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Renewable energy industry faces critical challenges in 2011

December 17, 2010 - Renewable energy companies are broadening their operations beyond Europe and the United States to new markets in Asia, but serious obstacles to the industry are emerging, several industry analysts told Platts. (See related table: Top trends in renewable energy for 2011).

As the calendar year wraps up, the renewable energy industry at first glance appears in good shape. The wind power industry continues its rapid expansion that began less than a decade ago.

About 40 GW of new wind capacity will be added this year, the Global Wind Energy Council said in its latest forecast, bringing the world's wind energy capacity close to 200 GW. GWEC further expects global wind power to double by 2014, reaching more than 400 GW.

Part of this expansion is fueled by European offshore wind farms that, after years of planning and construction, have begun generating power. These include the 300-MW Thanet plant off the UK coast and the 207-MW Rødsand II project in the Danish North Sea.

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The solar industry, too, is thriving even as some companies scramble to survive in a competitive market. Quarterly manufacturing capacity for solar photovoltaics added during the third quarter of 2010 broke the gigawatt barrier for the first time, driving PV equipment spending to a new quarterly high, market analysis firm Solarbuzz reported.

Solarbuzz's latest assessment, though, shows that the PV Book-to-Bill ratio fell after an eight-quarter high during the second quarter of 2010 to a three-month average of 1.16.

"Historically, Book-to-Bill ratios have been widely adopted by various technology sectors to assess their overall health," Solarbuzz said. "In general, a Book-to-Bill ratio of greater than 1 (or parity) is indicative of a strong market. Conversely, a Book-to-Bill ratio below parity provides signs of an unhealthy environment with softening equipment demand."

Additionally, the solar PV market is caught in an odd warp: Falling equipment prices have made PV more economically competitive while shrinking technology manufacturers' profit margins.

"There are a lot of pricing pressures, and a lot of disruption in the supply chain," Ernst & Young partner Andrew Perkins said in an interview.

In a further twist, the drop in equipment prices has spurred policy-makers in such countries as Germany, Italy and Spain to slash PV feed-in tariffs – arguing that falling prices mean the industry needs less support.

This has spurred short-term investments by companies looking to secure lucrative tariffs before they are cut while potentially dampening long-term PV growth.

Germany's solar PV association expects up to 8 GW of new capacity to be installed in 2010, up from 3.8 GW of installations the previous year, ahead of tariff reductions.

Some industry observers believe reducing solar energy support makes sense. "Solar tariffs need to come down as the cost of panels drop and efficiency rises," said RBC Capital Markets analyst Nick Hyslop said.

Other renewables technologies are undergoing transitions as well. Deep underground geothermal exploration is expanding to countries like Ireland and the UK, thanks to technology improvements that have made previously marginal geothermal resources economically viable.

Still, the geothermal market was "quite weak this year" as permitting delays held up projects, Lee Clements, investment manager at Impax Asset Management, told Platts.

New plants could enter the market in 2011, however, and geothermal energy this coming year "could be a surprise," he said.

Clements remains skeptical, though, about wave and tidal power despite the UK government's financial support for marine energy. "It's been in the early stages for a long time," he said.

As with geothermal, technology advances have spurred growth in biomass markets, as biogas, which previously was too fouled with contaminants to combine with natural gas, can now be refined to be fed directly into natural-gas pipelines.

The first two UK projects to funnel biogas into the gas grid began in October, joining a host of biogas feed-in plants in Germany.

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