The clean energy squeeze

Squeeze a tube of toothpaste in one place, and the paste squirts out somewhere else. Squeeze the clean energy sector in one location, and investment immediately seems to pop up in a different part of the world.

That was the case again last week, as debate continued to resound over subsidy programs in Germany and the US. As this happened, fresh announcements of renewable power investment plans were made in Israel, Bali and Saudi Arabia.

Renewable energy subsidies remain under pressure in many developed economies. Figures released by the Congressional Budget Office last week, showing that the US provided $US14 billion in tax breaks for clean energy programs in 2011.

The CBO noted that many of the “tax preferences” for renewable energy and energy efficiency “have expired or will expire soon.” The wind industry is lobbying hard for the continuation of the Production Tax Credit beyond its scheduled sunset at the end of 2012, and warning that there could be a collapse of investment if this does not happen.

In Germany, the government decided to delay, by three weeks, its plan to cut rooftop PV feed-in tariffs, to give developers more time to complete projects. Developers of large projects approved by March 1 are being given until June 30 to complete their work.

These moves merely postpone deep cuts, of between 20.2 per cent and 29 per cent, in solar subsidies, with further reductions then coming every month from May onwards. Bloomberg New Energy Finance analysts responded by predicting that the delay would lead to a “strong surge in installations in the first half of this year,” with 5GW possible, about two-thirds of the record level of installations in the whole of 2011. They added that after the first half surge, only the residential rooftop segment is likely to show much life in the latter part of 2012, with the retail electricity price now above the levelised cost of energy of a roof-mounted system – and therefore justifying investment by households.

If less clean energy investment occurs in the US and Germany this year, or next – and that remains very much an ‘if' in this fast-moving industry – then there are plenty of other countries where investment is on the up.

Last week, the government of Indonesia signed an agreement with Sharp Corporation of Japan to build a 100MW PV plant in Bali, for an outlay of between $US2.5 billion and $US3 billion. The project, if it goes ahead, would give the resort island the chance to replace expensive oil-fired generation with solar power.

Meanwhile, in Israel, the Finance Ministry awarded a concession to US developer SunEdison and a local investment company to build and operate a 30MW PV park. This would dwarf the country's largest PV plant operating, which is of just 5MW, and would be accompanied down the development path by two large solar thermal electricity generation, or STEG, projects, in the same part of southern Israel.

Romania is another country seeing a leap in renewable power capacity additions. Italian generator Enel Green Power said last week that it invested €330 million in Romanian wind farms last year – more than four times its capital outlay there in 2010.

Laszlo Borbely, the country's environment minister, said in February that Romania plans to increase wind capacity to 1.4GW by the end of 2012, from 800MW at the start of the year.

Finally, on Monday this week, Saudi Arabian press reports quoted the president of the King Abdullah City for Atomic and Renewable Energy as saying that his country plans to spend $US140 billion between now and 2030 developing alternative energy sources such as renewable and nuclear power, to reduce use of crude oil.

This sum, equivalent to more than $US7 billion-a-year over that period, would represent a step-change in commitment by a country that has developed little renewable energy capacity to date. This week's comments do not come out of the blue - only last month, oil giant Saudi Aramco said that it saw the potential to use wind and geothermal resources in the west of the country to produce electricity.

And last summer, oil minister Ali Al-Naimi said that his country had the potential by 2020 to produce enough solar power to meet more than four times global demand for electricity. But the capacity of solar power actually under development is still modest, at a few tens of MW. That could be set to change.

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