Green investment: Solar shines, US strikes back

There are two things that stand out in the 2011 clean energy investment numbers detailed by Bloomberg New Energy Finance last week. These show a record inflow of $US260 billion into the sector – 5 per cent more than the previous year – despite the economic stresses being faced by some countries prominent in renewable energy.

First, investments during the year were led by solar. An almost 50 per cent slide in the price of photovoltaic modules triggered an all-time-high uptake around the world. Solar investments touched $US136.6 billion during the year – 36 per cent higher than in 2010. This was remarkable given the backdrop of the enormous slide in the value of solar panels.

Solar investments also trounced wind energy. At $US74.9 billion, investment in wind was a little over half of that invested in solar power. Investment in solar exceeded wind in 2004, and again in 2010, but the gap between the two in 2011 is unprecedented.

The second interesting aspect of the 2011 numbers is the strong comeback of the US. China overtook the US in investment in clean energy in 2009 and increased its lead in 2010. Last year, the US bounced back with investment of $US55.9 billion – up 33 per cent on the year – while China's number was much lower, at $US47.4 billion. The US spurt came on the back of the federal loan guarantee programme and the Treasury's cash grant. A third incentive – the Production Tax Credit – is slated to end this year. There could be a rush of investments to take advantage of this credit in 2012, followed by a slump next year, a pattern that has been observed in various markets in Europe with similar incentive deadlines.

Europe managed an investment of about $US100 billion, led by solar energy, and offshore wind. In terms of growth in investment, India stood out, clocking a 52 per cent jump to touch $US10.3 billion.

2012 promises to be another challenging year, with the European financial crisis continuing to fester and the supply chain working its way out of some fearful over-capacity, said Michael Liebreich, chief executive of Bloomberg New Energy Finance.

Some of those challenges are already visible. Last week, Vestas, the world's biggest wind turbine maker, announced that it would cut 2,335 jobs – representing 10 per cent of its staff – and halt production at one factory to become more competitive with Chinese suppliers. It also said that another 1,600 jobs in the US are at risk if the Production Tax Credit is not extended beyond 2012.

The last time the PTC was allowed to expire – at the end of 2002 – annual wind installations fell to 397MW from 1.67GW in the previous year, according to data from the American Wind Energy Association. Bloomberg New Energy Finance estimates that 2011 installations in the US totalled 7.3GW. Installations may grow to 8GW this year before dropping to 5.5GW in 2012.

In Europe, downward revision of incentives is planned or has been implemented in many countries. Poland is mulling a retroactive cut in support to wind projects, although it is also proposing measures that would reassure investors about the value of green certificates after 2017. The Polish proposals are examined in a Bloomberg New Energy Finance insight note published last week.

The UK is trying to tame its renewable energy support costs, as is Germany. To top that, financing has become even more challenging. Areva – which is bidding to build five offshore wind farms in France, requiring an investment of almost $US13 billion – said last week that banks are lending less because of the financial crisis. It is too early to say whether the chill will last through the year.

There are also issues with the power grid cropping up as the renewable energy mix increases. The grid operator of the Czech Republic for instance said that network security was frequently compromised in 2011 due to unscheduled inflows of renewable energy from Germany.

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

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