Recent government cutbacks in subsidies to low-carbon energies in some European Member States could slow investment, but the picture is complex
According to a recent analysis by Bloomberg New Energy Finance (BNEF), new global investment in renewable energies fell 11 % in 2012, compared to a record year in 2011. And in some European countries, the drop was even greater, with Italy seeing a 51 % fall in new investment and Spain, 68 %. Bloomberg CEO, Michael Liebreich, in an online interview at the Massachusetts Institute for Technology last year, blamed Europe’s debt crisis for at least part of the slowdown. But a closer look shows the picture to be more complex.
“The European crisis has crushed the sector’s most important geographic market,” said Liebreich. “How are you going to invest in European projects when there is a question mark over the survival of the Euro? The average commercial bank cannot fund a project in a high-risk country like Spain, Greece, or Portugal, the best countries in Europe for clean energy.”
But while it is easy to blame the debt crisis in European countries and a slowing of growth in Asia for the apparent cooling of interest in renewable energies, this is far from the whole story. True, cuts of subsidies for renewable energies in Spain and Germany, a carbon price plummeting towards near zero in the European Trading Scheme, cheap coal and the abundance of shale gas in the USA, European solar energy component manufacturers going out of business and a revival of interest in nuclear energy, all seem to point towards a cooling of interest in renewable energies in Europe. But, in fact, renewable energies may be more robust than it seems in the current economic climate.
Overall, global investment in renewable energies has not stopped rising for the best part of a decade, increasing from around USD 50 billion (EUR 38 billion) in 2004 and peaking at just over USD 300 bn (EUR 230 bn) in 2011, according to BNEF. In Europe, according to the latest REN21 report (2012), renewable energies accounted for 31.1 % of the EU27 electricity capacity in 2011, representing 71.1 % of new electric capacity additions, far outstripping those based on fossil fuels. Nevertheless, several different factors have recently led to a slowing of growth, in Europe at least, and are, it is true, creating uneasiness among investors.
Some of these factors are economic. In the throes of both a debt crisis and the euro crisis, Spain last year stopped all new feed-in tariff (FIT) contracts for renewable energies. Feed-in tariffs are an increasingly common form of subsidy, where governments agree to pay renewable energy electricity producers (usually utilities, but also private individuals in the case of solar photovoltaic and wind, for example) above-market rates for the energy they generate. The aim is to encourage investment and growth in the sector until the technologies become competitive in their own right. According to REN21, globally, 65 countries and 27 states had introduced some form of feed-in tariff by 2012. But, in Spain, the cash-strapped government was footing the bill for keeping renewable electricity prices paid to suppliers artificially high. Reluctant to pass the true cost onto the consumer, it felt it had to pull the plug on the scheme. With Spain’s economy in crisis, the estimated EUR 24 billion debt that the government had accrued through its FIT subsidy was an obvious target for cuts.
But with Spain a leader in terms of wind and solar photovoltaic energy installations, this volte-face has shaken some investors. And, according to a report on wind energy published at the end of 2012 by the EC Joint Research Centre (JRC), Spain’s cuts in FIT “…damages investment confidence and that will probably seriously affect the future of the industry and wind generation deployment.”
Germany also reduced feed-in tariffs for solar photovoltaic (PV) energy last year and intends to reduce them further. But it would be wrong to read into this a cooling off of national interest in renewable energies because of the debt crisis. Indeed, Germany has already set its target for the proportion of renewable energy in the mix above the 20 % figure under the EU’s Energy Directive, aiming for 35 % by 2020, 65 % by 2040 and 80 % by 2050. And the cuts in feed-in tariff last year were in response to the very success of Germany’s renewable energy policy – or “EEG” (Erneuerbare-Energien-Gesetz). Massive take-up of solar PV has brought the costs of components down dramatically, leading to a glut and several bankruptcies among European manufacturers. This meant that high feed-in tariffs were no longer needed to stimulate growth. France, Italy and Greece also decided either to cut or cap FITs for solar PV.
But the picture in Germany is very different to that in Spain. Under the EEG system, the cost of the feed-in tariffs is passed on to the consumer as a surcharge on their electricity bills. And when environment minister, Peter Altmaier, announced in February this year his proposal to cap the FIT surcharge until the end of 2014 and then limit it to a 2.5 % increase per year, part of his reasoning was to prevent unpopular further rises in consumer electricity bills in an election year. The proposed cuts were, though, presented as a necessary economic measure. According to Altmaier, unless the FIT subsidies are curbed, they would reach EUR 1 trillion by the 2030s.
Although onshore wind energy and solar PV are now mature technologies with a healthy share of the energy market, a challenge for European governments weathering a recession is to continue to find backing for them and other essential components of the EU’s SET-Plan strategy to meet targets for reduced carbon emissions, such as carbon capture and storage, still in its infancy. And this is where cheap coal and abundant supplies of shale gas may raise the stakes, forcing a new round of advocacy measures to continue to make the full range of low-carbon energy strategies attractive to investors. As the JRC says in its report on wind energy, “the perception that renewable energies (RES) are expensive often triggers a great debate in the media when the cost of supporting RES is transferred to the final user, but the benefit of it is not perceived.”
JRC Wind Status Report 2012: available here
For an English summary of Peter Altmaier’s proposals reported in the Frankfurter Algemeiner Zeitung, see