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They Think It’s All Over: Renewable-Energy Investors Pull Back From Europe

Justin Scheck, The Wall Street Journal

Europe is tired of paying for renewable energy.

For more than a decade, countries across Europe used big financial incentives to become world leaders in wind and solar development. In 2004, renewable sources accounted for about 14% of European Union electricity generation; by 2013 that exceeded 25%, according to the most recent EU data.

But in the past few years, Spain, the U.K., Italy and others have cut incentives for renewable-energy projects, citing desires to reduce government spending and electricity rates during a period of economic turmoil. And in turn, the number of new projects getting approval has fallen as investors turn away from an industry that offered the assurance of steady, government-backed profits.

Now, in much of Europe, solar and wind farms will compete with conventional power sources with less government support.

Cutting subsidies “sends a very strong message that renewable energy has to stand on its own feet,” said Alex Chavarot, a banker with Access Financial Partners who works on renewable-energy transactions.

Only one new large-scale solar-energy project was approved in European Union countries other than the U.K. in the first 11 months of 2015, for a total of 2 megawatts of new generation capacity—a five-year low, and down from 14 new projects for 240 MW in 2010, according to an Ernst & Young analysis of data compiled by Bloomberg.

In 2010, European Union countries approved close to 6,000 MW of new onshore wind projects. That dropped to 1,020 MW in the first 11 months of last year, Ernst and Young said. Offshore wind projects also declined, but not as much.

The number of new U.K. onshore-wind and solar project approvals fell in 2015. The U.K. government last year cut renewable incentives, ending subsidies for onshore wind farms starting this year. At the same time, the government raised tax breaks for oil production.

In Europe, new investment in renewable energy totaled $120.7 billion in 2011, says REN21, a group of government and industry organizations that tracks the industry. In 2014 that was down to $57.5 billion.

Still, Ernst & Young partner Ben Warren said, several European nations rank among the best for renewable-energy investing, including Germany, France and the Netherlands. Germany have largely maintained significant levels of subsidies.

Several offshore wind projects approved years ago came online in 2015, resulting in a doubling of new electricity-generation capacity from a year earlier, the European Wind Energy Association says. The association says it expects investment in offshore wind—which hasn’t been subject to subsidy cuts in the U.K and elsewhere—to remain robust in coming years. And Denmark’s Dong Energy said this week it would move ahead with a plan to build the world’s largest offshore wind farm off northeast England, a giant project that could power more than a million homes.

But Ernst and Young says the U.S., China and India now are better places than most of Europe to fund clean-energy projects largely because of assurances by governments that incentives won’t change in the short term.

Investors have responded to European subsidy cuts with dozens of international arbitration cases — the cross-border equivalent of lawsuits — accusing governments of improperly changing their business terms.

An arbitration panel ruled in January that Spain’s government didn’t act illegally by lowering subsidies and wouldn’t have to pay any compensation to an investor.

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see also Benny Peiser (2013): Europe Pulls The Plug On Its Green Future