Clean energy's New Year bonanza

The clean energy sector has enjoyed a great start to the year, with a key US wind tax credit being extended, acquisitions led by the likes of GE and Warren Buffett and shares on the rise. The market value of carbon, meanwhile, is expected to rebound in 2013.

The New Year began with a bang for the clean energy industry with US legislators extending the Production Tax Credit, or PTC, for wind on the very first day of 2013. The fine print of the one-year extension revealed another upside: projects need not be completed by December 31 2013 but can be "under construction" to be eligible for the $US22/MWh credit. This effectively extends the benefit to two years or even two-and-a-half years and could lead to the addition of 3GW of new wind capacity in 2013 and as much as 8GW in 2014, according to Bloomberg New Energy Finance projections.

Wind project developers also have the option of opting for the Investment Tax Credit on their capital expenditure instead of the PTC, provided they have started construction by the end of the year. This is especially welcome to offshore wind developers who prefer an investment tax credit over a production credit since they have higher capital costs per MW and longer construction cycles. 'The American Taxpayer Relief Act of 2012' also reintroduced the $US1/gallon biodiesel tax credit and extended the $US1.01/gallon biofuel production tax credit, in addition to keeping intact the tax credit for energy efficiency improvements to existing homes.

Even before the euphoria of the extension had sunk in, there was another boost for renewable energy. Warren Buffett's MidAmerican Energy Holdings announced the acquisition of the Antelope Valley solar assets – two co-located projects in California totalling 579MW in capacity – from SunPower. MidAmerican will pay $US2-2.5 billion for the projects and a three-year contract to build them.

Sunpower has developed the projects over the last four years. It will be the engineering, procurement and construction contractor and also operate and maintain the facility under a multi-year service agreement, a joint statement from the companies said. Construction is slated to start in the current quarter, and the plants are expected to be completed by end-2015.

Acquisition activity in the US solar sector was not limited to Buffett. General Electric, Metlife, Citi and Union Bank bought stakes in the 143MW Catalina Solar Project in California's Mojave Desert being developed by EDF Renewable Energy. The thin-film plant is expected to be fully commissioned in the second quarter of this year.

Europe was bitten by buy-out mania too. Munich Re joined with General Electric and EDF to buy 32 operational wind farms in France from Iberdrola. The purchase of a total capacity of 321.4MW is valued at €350 million, plus as much as €50 million depending on output in the next five years, the companies said in a joint statement. Munich Re’s investment arm – MEAG Munich Ergo Asset Management – and GE Energy Financial Services will each own 40 per cent while EDF will have the balance, a 20 per cent stake.

Looking across at the carbon market, though the price of credits continues to be subdued, the volume of emissions traded has been growing. Total trading volume jumped 26 per cent to 10.7 billion tonnes in 2012. However lower prices meant that the value of the carbon market declined 36 per cent to €61 billion ($A80 billion) in 2012 from €95 billion in 2011, according to Bloomberg New Energy Finance. The average tonne of carbon changed hands for only €5.70 over 2012 compared to €11.2 in the previous year.

The market value of carbon is expected to recover in 2013 and beyond as supply of credits is restricted in the European Union through the "backloading" proposal being discussed, and linkages with new carbon markets in California and Australia kick in.

Clean energy shares have also seen mixed fortunes in the last year. The WilderHill New Energy Global Innovation Index fared much better in 2012 than in 2011, but still lost 5.5 per cent of its market value during the year, closing at 120.02 on December 31 2012, up from a low of 102.20 on July 25. So far this year, it has been on an upswing, and was hovering near the 128 mark on Tuesday on the back of the optimism resulting from the tax credit extension and the deals announced.

On the trade frictions front, the EU could impose anti-dumping duties against import of panels from China in May or June, according to the CEO of Solarworld, Frank Asbeck. The German solar company led a group of manufacturers in lodging complaints against allegedly unfair competition from China.

In what could be a related move, China Sunergy opened a factory to make modules in Istanbul with Turkish partner Seul Energy Investment. The 150MW line will be operational next month, while a 100MW solar-cell facility will start production in March. China Sunergy said Turkey would become its biggest manufacturing base after China, enabling it to “efficiently serve customers across Europe and even the US".

There were two other important developments in the trade friction arena towards the end of last year. The World Trade Organization ruled that higher feed-in tariffs provided to generators that use local equipment in Ontario were in breach of rules. The Canadian government plans to appeal the decision. In the US, import duties on wind-towers imported from certain Chinese and Vietnamese companies were increased.

EU carbon

European carbon fell last week amid light trading and expectations of more supply this week.

European Union allowances (EUAs) for December 2013 lost 5.5 per cent to end Friday’s session on London’s ICE Futures Europe at €6.34/tonne, compared with €6.71/t at the close of the previous week. The anticipation of further supply this week may have affected market sentiment. The EU sold 3.5Mt of Dec-13 EUAs on Monday at €6.18/t and a further 14.6Mt is scheduled for auction during the rest of the week.

United Nations Certified Emission Reduction credits (CERs) for December 2013 clambered back from record lows to add 2.6 per cent and close at €0.40/t last Friday. Scheduled supply of CERs is 44Mt this month, down from 57Mt in December.

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

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