Predictably, Predictability


April 4, 2013

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Predictability. It’s one of the common themes in renewables that crops up time and time again, particularly from an investor perspective.

All too often however, it’s a common complaint from the fund community that renewable energy, and wind energy in particular, still doesn’t have enough predictability to make it an investment-grade asset.

And with the continued variation in political support structures for the wind industry worldwide, it was this lack of predictability in long-term industry prospects that was brought home recently as Bulgaria announced it would curtail production of energy from renewable sources, and near neighbour Romania, announced it was considering halving the number of green certificates awarded to clean energy suppliers.

Now, most developers in the wind industry recognise that favourable financial support structures from national governments were always going to face pressure in times of economic austerity.

In the case of wind energy, these cuts in support tend to be a little unpalatable as, unlike solar, there has yet to be significant falls in the cost of producing equipment.

But it’s the way in which the reduction or removal of these structures is most important to investors. Cutting support overnight with little warning makes investors very nervous.

What needs to be clear, conversely, is a system of regulated, predictable reductions in tariffs.

In the German and UK solar markets such systems exist – so called dynamic degression, whereby if installations reach a certain volume and start to hit the limit of available financial support, the tariff is reduced to slow demand.

It’s convoluted and far from perfect, as in many cases it only becomes apparent relatively quickly that demand needs to be cut.

In truth, there probably isn’t a perfect system available, but what governments do need to understand is that making announcements overnight will not enable them to reach the binding targets and clean energy ambitions.

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