Less Strain on Renewable Energy Than Other Sectors

What a difference two months can make. Back in September, it seemed like every journalist covering energy issues wanted to write about the "green" boom. Now, with the precipitous drop in the price of oil and the increasing scope of the credit crunch, many journalists are taking a less optimistic approach and writing about renewables as if the industry was in survival mode.

"If you were to choose which sector you want to be in, clean energy would be one of the ones you would choose. We think that it will come through the downturn well, but there will be some effect, particularly in the next six months or so."

-- Angus McCrone, Chief Editor at New Energy Finance, speaking on the Inside Renewable Energy podcast

Developers and financiers are certainly facing a range of problems that will cause problems and slow growth in the short term, said Angus McCrone, chief editor at New Energy Finance, a leading research firm based out of London. But the global financial downturn is not impacting the renewable energy industry as drastically as some others, he said.

“There has been a turnaround this autumn as some of the media are looking at the sector...asking the question about whether the priority of climate change is still going to be there with the west in a deep recession,” said McCrone, speaking on this week's Inside Renewable Energy podcast.

“We think that clean energy will weather the storm better than most other sectors despite the fact that it's not going to be immune,” he said.

Project finance has been particularly difficult for businesses in the sector. Many players such as Lehman Brothers, AIG and GE Energy Financial Services have dropped out of the U.S. tax equity financing game in the last month.

While Lehman and AIG left the sector because of their involvement in risky securities, GE's exit had more do with the company's inability to price deals and project its taxable income in order to take advantage of the Investment and Production Tax Credits. In Europe — as is the case all over the world — debt financing is more difficult because banks are holding onto their money and hesitating to lend.

In the short-term, the industry may see more consolidation as smaller players get swept up by larger firms with enough financial resources to make the capital-intensive investments necessary in the renewable energy space.

Because of the perception from investors that this hiccup in project finance will hinder the sector and reduce company profits, clean energy shares have fallen to their lowest point in four years. This has made initial public offerings and secondary issues more difficult in the second half of 2008.

These developments have undoubtedly made the business environment for clean energy more difficult. The next six months will also be rocky for many companies, especially smaller ones. But the overall outlook for renewables is very positive, said McCrone. Although the landscape may be much different when the industry emerges from the thick of the economic turmoil sometime in the next year.

One thing working in favor for the renewable energy industry, however, is the fact that the costs of raw materials like copper and steel are also dropping steeply. With lower costs to manufacture wind turbines and PV panels, prices are likely to come down across the board, bringing the cost of renewable energy generation closer to that of fossil fuels.

“If you were to choose which sector you want to be in, clean energy would be one of the ones you would choose,” said McCrone. “We think that it will come through the downturn well, but there will be some effect, particularly in the next six months or so.”

For more analysis on how the global economic downturn may impact renewable energies around the world, listen to the Inside Renewable Energy podcast, our weekly news program that features analysis from the industry's top policy makers, business leaders and advocates.