China's massive solar shift

It was another full on week for clean energy, as China and India progressed trade investigations, and investors faced major policy changes in Spain and Australia. Among the week’s financing news were share offerings in Brazil and the US.

As China and the EU remained locked in negotiations over solar duties, India held a first hearing on its own investigation into PV manufacturers from China, Malaysia, Taiwan and the US. If it brings in duties later this year, they would be the first to include thin-film manufacturers like First Solar. The complainants – Indosolar, Jupiter and Websol – also petitioned to include solar imports from Japan and the EU.

China, meanwhile, introduced preliminary duties on polysilicon from the US and South Korea last week. It held off including the EU to boost the chances of a deal before China’s largest solar export market increases the preliminary duties it set in June from an average of 11.8 per cent to 47.6 per cent in August. The EU rejected China’s offer of price and quantity caps earlier this month but talks continue.

With the fate of its exports to the EU market undecided, China has moved to boost domestic demand. Last week the State Council confirmed plans to increase its installed solar capacity fivefold to more than 35GW by 2015, and clarified that current subsidies will be valid for 20 years. It will also offer tax breaks to solar companies that acquire others, merge or reorganise their operations, as the country looks to industry consolidation to sort out chronic oversupply.

The archetypal boom-bust EU country is Spain, which was the world’s biggest solar market in 2008 but has since destroyed investor confidence with a series of retroactive cuts. The government made yet more changes that eat into generators’ profitability: renewable projects will be set subsidies based on a minimum rate of return of about 7.5 per cent. Industry minister Jose Manuel Soria said the reforms were “absolutely necessary,” as Spain tries to tackle a €4.5 billion ($US3.9 billion) power sector deficit forecast this year.

“If we did nothing, the only two alternatives would either be bankruptcy of the system or an increase of the price to consumers of more than 40 per cent,” Soria said. However, The Spanish Photovoltaic Union, UNEF, said they “may lead directly to the bankruptcy of a sizeable portion of the [solar] sector, because previous cutbacks already amount to as much as 40 per cent of the earnings expected when the investments were committed to.”

The UK is undergoing electricity market reforms of its own that aim to spur new investments and accommodate an increasing proportion of renewable generation. Last week, the government published its long-awaited draft delivery plan on the new feed-in tariffs, called contracts for difference, and capacity market. It also made changes to offer a route to market for independent power producers.

India was another country that made some changes in the cause of integrating renewable energy into the power grid last week. A directive took effect that will fine wind farms that fail to set accurate day-ahead forecasts for output, in a move to reduce volatility. Tata Power called the requirement “very challenging,” and said it could cost a 100MW wind farm an estimated $US4.2 million a year. “Developers will see this as a further handicap” and penalties will “jeopardise” the industry’s growth, the nation’s second-biggest developer said.

Another huge policy change last week came in Australia, where Prime Minister Kevin Rudd announced plans to scrap a politically-sensitive carbon tax in favour of emissions trading from 2014, a year ahead of schedule. Sydney-based Bloomberg New Energy Finance analyst Hugh Bromley said that may result in Australia selling carbon units 40 per cent below the price in the EU because of high supply and the way auctions are conducted.

There was also news of carbon-cutting legislation in the US, as Senator Ed Markey said last week he would support “any mechanism in place that can” address climate change. Markey was elected to the Senate a month ago to fill the remainder of the term of former Senator John Kerry, who resigned to become secretary of state. In the House of Representatives, Markey co-sponsored the American Clean Energy and Security Act of 2009, but the Senate did not take up the bill.

Among last week’s global clean energy deals tracked by Bloomberg New Energy Finance, Miami-based private equity firm Kawa Capital Management agreed to take over Conergy, once Germany’s biggest solar company, two weeks after it filed for bankruptcy. Meanwhile, California-based Westinghouse Solar cancelled a deal to be acquired by Australia’s CBD Energy dating to May 2012 after it was “repeatedly delayed.”

Also in the US, NRG Yield, a unit of NRG Energy, the country’s biggest independent power producer, raised almost $US431 million in an initial public offering after pricing its shares above the targeted range. The newly formed New Jersey-based company will own operating wind, solar and natural gas-fired power plants. There was another successful share issue in Brazil, as CPFL Renovaveis, the region’s biggest owner of wind farms, raised 900 million reals ($US404 million) to fund new projects including solar power plants.

The WilderHill New Energy Global Innovation Index, or NEX, maintained its midsummer rally to close the week 2.6 per cent up, led by solar stocks. The global index of 98 clean energy and energy smart technology companies is up almost 7 per cent since June and 32.6 per cent year to date. In the same period of 2012, it was 14 per cent down.

EU carbon

European Union carbon advanced in a week of high volatility and low volumes. European Union allowances (EUAs) for December 2013 gained 3.7 per cent last week. EUAs closed at €4.19/tonne on the ICE Futures Europe exchange in London, compared with €4.04/t at the end of the previous week. Front-year contracts rose from a low of €4.00/t on the first day of trading last week and vacillated mostly between €4.10/t and €4.20/t over the next four days.

The most activity took place on Tuesday, with 13.8Mt of front-year EUAs exchanged. This was still below the 15-day moving average of 14.9Mt. United Nations Emission Reduction Units (ERUs) outpaced EUAs last week, ending the week 33.3 per cent up, at €0.24/t. The European Commission upgraded its carbon registry on Wednesday to clarify which offsets can be used by EU Emissions Trading System participants to meet emissions obligations. ERUs fell to a record low in May after the EU said it may restrict the use of some offsets from countries including Russia and Ukraine should they fail to adopt new carbon goals as of this year.

CERs for December 2013 lost 9.1 per cent last week to close at €0.50/t. On Tuesday, they were trading as high as €0.54/t.

This article was originally published by Bloomberg New Energy Finance.