US renewables sector at a crossroads while Asia closes the gap in industry-wide rankings

London, 2 June 2014

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Continual policy amendments are still hindering renewable energy development across many markets, but changing energy mix dynamics, a need for new sources of capital and innovative business models are also creating significant opportunities for developers and investors, according to EY’s latest quarterly Renewable energy country attractiveness index (RECAI), released today. 

  • Market liberalization helps China challenge the US for the top spot in the latest EY Renewable energy country attractiveness index (RECAI) rankings
  • Asian markets are strengthening positions while policy shifts in West are creating market uncertainties
  • Africa reinforcing its potential as an investment destination for renewable energy

The report highlights that such opportunities are becoming increasingly prevalent in the US, with expectations mounting of a renewables-led energy transformation this decade as the US energy market finds itself at a crossroads.

However, the latest RECAI rankings also have a strong Asian flavor, with China, Japan and India continuing to strengthen their positions and close the gap on their Western counterparts in the top 10. This increasingly consistent trend is reinforced with the entry of Indonesia and the Philippines into the index for the first time.

US must stay on the right path to remain the land of opportunity

A flourishing solar market, 45GW of coal capacity retirement and signs of a reinvigorated capital market are painting a promising picture for the US renewable energy market, helping it to retain its position at the top of the index rankings as the most. However, uncertainty over tax credits and equity financing, increased shale gas production and ongoing congressional gridlock could take the US back down a path of boom-bust investment.

Gil Forer, EY’s Global Cleantech Leader comments:

“Policy volatility in the US at a federal level can sometimes mask attractive incentive regimes or ambitious renewable programs at the state level, especially with grid parity closer in some markets than others. Estimates that 85% 1 of additional electricity demand in the US through to 2025 will be met by renewable energy also send strong signals of the opportunities to be realized. Overall, the energy markets are being disrupted and we have witnessed the beginning of a paradigm shift of a new and evolving energy mix”.

“Institutional investment, public market vehicles, corporate capital and crowdfunding are all gaining popularity and creating opportunities in the US for domestic and foreign investors,” adds Ben Warren, EY’s Global Cleantech Transactions Leader. “However, greater availability and diversity of capital is a phenomenon that we are now seeing globally as investors look for new opportunities. It’s really therefore a question of whether renewable energy markets, including the US, will be sufficiently proactive in attracting this capital.”

China to capitalize on market liberalization and pollution imperative

With the US firmly leading the index rankings for now, China continues to strengthen its hold on second place. Increasing signs of a more market-based approach in China, both in the renewable energy sector and the economy more broadly, are pushing various forecasts to eclipse the US in wind and solar by the end of the decade. China is projected to add nearly 100GW of wind power and 60GW of solar power by 2018.

Warren comments: “New impetus has been injected into the Chinese market with even more ambitious renewables targets being introduced. The dual objectives of driving local manufacturing and tackling air pollution create an extremely favorable outlook, which is reinforced by a willingness of the Chinese Government to open up the sector to provide greater competition, and therefore opportunity, for in-bound investors.”

RECAI rankings poised for reshuffle

Elsewhere in the top 10, revised incentive schemes, large-scale projects and ambitious capacity programs see Japan and India poised to take over their closest rivals in the index rankings. However, mixed signals for Japan following the release of a draft national energy plan that favors nuclear and coal, and persisting macroeconomic challenges and solar trade disputes in India are preventing a climb up the rankings in the immediate term.

Meanwhile, the UK has fallen one spot to sixth place on the back of further policy reviews being announced. The UK benefits from one of the most efficient financing markets but this advantage could be lost if consistent policy is not embraced by leaders.

Strong capacity forecasts and approval of a new feed-in tariff regime for wind projects have helped France move up to eighth place above Australia, where a potential cancellation of the Renewable Energy Target is slowing investment. A rapidly growing solar sector and the promise of further capacity auctions in 2014 takes Brazil in the top 10 for the first time since auction cancellations pushed it down the index rankings in early 2013. 

Africa puts itself on the renewables map

Looking outside the index’s top 10, Africa continues to expand its presence in the global renewables market. In South Africa, the decision to award additional capacity under Round 3 of its national renewable energy procurement program and an increasing energy imperative prompted by disrupted coal supplies have boosted it to 17th place. Meanwhile, the US$870m financing of the 300MW Lake Turkana project has helped move Kenya up to 37th place, also marking a critical milestone for large-scale clean energy project financing in Africa more broadly.      

Nigeria features as this issue’s “market to watch” given its ambitious energy sector reform program and news of a US$5b public-private project to develop 3GW of solar capacity in the country. With major gas supply shortages, a renewable energy incentive regime currently under development and the first signs of utility-scale projects, Nigeria looks set to become an attractive market for developers and investors in the long run.

Forer comments: “Notwithstanding the major prospects for renewable energy in emerging markets such as Nigeria, political unrest cannot be ignored and should not be understated as a short-term barrier to investment and deployment. The use of risk mitigation tools, such as political risk insurance and even more innovative products targeting policy risk specifically will become increasingly critical for the renewables sector to tap into the most attractive opportunities in both developed and emerging markets. A need for tailored solutions and greater collaboration between energy providers and off-takers in energy-intensive industries such mining will also become critical to opening up new markets.”

1US figure on proportion of additional energy demand from renewable energy sourced from a Credit Suisse report released in December 2013.


Notes to editors

About the RECAI

The RECAI report ranks its 40 entries on the attractiveness of their renewable energy investment and deployment opportunities, based on a number of macro, energy market and technology-specific indicators. 

The index rankings tracks 40 markets worldwide: Australia, Austria, Belgium, Brazil, Canada, Chile, China, Denmark, Finland, France, Germany, Greece, India, Indonesia, Ireland, Israel, Italy, Japan, Kenya, Mexico, Morocco, the Netherlands, Norway, Peru, the Philippines, Poland, Portugal, Romania, Russia, Saudi Arabia, South Africa, South Korea, Spain, Sweden, Taiwan, Thailand, Turkey, Ukraine, UK and the US. 

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