EU carbon price rallies, US clean energy boom?

US PRESIDENT OBAMA STEPS ON THE GREEN ENERGY PEDAL

All eyes were on the US last week as President Barack Obama delivered his annual State of the Union address. The leader of the world's largest economy promised to "do more" to protect the climate even if there was opposition in the Congress, through executive actions.

"If Congress won't act soon to protect future generations, I will. I will direct my Cabinet to come up with executive actions we can take, now and in the future, to reduce pollution, prepare our communities for the consequences of climate change, and speed [up] the transition to more sustainable sources of energy," Obama said on 12 February.

Specific targets outlined include doubling energy efficiency by 2030, doubling renewable generation by 2020 and establishing a fund for research and development of petroleum substitutes for the transport sector. The US has seen a steady increase in its renewable energy capacity, which almost doubled from 44GW in 2008 to 86GW in 2012, according to Bloomberg New Energy Finance data.

Even as Obama was unveiling the overall plan of action for US sustainable energy, there were positive strokes from other directions. The Interior Department announced its decision to prioritise 23 renewable energy projects – totalling 5.3GW in capacity – on public lands in Arizona, California and Nevada, and Australia's pension provider AMP invested USD 100m in North American wind developer Capistrano Wind Partners.

In Latin America, one of the largest projects in the pipeline moved a step up: Spain's solar panel maker Isofoton signed a preliminary agreement with Mexican state authorities for a 150MW solar photovoltaic plant which would be built in phases starting from January 2014. The USD 360m project is in the Yucatan state.

In stark contrast, Europe's largest economy unveiled a proposal to limit incentives for clean energy so that consumer bills for power could be controlled. On 14 February, Germany's environment and economy ministers presented a joint plan, which included a retroactive one-off 1.5% cut in feed-in tariffs for all existing projects for one year. They also proposed a complete phase-out of feed-in tariffs in favour of a top-up payment referred to as the 'market premium', and a larger burden on industry of the renewable power bill. The legislation is likely to be presented to Parliament in April and is proposed to enter into force on 1 August 2013.

Bloomberg New Energy Finance does not expect the proposed one-year 1.5% tariff reduction to have a significant impact on renewable energy asset valuations but the ' precedent' that this action establishes will increase the risks associated with these assets, pushing up financing premiums. Retroactive cuts have been the instrument of choice for some other European countries like Spain, Bulgaria and Greece.

Reductions in incentives have reverberated along the value chain in all renewable sectors and in the largest sector – wind – with turbine makers experiencing a difficult patch. Gamesa said it expects a net shortfall of about EUR 640m in 2012 after one-time expenses of EUR 585m from its cost-cutting programme which includes pruning offices and staff. Denmark's Vestas is also on a cost-cutting drive after posting losses. India's Suzlon announced a larger-than-expected loss for the quarter ended December 2012 of INR 11.56bn (USD 213m) compared with a shortfall of INR 810m a year earlier. The company agreed on a debt-restructuring plan with its lenders in January.

In the electric vehicles sector, Fisker Automotive said it was weighing several bids from buyers including a USD 350m offer from China's Dongfeng Motor. The maker of the Karma luxury rechargeable car had to halt production last year after battery supplier A123 Systems filed for bankruptcy.

There was news of one more public offer in the pipeline this week: US renewable energy financing company Hannon Armstrong Sustainable Infrastructure Capital plans to raise USD 100m.

EU CO2 CLIMBED ABOVE 5 EUROS AHEAD OF BACKLOADING VOTE

European carbon advanced for a third week, ahead of this week's vote on a plan to boost prices in the bloc's emissions trading system. European Union allowances (EUAs) for December 2013 delivery climbed 14.1% last week to close at EUR 5.19/t, compared with EUR 4.55/t at the end of the previous week. Allowances made steady gains for most of the week, rising above EUR 5.00/t on Wednesday, as trading volumes ballooned to 43.6Mt. Prices peaked at EUR 5.44/t on Thursday afternoon but fell back to around EUR 5.20/t for most of Friday. Moving to this week, the European Parliament's environment committee voted on 19 February in favour of a plan to delay supply to the carbon market. But it delayed the vote to give its rapporteur, Matthias Groote, a mandate to begin ‘trialogue' negotiations with the Commission and member states. That mandate may be approved at its meeting next week. Trialogue talks could lead to a breakthrough deal ahead of a vote on the backloading plan in the Parliament's plenary. UN Certified Emission Reduction credits for December 2013 fell back last week, losing 5.9% to close at EUR 0.32/t.

Carbon prices as of 20 Dec 2011, benchmark prices are for Dec 2012 contracts

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