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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.

Comments will inflame running debate over impact of post-pandemic employee shift

The post-pandemic shift to homeworking has caused significant delays to UK national infrastructure projects including HS2, the head of the body that advises government on their delivery said on Tuesday.

Nick Smallwood, chief executive of the Infrastructure and Projects Authority, told MPs that the change in working habits, alongside inflationary pressures, was one of the main reasons why it issued a “red rating” for the first phase of the high-speed rail link last year.

The rating from the IPA, which is part of HM Treasury, indicated that it considered the project unachievable.

“I’ve seen a significant extension of design duration on projects as a result of hybrid working,” Smallwood told the House of Commons Treasury committee.

“Where you had designers in one office all working collaboratively together, the durations were pretty normal. What we’ve seen post pandemic is a nine to 12-month extension of those durations,” he said.

“It’s slowing down all infrastructure projects. They’re all impacted in the design phase if those designers don’t work directly in the office,” Smallwood added.

He suggested this had compounded the severe inflationary pressures that have made it harder to deliver projects, with material costs jumping by as much as 26 per cent in one year.

His comments will inflame a running debate over the impact of new working practices as chancellor Jeremy Hunt prepares to announce a new drive to raise productivity across the public sector and wider economy in next week’s Autumn Statement. 

Although some chief executives and government ministers have been pressing staff who were working remotely to return to the office, economic evidence so far suggests that hybrid work practices make little difference to productivity while having a marked positive effect on workers’ wellbeing. 

The Treasury committee also heard evidence that will support Hunt’s resolve to remove barriers in the planning system that have held back big infrastructure projects, such as upgrading the UK’s electricity grid to accommodate greener power. 

Sir John Armitt, chair of the National Infrastructure Commission, a government advisory board, said there was “a recognition” that the planning system for nationally significant projects was not working as well as it had when introduced.

He cited a fivefold increase in judicial reviews of planning decisions since 2010 and a 60 per cent rise in the time taken to obtain approvals.

On HS2, Smallwood said phase one of the line — which will run from London to Birmingham — was still “flashing red”, and that there were continued concerns over costs.

The IPA said HS2 Ltd, the taxpayer-funded body overseeing the rail project, had from the outset underestimated the scale of the design work required. It added that the body was now seeing a number of contractor claims that were not in the monthly reports it submitted to officials.

The second leg of the rail link — from Birmingham to Manchester — was axed by the government last month after the cost of phase one soared by a fifth in less than six months. It is now estimated at £54bn in 2019 prices, with inflation expected to add another £10bn.

HS2 Ltd said: “As the IPA made clear in March, the decision to change the rating for HS2 Phase 2a reflected the decision taken by government at the time to rephase delivery of this section by two years due to significant inflationary pressures. Design did not hinder Phase 2a in any way.”

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PARIS — When Tod’s chairman Diego Della Valle bought Schiaparelli in 2007, the brand was little more than a mythical name and a tiny office on Paris’ Place Vendôme stuffed with sketches and records. The house had stopped making collections in 1954 and its licensing business, including trademark perfumes in surrealist bottles, had long since dried up.

But Della Valle saw the potential for reviving the dormant couture house, a so-called “sleeping beauty” brand which had been positioned by founder Elsa Schiaparelli at the vanguard of modern luxury. Schiaparelli’s garments melded couture craftsmanship with provocative design while carving out a place in the cultural zeitgeist through partnerships with artists like Salvador Dalí and Man Ray, as well as dressing clients like Marlene Dietrich.

In recent years, Della Valle and a team including CEO Delphine Bellini and Daniel Roseberry (the brand’s creative director since 2019) have restored the house block-by-block, at times almost literally as the brand reclaimed the leases to its historic hub on Place Vendôme one room at a time. The nerve centre of Schiaparelli since 1935 is now buzzing with activity again, home to a light-filled third-floor boutique and couture salon as well as the company’s offices, design studio and atelier.

“The strategy is to build the dream, and 21 Place Vendôme is the symbol,” Della Valle said in an exclusive interview with BoF. “We were very lucky to take back all the building where she was 70 years ago. I walk outside the Ritz after dinner and think — my God, this is a dream.”

Indeed, reanimating the Schiaparelli brand in step with efforts to reclaim its physical patrimony have set the project apart from other attepts to reawaken ‘sleeping beauties’. Where efforts to relaunch brands including Vionnet, Poiret and Patou have, at times, felt contrived, it’s increasingly easy to forget that Schiaparelli ever went away thanks to the immersive physical experiences it stages in the Vendôme space, which is replete with Surrealist flourishes like hand-drawn wallpaper and fish-shaped lounge chairs.

But rooting the project in a physical hub isn’t the only thing Della Valle did right. The house’s strategy has been to aim high, not wide: restoring its authority for design and craftsmanship by showing only haute couture collections for nearly a decade before gradually extending its offer into ready-to-wear, shoes, bags and jewellery.

“The dream is to do one of the most charming and exclusive brands in the world — very desirable, with products that are unusual but super strong — and to build an important story with the most exclusive customers,” Della Valle explained.

Awareness of the Schiaparelli name has surged to new heights since American designer Roseberry rolled out an opulent, immersive vision for reviving the brand’s codes. His eye-catching trompe-l’œil designs have been catnip to celebrity stylists, creating major social media moments.

Earlier this year, Roseberry’s choice to show plush cat heads during haute couture week was decried online as glamourising big game hunting (especially when the looks were mistaken by some viewers for actual taxidermy). But the dust-up did little to slow down the house’s expansion as it seeks to capitalise on peak visibility by selling more practical products in addition to marketing its couture fantasy.

Ready-to-Wear Push

Alongside his visually arresting made-to-measure outings, Roseberry has dug deep into the house’s archives to create a 360-degree menu of brand signatures including keyholes, measuring tapes and anatomical motifs to deploy across product lines. His ready-to-wear and accessories collections often put a bold, erotic spin on traditional, ladylike chic: imagine ultra-fine tweed jackets with buttons shaped like ears, or high-heeled shoes with bronze toenails .

After gaining attention for initial ready-to-wear capsules sold only at the brand’s Place Vendôme salon, the brand expanded the line into a full collection and opened its first US boutique inside Bergdorf Goodman in New York in 2021. The brand staged its first full-fledged ready-to-wear show in its history in February.

Since then, Schiaparelli has opened shop-in-shops at Neiman Marcus in Los Angeles and Dallas as well as a 1,600 square-foot space in London’s iconic Harrods department store. The Harrods location is on track to exceed its first-year target three-fold, the store’s buying director Simon Longland said. “The reaction from the customers has been instant. The distribution is still so small, and that rarity feeds the demand.”

“It’s utterly unique but also easy to read and understand,” Longland added. “There are all these signifiers that are an elegant and sophisticated way to have recognition without needing to use a logo.”

In a luxury market where top-spending, ultra-wealthy clients are driving growth, it may serve Schiaparelli that its ready-to-wear expansion is hardly an entry-level play. The brand’s €5,400 blazers and €4,500 bronze-embellished platform boots are positioned mid-way between standard luxury ready-to-wear and couture. Even t-shirts are priced at €750 (they’re embellished with false nipple piercings).

But even as the brand’s commercial offer begins to gain traction, such a small store network will likely struggle to bring in revenues commensurate with the cost of operating a couture house inside some of the world’s swankiest real estate. According to public filings, Schiaparelli continues to report operating losses, and has deferred payment on millions of euros in loans from its Italian parent company. The brand’s “start-up phase was extended by the pandemic,” the filings state. Schiaparelli declined to provide further information on its revenues or profit.

Forty Stores

Cue a major expansion plan: to capitalise on the current momentum, Della Valle says the brand will raise its store count to 30 or 40 locations mid-term. “We want to push it as soon as possible — but still with a prudent strategy,” Della Valle said.

In Paris, the brand is getting ready to open a new couture salon on its second storey, freeing up more space in the rest of the building for selling to walk-in customers across categories.

In addition to more locations selling Schiaparelli’s full offer, the plan also plans to start rolling out dedicated corners for accessories and shoes next year. Such a move could help broaden its audience among the crowds that swarm ground-floor handbag galleries at prestigious department stores.

An accessories pop-up currently on display at Harrods (next to the store’s busiest entrance) is an initial test to see how Schiaparelli’s bags, shoes and jewellery will fare among a wider swath of consumers.

Perfume Potential

Once the ready-to-wear and accessories networks fall into place, Della Valle says he sees huge potential in an eventual expansion into perfume and beauty — a category where Schiaparelli’s brand awareness would be a major asset, and where it has a serious archive including ultra-collectible bottle designs by Salvador Dali.

A beauty license would represent a welcome payday for Della Valle after more than a decade investing in Schiaparelli’s return. But amid the rise of luxe perfume specialists like Le Labo and Byredo, it’s unclear whether the airport- and department store-grade perfumes that are the bread-and-butter of big licensees like Coty and L’Oréal would be aligned with Schiaparelli’s couture-driven strategy. Gucci-owner Kering recently launched an internal beauty division with the ambition to take back chunks of its beauty business from licensees and gain tighter control of its image.

Della Valle declined to comment further on plans for Schiaparelli’s beauty, simply saying it would be the “final piece” of the strategy once ready-to-wear and accessories are solidified. “The key will be always to balance exclusivity and turnover — to have luxury turnover,” he said.

EU preparing to file anti-competitive charges, according to people familiar with probe

Adobe’s $20bn deal to buy Figma is facing a fresh setback as regulators in Brussels prepare to file anti-competitive charges against the companies, an escalation that signals the EU believes the acquisition will harm rivals in the digital design market.

The charges, which might come as early as this week, will flesh out the EU’s concerns that the merger could lead to less innovation and higher prices, according to two people with direct knowledge of the probe.

In June, the Financial Times reported that the deal, which was announced in September 2022, was facing a long EU antitrust investigation because of competition concerns. The European Commission, the EU’s executive arm, said the deal needed to be scrutinised in Brussels even if the companies’ sales in Europe were too low to require a probe. 

Brussels said then that scrutiny was required because the deal “threatens to significantly affect competition in the market for interactive product design and whiteboarding software”.

EU officials are increasingly worried that the merger represents what they view as a “killer acquisition”, whereby a large company acquires a smaller competitor to eliminate rivalry. 

The commission declined to comment on Tuesday. Adobe did not immediately reply to a request for comment. Figma declined to comment.

The move represents the latest legal challenge to the deal, which is already facing a long investigation in the UK, where authorities are seeking to determine whether the transaction will lead to a market with fewer products, improvement in existing ones and less competition. 

A preliminary assessment of the deal already revealed a “substantial lessening of competition” in the UK. In the US, the Department of Justice is reportedly preparing a lawsuit to block the transaction. Adobe has already indicated it is ready to deal with probes as regulators intensify their scrutiny of large tech transactions. 

The $20bn deal, which was announced in September 2022, values Figma at roughly 50 times its annual recurring revenue. The price is double the amount the maker of cloud-based design tools was valued at in a private funding round in 2021.

It also represents a tenfold jump compared with Figma’s value in 2019.

Figma and Australia-based Canva are prominent developers of cloud-based design tools. These tools are known for offering improved performance compared with Adobe’s offerings, such as Photoshop — a market leader in image editing for many years.

The U.A.E. is set to host U.N. negotiations aimed at setting rules for a global carbon market

One of the world’s biggest exporters of fossil fuels, the United Arab Emirates, is attempting to position itself as a leader in establishing global carbon markets as it prepares to host annual United Nations climate talks this month.

Those efforts are coming under scrutiny as a company owned by one of the U.A.E.’s royal families prepares to secure rights to produce carbon credits from a giant expanse of African forest.

The climate negotiations this month seek to reach agreement on rules to create a global market for trading carbon credits, where credits can be purchased to compensate for emissions that contribute to global warming. The idea is to create an incentive to reduce emissions.

But many environmentalists have become critical of some carbon-credit projects, alleging that they are overstating emissions reductions and that the purchase of credits is simply giving countries and companies cover to continue polluting—a practice some have labeled “greenwashing.”

Blue Carbon, a private company owned by Sheikh Ahmed Dalmook Al Maktoum, a member of the ruling family of Dubai, signed preliminary agreements this year with five African nations—Liberia, Tanzania, Zambia, Zimbabwe and Kenya. The deals would grant it the sole right to develop and sell carbon credits from more than 60 million acres of forest, equivalent to the entire land mass of the U.K. If completed, the deals would be among the largest of their kind aimed at global carbon markets.

Climate campaigners are warning that these types of agreements could influence how negotiations play out at this year’s U.N. climate talks and, ultimately, make the rules for global carbon markets less effective at reducing emissions. At stake is agreeing on regulations that are tough enough to build trust in the market, with credits representing genuine reductions in emissions.

Blue Carbon’s 54-page draft contract with Liberia, dated July 2023 and reviewed by The Wall Street Journal, shows how lucrative the deals could potentially be—both for the company and the African countries.

The deal with Liberia could cover 2.5 million acres of forest—10% of the nation’s land—for the next 30 years, according to the draft contract. Blue Carbon would get 70% of the proceeds once credits are sold, with 30% going to the government for the first 10 years. After that, there would be a 50-50 division. Those splits are unusually high in favor of the company, environmentalists said.

The draft contract doesn’t mention any upfront payment to Liberia to acquire the carbon rights. The company said its deals were based on “benefit sharing arrangements,” but declined to discuss specific details of its contracts. Blue Carbon said it hadn’t reached a final agreement with Liberia on income distribution. The company said that there was interest from the U.A.E. and several other large entities in the oil-rich Persian Gulf for the credits it hopes to generate.

“Blue Carbon greatly appreciates the trust these countries have placed in our initiative,” the company said.

Blue Carbon’s deal with Zimbabwe is even larger, covering 19 million acres, which is about 20% of its total land.

The concern among environmentalists is that the African forest deals could give the U.A.E. an incentive to push for more lenient rules during the U.N. climate talks, known as COP28, that allow it to generate more credits from the forests. The countries on the other end of the deal would also have an incentive to generate more money from the deals. If that leads to weaker rules for the U.N. carbon credit regulations, it could hurt the integrity of the market, they say.

“The main concern with all these deals is that it allows U.A.E. to continue emitting CO2 by buying dubious carbon credits while undermining the possibility of these African countries meeting their own reduction commitments,” said Saskia Ozinga, founder of Fern, a European forest advocacy group, referring to African nations using the credits to meet their own climate goals.

The U.A.E.’s Ministry of Climate Change and Environment declined to comment on the potential outcome of the negotiations. “The U.A.E. is also working with countries globally to accelerate clean energy transition, having invested more than $50 billion into renewable energy projects across 70 countries,” the ministry said, adding that the U.A.E. is aiming for a 19% absolute cut in its own emissions by 2030.

Liberian authorities acknowledged there are some legitimate concerns about its deal with the U.A.E. Regulators are reviewing it and working on a legal framework for the country’s carbon assets, said Wilson Tarpeh, executive director of Liberia’s Environmental Protection Agency. “Liberia is a developing country that is rich in forest and biodiversity,” he said. “There are many interests when it comes to forest and its governance.”

Zimbabwe’s environment minister, Nqobizitha Mangaliso Ndlovu, also said the country was working on a legal framework for its carbon credits that would be transparent and ensure the money raised benefits the communities in the affected areas.

National and regional carbon markets already exist, where companies trade credits to meet emission caps required by law, a market estimated at $900 billion. There is also a far smaller self-regulated “voluntary” carbon market, where companies buy credits to improve their environmental credentials, but aren’t required to do so.

Among the most pressing issues at the U.N. talks is setting up a global carbon market, under the 2015 Paris climate agreement. Countries need to decide what types of activities will qualify for carbon credits and how to quantify the benefits of those projects.

A carbon credit is generated when one metric ton of greenhouse gases is removed from the atmosphere, for instance, by growing trees or switching to renewable energy. The purchaser of a credit is then permitted one ton of emissions.

Carbon credits generated from forests are particularly difficult to verify. Forests act as sponges for absorbing carbon dioxide, but simply preserving the forest as-is wouldn’t generate carbon credits. A carbon credit project must show some improvement to the forest that increases its ability to absorb carbon dioxide, such as conservation work that makes the vegetation cover more dense.

A particularly controversial form of carbon credits is what is known as “emission avoidance,” in which credits are calculated based on what would have happened if a conservation program weren’t in place, such as logging. The category is used by many forest projects in the voluntary carbon market. Emission-avoidance credits are expected to be a subject of debate during the negotiations in the U.A.E., and the European Union and a group of Latin American countries have warned that including this category would undermine the integrity of the U.N. market.

Kate Dooley, a research fellow at the University of Melbourne’s Climate and Energy College, said that if the climate talks lead to allowing avoided emissions to qualify for credits, that would potentially make Blue Carbon’s rights to harvest credits much more valuable, but would be a setback for global climate goals. She said that the world needs a giant absolute reduction in emissions by 2050, not a net reduction achieved by using methods like carbon credits.

“There’s only a small opportunity for this kind of forest offsetting to have any role in climate mitigation, so it is being overused and over relied on by many countries,” said Dooley.

Blue Carbon will decrease carbon emissions by promoting “sustainable forest management, conserving forests and increasing forest carbon stocks,” according to the draft contract with Liberia.

“We are anticipating credits to be generated from deforestation that has been averted, forest regeneration and restoration, conservation,” said Tarpeh, the executive director at Liberia’s EPA.

Proponents say the credits would help direct money toward developing countries where it can achieve greater cuts in emissions than the same amount would in more advanced economies. “This promotes sustainable development and the international cooperation required to solve the climate crisis,” said Andrea Bonzanni, international policy director at the International Emissions Trading Association, a trade body.

Some carbon-credit projects have also been criticized for failing to direct enough money to the communities that live in the areas where the credits are generated. There are tens of thousands of people living in, and surviving off, Liberia’s forests.

Andrew Zeleman, head of the secretariat of the National Union of Community Forestry Development Committees, a nongovernmental organization in Liberia, said that forest dwellers there haven’t been consulted on the deal being negotiated with Blue Carbon. He said that under other types of commercial agreements involving forests, the community gets up to 55% of revenues, under Liberian law. But there is no local law governing carbon credits, he said.

“We are a sovereign nation. Any agreement we sign with a company must be in accordance with our laws,” said Zeleman.

Tarpeh, the executive director of Liberia’s EPA, said that he expected consent of the local population to be obtained and the deal to be completed before COP28.