Political support and clear policies prove critical to renewable energy market growth, says Ernst & Young
- The UK moves back up the renewable index to 5th place, but thanks only to Italy’s economic woes
- Uncertain political support for sector dampens US and European investment
- Difficult market conditions reflected in 50% decline in Q2 2012 deal value
Having quadrupled its solar capacity target to 50GW by 2020 and began an accelerated domestic installations program to tackle the oversupply of solar panels, China looks set to continue its domination of the global renewable energy market, according to Ernst & Young’s latest quarterly global renewable energy Country Attractiveness Indices report (CAI) released today.
The indices provide scores in 40 countries for national renewable energy markets, renewable energy infrastructures and their suitability for individual technologies. During Q2 2012, China remained at the top of the All Renewable Index (ARI) but has a number of challenges to overcome, such as the oversupply of wind turbines and solar panels and resolving grid transmission issues.
The UK outlook
Despite dropping half a point, the UK has risen to fifth place in the ARI, due to a fall in Italy’s ranking in response to worsening economic conditions. While a number of UK policy and subsidy announcements were made during Q2 2012; the general consensus appears to be that these announcements have fallen short of delivering certainty for investors. Indeed, the continuing battle within the coalition government between an apparent pro-gas stance, and the more pro-renewables view is serving to undermine the rhetoric that the UK energy market is a great place to invest.
Ben Warren, Ernst & Young’s Energy and Environmental Finance Leader, comments: “The lack of clarity and detail from various policy announcements, and the ambiguous messages coming out of the Treasury and DECC, has been frustrating for the renewable sector. More importantly, the ongoing uncertainty risks delaying much needed investment further, undermining the UK's ability to achieve its 2020 targets and benefit from the creation of green collar jobs.
“Over recent months, it has become more apparent that the Government is beginning to favour a dash for gas to deliver energy security, and will prioritise decarbonisation of the energy sector in the 2030s, a decade later than planned. If this is the case, it smacks of yet another example of leaving it to the next generation to pay for our ways.”
Looking at other markets, continued uncertainty regards the extension of the PTC in the US, and Germany’s introduction of a new roof-top PV tariff (to both deliver its ambitious renewable goals as well as revive a flagging domestic PV industry) put these markets on level pegging in second spot. In fourth place, India recently suffered severe blackouts leading to speculation that the country has attracted insufficient private investment to modernise its power infrastructure and that renewable energy investment may suffer amid wider power system reforms. As a result, India has fallen a point in the ARI.
Debt markets and asset finance see total new investment up 24% from Q1 2012
Q2 2012 saw total new investment in the sector of US $59.6b (€48b), up 24% from Q1 2012, with China experiencing a 92% increase on Q1 2012. Europe and the US saw an increase in total new investment of 11% and 18% respectively in Q2 2012, the majority of which was driven by new build asset finance. While the number of deals remained broadly the same, the value of these transactions increased by around 40%–50% across the two regions.
Transaction deal values down 50% from Q1 2012
Challenging market conditions were reflected in a 50% decline in the value of renewable energy deals in Q2 2012 versus the previous quarter. Most transaction activity reflected the continued consolidation of the market, which is almost inevitable given the competitive landscape, compressed prices and tightening in demand.
Warren comments: “During Q2 2012, major utilities and energy groups continued to rationalise their renewable energy portfolios through structured divestment programs to dispose of non-strategic businesses and assets, as they sought to deleverage their balance sheets.”
Looking forward, Warren concludes: “The Q2 slowdown in transaction activity and deal values may only be temporary. For H2 2012, an increase in outbound Chinese activity is expected, with solar technology companies and wind sector original equipment manufacturers (OEMs) looking to access new markets through the acquisition of development portfolios.”