Germany is the most attractive destination in Europe for investment in renewable energy

Ernst & Young’s quarterly Renewable Energy Country Attractiveness Index

• Germany moves into second position, following proposed increases to its renewable energy targets and amendments to the Renewable Energy Act
• UK falls three places to fifth position – it’s lowest since the start of 2007
• US retains and reinforces its position at the top buoyed by a period of legislative activity across several states
• Credit squeeze bites but high quality assets still attract investment

Tuesday 13 November 2007: Germany has emerged as Europe’s new shining light for commercial investors keen to pile their dollars, pounds and pesetas into investing in the renewable energy sector, while the UK has suffered from a fall in popularity due to a comparative lack of pace on policy matters, according to the latest Ernst & Young Country Attractiveness Index – which tracks and scores global investment in renewable energy.

The report, launched today at the World Energy Congress (WEC) in Rome, reveals that Germany has jumped from fifth to second place as the most attractive destination for investment in this sector, displacing the UK, India and Spain which jointly held this position last quarter.

It also suggests that although the credit squeeze* has left many investors over exposed to certain sectors, renewables projects which support mature technologies, backed by well known developers, and based in regions with strong regulatory support, still offer a relatively low risk option for investors.

Germany’s power surge
Jonathan Johns, Head of Renewable Energy at Ernst & Young, says that against this backdrop of evaporating credit, Germany has seen a its previously stalling market for renewable energy reinvigorated, boosted by the recent announcement from the country’s Environment Minister of newly proposed renewable energy targets and amendments to the country’s Renewable Energy Sources Act.

He comments, “Environment Minister Sigmar Gabriel has stated that Germany will aim to provide 45% of total power generation from renewable energy by 2030 with the intermediate EU target of generating 20% by 2020 being raised to 27%. This is a clear commitment from the German government that they are serious about backing renewables.

“In addition, the amendments to Germany’s Renewable Energy Act - which offers greater support for the offshore wind industry - reassure investors that the country is committed to renewable energy being a significant part of its generation mix, long term.”

UK slips down the rankings
In contrast, the UK renewables industry has become becalmed relative to other countries in the past few years, because of the issue of planning and grid connection.

Johns says that while the government has recognised that the planning process in the UK is holding back the renewables sector - highlighted during last week's Queen Speech in which changes to the Planning Reform Bill were announced - if the country is to improve its attractiveness as a destination for investment then it must show the same acceleration in renewables development as the US and Germany.

“For reasons of security of supply and the imperative to tackle climate change, it is important that planning decisions, whilst allowing democratic input, are also accelerated and taken as a whole to allow the capacity we need to achieve the country’s target of providing 15 per cent of its energy needs from renewable sources by 2015.

Continuing, Johns says, “Industry developers have put the pipeline of capacity in place and there is no shortage of money to fund developments, but at the moment the UK has been tackling climate change with the planning and grid hand tied behind its back.

“The Bill is to be welcomed but the question is whether legislators in the long preamble to an election will give the legislation sufficient bite, and whether the increasing reliance on the judicial review process by objectors to delay and frustrate development will be rebalanced to take strategic account of the policy aim,” he adds.

US on a crest of a wave
Although EU countries dominate the Country Attractiveness Indices, the US remains the most attractive destination overall for investment in renewables – a position it has held for two years.

Johns says the US will continue to attract the lion’s share of global investment particularly if changes to legislation in favour of renewables continue.

“Activity, like the energy plans committed to by Illinois and Ohio, will reinforce the attractiveness of the US for investors in this sector. Illinois’ 25 by 25 energy plan, for example, saw the state’s renewable portfolio standard signed into law, which would require 25% of its power to come from renewables sources by 2025,” he says.

Credit crunch bites but how hard?
Although the industry is still attracting significant investment, with certain renewable energy projects left relatively untouched by the credit squeeze*, Johns believes that a continued tightening of credit markets is likely to have some impact on high volume syndicated deals and projects involving less mature technologies.

“Paradoxically, the sub-prime credit crisis could well reinforce the growing appreciation of renewables as the hot investment sector with real cash flows and strong long term growth prospects,” he concludes.