Renewables struggling to perform

Australia, the land of sun and wind, would seem a natural fit for renewable energy companies. Yet even in this land of richness, as far as eco-power is concerned, companies find it difficult to remain in the black. Biomass, hydropower and wind and solar only supply five percent of Australia’s energy needs, whereas the majority of Australia’s electricity is still created by burning coal. Part of the reason is that the infrastructure needs of coal are well established and renewable energy resources are often located far from the markets they serve, requiring higher transformation and transmission costs.

Since coming to a standstill after the Three Mile Island crisis in 1979, no new nuclear power plants have been built in the US, and some have actually been shuttered. The first new reactor in the US is scheduled for 2017, but the energy needs of the country simply aren’t waiting for new nuclear plants to come online. The average American household now has 26 plug-in devices, and with only 1-2 percent of the country’s energy needs coming from renewables at this time, a power shortage is a distinct possibility.

Europe’s three largest renewable energy companies said that the lack of sufficient government incentives and fall in energy prices has hit them hard. Slower demand from customers has also had an effect, as increasing prices for home solar panels has begun to have a trickle down effect. The future profits of companies such as Germany’s SolarWorld have been downgraded by many investment firms.

Additionally, renewable energy profits are being squeezed by economic factors. The prices of solar cells, for example, have dropped over 40 percent, but the cost to manufacture those same cells has not dropped by the same degree. The European debt crisis has affected almost every company, and renewable suppliers are not immune. The worldwide economic downturn has resulted in a softening of demand for renewable energy products, particularly in the residential market, as many home-owners view individual investment in renewable energy as a luxury item.

Stock prices have been hit because of all this uncertainty. The PowerShares Wilderhill Clean Energy Portfolio (PBW) fell by over 10 percent in February. The global economic downturn may have affected this, though, as some experts predict a doubling of renewable energy production in the US by 2035, even accounting for the expiration of tax credits and subsidies. The country’s Energy Information Agency (EIA) also predicts that coal burning will drop from 49 percent to 39 percent by 2035 as a means of power generation. Some of this will be in response to new environmental regulations, but much of it will be due to the availability of cleaner energy options at nearly the same price as “dirty” energy.

Governments may need to carry forward some subsidies and tax breaks longer than planned, but as more and more laws are passed regarding power generation and environmental damage, the long-term pay-off may well be worth it.