As Europe grapples with the fallout from Greece’s economic woes, at least one unexpected corner of the economy is suffering: renewable energy companies. That’s because few wind, solar, and other green power installations would be profitable without subsidies, and as governments across Europe curb spending in response to the Greek crisis, those funds are being cut back, Bloomberg BusinessWeek reports in its May 24 issue.
“The uncertainty in Europe is a further burden in a market that is still challenging,” said Kathleen McGinty, a former adviser to President Bill Clinton’s administration who now helps manage $800 million in clean-energy investments as a partner at private equity firm Element Partners in Radnor, Pennsylvania.
The aid to renewable energy, paid by consumers in their power bills, is being slashed by governments that want to cut costs for businesses to boost economic growth and generate tax revenue as bond investors scrutinize their plans to rein in budget deficits more than three times the European Union limit.
German lawmakers on May 6 reduced subsidies to new solar plants by as much as 16 percent. Italian solar industry groups expect support for new generators to be scaled back by as much as a quarter in June.
In Spain, producers have offered reductions of up to 30 percent on subsidies for new solar cell installations. The government may also cut its backing for existing plants, which had been built with an expectation of guaranteed prices for 25 years, a spokesman in the industry ministry said last month.
Budget Deficits
The aid to renewable energy, paid by consumers through their power bills, is being slashed by governments aiming to curb their own budget deficits and to cut energy costs for businesses and consumers.
Across the continent, “the risk to subsidies is increasing,” Barclays Capital Analyst Vishal Shah said. “It’s going to be painful.”
For companies based outside of Europe, the pain is compounded by the decline in the euro whose value has been undermined by Greek crisis. Profits for North American companies selling their products into Europe declined as the currency fell 14 percent against the dollar this year.
Canadian Solar Inc., a panel maker based in Kitchener, Ontario, took a $20 million charge for foreign-exchange losses in the first quarter and may see earnings fall 84 percent if the euro averages $1.25 this year, Barclays estimates. The currency traded at $1.23 yesterday.