Tightening government budgets leave global renewable energy market in flux

China remains clear leader after year of record investment

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28 February, 2011: The toxic legacy of the global financial crisis continues to cast a shadow over the global renewable energy market, according to EY’s latest global Renewable Energy Country Attractiveness Indices. Although new investment in clean energy reached unprecedented levels in 2010, climbing 30% to US$243b *, some countries and technologies are finding the economic conditions deeply challenging, leaving the market in an overall state of flux.

Although falling stocks, inflationary pressures and indications of an unevenly balanced supply chain have led to some concerns over whether its meteoric growth rate can be sustained, China remains the clear global renewable leader and is still experiencing growth in its wind and solar markets.  For example, China’s total installed wind capacity grew 64% during 2010 to reach more than 42GW.

Its closest competitor, the US, has approved a one-year extension of the Treasury Grant Scheme – providing some much-needed respite to its renewable energy market. Last year, the US installed 5.1GW of wind power, barely half of 2009’s level, and less than a third of China’s 16.5GW in 2010. However, President Obama used his State of the Union address last month to set an ambitious 80% clean energy target for 2035, including nuclear, Carbon Capture and Storage and natural gas.

Ben Warren, EY’s Energy and Environmental Infrastructure Advisory Leader: “Where energy policy is less directly linked to job growth in the clean energy sector, we are finding Governments and policy setters increasingly focused on delivering a low carbon economy in the most affordable manner, possibly at the cost of longer-term economic value. Time will tell whether white flag waving, in terms of CO2 reduction ambitions and the pursuit of investment, in some of the more mature renewable energy markets will prove costly.“

Technology spotlight

In terms of technologies, 2010 was a good year for offshore wind, with new capacity growth of 51%. However, onshore wind was down 7% globally, with a 14% fall in Europe. The solar sector grew strongly, and Concentrated Solar Power continued its emergence. Biomass investment remained similar to levels in 2009.

Gil Forer, EY’s Global Cleantech Leader, comments: “We will continue to see progress in development, deployment and adoption of renewable energy. The global transformation to a resource efficient and low carbon economy is a long journey. It is expected to have challenges along the way on local or regional levels. But the global drivers of this transformation, including imbalance of supply and demand of natural resources, energy security and energy prices, are solid.”


Country comparisons

Across Europe, the picture is mixed, with tightening government budgets, falling technology costs and in some quarters at least, booming solar markets. This has led to a series of ‘sudden’ and planned Feed in Tariff (FIT) reductions, especially for solar. In November, Spain finalized a package of significant cuts, while in December France introduced a three-month moratorium for new projects. Despite staged FIT reductions in Germany and Italy, about 7GW and 4GW were installed last year.

Turkey has risen in the indices following an approval to a new energy law which introduced more favourable FITs, differentiated by technology. The Indian solar market has benefited from an amended Renewable Purchase Obligation and other financial support. However, the Netherlands and Australia dropped in the rankings due to reduced government incentives.

The big news in the UK, which remains 5th in our rankings, is the Electricity Market Reform consultation, announced in December, which aims to develop and deliver a new market framework that will enable the cost effective delivery of secure supplies of low carbon energy. However, at the same time an accelerated review of the FIT regime for renewable energy installations of less than 5MW has been announced, less than 12 months from its introduction, which is a confusing signal to investors.

Ben Warren comments: “Whilst the UK Government can be commended for starting to create an energy market that reduces risk to investors, there is some uncertainty as to whether the new proposals will encourage competition and create a level playing field for investors. There is also concern over whether the proposed arrangements may end up too complex for investors to navigate. The outcome of the consultation process will be eagerly awaited.”

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Read our report on the latest Renewables Country Attractiveness Indices February 2011, 2.16Mb