China vs Europe: a great renewables contrast

The headline of the week in clean energy was the $US1.6 billion credit line extended by China Development Bank to Sky Solar Holdings – a Shanghai-based PV power developer. The world's most populous country was declaring its backing for its struggling solar industry in actions as well as words.

The news from Europe was in sharp contrast, with Siemens announcing its exit from the solar business altogether and the Danish government ruling out any support to Vestas, the world's largest wind turbine maker.

"We cannot and will not support a single company. It is against the government's general state aid policy," Danish energy minister Martin Lidegaard said in an emailed reply to questions from Bloomberg News. Vestas has been hit by the cut in subsidies for wind power and by fierce competition, as well as by higher-than-budgeted development costs for its V112 turbine.

Siemens decided to exit its solar-thermal business – built by acquiring Archimede Solar Energy and Solel Solar Systems in 2009. Solar thermal technology faces severe competition from PV, which has seen such reductions in module prices in the last four years that it can offer power production at just below $US100/MWh in sunny locations, according to Bloomberg New Energy Finance estimates.

Parabolic trough solar thermal needs a power purchase agreement of at least $US130/MWh to be feasible. Explaining its exit, Siemens said in a statement: “Due to the changed framework conditions, lower growth and strong price pressure in the solar markets, the company's expectations for its solar energy activities have not been met.” The company will also be exiting the Desertec venture aimed at generating renewable energy in the Sahara desert.

In China, the $US1.6 billion credit facility from the state-owned bank will be in various financing forms and may include equity, loans, leasing, bonds, and securities, Sky Solar said in an e-mailed statement. According to Amy Zhang, the chief executive officer of Sky Solar, the bank is helping to establish new international and domestic markets for solar manufacturers that will contribute to mopping up the supply glut that has depressed prices.

China Development Bank is redirecting its support to developers of projects, a move that would indirectly help the manufacturers by creating demand for their product. The CDB follows state policy and that policy is to support the solar industry. According to an unidentified official from the National Energy Administration quoted by Shanghai Securities News, China will expand domestic demand, push mergers and acquisitions and encourage industry innovation in solar energy.

A separate report said that China State Power Grid will buy electricity generated from distributed solar projects of less than 6MW in size, and this will also be granted some fee exemptions.

State-owned developer China Three Gorges New Energy Corporation placed an order for 50MW of solar modules from Jinkosolar Holding, the latter announced last week.

Solar manufacturing companies are also exploring other options to shore up their finances. LDK Solar – one of China's larger manufacturing companies – agreed to sell three rooftop solar generating plants at its manufacturing sites last week for $US22.4 million to Henan Xindaxin in a bid to improve its balance-sheet. LDK will lease the plants back from Xindaxin for six years, starting on November 1, and has the option to repurchase them. The company will also be selling new shares to Chinese investment company Heng Rui Xin Energy.

China's wind power sector continues to be under strain. Xinjiang Goldwind Science & Technology – the country's biggest turbine maker – projected a 50 per cent decline in earnings for the year in a statement last week.

In the electric vehicles segment, Bloomberg New Energy Finance research shows that China is likely to miss its 2015 and 2020 cumulative sales targets of 500,000 and 5,000,000 respectively. Sales would be just over 1,000,000 units by 2020, even according to our more optimistic scenario, unless the country is able to bring in expertise and technology from foreign players.

The other main funding news of the week came from Credit Agricole – whose owners (39 French regional banks) pledged €5 billion of loans through to 2015, for renewable energy and environment protection projects.

Elsewhere in Europe, Gamesa said it would cut 2,600 jobs in a back-to-profitability plan while Poland announced plans to increase its short-term targets for renewable energy.

There were two bright spots in Africa. The Development Bank of Southern Africa approved loans of $US1.1 billion for renewable power projects in South Africa that would support about 900MW of capacity. In Eastern Africa, the tiny nation of Djibouti with less than 1 million residents announced that it would generate all its energy from renewable sources by 2020. It currently gets all its electricity by burning diesel and fuel oil.

EU carbon

European carbon allowances, or EUAs, dropped 1.0 per cent last week as traders got wind of an EU proposal to ban Emission Reduction Units, or ERUs, from countries such as Russia and Ukraine. EUAs for December 2012 closed at €7.89/tonne, compared with €7.97/t at the end of the previous week. ERUs for December slumped to a record low closing price of €0.57/t on Wednesday. They were trading above €1.00/t until Friday of the preceding week when a Bloomberg News story revealed the European Commission had proposed, at a private meeting of officials, a ban on ERUs issued from next year by countries that fail to adopt new emission-cutting targets. The resulting fall in prices may have provided an incentive to sell EUAs and buy less expensive ERUs.

United Nations Certified Emission Reductions, or CERs, continued to plumb new record lows. CERs lost 21.8 per cent to close at €0.86/t last week. They had sunk to a record low of €0.71/t on Thursday morning.

This article was originally published by Bloomberg New Energy Finance. Republished with permission.