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Renewables Investment Seen Tripling Amid Supply Glut

Renewables Investment Seen Tripling Amid Supply Glut

The plunge in the cost of wind and solar power that bankrupted more than two dozen manufacturers is forecast to spur a tripling of investment in renewables by 2030 and to reduce the grip fossil fuels have on world energy supply.

Annual spending on clean-energy projects that don’t add to greenhouse-gas pollution may rise to $630 billion at the end of the next decade from $190 billion last year, Bloomberg New Energy Finance said in a report today. That’s 37 percent more than estimated in November 2011 and means renewables would account for half of all generation capacity by 2030.

The findings contrast with production gluts that made most solar and wind manufacturers unprofitable last year, tipping a unit of Suntech Power Holdings Co. (STP) into bankruptcy and Vestas Wind Systems A/S (VWS) into record losses. While suppliers are suffering, lower equipment prices are making more projects profitable to develop and advancing the day when renewables can rival coal and oil on cost.

“The apocalyptic views about what it will cost to shift the world to renewable energy simply aren’t true,” Michael Liebreich, chief executive officer of New Energy Finance, said in an interview. “Three years ago, we thought wind and solar would be cheap as chips, and they’ve even gone below that.”

Tumbling Costs

The London-based research group owned by Bloomberg LP estimates the cost of installing a gigawatt of renewable energy capacity is now about 10 percent lower during the period through 2030 than it projected in 2011. A gigawatt is enough to supply about 800,000 homes in the U.S.

Those declines were part of what depressed clean energy investment 22 percent in the first quarter to $40.6 billion, the lowest for any quarter in four years.

China’s decision to subsidize the factory expansions of its solar companies helped cut the cost of panels in half since 2010, while the price of wind turbines tumbled by about a quarter since 2009, according to data compiled by Bloomberg. While that hurt manufacturers, it allowed developers to finance more clean energy projects even though governments pared back subsidies, said Ian Thomas, managing director of Turquoise International Ltd., which invests in clean energy companies.

European Model

“The landscape is going to look different to the European model of a subsidy for energy generation,” Thomas said in an interview in London. “The drivers are going to change to be much less environmental and much more business-related.”

The result will be renewable energy projects including wind, solar, hydro and biomass accounting for 70 percent of new power generation capacity between 2012 and 2030, the New Energy Finance report said. By 2030, renewables will account for half of the generation capacity worldwide, up from 28 percent last year, the researcher said.

"It's a strong forecast, but it's believable,'' said Guy Turner, chief economist for Bloomberg New Energy Finance. "That represents compound annual growth of 6.7 percent, and many industries have grown faster than that at this stage of their development.''

Subsidy Cuts

Traditional bastions of renewable energy such as Spain and Germany have been paring back subsidies for clean energy, leaving developers more reliant on lower costs to compete with fossil-fueled stations.

Spain, where wind turbines and solar panels generate more than 50 percent of power on the most breezy and sunny days, halted subsidies for new renewable-energy projects at the beginning of 2012. In Germany, which has more solar capacity than any nation and ranks third for wind, Chancellor Angela Merkel has stepped up the pace of subsidy cuts for clean energy.

The reductions were made to ease the burden of higher electricity costs on consumers and reflect the declining costs of the technology. The result forced a shakeout in both wind and solar.

Vestas is more than half way through a plan to cut 30 percent of its staff over two years, and LDK Solar Co. is less a third of its peak size after paring employment and selling plants. Gamesa Corp. Tecnologica SA (GAM) was unprofitable in 2012 for the first time since the Spanish wind turbine maker sold shares to the public in 2000.

Corporate Victims

More than 30 solar power companies have gone bankrupt since 2011. They include Q-Cells SE and a unit of Suntech, both once the biggest solar manufacturers, and Solyndra LLC, which had taken $527 million in loans under a program guaranteed by the U.S. Energy Department.

“The decline in prices is very painful for manufacturers,” Liebreich said. “But the kit is performing, and there aren’t bankruptcies among the developers because these are good investments.”

Investors including Warren Buffett and Guy Hands have bought into renewable energy projects, as have pension funds including PensionDanmark A/S, a Danish retirement fund with $23 billion in assets.

Past Failures

In the U.S., Solyndra’s collapse led to calls from lawmakers to suspend such assistance to solar manufacturers. Congress also held back on renewing a tax credit for wind power until Jan. 1, a day after it had been allowed to expire. President Barack Obama supports the industry and helped extend the wind tax credit.

“The path toward sustainable energy sources will be long and sometimes difficult,” U.S. President Barack Obama said in his inaugural address on Jan. 21 after starting his second term. “America cannot resist this transition. We must lead it.”

To drive down costs yet further, makers of offshore wind turbines are designing larger, more powerful machines. Siemens AG is testing a 6-megawatt turbine and is considering a 10- megawatt system. Mitsubishi Heavy Industries Ltd. plans a 7-megawatt turbine that will be tested onshore in the U.K. this year. It’s talking to Vestas about cooperating on an 8-megawatt device. Most turbines now produce less than 6 megawatts.

‘New Normal’

The forecasts by New Energy Finance’s forecast under a “New Normal” scenario, which it says is the most likely. Under a “barrier busting” scenario, in which more money is channeled into measures including smart meters that enable customers to monitor energy use, and in facilities that can store energy, the researcher said investment may reach $880 billion by 2030.

They assume carbon prices will rise from near record lows, rising demand for renewables in Africa and the Middle East, and further reductions in the cost of the technologies.

A “traditional territory” scenario assuming slower global economic growth, lower fossil-fuel prices and weaker climate policies may mean contain investment in renewables to $470 billion by 2030, it said.

Copyright 2013 Bloomberg

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