(The author is a Reuters market analyst. The views expressed
are his own.)
By Gerard Wynn
LONDON May 29 Infrastructure investment plus
new emerging markets in Brazil and Mexico could counterbalance
falling renewable energy support in indebted Europe, which until
now has accounted for the majority of green subsidies.
Renewable energy faces public funding pressure, where
heavily indebted developed European countries are slashing
support to shield consumers from higher bills.
Europe has been the mainstay for the industry, with its $35
billion accounting for more than half global renewable subsidies
in 2010, according to the International Energy Agency.
Demand is shifting to emerging economies which lack
resources to lavish on the sector.
In one possible stop-gap, however, an EU summit last week
supported the notion of subsidised project finance, where
governments take first-loss guarantees, which Britain's main
business lobby also backed this week.
The aim is subsidise credit to lure pension funds, and
stimulate investment in grid infrastructure.
Meanwhile, in emerging economies signs are that the sector
can survive without European-style guaranteed price support.
The European model for renewable energy support, copied
widely elsewhere, is a feed-in tariff where generators including
households can sell renewable power back into the grid at a
Germany's 1991 "Act on Feeding into the Grid Electricity
Generated from Renewable Energy Sources" kick-started that model
and fostered an industrial strategy which served Berlin well,
and Denmark and Spain too, developing export markets in wind and
solar power equipment.
But the need for tariffs is dwindling.
The price of solar modules in the early 1990s was around 6
euros ($7.52) per watt compared with below $1 now.
The price of wind turbines in the early 1990s was around 1.6
euros per watt, compared with about half that now.
Germany recognises that, which it has shown in proposals to
slash tarrif rates following other European countries like Italy
But the experience of subsidy-free Spain and New Zealand
shows eliminating support altogether is a prescription too far
In January 2012 Spain halted subsidies for renewable energy
projects to help curb its budget deficit.
The solar industry body, the European Photovoltaic Industry
Association, projects as little as 50 megawatts of solar PV
installed in Spain this year compared with 2,800 MW in 2008
before subsidies were first cut, rising to 500 MW or more in
four years' time as the technology became more competitive.
In New Zealand, solar installations barely registered last
year, but the country installed more than 100 MW of wind power,
reflecting superior competitiveness with solar.
Emerging economies are adopting feed-in tariffs, and cheaper
Mexico will more than double its installed capacity this
year to 2 gigawatts (GW), estimates the Mexican Wind Energy
Wind farm operators do not get direct payments per unit of
electricity. Instead, the Federal Electricity Commission offers
companies a discount on electricity prices if they sign
long-term power contracts with wind farms.
Brazil last year switched to an auction model, away from
feed-in tariffs, complimented by state-sponsored financing.
The government awarded some 5.1 GW of capacity in 2011, of
which 3 GW were wind power, in a technology-neutral auction.
Brazil's National Development Bank (BNDES) offered
state-sponsored soft loans to wind projects at rates well below
(500 basis points to 750 bps) market-priced lending, according
to Deutsche Bank analysts in their Global Climate Change Policy
Tracker published last month.
While that still represents a subsidy, the competitive
pressure of auctions coupled with soft loans cut the price of
wind power by nearly two-thirds compared with the earlier
feed-in tariff, estimated the Deutsche Bank report.
Overall, the global picture remains a patchwork of support
policies including tariffs, carbon pricing and more complex
But signs are that the sector can survive without feed-in
tariffs in emerging economies, while developed countries may
sustain investment through subsidised project finance, as an
interim during record low carbon prices and as governments cut
(Reporting by Gerard Wynn; editing by Keiron Henderson)