Sometimes it is not so much what you do but the way you do it that counts. The UK finally set the support levels for its green certificate scheme, the Renewables Obligation, last week, with a milder cut for onshore wind than feared. But after several delays, messy political wrangling and further important decisions due in the autumn, policy uncertainty has knocked investors’ confidence in a market that aims to be a haven for renewables.
The UK announced the number of Renewables Obligation Certificates, or ROCs, it will allocate to different technologies – a.k.a. new ROC banding levels – starting from next year. Onshore wind scraped through with the 10 per cent cut originally proposed by the Department of Energy and Climate Change (DECC) despite attempts by the Treasury to get steeper reductions. There will be a further review of onshore wind costs this autumn, allowing the possibility of additional cuts in 2014, and there will be more delay before the government clarifies the support levels for large-scale solar projects. The Treasury also insisted on giving gas a platform in the announcement – even though DECC will unveil a UK gas strategy in a couple of months.
Wave and tidal technologies received a boost, as expected. The biggest surprise came for biomass, with co-firing subsidies reduced but new bands introduced for full-scale conversion from coal to biomass. Shares in Drax, owner of the UK’s largest coal-fired power station, fell 25 per cent on the news, though they recovered after the company announced it would fully convert three of its six units to run on biomass. The stock finished the week 10 per cent down.
The UK will have its work cut out to recover investor confidence, with Chancellor George Osborne’s penchant for gas generation likely to clash with calls in parliament this autumn for 2030 decarbonisation targets for the electricity sector. The UK also needs to complete the design of its new contract-for-difference subsidy scheme – which an influential committee said last week was “unworkable” – to replace the Renewables Obligation gradually from 2014.
This kind of policy uncertainty, as well as subsidy cuts, manufacturing oversupply and project financing difficulties, continues to take its toll on the clean energy sector – the WilderHill New Energy Global Innovation Index, or NEX, slumped to a nine-year low of 102.40 last Wednesday. The NEX recovered slightly to 106.24 at the end of the week, but this still marked a fourth consecutive week of losses, leaving it 16 per cent down this year and 77 per cent below its all-time peak in November 2007.
Another source of uncertainty is over trade tensions, which escalated yet again last week as a group led by SolarWorld lodged an anti-dumping complaint in Brussels against Chinese solar panels. The group, known as EU ProSun, comprises 25 solar manufacturers from Italy, Spain and Germany.
The European Commission has 45 days to assess the case and decide whether to open an investigation. The complaint echoes the one brought and won in the US by another group, this time led by SolarWorld’s local subsidiary. That case resulted in duties on Chinese solar products earlier this year. Duties in the EU would have broader implications, however, as its market for solar is much larger. Meanwhile, SolarWorld’s lenders relaxed terms on €375 million (USD 454m) of loans, as the Bonn-based company said it faces a “challenging market situation”.
The latest installment in the US-China trade spat in renewable energy arrived last week as the US set tariffs of as much as 73 per cent on imports of wind towers from China. The Commerce Department also put duties of up to 60 per cent on wind towers from Vietnam. This was the result of a complaint by the Wind Tower Trade Coalition, a group of US manufacturers, in December. The tariffs should keep those towers out of the US market, even on the west coast, but will pale into relative insignificance should Congress fail to extend the Production Tax Credit which expires at the end of the year for wind projects.
The US is also this week hosting an intergovernmental meeting to discuss responses to the EU’s inclusion of aviation emissions in its Emissions Trading System. The 15 or so nations gathering will discuss options for a global solution under the aegis of the International Civil Aviation Organization that would convince the EU to review its legislation. China said last week that it remains committed to a solution at ICAO, and criticised the EU’s failure to recognise “common but differentiated responsibilities” in its approach.
There was some bullish news for solar. France approved 214 projects from two tenders, amounting to around 541MW to be built by the end of 2013. The bigger solar activity was in the US though. The country’s Interior Department created 17 solar deployment zones in six states – California, Colorado, New Mexico, Nevada, Arizona and Utah – which it estimates may eventually be used for 23.7GW of generating capacity. The zones total about 285,000 acres of public land, more than half of it in California, for which permitting procedures will be “faster, smarter and better” to encourage solar development. Meanwhile, GCL-Poly sold a development unit, building 92MW of wind power in California, to a New York-based developer for USD 266m.
New Jersey’s governor signed legislation that will require utilities to source 2.05 per cent of their electricity from solar projects in 2014, more than four times the current obligation. The move aims to spur further development in New Jersey, which overtook California as the largest solar state this year, with a third of all US installations. However, even with the new bill, Bloomberg New Energy Finance says the market will remain oversupplied through to 2014.
Clean energy encountered a bit more political headwind in the US last week as Republican-led legislation to bar the US Energy Department from issuing further loan guarantees, dubbed the “No More Solyndras” bill, passed the House Energy and Commerce Committee’s energy and power subcommittee. It stands no chance of getting through the Senate, if it reaches that far, but plays into the rhetoric of Mitt Romney’s anti-government message on the presidential campaign trail.
New opportunities continue to surface outside traditional markets. EDP Renovaveis of Portugal and Goldwind of China submitted a joint proposal last week for a huge 850MW wind farm in Morocco. The country has received 16 submissions for a tender that will start later this year, as it targets 2GW of wind capacity by 2020 to diversify away from fossil fuels. Elsewhere, the Philippines approved a new feed-in tariff for wind, solar, hydro and biomass, though the miniscule target of 85MW of solar by 2030 is a dampener. The country will struggle to remain that abstemious over the coming years.
European carbon allowances, or EUAs, for December 2012 delivery fell again last week after a proposal by the European Commission showed that the amendments required to curb oversupply would be a lengthy process. EUAs lost 3.1 per cent, closing at €6.92/tonne, compared with €7.14/t at the end of the previous week. They had been trading as high as €7.44/t on Wednesday morning but fell soon after the EC published its draft set-aside proposal.
The documents confirmed traders’ fears that the plan will require a long approval process, as it would be dependent on an amendment to the EU ETS directive, rather than just the faster changes to the Auctioning Regulation that had previously been expected. Bloomberg New Energy Finance says this may push implementation of the plan to the second half of 2013 if officials are slow to take action. United Nations Certified Emission Reduction credits, or CERs, for December 2012 dropped 9.5 per cent last week to close at €2.87/t, down from €3.17/t the week before.