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Europe’s Renewables Unfazed by Recession

The financial crisis in Europe is unlikely to derail Brussels’ clean power vision.

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.

Big wind: An installation ship jacked-up over the water’s surface constructs three-megawatt wind turbines off the coast of the United Kingdom. The 100-turbine wind farm was completed in June.

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.

Germany will remain a strong market after 2010, Jäger-Waldau says, thanks to new rules that peg the further adjustments to the German feed-in tariffs to the pace of photovoltaic installation. “What Germany’s Environment Ministry wants is a corridor between three and 3.5 gigawatts installed annually,” Jäger-Waldau says. If demand drops below that range, the feed-in tariff will automatically rise to “reprime” the pump. By 2020, he says, Germany should have 40 to 50 gigawatts of solar photovoltaics in operation, which is about half of the peak output of all of its nuclear, coal, and gas-fired power plants. (Of course, in an average year, the solar panels will provide the equivalent of roughly 1,000 to 1,500 hours of full-capacity operation per year, a capacity factor of just 11 percent to 17 percent, whereas conventional power plants can run at peak capacity most of the time.)

Meanwhile, as leaders such as Germany and Spain trim incentives, other E.U. countries such as France, Italy, and the United Kingdom are aggressively boosting their own. The U.K., which must multiply its renewable energy capacity fivefold to 15 percent by 2020 under the E.U. Renewable Energy Mandate, began offering a feed-in tariff in April for power generated by households and small businesses installing solar panels and other small-scale renewable systems.

The coalition government elected in the U.K. in May is considering a feed-in tariff for utility-scale power projects. These feed-in tariffs would supplement, rather than replace, its already eight-year-old Renewables Obligation for electricity distributors, a renewable portfolio standard set to roughly triple to 30 percent of delivered power over the next decade.

Jäger-Waldau admits that a second economic downturn, which many economists foresee for the coming year, could tempt governments to cut back supports for renewable energy. But he says the job-creation benefits offered by renewable energy should check that instinct. Depending on the estimate, he says, renewables provide between 500,000 and 700,000 jobs in Europe. Less than 20 percent of those are manufacturing jobs at risk of moving overseas. “Compared to jobs in installation and services, it’s marginal,” says Jäger-Waldau.

The bigger concern, say both Pelosse and Jäger-Waldau, is that governments will not muster the political support to reform Europe’s transmission systems. Europe’s power grid remains a patchwork of national grids with limited interconnections, thanks to entrenched monopolies and local opposition to new power lines. It is thus ill-equipped for the tsunami of intermittent renewable power that the European Commission anticipates. Strong interconnections let regions share excess renewable energy with their neighbors during times of plenty, and to import power when the wind is in a lull and the sun isn’t shining.

A crucial power link between Spain and France is going forward thanks to high-level intervention–but only after French president Nicolas Sarkozy and his Spanish counterpart agreed to split the cost of putting the power line underground. “We have been fighting 20 years for this bloody line between France and Spain. We came to a solution because Sarkozy and the European Commission pushed very hard for that,” Pelosse says.

That one line is just a beginning, Pelosse says: “We have to do this massively.”

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