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Outlook good for renewable energy investment

31 March 2009 – After a rough end to 2008, 2009 looks to be a promising year for the renewable energy industry. Companies are facing a number of challenges, but the market is expected to rise once again.

Solar Panel“2008 started out well for the renewable energy industry,” says Alina Bakhareva, Green Energy Research Manager at Frost & Sullivan. “Total renewable energy investments in the first half of 2008 were on par with investments in the first half of 2007, which was a record-breaking year. However, the global economic slowdown struck the renewable energy industry in the second half of 2008. This was characterised by the drying up of capital and plummeting share prices.”

In the new economic climate, the sector will have to adapt to the factors facing the world economy, including scarce financial resources, high interest rates, and shattered investor confidence. Companies will also have to battle against shrinking profits, fiercer competition, and even price wars in some green energy sectors.

However, there are some positive factors influencing the 2009 market, such as lower raw materials and equipment prices. Likewise, project valuations are back to reasonable levels, which makes 2009 a good time to invest or buy.

Despite some concerns, a repeat of the events of the 1970s and 1980s when investments in renewable energy ceased after oil prices collapsed is highly unlikely.

“There are three major reasons for this,” explains Bakhareva. “First, oil prices are unlikely to fall to the 1990 levels for a prolonged period of time. On the contrary, they might increase due to rising exploration and production costs fuelled by increased demand from developing nations.”

“Secondly, renewable energy is much more mature than it was thirty years ago and is able to deliver power at nearly the same cost as conventional power sources. Finally, renewable energy is a major tool in curbing carbon dioxide emissions, and many governments across the globe have reiterated their will to support the industry through these hard times.”

Renewable energy provides a solution to address the power industry issues affecting both developing and developed countries. There is now a greater acceptance and demand for renewable energy in developing countries due to its ability to help alleviate power sector problems such as power gaps and poor grid coverage and quality.

Developed countries, where the availability of energy has not been a problem for years, may also be facing power gaps resulting from phasing out existing coal power and nuclear plants, unless new capacity is brought online in due time.

Despite wide political and legislative support that will keep the renewable energy sector afloat during these difficult times, some players in the renewable energy market will be hit much harder than others.

Some companies may disappear or become acquired. Companies that are likely to be affected this way include smaller or cash-constrained developers who are unable to meet their payment schedules or re-finance, technology developers with products that are still in early development, equipment suppliers that are focused on a specific geographical region or client group or who offer non-differentiated products, and new-entrant raw materials suppliers with high costs.

Conversely, other players in the renewable energy market will be able to turn the economic downturn into an opportunity for growth. Such companies will be able to use the slowdown as a chance to rectify remaining technical and operational drawbacks and will be ready to enter a new growth wave well-equipped to support it.

Winners who are likely to emerge from this time of crisis include Original Equipment Manufacturers (OEMs) with comprehensive service offerings targeting existing renewable energy plants, technology developers offering solutions based on increased efficiencies, OEMs who develop or adopt technology advances, and project developers with strong cash flows.