Risky Patriot Games for Renewable Energy
Source: The Wall Street Journal, Liam Denning (12/28/10)
"When government subsidies falter, renewable energy prospects fade to black."
Protectionism is counterproductive for an industry predicated on global agreements to fix the climate. But "green jobs" owe more to domestic politics than multilateralism.
BOA Global Research Analyst Matthew says: "Protectionism helps inefficient companies, like European solar manufacturers, to survive by selling product at a much better price than it would. . .be able to in open markets." Longer term, by raising costs, it would ultimately damage renewable energy's prospects.
Yates thinks a protectionist outbreak unlikely. But the fact that he sees it as "the best bull case" for the sector speaks volumes about the key role politics plays in supporting renewable energy valuations—and hurting them.
Spain's government cut solar subsidies by 30% 4 last week. And this will have more impact on existing than new projects—Spain has hosted 18% of new solar installations over five years but should account for just 3% of installations globally this year, Stifel Nicolaus says.
This retroactive cut will worry investors in solar projects beyond Spain, as it isn't the only country struggling to balance its public finances. Pressure is building for more subsidy cuts in Germany, whose position as the world's No. 1 in solar installations despite its hardly torrid climate testifies to the power of government incentives. When that power supply falters, renewable energy stocks' prospects are plunged into darkness.