A Future for Renewable Energy Investment

David Appleyard
Chief Editor

Another blow was dealt to the renewable energy industry recently when the price of carbon traded through the EU Emissions Trading Scheme fell to below €5 a tonne. The development apparently prompted German energy exchange EEX to cancel an auction of about 4 million EU carbon permits from the 2013-2020 trading phase after the reference price was not reached. Underscoring chronically weak demand that has seen carbon prices fall by about 70% since mid-2011, Caroline Pitt, consulting director at energy market analysis firm Utilyx, commented: “At carbon prices this low, there’s limited point in having an EU ETS at all.” She added: “Such a low EU carbon price also calls into question just how serious the EU is about mitigating climate change.”

Indeed, whatever structural issues are undermining the EU ETS, there is little doubt that overall confidence in the renewable energy sector is down, whether as a result of shale gas, oversupply in the carbon market, an at best static global economy or any number of other malign influences. And it is therefore no surprise to learn that in this subdued climate, new investment in clean energy fell by more than 10% in 2012.

According to a new report from Bloomberg New Energy Finance (BNEF), weighed down by regulatory uncertainty and policy changes in big markets such as the USA, India, Spain and Italy, clean energy investment dropped 11% in 2012 from 2011, to a total of US$268.7 billion. Perhaps inevitably, Bloomberg analysts assert that the vast majority of this drop-off is in response to governments slashing or withdrawing key renewable energy support programs.

Nonetheless, Michael Liebreich, chief executive of BNEF, explains that “rumours of the death of clean energy investment have been greatly exaggerated.” Noting that the most striking aspect of these figures is that the decline was not bigger, Liebreich observes, “Another message from the 2012 data is that investment is broadening rapidly, from established markets such as Europe, the US and China, to new ones in Africa, the Middle East, Latin America and Asia-Oceania.”

This theme of strong emerging markets becoming the vanguard for renewable energy investment is also apparent in the International Energy Agency’s new hydro roadmap, which concludes that hydropower capacity could double by 2050, reaching 2,000 GW and generating more than 7,000 TWh annually. According to IEA, the bulk of this growth would come from large plants in emerging economies and developing countries.

And of course one thing that separates hydropower from the majority of other renewable energy technologies is the general lack of policy backing, coupled with its well-known economic robustness. Overall then, investment in hydropower is largely based on pure power price economics, rather than dependency on subsidies and fickle government support, a feeble carbon market or countless other external factors.

So it seems that while some renewable energy markets are indeed in decline, globally the case for clean energy has in no way been diminished. In which case, the argument for increased investment in hydropower has never been stronger.

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