European markets for renewable energy are gathering momentum as governments across the region offer significant incentives and subsidies to encourage its development, says a new report from market analysts Frost and Sullivan.

Energy supplies derived from renewable energy sources (RES) are undergoing a phase of expansion in western Europe. The European Commission, in its White Paper on RES, suggested that renewables should constitute 12% of the total EU energy consumption by 2010, and subsequently implemented various directives such as the Renewables Directive of 2001, which mandated certain required levels of electricity to be sourced for renewables.

With these activities giving a considerable boost to renewables technologies, market revenues are likely to reflect this, growing from $8,997.9 million in 2005 to $17,291.2 million in 2011 at a compound annual growth rate (CAGR) of 8.9%.

Increased incentives spell good news for market participants with the growing recognition among European governments that renewable energy should be able to compete on a more even basis and the resulting trend toward blanket promotional incentives likely to rectify the exisiting pricing disparity between renewable and conventional generation.

Companies must also work at dispelling concerns about the return of investment (ROI) of renewable technologies with the high upfront costs of renewable technologies. This is a significant challenge and often makes project development difficult for many potential clients, especially small and medium enterprises.

Participants must aim to make renewable energy projects more attractive as an investment option and can achieve this by highlighting successful investments of the past as well as emphasising the total cost of ownership rather than the high initial costs.

Notwithstanding these challenges, there is no doubt that renewable energy technologies are on course to play a much bigger role in global energy supply, says the report. The various targets set in the EU White Paper are expected to be easily met and some sectors, such as the wind power sector, are set to exceed their targets.

By 2010, this sector will have an installed capacity of 79.3 GW in Europe, as against the EU White Paper target of 40 GW. Total installed renewable capacity excluding that of solar thermal is likely to stand at 127.3 GW in 2010, says Frost. On the other hand, the biomass power sector is likely to fall short of its ambitious targets.

Rapid growth in the wind power and solar photovoltaics sectors is also likely to fuel future expansion of the European renewable energy markets.