The policy risk associated with renewable energy frameworks across the EU has never been more prominent. On May 12, 2014, the U.K.'s Department for Energy and Climate Change announced that it plans to close its support scheme for solar power projects generating more than 5 megawatts (MW) from April 1, 2015, two years earlier than originally planned. This followed German Chancellor Angela Merkel's announcement on March 17, 2014, of a cut in feed-in-tariffs (FiTs; pre-set prices for energy produced from different renewable resources) across all renewable energy sources and a scaling back of the country's ambitious clean energy program. Ms. Merkel plans to cut FiTs to €0.12 per kilowatt hour (kWh), on average, by 2015 from the current €0.17/kWh and proposes to limit the annual expansion of onshore wind and solar capacity to 2.5 gigawatts (GW) and offshore wind capacity to 6.5 GW.
Both announcements have fueled uncertainty among investors about the future of renewable energy incentives, despite rational explanations underpinning them. In the U.K., the government says it's cutting solar subsidies to ensure there is sufficient cash to support other types of renewable technology such as offshore wind, wave energy, biogas, and geothermal, and to limit further increases in consumers' bills. In Germany, the emphasis is on containing rising energy bills, which are the highest in Europe and about three times the level of those in the U.S. However, Standard & Poor's Ratings Services believes this uncertainty can deter investors and potentially limit the growth of renewable energy investment in the EU since market participants regard some clean energy technologies as commercially unviable without government support. Moreover, government incentives often underpin the financial viability of renewable energy projects: For instance, subsidies to solar power projects in Europe can account for up to 85% of their initial revenues. This, in our view, illustrates the importance of predictable, ongoing financial support for renewable energy projects, and highlights the credit risk associated with any changes to this support.
See full Press Release: https://www.globalcreditportal.com/ratingsdirect/renderArticle.do?articleId=1320763&SctArtId=238545&from=CM&nsl_code=LIME&sourceObjectId=8627256&sourceRevId=1&fee_ind=N&exp_date=20240521-15:19:26
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