CHANGING ENERGIES MEANS CHANGING COSTS

New Energy advocates and investors around the world are being pushed by the financial crisis and resultant credit crunch to re-evaluate their thinking.

In Europe, policymakers are asking themselves about the subsidies that have, in the past 3-to-5 years, driven dramatic international market growth.

In 2008, more of the EU’s new power-generation capacity, 43%, came from wind energy than from any other source. (35% of new EU power generation came from natural gas, 13% from oil, 4% from coal and 2% was hydroelectric.)

Statistics from around the world suggest that, though incentive programs require reworking in the current crisis, the principle of using subsidies to move New Energy to a level playing field against entrenched power-generation interests produces the desired change in energy consumption patterns.

The wind industry installed 42% of new U.S. power generation and took over the world lead in total installed capacity.

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China’s installed capacity doubled for the 4th consecutive year. It is on track to have the 2nd-most installed capacity in the world by the end of 2010 and meet its 30-gigawatt target for 2020 target 10 years early.

Germany held its world lead for installed solar energy capacity but improved incentive programs in Spain, Italy and France drove big increases in new capacity there.

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Announced incentive programs throughout the EU will continue to drive growth but the difficutly obtaining credit will cut into development of installed capacity and manufacturing capacity in Europe and around the world.

The humongous U.S. financial stimulus package being pushed through by the new Obama administration is likely to take on a significant role as New Energy driver. This will shift limited capital to U.S. New Energy projects. It will, at the same time, give EU policymakers an opportunity to reconsider the incentives they have been using.

Nick Mabey, head, environment group E3G: "The fiscal stimulus simplifies things. It says -- let's not worry about cost efficiency but get things moving ... give the money to somebody making something we want [but]…If we're trying to push a big transformation you want it to be cost-effective…The (European) system just makes everything untransparent and gives lots of opportunities for people to get excess profits. It doesn't seem the best bargain for the consumer or the government."

What industry leaders, environmentalists and policymakers are asking themselves is essentially how much does this need to cost taxpayers before straightforward market factors take over?

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It is true that New Energy is not ready to compete without subsidies. That is because New Energy must compete against the fossil fuels and nuclear industries that have had subsidies for decades.

While the EU is pushing its members to develop offshore wind, for example, utilities argue such projects are not economically independent, especially with oil and gas prices falling. The question then becomes, “how much support does New Energy need?” The bad news is that the answer isn’t clear. The good news is that this is an ideal time to figure it out.

Michael Liebreich, head of research, New Energy Finance: "This is simply arm-wrestling with the government over who pays what…The problem we've got is that calculations (of support) were done at energy prices probably higher than current prices, and they've gone back and said this project is now marginal…Why not use this opportunity to get 200 million of tax breaks (under a fiscal stimulus)?"

Huge windfalls of stimulus money are up for grabs. The nuclear industry wants a piece of the action, especially in France where the nuclear energy is state-owned.

Nuclear’s claim looks stronger after the recent interruptions in Russian natural gas deliveries and the crashing of the greenhouse gas emissions (GhG) market. EU leaders are keenly aware of how difficult it might be to grow New Energy fast enough, despite the European Commission mandate to obtain 20% of EU power from New Energy by 2020.

Wind industry leaders believe they will meet the mandate.

Christian Kjaer, chief executive, EWEA: "The figures show that wind energy is the undisputed number one choice in Europe's efforts to move towards clean, indigenous renewable power."

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Some EU leaders say stimulus funds would be better used to build transmission infrastructure that creates more opportunity for New Energy.

Joaquim de Lima, analyst, HSBC: "The argument of value for money can only be pushed to a certain level, for example you need significant investment in new infrastructure…"

This debate, too, turns back on the difficulty of accurately pricing New Energy in a world where fossil fuel prices first skyrocketed (to $140/barrel of oil in the summer of 2008), then crashed (they are below $40/barrel now), yet are predicted by the International Energy Agency (IEA) to be headed back to $100/barrel by 2015.

Onshore wind, according to analysts, is competitive at $55/barrel. Does that make it a good bet right now or not?

While industry leaders ponder which way to go with the development of incentives and wait for the financial system to shake out, investment is expected to remain flat at ~$150 billion. This would be a sharp change from solar’s 55% growth over the last 5 years and wind’s 30-to-60% annual growth of the last 3 years.

Things could change, depending on the impact of Obama administration’s stimulus, climate and energy bills.

In the coming week, watch for the outcome of the fight to change the New Energy tax credits to Department of Energy grants in the stimulus plan. If that proposal in the House bill but not in the amended Senate version survives, big money could move into the U.S. New Energy industries. If it doesn't, the market is likely to remain flat, awaiting the climate and energy bills, promised for legislation before summer.

The first indication of a shift in the market will be a pick-up in wind turbine and solar panel manufacturing company activity.

Seize the opportunity. From EWEAvideos via YouTube.

Analysis: “Green growth” puts climate spend in focus
Gerard Wynn, February 5, 2009 (Reuters)
and
Factbox
February 5, 2009 (Reuters)
and
Wind power becomes Europe's fastest growing energy source; Europe installs 20 wind turbines a day and 10 EU states reach wind power capacity of more than 1GW
David Gow, 3 February 2009 (UK Guardian)
and
Wind energy gathers steam, US biggest market: survey
February 2, 2009 (AFP)

WHO
Global Wind Energy Council (GWEC) (Arthouros Zervos, chairman, and Steve Sawyer, secretary general); Christian Kjaer, chief executive, European Wind Energy Association (EWEA); Shi Pengfei, vice president, Chinese Wind Energy Association (CWEA)

WHAT
The economic downturn and associated credit crunch has prompted New Energy leaders and policy makers to reconsider the fiscal methods they have used to generate unprecendented growth in wind power capacity around the world.

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WHEN
- Growth of EU New Energy in 2008: 20 wind turbines were installed on each average working day.
- Citibank analysts say EU solar grew 55% over the last 5 years and wind grew 30% (~8.9 gigwatts of new wind capacity) in 2008.
- New Energy Finance predicts 20% growth for wind in 2009.
- Solar-grade silicon is expected to be 30% cheaper in 2009.
- Wind turbine price is expected to fall 15% in 2009.
- At its current rate of wind capacity growth, China will pass Germany and Spain to have the 2nd most installed wind power in the world by 2010.
- Beginning in 2013, there will be no more free emissions allowances to EU utilities.

WHERE
- The biggest growth in 2008 wind capacity was in Germany (1.6+ gigawatts), Spain (1.6+ gigawatts), Italy, France and the UK (836 megawatts).
- Projected stimulus funds to New Energy in Europe and N. America:
(1) U.S. – New Energy tax credits ($30 bln), Water infrastructure and technologies ($20 bln), Smart grid ($11 bln), New Energy loan guarantees ($8 bln), Efficiency upgrades for federal buildings ($6 bln), Local govt efficiency grants ($5 bln ), Home weatherzation ($3 bln), Clean coal, carbon capture ($3 bln), Energy efficiency research ($2 bln), Advanced batteries loans and grants ($2 bln), Efficiency housing retrofits ($2 bln), Efficiency grants for institutions ($1.5 bln), Other proposals ($7,000 tax credit for advanced vehicle purchase)
(2) Canada – C$1 billion to boost sustainable energy
(3) European Union EC proposals – 3.5 billion euros ($4.48 billion) on energy projects, including low-carbon alternatives
(4) Germany, beyond EU spending – 1.5 billion euros to replace old cars
(5) UK, beyond EU spending –535 million pounds ($782.4 million) on energy efficiency and rail transport

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WHY
- Total world stimulus spending in the climate change fight: $100 billion over the next 2-to-3 years, $75 billion in the U.S. and $13 billion in the EU.
- Incentives make it possible for the New Energies to compete with established fossil fuel and nuclear sources with long histories of subsidy support.
- Other stimulus funds would be used to build new transmission infrastructure.
- Til now shortages in New Energy supply chains are becoming oversupplies as project development falls off. This is having the indirect impact of lowering the cost of New Energy.
- Normal EU wind capacity growth, based on recent performance: €11bn, 142 TWH (terawatt hours) of electricity, 4.2% of EU demand.
10 of the 27 EU states have 1 or more gigawatts of wind capacity.
- World wind capacity grew by 27 gigawatts in 2008 (€36.5bn) to reach 121 gigawatts.
US capacity: 25 gigawatts. Germany: 24 gigawatts. China: 12. gigawatts (with 6.3 gigawatts in 2008).
- Going against the world trend to develop New Energy, France’s state-owned EDF will build its second (controversial) European Pressurised Reactor nuclear plant.

Offshore wind. From EWEAvideos via YouTube.

QUOTES
- Steve Sawyer, secretary general, GWEC: "These figures speak for themselves: there is huge and growing global demand for emissions-free wind power, which can be installed quickly, virtually everywhere in the world…Wind energy is the only power-generation technology that can deliver the necessary cuts in carbon dioxide."
- Arthouros Zervos, chairman, GWEC: "Wind power is often the most attractive option for new power generation in both economic terms and in terms of increasing energy security, not to mention the environmental and economic development benefits…Volatile fossil fuel prices and unreliable supply policies from fossil fuel-rich countries increase the risk of relying on conventional sources for power production..."
- Shi Pengfei, vice president, CWEA: "The Chinese wind energy market is going from strength to strength, and has once again doubled in size compared to 2007, reaching over 12 GW of total installed capacity…The outlook for the coming years is also very healthy."
- Christian Kjaer, chief executive, EWEA: "The European figures show that wind energy is the undisputed number one choice in Europe's efforts to move towards clean, indigenous renewable power..."