European Green Energy Subsidies Wane
Will the European economic situation affect the green energy industry? While many people have praised various nations for subsidizing green or renewable energy production, they forget that governments can quickly change their minds when it comes to subsidies that directly affect the green or renewable energy industry.
Green or renewable energy businesses rely upon government subsidies in the form of "feed-in" tariffs, high guaranteed wholesale prices paid to the green energy producers. Budget austerity programs across Europe mean that these subsidies will be cut back.
Spain, once the largest solar-energy market in the world, stopped subsidies for new green or renewable energy projects. Spain invested about €2.7 billion in subsidies to the county's photovoltaic industry in 2009 alone. Germany, once at the forefront of green energy production, said that they are going to end nuclear power production of electricity by 2022. Germany also announced that they will eliminate government subsidies for solar panels by 2015. But it failed to specify how the power losses would be compensated. In December, 2011, France proposed a three-month moratorium on new solar projects that are eligible for subsidized tariffs. Greece and the U.K. have slashed subsidies for solar power since the recession began in 2008.
Enel is Italy's largest energy company, has enormous debt, and is current launching Enel Green Power, its renewable power business. Enel Green Power is unique since it is highly diversified regarding green energy production, with only 22% of its electricity generation depending on government subsidies. Enel confirmed that Enel Green Power shares will be priced at €1.8 to €2.1 per share, valuing the company between €9 billion and €10.5 billion.
Is Inel Green Power going to prove to be a profitable investment? If Enel Green Power performs like other green energy companies, investors will be sorely disappointed however. Europe's three largest renewable energy companies have been very bad investments. In Spain, shares of Iberdrola Renovables, initially offered in late 2007, fell from €5.30 to €2.30. In Portugal, shares of EDP Renovaveis fell to half of their €8 listing price. Only France's EDF Energies Nouvelles has not been an outright disaster, with its shares down "only" 21% in 2011.
Total new investment in clean energy increased 5% in 2011, to $260 billion, even with the economic downturn and dropping government investments in green energy subsidies. Despite the dismal performance of Europe's green or renewable energy companies, it appears, according to experts, that the renewable energy industry is going to be "just fine" as it attracts new investors, even as renewable energy markets show significant fluctuations and subsidy cuts are expected. Are investors, knowing something the rest of the world doesn't know, beginning to put up their own money absent taxpayer funded subsidies? Will the green or renewable energy industry really be just fine? Only time will tell as government tax money dries up.
For another view, we look at what David Cunningham, a renewable-energy analyst at Westhouse Securities, a brokerage firm specializing in environmental technology, said. "The industry has cut costs so quickly that the governments haven't kept in step." When solar panels were expensive, governments set subsidy levels to make installation worthwhile. People who took advantage of subsidies saw a 7.5% return on investment, causing demand to boom. Meanwhile, consumers were paying subsidies via an extra charge on their electricity bills. While Cunningham's assessment may be true, it stops short of complete analysis. If, as he says, demand boomed for solar panels, why then were solar panel manufacturers not successful without subsidies? Saying, as he does, that the green energy industry is too successful is, at best, disingenuous.
On the natural gas front, Terry Waghorn at Forbes makes a case for abandoning fossil fuels to produce electricity. He says that natural gas is currently more economical than nuclear, coal, wind, or solar power. I guess Waghorn doesn't consider natural gas to be a fossil fuel, even though it has been called the cleanest fossil fuel. The natural gas industry does not receive subsidies from the US government to produce natural gas. Between 1996 and 2000, the European Union directly subsidized natural gas production. See page 11 of this EEA Technical report.
Are green or renewable energy subsidies going to end (or at least be drastically reduced) in America? That question will be answered in November of this year. Despite the fact that President Barack Hussein Obama says ours is an economy in crisis, and despite heavy taxpayer loan and loan guarantee losses, he and his administration continue to subsidize the green and renewable energy industry.
No one says that green energy, or renewable energy, does not work. Quite the contrary. All we are saying is that at this time it is not economically feasible, and must be subsidized in order to exist. Most of the subsidies come from governments, so when governments fall upon hard times, subsidies are one of the first budget cuts to occur. Without subsidies green energy companies fail. Perhaps, in the future, they can exist without subsidies, can pay their own way, but not at present.
Dr. Beatty earned a Ph.D. in Quantitative Management and Statistics from Florida State University. He was a (very conservative) professor of quantitative management specializing in using statistics to assist/support decision making. He has been a consultant to many small businesses and is now retired. Dr. Beatty is a veteran who served in the US Army for 22 years. He can be reached at firstname.lastname@example.org