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European renewable energy installations hit record levels last year and are likely to grow strongly over the next decade, despite European governments’ budget woes. That’s the view of a report released last week by the European Commission’s Joint Research Centre in Brussels. The report suggests that the growth won’t be slowed by the German parliament’s approval on Friday of a reduction in price supports for solar power, or by a similar reduction in solar incentives by Spain last year.

Solar companies in Germany had warned that the proposed reductions in incentives would hurt the solar industry there, but the lead author of the new report, Arnulf Jäger-Waldau, a Joint Research Centre senior scientist, downplays their warnings. “The solar lobby was very efficient in drawing a dramatic picture that’s clearly overstated,” he says. While German solar panel manufacturers could face challenges, he says, installers will still make a decent profit.

The European Commission review estimates that European utilities and developers installed 10.2 gigawatts of new wind farms and 5.8 gigawatts of photovoltaic panels and solar thermal power in 2009, with such renewable power installations accounting for 62 percent of all new electricity generation capacity. And plans submitted to Brussels last month by European Union member states affirm their intention to install plenty more to meet targets set last year under the E.U.’s Renewable Energy Directive, which would boost Europe’s use of renewables from 8.5 percent of total energy consumption to 20 percent by 2020.

European states will deliver on their targets to avoid heavy fines from the European Court of Justice in Luxembourg, according to Hélène Pelosse, who helped negotiate the Renewables Directive and is now interim director general for the Abu Dhabi-based International Renewable Energy Agency. “A binding target is really a binding target. It’s not something you can ignore,” says Pelosse.

Pelosse says that the German and Spanish photovoltaics incentives–feed-in tariffs that require utilities to buy renewable power generation at premium prices–were cut back because they were overly generous, based on the price of solar panels. She says that crafting the feed-in tariffs is an imperfect process, because governments lack insider information on production costs. Jäger-Waldau agrees that the German and Spanish tariffs were set too high, providing excessive profits to generators and thus imposing unfair costs on utilities and their consumers.

Looking forward, he says anxiety created by the widely anticipated changes to Germany’s feed-in tariffs for renewable energy approved last week are actually stoking growth further–at least temporarily. The price that utilities must pay for generation from rooftop photovoltaics dropped 13 percent this month, and will be trimmed a further 3 percent in October. Developers rushing to complete projects ahead of the German reductions will install as much as eight gigawatts in 2010, Jäger-Waldau predicts. He estimates that, as a result, European photovoltaic installations will roughly double from last year’s 5.4 to 5.6 gigawatts.

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Credit: Vattenfall

Tagged: Business, Energy, renewable energy, business, solar, wind, economics, finance, Europe

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