Back in 1992, the Queen famously described the year as her “annus horribilis”, dominated as it was by family separations/divorces and the Windsor Castle fire.
For the renewables sector, 2010 will not be regarded particularly favourably either. At the international level, the Cancun meeting achieved relatively little – as did its Copenhagen predecessor. As such, the time to negotiate a credible successor to the Kyoto Treaty is beginning to run out. Furthermore, it is crucial that the two biggest energy players, the US and China, are both fully involved – and signed up – to any global agreement on emissions reductions.
More generally, there has been a widely held view that renewables investment was a fair-weather option. When the economic going got tough – as it has done since 2008 on the back of the global banking crisis – there was a question mark about whether lavish renewables subsidy regimes would endure. And so it has come to pass.
Most western countries have been grievously affected by the recent recession. With the notable exception of Norway, public sector debt levels have soared – in some cases to quite unsustainable levels.
The economies of Greece and Ireland have been crippled by this process. Some of their larger European Union counterparts are also in a very poor economic state, including Spain and Italy.
As public borrowing levels have soared, difficult – and controversial – decisions have been made about budget priorities. Inevitably, in some cases, subsidies for renewables have been cut. In Spain, where renewables generation has boomed, sharp subsidy cuts are now being imposed, with solar companies having been particularly badly affected.
In the UK, the recent Comprehensive Spending Review has prescribed wide-ranging cuts across most public sector programmes, except the NHS and overseas aid. As foreshadowed in the Energy Consultation Paper, published just before Christmas, substantive changes are being proposed to the existing renewables generation financing regime. Plans to phase out the UK’s Renewable Obligation Certificate (ROC) system have even been put forward.
It has also been noted that the UK’s wind power plants generally performed poorly during the recent cold weather when power resources have been stretched.
Furthermore, in the US, uncertainty prevails as the Obama administration seeks to control the vast federal and state budgets. Until relatively recently, the US was seen as a favoured market for renewables investment. Instead, investors may now focus on just a few states, particularly those that welcome wind power generation.
After such a turbulent year, what will 2011 bring?
In short, probably more of the same as most EU Governments get to grips with their overstretched budgets. Importantly, too, there is deep-seated concern about the ability of the euro to survive, especially if the financial problems of Greece and Ireland spread to larger countries, such as Spain – the EU’s ‘line in the sand’ – and perhaps Italy.
Against that background, it is not surprising that the share prices of the major renewables generators are expected to remain weak.
In the case of Iberdrola Renovables, which was the subject of a high-profile part demerger in 2007, its subsequent performance has been a disappointment. The latest company to float its renewables generation activities has been ENEL Green Power. Its share price has been held back by various factors, including Italy’s deteriorating political and economic climate.
For 2011, there are probably three priorities:
• at the international level, achieving progress in delivering a ‘son of Kyoto’;
• securing competitive financing for renewables generation investment - the UK’s Green Bank seems dangerously close to being stillborn;
• the renewables sector needs to go well beyond wind power - the other technologies are taking an awfully long time to materialise.
Definitely food for thought.
Nigel Hawkins is a Director of Nigel Hawkins Associates, which specialises in the provision of investment and policy research.
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