A dark cloud over clean energy investment

Policy uncertainty and cutbacks are continuing to take their toll on the clean energy sector.

New figures from Bloomberg New Energy Finance, released Friday, show that investment in renewable energy, energy efficiency and energy-smart technologies fell sharply to $US40.6 billion in the first quarter of calendar 2013, making it the weakest quarter since 2009.

January to March often sees less activity than the rest of the year but the first quarter of this year marked a 22 per cent decline on the same quarter in 2012.

There were glimmers of hope, however: Asia and Oceania saw growth, albeit of a modest 4 per cent compared with the same quarter last year. This conceals a wealth of intraregional variation: while China faced a 15 per cent reduction compared with the same quarter in 2012, investment in the region outside India and China leapt to a record $US10.1 billion, of which over 80 per cent went to Japan.

The surge in financing may have been due to project developers rushing to secure the higher rate of Japan's generous feed-in tariff before it was due to decline on April 1. On March 11, the government proposed to reduce rates by 10 per cent for solar PV but maintain the same levels for other technologies.

The other two regions saw a similar decline of 46-48 per cent in clean energy investment last quarter: the Americas had the lowest volume of clean energy investment at $US6.2 billion, while some $US14.2 billion was spent in Europe, the Middle East and Africa.

In both cases, policy uncertainty played a part in limiting asset finance – in particular, wind farm investment halted in the US during the winter because a key incentive, the Production Tax Credit, appeared to be heading for expiry at the end of 2012. Ultimately, the PTC was extended but the uncertainty about its status had already front-loaded financings and construction of US wind into calendar years 2011 and 2012.

Investment in some European countries, notably Bulgaria and Romania, has been dampened by 'retroactive' government plans to curb the revenues of already-operating projects. Confidence was also shaken in Germany by a recent discussion about a retroactive change to its tariff for existing projects, although this does not now appear likely to happen. In addition to policy uncertainty, Europe saw a decline in small-scale project investment, due in part to falling solar technology costs.

In terms of technologies, solar still attracted the biggest share of investment, though this was 20 per cent less last quarter than the corresponding quarter of 2012. The slump in solar equipment costs has been caused by both technology improvements and economies of scale, together with a substantial market oversupply. Nonetheless, globally solar installations will grow by 20 per cent this year, according to Bloomberg New Energy Finance, though even this will not be enough to soak up all the overcapacity.

With $US13.1 billion, solar's main rival, wind, saw a similar decline of 17 per cent on the first quarter last year. Three of the top five asset finance deals in the first quarter were wind projects: in February, WPD secured $US1.9 billion in debt for development of the 288MW Butendiek Offshore Wind Farm in Germany. A month later, Gas Natural financed $US390 million for the 234MW Fenosa Bii Hioxi wind farm in Mexico and China Huaneng Group financed $US281 million for the 201MW Hami Southeast Yandun No.4 wind farm.

Despite these projects, asset finance still had the biggest downward effect on the overall clean energy investment total. The increases in public markets and venture capital/private equity investment were not enough to compensate for the 56 per cent fall in asset finance last quarter.

The slightly improved picture on share valuations helped to stimulate a rebound of 89 per cent in public markets investment in clean energy companies, to $US1.7 billion. The largest deal was the $US394 million IPO in London of Greencoat UK Wind, a fund investing in operating wind projects. Part of the new equity for Greencoat took the form of an investment of $US76 million by the government’s Department for Business, Innovation and Skills.

Venture capital and private equity investment in clean energy last quarter was 18 per cent up on the last quarter of 2012, to $US1.3 billion, though this marked a 29 per cent decline on the first quarter of 2012. Among the biggest of such deals were $US308 million of private equity expansion capital for National Electric Vehicle Sweden, and $US125 million of expansion capital for US solar installer Sungevity.

EU carbon

Carbon prices dropped last week as traders questioned whether lawmakers would pass a plan to fix a glut of allowances in the market. European Union allowances (EUAs) for December 2013 lost 8.1 per cent last week to end Friday’s session on London’s ICE Futures Europe exchange at €4.77/tonne, compared with €5.19/t at the close of the previous week.

Front-year EUAs were trading as high as €5.27/t on Monday afternoon before sliding below €5.00/t on Tuesday, as the European People’s Party, the biggest political group in the European Parliament, reaffirmed its opposition to plans to delay the sale of some emission allowances. Prices slid over the next two days, hitting an intraday low of €4.22/t on Thursday. Benchmark EUAs rebounded to touch €4.84/t on Friday afternoon after lawmaker Matthias Groote said the European Parliament would support the proposed backloading measure when they vote on April 16*.

 UN Certified Emission Reduction credits (CERs) for December 2013 ended the week €0.01/t down, at €0.40/t.

* The backloading vote failed overnight, pushing carbon prices to record lows below €3.

This article was originally published by Bloomberg New Energy Finance.