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Renewable Energy Shortfall

Posted on: Tuesday, 16 September 2008, 08:00 CDT

The recent turmoil of the American stock market is hitting the renewable energy sector with considerable force, according to a senior banker on Monday.

Experts believe by 2020, the sector will feel a $29.43 billion dollar debt shortfall thanks to the credit crisis.

Investors at a renewable energy finance conference in London tried to comprehend the banking problems following Lehman Brothers' filing for bankruptcy and Bank of America's buyout of Merrill Lynch.

By 2020, the European Union has set a goal of obtaining one-fifth of its energy from renewable sources, including wind, sun and biomass.

European renewable energy projects drew 18 billion euros ($26 billion USD) investment in 2007 and needed about 85 billion euros ($121 billion USD) annually by 2020 to meet the EU's target, said Tanja Cuppen, a renewable investing executive at Rabobank.

"The credit crunch will have a major impact on the renewable energy sector," Cuppen said. "I think we haven't had the worst yet."

Energy infrastructure projects are hurting because the banks, are limiting lending.

"Debt markets are much tighter than 12 months ago and are set to get tighter," said Ian Simm, chief executive of Impax Asset Management, which invests in clean energy, water and waste.

The result has been "the worst liquidity crisis in recent memory", said Andrew Marsden, managing director for Europe at GE Capital, which has a $4 billion portfolio of renewable energy assets.

Experts believe the sector will need to attract new sources of debt like pension funds.

The offshore wind energy sector was showing "sub-prime" symptoms, said Kevin McCullough, chief operating officer of RWE's renewable energy business.
McCulluogh said investors have been paying too much for undeveloped offshore sites that only have planning permission, failing to take into account the rising cost of wind turbines and cable.

"I think that very many of the projects being developed now will be hugely out of the money," said McCullough.

Britain is leading the way to meet the EU renewables target. The country wants to target 15,000 megawatts (MW) of offshore wind by 2020 compared to 600 MW currently installed, said Simon Virley, head of renewable energy at Britain's Department for Business, Enterprise and Regulatory Reform.

Government backed initiatives are a double-edged sword. They both underpin growth in the renewable energy sector while raising costs by creating a rush to fill that new demand.

Michael Liebreich, chief executive of research firm New Energy Finance said falling oil prices might signal a broader turn in the commodity pricing cycle, which could ease such costs.

Source: redOrbit Staff & Wire Reports

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