Europe gains ground on the US as most attractive destination for investment in renewable energy

London, 20 March 2007 — Europe is gaining ground on the US as the most attractive destination in the world for investment in renewable energy, according to the latest Ernst & Young Renewable Energy Country Attractiveness Index — which tracks and scores global investment in renewable energy.

The report, launched today, reveals that the EU announcement to mandate the increased use of renewable energy across Europe by 2020 has significantly boosted Europe’s overall attractiveness for investors in the sector — six of the top 10 countries in the index are EU member states.

The index, which tracks the top 25 national renewable energy markets, shows that the US lost ground in the fourth quarter of 2007 to its second-place rival, Germany — a consistent performer of late. Germany’s industry has been boosted following the announcement of the Renewable Energies Heating Law, which requires all new buildings built after 1 January 2009 to incorporate renewable energy heating systems.

Europe is the hot spot for investment
Jonathan Johns, head of renewable energy at Ernst & Young, says that the EU’s 2020 emissions and energy generation targets present an enormous shift in emphasis and importance for renewables as part of Europe’s energy mix.

He comments, “Following the EU’s binding targets announced in January of this year, which were widely expected, renewable energy is now seen as a vital component of the energy mix as a whole, rather than simply a source of electricity.

“This means that in many countries renewable electricity may need to increase to around 30 to 40% of total electricity generation to meet the likely shortfalls in heat and biofuels. This sets the scene for sustained growth and investment in renewable power throughout the next decade, as well as providing a significant boost for the renewable energy heat and biofuels sectors.”

Johns says that while Europe, with Germany, Spain and the UK in the top five of the indices, is powering ahead on renewable energy investment, the US — the clear leader for investment in the sector for the last year - has started to slip. In the 2007 US Energy Bill, the Renewable Energy Standard (RES) provision that would have required investor owned utilities to obtain 15% of their power from renewable sources was dropped. Also, the Production Tax Credit (PTC) for renewable energy generators, due to expire in 2008, was not extended, further hampering the industry’s progress.

Opportunities present challenges for the EU
While the binding EU targets present huge opportunities for the renewables industry, fulfilling the targets will be a challenge for many member states. Amongst the most affected countries in the indices are Denmark and Ireland both of which have to reduce carbon emissions by some 20%.

In a relatively short time frame, Johns says that governments across Europe need to develop clear and workable regimes that will attract the necessary investment into the development of new projects, supporting infrastructure such as transmission and distribution and back-up generation, and investment into the supply chain.

A number of energy challenges are still faced by governments in Europe. Johns cites problems in the UK around implementing further legislative changes, over and above those in the UK Energy Bill, particularly around renewable heat. “A lack of viable heat support mechanisms is a problem the UK shares with much of the rest of Europe. A number of countries also lack sufficient legislation around biofuels,” he comments.

M&A and supply chain investment continues at pace
Globally, despite the credit squeeze, M&A activity and investment in the supply chain are showing no signs of dampening, according to Johns.

“While the credit squeeze may impact the level of risk associated with large independent renewables projects, utility companies and infrastructure funds will remain a key driving force in the development and acquisition of renewable energy assets.

“They will place more emphasis on these assets to help them establish a balanced energy mix, thus reducing their reliance on fossil fuels and their susceptibility to future price spikes.

Supply chain investment is also likely to accelerate — we predict double digit growth in the wind turbine market and significant investment in solar technology,” he adds.

Johns concludes, “Despite economic difficulty and uncertainty, 2008 could well be another record-breaking year for investment in the industry.”

Other country highlights include:

• India — the Ministry of New and Renewable Energy has identified 216 potential sites for onshore wind power developments along India’s east coast, with an estimated potential of 8.2GW of generation capacity - more than India’s current total onshore wind capacity of 7.5GW.
• Spain — the Spanish government has announced a considerable increase in its wind energy capacity target from 13GW currently to 29GW by 2016. As a consequence sector participants believe they can have a total of 40GW of onshore wind and 5GW of offshore wind capacity installed by 2020.

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 index is 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 affect how countries are rated. 25 countries are monitored in the indices.

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