Cheap oil douses enthusiasm for renewables

Canberra Times
Saturday 3/1/2009 Page: 17

Low oil prices and the credit crunch are threatening to stall the green revolution. The value of crude has dropped from a summer high of nearly $US150 a barrel to below $US40, taking the wind out of the sails of turbine manufacturers and others trying to build low-carbon alternatives.

Founder and executive chairman of Solarcentury, Jeremy Leggett, said, "Talk of the death of renewables is premature but clearly big solar farms and wind projects are being cancelled. Everything is suffering in the current climate but it's my contention that the low oil price is a temporary thing and the growth of renewables will resume." The chief executive of information provider New Energy Finance, Michael Liebreich, said his leading index of clean-technology companies had fallen from a high of 450 points 12 months ago to 175 points, hit by a triple whammy of lower oil prices, higher costs of capital and fear of more speculative start-tip businesses.

But he, too, was confident that the sector could bounce back. "There was no doubt that there was a certain amount of irrational exuberance over the low-carbon economy. No industry in history has kept tip the kind of 40% compound growth rates being ascribed to clean tech so share prices had run tip too far and it was time for a correction."

Clean-tech and renewables stocks have been struggling with more than just sentiment. Indian-based wind turbine manufacturer Suzlon Energy, which has seen its share price plunge by 90% this year, has also been hit by malfunctions and the kind of teething problems it says is are inevitable with new types of technology. Wind developers in the US have been cutting back in the face of tough new conditions. FPL Group, the US's largest wind-power operator, is cutting its spending this year by nearly a quarter to $US5.3 billion ($A7.6 billion) and new wind-power generation from 1500 to 1100MW.

Confidence in the sector has also been rattled by T. Boone Pickens, a veteran oil man who delighted environmentalists with a very public conversion when he promised to build the world's largest wind farts in Texas. He slammed on the brakes in November on the basis that lower oil prices had changed the economics of a scheme that would have powered 1.3 million homes.

However, the US wind sector has generally been faring better than the British one, thanks to tax breaks. Shell and BP have made it clear they are no longer interested in pursuing British farms when the investment numbers stack tip match better across the Atlantic. The decision by Shell to pull out of the London Array wind farm was a particular blow to British confidence. The project has been billed as the biggest offshore scheme of its kind in the world but the oil company said the margins were too thin, leaving E.ON of Germany and DONG Energy of Denmark to go it alone.

The chief executive of Q-Cells, the world's largest manufacturer of solar cells, Anton Milner, cut earnings forecasts recently after being hit by what he described as a "flood" of cancellations from developers of solar energy projects struggling to raise finance. The US manufacturer Evergreen Solar has since delayed a $A1.15 billion new factory in Asia that would have manufactured enough solar cells to power a city of 500,000 people.

But most industry figures are convinced that though the threat of global recession is slowing down the industry, the future remains bright enough, especially with a new figure taking over the White House. Mr Liebreich said his clean-tech index had seen an "Obama bounce", rising from a low of 130 to 175 on the back of optimists about the incoming President's policies. A raft of radical political appointments such as Nobel physics laureate Steven Chu as energy secretary has convinced environmentalists that Mr Obama is serious about his stated aim of hastening progress towards a lowcarbon economy with a green New Deal that will reduce his country's dependence on imported oil.

A quarterly review of climate change-related business opportunities just published by analysts at HSBC said governments were increasingly active. "The engagement of governments has grown globally," it said. "Across the political spectrum there is now more recognition that climate change is a genuine long-term global issue with real growth potential." The managing director of Marine Current Turbines, Martin Wright, said no one should expect oil and gas prices to stay low. "Vladimir Putin has already said the era of cheap gas is over and no one knows when peak oil really will come about."