Europe’s politicians cannot influence the weather, but their recent decisions on price tariffs and incentives are having some effect on those trying to profit from it by investing in solar and wind renewable energy plants.
For cash-strapped governments, subsidies for alternative energy producers are a luxury they can no longer afford. The subsequent interventions to cut the largesse have made some investors more conscious of the non-financial risks of dirigisme, although that certainly has not stopped overall enthusiasm for alternative energy investments. The field was boosted by $200bn of net inflows globally last year, helping asset volumes grow by 540% since 2004.
In the face of tight public finances, various governments have tinkered recently with the levels of state subsidies and tariff rates paid to generators that feed renewable power into national grids. Facing an annual tariff deficit exceeding €5bn, Madrid, for example, has eliminated incentives from next year.
Berlin is reviewing grid connectivity rates every month and accordingly revising incentives more regularly. Prague has adjusted subsidies in the Czech Republic retrospectively. And lawsuits over tariffs, filed by non-government organisations in France, have placed the system there “in limbo”, according to one investor.
Jason Mitchell, head of alternative sustainability strategies at GLG Partners, says there have been 16 unplanned downward revisions to solar subsidies in Europe since 2011.
“In the economic boom leading up to 2008, investment in sustainable areas, such as renewable energy is commonly viewed as a logical eventuality. Many of these areas, however, are proving vulnerable to economic shocks,” he says.
Sunny southern Europe is home to the economies that can least afford to subsidise, so it is there that the fiercest battles have been fought between policy supportive of renewable energy on the one hand, and austerity on the other.
Italian regulators have introduced reforms including a one-off ‘Robin-Hood’ tax hitting the renewable energy green certificate scheme, while Spain’s politicians tinkering with their system led solar investors there to file lawsuits claiming changes contradicted European directives.
Mitchell says: “Spain, Portugal and Italy are all dealing not just with the costs of a renewable hangover, but also with how to integrate these new costs into structural adjustment programmes that have already sparked political backlash.”
Philippe Zaouati, head of the newly formed Mirova responsible investment division of Natixis Global Asset Management, says the industry, already in flux, is also in need of alternative financiers as Europe’s banks reduce their involvement as lenders.
Christian Riemann, CEO of Global Investment Bridge (pictured) which organises renewable projects/investments for top-end retail and institutional investors throughout Europe, says: “One or two years ago it was no problem to get bank financing to develop projects. Today it certainly is a problem.”