RECAI: Index highlights

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RECAI scores and rankings at September 2014

Index highlights

After several months of edging closer to the US, China reclaims the index top spot for the first time since May 2013.

The last year has seen a transformation as China’s new government set about opening up the market to foreign investors. Earlier this year, the National Development and Reform Commission detailed 80 infrastructure projects open to private investment, more than half of which are energy-related, with 35 in renewable generation.

The Government has also set aggressive technology targets for 2017, showing its commitment to high levels of capacity deployment, largely driven by its pollution-reduction program, but also reflecting the sector’s strategic economic value.

A renewed focus on offshore wind also opens up a new market for the private sector, particularly given China’s current lack of construction experience and immature supply chain.

Similarly, increased support for distributed solar projects and a reported 8GW target for 2014 alone could replicate the phenomenal growth already seen in China’s utility-scale solar sector. Looking ahead, it is also planning a US$40b project to develop 15GW of tidal power.

While a fall to second place for the US should not undermine its significant deployment and investment opportunities, it does reflect the increasingly crippling effect congressional gridlock and drawn out approvals are having on its ability to give investors long-term certainty.

Recent months have seen at least three instances of partisan politics keeping the sector in limbo, affecting both specific initiatives and investor confidence in general: failure to renew the PTC for wind and other technologies in the Senate, blockage of the proposed US$150m loan guarantee for the flagship Cape Wind offshore wind project, and a Republican funding bill designed to topple the Clean Power Program targeting 30% carbon emission reductions by 2030.

Germany and Japan retain third and fourth places respectively. However, both should be watched closely as the latest amendments to Germany’s Renewable Energy Sources Act (EEG) take effect, and the nuclear debate reopens in Japan.

With proposals to cut subsidies for large-scale solar earlier than planned now attracting legal challenge, and a dwindling budget for future projects under the new CfD FIT regime already resulting in the cancelation of offshore projects, the UK slips to seventh place below India.

India’s jump to sixth place reflects its new Government’s more strategic, long-term vision for its renewable energy sector, with ambitions increasingly measured in billions of dollars and gigawatts of capacity. The recent launch of a major grid upgrade program and reinstatement of tax incentives for wind projects are also expected to boost investment and deployment.

The successful repeal of Australia’s carbon pricing legislation in June and ongoing uncertainty over the future of its Renewable Energy Target has caused another slip down the rankings, to tenth place. Uncertainty is making it difficult for investors to maintain confidence, and many projects are stalled pending the outcome of the review.

Brazil’s jumps to ninth place, spurred by sustained high levels of interest in its latest energy auctions, and an increasingly strategic approach to developing its solar sector.

Also in South America, Chile continues to climb the index, replacing Italy in 12th place, as it continues to attract mega-scale solar and wind projects that show a strong outlook for increased generating capacity..

After sitting just outside the top 10 for the past year as investors tried to predict the future for Italy’s renewables markets, a slip to 15th place provides the answer. Retroactive solar PV subsidy changes have prompted investor exodus, the threat of legal challenge and the onset of some inevitable restructuring.

The formalization of the “reasonable profitability” criteria replacing Spain’s long-standing subsidy regime is another setback for this troubled market, taking it down to 22nd place. An improved economic picture and high asset base make this a higher-than-expected ranking though for a market many now consider unbankable. It will be interesting to see whether distressed deals, subsidy-free renewables or greater European energy market interconnection can rekindle interest in Spain.

The Netherlands jumps to 13th place following financial close of the 600MW €2.8b (US$3.7b) Project Gemini offshore wind project – one of the year’s biggest project finance deals so far. The US$430m financing of Westmeerwind’s 144MW onshore project also reinforces the market’s attractiveness for large-scale wind projects.

The opening of Round 4 of South Africa’s renewable energy procurement program sees a further 1.105GW of capacity up for grabs, with preferred bidders expected to be announced in late October. The robust project pipeline supported by this structured auction process, and an increasing energy imperative reinforced by rolling blackouts for the second time this year, has boosted South Africa to 16th place.

Financial close on the US$684m needed for the 121MW Ashalim solar thermal plant in Israel, and receipt of technical bids for five wind projects totaling 850MW in Morocco have helped take these markets up to 27th and 28th places respectively.

The removal of import duties on solar PV equipment in Kenya, though sparking outrage from domestic manufacturers, is likely to improve deployment prospects by pushing down project costs and offering developers greater flexibility. Coupled with a new 560MW geothermal tender, Kenya rises to 36th place.