Germany Solar Subsidy Cut Highlights Policy Risk for Clean Energy
Incentive schemes for renewable energy in Europe are going through turbulent times as governments scramble to bring down subsidies in line with falling technology costs.
German environment minister Norbert Roettgen announced last week a one-off cut – of up to 29% – in the feed-in tariffs available for PV installations. The cut on 9 March will be followed by prescribed monthly reductions until the end of the year, and annual cuts thereafter.
The announcement hit solar stocks around the world – the largest decliner on the WilderHill New Energy Global Innovation Index, or NEX, last week was Chinese PV manufacturer Yingli Green Energy, whose shares fell 19.4%. Other solar companies – Trina Solar (China; -19%), SolarWorld (Germany; -18%) and First Solar (US; -16.5%) – saw similar drops.
The NEX, which tracks the performance of 97 clean energy stocks worldwide, slipped 2.5% last week but remains 14% up this year so far.
The move by Germany comes after the UK revealed its plans to bring down PV tariffs through regular and predictable cuts, aiming to avoid a repeat of the courtroom fiasco of its last attempt to reduce solar subsidies. Under the plans, which are going through consultation, tariffs could potentially be cut each month, depending on the amount of capacity installed.
Other European countries have attempted to keep a lid on subsidies, and to allocate them cost-effectively, in novel ways. Last week the Netherlands legislated for its new subsidy scheme for 2012. This pits different renewable energy technologies against each other as they compete for a limited budget.
But the one-off cut in Germany shows that even well-designed schemes may not be able to keep track of developments in the market without resorting to exceptional policy changes, which are liable to spook investors.
Spain may take an even more dramatic step over the budgetary pressure resulting from renewable energy subsidies, by restricting existing plants’ profits, according to notes published by Standard & Poor’s and Banco Bilbao Vizcaya Argentaria. The feed-in tariff scheme was suspended last month for new projects.
The policy uncertainty related to the design of subsidy schemes is worsened by wider moods in national politics. In the UK, a petition by 100 backbench Conservative MPs against onshore wind has put a question mark over politicians’ appetite for further projects, at a time when the industry is waiting for confirmation of the new Renewable Obligation Certificate bandings.
GE Energy managing director Magued Eldaief told the Guardian, “Our investment is on hold until we have certainty and clarity regarding the policy environment that we are in.” Vestas, Mitsubishi, Gamesa and Siemens have expressed similar concerns.
The UK received better news on the biomass front, with several investment announcements last week. Imperative Energy said it had GBP 200m plans for 60 biomass heat and combined-heat-and-power projects. A group of investors, including Jacob Rothschild’s RIT Capital Partners and Prince Charles’ Duchy of Cornwall estate, established a new GBP 65m company, Tamar Energy, to build more than 40 waste-to-energy power plants. Meanwhile, Drax Group said it would invest as much as GBP 700m to increase biomass co-firing at its coal-fired plant, the UK’s largest power station.
In the week’s biggest deal, Dong Energy agreed to sell 50% of its Borkum Riffgrund 1 offshore wind park in Germany for USD 840m, the largest deal of its kind for an unbuilt facility. The buyers, Kirkbi – the parent company of Lego Group – and the Oticon Foundation, taking shares of 32% and 18% respectively, are paying a premium that reflects a high capex commitment and reduced risk. Dong’s liability for the construction risks, and agreement on a fixed 15-year operations and maintenance contract – as well as the stable revenue stream from Germany’s feed-in tariff – reduce price volatility for the investors.
EU Ccarbon Rises as Traders Await Set-aside Vote
European carbon allowances, or EUAs, gained 1.7% last week on anticipation of a vote to withhold some emission allowances from the market. EUAs for December 2012 delivery closed at EUR 9.43/t, compared with EUR 9.27/t at the end of the previous week. The European Parliament’s industry committee, known as ITRE, indeed voted through an amendment to the Energy Efficiency Directive on 28 February in Brussels that allows the European Commission to set aside some emission allowances from the EU’s emissions trading scheme’s third phase in 2013-20. United Nations Certified Emission Reduction credits, or CERs, for December 2012 rose 2.4% last week to EUR 5.04/t, up from EUR 4.92/t at the previous week’s close.
EBRD Considers Loan to Upgrade Serbia’s Wastewater System
The European Bank for Reconstruction and Development is considering a USD 14.6m loan to Serbia’s northernmost city, Subotica, to upgrade its water supply and wastewater system. The project is estimated to cost USD 39.2m, reported Bloomberg News. Alstom, the third-largest maker of power equipment will not receive World Bank contracts for two of its units after it acknowledged an improper payment of USD 146,000 in 2002 to an entity controlled by a former official for consulting on a hydropower project in Zambia, reported Bloomberg Businessweek. According to a TechSci Research report, India’s water desalination business is expected to triple to USD 1.2bn by 2017 as increasing demand from the industry pushes the country to build more purification plants. The number of units that process sea water in the country will increase to 500 in five years from 180 now with the majority in the states if Tamil Nadu, Gujarat and Maharashtra, reported Bloomberg News.
China Focuses on Nuclear Power Emergency Response
China’s National Energy Administration announced the launch of a series of research and development projects to improve emergency response mechanisms for nuclear power plants in the event of extreme disasters in the country, Xinhua reported. In Lithuania, a 1300MW nuclear power plant in Visaginas which is scheduled to be built in 2020, will cost USD 6.5bn - the largest investment in the Baltic country since independence from the Soviet Union. According to Bloomberg News, the country plans to control 34% of the plant, while Estonia, Latvia and Poland would each take a 20% stake, with the remaining 6% paid by companies leasing the atomic technology. South Africa is looking to spend over ZAR 600bn (USD 78bn) on nuclear plants, a coal-fired plant and a hydropower project in the Democratic Republic of Congo. Of the total, ZAR 300bn (USD 39bn) is earmarked to go on nuclear plants with the capacity to generate 9600MW of energy by 2029, reported Bloomberg Businessweek.
German environment minister Norbert Roettgen announced last week a one-off cut – of up to 29% – in the feed-in tariffs available for PV installations. The cut on 9 March will be followed by prescribed monthly reductions until the end of the year, and annual cuts thereafter.
The announcement hit solar stocks around the world – the largest decliner on the WilderHill New Energy Global Innovation Index, or NEX, last week was Chinese PV manufacturer Yingli Green Energy, whose shares fell 19.4%. Other solar companies – Trina Solar (China; -19%), SolarWorld (Germany; -18%) and First Solar (US; -16.5%) – saw similar drops.
The NEX, which tracks the performance of 97 clean energy stocks worldwide, slipped 2.5% last week but remains 14% up this year so far.
The move by Germany comes after the UK revealed its plans to bring down PV tariffs through regular and predictable cuts, aiming to avoid a repeat of the courtroom fiasco of its last attempt to reduce solar subsidies. Under the plans, which are going through consultation, tariffs could potentially be cut each month, depending on the amount of capacity installed.
Other European countries have attempted to keep a lid on subsidies, and to allocate them cost-effectively, in novel ways. Last week the Netherlands legislated for its new subsidy scheme for 2012. This pits different renewable energy technologies against each other as they compete for a limited budget.
But the one-off cut in Germany shows that even well-designed schemes may not be able to keep track of developments in the market without resorting to exceptional policy changes, which are liable to spook investors.
Spain may take an even more dramatic step over the budgetary pressure resulting from renewable energy subsidies, by restricting existing plants’ profits, according to notes published by Standard & Poor’s and Banco Bilbao Vizcaya Argentaria. The feed-in tariff scheme was suspended last month for new projects.
The policy uncertainty related to the design of subsidy schemes is worsened by wider moods in national politics. In the UK, a petition by 100 backbench Conservative MPs against onshore wind has put a question mark over politicians’ appetite for further projects, at a time when the industry is waiting for confirmation of the new Renewable Obligation Certificate bandings.
GE Energy managing director Magued Eldaief told the Guardian, “Our investment is on hold until we have certainty and clarity regarding the policy environment that we are in.” Vestas, Mitsubishi, Gamesa and Siemens have expressed similar concerns.
The UK received better news on the biomass front, with several investment announcements last week. Imperative Energy said it had GBP 200m plans for 60 biomass heat and combined-heat-and-power projects. A group of investors, including Jacob Rothschild’s RIT Capital Partners and Prince Charles’ Duchy of Cornwall estate, established a new GBP 65m company, Tamar Energy, to build more than 40 waste-to-energy power plants. Meanwhile, Drax Group said it would invest as much as GBP 700m to increase biomass co-firing at its coal-fired plant, the UK’s largest power station.
In the week’s biggest deal, Dong Energy agreed to sell 50% of its Borkum Riffgrund 1 offshore wind park in Germany for USD 840m, the largest deal of its kind for an unbuilt facility. The buyers, Kirkbi – the parent company of Lego Group – and the Oticon Foundation, taking shares of 32% and 18% respectively, are paying a premium that reflects a high capex commitment and reduced risk. Dong’s liability for the construction risks, and agreement on a fixed 15-year operations and maintenance contract – as well as the stable revenue stream from Germany’s feed-in tariff – reduce price volatility for the investors.
EU Ccarbon Rises as Traders Await Set-aside Vote
European carbon allowances, or EUAs, gained 1.7% last week on anticipation of a vote to withhold some emission allowances from the market. EUAs for December 2012 delivery closed at EUR 9.43/t, compared with EUR 9.27/t at the end of the previous week. The European Parliament’s industry committee, known as ITRE, indeed voted through an amendment to the Energy Efficiency Directive on 28 February in Brussels that allows the European Commission to set aside some emission allowances from the EU’s emissions trading scheme’s third phase in 2013-20. United Nations Certified Emission Reduction credits, or CERs, for December 2012 rose 2.4% last week to EUR 5.04/t, up from EUR 4.92/t at the previous week’s close.
EBRD Considers Loan to Upgrade Serbia’s Wastewater System
The European Bank for Reconstruction and Development is considering a USD 14.6m loan to Serbia’s northernmost city, Subotica, to upgrade its water supply and wastewater system. The project is estimated to cost USD 39.2m, reported Bloomberg News. Alstom, the third-largest maker of power equipment will not receive World Bank contracts for two of its units after it acknowledged an improper payment of USD 146,000 in 2002 to an entity controlled by a former official for consulting on a hydropower project in Zambia, reported Bloomberg Businessweek. According to a TechSci Research report, India’s water desalination business is expected to triple to USD 1.2bn by 2017 as increasing demand from the industry pushes the country to build more purification plants. The number of units that process sea water in the country will increase to 500 in five years from 180 now with the majority in the states if Tamil Nadu, Gujarat and Maharashtra, reported Bloomberg News.
China Focuses on Nuclear Power Emergency Response
China’s National Energy Administration announced the launch of a series of research and development projects to improve emergency response mechanisms for nuclear power plants in the event of extreme disasters in the country, Xinhua reported. In Lithuania, a 1300MW nuclear power plant in Visaginas which is scheduled to be built in 2020, will cost USD 6.5bn - the largest investment in the Baltic country since independence from the Soviet Union. According to Bloomberg News, the country plans to control 34% of the plant, while Estonia, Latvia and Poland would each take a 20% stake, with the remaining 6% paid by companies leasing the atomic technology. South Africa is looking to spend over ZAR 600bn (USD 78bn) on nuclear plants, a coal-fired plant and a hydropower project in the Democratic Republic of Congo. Of the total, ZAR 300bn (USD 39bn) is earmarked to go on nuclear plants with the capacity to generate 9600MW of energy by 2029, reported Bloomberg Businessweek.
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