IEA confirms renewables recession woes
London, 28 May: Investments in renewable energy are expected to drop 38% in 2009 thanks in part to the financial crisis, according to a report from the International Energy Agency (IEA) for the G8 energy ministers’ meeting in Rome this week.

Preliminary data for the first quarter of 2009 showed that investments in renewables were 42% lower than in the previous quarter, and the IEA estimates that investments are on course to fall to about $51 billion in 2009, from more than $80 billion in 2008.  Government stimulus packages will add close to $10 billion, bringing the total to about $60 billion. These incentives are expected to rise to more than $14 billion in 2010, the year in which the incentives will have the greatest impact.

The IEA based its predictions on current investment trends in the sector, the International Monetary Fund’s most recent global GDP forecasts and the assumption that fossil fuel prices would remain close to current levels for the rest of the year.

The drop in 2009 comes after a significant surge in renewable energy investments in recent years. 

The sector recorded year-on-year growth of 85% in 2007, and “activity in the sector continued to grow rapidly until the third quarter of 2008 ... but then fell away dramatically as the financial crisis dried up sources of project finance and lower fossil-fuel prices reduced the economic incentive to invest in renewables," said the IEA.

Among sources of renewable energy, wind has been hit particularly hard. New orders for wind turbines plummeted in 2008, from a peak of almost 15 gigawatts (GW) in the second quarter to just 2GW by the fourth quarter. Orders rebounded slightly to 4GW in the first quarter of 2009. The IEA said that the downturn was particularly severe in the US and China, with the EU holding up comparatively well in comparison.

The IEA noted that offshore wind and large wind farms, some of the more risky and high-value projects, fared worst, with companies such as Centrica in Britain and the US-based FPL Group cutting back on planned projects.

“Many wind energy projects rely relatively heavily on debt financing, which either has become much harder to find or more expensive due to higher risk premiums,” the IEA said.

Investment in solar energy also suffered at the end of 2008, with the decline deepening in the first quarter of 2009.

“The bulk of the downturn can be attributed to caps that have been placed on the very attractive feed-in tariff available to solar PV [photovolataics] in Spain which will limit the growth in capacity to a maximum of 500MW in 2009 from over 2,500MW in 2008,” the IEA said, adding that financing concentrated solar power plants had also become challenging in many markets.

The IEA noted that total investment in renewables is a long way behind the average annual rate of around $180 billion (in 2008 prices) that would be needed by 2030 to prevent atmospheric concentrations of carbon dioxide reaching 450 parts per million – and avoid the worst effects of climate change.