Clean energy investment woes; talk of the end days of fossil fuel subsidies; the death knell for Europe’s carbon market; a new (hydrocarbons) theory on the Syria end game; and a few teasers from this week’s premium newsletter ….
The first quarter of 2013 has been a rather depressing one for clean energy and climate change: Global investment in clean energy is at its lowest since 2009; there is talk of ending fuel subsidies to level the playing field; and the European Union’s vote against a backloading proposal that would have boost its languishing emissions trading scheme will send the once-promising carbon market into a downward spiral.
Global investment in clean energy in this quarter was lower than at any quarter since 2009, according to Bloomberg New Energy Finance. The research company says global investment in Q1 2013 was down 22% from Q1 2012 at $40.6 billion for renewable energy, energy efficiency and energy-smart technologies. From the last quarter of 2012, global investment in clean energy plummeted 38%. The largest drops were seen in asset finance of utility-scale projects like wind farms and solar parks.
Why? Policy uncertainty in the US and Germany, plus lower financing in key clean energy markets like China and Brazil. Also playing a role has been sharp declines in technology costs (solar most notably). But we’re also coming to the end of government support programs that were put in place amid the financial crisis.
In the US, Q1 2013 has seen a 54% year-on-year drop in clean energy investment to $4.5 billion. In Europe, the quarter has seen a 25% drop for the same period, and a 15% drop in China. However, Japanese clean energy investment actually soared this past quarter to $8.2 billion, and other Asian countries (excluding India and China) saw a 47% overall increase in clean energy investment in Q1 2013.
In the US, uncertainty over the fate of a Production Tax Credit that was set to expire at the end of 2012 guided the market, though the tax was actually extended. Bloomberg predicts that there will be little by way of new wind projects for this year in the US, while in Europe talk of retroactive tariffs for renewable energy projects has led to mounting investor uncertainty, though the overall consensus is that they will not likely be pushed through.
At the same time, and also in light of the low investment figures for clean energy, the International Energy Agency (IEA) is talking about phasing out fuel subsidies to work towards a system in which prices reflect the true cost of energy. The reasoning behind this is that the level of carbon emitted in global energy supplies has remained relatively unchanged over the past two decades despite the focus on renewable energy and despite the Kyoto Protocol.
"For too long have we supported, directly or indirectly, wasteful use of energy. Largely this is because prices do not reflect the true cost of energy. Altering this means creating a meaningful carbon price and phasing out fuel subsidy," IEA Executive Director Maria van der Hoeven said.
As we note in our premium newsletter coming out this weekend, the EU’s vote against the backloading proposal to withhold carbon permits to help out prices amid over-supply will deal a blow to the burgeoning carbon market at a time when cross-border activities are finally coming online in earnest. While the backloading proposal had a great deal of support from environmentalists, businesses and policymakers alike, the biggest industrial consumers of energy balked at the plan, saying it would make it too expensive to emit greenhouse gases and eventually lead to higher energy prices for consumers. Watch carbon prices plummet to a record low now--and it’s already begun). (Read more about this in our premium newsletter if you haven’t had a chance to check it out yet).
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On another (this time bloody) front, you should check out our intelligence notes this week in our premium newsletter, where we discuss a possible end game for Syria, which is all about energy. We have already detailed the timing of the onset of this conflict, which centers on a pipeline race between Qatar and Iran to deliver gas from the South Pars field that they share. But now we’re looking further ahead, at offshore discoveries in the Levant Basin and how this could be the Assad regime’s final playing card.
Finally, there’s a major player on the energy scene that every investor should be watching very closely—and it’s not an E&P supermajor, it’s much more diverse and its diversity is SPOT ON. Find out more in this week’s premium offerings.
In this week’s special report we borrow a piece from Inside Opportunities that looks at one of the hottest plays in the energy markets at present: RIN’s (Renewable Energy Credits)