Government Support Crucial for the Sustainability of the Renewable Energy Sector Through the Slowdown, Says Frost & Sullivan

CAPE TOWN, South Africa - Despite the global recession and lower fuel prices, worldwide government
support for clean energy has thus far remained steady. This provides hope
that renewable energy will remain an area of growth despite the economic
conditions.

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However, the pace at which demand for renewable energy is growing will
slow down until the global economy stages a recovery. As the energy industry
is capital intensive, the reduced availability of finance may delay new
projects.

“The impact of the financial crisis will probably not have a massive
influence on projects already in operation, but will have an influence on new
projects,” explains Frost & Sullivan energy industry manager Cornelis van der
Waal. “Evidence of this is already starting to be felt by equipment
suppliers. For instance, recent analysis from Frost & Sullivan shows that
wind turbine equipment producers in Europe are predicting a slowdown in the
double digit growth experienced in the industry since the turn of the
century.”

In recent years, clean energy companies enjoyed a series of benefits,
such as the rise in fuel prices, government incentives, concerns about global
warming and the availability of capital. However, these conditions reversed
from the second quarter of 2008.

Fossil fuel prices have decreased significantly, making renewable energy
sources less-competitive, and capital has dried up. This is mainly because
investors and banks stopped lending to companies due to uncertainties in the
global economy.

“Financial giants such as Bear Stearns, Lehman Brothers and Citigroup
were once major renewable energy investors,” says Van der Waal. “With those
players either extinct or dealing with massive losses, it is unlikely that
they will be able to invest significantly in new projects.”

In addition, the core group of about 10 to 15 players in the tax-equity
finance world has been cut in half, and the few remaining players are looking
for increasingly higher rates of return. Investors were previously looking at
an average six percent return on investment, but this has now risen as high
as 10-13 percent.

One example of a significant project that has already been put on hold is
the 750MW Kufue Gorge Lower hydropower station in Zambia that was set to
begin construction in 2009. It is expected that some of the 15 firms
interested in investing in this project will pull out amid the financial
crisis.

“The aim of the project was to supply energy to the copper mining
industry in Zambia, which is currently experiencing reduced production
capacity due to power rationing by the state power utility Zesco,” observes
Van der Waal. “It is not clear if and when this project will continue.”

Although the impact of these factors will be negative for equipment
suppliers, there may be some positives for end-users in the industry.

“The renewable energy equipment market is changing from a suppliers
market to buyers market,” notes Van der Waal. “This means that end-users will
have more choice when deciding on their suppliers, as competition will
increase as less equipment is sold.”

This in turn will force equipment suppliers to decrease their prices in
order to become more competitive, while increasing their after-sales service
and support. These strategies will be essential to maintain their market
share in difficult conditions.

“While it is not all doom and gloom for the renewable industry in the
long term, the next few years will be tough,” Van der Waal concludes. “Global
investment will cool in the short to medium term and projects will be
carefully selected based on solid returns. It is therefore essential for
governments that are looking to attract investment to ensure that the
regulatory and financial support structures are in place to promote and
support sustainable investment.”

If you are interested in more information on Frost & Sullivan’s analysis
of renewable energy markets, then send an e-mail to Patrick Cairns, Corporate
Communications, at patrick.cairns@frost.com, with your full name, company
name, title, telephone number, company e-mail address, company website and
country.

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Contact:
Patrick Cairns
Corporate Communications - Africa
P: +27-18-468-2315
E: patrick.cairns@frost.com

www.frost.com

Source: Frost & Sullivan

Patrick Cairns of Frost & Sullivan Corporate Communications - Africa, +27-18-468-2315, patrick.cairns at frost.com; Logo: https://www.newscom.com/cgi-bin/prnh/20081117/FSLOGO