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Page added on December 2, 2011
In many parts of the world, the clean energy sector is facing both economic and policy uncertainty. However, the picture is not a uniform one.
While cash-strapped US and European administrations place their clean-tech investments under scrutiny, China is pushing ahead, with strong government support for a range of renewable and clean energy technologies.
In the US, many institutions providing finance to renewables companies ran into difficulties in the financial and subprime mortgage crises and tightened access to credit for clean energy companies.
In the US, the political mood is turning against clean energy.
When it comes to solar energy, for example, the bankruptcy in August of Solyndra, a California-based solar-panel maker that received government funding, may have damped already weak enthusiasm for federal support.
“There definitely is a big change in the political environment,” says Stefan Heck, a director in McKinsey’s Stamford office, who leads the consultancy’s work in clean technology.
“And, even though not much has been cut yet, that cloud of uncertainty has led to caution among investors.”
Meanwhile, in China, the opposite trend prevails. Government support for clean energy has increased, with the recent announcement of the promotion of electric vehicles in 25 cities – the latest in a series of policy ambitious initiatives.
Many clean energy projects have received funding through the Clean Development Mechanism (CDM), through which companies in industrialised countries can receive carbon credits for investments made globally that result in emissions reductions.
However, despite prospects of the CDM ending along with the first Kyoto commitment period, which is due to end in 2012, few see the rapid growth of China’s clean energy commitments coming to a halt.
“For China and renewable energy, it won’t have a lot of impact,” says Arne Eik, CDM expert at Thomson Reuters Point Carbon.
He adds: “China has high renewables targets, projects are big and have a lot of money, so are not dependent on additional revenue schemes.”
Meanwhile, China’s voracious appetite for energy, as much as its environmental concerns, is driving investment in a wide range of energy technologies.
Ian Muir, manager of carbon strategy at PFC Energy, a consultancy, says: “They have such an issue with regard to meeting demand for energy that they’re going for an ‘all of the above’ approach.”
With many governments introducing austerity measures, some are reexamining everything from feed-in tariffs for solar power to tax credits for wind farm developers. But it is not clear this will lead to a significant drop in government support for clean energies.
Mr Heck at McKinsey says: “There’s a lot of noise in Europe because of the banking concerns and sovereign debt issues, and there’s debate about whether the support [for clean energy] should change. But on the whole, beyond the scheduled annual feed-in tariff reductions that track successful cost reduction, the support hasn’t changed a lot.”
In cases where there has been less government support, this is often a reflection of the strength of the industry and, in the case of solar energy, sharp falls in the price of photovoltaic technology.
Germany, for example, has reduced its feed-in tariffs for solar energy.
Costs in the solar industry have fallen to the extent that this energy source is in some places reaching grid parity (the point at which solar power becomes at least as cheap as grid energy).
“There’s a natural progression, and part of that is reducing subsidies,” says Gil Forer, global leader of Ernst & Young’s Global Cleantech Centre.
“As technologies continue to advance and costs continue to be driven down, it makes sense to have gradual reduction in subsidies or incentives in certain markets,” he adds.
One side of the clean energy equation that has actually been boosted by continuing economic woes is energy efficiency.
“Anything in the energy efficiency category, whether insulation materials, new air-conditioning systems or lighting upgrades, is relatively unaffected by the recession,” says Mr Heck.
“We’ve seen cutbacks from corporations that have deferred investments, but on the whole there’s not been any slowdown.”
For companies, energy efficiency measures require relatively low investments and their rewards can be reaped quickly. Some estimate companies can cut 15 to 20 per cent of their energy costs by driving energy efficiency measures consistently.
Evidence of the savings have emerged in the Climate Corps programme, an internship initiative run by Environmental Defense Fund, a US advocacy group, which matches business school students with companies such as McDonald’s, PepsiCo, Xerox and Verizon to develop energy efficiency plans.
Since the Climate Corps programme began, interns have uncovered energy efficiency opportunities that collectively could save $1bn in net operational costs over the project’s course.
Mr Heck says: “Energy efficiency investments make economic sense and for people who can afford the investment to install them, they’re an even better deal now because they’re saving money.”
Mr Forer also sees continued strength in corporate energy efficiency investments. “And it’s not just as a cost-cutting measure,” he says.
“Corporations also look at it from an operational efficiency perspective, which enables them to be more competitive.”