Virtuous cannot afford renewable energy now

Carl Mortished: Tempus
Virtue is never a good selling proposition — booze and cigarettes generate better cashflow than good books do. Renewable energy is another good thing that everyone wants but nobody would choose to pay for and Vestas, the Danish wind turbine manufacturer, was yesterday railing against British homeowners for wrecking its business strategy.
The firm’s chief executive said that local councils and boroughs needed to end their opposition to wind farms, but the real reason that Vestas is laying off staff at its Isle of Wight factory is due to hard economics. The same problem has hit Solon, the German solar module maker, which yesterday reported a first-half loss of €53 million (£45.2 million).
Demand for its equipment has slumped due to a cut in subsidies in the Spanish market, while the credit crunch has cut off private sector finance. Solon’s woes followed those of PV Crystalox, a UK-listed manufacturer of silicon wafers, which issued a warning in June about a fall in revenues and a deferral of orders. Clipper Windpower, the AIM-listed turbine maker, also incurred a net loss of $313 million (£189 million) last year.
These companies rode a wave of sentiment and hoped that they were the advance guard of the low-carbon economy. Instead, they have become stranded on the beach as the tide of hot money ebbs from the market. In a world where cash is tight, no one wants to invest in expensive energy solutions, no matter how virtuous, unless the government is paying. Banks won’t finance energy projects that don’t pay their own way unless governments underpin prices with subsidies or regulatory mandates to purchase clean energy.
Even as Vestas was pulling the plug on the Isle of Wight, the British Government was offering more subsidies in the form of an increased obligation for power companies to buy renewable energy, and there are signs that rivals, such as Siemens, are showing interest in the British wind energy market. However, Vestas is turning its face eastwards, hoping that the gap will be filled by China, a nation that has never allowed a planning inquiry to interfere with industrial ambition.
The renewable energy sector is added to the long queue of global industries hoping for a boost from the great pump-priming stimulus to the Chinese economy. With gas and coal so cheap, only an economy run by central command and control can justify expensive megawatts.
But this is not a reason to forget the windmill and solar ventures. They are going through a classic sweating, tested in a market fire. In the wings, we can see big industrial engineering firms watching and waiting. As the recession eases and when sensible, rather than fanciful, government targets for carbon emissions are agreed, the Siemens and GEs of this world will make their moves, buying the businesses that can survive in a real world of dear money and mean consumers.