is the hype over? - Syncap

SPOTLIGHT ON RENEWABLE ENERGY
Renewables: is the hype over? continued from page 1
same time, budget difficulties mean that subsidies to the sector
are being reconsidered. Production costs for solar and wind
installations have decreased so it is likely that these subsidies
will be the first to go,” says Brian O’Hare, partner at Clairfield
Spain.
As budget shortfalls and alternative schemes such as carbon
taxes allow subsidies across Europe to decrease, experts predict
the disappearance of smaller poorly-run companies. Concentration
is then to be expected among the remaining renewable
energy companies, both on the technology and on the operating
side. On the utilities and the electricity production side, large
utilities will eventually try to acquire wind and solar parks with
the most productive hours of operations and sell those below,
such as wind parks with less than 2000 hours per year.
Expectations are also high for greater efficiency and upscaling.
Wind farms will be expanded as larger turbines enter production
– 17 offshore wind farms are currently under construction
in Europe totalling more than 3500 MW, according to the European
Wind Energy Association. Solar parks will be made more
efficient, with new technologies and increasing size of single
projects such as gigantic desert solar parks. Clean fuels and
technologies for electricity storage, hydrogen storage, fuels
cells, air and gas cleaning technologies, and so on are also a
growing business. Strong venture capital and M&A activity
should therefore be expected as technology and know-how is
acquired via strategic growth.
Different countries use different mechanisms to promote renewable
energy: quotas and targets for use and production,
feed-in tariffs, and financial incentives for investment. The
Pew Foundation’s report Who’s Winning the Clean Energy Race?
makes clear that countries that incentivize the use of renewable
energy – China, Spain, Brazil, and Germany – are the global
leaders in the sector. Germany today clearly dominates manufacturing
and technology in terms of number of companies and
patented technologies. India and China are currently suppliers
but are increasingly innovative and competitive. China in particular
has given new prominence to clean energy policies recently
and in 2009 was the top country for renewable energy
finance and investment for the first time. This is a cause for
concern in the United States where finance and investment in
renewables is far behind its G20 counterparts. According to the
Pew report, “in relative terms, Spain invested five times more
than the United States last year, and China, Brazil, and the United
Kingdom invested three times more.” The United States is
catching up with increasing venture capital available for green
technologies.
Of course, the green sector took a hit with the downturn in the
global economy, but the decline in clean-energy investments is
estimated at only 6.6% according to the Pew report. At the same
time many countries have made clean energy the centerpiece
of their economic recovery packages. The green rush is more
intense than ever and the prize for the winners of this race is
market leadership in a growing sector for years to come.
Investment options in solar power in Italy
Andrea Scarsi is director
at Clairfield Italy.
For the last three years, incentivized rates
paid for wind and solar electricity, called
feed-in tariffs, have led to the significant
expansion of photovoltaic capacity in Italy.
With major cuts in tariffs in both Germany
and Spain and the slower than expected
start of the photovoltaic market in Greece,
Italy has the potential to become one of the
preferred geographies in Europe for attrac-
ting foreign investment in the photovoltaic sector.
The cost of solar equipment, such as inverters, cells, and modules,
has sharply declined. Profits for equipment manufacturers
have dropped significantly and higher returns have moved along
the value chain from the manufacturing of cells and modules to
the management of photovoltaic plants and the generation and
trading of green energy. As a result, over the last 12 months,
investors in Italy have focused on the acquisition of greenfield
or pre-authorized projects to develop and resell.
An alternative and very reliable investment option has emerged
that consists of investing in the share capital of special purpose
vehicles putting together a diversified portfolio of projects.
These projects often include highly profitable building-integrated
systems at different stages of planning and construction.
The building-integrated systems, and more generally, the roofmounted
systems in Italy obtain higher feed-in tariffs and possible
additional bonuses for the dismantling of asbestos. Fur-
thermore, the roof-mounted systems are generally built close
to existing medium-voltage lines, reducing the construction
costs of the entire photovoltaic plant. On the other hand, one
of the main problems connected to the roof-mounted systems
is the size of such systems, which are often too small to be of
interest to institutional investors. To resolve this issue, several
individual small projects can be grouped into special purpose
vehicles, thus achieving an interesting size, higher profitability,
and risk diversification.
In recent years Clairfield Partners’ Italian office, K Finance, has
advised financial and industrial players in the evaluation, investment,
and acquisition of high-return opportunities in the
sector and is currently assisting the fundraising of new special
purpose vehicles dedicated to the development of photovoltaic
plants in Italy. The Italian photovoltaic market is currently facing
a rush to build and connect the plants to the grid before
the end of 2010 when the tariffs in place since 2007 are due to
expire. Such a rush is especially motivated for ground-mounted
systems, for which the feed-in tariffs are in fact expected to significantly
decrease after December 2010.
In contrast, the government recently announced a minor decrease
in the tariffs for roof-mounted systems to be put in place
gradually in the first three quarters of 2011. The slow phase-out
will encourage the investment in photovoltaic roof-mounted
systems in Italy for at least the next 18 months.
2 Clairfield Review Q2 10