So heres the first of many summaries, apologies its not a link, but copy and paste and have a read through very interesting insights into the mistakes of Germany, we cannot do the same but it looks like our government is going as blindly into this as the Germans did! FINADVICE Development And Integration Of Renewable Energy: Lessons Learned From Germany (quoted directly from paper) Hans Poser Jeffrey Altman Felix ab Egg Andreas Granata Ross Board Over the last decade, well-intentioned policymakers in Germany and other European countries created renewable energy policies with generous subsidies that have slowly revealed themselves to be unsustainable, resulting in profound, unintended consequences for all industry stakeholders. While these policies have created an impressive roll-out of renewable energy resources, they have also clearly generated disequilibrium in the power markets, resulting in significant increases in energy prices to most users, as well as value destruction for all stakeholders: consumers, renewable companies, electric utilities, financial institutions, and investors. This white paper is meant to provide further insight into the German market, present an objective analysis of its renewable policies, and identify lessons learned from Germany, and to a lesser degree, other European countries. The rapid growth of renewable energy...was due to proactive European and national policies aimed at directly increasing the share of renewable production in their energy mixes through a variety of generous subsidy programs. Two main subsidy programs...include feed-in tariffs (FITs)..policy of choice for Germany and many other European countries FIT’s are incentives to increase production of renewable energy. This type of subsidy guarantees long-term (usually for 20 years) fixed tariffs per unit of renewable power produced...are independent of market prices and are usually set by the government, but can be structured to be reduced periodically to account for technology cost decreases. ...FIT programs set the price for he resources and let the market achieve whatever level it can at that price. The most important lessons learned: Policymakers underestimated the cost of renewable subsidies and the strain they would have on national economies..Germany’s FIT program has cot more than $412 billion to date (including granted and guaranteed, but not yet paid FIT) ...German Minister of the Environment Peter Altmeier recently estimated that the program costs wold reach $884 billion (680 billion euro) by 2020. He added that this figure could increase further if the market price of electricity fell, or if the rules and subsidy levels were not changed. Moreover, it is estimated that Germany will pay $31.1 billion in subsidies for 2014 alone. A recent analysis found that from 2008 to 2013, Germany incurred $67.6 billion (52 billion euro) in net export losses because of its high energy costs ...a recent International Energy Agency report, which stated that the European Union (EU) is expected to lose one-third of its global market share of energy intensive exports over the next two decades due to high energy prices, expensive energy imports of gas and oil, as well as costly domestic subsidies for renewable energy. Retail prices to many electricity consumers have increased significantly, as subsidies in Germany and the rest of Europe are generally paid by the end users through a cost-sharing procedure. Household electricity prices in Germany have more than doubled, increasing from 0.14/kilowatt hour (kWh) ($0.18) in 2000 to more than 0.29/kWh ($0.38) in 2013. The rapid growth of renewable energy has reduced wholesale prices in Germany, with adverse consequences on markets and companies. Large subsidies and guaranteed interconnection to the grid for renewable energy led to unexpected growth over the last ten years in Germany and elsewhere. The merit order in Germany’s wholesale markets switched as renewables,with zero variable cost of production, take precedence over thermal plants. As a result, wholesale prices in Germany for base load have fallen dramatically from 90-95 euro/megawatt hour (MWh) in 2008 to 37 euro/MWh in 2013. This has created a large amount of load and margin destruction for utilities that built and financed thermal plants. Many new gas-fired power plants have been rendered uneconomical, leaving owners to shore up their balance sheets by undertaking large divestitures of some of their holdings, as well as reducing their operational costs. The German utilities have seen their stock plunge by nearly 45 percent since 2010. The wholesale pricing mode has changed as a result of the large renewable energy penetration. In the past, wholesale prices followed the demand curve, but in Europe they now react to the weather; going down when the sun shines and the wind blows, and up when - at times of high demand- the sun doe not shine and the wind does not blow. Fossil and nuclear plants are now facing stresses to their operational systems as these plants are now operating under less stable conditions and are required to cycle more often to help balance renewables’ variability. Large scale deployment of renewable capacity does not translate into a substantial displacement of thermal capacity...there are many hours in the year during which most generation comes from thermal power plants, which are required to provide almost complete redundant capacity to ensure the reliability of the system. In turn, grid interventions have increased significantly as operators have to intervene and switch off or start plants that are not programmed to run following market-based dispatching. For instance, one German transmission operator saw interventions grow from two in 2002 to, 1,213 in 2013. It is higher amounts of renewables with low full load hours relative to the total portfolio of power production that creates greater variability and strains on the grid. In the case of Germany, it is the large-scale deployment of both wind and solar that has impacted the entire system. Large-scale investments in the grid are being required to expand transmission grids so they can connect offshore and onshore wind projects in the north of Germany to consumers in the south of the country. The total investment cost of the build-out of German onshore and offshore transmission systes is estimated t be around $52 billion (40 billion euro) over the next ten years. Moreover, the grids are now being challenged to meet the dynamic flows of variable renewables and require significant additional investment to accommodate increased penetration of renewables. All of these costs will ultimately be passed on to electricity consumers. This has not gone unnoticed in Germany or the EU. A report was released in late February 2014 by an independent expert commission mandated by the German government, which concluded that Germany’s current program of incenting renewables is an uneconomic and inefficient means to reduce emissions and therefore should be stopped. ...the European Commission released new guidelines on April 9th, 2014,...It will essentially ban all FIT subsidies and introduce technology agnostic auctions as the only incentives for renewables. Overgenerous and unsustainable subsidy programs resulted in numerous redesigns of the renewable support schemes, which increased regulatory uncertainty and financial risk for all stakeholders in the renewable energy industry. ..the learned in Europe prove that the large-scale integration of renewable power does not provide net savings to consumers, but rather a net increase in costs to consumers and other stakeholders. . Why Germany? German has been one of the most aggressive supporters of renewable power in the world, and accordingly provides an appropriate case study of the law of unintended consequences. ...during the last decade, the European Union (EU or Europe) has increased its gross renewable energy generation by 50 percent, climbing from 13.6 percent in 2000 to 23.5 percent in 2012. As of 2011, the EU was the world’s second largest renewable generator (following China with 18.6 percent of total production), providing 16.5 percent of the world’s total renewable electricity generation (including hydropower). More interestingly, in 2010, the EU produced 70 percent of the world’s electricity net generation from solar photovoltaics (PV) and 44 percent of the world’s wind generation. ..Germany is not the European country with the highest renewable energy penetration, it has become the most widely cited case study because of its status as the largest European producer of non-hydro renewable electricity, its economic importance in Europe, and its much observed and replicated support mechanism for renewables, the feed-in tariff (FIT) program....Germany also has the single largest energy market in Europe..Germany is the second largest European exporter of energy after France. Germany’s renewable policies and support mechanisms The European Commission (EC) has historically concluded that more renewable energy will enable the EU to cut greenhouse gas (GHG) emissions and reduce its dependency on energy imports. The directive also set differentiated goals for each country, but left it up to them to decide how to achieve their national target. The EC asked each member state to develop a National Renewable Energy Action Plan (NREAP) outlining the country’s overall strategy and submit periodic progress reports. ..Germany’s hare of energy from renewable sources in gross final consumption of energy by 2020 was set at 18 percent. In its NREAP from 2010, the country estimated that renewable energy would account for 19.6 percent of final energy consumption by 2020, with 38.6 percent of renewables in the electricity sector, 15.5 percent in the heating/cooling sector, and 13.2 percent in the transportation sector. At the end of 2012, Germany’s total renewable generation, including hydropower, represented 23.5 percent of total electrical output. Germany’s goal is to reduce carbon dioxide (CO2) emissions by 90 percent from 1990 levels nd to provide 80 percent of its electricity generation with renewables by 2050. The government has also planned the complete phase out of nuclear power by 2022. FITs FITs are incentives to increase production of renewable energy...The level of tariffs normally depends on the technology used and the size of the production facility. Additionally, in some cases, the tariff is scheduled to be lowered periodically by a defined percentage to account for the assumed technology cost decrease. The advantage (and also disadvantage) of FITs is that it is independent of the market price. Because of their generosity, FITs proved capable of quickly increasing the share of renewable power. Since FITs set the price for resources and not the volume, it is difficult to set the height of the FIT such that the renewable goals are reached economically as possible. FITs remove the price risk from project developers and gives policy makers the ability to decide on the optimal allocation of resources (as opposed to the market). This ultimately leaves consumers paying for the outcome,and causes value destruction to investors in renewables and utilities who made investment decisions based upon representations of stable regulatory regimes as well as the interaction of dynamic market forces. Like many European countries, Germany chose FITs as the main support mechanism to support the renewable goals of the EU, and later developed a more comprehensive plan for the reduction of carbon emissions known as Energiewende. Germany introduced the first FIT law in 1990, aimed at fostering the development of renewable energy and designed to promote rural economic development and domestic manufacturing . The German legislation guarantees renewable developers interconnection to the grid, priority scheduling and dispatch, and a technology differentiated FIT for 20 years. This subsidy is socialized and financed mainly by residential consumers, since many exporting industrial customers are exempt from paying any costs associated with the subsidy in an effort to maintain global industrial competitiveness. It as the starting block for rapid increases inrenewable energy. German Renewable Energy Act The purpose of the EEG is to promote electricity generated from renewables (hydropower, landfill gas, mine gas, sewage gas, biomass, geothermal, wind and solar) The four main provisions of the EEG are: Investment protection through guaranteed feed-in tariffs (FITs). Owners of new plants receive a fixed rate, the FIT, for every kWh of renewable energy they generate...guaranteed for 20 years. Guaranteed interconnection to the grid for renewable energy resources. Decreasing FITs/degressive rates: Every year, the FIT rate decreases for new plants by a fixed percentage (degression rate). Initially, the degression intended to give renewable owners an incentive to lower the costs. Socialized and financed by the customers, not the government. The FIT is not paid with governmental funding, but instead is completely financed by markets and consumers....predetermined FIT, is paid for by consumers as part of their electricity bills. This portion is called the EEG levy or renewable energy levy (or surcharge). The levy is not applied equally to all consumer types. Industrial consumers pay only a fraction or, in the case of energy intensive industries, are completely exempt. Quota obligation The quota system is the European equivalent to the Renewable Portfolio Standard used in the United States. The quota system is a market based system. It aims at lowering costs during during the roll out of renewable energy. It exploits the cheapest possibilities of renewable energy production available given a certain demand. This system displays much price competition between different renewable energy technologies. Sometimes, it is argued, quotas do not give sufficient investment security to producers of renewable power, which in turn increases the need for a subsidy. Germany’s Renewable ‘’Success’‘ Story Germany’s experience with renewables has often been portrayed as a success story...It remains unclear, however, how successful Germany has been in meeting the other stated goals of its renewable energy policy: mainly climate change mitigation, energy independence, reduction of fuel costs, conservation of fossil fuels, local economic development, and expansion of the domestic manufacturing base. Germany experienced rapid growth of renewable energy. In 2012, renewable energy generation, including hydropower, accounted for 23.5 percent of total power consumption in Germany, up from 11 percent in 2005...Germany had to resort to wind and solar, as well as biomass...Electricity from biomass, for example, has grown proportionately more than its installed capacity, whereas solar PV has required a lot more investment for a much lesser impact on the electricity mix. Emission Reductions From 2005 to 2011, Germany’s CO2 emissions declined by 99 million metric tons, or 12 percent. Yet, since 2009, a number of factors have led to an increase in German emissions: low prices for CO2 certificates, low coal prices in comparison to natural gas prices, larger power generation needs due to the increase in electricity consumption in response to the economic recovery , the decommissioning of nuclear plants, and the increase in power exports. It is interesting to note that the United States is the country that has achieved the greatest reductions in CO2 emissions, helped by significant fuel switching to natural gas. A 2009 report estimated that while carbon allowances were at the time of trading at around $20/metric ton CO2e, PV had an estimated abatement cost of $1,050 per metric ton CO2e. These results suggest that FITs have produced unnecessarily expensive outcomes. Energy Independence Energy independence is desirable for every country, and certainly for Europe. ..the EU is the world’s largest energy importer. Fifty five percent of the EU’s total energy supply comes from imports. In 2012, the region imported 84 percent of its oil consumption and 64 percent of its natural gas consumption. European countries that import gas from Russia received severe drops in pressure in their pipelines that affected countries as far as the United Kingdom. A recent International Energy Agency report released on January 29, 2014, stated that the EU is expected to lose one-third of its global market share of energy intensive exports during the next two decades due to high energy prices, the majority of which is due to the high cost of energy imports, such as gas and oil. Renewables help reduce the dependency on imported fossil fuels, thereby reducing te risk of possible price shocks. Lower wholesale prices European wholesale power prices have declined in recent years. The reasons for this include increased participation of renewables in the market (especially PV during the day, reducing mid-day prices), abundant and cheaper coal from the United States as a result of the impact of increased development of shale gas resources on American fuel markets that make exporting coal more economical, and the global financial crisis. Given the ever-increasing large amount of subsidies, retail rates wold have increased even more if wholesale prices had not declined. However, as will be explained later, sharp decreases in the wholesale are unsustainable, as owners of generating units will be unable to keep uneconomical plants in service, In turn, many of these plants will ultimately be required to receive capacity payments in order to be online to provide back-up power for periods of power variability. Job Creation The growth of renewable energy throughout the world has allowed Germany to expand its wind and solar manufacturing base. ...it is less clear if it happened in an efficient way. For example, if 380,000 jobs were created in 2012, and 14 billion euro were disbursed in payments to renewables that same year (total amount of EEG levy per year.), then it can be calculated that each job received a 35,000 euro subsidy per year. A recently published study by the Institute on the Future of Labor states that the increasing trend of electricity prices affects jobs in other sectors...the loss of around 86,000 jobs or 1.4 percent. On the other hand, as Germany’s industrial sector is exempt fro EEG’s surcharge, a reversal of this support and its direct impact o industrial jobs could translate into significant loss of jobs. There have been significant recent bankruptcies of various solar and wind manufacturers, as well as service providers..in the last two years, the total number of solar cell and module production employees has fallen from 10,196 to 5,973. Due to the transition to renewable energy and the need of conventional plants only as backup, many of these plants have been turned down or closed definitely. It is estimated that these actions will impact around 200,000 thermal plant employees. Also, due to an increasing level of global competition in the solar market, especially due to the extraordinary cost efficiency of Chinese companies, German manufacturing companies are suffering and, as a consequence, job creation is struggling. UNINTENDED CONSEQUENCES OF GERMANY’S RENEWABLE POLICIES ..with respect to emissions reductions, diversification of the power portfolio, and energy independence, there have also been challenges and problems associated with this evolution. Large subsidies brought about rapid deployment of renewable energy that resulted in increased costs for most types of consumers, additional investment needs for transmission lines and other integration capabilities, disequilibrium in wholesale markets with the potential of seriously affecting reliability, and unsustainable costs to the economy, resulting in repeated redesigns and realignments of renewable policies and support schemes that led to boom and bust cycles detrimental to the renewables and power industries. Enormous governmental subsidies for renewables Germany’s FIT program has cost more than $412 billion to date (including granted and guareteed, but not yet paid FIT). Former German Minister of the Environment Peter Altmaier recently estimated that the program costs could reach $884 billion (680 billion euro) by 2020....It is estimated that Germany will pay $31.1 billion in subsidies in 2014 alone. Enormous, guaranteed FITs for PV led to very rapid, unexpected growth of PV installations during the last few years in Germany. As technology improved, costs decreased and generous subsidies made PV installing and lucrative business. ...this rapid deployment of renewables can only be described as a macroeconomic shock. The development of 21 GW of PV in only three yeas blindsided the energy market. RWE, Germany’s largest power generator....recently reported a net loss in 2013 accounts for 2.8 billion euro accompanied from write downs of approximately 4.8 billion euro which was attributed to the huge increase in solar and wind capacity. This is RWE’s first full year loss since the foundation of the Federal Republic of Germany in 1949. In absolute terms, the EEG subsidy for renewable energy has increased dramatically...between 2000 and 2003 the total amount of the levy for renewable energy was around 1 billion euro per year, it surpassed the 20 billion euro mark in 2013, and is estimated to approach 25 billion euro in 2014. ...the average FIT to plants without direct marketing increased from 89 euro/MWh to approximately 230 euro/MWh, as the share of high, albeit decreasing, PV FITs increased. Ever increasing power prices to residential customers Retail electricity prices have increased in Germany due in part to the generous subsidies for renewable energy...an increase in household electricity prices from 0.14 /kWh in 2000 to 0.21/kWh in 2007 to 0.29/kWh in 2013. Also the price of electricity (including procurement, transmission, and distribution) has increased slightly, as a result, in part, of additional grid costs and balancing needs associated with increased renewable penetration. Finally, while the EEG levy only contributed slightly to the price of electricity in the first years of its introduction (1.4 percent in 2000), it is now one of the main factors contributing to the rise of retail electricity rates (18 percent in 2013). The EEG levy grew from 0.013/kWh in 2009 to 0.053/kWh in 2013, or 240 euro per year per citizen, and is expected to grow to 0.062/kWh in 2014. Electricity price increases went mostly uncontested in Germany because of two main factors. First, electricity expenses are only a small part, about 2.5 percent, of the overall expenditures of a regular German household. Second, there was initial strong support for the Energiewende and readiness to bear additional costs....there are signs indicating that further unchecked price increases risk diminishing the popular support for Energiewende. ....the household electricity price rose by 11.7 percent between 2011 and 2013, while the industrial price rose by 9 percent. It is worth noting that the countries with the highest electricity prices, Denmark (0.30/kWh) and Germany (0.29/kWh), also have significant levels of renewable energy; whereas the countries with the lowest prices, Bulgaria (0.09/kWh), Romania (0.13/kWh) and Estonia (0.14/kWh), have more traditional electric-generating resources. A further analysis confirms that a correlation exists between the amount of variable renewable energy capacity that a country has (PV and wind) and its household electricity prices including taxes, levies, and value added tax. The rise in electricity prices has spurred a new debate in Europe about a new energy poverty..the popular German magazine Der Spiegel...summarized the mood of the German public toward high energy prices. The article discussed ‘’Germany’s aggressive and reckless expansion of wind and solar (that) has come with a hefty price tag for consumers and the costs often fall disproportionately on the poor.’‘ While this phenomenon was initially only British it is now expanding to the whole EU as electricity and natural gas prices increase throughout the continent. In November 2013, after many years of promoting FITs as an effective mechanism to support renewable energy development, the EC hinted at the need to reform or end renewable subsidies, and the need to support fossil generation that backs up renewables. ...the EC will ultimately remove all FIT schemes starting in 2017. Impact on national competitiveness At the World Economic Forum Annual Meeting in early 2014, energy prices and competitiveness was one of the biggest themes. Participants observed...the United States’ ‘’shale revolution’‘ and abundant domestic natural gas supplies with Europe, where industrial electricity prices are much higher than in other parts of the world because of a ‘’pell-mell’‘ push toward high-cost renewable electricity (wind and solar), which is imposing heavy costs on consumers and generating large fiscal burdens for governments. The rise in German power prices does not only apply to residential consumers, but also to industry consumers. Current calculations state that the exemptions given to German industrial companies will account for a total of 5 billion euro in 2014. ..the advantage that this exemption brings to large German exporting industries, these exemptions are now being challenged by the EC, which is planning to examine the special treatment that the above mentioned German companies are enjoying, and determine whether this situation violates the principle of fair competition. Financial impact to thermal generators and reliability Large penetration of renewable energy has not only translated into higher costs for the economy, it is also having profound effects on the wholesale electricity markets that could ultimately result in a deterioration of the country’s reliability. Subsidized renewables have dispatch priority over thermal generators and come first in the market’s merit order, thus depressing wholesale prices to levels that are making thermal plants uneconomical. At the same time, increasing amounts of renewables require increasing amounts of back-up and balancing power that only thermal plants can provide. Impact on wholesale markets: Subsidized renewables first in merit order and low wholesale prices ...power markets today are distorted by subsidies. Renewable generation will continue to be built since it depends only on subsidies and does not react to the markets’ excess power signals. Cost recovery and financial impact to utilities. Lower prices in the structure of wholesale markets have had several implications for thermal generators. The first implication is that, at current price levels, coal and gas-fired power plants cannot cover their full costs. There are fewer hours in which the conventional power plants earn more than the marginal cost since they run fewer hours than originally planned and, in many cases, provide back-up power only. Also the market at peak price has been reduced, further reducing the revenues of traditional thermal power plants. One of Australia’s largest utilities, Energy Australia, also announced a significant write down due, in part, to gas-fired generators becoming uneconomic because of the rapid growth of solar power and the rapid increase of electricity prices for consumers. According to the MSCI (Morgan Stanley ) European utilities share price index., the top 20 energy utilities have lost more than half a trillion dollars since their peak in September 2008. Back in 2008, the top 10 European electric companies had credit ratings of A or higher. At the time of this writing, less than half still maintain this rating. Evolution of the fleet and impact on reliability A second major implication of low wholesale prices is that fewer new plants are planned. This can present reliability problems, especially as nuclear plants shut down. The effects of reliability can be seen in an agreement reached by a German grid operator and a gas-fired power plant that had threatened to close because of economic problems...The plant was kept online per decree due to its role in maintaining system stability. Impact of renewables’ variability on market operations and thermal plants Ironically, the fast growth in renewables in general, and especially PV, is contributing to drive out of the market the very same generators that make them grow. Because of their variability, renewables require other generators to help them integrate their power into the grid...it is thermal generators that used to provide baseload power that are now providing back-up and balancing services for intermittent renewables at a significant loss of technical efficiency and increased costs. Large thermal as back-up - grid interventions In Germany, as the percentage of renewable power increased, so did the number of times that grid operators had to intervene to rebalance the market. In 2012, there were 1,213 such interventions. Given the average daily power consumption of around 1,643 GWh in Germany, this means that in spite of the 13.2 percent share of wind and solar power in total power generation, there must be complete redundant capacity of thermal plants or storage. For new thermal power plants to replace the currently uneconomical power plants once they reach their technical lifetime, current prices will have to rise. The effect of fewer operational hours needs to be compensated by higher prices in these hours. Renewables generate higher direct costs than traditional power production. Traditional base load wholesale power can be generated in Germany at around 65euro/MWh, but wind and solar PV in Germany receive a FIT of around 90euro/MWh. The back-up capacity must be financed if it is used only occasionally as back-up. Therefore the little power that is produced in the back up plants will become expensive....Finadvice show that a CCGT can produce 3000 GWh per year at fixed costs of 11euro/MWh, n a power system without renewables. If renewables reduce the production of the CCGT to for example 1500 GWh, the price needed to recover fixed costs will double to 22euro/MWh. Norway, for instance, has 95 percent of hydropwer, which has essentially no variable cost but acts as a nice storage/buffering mechanism for other renewables, allowing the country to integrate renewables with less impact on the overall system. Impact to thermal plants operating under new conditions of high variability Baseload thermal plants were designed to operate on a continuous base..they were all built to operate at their highest efficiencies when running 24 hours a day, seven days a week. The potential operational impact to owners of thermal plants for material damage and consequential business interruption could be significant and accordingly is now being closely analyzed by one of the world’s top insurers. ...when large, old coal-fired generators, which were designed for baseload operation, are running in peak load operation, the frequent thermal expansion and contraction of stator and rotor windings will result in accelerated wear and ageing of the unit. Adding to the costs associated with increased renewables, a condition-based maintenance, refurbishment, and replacement strategy will be needed to reduce the sudden outage risk for these older generators. The Grid Development Plan The total investment in the expansion of the onshore and offshore transmission grid in the next 10 years was initially estimated at around 40 billion euro, but was recently revised downward as the plan’s focus changed from building new lines to improving existing ones. The costs will be recovered by additional grid usage fees paid by all electricity consumers. ..critics...believe that the plan is overdesigned, which would result in higher than necessary costs that will have to be covered by end consumers through higher usage fees. ..large scale deployment of renewables in Germany has increased the need to expand the grid, which will therefore lead to higher grid investments and, in turn, to higher grid usage fees for customers. The effect on the grid usage fees will be even more evident when interest rates return to pre-crisis levels. Repeated redesigns and boom and bust cycles. European subsidy programs for renewables increased prices for European consumers, and, in many instances, became such a burden on the national economies that they resulted in numerous redesigns. Some European renewable energy regulatory regimes were inappropriately structured, gamed by market players, or made obsolete by market conditions. Redesigning unsustainable programs However, neither the wind nor the PV market reacted as expected by politicians. Rather, they were taken surprise by the pace of deployment. In the solar PV industry...the profitability of PV improved much faster than the FIT as reduced. More systems meant more subsidy payments, but also higher costs to consumers. By 2010...More than 100 electricity service providers announced significant price increases for 2010 (as high as 16 percent for households) claiming increased costs associated with renewable energy. In the mid-2000s, Spain was among the leading European countries in overall installed capacity of wind, solar PV, and concentrated solar power, as well as in share of renewable energy sources of total power demand, which it fuelled through very generous premiums for renewable energy-PVs in particular - and a poorly designed system without caps or tariff degressions. However, by 2008 these subsidies could no longer be continued due to the impact of the global financial crisis and its impact on Spanish finances, which were further worsened by the increasing ‘’tariff deficit’‘ that subsidy payments were imposing on the Spanish budget. The FIT program ended in 2013, but the government policy changes were not able to avoid leaving the country holding 26 billion euro in debt that tax payers will have to honour, as well as ever-increasing electricity prices. All of those changes tried to moderate cost increases by limiting the growth of renewable demand. However, since the PV factories were already built, and with production orders booked, the changes led to reduced prices in PV modules and reduced margins for the producers, which provoked several manufacturers’ bankruptcies. Q-Cells, Soltecture, and Sovello all went bankrupt in 2012. On April 9, 2014, the EC approved the new guidelines for state aid on energy that included the removal of all FIT support mechanisms for renewables to apply from 2017 onwards, which, depending on the category, included some transitional measures. Renewable companies will no longer receive any state support that allows them to exceed their respective market determined cost of capital. Financial impact on the renewable industry: Renewable Investment Funds ..a recent survey from Penquin that identified just 22 percent of all renewable funds earned an internal rate of return higher than 3 percent. Joseph Dear, chief investment officer of Calpers, the world’s sixth-largest pension fund, last year described clean-tech investment as a ‘’noble way to lose money’‘. According to a December 2013 Fitch report: ‘’The outlook for the overall renewables sector is negative. This reflects increased political risk and the expectation that the industry will need to adapt to less favourable operating requirements and economic incentives...in terms of the effect on the power industry in general and cost to consumers who ultimately foot the bill.’‘
Posted on: Fri, 15 Aug 2014 09:38:04 +0000
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