Newsletter January 2011
Global Fund Exchange is a global
asset management business
which invests across all areas of
the New Energy Revolution.
We focus on:
• Clean Energy
• Water
• Agriculture
• Traditional Energy
• Natural Resources
• Carbon & Emissions
• Systematic Trading
• Hedge Strategies
In this issue:
• China’s Five Year Plan
• U.S. Natural Gas
• India’s Solar Power
• Bull Rally in Oil
• Desertification Risks
• Investing in Desalination
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SPOTLIGHT ON: CHINA’S FIVE-YEAR PLAN
China’s 12th Five Year Plan Emphasizes Global Energy
Leadership and Resource Efficiency
As China’s 12th Five Year plan (2011-2015) takes effect, lawmakers are
focused on transforming China from a net importer of “old” energy such as
coal, oil and liquefied natural gas (LNG) into an exporter of “new” energy and
efficiency technologies.
Chinese investment in clean energy has grown by leaps and bounds in recent
years, and the nation has surpassed the United States and other European
nations to become the world’s leading clean energy investor. Chinese
policymakers are aware that maintaining this high growth will require federal
support, favorable policies and more investment into technology R&D.
There are three main threads in this 12th Five Year Plan as related to energy,
says Wang Yusuo, vice-chairman of the China Chamber of Commerce and
member of the Standing Committee of the National Chinese People’s Political
Consultative Conference (CPPCC), including:
1. Shift in mentality from “natural resources are king” to “natural resources
and technology both are king,” leading to less reliance on foreign resource
imports and more tech innovation and clean energy generation at home.
2. Emphasis on efficiency as a source of value for businesses. Production
scale is not the only driver of cost savings – efficiency can reduce
environmental costs for businesses.
3. Move towards smaller, distributed energy generation, away from large
central power hubs to encourage development of regional energy enterprises.
China clearly sees itself as a central player in the global emerging energy
industry, and will implement policy as necessary to achieve its goals. “In the
future, what China exports will not merely be such low-end goods as shoes,
socks and lighters,” remarked one official. “Through the export of equipment
that manufactures energy, we may become exporters of energy.”
GLOBAL FUND EXCHANGE LTD.
RENEWABLE ENERGY NEWS
India Quadruples Renewable Energy Wind Energy to Power New York’s Empire
Goals State Building
The Indian government has quadrupled its renewable
energy targets as part of a national plan to reduce the
carbon intensity of its economy. India now aims to install
74.4GW of renewable energy by 2022. This will help to
achieve a 20-25% reduction in economic carbon intensity
(measured in carbon emissions per unit of GDP) by 20-
25% of 2005 levels over the next decade.
Solar energy is a major focus of India’s plan. India is
looking to take advantage of its plentiful sunlight with
20GW of new solar power by 2022. It is also installing
2GW of off-grid distributed capacity, which is important
for rural regions currently lacking access to electricity.
Last year, India’s Jawaharlal Nehru National Solar Mission
was given a mandate to monitor and manage the
country’s new solar installations. The Mission is aiming to
achieve grid parity by 2022, and by 2030 achieve cost
parity with coal, currently India’s predominant energy
source.

WATER NEWS
Global Desalination Investment to
Double Within 6 Years
Investment in desalination plants around the world is
predicted to double over the next six years, says a new
report from market research firm Pike Research. By 2016,
nearly $87.8bn cumulative capital is expected to flow into
the sector.
The costs of many key technologies have fallen, making
construction of seawater desalination plants more cost-
effective for many countries and municipalities, especially
in water-scarce regions.
“Desalination market growth is being driven by a
combination of dwindling water resources, population
growth and urbanization, and lower desalination costs,”
says Pike Research president Clint Wheelock.
Because initial construction of desalination plants is
especially capital-intensive, Wheelock expects the
lingering effects of the financial crisis to slow down the
market over the next two years. However, “the outlook
for the longer term remains strong, and we anticipate
that desalination capital investment will double within six
years.”
New York City’s iconic Empire State Building just became
“greener” through a major wind power purchase.
The tallest skyscraper in the city recently signed a two year
contract with Green Mountain Energy to purchase Renewable
Energy Certificates (RECs) to offset the building’s entire
energy consumption at nearly 55 million kWh of energy a
year.
The Empire State Building’s wind energy purchase follows a
$500 million energy efficiency upgrade conducted on the
building last year.
By replacing 6,500 windows, upgrading ventilation and
insulation and installing smart meter systems, the Empire
State Building was able to reduce total energy usage by 40%.
Anthony Malkin, president of Malkin Holdings which
supervises the Empire State Building, said it was a “natural fit
for us to combine clean energy with our nearly completed
energy efficiency retrofit work.”

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TRADITIONAL ENERGY NEWS
Graph: Oil Production & Consumption in China, 200-2009
Oil Kicks off 2011 with Bullish Rally
Oil prices have kicked off the new year to a fast start with a
bull rally, which many analysts believe is here to stay. Signs of
increased economic recovery across the globe combined with
a fall in U.S. crude inventories for the fifth week in a row have
contributed to the run in oil prices.

Barclay Capital analysts see strong oil demand going forward,

particularly from China, and expect oil demand in Q4 2011 to
break 90 million barrels per day for the first time. They also
foresee a slowdown in non-OPEC oil supply, which Barclays
says is “slowly grinding to a halt.” Without interference from
OPEC, oil prices will likely reach $100/barrel. OPEC’s decision
to roll over existing (and often loosely enforced) production
quotas into 2011 is indicative that the cartel is unlikely to take Source: U.S. Department of Energy
strong mitigating action to keep barrel prices in the so-called
“comfortable” range of $70-$90. On the contrary, recent
trading has brought prices up to nearly $100/barrel. ”Swimming in Gas,” EIA Doubles Natural
Gas Reserve Estimates in the United States
Regional politics will become more important as new
resource discoveries are made and exploited in countries such
The United States is “swimming with gas,” according to the
as Nigeria and Iraq. Finally, Barclays predicts continued
latest report from the U.S. Energy Information
market volatility due to speculation and a trimming of spare
Administration (EIA), which now says total recoverable
capacity. “In the past, the rough boundary of 5% of spare
reserves of natural gas are much more than previously
capacity has often represented the border between highly
estimated. These gas resources will have a significant
volatile markets and calmer conditions,” the bank writes.
impact on the nation’s energy mix over the next 25 years.
Fund managers are acting on bullish predictions of their own.
In its Annual Energy Outlook for 2011 report, the EIA more
According to CFTC position reports, hedge fund bets on crude
than doubled its central natural gas reserve estimates; from
have reached their highest levels in nearly four years. Net-
353,000bn cubic feet to 827,000bn cubic feet. This is
long positions increased by 4.6% in the week leading up to Dec
enough to supply entire U.S. gas demand for 36 years.
28th, the largest total since June 2006.
The combination of plentiful reserves, low prices, and high
Chinese Oil Refineries Running at Full productivity of new drilling techniques such as hydraulic
Capacity to Meet Demand fracturing or “fracking” has catalyzed investment in
liquefied natural gas (LNG) production. Exports of LNG to
Chinese oil refineries have been running at full steam this booming Asian markets seeking foreign energy resources,
winter, with the nation consuming 13% more oil this past and is poised for growth as demand continues to mount in
November than during the same month in 2009, says a report these markets.
from Platts news service. High demand levels are keeping
Chinese domestic refineries churning at full speed. Natural gas is increasingly being used as transportation fuel
“Sinopec and PetroChina kept refinery run rates high in in place of high-priced gasoline. Many vehicle engines are
November after being told by Beijing to ensure sufficient being built specifically to use natural gas, or being retrofitted
supplies of diesel,” he said in a statement. to accept LNG or compressed natural gas as fuel.

The surging Chinese economy has “redefined the global Because they burn cleaner than gasoline or diesel, natural
energy sector” according to the International Energy Agency gas present an attractive transportation fuel alternative in an
(IEA) as China has surpassed the United States as the world’s increasingly emissions-conscious world.
largest consumer of energy.
IEA data shows Chinese energy consumption outpaced that of
the U.S. by 4% in 2009. Until that point, the report said, the
U.S. had been the largest energy consumer in the world since
the dawn of the 20th century.

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CARBON NEWS
China Explores Domestic Carbon Market
Launch to Boost Energy Efficiency
As part of a nation-wide drive to reduce energy usage and
boost business energy efficiency, China is seriously
considering launching a domestic carbon emissions
trading program.
Since 2005, China has been a part of the United Nations-
backed Clean Development Mechanism (CDM). By
undertaking various emissions reduction projects, China has
been eligible to earn emissions credits which can then be
traded on global carbon exchanges, most prominently the
European Union Emissions Trading Scheme (EU ETS).
However, many European purchasers are moving away
from investing in China-based projects and towards
sponsoring projects in lesser-developed nations. Although
it is not subject to the same standards as other
industrialized nations in the existing Kyoto Protocol, China
is the world’s second largest economy. For this reason,
many doubt the long term viability of China’s role in the
CDM, and advocate instead for the launching of a domestic
exchange.
A China-based carbon exchange may also catalyze energy
efficiency initiatives among Chinese businesses. Officials
say increasing energy efficiency will help keep Chinese
businesses competitive on the global stage, and also help
China achieve its pledge to cut the carbon intensity of its
economy 40%-45% by 2020.
China’s energy use is sky high because nearly 70% of
energy needs are met with coal, a high-emitting fuel. Last
summer, Beijing shut 2,000 inefficient factories across the
country, a decision which did result in energy savings, but
came under fire from a social and employment standpoint.
A carbon exchange may be an effective, market-driven
solution to expand energy efficiency in contrast to drastic,
state-driven actions.
Analysts predict China will move fast on this issue. “Whatever
China decides to do, they do it quickly,” notes Ashok Bhargava,
senior energy specialist at the Asian Development Bank. “China
has shown a lot of commitments, and interest now in
developing domestic carbon trading. We expect something
should be up and running about it very soon.”
U.S. Carbon Market Transforms as
CCX Closes and California Market Opens
Voluntary carbon trading in the United States is undergoing a
major change as a flagship exchange closes, while another up-
and-coming market gains approval from California voters.
The Chicago Climate Exchange (CCX) and its founder Richard
Sandor announced it has concluded operations and will not
ring in a new trading cycle for 2011. Launched in 2003, the CCX
was hailed as a progressive, market-driven method to provide
profit incentives for businesses to become more efficient and
reduce emissions. It was the first such exchange in the United
States to allow companies to buy and sell Carbon Emission
Reduction credits (CERs) and ushered in a revolutionary
introduction to the carbon trade already underway in Europe.
Despite the CCX’s close, voluntary carbon trading is alive and
well in the United States. California’s new mandatory
emissions trading program and the Regional Greenhouse Gas
Initiative (RGGI) in the Northeast present new avenues for
expansion of the carbon trade.
Many policy analysts are optimistic that state governments will
move ahead with various carbon regulation or trading
programs. Although establishing a federal trading system is the
ultimate goal, state legislatures are not waiting around to begin
their own regional initiatives.
These new state programs are perhaps stronger as a result of
the initial CCX experiment. “The point was to get companies
familiar with allowances and trading, and how to do that and
how to use offsets and exchange them on a platform. And that
has all been accomplished, so with the advent of mandatory
programs like RGGI and now California… the sort of
experimental value of CCX as it was is over,” noted Lisa Zelljadt,
an analyst at Point Carbon. “Definitely the businesses that
participated in CCX have gained some valuable experience.”
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AGRICULTURE NEWS
Advancing Desertification Puts Chinese Water and Crop Supplies at Risk
China’s desertification crisis is straining national cropland and putting
the populous nation’s food and water supplies at risk. About 1.73
million sq. km – nearly 25% of all land in China – is currently desert
land or land that is becoming desert. A small portion of that land can
be treated to reclaim soil fertility, but thus far investment has been
insufficient.

Liu Tuo, head of Chinese anti-desertification efforts, estimates it

would take 300 years to roll back the advancing desert in China,
which could worsen further as a result of climate change. “Climate
change could cause extreme weather, such as drought, which will
have a very serious impact upon desertification,” he said.

China has struggled with sky high food prices, and as industrialization grows and standard of living improves, these
problems will likely worsen with time. Ensuring China’s population has access to secure water and agricultural resources is
essential. Without sufficient attention, creeping desertification in China may become a real crisis with significant impacts
on food and water supplies.

SOURCES
We regularly gather information from the following reputable sources, including but not limited to:

Bloomberg New Energy Finance RenewableEnergyWorld.com

Financial Times EnergyandCapital.com
Forbes.com: Energy News The Wall Street Journal
Green. – The New York Times Streetwise Reports: The Energy Report
New Energy World Network Thomson Reuters
Scientific American REChargeNews.com
WEB LINKS: SustainableBusiness.com Climate Change Business Journal
U.S. Energy Information Administration (EIA) Commodity Futures Trading Commission
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