Investors in clean energy are like motorists stuck at broken traffic lights. The public policy light is green but the price and credit lights are deep red.
Investment in wind, wave and solar power should be booming after the European Union last year adopted an ambitious goal to draw 20 per cent of its energy from renewable sources by 2020 to help fight global warming, and US President Barack Obama made green power a central plank of his government’s policy.
But the credit crunch, economic recession, the spectacular fall in oil prices since last July and a record low European carbon price have cooled investors’ ardour.
Consultants New Energy Finance forecast zero investment growth in climate-related companies this year, after a spectacular growth rate of 60 per cent in 2006-7.
“The commercial lending market is holding back and until that can be addressed, it’s going to be a major constraint,” says Christopher Knowles of the European Investment Bank’s energy and environment department.
Yet to achieve the EU’s 2020 target, investment decisions need to be taken soon on long-term projects to build a smart electricity grid, giant offshore wind farms and networks to bring renewable energy to Europe’s industrial heartland.
How can the private investment logjam be broken?
One way could be to extend the public support system through which countries like Germany and Spain guarantee higher-than-market prices to generators of renewable energy.
The scheme provides secure revenue to green power producers, making their projects as safe investments as municipal bonds. But critics say it inflates the cost to consumers and taxpayers.
For example, the price guaranteed for photovoltaic energy is 20 times the cost of electricity from conventional power plants, said former International Energy Agency chief Claude Mandil.
Another idea is to put a floor under the carbon price by creating a carbon central bank that could withdraw emissions allowances from the market if the price fell below a certain level and issue extra permits if it rose above a fixed ceiling.
By Paul Taylor
