Passing the clean energy tipping point

As EU carbon prices plumb record lows, a report on the future for renewable energy presents a much prettier picture with a forecast for over $600 billion/year in investment by 2030.

A proposal aimed at boosting prices in the European Union Emissions Trading System was rejected by the bloc’s Parliament last week, while Bloomberg New Energy Finance prepared to reveal a positive long-term forecast for renewable investment.

If her Twitter page was anything to go by, Eija-Riitta Korhola’s pulse was racing last week. The Finnish Member of European Parliament described the build-up to a vote on a proposal to temporarily withhold carbon allowances from the market as comparable to a parachute jump. Only, she tweeted on her account, with “more to risk, of course”.

The analogy couldn’t have been more appropriate as carbon prices – following the Parliament’s rejection of the plan – went into free fall, dropping about 38 per cent in just one minute of trading to €2.63/tonne.

Korhola, and the majority of her like-minded colleagues in the European People’s Party, the largest bloc in the Parliament, were pleased to see lawmakers vote against the measure that would delay sales of 900Mt of emission allowances.

Supporters of the backloading proposal – which aims to curb a gross oversupply in the European carbon market and boost prices – looked aghast but also undeterred. Indeed, if there is political will, the plan still has a chance of being resuscitated by the Council.

It also emerged last week that opposition to backloading might actually be weaker than the voting record suggested, as news reports revealed that some Members of European Parliament voted against it by mistake. Still, the corrections only minimally change the outlook for the proposal. They have not altered the simple majority in the plenary, and neither side holds an absolute majority. Politically, any efforts to revive the plan after last week’s vote will require outspoken support from the Council – in particular Germany – according to Bloomberg New Energy Finance.

Meanwhile, a new report from Bloomberg New Energy Finance this week shows that depressed prices can come with a silver lining – especially for some clean energy investors. The research illustrates that annual investment in new renewable power capacity is set to rise by anywhere from two and a half times to more than four and a half times between now and 2030 – as the cost of wind and solar power has plunged. The likeliest scenario implies an increase of 230 per cent, to $US630 billion per year by 2030.

The report came out at the start of Bloomberg New Energy Finance’s annual summit in New York this week. (Follow the latest developments on our blog or on Twitter by using #BNEF2013.)

In the power sector, the research company’s latest forecasts project that 70 per cent of new power generation capacity added between 2012 and 2030 will be from renewable technologies (including large hydro). For comparison, the International Energy Agency’s New Policies scenario forecasts that 57 per cent of power capacity added during this period will be from renewable resources (including large hydro).

Bloomberg New Energy Finance predicts that wind and solar will take up the largest shares of new power capacity added in terms of GW by 2030, accounting for 30 per cent and 24 per cent respectively. By 2030 renewable technologies will comprise 50 per cent of new power generation capacity installed around the world, up from 28 per cent in 2012. In terms of power produced, the share of renewables will increase from 22 per cent in 2012 to 37 per cent in 2030.

This positive news contrasts with some of the suffering solar and wind manufacturers have experienced in recent years. China’s decision to subsidise the factory expansions of its solar companies have helped halve the cost of panels since 2010, while the price of wind turbines has tumbled by about a quarter since 2009, according to data compiled by Bloomberg.

Solar companies were some of the poorest performers in the WilderHill New Energy Global Innovation Index, or NEX, last week. The index slid 3.1 per cent in the five trading days ending 19 April. The NEX’s worst-performing issue was Solarworld, the Germany module manufacturer. Its price plunged 29.6 per cent after it reported on April 17 an after-tax loss of at least €520 million, equal to about half of its market capitalisation.

Still, a longer view shows the NEX is making a comeback. Its year-to-date gain is now 8 per cent, versus an improvement of less than 1 per cent in the same period of 2012. Moreover, the Bloomberg New Energy Finance report indicates an overall boost for renewable energy, as lower equipment prices are helping developers finance more projects.

“Falling costs win,” says Michael Liebreich, chief executive of Bloomberg New Energy Finance, as renewables move closer to rivalling coal and oil.

“What it suggests is that we are beyond the tipping point towards a cleaner energy future.”

EU carbon

European carbon permits had their biggest-ever weekly decline last week after lawmakers voted against a plan to fix an oversupply of allowances and boost prices in the market. European Union allowances (EUAs) for December 2013 lost more than 35 per cent over the week. EUAs for delivery in December closed at €3.16/tonne on the ICE Futures Europe exchange in London last Friday, compared with €4.77/t at the close of the previous week.

Front-year EUAs were trading as high as €4.98/t on the morning of April 15 before the European Parliament was due to vote on a European Commission proposal to temporarily withhold sale of 900Mt of allowances. Prices fell to €2.63/t on April 16 after the Parliament vote and slid further the next day, closing at a record low €2.75/t. The market gained on Friday morning, reaching a weekly high of €3.43/t, after news broke that some members of European Parliament may have voted against backloading by mistake. This did not change the result of the April 16 vote, however.

UN Certified Emission Reduction credits (CERs) for December 2013 ended the week at €0.25/t – down from €0.40/t the previous week. 

This article was originally published by Bloomberg New Energy Finance.

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