It is well documented that the past two months has seen the worst crisis on the world stock markets for many a decade. And this was reflected by falls in the S&P 500, FTSE 100 and AMEX Oil indices; of around 8%, 9% and 13% respectively.

The falls in the index are most likely to be a reflection of investors' aversion to anything that could be seen as a risky investment. And considering the current climate, some have likely assumed that economic gloom for the foreseeable future will stall investment in more expensive forms of energy, as well as lead to a ‘natural' curb in emissions caused by a decrease in economic activity.

Just 8 of the 88 stocks in the index rose during the period, with Chinese battery maker BYD notably rising 61.5%, largely due to Warren Buffet's Berkshire Hathaway subsidiary MidAmerican Energy taking a 10% stake in the company. Also notable was the fact that the top four performers – all of which rose more than 10% – were either power storage or energy efficiency companies, technologies which are traditionally seen as less dependant upon public money than other clean energy sectors.

Looking forward then, and the current market developments, the end of cheap credit and the near collapse of the investment banking system are likely to have a significant impact on companies in the renewable energy space, and the likelihood of a persistent economic downturn will have implications beyond the availability (or not) of cheap credit and risk-taking investors.

Firstly, the commodities markets will continue to play a major role in the economics of clean energy. Commodity prices have been on a bull run for the past four years and for the short term at least, considering the economic slowdown that is likely to persist for the near future, the outlook for energy prices is downward. Lower demand, leading to cheaper prices for energy, is bad news for many renewable technologies which – until grid parity – are only viable while the price for their output is high.

Secondly, policy uncertainty persists within the clean energy sector. The story of climate change policy since 2004 has been a stream of new measures – feed-in tariffs; renewable portfolio standards; green certificates; research grants; hydrocarbon taxes; cap-and-trade systems; and biofuels blending mandates.

Many of these policies are now under review. The Gallagher Review in the UK for example has lead to widespread concern over biofuels policies (at least those “first generation” biofuels that conflict with food production, as well as create other land usage issues).

In the USA the Renewable Fuel Standard is under intense pressure of being relaxed, and tariff cuts in Germany and Spain (see below) have shown that Governments are not prepared to finance overly-expensive subsidies for renewable energy in the case of overproduction.

Miraculously though, the Production Tax Credit (PTC) and the Investment Tax Credit (ITC) – which provide essential tax breaks for renewables in the US were packaged into the Wall Street bail-out plan as a sweetener and passed on 3 October. Nevertheless the pressure will still be on Governments, which have taken on massive leveraging from their banks in recent weeks, to remove tax breaks and cut spending.

That said, a short term fall in the market valuations of companies which were trading at 40 to 50 times their annual earnings does not mean the fundamentals have disappeared from the sector. PE ratios in the sector remain high compared with broader indices, indicating that investors still expect significant growth from where these companies are today. The news flow for project development, asset financing, venture capital and private equity investment remains strong, with money still being pumped into clean energy, if not through the public markets.

Another notable development within the period was the Spanish Government's introduction of a yearly cap for photovoltaic installations within the country. An over generous feed-in tariff had lead to a greater number of PV installations than desirable, and was becoming extremely expensive to finance. A revision of the subsidy had been anticipated for some time within the industry, and inevitably solar lobbyists were disappointed by the decision, although many felt that this was a compromise the industry could live with.

The Government set a cap of 400 MW of installations per year for the foreseeable future, split between roof-mounted and ground-mounted projects – by a ratio of two to one. The cap will be eased however, with an extra 100 MW allowed in 2009 and 60 MW in 2010. This makes the overall cap 500MW and 460MW in 2009 and 2010, and 400 MW thereafter. The new feed-in tariff will be €0.32/kWh for ground-mounted plants (sizes up to 10MW), higher than the previously planned €0.29/kWh; €0.32/kWh for rooftop plants above 20kW but below 2MW, and €0.34 for rooftop plants below 20 kW in size. The level of the tariff will be reduced quarterly, as long as the quotas are exhausted.

Although solar project developers will inevitably find the environment less profitable going forward, the reduction had been a long time in coming. Commenting on the final levels chosen by the Government, Jose Galindez, president of turnkey developer Solarpack and a prominent member of the newly-formed Spanish PV lobby group Asociation Empresia Fotovoltaica (AEF) remarked, “we feel it is a compromise that we can accept.”