EY UK Energy blog

Renewable energy industry reaches inflection point

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Posted: Thursday, 29 November 2012 at 8.00am

As the author of EY’s quarterly Renewable Energy Country Attractiveness Indices (3.2Mb, November 2012), I’m pleased to bring you my inaugural blog.

For the global renewable energy industry, the year of 2012 will probably not be held in the fondest regard. The continued Eurozone crisis appears to have led to schizophrenic policy making in some quarters. The big “P” of politics has certainly dominated the small “p” of policy, and it seems long-term decision making and regulation (something that is quite important when trying to stimulate many hundreds of billions of dollars of urgently needed investment) is being made with only the next election in mind. These sentiments will undoubtedly resound with those in the renewable energy industry that spend most of their time and investment dollars in more mature developed markets. However, they are probably a far cry from the BRIC economies, and indeed many other developing economies.

So where did it all go wrong in the west? Feed in tariffs and other financial incentive packages seemed to make sense when Europe and the US talked of leadership in the war against climate change, and leadership in creating green collar jobs. The US allocated $50bn of their economic stimulus package towards renewable energy, energy efficiency and related R&D in 2009. Perhaps more startling at the time was news coming from the east; the Republic of Korea’s $30.7bn package was one of the most significant of the G-20.

Since 2009 it is the divergence in renewable energy strategy at an economic level between the east and west, or developed and developing economies, that has been the most surprising. Developed markets have since continued to struggle with the digestion of excess credit, whilst developing markets have seized the opportunities of green growth with both hands. Even short term green investment measures (for example in the solar and wind sectors) in markets like Korea and China have had a huge impact in creating export markets for locally manufactured equipment. Whether these markets can be sustainable without significant levels of state support and whether they survive the emerging trade spats, remain to be seen. But one thing is for sure; western jobs have been lost, and with them apparently the west’s appetite to take a leadership position in these sectors.

It will be a good few years beyond 2012 before we know whether western policy makers have missed a trick. Whilst developing economies continue to invest in longer term energy solutions like nuclear fusion, hydrogen energy and high efficiency fuel cells, short term politics in markets closer to home may well prove to be extremely costly indeed.

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