At a time when investment in most other European markets is wavering, further delays in delivering a stable framework in the UK are weakening the country’s promising prospects and holding back investment. “We are at a stage where the UK is presented with a unique opportunity to become a safe harbour for renewable energy investment in Europe,” said Ben Warren, Environmental Finance Leader at Ernst & Young. “The foundations are there, reflected by the UK’s consistent performance in our index and its current 5th place ranking, as well as its huge offshore wind potential.
“However, competing visions and strategies within the Government about the country’s future energy mix, pose serious questions amongst investors about whether we can compete for capital on a global level,” added Warren. “Although we are starting to see nods towards a more stable investment environment through initiatives like the Green Investment Bank (GIB) attracting significant foreign investment, more needs to be done to help the UK realise its full potential,” he said.
The latest RECAI index includes a revised methodology to reflect the shift in investment and deployment drivers and the maturing of the sector since the report’s creation ten years ago, according to Ernst & Young. Key changes include an increased focus on the role renewable energy plays in each country’s energy mix, energy supply and demand, the cost competitiveness of renewable energy, the importance of decarbonisation and an increased emphasis on the economic and political stability of each particular market.
The index sees the US regain the top spot, as high barriers to entry for external investors realign China into second place. However, growth prospects for the sector in China remain strong with continued GDP growth, increasing energy demand, and the ongoing strategic importance of the sector to the local economy providing solid foundations for the future.
South America continues to grow in prominence, thanks in part to its growing energy demand. Chile’s project pipeline includes 300-400MW concentrated solar power plants, while Peru has entered the index for the first time due to good natural resources and a strong investment climate. However, new policy measures and tender cancellations in Brazil are likely to temper the rapid growth seen in the region over the last 18 months, said the authors.
High levels of project activity and investment interest in Japan and Australia give the Asia Pacific region a stronger presence at the top of the index, said the company. Thailand also joins the index in this issue, boasting strong solar resource and a healthy project pipeline, as well as stable fiscal and regulatory support measures.
In Europe, Romania became the latest to slash its subsidies, reinforcing the relatively sombre mood in Eastern Europe as policy makers try to find the balance between growth and sustainability, the report found.
A number of the Middle East and North Africa countries, including Egypt, Tunisia and the UAE, have fallen out of the top 40 due to a slow recovery from the Arab Spring and an absence of clear policy frameworks delaying capacity deployment, according to Ernst & Young.
Deal activity in the sector has been characterised by both incumbents and new entrants driving industry consolidation. There is also a strong appetite from Far East construction groups and original equipment manufacturers (OEMs) seeking development pipelines of solar and wind assets to provide a distribution channel for their products.
Factors driving the levels of investment in renewables include divestment needs, market restructuring and the entry of new investors into the sector. Utilities and financial buyers are finding greater value in buying operational plants than investing in plant construction.
“The mismatch between project sponsors’ capital expenditure plans and the corporate capacity to finance this investment will continue to drive more asset disposals,” said Warren. “Both financial investors and OEMs under pressure from overcapacity are likely to remain the most active buyers of operational assets and development assets respectively.”
“Further consolidation can be expected in the supply chain. Depressed pricing, reduced fiscal support for renewables and continued overcapacity are all going to contribute to additional casualties in the year ahead,” Warren concluded. “However, with the shift in power democratising the energy sector and increasing the power of the consumer, the future role of renewables in the energy mix is bright.”