Clean cuts: Renewables outlook hinges on subsidy changes

Clean energy investors watch on nervously as the US wind industry and Germany's solar PV sector become the latest victims of drastic subsidy cuts and phase-outs.

Two of the world's largest clean energy markets, Germany and the US, were at the centre of concerns last week about the outlook for investment in renewable power.

In the US, the wind turbine industry sounded its loudest warnings yet that installation of new wind farms will collapse in 2013 if a key support measure, the Production Tax Credit, is allowed to expire as scheduled at the end of this year.

In Germany, the government shook the solar industry by saying that it would make more rapid adjustments to tariffs for PV – revising them every month – and phase out subsidy support for that technology altogether by 2017.

Despite the focus on this issue in both countries, clean energy share prices showed resilience, actually rising more than 2 per cent in the week and allowing Renewable Energy Group, a US biodiesel maker, to complete the sector's first stock market IPO of 2012.

Iowa based Renewable Energy Group raised $US72 million, less than it originally hoped, and joins a list of quoted firms with confusingly similar names (including Norwegian solar manufacturer Renewable Energy Corporation, and UK-listed project developers Renewable Energy Generation and Renewable Energy Holdings).

Outside biofuels, the main issue in the US clean energy sector last week was undoubtedly the impending expiry of the PTC support mechanism at the end of 2012.

Vestas Wind Systems, the world's largest turbine maker, said that the scheduled disappearance of the PTC posed a "serious challenge" for its sales in the US.

The wind industry is trying to influence Congress to extend the PTC, by pointing out the job implications of an expiry. Wind farms take at least a year to build, so the effects are being felt already, said Thomas Carnahan, chairman of St Louis-based Wind Capital Group.

“Most of the developers are cutting their development spending for 2013 projects drastically,” he said. “You need to have contracts with utilities to be able to build these. Without those contracts, you’re not going to be making orders with the turbine manufacturers, and they are going to be left having to potentially lay people off.”

Vestas has said it is likely to cut 1,600 jobs in the US if the incentive is not extended. Developers are currently rushing to build projects before the PTC expires, and Bloomberg New Energy Finance estimates that some 9GW of capacity could be installed in the US this year, before a freeze in 2013.

Meanwhile in Germany, it has been the solar industry in the spotlight over government support. Environment minister Norbert Roettgen said he planned to reduce feed-in tariffs providing above-market prices for solar power every month instead of twice a year as he does now. He said he is working to prevent a repetition of the “unacceptable” surge in installations last year, when developers added 7.5GW of panels.

“The increase in installations in the past few years has gone far beyond what we had targeted in our legislation,” Roettgen said.

The higher frequency in cuts will do away with the year-end rushes of the past and may help bring installation “closer toward” the government’s target, SolarWorld chief executive Frank Asbeck told Bloomberg News on Thursday.

That target is around 3GW a year, less than half what was installed in 2011. Last year, particularly in the run-up to the tariff cut on 1 January 2012, developers rushed to install PV to take advantage of lucrative returns made possible by a plunge in panel prices.

Germany was not the only country clarifying its position on tariff cuts for PV last week. In the UK, which saw its own boom in PV installation in 2011 with possibly around 1GW added, the Conservative-Liberal Democrat coalition government proposed to cut subsidies to solar installations completed after 3 March this year if the Court of Appeal strikes down its proposal to have the reductions effective from 12 December last year. A lower court last month ruled that the government acted unlawfully in deciding that lower rates for solar power would affect projects completed before the end of a consultation with the industry.

The Department of Energy and Climate Change said that projects completed later than March 3 would see feed-in tariffs halved from April 1.

The move received a cautious welcome from lobby group the Renewable Energy Association, as removing some of the uncertainty. However the UK is almost certain to see a sharp fall in PV installations this year, reflecting the fact that potential project returns will be much less generous than they were in 2011.

Reproduced with the permission of Bloomberg New Energy Finance. For further information, see www.newenergyfinance.com