The accepted wisdom about regulatory risk for the wind and solar industries is outmoded.
Historical notions that “emerging” nations are financially and politically more volatile than “developed” countries, and therefore riskier places to invest, are being swept aside.
So too is the view that investors and equipment suppliers prefer feed-in tariffs (FITs) over more market-based mechanisms such as green certificates or the UK’s ROCs.
Aggressive government revisions of regulations governing both new and existing projects in Spain; the ongoing debate over changes to Germany’s framework; and a variety of negative moves from Portugal to Italy have rendered the previous mindsets obsolete.
Indeed, it is hard to think of an entirely “safe” market for wind at the moment — Denmark, Ireland and Sweden are the only ones that spring to mind.
Spain has shown that governments will do whatever they feel is necessary if their backs are against the wall financially, even making hitherto taboo “retroactive” changes.
Similarly, the debate in Germany has demonstrated that even the most wealthy and enlightened governments are not shy of re-examining their options if they feel the economic and political parameters are shifting.
“If Germany makes retroactive changes, we feel this could give a moral justification to any other country that wants to do something similar,” said one participant at the recent Global Windpower Finance & Risk conference in London that I helped chair.
And if you want to see policy volatility, you don’t have to look much further than the US, one of the richest countries in the world, with one of the most mature wind markets.
Francesco Starace, chief executive of global renewables developer Enel Green Power, is right when he says there is nothing inherently riskier about investing in “emerging” countries than “developed” ones.
Indeed, some of the very best opportunities out there are in these markets.
The outcome in Germany is likely to be far less cataclysmic than some have feared, but the old perceptions have been shattered and new ways of thinking about risk are needed. Here are some:
Financiers and developers have realised that taking some market risk can be preferable to hitching onto an FIT that may become the object of political pressure down the road. Private-equity fund Platina Partners, which has just completed the 198MW Jädraås wind farm in Sweden, makes this point loud and clear.
Related to this, the countries with the most generous FITs may, in many cases, be the most risky.
“We see the safer environments as being the ones where the prices for renewable power are closest to the market power prices,” says one financier, adding that the only real way of eliminating risk is to make renewables the cheapest and most efficient power source.
In short, the old divisions between “safe” and “risky” markets are disappearing. And this opens up a brave new world of opportunities.
Ben Backwell is editor-in-chief of Recharge
This piece was published as part of the Thought Leaders series. Recharge’s Thought Leaders’ Club brings together leading thinkers and participants from the renewable-energy sector to examine the key challenges facing our industry