Rhein on Energy and Climate

For the last 10 ten years European wind and solar industries have scored nothing but victories. The demand for renewable energy was steadily rising, helped be generous feed-in tariffs, allowing them to widen production capacities, improve technology, pioneer off-shore technologies and enter markets beyond the EU, in particular USA.

Thus the annual installed wind capacity on earth grew from barely 5GW in 2002 to 37 GW in 2009! The expansion of the PV sector was even faster. It has attained Gig watt dimensions only in the middle of the decade, to reach almost 15 GW new capacities in 2009.

But in 2010 this bright advance has come to a halt. The newly installed wind capacity stagnates at a record level of 37 GW, the equivalent of 37 modern coal-fired power plants. For 2011 experts also expect a steep decline of new PV capacity. In Germany, which accounts for half of the world market, new investments are likely to decline from 8 GW in 2010 to only 3 GW in 2011.

As a corollary, European stock prices of solar and wind producers have dropped by 20-60 percent in 2010. This decline reflects the uncertain outlook for the future.

Six major reasons are behind these developments:

The gloomy mood after the failure of the Copenhagen Climate Conference;

The failure of the US Congress to pass an effective climate legislation;

The reduction of government incentives by several European countries, above all in Germany and Spain;

The rediscovery of nuclear energy as an apparently cheap, subsidised alternative;

The discovery of shale gas in the USA, offering long-term perspectives for cheap domestic fossil energy supply with low C02 content.

The decline of US wholesale prices for electricity to only $ 40/MWhour, due to the low level of economic activity and low gas prices, which discouraged utilities from building new wind or solar power plants.

For European manufacturers the slump in demand is particularly disappointing as Chinese manufacturers have become increasingly competitive, both in terms of pricing and improved quality. They benefit of the huge Chinese market that is practically closed to imports, and economies of scale.

With the exception of Siemens, European manufacturers of renewable energy are medium- size companies, which lack the dimension for mass production and economies of scale, the financing facilities for long-term finance packages and comprehensive after-sales services.

In order to survive in an increasingly tough world market they might have to join forces by sharing research facilities or company mergers.

These developments should also be a lesson to European policy makers: huge subsidy programmes –German consumers pay more than € 200/mega kWh for electricity, seven times more than US industrial clients! – are no guarantee for a sustainable domestic industry, especially if the subsidies benefit both domestic and Chinese or US equipment.

Brussels 16.11.10 Eberhard Rhein

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