Key Points:

Green companies are in retreat, with a wave of staff layoffs and production cuts that could have dire consequences for governments' efforts to fight climate change by quickly bringing low-carbon power projects on stream.

Siemens, Clipper Windpower and even BP are among the big names that say they are reacting to a slowdown in the clean energy sector, which had hitherto seen massive growth. The credit crunch is starving wind and solar developments of urgently needed cash and the situation is being exacerbated by prices crashing to record lows in the carbon trading market.

New Energy Finance, a consultant in the field, says that the next six months are likely to be very difficult for a sector that saw 60 per cent growth in 2007 over 2006, but then almost no further expansion in 2008.

Siemens Wind Power plans to make 400 redundancies at three sites in Denmark and accepts that the 30 per cent growth seen in the sector over recent years could be cut to 20 per cent or even 10 per cent this year.

Clipper Windpower said that 90 staff would be laid off - 11 per cent of its workforce - and production levels cut by up to a fifth as it reacts to a downturn in demand for its equipment as developers struggle to raise cash.

Vestas, the world's biggest turbine manufacturer, reported a strong set of financial results for 2008, but warned last week that unless demand for its equipment increased over the next three months there would be cutbacks in investment for the coming year.

Chief executive Ditlev Engel said: "If the world does not improve, we will have to look to cut jobs at Vestas."

The solar power side of the renewables sector is faring no better. According to some estimates, private equity and public market investment in the fourth quarter of 2008 was just 25 per cent of that in the third quarter of 2008, and the lowest for three years.

Meanwhile, investment in large solar projects slipped to US$3.8 billion in the last three months of 2008 against US$5 billion for the previous three months.

New Energy Finance concludes, however, that while times are "undoubtedly hard" for the solar sector and there will be more job losses in the coming period, "there is still a significant amount of investment activity going on".

Last year, about US$155 billion of new money was raised from the public markets, venture capitalists and the banks to fund clean energy companies.

But this figure was barely up from the US$148 billion raised in 2007.

The situation has not been helped by the carbon market, which in recent days has seen the price of allowances under the second phase of the European Union's emissions trading scheme hit new lows of less than 9 ($22.3) a tonne.

This has been caused partly by industrial companies selling off credits that they think they will no longer need in an economic downturn, and partly because carbon prices are often linked by traders to oil prices. The value of crude has fallen from last summer's highs of US$147 a barrel to little over US$40.

This makes it less attractive to proceed with offsetting projects under the Kyoto Treaty's Clean Development Mechanism and is hitting companies which operate in the sector.

EcoSecurities, which specialises in carbon offsetting, is to close its US consultancy office in Oregon at the end of this month and reduce its staff numbers in America by a third.

Carbon broker CantorCO2e has made redundancies in response to slowing demand for credits. The company's chairman, Laurence Rose, says total staff numbers have been trimmed over the last quarter.

Meanwhile, in the biofuels sector, BP has been looking at cutbacks in its joint venture with D1 Oils that aims to produce clean fuel from jatropha plants, which can grow in poor soil.

The wider BP group has announced 5000 redundancies, almost all in the oil and gas sector, but officials admit that a small number are going at the Alternative Energy arm run by Vivienne Cox. Meanwhile, arch-rival Shell has already pulled out of what should become the world's largest offshore wind farm - the London Array in the Thames estuary - and German partner E.ON has admitted the economics of it look fragile.

E.ON feels "still pretty buoyant" about green energy overall, but admits that high costs and relatively low subsidies in Britain leave markets such as Spain and the US looking more attractive.

- Observer