TheChek News Flow

Deal is vital to sustaining a €110bn portfolio of clean energy projects planned by the company

The German government has agreed to provide €7.5bn of state guarantees to embattled renewables group Siemens Energy as part of a €15bn rescue package for the group.

The deal is vital to sustaining a €110bn portfolio of clean energy projects planned by the company — a cornerstone of Europe’s green energy transition — which was last month revealed to be in jeopardy amid a lending freeze in the renewables market. 

“In the past few weeks, the federal government has been in intensive contact with Siemens Energy, Siemens [Siemens Energy’s largest shareholder] and private banks,” the German ministry for economics and climate change said in a statement on Tuesday. 

“The federal government’s prerequisite [for state support] was that all stakeholders participate appropriately in securing the company,” it said.

Dividends at Dax-listed Siemens Energy will be suspended for the duration of the state guarantees. Bonuses for its board of directors will also be scrapped.

The company is due to report its fourth-quarter results on Wednesday. Its shares are down 50 per cent this year. They rose 5 per cent to €10.16 on news of the bailout.

The rescue package involves a complex set of commitments: the German government will backstop €7.5bn of a €11bn credit line provided by a consortium of private banks.

A further €1bn of lending will be provided by banks without a backstop.

Siemens Energy and Siemens will then provide a final €3bn chunk of funding themselves, including €2bn raised from the sale of shares back to Siemens from an Indian joint venture between the two companies.

Siemens will also reduce the fee — currently worth hundreds of millions of euros annually — that it charges Siemens Energy to use the Siemens name.

The Munich-based energy company has been in crisis since revealing huge losses at its wind turbine arm, Siemens Gamesa, in June. It is on course to record a €4.5bn loss for this year.

Engineering problems have beset the latest generation of turbines under production — leading to a suspension of new orders for onshore projects — and costs have spiralled thanks to inflation, causing losses stemming from long-term supply contracts that locked in fixed sale prices.

The steep losses led to a funding crunch for Siemens Energy, as lenders panicked in an already challenging market for renewables financing.

The company revealed on October 26 it was facing a €15bn financial hole that, if not plugged, would lead to the collapse of its project pipeline.

Siemens Energy has repeatedly stressed that the other parts of its business — including gas and power businesses — are in strong financial health.

The company last week unveiled what it says will be Europe’s largest gigafactory for the manufacturing of hydrogen electrolysers in Berlin.

German Chancellor Olaf Scholz formally opened the plant. “The Cassandra calls about the supposed deindustrialisation of Germany and Europe are completely misleading. All the conditions are right,” he said.

No huge rounds last week, but we did see a handful of $100 million-plus ones and a smattering of mid-sized financings. If any theme dominated the week, it was health and biotech, as those related startups make up half the list.

1. Enable, $120M, finance: We don’t write about many rebate management platforms on this list, but when you raise $120 million that changes. San Francisco-based Enable raised a $120 million Series D led by Lightspeed Venture Partners that values the company at $1.2 billion. The startup platform helps manufacturers, distributors and retailers manage their rebate offerings to help push growth and optimize sales with automated real-time data and forecasting. Everybody loves a rebate, but companies need to manage what they offer. Founded in 2016, Enable has raised $276 million, per the company.

2. May Mobility, $105M, autonomous vehicles: Just a couple weeks after Cruise’s announcement it will suspend its self-driving taxi program rocked the autonomous vehicle industry, another AV startup has raised big money from some big-name investors. Ann Arbor, Michigan-based May Mobility closed a $105 million Series D led by the NTT Group. The new cash brings May Mobility’s total funding to approximately $300 million since being founded in 2017. The company last raised a $111 million round in July 2022. May Mobility develops AV technology and deploys fleets of vehicles to municipal and business customers. Funding to autonomous vehicle startups have been having a rough year to date. Such startups have raised less than $4.6 billion — which puts the sector on pace for its lowest funding total since 2020, per Crunchbase data. The sector saw a high for funding in 2021 when the industry received $12.5 billion. Last year, that number dropped to $5.9 billion.

3. Wonder, $100M, food delivery: Marc Lore’s food delivery startup Wonder made this list way back in June 2022, after The Wall Street Journal reported the New York-based startup raised a $350 million round led by Bain Capital Ventures at a $3.5 billion valuation. This week it’s back with a smaller round — a $100 million investment from Nestlé. The company has been pretty busy of late. In September, Wonder acquired meal-kit company Blue Apron for $103 million. Lore previously was CEO of retail giant Walmart‘s e-commerce division. Founded in 2018, the company has raised $950 million, per Crunchbase.

4. Elucid, $80M, biotech: Every week an AI-related biotech company makes this list it seems. This week it’s Boston-based Elucid, which creates AI-powered imaging analysis software to assess cardiovascular disease, raising an $80 million Series C led by Elevage Medical Technologies. The startup plans to use the fresh cash to expand the commercialization of its software for physicians. Founded in 2013, Elucid has raised $121 million, per the company.

5. Volante Technologies, $66M, fintech: New York-based Volante Technologies locked up a $66 million debt and equity financing led by Sixth Street Growth. The fintech startup offers a cloud-native payments platform to financial businesses and institutions. Founded in 2001, Volante has raised $116 million to date, per the company.

6. (tied) Black Ore Technologies, $60M, fintech: Austin, Texas-based Black Ore Technologies, an AI-driven financial services company, emerged from stealth with a $60 million seed round co-led by Andreessen Horowitz and Oak HC/FT.

6. (tied) OrsoBio, $60M, biotech: Menlo Park, California-based clinical-stage biopharmaceutical company OrsoBio raised a $60 million Series A co-led by Enavate Sciences and Longitude Capital. Founded in 2021, OrsoBio has raised $97 million, per the company.

8. Forward Therapeutics, $50M, biotech: Palm Beach Gardens, Florida-based Forward Therapeutics, a biopharmaceutical company developing small molecule therapies for chronic immunological and inflammatory disorders, announced a $50 million Series A led by BVF Partners LP. Founded in 2022, the round is the company’s first outside funding, per Crunchbase.

9. L-Nutra, $47M, nutrition: Los Angeles-based nutrition company L-Nutra closed a $47 million Series D led by a personal investment from Stephane Bancel, CEO at Moderna. Founded in 2009, this is the company’s first funding with a disclosed amount.

10. (tied) Ascidian Therapeutics, $40M, biotech: Boston-based Ascidian Therapeutics, a biotech startup focused on treating human diseases by rewriting RNA, announced a $40 million Series A extension from Apple Tree Partners. Founded in 2020, the company has raised a total of $90 million, per Crunchbase.

10. (tied) Eleos Health, $40M, health: Boston-based Eleos Health, a behavioral health startup, raised a $40M Series B led by Menlo Ventures. Founded in 2019, Eleos has raised a total of $68 million, per the company.

The biggest round outside the U.S. went to yet another AI startup

AI outperforms conventional weather forecasting methods for first time

Google DeepMind’s model beat world’s leading system in 90% of metrics used and took only a fraction of the time

Artificial intelligence has for the first time convincingly outperformed conventional forecasting methods at predicting weather around the world up to 10 days into the future.

The GraphCast AI model “marks a turning point in weather forecasting”, its developers at Google DeepMind said in a peer-reviewed paper published in the journal Science on Tuesday.

An extensive evaluation showed that GraphCast was more accurate than the world’s leading conventional system for predictions three to 10 days ahead, which is run by the European Centre for Medium-range Weather Forecasts.

It outperformed the ECMWF product in 90 per cent of the 1,380 metrics used, which included temperature, pressure, wind speed and direction, and humidity at different levels of the atmosphere.

Matthew Chantry, machine-learning co-ordinator at ECMWF, said AI systems in meteorology had progressed “far sooner and more impressively than we expected even two years ago”.

ECMWF, an intergovernmental body based in Reading in the UK, has been running live forecasts by AI models from Huawei and Nvidia as well as DeepMind alongside its own integrated forecasting system.

Chantry endorsed DeepMind’s claim that its system was the most accurate. “We find GraphCast to be consistently more skilful than the other machine-learning models, Pangu-Weather from Huawei and FourCastNet from Nvidia, and on lots of scores it is more accurate than our own forecasting system,” he told the Financial Times.

GraphCast uses a machine-learning architecture called graph neural network, which learnt from more than 40 years of past ECMWF data about how weather systems develop and move around the globe.

The inputs for its forecasts are the states of the atmosphere worldwide at the current time and six hours earlier, assembled by ECMWF from global weather observations. GraphCast produces a 10-day forecast within a minute on a single Google TPU v4 cloud computer.

In contrast to this data-derived “black box” approach, the conventional method used by ECMWF and the world’s national meteorological offices, known as numerical weather prediction, uses supercomputers to crunch equations based on scientific knowledge of atmospheric physics — an energy-intensive process that takes several hours.

“Once trained, GraphCast is tremendously cheap to operate,” said Chantry. “We might be talking about 1,000 times cheaper in terms of energy consumption. That is a miraculous improvement.”

As an example of a successful forecast, DeepMind scientists mentioned Hurricane Lee in the north Atlantic in September. “GraphCast was able to predict correctly that Lee would make landfall in Nova Scotia nine days before it happened, in comparison with only six days for traditional approaches,” said Rémi Lam, lead author of the Science paper. “That gave people three more days to prepare for its arrival.”

However, AI performed no better than conventional physical models in predicting the sudden explosive intensification of Hurricane Otis off Mexico’s Pacific coast, which devastated Acapulco with little warning on October 25.

The next step for ECMWF would be to build its own AI model and look at combining that with its numerical weather prediction system, Chantry said. “There is room to inject our understanding of physics into these machine-learning systems, which can seem like black boxes.”

The UK Met Office, the national weather service, announced last month a collaboration with the Alan Turing Institute, Britain’s centre for AI research, to develop its own graph neural network for weather forecasting, which it will incorporate into its existing supercomputer infrastructure.

Simon Vosper, the Met Office’s science director, pointed out the need to account for climate change in forecasting. “It is fair to question whether AI-based systems are able to pick up new extremes if these systems have only been ‘trained’ on previous weather conditions,” he said.

“We aim to pull through the best that AI can offer while working with our traditional computer models based on the physics of the atmosphere,” Vosper added. “We believe that this blending of technologies will provide the most robust and detailed weather forecasts in an era of dramatic change.”

Event details and information

Investing in Space

Hedge funds profit from bets against troubled wind energy stocks

Short bets reflect broader loss of enthusiasm for green energy stocks

Hedge funds are profiting after a series of well-timed bets against wind energy stocks, with some wagering there is further pain to come for the troubled sector.

Marshall Wace and quantitative trading firm Qube Research & Technologies are among those to have made millions of pounds in profits from sharp falls this year in the share prices of wind industry stocks such as Siemens Energy and Ørsted.

The short bets reflect a broader loss of enthusiasm for green energy stocks, despite huge tax credits and subsidies offered by governments to renewables companies in the US and Europe.

Wind companies generally agree long-term contracts that fix the price at which they sell energy. However, high inflation has pushed up their costs, while high interest rates have made it more expensive to raise money for their often-expensive new projects.

The S&P Global Clean Energy index, which is made up of 100 of the biggest renewables stocks, soared in the early stages of the coronavirus pandemic to hit a peak in early 2021. But it fell sharply later that year and, after losing further ground in 2022, has dropped another 35 per cent this year.

Short sellers have been increasing their bets against green energy stocks for some time, amid growing expectations that higher borrowing costs would start to cause problems in the sector.

They have been vindicated in recent months. Ørsted, the world’s largest offshore wind developer, this month said it was abandoning two projects it had been developing off the coast of New Jersey due to a surge in costs for financing and supplies, sending the shares down 26 per cent on the day.

Rating agency S&P put the company’s long-term rating on credit watch negative, and on Tuesday Ørsted said it had overhauled its top management.

Its shares are now down more than 50 per cent this year, giving it a market cap of DKr122bn ($18bn), roughly a fifth of its value in early 2021 at the height of a push into green stocks.

The proportion of the company’s shares being shorted started climbing around March this year and reached a high of 1.64 per cent on November 3, according to data from S&P. None of the positions have reached the threshold for individual disclosure.

Shares in German manufacturer Siemens Energy, meanwhile, have fallen about 57 per cent since late June after a string of disappointing news stemming from technical problems with wind turbines produced by its subsidiary Siemens Gamesa.

It is expected to update the market on Wednesday on talks with the German government about financial support to help shore up its balance sheet.

Short sellers have also targeted Danish wind turbine maker Vestas Wind Systems, whose shares are down 17 per cent this year, although they climbed last week after it confirmed it expected to be profitable this year.

In a sign some traders do not think the worst is over, almost 14 per cent of Siemens Energy’s stock is now being shorted, up from 8 per cent at the start of the year, as is about 1 per cent of Ørsted’s stock as of last week.

However, Renaud Saleur, a former trader at Soros Fund Management who now heads Anaconda Invest, said he had covered his short positions in Siemens Energy and Ørsted in early November and now owns Ørsted shares.

“We like to think all the bad news is now known,” he said. Governments will need to adjust the terms they offer wind developers to get projects off the ground, he added, while it “seems long-term [interest] rates . . . have peaked”.

Marshall Wace declined to comment. Qube did not respond to a request for comment.

Agreement comes as European countries seek to avoid repeat of energy price explosion that followed Ukraine invasion

The French government has reached a complex deal with state-owned nuclear producer EDF on future power costs which includes a windfall levy if energy prices spike again.

The agreement struck on Tuesday, after many months of negotiations, comes as countries across Europe seek to avoid a repeat of the energy price explosion that followed Russia’s full-scale invasion of Ukraine last year, including through reforms at EU level over the subsidies that can be used to foster power generation.

The French agreement is aimed at protecting consumers and businesses from soaring prices but also ensuring EDF can find the funds it needs to build future nuclear reactors.

“A company has to be profitable. We’re not in the Soviet Union,” economy minister Bruno Le Maire said of the deal, which comes as France is phasing out subsidies allocated since 2021 to shield the economy from the highest price spikes. Le Maire said state aid amounted to nearly €40bn.  

The new framework will include taxing some of the company’s revenues if energy prices exceed certain thresholds and redistributing the funds to consumers and companies. 

The goal is to try to keep the price of nuclear power at an average of about €70 per megawatt hour over a 15-year period, above EDF’s estimated production costs. French wholesale power prices are still well above €100 per megawatt hour at present. 

Under the agreement, if energy prices head north of about €78 per megawatt hour the state would recoup half of the extra revenues earned in tax, while any revenue above a threshold of €110 per megawatt hour would be taxed at 90 per cent. 

“The inflationary shock of the past two years has shown us to what extent (France’s nuclear energy) was a vital asset for social cohesion, for the survival of businesses and to attract foreign investors to France,” Le Maire said. 

The new framework would apply from 2026 after the expiry of an existing one known as Arenh, under which EDF sold a chunk of its energy at €42 per Megawatt hour to industrial groups and other power distributors. 

EDF is France’s dominant power provider and producer, with a fleet of 56 reactors that also export power across Europe.

That means Brussels has long scrutinised the company to ensure state aid and competition rules are respected, while other countries in Europe and particularly Germany have been wary of France getting too much leeway over pricing that might be seen as overly advantageous for its companies. 

Key aspects of the EDF deal would not require a green light from the European Commission, French government officials said, as taxation on a targeted sector is allowed and the redistribution of such funds is provisioned for in recent EU electricity market reforms. 

That contrasts with Germany’s push to introduce tax subsidies for its industry worth up to €28bn by 2028 to help manufacturers with energy costs, which could have more trouble passing muster in Brussels. 

Still, there are lingering uncertainties over some aspects of the EDF deal agreement, which was hard to reach as the group’s boss Luc Rémont and the government clashed over where to set the price thresholds, people close to the talks have said. 

France might still have to engage with Brussels over some aspects of how tariffs are set, said Nicolas Goldberg, a partner at Colombus Consulting, while businesses that buy power from EDF may lack visibility on their final price if they don’t know in advance how much may be recouped from the windfall levy. 

“Some of the ways it will be applied are hard to read,” Goldberg said. 

The levy’s thresholds will be renegotiated over the years, opening the door to more wrangling with EDF as it comes under growing pressure to invest in new plants. Some lobby groups in France representing other power providers are unhappy they are being presented with a fait accompli on prices, with consultations with other parties only due to kick off now.