UAE's pledge for renewables is a boost for flagging sector |
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Abu Dhabi's seven per cent renewable energy target by 2020 translates into a $6 billion (Dh22bn) to $8billion investment over the next 10 years and is a clear indicator of the market's potential in a year that has so far proven to be very challenging for the sector, said analysts.
After a boom year in 2008, the industry has been severely affected by the credit crunch and global recession. The less established companies are not used to such stormy conditions, and some are running into difficulties. Once the expected market consolidation is over, however, the long-term outlook for renewables should brighten again, said a report on renewable energy.
The report titled, 'Renewable energies: Sunnier times ahead, once storms have cleared the air', released by Sarasin, a Swiss private bank, says 2008 was a mixed year for the sector with share prices collapsing despite record industry growth as it was a boom year for renewable energies, with global electricity capacity soaring to 280 gigawatt.
Both in Europe and the US, more energy from renewable sources was installed than from conventional sources. But as the financial crisis and recession tightened their grip, and the oil price plummeted and surplus capacity continued to build, the share prices of renewable energy companies collapsed in 2008. Since the first quarter 2009 demand for solar and wind energy has fallen off dramatically. Firms are having to cope with severe turbulence, and some market consolidation is, therefore, inevitable.
According to the report, the main reasons for the collapse in the share price of renewables in 2008 and the beginning of 2009 were the falling oil price, weak demand caused by the global recession, problems with project financing and surplus capacities on the production side.
Since March 2009, however, some of these key indicators have significantly improved, and renewables now seem to have ridden out the worst of the storm. Even so, the situation is different now. Although the huge price falls help stimulate demand, they also put pressure on profit margins. Companies are, therefore, facing major challenges, and the market will likely see some consolidation.
Despite the dynamic growth enjoyed by the market in 2008, the actual share prices of renewable companies collapsed during this period under the weight of the credit crisis, the plummeting oil price, the emerging recession and rising surplus capacities on the production side.
The year 2008, therefore, marked an abrupt end to the four-year bull run in renewables, with increasingly higher levels of investment and continuous rising of share prices. The times when there was a steady flow of good news and only talk of growth in all clean energy sectors, as well as in all countries and companies, had passed.
However, according to the report, all is not gloom and doom and despite the financial crisis and the slump in demand, a number of positive signals can currently be made out for renewables. The first is definitely the globally co-ordinated economic stimulus packages, with investment programmes for renewables in the region of $180bn. It is, however, difficult to estimate exactly when they will actually become effective.
Electricity utilities also play an important role in stabilising demand. They have sufficient funds to secure the financing of renewable energy projects. At the moment renewables is a buyer's, rather than a seller's market, so prices for renewable energy systems have fallen more than average over the course of this year.
As a result, certain technologies such as small hydro, wind energy and geothermal power could soon achieve grid parity. But even photovoltaics, which have traditionally been more expensive, have managed to trim their production costs by 20 per cent to 30 per cent over the past nine months.
The report said though there are a number of uncertainties regarding national subsidy programmes for renewable energies, the outlook for the sector remains positive for a number of reasons.
"Criticism is growing in view of rising costs and the shrinking benefit with regards to creation of new jobs in the domestic economy. However, the future looks good because after a subdued 2009, our forecasts for the individual renewable technologies are once again positive for the years ahead, with continuous market growth. The long-term prospects for renewables are excellent when compared with conventional energy sources. With prices falling sharply, renewables will quickly become competitive and can, therefore, make a greater contribution to the reduction of carbondioxide emissions and our dependency on oil and gas," said the report.
"Also, technical solutions can be found to the difficulties affecting the availability and integration of renewable energy in the mains grid. This has been demonstrated in numerous studies as well as in the high percentage of solar and wind power already installed in Denmark, Germany and Spain."
More positively, last year a number of governments introduced new legislation on renewables and set themselves ambitious targets on renewables' future share of the energy mix.
Today, at least 73 countries have such targets in place (versus 66 countries in 2007).
Talking about the impact of the crisis on the sector in the Middle East and the future of renewable energy here, Sami Khoreibi, CEO, EnviromenaEnviromena
, told Emirates Business: "In the past year virtually all sectors of the economy have been hit by the financial crisis, including the renewable energy industry. However, over this period demand for renewable energy has seen healthy growth thanks to progressive government initiatives such as MasdarMasdar. An example of such demand for renewables is the recently connected grid of 10 megawatt Masdar Solar Power Plant which was built by EnviromenaEnviromena. This project represented the first utility scale solar plant in the region and is a milestone for the industry. Abu Dhabi's recently announced seven per cent renewable energy target by 2020, translates into a $6-8bn investment over the next 10 years and is a clear indicator of the market's potential."In a sun-rich region such as the Middle East, solar technology is an extremely effective energy solution which can be widely implemented here and because of this interest in solar power systems has increased dramatically in the region over the last year.
"Governments in the GCC and the private sector are actively pursuing large scale renewable energy projects to meet the region's growing power needs. Decreases in the cost of renewable energy technologies have made them more competitive with conventional power sources and we expect this trend to continue.
"In just under two years, we ourselves have substantially exceeded growth and revenue targets. We have secured a series of high profile solar installation projects through 2009 and 2010 and look forward to continued growth as solar technologies are further implemented across the region. EnviromenaEnviromena
has attracted investment from several high profile clean-tech venture capital firms who believe in the growth opportunity within the region."In 2008, as much as $155bn was invested in the area of clean energy, but in the first quarter of 2009 this fell off sharply, with just $13bn invested compared with $28 billion in the same quarter in the prior year.
However, the report said despite the financial crisis and the collapse in demand, there are a number of positive trends, as well as new challenges for renewable energies. Many governments have responded to the crisis by launching programmes to stimulate the economy, with high priority given to renewable energies.
By Reena Amos Dyes
© Emirates Business 24/7 2009
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