Squeezed by clean energy policy pressure

The pressures that supporting renewable energy can put on energy bills have started to take their toll in Europe.

Spain, Bulgaria and even Germany are among the countries that have announced sudden cuts to support schemes or retroactive changes – words that strike fear in the hardiest of investors – to lower the impact on consumers. Bulgaria's government fell last month following anti-austerity protests in part related to high power prices.

The fallout continued last week, as Acciona said it would halve its energy investments to as little as €550 million ($A700 million) this year and next because of policy changes in Spain. The country suspended its incentives for new renewable energy projects a year ago, and has introduced additional taxes on existing projects to help plug the tariff deficit in its power system. Acciona chairman Jose Manuel Entrecanales said, “We believe it's a major breach in investor confidence and will have a massive impact” on earnings.

Romania – with half an eye on next door Bulgaria – is the next country lined up to scale back support for renewable energy, to limit electricity price rises. Energy minister Constantin Nita said last week that the €500 million cost of renewables to consumers this year is a “price too big for Romanians,” following a boom in onshore wind to 1.7GW last year.

The impact was immediate: Czech utility CEZ said it had reduced its plans to build 1,000MW of onshore wind in Romania to just 300MW by 2016, though that decision was also influenced by shareholders wanting to focus on the Temelin nuclear plant project in the Czech Republic. Germany's biggest utility, Eon, also said last week that it would build at least 100MW of wind power, and up to 300MW, if Romania's incentives remained sufficient.

In Germany, network operator TenneT awarded a €1 billion contract to Alstom, the French power-equipment maker, to connect five offshore wind farms to the grid. This marks a new entrant into Germany's offshore transmission market, previously dominated by ABB and Siemens.

In neighbouring Poland, PGE and Energa bought wind farms from Iberdola for PLN 840 million ($A255 million). Energa will acquire 114MW of projects, while PGE will get three wind farms with 70.5MW capacity. Iberdrola said it has now sold €1.1 billion of wind farms in Europe, as it seeks to cut debt.

The major stories in North America last week were rather negative. The Canadian province of Alberta cancelled plans to finance the Swan Hills carbon capture and storage project to the tune of $C285 million ($A270 million), the second such project to be scuppered there in less than a year as low natural gas prices weaken the economics of CCS. In the US, meanwhile, smart grid equipment maker Silver Springs Networks is targeting $US67 million in its upcoming stock listing, less than half the amount it was seeking in a July 2011 filing.

There was more positive news further south. Mexico's Ministry of Energy said it expects wind capacity to increase 10-fold to 12GW by 2020, and solar capacity to rise to at least 1.5GW from only 10MW connected to the grid now.

Uruguay, meanwhile, will offer contracts next month for 200MW of solar farms at the world's cheapest rates – about $US90 per MWh. “That level of compensation is very optimistic,” said Jenny Chase, an analyst at Bloomberg New Energy Finance. One project that has already begun in Uruguay is for two wind farms with a total capacity of 92MW that French developer Akuo Energy said it is building for $US205 million.

Brazil is also gearing up its renewable energy expansion, and last week various officials intimated some of the country's likely next steps. Wind farm developers may have to cover the cost of connecting their projects to the grid, a regulator said, while a wind trade group said there may be four auctions for new capacity this year instead of three. Meanwhile, a new bill may pass next year, requiring utilities to install charging stations for electric vehicles. Sooner than that, Brazil is preparing tax breaks to channel more of its sugar cane into ethanol production.

Emerging economies are also looking at more comprehensive climate policy. China is trialling emissions trading in seven pilot carbon markets, but last week an official in Beijing said the country was also examining the impact of a carbon tax. That instrument was supposed to take effect in South Africa this year, but last week the National Treasury said in its Budget Review that it would be delayed until 2015. This followed objections from companies including ArcelorMittal South Africa and Gold Fields.

In other news, the surge in trade tensions related to clean energy continued, as the EU launched an anti-dumping investigation into Chinese manufacturers of solar glass. This follows a complaint by an industry group – EU ProSun Glass – in January, and echoes the EU's probe into Chinese solar panels brought by EU ProSun last year.

Meanwhile, the European Parliament's environment committee voted to delay the inclusion of international airline emissions in its emissions trading system by one year, to allow negotiations at a UN agency to proceed. The one-year exemption, proposed by the European Commission, needs to be ratified by the bloc's Parliament before the end of April, when airlines would have to report their 2012 emissions.

The WilderHill New Energy Global Innovation Index, or NEX, lost 1.1 per cent last week, largely on declines in solar company stocks. First Solar slumped 25 per cent, the biggest NEX loss, after posting quarterly sales results that were worse than market expectations. Yingli followed, down 21.3 per cent, on investor concern about the company's exposure to European markets including Italy.

EU carbon

European carbon fell last week after the European Parliament's environment committee scrapped the idea of fast-track negotiations on a plan to curb an oversupply of allowances in the market.

European Union allowances (EUAs) for December 2013 delivery lost 10 per cent last week to close at €4.67/tonne, compared with €5.19/t at the end of the previous week. EUAs fell as low as €4.17/t on Tuesday morning after the committee's rapporteur, Matthias Groote, said a plan to temporarily delay sales of 900Mt of allowances – a strategy known as backloading – will go straight to a plenary vote on April 15. This removed the possibility that backloading might be agreed in principle in March during a ‘trialogue' between the Parliament, member states and the Commission – also known as the ‘fast-track' process. EUAs perked up on Thursday to an intraday high of €5.03/t after a German parliamentarian told reporters that Chancellor Angela Merkel shared Environment Minister Peter Altmaier's stance on the EU Emissions Trading System. Altmaier is a supporter of backloading.

UN Certified Emission Reduction credits for December 2013 finished the week unchanged at €0.34/t.

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