Renewable energy investment company Trading Emissions Plc fell deep into the red in the first half due to falling carbon prices but dug into growing cash reserves in order to promise its first dividend.

The clean energy project developer also predicted a recovery in carbon prices from 2010 and therefore attractive returns for investors, helping lift its shares 4 percent.

Trading Emissions posted a pretax loss of 126.7 million pounds ($183.1 million) for the six months to the end of December after a profit of 74.3 million a year earlier.

The company's income statement showed it made a net loss of 146.5 million pounds on its financial assets having made a net gain of 66.1 million pounds a year earlier.

The fair value of the company's carbon credit portfolio has fallen compared with the fair value as at June 2008, Trading Emissions said in a statement.

The company added, however, that its strong cash position meant it expected to ride out the current market downturn without coming under pressure to sell off carbon credits at low levels in order to cover costs.

Trading Emissions has 202.6 million pounds in cash, up from 139.15 million at the end of June 2008.

Chairman Neil Eckert also predicted that depressed carbon prices would recover and that investors in the company could therefore expect exceptionally attractive returns.

A 50 percent recovery in (the carbon) price over the last few weeks demonstrates that the system is not broken, the company said, predicting that 2009 would be a tough year as reduced economic activity leads to falling emissions.

We believe however that the market will improve in 2010, it said. The company said it expected carbon emission reductions (CER) credits to remain at relatively low levels for much of 2009 but to at least double from their current levels after 2012. Were the carbon price to recover to 25 euros by the time the firm is due to be wound up at the end of 2012, investors could expect an annualized return of 19 percent, Eckert said.

We note the utter dislocation between the current share price and the valuation of the business, he added. We believe these potential returns present a compelling case for investing in the business.

Shares in the company, which have lost half their value since July 2008, were up 4.2 percent at 74 pence by 0829 GMT.

Analysts at KBC Peel Hunt calculated that even based on a carbon price of 10 euros a metric ton it believed Trading Emissions to have a fair value of 118 pence per share.

(Trading Emissions) is a value play on carbon with strong cash underpinning, the analysts wrote. Buy for recovery.

Having traditionally returned cash to shareholders through share buybacks the company said that it would now begin paying dividends, recommending a 1.5 pence per share pay out and predicting a dividend for the full year of 4 to 5 pence.

($1=.6921 Pound)