Show Wind the Money: Financing Renewable Energy in a Sluggish World Economy

3068891511_8132dc205e_bAmidst the financial crisis, many banks are lending less. What does that mean for renewables?

As those in the renewable energy sector in the United States anxiously await the fate of the Production Tax Credit (PTC), an important financing tool set to expire this year unless Congress takes action, their counterparts in France are having their own moment of concern. According to French energy giant Areva, banks are lending less because of the financial crisis. And that's affecting critical financing needed to get renewables off the ground -- and in the case of wind energy, offshore.

"Where we used to have 15 banks around the table," Areva must now invite upwards of 30 banks "to convince everyone to bring a share to the financing," said Philippe Kavafyan, vice president of Areva Wind France. "The banks right now are of course living through a financing crisis."

NUCLEAR VS. WIND: THE FRANCO-GERMAN DIVIDE

The French multinational, which is the world's biggest nuclear energy supplier, is bidding with other firms for the right to build five offshore wind farms in France. They are seeking an investment of EUR 10 billion (USD 12.8 billion), but the current state of the global economy has led to cooling interest in renewable energy investment, particularly in industries, like wind, where startup costs are high, expenses are often passed along to ratepayers and achieving profitability is a long-term affair. In a country like France, which currently has no offshore wind power and relies heavily on nuclear energy, banks are understandably tentative to finance an industry that has no track record and thus no forecastability.

"Banks are interested in the French offshore projects, which are very solid, but there's European competition so at this time of crisis they might prefer to finance shorter projects like those in Germany," said Barthelemy Rouer, a Paris-based analyst at Wind Prospect Group, a UK wind project consultancy. Germany, which plans to phase out nuclear energy by 2022, has plans to install 10,000 megawatts of offshore wind turbines over the next ten years.

CLEAN ENERGY'S DIRTY SECRET

But financing isn't the only challenge that the renewable energy sector is facing. "The dirty secret of clean energy is that while generating it is getting easier, moving it to market is not," writes Matthew L. Wald in the New York Times, in an article about the difficulty that the sector has in plugging into an energy grid that he describes as "a system conceived 100 years ago to let utilities prop each other up."

Wind power also faces challenges from the communities it intends to serve. Earlier this week, the BBC reported that a wind farm plan in Wales "faces years of legal challenge" following increasing concerns about the impact of wind farms on the environment, the landscape and tourism.

RICH WORLD, POOR WORLD: A TALE OF TWO ENERGY PORTFOLIOS

But as the renewable energy sector in the developed world hits the dual wall of a global financial crisis and a fossil fuel gridlock, the World Bank's investment in renewable energy in the developing world is on the rise. In November, the IFI reported that their renewable energy portfolio increased from a total of USD 3.1 billion between FY2008-09 to USD 4.9 billion in FY2010-11, representing almost a quarter of the bank's energy lending. The investments supported a variety of green energy initiatives, including the the Vishnugad Pipalkoti hydroelectric plant in India, the Olkaria geothermal plant in Kenya and the Geothermal Clean Energy Investment Project in Indonesia.

"The use of renewable energy sources like hydropower, geothermal and solar panels, as well as programs such as Lighting Africa, all promise to bring affordable electricity to light homes and businesses and charge cell phones for hundreds of millions," said S. Vijay Iyer, the director of the World Bank's sustainable energy department.

IEA: "DELAYING ACTION IS A FALSE ECONOMY"

As the hemming and hawing regarding clean energy investment continues in the developed world, the planet continues to heat up due to unmitigated carbon emissions. Last month, the New York Times reported that in 2010, global carbon dioxide emissions from burning fossil fuel "jumped by the largest amount on record...upending the notion that the brief decline during the recession might persist through the recovery."

Clearly, when it comes to combating climate change, we're going in the wrong direction. And the banks' reluctancy to invest in a green future isn't just hampering today's sustainable energy efforts, it's setting up a more expensive future. "Delaying action is a false economy," according to a statement issued by the International Energy Agency (IEA) on November 9 in London. "For every $1 of investment in cleaner technology that is avoided in the power sector before 2020, an additional $4.30 would need to be spent after 2020 to compensate for the increased emissions."

Speaking at a conference in Brussels in June of last year, in the wake of the Fukushima nuclear disaster in Japan, French president Nicolas Sarkozy insisted on France's continued reliance on nuclear energy, saying, "We cannot rely on sun and wind to meet our energy needs." If he wants France's biggest nuclear energy firm to win a wind energy bid that will help with his country's transition to a clean (and safer) energy future, he might reconsider saying such things. After all, the sun and the wind will be going strong for billions of years to come. And that’s something you can rely on.

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NOTES

Connan, Caroline and Francois de Beaupuy. "Areva Says Banks Trim Loans for Offshore Wind Farms on Crisis." Bloomberg Businessweek, January 11, 2012.
Ibid.
BBC News. "Nuclear phase-out can make Germany trailblazer - Merkel." May 30, 2011.
Wald, Matthew L. "Wind Energy Bumps Into Power Grid's Limits." New York Times, August 26, 2008.
BBC News. "Wind farms plan 'faces years of legal challenge', AMs told." January 12, 2012
World Bank "Renewables almost a quarter of World Bank's energy lending." November 7, 2011.
Ibid.
Gillis, Justin. "Carbon Emissions Show Biggest Jump Ever Recorded." New York Times, December 4, 2011.
International Energy Agency. "The world is locking itself into an unsustainable energy future which would have far-reaching consequences, IEA warns in its latest World Energy Outlook." November 9, 2011.
Banks, Martin. "Sarkozy insists nuclear 'must remain' part of EU energy mix." The Parliament, June 14, 2011.

image: BARD 5MW offshore wind turbine, Hooksiel, Wilhelmshaven, Germany. (credit: Tiger Hobbes, Flickr Creative Commons)

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