Are decreasing subsidies a blow to the wind industry?

Subsidies under discussion in the Netherlands, the UK, and Spain

On one hand, subsidies for renewable energy are meant to be a temporary measure to stimulate market integration. On the other however, such regulations require a minimum of predictability to win over investor confidence. It is no wonder then that any discussion of subsidy reforms provokes lively discussions on timing, the way it should be carried out, and what should come in its place.

Spain cutting feed-in tariffs for wind

Spain plans to cut feed-in tariffs for wind power by 15 to 30% and use the difference to boost support for other technologies such as solar. Analysts are divided on what impact this will have on the market. According to Ben Warren of Ernst & Young, the proposed subsidy reduction will have an adverse effect on investments, but not to such a degree that market growth will come to an end. He warns however that a more balanced portfolio of renewable techniques could lead to a reduction in the total contribution of renewables. He also predicts that if subsidy reforms are applied retroactively, it will have a negative impact on the investment climate.

Renewable Obligation Certificates under discussion in the UK

Diversification is also the main reason for proposing subsidy reforms in the UK. The current Renewable Obligation Certificates (ROCs) have spurred investments in on-shore wind generation, but have been criticized for failing to support other technologies, since utilities usually opt for the cheapest way to meet their targets. But isn’t that what market mechanisms are all about? Analysts could have a point however when they state that the current certificates system has not primed the pump of tomorrow’s technologies in the way it was meant to.

Dutch investors in renewables await the sequel to MEP

The Dutch government abolished the MEP (Milieukwaliteit Elektriciteits Productie) subsidies for green electricity in August 2006. According to Minister of Economy Wijn, the goal of 9% sustainable electricity by 2010 will be reached with currently submitted projects, so there is no need for continued MEP subsidies.

Although this sudden abolition of the MEP was paired with certain compensations, it placed some investors in Netherlands renewable energy in financial difficulty.

One of the shortcomings of the MEP was that it was open-ended. While this clearly could not be maintained indefinitely, it was expected that the MEP would be gradually limited over time and scale, rather than being abolished outright. It has now been left to the new, recently created Dutch government to work out a new subsidy programme for green electricity.

References

• Environmental Finance On Line News: article "UK industry wary of renewables reform"
• Environmental Finance On Line News: article "Spain proposes to slash wind subsidies"
• Ecofys Web site: article "Aantal groene energie consumenten binnen 2 jaar met 20% gedaald"