Bloomberg On The Eclipse Of The European “Clean” Energy Sector
By Paul Homewood
A long but interesting piece from Bloomberg, but this section goes to the heart:
ECLIPSE OF THE EUROPEAN CLEAN ENERGY SECTOR
The grounding of the good ship Europe has had serious consequences for the clean energy industry.
Europe pioneered large-scale wind and solar power. In 2010, despite surging investment in China, Europe accounted for no less than 45 percent of global clean energy investment. Sadly, since peaking at $131.7 billion in 2011, European investment dropped by more than half to $58.5 billion last year, just 18 percent of the global total (figures exclude large hydro projects). Last year, Europe’s investment in clean energy was the lowest since 2006.
In manufacturing, the solar sector in Europe has been simply brushed aside. Where in 2007, Europe had the world’s largest cell and module maker (Q-Cells), today there are no European players in the top 10, and this despite protectionist measures enacted by the EU to penalize Chinese manufacturers. Even in wind power, where European turbine makers have generally held onto their positions much more successfully, a Chinese company, Goldwind, took over the top spot in the global manufacturing league tables for the first time in 2015.
How could this happen? How could Europe, once the clear world leader in all things renewable, have so quickly taken a back seat in this flagship industry? In part, it is a direct consequence of the world’s economic woes, and the particular way in which they played out in Europe, and of Europe’s failure to respond. Global investors, scared about the survival of the euro, have had plenty of reason to hesitate about putting money into euro-denominated clean energy projects. But that is not the whole story. It also resulted from gross errors by Europe’s clean energy industry and its backers at various levels of government. Indeed Europe’s clean energy story is an object lesson in the dangers of the entrepreneurial state.
Germany’s feed-in tariffs were certainly effective: they triggered a surge in volume that drove the wind and solar sectors to the point of competitiveness. However, set too high and kept in place too long, they were also inefficient: in the solar sector alone, between 2004 and 2010 the feed-in tariff craze resulted in excessive costs – defined as the market price less the expected price as derived from the experience curve – of $31 billion. But even generous support was not enough to cement Germany’s leadership in solar technology. By 2015, Germany saw only $10.6 billion invested overall in clean energy, the lowest for at least 11 years and 80 percent percent down on its 2010 peak.
Spain’s feed-in tariff experiment drove a runaway solar boom in 2008. In one year, the Spanish government’s infatuation with solar added an estimated 8 percent percent to the national debt, just at a time when the country’s balance sheet was about to be sorely tested. Think about when you next see figures for Spain’s youth unemployment. When the Zapatero government was kicked out, the new administration imposed retroactive revenue cuts on already-commissioned projects – not only did investment grind to an immediate halt, but it has not restarted since.
Italy followed a similar boom-bust route as Spain, with investment crashing almost to zero in the past three years, from $30 billion in 2011, and still showing little sign of bouncing back.
In recent years it has been the U.K., despite being seen as a reluctant participant in the European renewable energy love affair, that has attracted the most investment – with a boom first in onshore wind, then solar and now offshore wind. However, after winning an absolute majority, unshackled from renewables-friendly Liberal Democrats, the new Conservative government lost no time in dismantling support for renewables and reaffirming its support for gas and nuclear power.
Once the world’s most important carbon market, the EU Emission Trading System has become a painful reminder of what happens when politicians design financial instruments. EU Allowances this week were languishing at EUR 4.88 per tonne, far below the 20 euros or so required to push coal-fired generators out in favour of gas. For all of the excitement around Germany’s Energiewende, it has had little impact on the country’s emissions, as the surge in renewable energy has been matched by reductions in zero-carbon nuclear power, while coal retains its hold on the generating mix, in defiance of trends in the U.S. and China.
Despite all of this stating of the obvious, the article then proceeds to ask for more of the same! (We need to remember of course that Bloomberg New Energy Finance only exists to service the needs of the energy sector, particularly the renewables sector).
More in my next post.