As a rule, governments usually subsidize a sector to boost their own economies. However, this is not the case with the renewable energy sector, which also provides a living for companies in other countries. This is how some Hungarian firms are now reaping the rewards of the increased – government-subsidized – demand for renewables in other European countries.

Photovoltaic solar module manufacturer Korax Solar has been benefiting from Italy’s surge in solar projects. Recently adopted changes to the country’s feed-in tariff scheme and a simplified national authorization process for solar projects have bolstered investments. As a result, Italy’s solar market has exceeded the most optimistic predictions, growing to total capacity of 6 gigawatts (GW) in 2010, surpassing the United States and Japan (1 GW each) and coming in second behind market leader Germany (6.5 GW).

Although there are a number of solar module makers in Italy, their capacities are apparently insufficient to keep up with such explosive growth. The country’s push to install new solar projects came just in time for Korax Solar, which has suffered a significant drop in orders from Germany. “Germany has been one of our major partners, but since the government cut back on its feed-in tariffs, most of our long-term partnerships have ended,” said product manager Edgar Oprea. Germany has recently implemented two successive incentive reductions, which has helped shift manufacturers’ attention to other countries, such as Italy. Now half of Korax Solar’s overall capacities (8–10 MW per year) go to this sun-drenched country.

Forest Energy, a Hungarian biomass startup, has also plans to benefit from the Mediterranean country’s turn to renewables. The firm, created by five companies in the fields of mechanical engineering, commerce and service, will deliver wood pellets to Italy. Although it is still in the test phase of production and will not operate at full capacity (2 tons/hour) until the start of the next heating season, the company is already seeing high interest from Italian clients. “There is strong interest in pellets from Italy,” said Tamás Badacsonyi, one of the founders. The company regards Italy as its chief future foreign market for, a high-quality wood fuel made from compacted sawdust. (Lower quality agripellets, which are made of a variety of agricultural waste products, are aimed at the more price-sensitive domestic market.)

There are various barriers to solid biomass trade in Europe, among which raw material availability is first and foremost. In this regard, Italy has been shorthanded but on the positive side, it has a financial support policy for biomass. However, some major biomass exporters, for example Austria and Germany, have reduced production volumes due to the lack of raw material and high production costs. This may provide some advantages to Hungarian makers, including Forest Energy. “Among the various forms of renewable energy, biomass has the greatest potential in Hungary,” Badacsonyi said.

It is also renewables whose production and use is best incentivized. The establishment of Forest Energy’s factory in Bátonyterenye has so far required more than HUF 220 million in investments, including HUF 200 million for machinery alone. The risk of failure to recover these costs is high: rising fuel prices can make trade to distant destinations unprofitable and sudden changes in policy may terminate contracts. Though the firm has no shortage of feedstock, its quality may vary. Therefore, subsidies for both producers and users are justified.

As much as support measures can boost trade, so mismanaged energy policies can slow down growth. According to the Global Wind Energy Council, the annual 2010 wind power market fell by 7% due to policy uncertainty in the US and shrinking electricity demand, which hit richer nations. About 35.8 GW of wind turbine capacity was installed worldwide last year, almost 3 GW less than the year before. China overtook the US and now accounts for more than one-fifth of the global total of 194.4 GW. Demand from other emerging economies such as India and some Latin American countries is on the increase as well.

This is good news for wind turbine component maker Lakics Gépgyártó Kft, a supplier of Denmark’s Vestas Wind Systems, the world’s largest manufacturer, seller, installer and servicer of wind turbines. Through Vestas, Lakics Gépgyártó supplies the German and Austrian markets, which have been at the forefront of installing new wind power plants in Europe – as a result of generous subsidies. France is also advancing in the renewables sector: together with Britain, it is among the company’s new foreign partners. It seems that changes in European countries’ energy policies can easily be followed by looking at how the target markets of some energy companies change.