Regulatory Risk for EU Green Energy

Source:

"Pullback stokes investment jitters, sector poised for record year."

A pullback in renewable energy support in Germany, the Czech Republic, Italy and Spain is stoking investment jitters but the sector is still poised for a record year, operators and investors told a London conference.

European Union member states have signaled strong, long-term support for renewable energy, including wind and solar power, to double the share of alternative energy by 2020.

But some countries have pared incentives, to trim bills for treasuries and consumers in the aftermath of the financial crisis, fuelling policy uncertainty.

Italy plans to unveil new cuts in solar support on Thursday. Spain recently cut support for wind and solar and is considering wider solar cuts, while planned German cuts are awaiting parliamentary approval. The Czech Republic approved cuts in March.

Compounding that regulatory risk, green power has to compete for project finance with perceived bargains in more established industries, after an "over-reaction" to the sovereign debt crisis in southern Europe, said Arvind Rajpal, Morgan Stanley executive director.

"Do I invest in a wind project which has regulation risk or do I go buy something where I think the markets are really over-reacting because of sovereign issues?" he told the two-day GreenPower conference in central London.

"This has caused problems for the wind industry on a relative value basis, it's caused money to flow to places where people have clearly over-reacted towards this whole sovereign issue of debt. I can now go buy debt in Spain, or Greece or Italy at cents on the dollar."

"If I had money to put to work I have out-sized returns I can get in many, many industries away from a new emerging industry where there is regulation risk, technology risk."

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