The index rankings reflect our assessment of the factors driving market attractiveness in a world where renewable energy has gone beyond decarbonization and reliance on subsidies.
We have defined the questions being asked, based on what we see as global market trends affecting investment and deployment priorities, and the challenges and success factors impacting our clients.
- Is there a long-term need for additional or replacement energy supply? If so, is there a strong case for energy from renewable resources in particular?
- Is policy hindering or helping the ability to exploit renewables opportunities in a country?
- Are essential components in place to ensure project delivery, such as long-term contracts, grid infrastructure and availability of finance?
- What does the strength of natural resource, track record and project pipeline reveal about the outlook for particular renewable technologies?
- Even if all other boxes are ticked, does the macro stability and investment climate enable or impede the ease of doing business in a country?
The index pillars therefore put emphasis on fundamentals such as energy imperative, policy stability, project delivery (including capital availability) and diversity of natural resource, factors which will increasingly become key market differentiators as markets move toward grid parity, and “artificial” motivations such as government targets, or the ring-fencing of technologies, become less critical.
Accounting for COVID-19
A new COVID-19 correction parameter has temporarily been added to the RECAI to reflect the impact of the pandemic, which we believe will have a short-term dampening effect on the renewable energy transition. The intention is to gradually reduce the weight of the parameter in future RECAI issues as the data feeding into the RECAI begins to reflect the impact of COVID-19.
The new COVID-19 correction parameter is centered on three criteria, for which the country is given a score. The criteria are:
- The strength of the country’s health care system
- The size of the population at risk based on demographics
- Economic vulnerability
At this time, the parameter does not incorporate COVID-19 data (e.g., tests performed, cases and deaths reported). The inconsistent approaches to testing and reporting on the pandemic across different countries impairs direct comparability.
Determining the country rankings
Each parameter within the five pillars comprises a series of datasets that are converted into a score 1-5 and weighted to generate parameter scores. These are then weighted again to produce pillar scores and then an overall RECAI score and ranking. Weightings are based on our assessment of the relative importance of each dataset, parameter and pillar in driving investment and deployment decisions. Each technology is also allocated a weighting based on its share of historical and projected investment levels.
Separate to the main index, our technology-specific indices rankings reflect a weighted average score across the technology-specific parameters and a combined score covering our other macro and energy market parameters, since some markets may be highly attractive for specific technologies but face other major barriers to entry.
Datasets are based on publicly available or purchased data, EY analysis or adjustments to third-party data. We are unable to publicly disclose the underlying datasets or weightings used to produce the indices. However, if you would like to discuss how our RECAI analysis could help your business decisions or transactions, please contact the report’s senior advisor, Phil Dominy.