’s focus on business’. But we didn’t,” he says. Gurdeep Singh — then Management Committee member and executive director HR — was chief among those who pushed for the gamble. “The introspection was hard but we knew it was time to formalise a shift in culture,” he recalls. Some of these shifts were bitter pills to swallow. In 2004, the 360 degree process of performance appraisal was institutionalised. “It was a huge cultural transformation. Some were big enough to deal with it, others struggled enormously,” says Paranjpe. Soon after, mid-year reviews were made mandatory. “Your self-image gets shattered pretty fast with 360 degree reviews,” says Sanjiv Kakkar, now Chairman, Unilever Russia, Ukraine and Belarus (RUB). “You get the message about your performance gaps loud and clear.” Fast forward to today, and HUL’s enterprise building culture is at its energetic best. Everyone in its new management commitee is in their early 40s and Nitin Paranjpe is the youngest ever occupant of the corner office. Two HUL alumni — Vindi Banga and Harish Manwani — are now on the eight-member Unilever Executive team. More emphasis today is laid on real delivery and performance accountability and HUL has moved to a far more aggressive performanceskewed rewards system. Inheriting the role of Miss Clean-Up from Singh, is Leena Nair, HUL’s feisty HR executive director and the youngest of its eight-member managing committee. Although she’ll have you know repeatedly, that the basic values behind the three decade-old leadership development practices remains largely untouched. The kind of values, that, Kakkar recalls, back in 1995, allowed senior leadership to empower him — a marketing “rookie” — with a blank cheque to fight off a competitive battle in haircare on his own, no questions asked. “It was an immense amount of trust and that builds you very quickly as a leader,” he says. That those merits of trust and empowerment are intact is what anybody in the salt-tosoap transnational will zealously claim. “In HUL, we always had the mantra that if the manager was good enough there was always a job for him somewhere. HUL leaders have always believed in placing people in stretched roles and giving them big goals to achieve and then empowering them to get on and deliver,” said Dadiseth in an earlier interview with CD. However, what Nair will admit is that recently a lot of the processes designed to attracting and then differentiating talent, have become far more dynamic. “It’s about innovating, not re-inventing the wheel,” seconds Singh. The new mantra of transparency is the sweet spot on Nair’s sweep of reform. HUL has been called many things, but candid and reactive weren’t among them. That’s changing. For more than a decade, Paranjpe was kept in the dark about being a “lister” — Levers jargon for its star performers. While he doesn’t need that affirmation today, if he were a young sales manager, he would not only be told he was a lister, but would also be given a ‘capability card’ that told him where his future potential was, what his next job was likely to be and what his development action plan should be. “In my day, your performance appraisal meant your factory manager would give you a sealed white envelope and a company calendar,” jokes Singh, who spent over eight years in Levers. Today the transparency extends across the shaping of careers. While employees can ill afford to shoot the messenger that brings the message, today they can certainly add to the message. There is an entire section in the PDP (Performance Development Process) where employees can write reams about where they see their careers heading. A Unilever open job posting allows employees to apply for jobs abroad, where according to Nair both participation and conversion is high. “Earlier you trusted the company to make the moves for you. Today we give people the responsibility for their own careers,” says Paranjpe. For Nair, nowhere is this renewed lure of HUL as a preferred employer more evident than on b-school campuses. After the shocker of being upstaged by i-banks and consulting firms and falling to Day One status (from Number One on campus until 2002 to 14 in 2007) the company has clawed its way back to Day Zero. For a leadership development framework that has its bedrock in “making and not buying” talent, getting a certain quality of talent into its doors is critical. An AC Nielsen tracker suggests campus goodwill scores have moved up by 50%. “The way to fight is not by being something you are not,” says Nair. Not that HUL’s reputation as a fount of managerial talent was ever damaged irreparably. Around 450 of India Inc’s CEOs today are Levers alumni. The first stop for headhunters recruiting general managers has always been Levers and according to Preety Kumar, managing partner Amrop International India, that isn’t likely to change: “In terms of experience in thinking, building and leading scale there is no competition from a consumer company,” she says. Uday Khanna, CEO Lafarge India having left HUL in 2003, agrees. While he jokes that it was a natural progression from roti and kapda to makaan, he says, “Levers offers you global exposure and scale, but more importantly the values, ethics and governance systems — critical for assuming any senior leadership position.” It is for these reasons that Kumar still advises talent to cut their teeth in Levers. Unfortunately, HUL has had to contend with the reality that young talent has other priorities. “Whether we like it or not they are looking for money, the global footprint and what’s in it for them in the next five years,” says Nair. What has worked in HUL’s favour has been the process of ‘Unileverising’ that began in 2005, a move to harmonise all of Unilever’s global subsidiaries. Today HUL plays up its global footprint and even sends its management trainees on global exposure stints during management training, earlier unheard of. “I never got to go on expatriation, leave alone in the first 15 months,” says Kakkar. “Product issues” — issues regarding templated and therefore restrictive career movements and non-competitive compensation structures — have also been radically corrected. Listers are now called “hot people” and chummeries are serviced apartments — a sign of changing times. Some things, though, remain uncompromised. Like the rigorous rural stint in the famed 15-month management trainee program, now tellingly re-christened Business Leadership Training. “We still put them through the wringer,” says Paranjpe. Today, there is greater emphasis on matching the ‘hot people’ to the ‘hot jobs’— the top 7-10% jobs identified by the management committee for impact to business. For senior managers, this labyrinth of system-fulfilment means that 40% of their time is spent on identifying, differentiating and grooming talent, something that Dadiseth said is a culture which has been embedded in the fabric of the company since the day he joined in 1972. For someone like Paranjpe, it means, among other things, squeezing in lunch sessions with young managers every 15 days. That commitment is non-negotiable. Three years ago, HR introduced the six Standards Of Leadership (SOL) in a bid to embed the culture of leadership. One of those standards, that every employee from white collar supervisor to chairman gets appraised against, is how well they “build superior talent”. SOL has become the language of every manager’s behaviour. “We’ve always had a leadership competency framework,” says Paranjpe, “but in the last few years we’ve had to sharpen our tools.” A large chunk of this “sharpening” has taken place over the last three years; leveraging technology to strengthen systems is one such development. “Today you can carry out dipsticks every week,” says Singh. Nair groans when asked to put a number to the dipsticks and surveys carried out annually. “We take a lot of time to listen to people,” is her answer. Thankfully, all of this “paperwork” is now e-enabled. By the end of this year a “One Unilever” electronic performance management system will be deployed across over 100 countries to build better alignment of individual goals with Unilever’s global strategy. This process of harmonisation is being carried out by the HUL expertise team, a global HR sub-division formed three years ago to work on policies on compensation, talent and learning. Earlier every Unilever subsidiary had the flexibility to design its own systems. Today, say HUL’s HR team, it is structured globally and “works like clockwork”. It isn’t just the HR operating framework that has been restructured. Accommodating a generation of talent looking for accelerated career growth has put an enormous amount of pressure on the organisation structure. “They want it here and now, not twenty years later,” says Kakkar. Nair says there is grudging acceptance of younger people in bigger roles. The structure has also been redesigned to marry the earlier focus on general management to the present need for specialists. “We need a large number of people at the cutting edge of what they do,” says Paranjpe. So where there were only two highways to general management — sales and marketing — today there are several cuts like customer management, advertising and brand development. Even more significant are the changes being made at the regional and global level. What started in 2004 as global restructuring, with combinations of businesses, new roles for Unilever’s management team and new regional demarcations, Kumar says has continued to help create more room at the top for talent. “Unilever has created complex, highquality roles that pan across regional and global locations that might be less visible but are just as strategic as the top 8-10 jobs,” she says. One criticism of HUL remains — it’s still too resistant to “buying” top talent. Parent Unilever is doing its bit to counter that, starting with Sandy Ogg, chief human resources officer, who came from Motorola, and now Paul Polman, formerly of Nestle, to take charge as the first outsider CEO of Unilever. For HUL though, even though the return of Gopal Vittal, a deeply regretted loss to Bharti Airtel two years ago and now back to head Home and Personal Care, is cause celebre, it is a case of the prodigal son returning home. To sustain the cultural change, Kumar believes strongly that HUL must be more open to bringing in talent diversity. “People are wary to go in if there is no history of integrating senior management.” It’s a touchy topic for Paranjpe who, insists they don’t have an “ideology” about this, but, like others in HUL, is clearly in favour of consistency over diversity. “We want the right man for the job so bringing someone in means he’s pitted against two potential and competent successors in the pipeline,” he explains. But that too could change. As Kakkar says, “There’s a feeling that HUL is a big monolith and moves slowly and yes, sometimes we have responded slowly to changing markets conditions. But when responsiveness is really needed, there isn’t a bigger elephant that can dance as fast.”

Article from Economic Times

Nuclear Deal 123

Nuclear Deal 123

Finally the deal is done. Though there are difference in terms of interpretation but than i believe this is great victory not only for India but for PM(and ofcourse Pranab too). With news of Adani, GMR, JSW-Toshiba and Various foreign delegates doing the round of Indias major infrastructure player it seem things have started rolling. MonsterIndia also shows Tatapower looking for people in their Nuclear Team. R-Adag is already having team lead by Ex NPC CMD Shri V.K. Chaturvedi. I believe the first movement would be in the area of manufacturing as nuclear industry will give great opportunity in terms of Local Manufacturing Industry to grow upon. Probably this might be right time to Infrastructure Majors (with out manufacturing capabilities) to acquire small players whom i believe must be facing the heat of Global Melt Down and would be more than open to be acquired or at least ready for strategic tie-ups.

Better days to come...countdown started 1234....

ECB important points

Master Circular valid up to 1st July 2008
External commercial Borrowings ECB: refer to commercial loans [in the form of bank loans, buyer’s credit, and supplier’s credit, Securitised instruments (e.g. floating rate notes and fixed rate bonds].
FCCB mean a bond issued by an Indian company expressed in foreign currence and the principal and interest in respect of which is payable in foreign currency.
ECB can be accessed under two routes
Automatic Route: ECB for investment in real sector- industrial sector, especially infrastructure sector in India are under Automatic Route i.e. do not require RBI/Government approval.
Approval Route
Automatic Route:
Eligible Borrowers:
i. Corporate registered under the Companies Act except financial intermediaries (Banks, FIs, Housing finance, NBFC) are eligible to raise ECB.
ii. Units in Special Economic Zones are allowed to raise ECB for their own requirement. However, they cannot transfer or on-lend ECB funds to sister concern or any unit in the Domestic Tariff Area.
Recognised Lenders:
i. Borrowers can raise ECB from internationally recognised sources such as international bank, international capital market, multilateral financial institution such as IFC, ADB etc, suppliers of equipment, foreign equity holders.
Amount and Maturity:
i. Maximum amount per corporate is USD 500 Million or equivalent during financial year.
ii. Infrastructure: ECB up to USD 100 Million for Rupee expenditure for permissible end-uses under the Approval Route (Circular no 43) May 29th 2008.
iii. Other borrowers : USD 50 Million
All in cost ceilings:
i. All in cost includes:
1. Rate of interest
2. Other fees and expenses in foreign currence
ii. Not included in all in cost
1. Commitment fee
2. prepayment fee
3. fees payable in India Rupee
4. Payment of withholding tax in Indian Rupees
iii. All in cost ceilings over 6 months LIBOR
1. 3 years to 5 years è200 bps
2. More than 5 years è350 bps



End use:
i. ECB can be raised only for investment [Such as import of capital goods (as classified by DGFT in foreign trade policy), New projects, modernization/expansion of existing production units] in real sector- industrial sector including SME and Infrastructure.
ii. Infrastructure includes
1. Power
2. Telecommunication
3. Railways
4. Road including bridges
5. Sea port and airport
6. Industrial parks
7. Urban infrastructure
End use not permitted
i. On-lending or investment in capital market
ii. Acquiring a company in India
iii. Real estate
iv. Working capital
v. General corporate purpose
vi. Repayment of existing Rupee loan
Procedure: Applicants are required to submit an application form ECB through designated AD bank to the chief General Manager, Foreign exchange Department, RBI.

Indian Nuclear Power:Accountability and Business Acumen

Indian Nuclear Power: lacks accountability and Business acumen

With Indo-US nuclear deal going no where and the future of Indian nuclear power looking dark: the big honchos have came out and started down grading the "dream targets" which were probably never achievable. Sincerely the efforts never matched to the stature of targets dreamed of. Though mismatch of target-efforts has become a common phenomena these days for Indian power sector remembering the much hyped Rpower(quoting at below 200)..find few interesting article supporting the views expressed which are strictly personal.

1) Uranium is why India needs N-deal (article form Hindustan times)

Critics are waxing eloquent about what has been said, or not said, in the US legislation authorising nuclear cooperation with India. But almost none of them are confronting the reason why India so desperately needs the US deal — lack of adequate domestic natural uranium and a nuclear power programme that is way behind schedule.
All the countries who can assist us constitute a cartel, the Nuclear Suppliers Group, whose goal is to deny technology or material to countries that have not signed the Nuclear Non-proliferation Treaty, like India. The US legislation is a major step towards ending India’s isolation in the world nuclear market. "Separating the civil and military part of our nuclear programmes will benefit both of them," says K Santhanam, the nuclear scientist who ran India’s nuclear weapons programme at the time of the Pokhran test.
The Planning Commission’s mid-term appraisal of the 10th Five Year Plan (2002-2007) of June 2005 was the first public confirmation that India’s nuclear power programme was in trouble. It pointed out that "given the limited natural uranium resources", India must seek 20,000 MW on a "turnkey basis", or "alternatively India must seek nuclear fuel on competitive terms" for a similar level of capacity to be built by the Nuclear Power Corporation of India Limited (NPCIL). This was a roundabout way of saying that India needed to either get foreign companies to build reactors in India or import fuel and build them indigenously.
In a paper for the International Panel on Fissile Material published a few months ago, four leading scientists — Zia Mian, AH Nayyar, R Rajaraman and MV Ramana — referred to NPCIL data showing how existing nuclear reactors are running at lower capacity factors over the past few years. The authors said their estimates are that India has been using uranium from past stockpiles and "in the absence of uranium imports or cut-backs in India’s nuclear power generation, this stockpile will be exhausted by 2007". The second major reason why India needs the deal is that it is vital for the future of our indigenous power programme.
On Saturday, CPI-M politburo member Sitaram Yechury declared that the US was aiming to scupper the thorium programme. If anything, the deal will salvage the programme, which is doomed minus the import of natural uranium (U238). According to Santhanam, "Without adequate plutonium, India cannot successfully transit to its second stage. And to transit there requires uranium, imported or otherwise."
According to Homi Bhabha’s plan, in the first stage, India would use its natural uranium in Pressurised Heavy Water Reactors to produce power as well as plutonium as a by-product. In the second stage, this plutonium would be used in Fast Breeder Reactors with natural uranium to breed more plutonium and power. In the third stage, thorium would be irradiated in reactors and yield U-233, a fissile material. But as of now there is simply not enough plutonium to create a sustainable fast breeder economy.
To get that going, India needs to scale up to 20,000 MW of nuclear energy originally targeted for 2000, but will now be achieved only by 2020, and that too only if the NSG embargoes are lifted. To reach that stage, India also needs better and larger reactors. The average Indian reactor-size is 220 MW and going to 540, while the international norm is 1,000 MW and growing. Finland, for example, is making a reactor with a capacity of 1,600 MW.
Almost all authorities believe that this can be done by opening up the nuclear power sector. But this can happen only after the US has prised open the NSG door by working out a bilateral agreement with India on the parameters of cooperation.

2)India’s forgotten N-gold(article from hindustantimes)

Nearly three years ago, when Prime Minister Manmohan Singh stood on the lawns of the White House with President George W Bush, announcing a civil nuclear deal with the US, there was another country he could have turned to for fuel for India’s N-power plants: India.
Together, these uranium resources would be enough to run all of India’s current and planned nuclear power plants for their entire lifetime of 40 years. Even as it scouts for nuclear fuel from the US and elsewhere, India has been sitting on massive, untapped reserves of uranium, hundreds of tonnes of which have been discovered over the past couple of years — adding to the over 1 lakh tonnes already identified in Jharkhand, Meghalaya, Andhra Pradesh, Rajasthan and Tamil Nadu.
Together, these uranium resources would be enough to run all of India’s current and planned nuclear power plants for their entire lifetime of 40 years. In the context of the bitter political debate in India over taking N-fuel from the US, the irony is inescapable.
India’s atomic energy establishment has done next to nothing to tap deposits identified up to 15 years ago. Mining is yet to begin at several sites explored, identified and handed through the 1990s by the Atomic Minerals Directorate (AMD), the government’s uranium exploration arm, to the Uranium Corporation of India Ltd (UCIL).
Some untapped reserves in Meghalaya contain the best-available quality of uranium. And according to Anjan Chaki, chief of Hyderabad-based AMD, many of the new reserves too contain a much better quality of ore than is currently available.
However, despite having no uranium, the government has gone about spending thousands of crores on new N-power plants. “The country has been burdened with overcapacity of nuclear power plants with little uranium to run them even though, ironically, we have had it all along,” a top official told Hindustan Times.
Out of the 4,000 MW-plus installed capacity of India’s nuclear power plants, almost 2,000 MW capacity is lying idle. That is a waste of at least Rs 16,000 crore of public investment — it takes up to Rs 8 crore to build the capacity of generating one MW of nuclear power. India currently uses about 1,300 tonnes of uranium a year.
Chaki suggests costs might have been behind the sloth. “Perhaps if they had come out of Singhbhum in Jharkhand, and gone out to mine, things would have been better, but perhaps they did not have sufficient funds.”
However, lack of funds has never been seen as a problem for India’s atomic energy programme, which has a Rs 8,000 crore budget, direct supervision of, and access to, the PM, and the legal power to acquire any area for exploration.
Sitting in his heavily guarded complex in Jharkhand’s Jaduguda town, UCIL’s chairman-cum-managing director Ramendra Gupta dismissed allegations of slackness.
“We are on track to opening up new projects, and while opening up new projects, sometimes there are some delays because of land acquisition, environmental clearances, and opposition from local groups,” he told HT. He, however, agreed, there was “some mismatch (between the need and availability of uranium) for the time being, which is expected to be over once the new projects are commissioned.”
Nuclear power comprises a minuscule three per cent of India's electricity production, which is dominated by coal-based thermal power (72%) and hydro power (25%). The government touts nuclear power as the vehicle for the next stage of Indian economic growth. But on current form, even the modest target of extracting 8% of power from nuclear sources by 2020 seems out of reach.
By comparison, about 17% of power worldwide comes from nuclear sources, including 80% in France, 40% or more in eight other countries, and 20% in the US.
“We might be badly short on nuclear fuel,” an official said. “But we are certainly big on talk.”

India Can learn lot from China

NDRC: National Development and Reform Commission set up in year 2003 with clear objectives of promoting wind power in China.

The main elements for wind power concession projects are:

Each project should be above 50 MW ideally 100 MW. Well similar scale of projects or may be smaller capacity of around 25 MW and more can be thought of in India for wind power development.
Project investors are selected by public bidding, with lowest feed-in tariff (Price per KWh) obtaining the contract. This is something interesting but might take little bit of more time to come to India.
Dynamic pricing: though the length of the contract runs for 25 years the feed-in tariffs decided/bided are only for 30,000 Full load hours of operation. 30,000 full load hours with PLF of 25% comes to around total of 1,20,000 hours that is approximately 14.5 years with 95% availability of WTG. After this initial concession period the tariffs would be reduced to the average for the power market at that time. This is what is known as business acumen. While meeting the need of the day and making the project economically viable and also ensuring the long term interest of the country. Probably it makes more sense to have the people responsible for policy making to have basic idea of Financial Modeling.
All electricity purchased by the provisional power grid company.
70% of the wind turbine components should be made in China.
Infrastructure Development: local authorities are responsible for building access roads to the wind farm sub-station. This is the area where the communist ideology again scores better than democracy where in the total wind power industry development could be hijacked by local unrest.
Grid companies are responsible for transmission lines to the sub station.
Contemporary to developments: observing that there was excessive undercutting by local players, changes were made in bidding guidelines in the 5th round of tendering in year 2007. The weight age of the bidding price is around 25% and those bidding price closest to the average bidding price score the highest. The alacrity with which the Chinese government and policy making reacts to the developments in business is just remarkable.
Manufacturer, developer agreements were made simpler allowing one manufacturer to supply to more than one developer.

Having said all these, not only in the wind industry in India but probably in all the areas which are affected by policy making, where changes are happening at much faster rate there is dieing need for acute business acumen when it comes to giving long term direction and deciding the major guidelines for the development.

Hope we learn from the examples.

source: GWEC Report, New Energy Finance

India Today

Speech by Thomas Friedman in the New York Times....

"When we were young kids growing up in America, we were Told to eat our vegetables at dinner and not leave them. Mothers said, think of the starving children in India And finish the dinner.'

And now I tell my children: 'Finish your homework. Think of the children in India Who would make you starve, if you don’t.’?”

Carbon Foot Print CER/VER Going CSR Way?

CER/VER going CSR way?

Is this the new wave? R people around the world and lately have started thinking about their Eco-Karma? Does it make sense to have CER/VER as part of your Corporate Social Responsiblity? Yes it seems thats what the likes of Google, HSBC, owners of SUVs, Tesco people are buying VERs to mitigate impact of their life on Earth.
Green consultants are gung ho about this as this is bringing business to them. But does it really make sense? I would say yes. There is nothing wrong in building green assets with support of CER/VER or any other way. With oil at 110$ per barrel and commodities price at roof top, supporting the cause of green power, renewable power makes good long term business sense. To add to the perspective of green if CER/VER can add financial support to the project than i believe it would be a win win situation.

Article from Economic Times:
THE CHURCH’S seven deadly sins draw the limits of man’s nature but the Vatican’s March 12 announcement — environmental pollution is a sin— seeks to limit man’s relationship with Nature itself. Like all diktats from the heavens, earthly pleasures and weakness of flesh make this one, too, rather difficult to avoid. Though, avoid we must. How exactly do we do that? Control our carbon footprint, that’s how. Many years ago, the Bee Gees asked: "How deep is you love". Today, they would have asked: "How big is your carbon footprint". The bigger your carbon footprint, the closer the rest of us are to damnation. To rescue the souls floundering in the sea of eco-guilt, hundreds of companies and individuals have come together to create a new carbon market that is today worth several hundred million dollars, the modern equivalent of pardons sold by the medieval church. It is a market that allows people to atone for possessing embarrassingly large carbon footprints by financing those who don’t. The market for Voluntary Emissions Reductions (VER) is a place where the eco-guiltridden spend serious cash to reduce pollution though they have no legal compulsion to do so. Since it is prompted by social responsibility rather than compulsory cleaning-up, VER is outside the Kyoto Protocol. Though the voluntary market is currently smaller and less liquid than its Kyoto Protocol-born sibling CDM (Clean Development Mechanism), its potential is significantly larger. "Since growth is led by the private sector and not public policy, it has a strong potential to outstrip the mature market size of the CDM-compliance regime,’’ says Ashutosh Pandey at Emergent Ventures, a consultancy for carbon credits projects and trading. So who buys VERs? Demand comes from three triggers. The most compelling is people’s desire to become ‘carbon neutral’ by offsetting their emissions. From undergrads at Harvard, housewives in Britain, owners of SUVs, to HSBC Bank and Tesco’s, people are buying VERs to mitigate the impact of their lives and business on the planet. Demand is coming from cultural events, sports, airlines, tourism, and even whole countries. Costa Rice has become the first nation to claim it is carbon neutral. "Globally, banks have started to give better lending terms to companies that score high on Corporate Social Responsibility (CSR) and are taking steps to go green and reduce their carbon footprint. This is an example of how companies are being increasingly incentivised to do their bit to combat climate change. These companies, apart from internal abatement, buy VERs to channelise their resources to reduce emissions elsewhere on the globe. The demand from companies in US and Europe for VERs should increase with a clear preference for VERs from renewable energy projects, especially wind and smallscale biomass. Even Indian companies may start buying VERs towards their CSR activities,’’ says Akshat Jaswal, assistant VP in MF Global India, one of the few pure-play brokerages in the global carbon market. Two, VER is the only way Uncle Sam can enter the game. Since the US has not signed the Kyoto Protocol, American companies have yet no use for CDM credits. But compulsory emission binding is inevitable for the world’s richest nation. So American companies are using VERs as a great way to figure out the carbon credits market, plus earn some money while they wait for Kyoto. Trading VERs allows them to understand pricing and hedging tools first-hand. Three, since VERs are likely to appreciate in value, punters are already in on the game. Speculators are building up VER portfolios to stay ahead in the race. You can buy VER either ‘spot’ or ‘forward’. “Spot transactions are carried out for VER which have already been generated, and have completed or are in the process of verification by an independent thirdparty. A spot deal can be arranged based on current prices, as long as VER delivery is expected within three months. Forward transactions are carried out for VERs with a generation schedule over several years, typically up till 2012,’’ says a Mumbai-based banker. For India, the voluntary market has created money from thin air. With one out of every two VERs in the world carrying the made-in-India tag, informal estimates peg our annual supply at around 90 million VERs. "It has a much bigger potential now than even six months ago,’’ says Jotdeep Singh, director and Asia head of renewable energy and carbon credits at Rabo India Finance, which began buying Indian VERs a few months ago. Indian VERs are pouring in from four kinds of projects: those too small to bother with CDM red tape, those held up by CDM red tape, those using technology not recognised by CDM red tape, and lastly, those looking for a quick buck. For companies that missed the CDM bus, VER is a great second chance. The Jaypee Group’s Vishnuprayag power plant over river Alaknanda in Uttrakhand, for instance, began in 1992, much before the Kyoto Protocol. So it does not qualify for CDM. But its contribution to environment protection has been recognised in the voluntary market. In fiscal 2007, JPVL has sold 728,188 VERs on a spot basis to Cargill International SA, for $3.46 million or $4.75 per VER. "By 2012, we expect to earn $40 million from VERs. If VER validity is extended till 2017, Vishnuprayag would earn $72 million. Our group philosophy stands vindicated that one can grow, ensuring care for the environment," says chairman Manoj Gaur. Even bigger suppliers are those large companies that are in the queue for CDM registration. In the interim, they are selling emission reductions as VERs. Once they receive CDM status, these projects will move out of the voluntary market. "At the moment, the focus of Indian emission reduction projects is in obtaining CDM registration, given the price difference between CERs and VERs. The majority of VERs currently come from the operation of projects before they have been registered as CDMs. This tendency to favour CERs is reinforced by the typical requirement that a VER project follows a CDM methodology,’’ says Robert Taylor, owner of Mumbai-based Agrinergy Consultancy. So how does your company start generating VER? The process is similar to that for CDM registration, only simpler, faster, less rigorous and less expensive. "A VER has to be certified by an independent third party against a certain standard. The ground rules are emissions reductions should be real, measurable and in addition to normal business,’’ says Manu Modgill, north India head of operations at TUV Nord, one of the global Big Four carbon market validators. Even so, not all VERs are created equal. Unlike CDM, there are many quality tags. Each standard fetches a different price. Standards perceived to be almost equal to CDM compliance enjoy highest demand because buyers get quality assurance. Gold Standard VERs even get a premium over CDM. Vintage is another issue. "Buyers prefer VERs generated after 2006. Before that no one had fully understood what criteria to look for. Now validators and buyers are very clear,’’ says Modgill. The popularity of each tag depends on the number of buyers backing it. The minimum standard is the Voluntary Carbon Standard, a premium quality label, which means a project has the highest sustainability attributes. Despite certification, buyers complain the market is awash with dodgy VERs. "There are all kinds of voluntary standards floating around. That’s why not all supply would be bought. We are very particular about quality. We run stringent legal checks, only buy Gold Standard VERs or those with significant social value,’’ says Jotdeep Singh. Though caveat emptor is clearly necessary, it’s hard to remain glum when business is exploding. Demand within India is coming from just about every quarter. From socially responsible IT companies to a government proposal for carbon-neutral 2010 Commonwealth Games, suddenly voluntary action is in. Even the rich and famous may walk in, now that being carbon neutral has an oomph factor. "We will soon see high net worth individuals seeking VERs to lower their carbon footprint. Since their emissions are higher, that would be a very good trend,’’ says Pandey. As awareness snowballs, a dedicated supply pipeline is emerging. Right now highest volumes come from wannabe-CDM projects. That could alter. "Just six months ago, VERs were mainly CERs in the making. Now VER-specific projects are coming up. A lot of small-scale wind, solar, biogas, and forestry projects are coming up, with VERs as the vital source of revenue. Foreign buyers are actively seeking Indian village-level community projects,’’ he adds. "We recently had a request from an embassy in Delhi that wanted to take energy initiatives. Such projects can only exist in the voluntary market,’’ says Modgill. With demand-supply well-matched, VER prices are currently stable. But that could change as global demand rapidly accelerates. As long as there are delays in CDM registration, VERs would gain. "I think that there will continue to be a market in this area given the delays in registering projects. More generally I think that companies will look to VERs for some particular projects where the CDM registration risk is high and the project type is poorly understood,’’ says Taylor. With a large number of projects in the pipeline in India, supply is expected to be comfortable. "The number of deals will increase as awareness increases. The risk to future growth could be as more countries start to originate VER and CER projects, they will seek to diversify their portfolio to accommodate these at the expense of credits from ‘older’ markets such as India’s,’’ adds Jaswal. But that’s quite alright because the voluntary market is a vote for the kind of world we want to live in and no one country can bear the ecological burden. As Thoreau asked, "What’s the use of a house if you haven’t got a tolerable planet to put it on?" Even without the Pope’s prodding, it’s time to clean up your eco-karma.

source: Economic times

Clouds on CERs

For the CDM market, the risk of prices crashing in just 60 months from now is increasingly real. There is no accord on the table to set the rules after 2012. The first commitment period of the UN Framework Convention on Climate Change (UNFCCC) Kyoto Protocol, which mandates just over 5% cuts in the greenhouse gas emissions of industrialised nations, expires in 2012. With the EU and USA insisting that large developing nations, such as China and India, agree to mandatory emission reductions, there is every likelihood of a political stand-off between the developed and developing nations that could play havoc with the demand for carbon credits in the EU, its biggest market. "Domestic emissions policy in India is becoming more crucial to the future of the CDM. Europe in its 20:20 vision has expressed a wish that in order to permit CERs into the European emissions trading scheme post 2012 there will have to be an international agreement or that countries supplying CERs will have to have emissions legislation. At the moment this is poorly defined but it does seem to be trend emerging amongst developed countries to ask developing countries to shoulder some of the burden of reducing emissions, whether this emerges in the next commitment period post 2012 or the commitment period thereafter is yet to be determined," says Robert Taylor of Agrinergy Consultancy. With almost $50 million in Indian bank finance, investor capital and corporate profit is riding on carbon credit revenues, companies are understandably worried. "According to EU ETS review at the end of January 2008, the use of CDM and JI credits will be very restrictive unless a there is a new international agreement. In case EU's proposals are actually implemented post 2012, the demand for CERs would reduce drastically. Not many buyers are putting a price on the CERs for phase three,'' says Akshat Jaswal of MF Global India. SBI is reluctant to lend against post-2012 carbon credit receivables. "We are moving very cautiously and giving loans against CER receivables only up to 2012. For post-2012, we only consider loans if the counter-party is the World Bank,'' says a senior official. Though the government has decided not to bend on mandatory emissions, it is confident there may not be any eye-ball-to-eyeball political confrontation after all. Shyam Saran, the PM's special envoy on climate change, believes India is already doing more than its share to reduce emissions. "The government is currently engaged in the formulation of a comprehensive National Plan of Action on Climate Change to deal with this challenge in its different dimensions. This is at the national level," he says. "At the global level, India will continue to participate actively in multilateral negotiations on the subject of climate change in a positive, constructive and forward-looking manner. International negotiations in this regard must be based on the principle of "common but differentiated responsibilities, and respective capabilities" as enshrined in the UN FCCC. In essence, this means the observance of the principle of equity,'' he adds. The EU's hard line is obviously unlikely to frighten India. "We must avoid an NPT-type approach to climate change i.e. that industrialised countries get to keep what they have because they got here first, but the rest must stay at lower levels of development, because they are latecomers. An effective global response cannot be fashioned on this basis," Saran says. Meanwhile, Indian industry has its fingers crossed. "If a project is not viable without post-2012 CERs, it's time to re-look because no one knows how it will play out. We suggest that companies not sell all their post-2012 volumes at one go. They need to hedge their bets,'' says Rabo India Finance's Jotdeep Singh.

Source: ET

Will the US remain US? Or become a neo-USSR? Article from Hindu business line

The title is not to tease the reader. If the ongoing debate initiated by Martin Wolf, associate editor and chief economic commentator in Financial Times and Prof. Nouriel Roubini, professor of economics at New York University, is to be given a title, that could be this.
Wolf, whose Wednesday columns in FT are discussed by fifty most influential economists of the world, is a mainline economic thinker. Roubini, who has held different positions in US government, now occupies important seats in academia and runs Roubini Global Economics [RGE] Monitor, an influential Web site.
In July 2006 itself, Roubini had predicted that US was in recession. But, like others had, Wolf had ignored Roubini for nearly 20 long months. But, as the unfolding events were proving Roubini right, Wolf wrote [FT, February 18, 2008] that Roubini deserved to be taken seriously. March towards disaster
Wolf also held Alan Greenspan, who had dismissed the housing issue “as not a bubble but a froth”, wrong. Wolf pointed out how Roubini has [on February 5, 2008] predicted a 12-step march towards a ‘catastrophic’ financial and economic outcome as a “rising possibility”.
In his column, Wolf recalled Roubini’s 12-step recipe for disaster, including:
Housing recession that wipes out family wealth of $4-6 trillion, forces a million to surrender house keys to lenders, and turns home builders bankrupt;
Home loan losses that exceed the estimated $250-300 billion and, together with consumer loan losses, spread credit crunch across;
Top-rated credit insurers get downgraded, causing a further $150 billion loss;
Commercial property market melts;
A large bank goes bankrupt;
Big losses in leveraged buyouts, with hundreds of billions of dollars of bank funds stuck;
Corporate bond defaults force losses of $250 billions on credit default swap insurers and bankrupt many;
With meltdown of hedge funds delinked from central banks, further collapse of the stocks force huge fall in security prices;
Acute illiquidity dogs financial markets with jump in concern about solvency; and
“A vicious circle” of deep recession makes financial losses “more severe” and “financial losses and meltdown” make the recession “even more severe.”
Roubini estimates $1 trillion loss in the meltdown. “Is this scenario at least plausible?” asks Martin Wolf, and answers, stunningly, “It is”. [This was on February 18. But the loss meter in March projects $3 trillions loss!] If this “nightmarish scenario” lasts for six quarters, Roubini warned on February 5, it would be too late for other nations to devise ‘policies’ to ‘de-couple’ from US.
But can the US Fed head off this danger? Roubini says ‘no’ for many reasons. Two of them are important. One, the Fed can deal with liquidity, but, not solvency, which is the real issue. Two, the transactions-oriented financial system itself is in deep crisis. This second one is critical and needs some explanation. Derivatives in control
The world of finance which Roubini calls as transaction-oriented system looks a bizarre, dollar jungle now. A peep into this mind-boggling labyrinth will unnerve even the most diehard among optimists. The world of finance today is controlled by derivatives. What is a derivative? ’Derivatives are financial Weapons of Mass Destruction [WMD]’, ‘now latent’ but ‘are potentially lethal’. This is not socialist Fidel Castro, but, capitalist Warren Buffet speaking recently (on March 10, 2008). Yet, the most among those who count in the world seem unaware of this WMD. ‘Politicians, senior executives, regulators, even portfolio managers have limited knowledge’ about it, says an expert Web on derivatives. Derivative is a financial instrument whose value is not its own, but derived from something else, on some underlying asset or transaction, such as commodities, equities (stocks) bonds, interest rates, exchange rates, stock market indexes, why, even inflation indexes, index of weather!
The CDOs (collateralised debt obligations), by which the underlying US local subprime loans were palmed off to other continents, was, till the fraud was not out, a reputable credit derivative. So derivative is not only a WMD but also an ICBM, an Inter Continental Ballistic Missile, that hits across continents!
Also, the virtual derivative economy is gradually decoupling itself from the actual in quality as well as size. Hundreds of exotic derivative products have been innovated and innovations by the best minds are continuing. Mind-boggling size
The population of these beastly financial products has grown to gigantic levels that is beyond the competence of any system, mind, or force to deal with. The sheer collective size of these modern financial beasts is terrifying. According to the Bank of International Settlements [BIS], the aggregate derivative positions of banks grew from $100 trillion in 2002 to — believe it — $516 trillions in 2007, that is over 500 per cent in five years!
Yet they do not appear in bank or corporate balance sheets. Some of the vital actuals seem pygmies in comparison to these virtuals. The total derivatives are more than ten times the global GDP [$50 trillion]; some seven times the world’s estimated real estate value [$75 trillions]; more than five times the world’s stock values [$100 trillions]; more than 33 times the US GDP [$15 trillions] or the US money supply [$15 trillion]; 172 times the US federal budget [$3 trillion] — it can go on. The size of the virtual economy is indeed petrifying. Worse, it unpredictably targets, yet accurately eliminates, the distant and the unwary as the CDOs did.
A decade earlier, Long Term Capital Management [LTCM] a hedge fund co-promoted by two Nobel laureates, collapsed. Its loss of $5 billion was peanuts compared to the trillion dollar-plus loss that is forecast now. Yet the LTCM fall nearly snuffed out the global monetary system. The derivative economy was much smaller then. When billions could devastate the world market then, what could trillions not do now? It is so huge now that, no one, not even all governments and central banks in the world put together, can control this huge and growing population of derivatives. This is what Akio Morita, the former Sony Corporation chairman, told the Group-7 leaders as far back as 1993, when the size of the derivative population was far less. With the derivatives growing so malignant, it is not the actual finance which controls its derivative, but, the other way round – the virtual controls the actual. What, if this off-balance-sheet virtual architecture collapses?
It is so fragile that it can. Martin Wolf warns “the connection between housing bubble and the fragility of the financial system has created huge dangers, for the US and for the rest of the world.” If a collapse starts, it is beyond any known power’s power to stop or repair it. The balance sheet of the whole world is too small for it and the actual will too meet the fate of the virtual.
Roubini’s caveat regarding transaction-oriented financial system being in crisis and Warren Buffet’s warning about derivatives as financial WMDs, expose how fragile is today’s virtual financial architecture, which is several times the actual. A way out?
What is the way out? And is there a way out at all? There are ‘ways out’, claims Martin Wolf, but, warns, ‘they are poisonous ones’. Wolf says, “In the last resort governments resolve financial crisis. This is the iron law.” And adds, “The US public sector is coming to the rescue.” Public sector? To the rescue of world’s most efficient financial market? In the freest economy in the world? Yes. And Wolf hopes, “In the end, they will succeed.” This was Wolf on February 20, 2008. The state in US as the answer to the mess created by the free market? Confession indeed from a diehard capitalist!
Some 18 years back, market was touted as the answer to the mess created by the state in USSR. A 360-degree turn now. Read on, it is more interesting. Nationalisation of losses?
In his later article on March 11, 2008, Wolf says, “The government would have to mount a rescue. The most plausible means of doing so would be via nationalisation of all losses.” Nationalisation? And of losses? In free market US, which pontificates on privatisation of public sector and government works the world-over?
But how to nationalise only losses? To keep the ownership with those who lost others’ money? Roubini also says that some market observers are already talking about nationalisation of the US banking system — first covert and then explicit — as the next step to the financial meltdown.
Obviously the US Government is seen as the saviour for the faltering — or better, collapsing? — financial market of the US. So, massive state penetration of Wall Street seems inevitable. And it is already happening. And that will be a topic by itself.
QED: What then is its consequence? If the banking system in US, which holds the Capital of capitalism, is nationalised, what will be left of capitalism in US? Capitalism without Capital ’C’? If US nationalises capital, will US capitalism remain market capitalism or become State Capitalism? Will the US be US then? Or will it become a neo-USSR? No seer is needed to give the answer. It’s obvious.

Why wind needs feed-in tariffs (and why it is not the enemy of nuclear)

An argument often heard against wind is that it costs a lot in public subsidies for a solution that will always have a limited impact (because it still produces only a small fraction of overall needs, and because of its unreliability linked to its intermitten nature). This is an argument worth addressing in detail, especially when it is pointed out, as the graph shows, that wind is already almost competitive with the other main sources of electricity, which suggests that it might not even need the subsidies then (and the increase in commodity prices since that graph was prepared using 2004 data, only reinforces that argument).

We are on the brink of a new energy order. Over the next few decades, our reserves of oil will start to run out and it is imperative that governments in both producing and consuming nations prepare now for that time. We should not cling to crude down to the last drop - we should leave oil before it leaves us. That means new approaches must be found soon.
The above, from an article by Fatih Birol, the increasingly strident chief economist of the International Energy Agency, suggests that we need to develop all non-carbon based energy sources as quickly as we can to avoid the coming energy crunch from oil depletion. He suggests to push nuclear energy, but that may not be enough - and, as I will show below, the best way to push nuclear is also the best way to promote wind power...
:: ::
Now, if you look at the graph above, it is very easy to see that the long term cost components of wind power and gas power are very different. Nuclear is quite similar to wind in that respect (more, in fact than the above graph suggests), and coal is quite similar to gas.
Wind turbines, once built, generate almost free electricity - they require only some basic maintenance and servicing. That means that they have a marginal cost of production close to zero (ie each additional kWh of production only requires more wind, but no actual spending); that also means that their main long term cost is the repayment of the initial construction cost, in the form of debt repayment and return on capital for the investors.
This has two simple consequences:
the cost of wind power is essentially set at the time of construction, when the parameters of the financing of the initial investment are agreed, in the form of debt service plus a set return, over an agreed period of time, typically 15-20 years. That cost is fixed and will not vary in accordance with the price at which electricity is actually sold.
once installed, wind power will always be dispatched - with its negligible marginal cost of production, it will always be cheaper than alternatives, and the only reason not to take such free power will be technical constraints from the network (which I'll discuss later). When dispatched, wind power will move the dispatch curve, and ensure that the marginal cost of production required at that point ot satisfy demand will be lower than if wind power were not available - ie wind power displaces the most expensive power source that would have been needed otherwise, typically a gas-fired plant.
The second argument, as the Economist noted, brings savings to all electricity consumers - in fact, in Denmark, such savings are now higher than the subsidy paid to wind power producers, thus creating a net gain for the country. This, in itself, is enough to justify subsidies, given that no other economic actor than the government can create such a gain, as it is diffuse and spread amongst all electricity users; by imposing a feed-in tariff, which similary spreads the extra money paid to wind power producers amongst all electricity users), the costs and benefits appear in the same place, and the gain is obvious and immediate. This is a perfect example of a smart regulation which benefits everyone.
The first consequence noted above is a bit more subtle and needs to be discussed in more detail.
As noted, wind power has high fixed costs, while gas power has low fixed costs but higher variable costs - the cost of procuring fuel. At a time of steadily increasing gas prices, that might seem like an advantage for wind, but, in fact, it is not. The reason for that is that, in today's liberalised markets whereby electricity prices are driven by the marginal cost of production, power prices tend to follow that of gas, since the marginal producer is usually a gas-fired plant. Thus, the variability of gas prices is mirrored in electricity prices, and a gas-fired plant does not really see its competitive position in the market change.
On the other hand, a wind farm, with its fixed costs, makes a lot of money when gas prices (and thus electricity prices) are high, but stands to lose money should at any point electricity prices come down again. The short term profitability of wind farms is driven by factors totally outside of their control (gas prices, which are themselves driven, in the medium term, by oil prices). Should that short term profitability be negative for too long, that can spell trouble for the investment (ie bank loans might be in default - even if temporarily - and the investors then stand to lose the project to the banks. And if that's too likely to happen, banks simply won't lend, because any default (even a temporary one) causes losses and headaches. Essentially, investors and banks must bet that gas prices will stay high enough every single one of the next 15 years for the project to avoid trouble.
To express things differently, the competitiveness of a wind farm - decided at the time of investment - depends on how low the gas prices might go over the next 15 years, whereas the competitiveness of a gas-fired plant depends mostly on the existing power plants - to know the plant's position on the dispatch curve, and thus its likely use. To a much lesser extent, the relative variations of gas and coal prices will also play a role, but this has a second-order impact on revenues.
In short, a gas-fired plant presents a much lower risk profile at the time of the investment, in the sense that the risk of catastrophic loss (from long term price movements) is much less, and that the somewhat higher short term price risk is easier to manage (and financial markets are happy to provide their services there).
That different risk profile is, of course, the reason why wind power needs to be supported in some way by public authorities: markets, left to themselves, will invest in the very technologies (gas and coal) that are the source of all our worries, founded or nor, on the energy front: climate change (coming from carbon emissions), and security of supply (coming from the likely depletion of resources in the long term and the perceived unreliability of suppliers like Russia in the short term).
And the public authority has an actual incentive to encourage wind farms: the long term fixed nature of its price structure presents an unsurmountable risk for the private sector, but it does embed very real value for any entity able to bet on the very long term: a guarantee that prices will be no higher than that fixed cost, whatever the price of oil, in 20 years' time. The markets, except for very specific cases (energy intensive industrialists that know their energy needs in the long term, are not necessarily concerned about temporary interruptions and value long term average prices rather than short term ones), are currently unable to give a value to what is effectively a very long term option on electricity prices - but that value is there.
We know we'll still need electricity in the next 20 years; public policy that works to provide a cap to how high the price of that electricity can go sounds like smart policy - and smart politics.
In fact, on the basis of the value of that option, it can be argued that feed-in tariffs, which provide a stable, guaranteed price to wind power and thus allow the relevant investment to be made with the high-probability perspective of a decent return , are not a subsidy, but a fair transaction, whereby the public authority purchases the guarantee of capped prices in the future in exchange for somewhat higher prices today. The exemple of Denmark quoted above, and the current trends for oil prices, suggest that this is a transaction likely to be highly profitable in the long run, in fact, and thus not at all a subsidy.
Tax credits, as provided in the USA, are a similarly effective mechanism, as they provide a guaranteed minimum income to wind farms and thus ensure that the minimum long term power price threshhold required to make the investment in a wind farm a sensible one is much lower than it would otherwise be, and thus that such investments can be made today - and indeed they are, as the current boom in windpower in the US shows. And the cost-benefit analysis is likely to be similar once wind reaches a sufficient penetration in the market.
A third mechanism that would work as well is NOT the green certificate market regulations used in a few countries (the UK, Australia, Italy), but would rather consist in authorising public authorities to provide financing to the power sector. Given that the main cost of a wind turbine is the fixed financing cost, if you loser the aplicable interest rate and/or required return on capital, you also lower the long term cost of production. Public authorities can borrow money a lot more cheaply, and over much longer periods, than private sector entities, so the cost difference can be quite significant - it can halve the cost for nuclear plant, for instance. And they would not even need to actually provide funds, as this could take the form of payment guarantees. Thus, the public entity would bear that risk of periods of low power prices in exchange, once again, for having a growing portion of power generation coming from carbon-free, capped-cost sources. and the beauty of such guarantees is that they can be provided to all power sources (ie including gas and coal fired plants) in order to avoid the accusation of distorting competition: the cost impact is a lot bigger on wind or nuclear than on gas or coal, and thus the investment decisions will be correspondingly influenced. Charging a flat fee for such a guarantee would make the mechanism transparent and "fair."
The lesson from all this is that wind power does not need subsidies if you make it possible to take into account long term perspectives rather than short term risks. And the same argument applies to nuclear power, so the two technologies are perfectly aligned in that respect - one could even argue that mechanisms that allow to take into account the long term cost/benefit analysis would boost nuclear even more, given that nuclear power plants present the additional risk, from a private investor's perspective, that it is a huge discrete investment, ie it is hard ot invest a small amount in a nuclear plant, you need to sink at least a couple billion euros. Wind farms can at least come in chunks of a few million a piece but, with nuclear, you need to bet big each time, and very few private sector players can afford to concentrate their risks like this.
Of course, this discussion has not even discussed the fact that most existing technologies other than wind are heavily subsidized, either directly, or because they do not have to pay for the externalities they cause. The most obvious example being the lack of price paid, until emissions trading actually comes into force, for the carbon dioxide emissions from gas- or coal-fired plants, or the direct subsidies paid to coal mining in many countries.

At this stage, nuclear advocates might agree with my points and conclude that we need to focus on building nuclear plants, given that wind, being unreliable and small-scale, can never "do the job."
I'd argue that, while personally favorable to nuclear, it's not the easiest solution to deploy in many countries. Given that the State will always bear the ultimate risk for very long term waste management, for catastrophic accident insurance (both impossible to price by the private sector) and for overall safety and security regulation, and that price "support" as proposed above further implicates public authorities, my position is that nuclear power should be run by publicly-owned entities - the EDF model. Under such a model, nuclear can indeed provide a large chunk of our electricity needs.
But even in countries where this model can be applied, there should be no limitation to the development of wind power, and no need for nuclear advocates to demean or mock wind power. Given that it is essentially the same regulatory framework that favors both technologies (with specific regulatory requirements for waste on the one side, and for network reinforcement on the other), they are objective allies in the public debate on energy.

source: http://europe.theoildrum.com/node/3688