Green with envy

By bne IntelliNews August 31, 2010

Nicholas Watson in Prague -

Alternative investments embrace a range of products from fine art to hedge funds. As the renewable energy sector develops rapidly across Europe, owning an alternative energy generator is becoming a very accessible and very lucrative example of one.

Recent data from Eurostat show that energy from renewable sources was estimated to have contributed 10.3% of gross final energy consumption in the EU in 2008, up from 9.7% in 2007 and 8.8% in 2006, with the largest increases recorded in Austria, Estonia, Romania, Portugal and Slovakia. The countries with the highest shares of renewable energy were Sweden, Finland, Latvia, Austria and Portugal; those with the lowest were Malta, Luxembourg, the UK, the Netherlands and Belgium.

Clearly, many people are making a lot of money from this boom, but increasingly it is the individual or groups of individuals as much as the professional outfit that is cashing in. "There are some pretty good examples in Germany of villagers setting up an association, which then buys a piece of a land and invests in a wind farm or photovoltaic plant, and these people sit there in the evenings drinking beer and watching the windmill turn and money flow into their pockets," says Dr. Arne Scheschonk, renewable energy sector specialist for the law firm Bird & Bird, which does a lot of work related to renewable projects. "People now see that it doesn't have to be big professional investors from the UK or US building vast wind farms, it can be the individual and this, I think, is the future."

Sunny times

Given the desperate attempts by governments of the region to meet the EU binding target of producing 20% of their energy consumption from renewable resources by 2020, the rather experimental regulatory environment put in place has made this investment a bit of a no-brainer. Take the Czech Republic, for example: at the end of 2008, it could produce only around 100 megawatts (MW) a year of renewable power; at the end of 2009, this was more than 600 MW and it's expected to be 2 gigawatts by the end of this year. Much of this is photovoltaic - installed capacity of solar power plants increased by 34% to 622 MW in the first seven months of this year - and this power source has boomed for one simple reason: the government-backed subsidies to encourage such production, so-called feed-in tariffs, are generous to say the least.

If you have built a photovoltaic power plant, the feed-in tariff for the next 20 years is 49 euro cents per kilowatt hour (kWh). The maximum inflationary adjustment in that tariff is set at 4% annually, so it's possible to pay off the investment in four to six years and then enjoy guaranteed profits for the remaining 14 to 16 years. No wonder there's been such a boom.

The Czech government has twigged that having the most generous feed-in tariffs in the EU is not the most efficient use of taxpayer money coming out of a recession, so all eyes are on an expected announcement in November when it will unveil new feed-in tariffs for plants built from next year onwards. No one knows what these new feed-in tariffs will be, but even if Scheschonk's prediction of a reduction of something between 25% and 35% is right, it would still would mean a feed-in tariff of about 35 c/kWh, "which would still be in the top range in Europe," he says.

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