MARKET OVERVIEW

NTR’s core sectors are renewable energy and sustainable waste management, with most of its assets located in the United States, United Kingdom and Ireland. These “green” sectors are experiencing fundamental forces for growth as a result of strengthening political and fiscal policies to address climate change, resource sustainability and energy security.

 

However, 2008 was a turbulent year for the financial markets and the fall-out has been experienced across all sectors. Even renewable energy, a sector that has been enjoying unprecedented growth in previous years, has felt the impact. The scale of financing of renewable energy assets is estimated to have reduced by between 50 and 60% year on year, although growth has been reported again in the second quarter of 2009.

 

The credit markets have been particularly challenged and financial structures traditionally used for large-scale project funding have been curtailed. As the markets slowly re-open, banks are being particularly selective about which projects they want to finance, focusing on those with whom they have deep relationships and who have quality projects. NTR’s longevity in the renewable energy sector, its relationships with tier one suppliers and customers and its track record of success, stands it in particularly good stead. Strength of balance sheet, also an important differentiator for NTR, is also proving to be a decisive factor in determining those organisations that are able to navigate the current downturn and the market is seeing some consolidation as a result.

 

The downturn has put pressure on consumption, notably experienced in the recycling and sustainable waste management sectors, but the fundamentals of the renewable energy and recycling sectors remain strong into the mid-term. Even taking into account the current downturn, global energy consumption is set to grow and for the world to meet its Green House Gas emission reduction targets by 2020, the current rate of investment in renewable energy and energy efficiency needs to increase by over 300%.

 

While particular attention will be paid to the UN Climate Change talks in Copenhagen later in the year as a follow on from Kyoto, it is widely accepted that OECD countries will play their part in driving down harmful emissions. The United States is taking on a position of leadership and is driving the requirement for renewable energy quotas across the nation in upcoming energy and climate legislation. This, allied to very supportive tax and loan guarantee incentives to help stimulate renewable energy investment, establishes the North American market as one of the more responsive markets for alternative energy. Meanwhile, the provision for diversity in renewables including solar energy, is gaining considerable traction across EMEA and many markets are now actively considering utility scale solar as a viable source of power.

 

The biofuels sector is not without its challenges and in particular, the support for corn-based ethanol is perhaps more mixed than for other renewable sources. However, recent endorsement for the continuation of renewable fuel quotas and “grandfathering” of existing facilities into a new quota regime in the US, along with Government support for those in the sector experiencing financial difficulties, provides renewed confidence that ethanol will continue to play its role as a home-grown, clean fuel source.

 

The commodity markets have also experienced unprecedented volatility in 2008 and 2009, which has particular relevance for our recycling businesses. Both the pace and scale of price declines in the second half of the year was extremely challenging. The recycling and waste management sectors were particularly affected in the fourth quarter of the year as destinations for commodities, such as China and India effectively closed for business. Margin management, in the form of adjustment of the price of inflow contracts and where possible hedging, has been critical during this unstable period. However, early stages of recovery have already been noted, with some upward movement of prices and demand and mid-term forecasts point to a robust readjustment.

 

The long-term outlook for sustainable waste management is favourable. EU landfill legislation actively promotes a move away from landfill and levels of recycling in North America lag those of Europe by upwards of 50% today, providing considerable room for growth. However, certain markets in which we operate, including Ireland, would benefit from a more stable long-term policy framework around waste management, to enable further long-term investment to be made.

 

NTR’s portfolio is firmly placed in sectors where the long-term fundamentals are positive and its track record and strength of balance sheet place it in a strong position to navigate the challenges of the current credit turmoil. The Group continues to closely watch market developments both for its core portfolio and for other areas of opportunity to exploit into the future.