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Friday, 20 January 2012

Alternative Energy: Close To The Floor?

Many European governments have recently faced unprecedented debt problems and low growth forecasts. Due to the increasing need to implement strict austerity measures, policy makers are willing to reassess the various expenses, including grant programs. If alternative energy sources are expected to bring many long-term benefits, a question arises in these turbulent times: the cost of subsidies for these technologies is it still affordable?

Subsidies For Renewable Energy Is Relatively Low

Before drawing any conclusions, let’s examine in detail the amounts allocated. According to the International Energy Agency, subsidies for renewable energy in the world amounted to 66 billion USD in 2010. A modest sum compared to 409 billion USD  allocated to fossil fuels. Compared to the total GDP of the euro area, the grants mentioned are a proportion of less than 0.4%. Given these figures, it is likely that cost-cutting measures are more effective in absolute terms in other areas.

Prices For Solar And Wind Power Rapidly Receding…

 Decline in the spot price of polysilicon (USD / kg)

In addition, prices of technologies to exploit renewable energy sources are rapidly receding. The most striking example is that of photovoltaic panels, whose prices have fallen 75% since 2008. According to EnergyTrend and PVinsights, the spot price of crystalline silicon solar cells is now at the order of $ 1/W.
This decrease is due to an imbalance between demand (which remains weak) and global production capacity, which are rising. Currently, the panel manufacturers are in fierce competition, especially with Chinese companies that benefit from more favorable cost structures and numerous funding opportunities. Italy, the UK and, more recently, Germany have reduced their subsidies for solar power to reflect the changes in prices and avoid a disproportionate return on investment.
Wind energy depends much less on public subsidies to the extent that it is a much more affordable in term of costs. Today, the wind industry is suffering mainly from financial difficulties and faced with overcapacity resulting in a rapid decline in the price of the facilities.

…While Fossil Fuel Prices Increase

 Cost of electricity: the competitiveness of renewable energy increases

The prices of electricity from fossil fuels, however, are rising. Since late 2010, coal centrals have witnessed the combustion materials’ prices increase significantly due to long-term constraints in terms of the offer. Consequently, the cost of electricity (leveled cost of Electricity, LCOE) of new power plants is now estimated at over $ 75 U/MWh, according to New Energy Finance. This resulted in increased costs by 36% over the past two years, against a decline of nearly 30% for solar. Electricity from renewable sources is becoming more competitive comparing to fossil fuel. Wind power already competes with coal and gas.

The Solar And Wind Less Dependent On Subsidies

When solar energy reaches the “grid parity”, which means that when its price will be equal to or lower than those of conventional electricity out subsidies, the industry should show a strong and sustainable growth. Until then and during the transition period, the stock market exposure to renewable energy will likely have a high level of volatility. The new decisions on grants in several markets should significantly influence the performance of green values.

Favorable Prospects For Long-Term, But A Strong Short-Term Volatility

The current market situation has important implications for investors. The transition period will likely attract investment opportunities provided to choose the winners of the crisis. Technology firms protected by high technologies and benefiting from a greater power to impose their prices, are expected to overcome the current turmoil and win market share over time.

Basma Jalloul – International Green Energy Correspondent – 19/01/2012

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