5 questions with Michael Liebriech, Head of the Bloomberg New Energy Finance

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Q1. Can you tell us a bit about current clean energy investment trends in the Asia Pacific?

Michael Liebreich: 2010 saw Asia as a whole nearly overtake Europe to become the leading region for clean energy investment. Only the surge in rooftop solar installations in Germany prevented that from happening. In 2011, Asia will probably lead the world for investment, driven by continuing significant funding commitments in China. Companies in South Korea and Taiwan have started to make significant investments in technology, particularly in solar, smart grid and batteries. India has woken up, with its ambitious Solar Mission. And Japan has rededicated itself to clean energy in the wake of Fukushima, passing a renewable energy feed-in tariff law very recently. So Asia is the most dynamic region right now.

Q2. What are some of the key challenges in securing financing for solar and wind power projects?

ML: The biggest challenge is uncertainty about domestic energy policy almost everywhere in the world. Prices for clean energy have come down dramatically–solar photovoltaic equipment is 70 percent cheaper now than it was just three years ago; in Brazil, wind power developers are bidding for contracts to build projects at US$6.2 cents per kWh, below the cost of gas. So the issue is not cost any more, it’s just knowing that whatever support mechanisms or regulatory frameworks there are, will stay in place long enough for investors to earn the returns they need. The experience of Spain and Czech Republic, where there were retroactive changes to the tariff regime, really destroyed mainstream investors’ confidence in the sector. It was a disaster.

Q3. What is the prospect for an APAC-wide carbon exchange?

ML: I would say nil. There is little or no momentum behind the drive for carbon markets worldwide. The EU-ETS is here to stay, as are the smaller markets in New Zealand and New England–though even there some states have defected. China is still talking about instituting a market by 2014 or 2015, and California is still looking to set up a market. But ever since Copenhagen, the global climate negotiations have shrunk to technical discussions about investment in slower-developing countries, forestry and technology transfer–even the most idealistic dreamers have realised that there will never be a global price on carbon. Progress on climate is now being supported by far more granular regional, national, and sub-national legislation. For the APAC region to introduce a carbon price would be going against the tide of history.

Q4. What do you see as the greatest risks for investors with renewable energy projects and how do you advise that they mitigate these risks?

ML: The biggest risk is local regulation. Generally, once you have a project up and running, investors have done pretty well. The risk is really that you do a lot of work developing a project, and then don’t get planning permission, or they change the prices for clean energy at the last minute, or the grid operator refuses to connect up the project. All of these risks can be managed by working in countries and regions which have a solid long-term commitment to clean energy development. Germany just hit a new record of 21 percent of its electricity being renewable for the first half of 2011. They didn’t get there by changing the rules every six months. A lot of Asian countries have made all the right noises about clean energy. But now they need to work on the details: Straightening out planning processes, mandating utilities to buy clean energy, and forcing grid operators to connect up projects.

Q5. What do you foresee as the catalyst for a global paradigm shift towards adoption of ubiquitous renewable energy?

ML: I think the global paradigm shift is already happening. Look at the clean energy penetration in Germany, Spain, Denmark, even Texas. Look at the investments being made in China. And then look at what is going to happen in the next decade. Solar costs will go down by another 50 percent. Wind costs will go down by another 25 percent. GE is looking at producing a 15 megawatts wind turbine. LED light bulb costs will go down by 90 percent. Smart grids will be pervasive. The cost of managing intermittency will go down by 75 percent. Battery costs will go down by 75 percent, so there will be electric vehicles everywhere and grid-scale storage. The combination of wind or solar and an electric vehicle is a game-changer.

Meanwhile, fossil fuels remain polluting and dangerous, and they get more expensive and risky. So the paradigm shift is happening. The question is, what could speed it up? The answer lies in the power of knowledge. When consumers, businesses, politicians and regulators wake up to the inevitability of the shift, then everyone will realise they have to be part of it. Right now, there is so much energy being expended trying to preserve a status quo that has become totally dysfunctional, out of fear that there might be nothing to replace it. If we don’t let Exxon run riot in the Arctic, our standard of living will collapse. That’s nonsense. And when it is recognised as such, the world will get down to the nuts and bolts of swapping out dirty energy for clean, which is a manageable engineering and finance process.

Michael Liebreich is Head of the Bloomberg New Energy Finance, the leading provider of information and research to senior investors, executives and policymakers in clean energy and the carbon markets. He founded the company in 2004 and acted as Chairman and Chief Executive until its acquisition by Bloomberg at the end of 2009.

Liebriech will be a speaker at the Singapore Energy Summit, part of the Singapore International Energy Week 2011. The event will take place from 31 Oct to 4 Nov 2011. For more information, visit http://siew.sg/.

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