Signs of life in carbon and solar?

Bloomberg's solar share index appears to have reached a bottom as good news balances out the bad. Governments around the world reducing PV support to put a lid on growth. EU carbon permits relatively stable but CERs continue to decline on route to €2.

The strange case of the bouncing solar index

One of the year's worst performing share indices has been twitching over the second half of this summer. The question for investors is whether this is a sign of life, or the precursor to a deepening coma.

The BNEF NYSE Global Solar Energy Index, made up of 96 stocks from all parts of the solar value chain, started 2012 at 615.01, moved up to a high of 969.23 in late April, and then plunged to hit 421.35 at the end of July. Since then, it has bounced along the bottom, reaching 450.30 on Tuesday morning.

The recent performance of solar stocks has arguably matched the newsflow - with the good news roughly balancing out the bad. In the last week, the market has absorbed news of cuts in subsidies for PV in Bulgaria and the UK, but also important project news from Japan, Australia and Morocco.

The negative news on subsidies came as little surprise to investors who are now used to the idea of governments adjusting support to cool down installation booms. The Bulgarian State Commission on Energy and Water Regulation said last week that it would reduce feed-in tariffs for PV by between 28% and 39% for projects completed after 1 September. Under a 17 July revision of the country’s renewable-energy policies, regulators may cut tariffs when a review finds a significant drop in the cost of the technology, in contrast to the once-a-year changes permitted previously, according to Bloomberg News. Ground-mounted projects will see tariffs fall 28% and large rooftop projects of more than 200kW will have a 35% cut.
The move follows the installation so far this year of 700MW of PV in Bulgaria, seven times the 2011 figure.

A similar move was announced in the UK this week, as London acted to cool a surge in large-scale PV development. The Department of Energy and Climate Change said it proposed to cut the number of Renewable Obligation Certificates available to solar from two per MWh, to 1.5. A consultation period will extend to mid-October, and in the meantime, the solar industry expects UK PV installations for 2012 to head towards 500MW.

The government's latest move follows controversial action late last year and early in 2012 to end a boom in small-scale solar (units of less than 5MW) by reducing sharply the feed-in tariffs available for that size of project. Now DECC is responding to higher-than-expected activity in larger projects. Bloomberg New Energy Finance said that even a cut to 1.5 ROCs will still leave developers with the chance to make returns of 5% to 6%, as long as they can keep system costs down at no more than GBP 1.10 (USD 1.76) per Watt.

In Japan last week, Sparx Group said it would build an 8MW PV project for JPY 2.8bn (USD 36m) in Kumamoto prefecture, in the southern island of Kyushu. Although not big in size, this project is interesting because it is the first by this asset management company, and a sign that new players are moving to take advantage of Japan’s generous PV feed-in tariff. The projected capital cost of Sparx’s project looks high by European standards.

In another emerging solar market, Australia, Fotowatio Renewable Ventures said that it had secured approval to build a 20MW PV project near Canberra. This would be the biggest PV project so far Down Under, and would take advantage of the Australian Capital Territory’s feed-in tariff programme.

Meanwhile, African Development Bank confirmed last week that it has provided USD 800m in loans to support renewable energy in Morocco. Some EUR 168m from AfDB funds will go to the planned 500MW solar thermal project at Ouarzazate, topped up with USD 100m from the international Clean Technology Fund. The first, 125MW phase of Ouarzazate is expected to cost USD 1.4bn. The project has also attracted funding from the Agence Francaise de Developpement and the International Bank for Reconstruction and Development.

European carbon prices advanced with oil prices on European Central Bank plan

European carbon allowances, or EUAs, for December 2012 delivery rose 3.7% last week, as Brent crude oil gained on optimism that a European Central Bank plan will ease the region’s debt crisis. EUAs closed at EUR 8.38/t, compared with EUR 8.08/t at the end of the previous week. After a bullish start, EUAs slipped on Wednesday as Brent crude declined on worrying economic news. Markit Economics released data on Wednesday showing European services and manufacturing dropped in August, signalling that the eurozone may be falling back into recession. Brent crude oil bounced back on Thursday after European Central Bank president Mario Draghi announced plans to reduce debt rates for struggling nations in the euro area. United Nations Certified Emission Reductions, or CERs, for December 2012 plummeted 14.3% last week to EUR 2.40/t, as regulators issued the billionth credit, exacerbating an oversupply in the market.

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