The incompetence of government authorities and bureaucrats around the world continues to surprise me as renewable energy subsidies keep going haywire. The script followed is the same in all the bust countries but others fail to learn from them and keep making those mistakes. Spain was the first country to witness a massive renewable energy explosion due to generous feed in tariffs given for solar energy. This led to huge amounts of solar installations and a huge obligation on the Spanish treasury. The government stopped all solar energy subsidies and forced cuts in subsidies given to existing solar developers. This amounted to a reneging on existing contracts leading to losses for some and massive job losses.

Czech was another country to do the same thing installing a huge 2 GW of solar installations which is large for a country with a total installed electricity capacity of 15-20 GW. It was forced to issue taxes and levies to stop the spiraling of electricity prices for consumers who faced a 15-20% increase in price in one year. Australia too has faced a similar problem though not on a Spain and a Czech scale. Gujarat is trying to do a similar thing by reducing FITs to Rs 9/kWh from Rs 12.54/kWh.

Romania has become the latest country where RE investors face a big loss. The country installed too much wind energy through a generous incentive and now faces a problem funding it. The government has decided to postpone subsidy payments by 5 years to 2017, which means a big loss to the investors. CEZ, the Czech utility faces the biggest hit as it went overboard by building a 600 MW giant wind farm.

Note, RE investors should be careful in not getting carried away by big returns in politically unstable places. These countries do not have the financial strength nor the institutional strength to manage these complicated subsidies. This is a natural reaction and even the European Commission can’t do much. If there is no money, the country will not pauperize citizens to allow RE investors to make out-sized returns. Not in a democracy anyway.

Japan is currently seeing a huge boom through very high FITs. That is unsustainable and I can predict a bust in the country. This might not come in the near future as Japan is a big country and it also has a lot of money. But it cannot continue forever.