China overtakes UK as a key country for investment in renewable energy

Ernst & Young’s renewable energy country attractiveness indices

London, 19 August 2008 — China displaced the UK in the top five most attractive countries for investment in renewable energy for the first time in the indices’ five-year history. This is according to the latest Ernst & Young renewable energy country attractiveness indices, which track and score global investment in renewable energy in the first six months of 2008.

The UK dropped from fourth to sixth place in the all renewables index and from second to fifth place in the long-term wind index. The report shows that China is diversifying its energy supply by incorporating more sustainable sources into its rapidly expanding energy generation mix.

China invests heavily in renewables

Jonathan Johns, head of renewable energy at Ernst & Young, says that the Chinese success story has been driven, in part, by the government’s renewable energy policy which aims to generate 15% of the country’s energy from non-carbon sources by 2020.

“Investment in China has been boosted by the government’s energy policy, which secures renewable energy as a vital and important part of the country’s energy mix. China’s stellar growth in renewables can also be attributed to the speed at which it has built up its supply chain capability, to the point where it is likely to have nine gigawatts of manufacturing capacity in a few years,” Johns comments.

“China is also likely to become a significant exporter of wind turbine equipment in a few years, adding to its already strong presence in the solar industry.”

UK delays Energy Bill

The UK delayed the Energy Bill, which is still going through Parliament, causing the UK’s ranking to fall. This is a strong contrast to the speed at which Germany has addressed the challenges placed by the EU Renewables Directive. Germany has climbed up the index to second in both the all renewables and the long-term wind index, due to its coherent legislative framework, which includes the introduction of attractive tariffs to support its industry – making it fit to meet the challenge of the new EU Renewables Directive.

Johns believes that a further consultation period in the UK could lead to up to two years of relative inactivity, leaving just 10 years for the UK to establish a renewables infrastructure strong enough to meet its demanding 2020 target.

“To make the UK a world leader in attracting investment in this sector, and to avoid it slipping further down the index, the government needs to consider creating tangible incentives for investors, following the lead of Germany and the ambition of China,” he says.

Germany obtained 72.7 terawatt-hour of renewable energy production in 2006, while the UK obtained just 18.1 terawatt-hours. In terms of value for money, Germany wins, as the cost to the consumer is only 2.6 per kilowatt hour compared to 3.2p in the UK.

Rising cost of fossil fuels clouds the renewable energy market

The rising cost of fossil fuels has created mixed fortunes for the renewables industry.

Johns says, “As renewable energy becomes more competitive versus fossil fuels, governments around the world are under increasing pressure to consider how they incentivize investment in renewables projects, and what impact this has on taxpayers.”

The actions taken by Germany regarding incentives have forced Spain, the US and the UK to start re-evaluating their models. Johns believes this has the potential to change the face of the investment landscape significantly. This will result in a major shift in how countries attract investment in the sector, depending on the incentives they offer and their value for money for the consumer in terms of the number of tonnes of carbon dioxide saved.

Country updates

The US retains the top spot on the all renewable indices, followed by Germany, India, China and Spain rounding out the top five. In addition to the UK and Germany, the report includes updates on the renewables markets in the US, India, Spain, Australia, Italy and Ireland.

About the Indices
The Ernst & Young country attractiveness Indices provide scores for national renewable energy markets, renewable energy infrastructures and their suitability for individual technologies. The indices provide scores out of 100 and are updated on a regular basis.

The main indices are referred to as the 'Long-Term Index'. The Near-Term Index takes a two year view with slightly different parameters and weightings. The country attractiveness indices take a generic view and different sponsor/financier requirements will clearly effect how countries are rated. 25 countries are monitored in the indices.

About Ernst & Young
Ernst & Young is a global leader in assurance, tax, transaction and advisory services. Worldwide, our 130,000 people are united by our shared values and an unwavering commitment to quality. We make a difference by helping our people, our clients and our wider communities achieve potential.

For more information, please visit www.ey.com.

Ernst & Young refers to the global organization of member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients.

This news release has been issued by EYGM Limited, a member of the global Ernst & Young organization that also does not provide any services to clients.