Govt supt crucial for sustainability renewable energy

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Despite the global recession and lower fuel prices, worldwide government support for clean energy has thus far remained steady. Frost & Sullivan says this provides hope that renewable energy will remain an area of growth despite the economic conditions.
 

However, the pace at which demand for renewable energy is growing will slow down until the global economy stages a recovery. As the energy industry is capital intensive, the reduced availability of finance may delay new projects.
“The impact of the financial crisis will probably not have a massive influence on projects already in operation, but will have an influence on new projects,” says Frost & Sullivan energy industry manager Cornelis van der Waal.

 



“Evidence of this is already starting to be felt by equipment suppliers. For instance, recent analysis from Frost & Sullivan shows that wind turbine equipment producers in Europe are predicting a slowdown in the double digit growth experienced in the industry since the turn of the century.”
In recent years, clean energy companies enjoyed a series of benefits, such as the rise in fuel prices, government incentives, concerns about global warming and the availability of capital. However, these conditions reversed from the second quarter of 2008.
Fossil fuel prices have decreased significantly, making renewable energy sources less-competitive, and capital has dried up. This is mainly because investors and banks stopped lending to companies due to uncertainties in the global economy.
“Financial giants such as Bear Stearns, Lehman Brothers and Citigroup were once major renewable energy investors,” says Van der Waal. “With those players either extinct or dealing with massive losses, it is unlikely that they will be able to invest significantly in new projects.”
In addition, the core group of about 10 to 15 players in the tax-equity finance world has been cut in half, and the few remaining players are looking for increasingly higher rates of return. Investors were previously looking at an average six percent return on investment, but this has now risen as high as 10-13 percent.
One example of a significant project that has already been put on hold is the 750MW Kufue Gorge Lower hydropower station in Zambia that was set to begin construction in 2009. It is expected that some of the 15 firms interested in investing in this project will pull out amid the financial crisis.
“The aim of the project was to supply energy to the copper mining industry in Zambia, which is currently experiencing reduced production capacity due to power rationing by the state power utility Zesco,” observes Van der Waal. “It is not clear if and when this project will continue.”
Although the impact of these factors will be negative for equipment suppliers, there may be some positives for end-users in the industry.
“The renewable energy equipment market is changing from a suppliers market to buyers market,” notes Van der Waal. “This means that end-users will have more choice when deciding on their suppliers, as competition will increase as less equipment is sold.”
This in turn will force equipment suppliers to decrease their prices in order to become more competitive, while increasing their after-sales service and support. These strategies will be essential to maintain their market share in difficult conditions.
“While it is not all doom and gloom for the renewable industry in the long term, the next few years will be tough,” Van der Waal concludes. “Global investment will cool in the short to medium term and projects will be carefully selected based on solid returns. It is therefore essential for governments that are looking to attract investment to ensure that the regulatory and financial support structures are in place to promote and support sustainable investment.”