Solar Prospectors Chase Italian, Israeli ‘Gold Mines’ (Update2)
March 11, 2010, 7:28 AM EST(Adds SunEdison approval to build Europe’s biggest solar power plant in seventh paragraph.)
By Jeremy van Loon and Todd White
March 11 (Bloomberg) -- Olivier de Vergnies quit managing family fortunes at Dexia Private Bank (Switzerland) Ltd. in 2008 to run a New York start-up at 100 Wall St. that’s trying to tap riches in solar energy.
The chief executive officer of two-year-old Prime Sun Power Inc. is hiring hundreds of workers to build solar plants in Italy, where he can sell electricity for about six times the price paid to coal- and natural gas-fired generators.
Prime Sun and developers across the globe, like prospectors staking gold or oil claims in the American West a century ago, are rushing to Italy, Israel and China to lock in the world’s highest subsidized electricity rates before they’re cut back. Governments typically trim prices a few years after they spur a burst of solar plant construction.
“Investors are looking for alternative markets where the returns are more attractive,” Karl-Heinz Remmers, chief executive of Solarpraxis AG, a German solar-engineering consultant that’s also expanding in Italy, said in an interview.
The rush into Germany and Spain has eased because they’re no longer a “gold mine” for developers, Remmers said. The two nations have reduced subsidies after together capturing about 75 percent of global installations of photovoltaic panels in 2008.
50% Global Growth
The subsidy system pioneered by Germany a decade ago, which is paid for by consumers in their power bills, has been copied by more than 30 countries. Global investment in panels that turn sunlight into power is set to leap 50 percent to $50 billion this year, Bloomberg New Energy Finance estimates. The 9,000 megawatts of new capacity would be the equivalent of at least seven new, average-sized nuclear power plants.
SunEdison LLC and Siemens AG both announced plans today to build in Italy. SunEdison won approval from Italian authorities to build Europe’s largest photovoltaic power plant near Rovigo in the northeastern part of the country.
Siemens, Germany’s largest engineering company, said it won a contract from Norway’s Statkraft to build 40 megawatts of solar panels in Italy with construction starting this spring.
The above-market prices, called feed-in tariffs because panel owners feed power into the grid at premium prices guaranteed for decades, are high enough in Italy to generate average revenue of 35 euros ($48) a day for a 100-square-meter (1,076-square-foot) roof, according to Bloomberg calculations.
“The feed-in tariff drives our business plan and profitability,” said de Vergnies, whose plans include two photovoltaic plants in southern Italy that will generate enough electricity for 25,000 homes.
Developers in China
China is also attracting investors, including First Solar Inc. and Suntech Power Holdings Co., which will earn 2.15 yuan (31 U.S. cents) for each kilowatt-hour, about four times the base price for fossil fuel-generated electricity, at its power plant in the province of Jiangsu. A kilowatt-hour can typically power a toaster or an iron for 60 minutes.
First Solar, based in Arizona, plans to start building the world’s biggest solar farm in China’s Inner Mongolia region in June. The above-market rates are “critical” to the project, Chief Executive Officer Mike Ahearn said in September.
The Chinese government and those in other countries are counting on incentives working as they did in Germany, where the equivalent of about 1.5 million homes are now sun-powered.
The solar industry is “built on subsidies,” said James Britland, an alternative energy analyst at Allianz RCM in London. “This is a non-competitive industry that has to be subsidized.”
The investment rush has a downside and can lead to a boom- and-bust cycle as seen in Spain’s collapse of solar-panel installations, Phoenix Solar AG Chief Executive Andreas Haenel said.
‘Make Politicians Nervous’
“Markets that explode make politicians nervous,” he said in a March 3 interview. “I don’t like gold mines and gold rushes because they can come back like a boomerang and destroy the whole market.”
Rates are as high as 80 Canadian cents (78 U.S. cents) a kilowatt-hour in Ontario, or about 13 times what conventional oil and gas plants earn, and 43 euro cents (58 U.S. cents) in Italy, or about six times higher than wholesale rates fossil fuel plants earn.
In Israel, the government promotes solar with a tariff of 2.01 shekels (53 U.S. cents), a four-fold premium, according to the environment ministry Web site.
Coming to Britain
Even the U.K., with the least solar radiation after Sweden among the biggest European Union economies, may see a boom. From April 1, sun power will earn up to 41 pence (61 U.S. cents) a kilowatt-hour, or about 12 times what’s paid for conventional power through September. That incentive may create 100,000 jobs by 2020, said Jeremy Leggett, founder of Solar Century Holdings Ltd., a closely held seller of power equipment.
In the Czech market, premium rates highlight potential risks for investors. Sun power development is so brisk that CEPS AS, the electric grid operator, said it may have to disconnect some generators to prevent blackouts triggered by overloads.
Not all of the world’s sunniest markets are as investor friendly for solar developers as Italy, Israel and China.
While Canadian pipeline owner Enbridge Inc. and Korea’s Samsung C&T Corp. plan solar plant investments in Ontario, the Canadian province and Vermont are the only jurisdictions in North America with German-style feed-in tariffs.
The real opportunity for solar investors will come when the sunnier U.S. states offer bigger incentives, said Matthew Page, who manages about $50 million in alternative-energy shares at Guinness Atkinson Asset Management in London.
“We’re all waiting for the U.S. to take off,” he said.
--With assistance from Shigeru Sato in Tokyo and Chris Martin in New York. Editors: Reed Landberg, Randall Hackley
To contact the reporters on this story: Jeremy Van Loon in Berlin at jvanloon@bloomberg.net. Todd White in Madrid at twhite2@bloomberg.net
To contact the editor responsible for this story: Reed Landberg at landberg@bloomberg.net
