Private equity and venture capitalists to be emissions traders under UK’s CRC scheme

21 July 2010

UK private equity and venture capitalists will become directly exposed to the price of carbon through the  Carbon Reduction Commitment Energy Efficiency Scheme set to kick in on 30 September.

The ownership structures typically used by private equity investors will come under a new scrutiny, and may see them have to dramatically alter business models. 

Under the scheme, these firms may have to trade emissions across their companies a British Venture Capital Association (BVCA) spokesperson told NewNet.

‘As it stands private equity companies with majority holdings in backed companies will be responsible for registering electricity use with the Environment Agency. Potentially this will mean that when the CRC emissions trading scheme starts the private equity company will be responsible for administering the trading of emissions between its group companies,’ said the spokesperson.

The original Carbon Reduction Commitment (CRC), now renamed Carbon Reduction Commitment Energy Efficiency Scheme, has a cumulative approach which aggregates the energy use of companies owned, based on their majority shareholdings, rather than treating them as separate legal entities.

In addition, the scheme is also mandated to draw information on any business that has half hourly meter readings, although these will not be required to trade emissions unless the energy use breaks the 6,000MWh per year threshold. The scheme has been designed to engage companies that will have the available free cash-flow resource to cope.

But the ramification of the scheme that may catch some private equity and venture capital companies out was highlighted by Simon Walker at the BVCA in a letter to the government last June.

This will mean the application of new administrative costs or even a new department and could even see the private equity industry exposed to live market risk as they start to trade emissions.

But it is likely that many firms once caught in this position will outsource the responsibility to private energy management companies. Even so,  it will clearly mean a new working frontier as portfolio companies may end up competing against each other inside new ownership structures  for the right to use energy under their owners allowances. The BVCA also confirmed that since last June they have not received any indication that the government has moved the position.

‘ ‘The central problem is that the government’s main objective is to bring as many companies in to the scheme as possible. That additional portfolio companies are dragged in is – from their perspective – a positive thing,’ said the BVCA on their website.

Copyright © 2010 NewNet

This story was published on Wednesday, July 21st, 2010 at 5:53 pm and is filed under Europe, companies, energy efficiency. You can follow any responses to article entry through the RSS 2.0 feed. You can skip to the end and leave a response. Pinging is currently not allowed.

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