Government shift toward domestic, low-carbon energy could risk global net-zero ambitions – EY research

• US retains top position on Renewable Energy Country Attractiveness Index, but regulatory change risks imbalance in international capital allocation
• Germany overtakes China Mainland in the Index, targeting 80% renewables in its power mix by 2030
• Southeast Asia’s Thailand, Vietnam and Philippines rank among top 40 renewable markets; India rises to 6th place in the index in a bid to become a major producer and exporter of green hydrogen

The drive for energy security and a recessionary environment means the renewables industry has never had a better opportunity to accelerate, according to the latest EY Renewable Energy Country Attractiveness Index (RECAI). Interdependent legacy market dynamics are no longer seen as sustainable, while domestically produced, low-cost, low-carbon – and in some cases, low-lead time – energy looks more attractive than ever. The 61st edition reveals that developing policies to encourage the buildout of renewables has risen to the top of many government agendas.

However, the research highlights that government interventions have the potential to cause an imbalance in international capital allocation, and net-zero targets could be missed if localized supply chains are not put in place quickly enough.

Ben Warren, EY Renewables Corporate Finance, and RECAI Chief Editor, says:
“We are seeing signs of a mid-year recession – and given that such an environment typically facilitates spending and incentives for infrastructure projects, a generational opportunity has emerged for the renewables industry to turbo-charge green energy demand more than subsidies have in the past. For larger economies, it could even drive growth through scaling up capacity in the push for energy independence.”

US Inflation Reduction Act changes the game

The US maintains its top position in the Index, supported by the passing of the Inflation Reduction Act (the Act) in August 2022, which earmarks a combined US$369b for investment in energy security and climate change. 

Ten months since its passing, this edition of RECAI seeks to explore how capital reallocation is impacting investment opportunities in markets outside the US. Among European politicians and policymakers, there are concerns that the Act is incentivizing developers and manufacturers to locate investments in the US and away from Europe. And similar concerns have emerged elsewhere in the world, with governments examining the impact and formulating their responses at the policy level.

Arnaud de Giovanni, EY Global Renewables Leader, says:

“Legislation has sparked a race to the top among international markets eager to boost the competitiveness of their renewables industry. And with investment in green technologies benefitting from an impressive 19% rise last year, testament to the accelerating pace of the energy transition, a unique opportunity has emerged for the industry, worldwide, to double down on efforts to stimulate renewables supply and demand.”

Market highlights: Germany surges, Japan adjusts position, and new contenders emerge; Southeast Asia’s Thailand, Vietnam and Philippines retain top 40 positions

Germany climbs one place to second position in the Index for the first time in a decade, overtaking China Mainland. This is driven by Germany’s efforts to accelerate power market reform, transitioning away from fossil fuels as it pushes to achieve 80% renewables in its power mix by 2030. Currently, it accounts for 46%, up from 41% at the start of 2022.[i]

Japan has moved down one spot to 10th position, overtaken by the Netherlands, which expects to deploy over 800MW of offshore wind by the end of 2023. Other notable markets include Egypt, which has set in motion plans to become a global market leader in wind energy, building on promises set out during its hosting of COP27. And Argentina falls four places to 13th position, with further investment in grid infrastructure required to meet its renewable growth targets.

In Southeast Asia, Philippines (33rd position, down 6 spots), Vietnam (36th position, unchanged) and Thailand (38th position, up 2 spots) are among the top 40 renewable markets. Notably, this issue of the RECAI highlights that Vietnam is turning its attention to untapped potential in offshore wind, thanks to strong winds and relatively shallow waters near populated areas. Vietnam also hopes that the development of its offshore wind capability will spark growth in supporting industries and logistics services.

Gilles Pascual, EY Asean Power & Utilities Leader, says:

“There continues to be progress throughout Asean in the deployment of renewable energy as governments consider the implications of national net-zero commitments.

“For example, Vietnam just issued its long-awaited Power Development Plan 8, which sets new targets for renewable energy technologies. The market is now eagerly awaiting the publication of policies that will set the stage towards achieving these targets. Indonesia is also actively participating in the Just Energy Transition Partnerships dialogues that is expected to enable a faster energy transition and adoption of renewable energy. Earlier this year, Singapore issued its first conditional license for the import of renewable energy from Laos and Cambodia to Singapore.

“These initiatives send an encouraging signal that Asean is committed to meeting its climate targets with a pipeline of opportunities for developers and investors.”

India seeks to become a major producer and exporter of green hydrogen

India has moved ahead of Australia, climbing one place to 6th position in the Index, boasting the fastest rate of renewable electricity growth of any major economy.

India’s renewables industry is growing rapidly, with solar leading the transition. In 2022, solar accounted for 63GW of the market’s total 163GW renewables capacity, followed by renewable hydropower, at 47GW, and wind power, at 42GW.[ii] Solar – which is expected to continue to play a dominant role in India’s energy mix – and wind, however, are closely associated with intermittency issues, which can strain power grids unless properly managed. As a result, ensuring round-the-clock supply is becoming more of a priority, particularly as India aims to become a low-cost renewables production center, targeting export markets as well as domestic consumption.

RECAI 61 also explores how hydrogen is making its way into India’s domestic renewable energy mix. Although the green hydrogen industry is still nascent, with considerable uncertainty ahead, substantial opportunities are presenting themselves, as a growing number of markets look to import green hydrogen over the longer term.

To view the full RECAI top 40, the normalized RECAI ranking and the corporate power purchase agreement index, as well as an analysis of the latest renewable energy developments across the world, visit ey.com/recai.

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Notes to editors:

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