Rating the world's renewable energy markets

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Emerging economies are the star performers in our latest survey of the world’s most attractive renewable energy markets. But as transactions slow and deal values decline, how are tough market conditions impacting investment in renewables? Ben Warren reports.

The 2012 global economy is witnessing faltering growth and stagnating unemployment rates in many countries. Even rapid growth countries are showing signs of slowdown.

In the latest issue of our Renewable energy country attractiveness indices, we see how these trends are shaping investment in renewable energies around the globe.

Shifting political will

The renewable energy sector remains largely reliant on either fiscal support or regulatory changes, or both, to drive growth and compete with conventional alternatives such as coal and gas. But in an austere economic environment, governments’ willingness to provide support differs markedly around the world.

In growing economies and those that consider the strategic importance of the energy and broader environmental sectors, governments are committing to significant renewable energy investment programs. Examples of this include South Africa, Saudi Arabia and China. In fact, innovation in the Asian markets is the clear theme of this edition of the indices, with China reinforcing its top spot position in the league table.

It is a different story in the west. Sovereign credit crises have dragged Spain and Italy down the index, while a plethora of policy announcements have created uncertainty for investors in the UK.

This quarter saw the US lose points in the index and it now shares second place with Germany. But there is a stark contrast between these two markets. While the upcoming elections have led to policy gridlock in the US, Germany is pushing ahead with its ambitious renewables agenda.

Transactions down, IPOs stall

Difficult market conditions were reflected in the declining value of renewable energy deals in Q2, down more than 50% on the previous quarter. This decline was mainly driven by Europe and the US, where support for renewables remains limited.

However, this slowdown may only be temporary. The sector’s investment challenges and the need for repositioning – especially as energy strategies are revised post-Fukushima – are tipped to drive an increase in disposals and strategic divestments by large generators and utilities.

Despite a strong IPO pipeline at the start of Q2, macroeconomic uncertainty returned through the quarter, which saw a decline in capital raised across all sectors. According to Bloomberg New Energy Finance (BNEF), public markets for clean energy totaled just US$1.2b (€1.0b), almost double the Q1 2012 figure but still 75% below the capital raised in the same quarter last year.

While issuers and investors are waiting for the global market to stabilize, IPO windows are rapidly closing and opening, and companies must be well prepared to take advantage of any opportunity.

Solar dominates new investments

In Q2, the clean energy sector saw total new investment ofUS$59.6b (€48b), up 24% from Q1. China accounted for a large proportion of this increase, experiencing a 92% increase on Q1. Increases in Europe and the US – 11% and 18% respectively – were mostly driven by new build asset finance.

Solar accounted for the majority of total new clean energy investment in Q2, at US$33.9b and up 19% from Q1, while wind accounted for US$21.6b (€17.4b) of Q2 investment.

Q2 also saw an emerging divergence between slow investment in renewable energy technology and equipment suppliers, and stronger investment in renewable energy projects and assets. This is likely to be driven by:

  • Renewed focus on domestic installations
  • Risk-averse banks and equity investors preferring to buy operating assets rather than take on construction or technology risk

Direct investment by financial institutions is accelerating, but we are seeing a shift from the creation of equity funds to debt funds.

New trends shape industry

While current conditions look set to continue over the coming months, we can also expect to see some new trends:

  • Rising importance of “new-world” renewable energy markets will encourage consolidation across the manufacturing and supply chain space
  • A call for new sources of capital will lead to the emergence of new financing sources and funding structures
  • Continued downstreaming of original equipment manufacturers (OEMs) into project origination and development
  • Horizontal consolidation (and some casualties) as a consequence of increased competition
  • Rationalisation of traditional manufacturing supply chains

Vast opportunities for cleantech

For the past two or three decades, the energy debate has tended to gravitate around new forms of energy generation. With more focus on energy demand and the emergence of intelligent or smart technology, energy efficiency will continue to take a more prominent role in future.

As our homes, offices and factories move into the 21st century, this opens vast new opportunities for all forms of embedded and micro renewable energy technologies.

Our Country Attractiveness Indices (Issue 34) scores 40 countries in respect of their national renewable energy markets, renewable energy infrastructure and their suitability for individual technologies. Read the full paper here.

Key points

  • China still tops the All Renewables Index, with the US and Germany sharing second spot and India in third place
  • Total new clean energy investment is up 24% from Q1
  • Difficult market conditions see the value of renewable energy deals in Q2 drop more than 50% on Q1
  • The current slowdown in transactions may only be temporary, as investment challenges spur an increase in disposals and strategic divestments

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Rating the world's renewable energy markets Rating the world’s renewable energy markets

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