Renewables outlook cloudy but not bleak, say analysts

LONDON Fri Sep 9, 2011 1:12pm EDT

A general view shows the PS20 solar plant in Sanlucar La Mayor, near Seville, October 7, 2009. REUTERS/Marcelo del Pozo

A general view shows the PS20 solar plant in Sanlucar La Mayor, near Seville, October 7, 2009.

Credit: Reuters/Marcelo del Pozo

LONDON (Reuters) - The outlook for renewable energy may be cloudy as governments scramble for solutions to a faltering global economy and financial markets suffer from uncertainty, but it is not bleak, analysts said in two separate reports on Friday.

Renewable energy sectors have lagged fossil fuel energy and wider global stocks over the past couple of months and so far this year, data show, underperforming even as world shares slide on concerns about slow global growth.

Alternative energy is vulnerable in a downturn because it depends on subsidies from cash-strapped governments, while some technologies are viewed as risky, fossil fuel prices have fallen, and as climate change slips down the global agenda.

However, as industrialized economies' prospects wane, HSBC sees emerging markets generating a larger share of renewable energy demand going forward.

"For wind the recent surge in (wind power development in) China means that emerging markets now account for 60 percent of the global market, a share that we believe will be sustained through to 2014," HSBC analysts said in a note on Friday.

Offshore wind installations in the EU will grow by a 35 percent compound annual growth rate (CAGR) and Latin American wind by a 34 percent CAGR, HSBC said.

"In solar, we expect the emerging market share to rise sharply from 17 percent in 2010 to 40 percent in 2015. China has recently upgraded its solar target from 5 to 10 gigawatts by 2015, along with a feed-in tariff to match."

Germany's nuclear phase-out following Japan's nuclear crisis has made reducing electricity demand more important as the country seeks to fill the gap. German power use in 2010 was around 2 percent lower than its 2006 peak, and has another 8 percent to fall to meet the government's 2020 target, HSBC said.

In a separate report, Standard & Poor's Senior Director Swami Venkataraman said fiscal realities may hinder government support of renewable energy.

"Solar panel and wind turbine prices have declined drastically but demand has been slow to respond, so the near-term outlook for the industry is unclear," he said in the report.

Italy's solar market, which was growing in 2010, will be much smaller this year because of regulatory changes over feed-in tariffs there.

However, the crisis at Japan's Fukushima plant following an earthquake and tsunami in March created "tremendous potential" in both Japan and Germany, S&P said.

Japan has passed a law to come into force mid-2012, which requires 20 percent of its energy to come from renewables by 2020.

This should create ongoing demand of 3 gigawatts a year compared to current installed capacity of around 5 GW.

Germany, which decided to gradually phase out its nuclear reactors by 2022, is installing capacity at a rate of 6-7 GW per year, which exceeds the 3-4 GW per year which is expected to be needed to achieve its target of 50 GW by 2020.

Much of Germany's nuclear capacity will need to be replaced by other options, such as natural gas.

"Wind will also receive a renewed focus as a result of the backing away from nuclear, as evidenced by investor appetite for the recently closed 288 MW Meerwind offshore wind project," S&P said.

(Reporting by Nina Chestney; editing by Keiron Henderson)

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