Renewables face fresh regulatory onslaught

The unintended consequences of renewable energy policies are casting a long shadow on the future of the industry, delegates heard at Infrastructure Investor’s Renewable Energy Forum in Berlin today.

Jeffrey Altman, a senior advisor at energy specialist Finadvice, said ‘enormous amounts’ of government support and the swift build-up in European renewables capacity were responsible for ‘destroying the free market’, a source of major uncertainty for investors and operators alike.

“It is renewables subsidies, not technology, that have disrupted Europe’s power markets. These well-meaning policies have not been fully vetted by the industry.”

In the short to medium-term, he argued, this would result in more – not less – regulatory interventions. The push would likely be driven by the continent’s embattled utilities, whose woes in times of economic downturn had been aggravated by the recent changes to the power sources merit order.

For example, Altman noted that German power giant RWE suffered a €2.9 billion loss last year – the first in its 60-year history. He added that threats to European utilities’ business models had forced them to retire 10,350 megawatts (MW) in conventional power capacity in recent years, and would likely lead to another 20,000MW being squeezed out over the next decade.

Governments would react by implementing capacity payment mechanisms to keep plants online – while a correction to existing subsidy regimes would create an uncertain climate for renewables investors. “The overall cost of energy is going up. These costs will be passed on to renewables.”

Policy changes would also involve a revamp of Europe’s carbon trading scheme (ETS), as well as a rethinking of the continent’s position on hydraulic fracturing and its targeted build-up in liquid natural gas (LNG) capacity. A probable consumer backlash would pile further pressure on politicians to intervene, adding to the short-term instability of regulatory frameworks.

As the rest of the world watches the unravelling energy scenario in Europe, he predicted that appetite for renewables in other geographies would likely be dampened.

“The renewables market still offers great investment opportunities, but it needs to change,” he said. “What is occurring in renewables right now will be occurring in the core space of infrastructure. So there is a lot to be learnt from this market.”