Ernst & Youngs latest
"With policy-makers in pursuit of a miracle cure to the lingering consequences of the financial crisis, the renewable energy sector has, perhaps inevitably, not proved immune to the stalling economic landscape," states the report.
Positive project financing
Despite this, a strong 2011 second half (H2) is expected in terms of project finance lending, reports the company, with H1 2011 lending said to be "almost equal" to that seen in H1 2010. Overall, it says, there was a 24 percent rebound in deal volume in 2010.
Furthermore, the number of deals being done is on the up, which, says Ernst & Young, suggests that lender confidence in renewables is returning.
It was found, however, through a survey conducted with lenders dealing with lending opinions, that ground-mounted photovoltaic technology poses more challenges than onshore wind.
Large rooftop photovoltaic projects, on the other hand, are thought to be lower risk than smaller rooftop projects, which need to "reach a sufficient scale to justify the transactions costs". "In many markets," says the report, "rooftop-aggregation increases risk of an overall portfolio."
According to the survey data, future demand for lending is expected to be driven by the utilities looking to grow their renewable energy portfolios.
"The generally healthy cash position of the utilities sector, relative to private development companies, offers lenders greater security and a resulting greater willingness to lend," explains the Ernst & Young report.
"Most lenders are confident that activity over the next 12 months in the supply chain will be the result of M&A [mergers and acquisitions] rather than single name financing."
Overall, Bloomberg NEF reports that, based on the transactions publicly disclosed, investment in solar has grown 100-fold from USD$0.8 billion in 2000 to USD$79 billion in 2010. As such, of all the renewable energy investments, solar accounts for 25 percent. Wind, as is the trend, comprises the lions share, with 42 percent.
M&A on the increase
In terms of market defining characteristics, the survey participants believe that there will be "strong" M&A activity over the next 12 months, "specifically centered on industry consolidation".
This ties in with previously reported solar opinion, and statements made at this year’s EU PVSEC that consolidation is occurring faster in the industry than originally expected.
In terms of Ernst & Youngs overall renewable energy indices where countries are scored out of a total of 100 points based on their renewable energy markets, infrastructures and suitability for individual technologies China maintained pole position. The U.S. was ranked in second place, followed by Germany, India and the U.K.
Specifically looking at solar in the indices wind comprises 65 percent, solar 18 percent, and biomass and other resources 17 percent the U.S. topped the charts this time, followed by India, China, Spain and Italy.
Meanwhile, in terms of photovoltaics, the U.S. once again was identified as the leader, with India coming in second. Germany and China followed in third and fourth place, respectively, while Italy and Japan ranked an equal fifth.
The main reason for the U.S. success, says Ernst & Young, is down to the Department of Energy loan guarantees, which have helped to boost photovoltaic installation rates this year. However, their uncertain future, coupled with the expiration of loan and grant programs at the end of the year, paints a hesitant picture for solar going forward.
Despite this, cumulative installed photovoltaic capacity in the U.S. has exceeded 2.3 gigawatts (GW), and photovoltaic component prices are again decreasing. "Module prices are down approximately seven percent to an average of US$3.09 (2.15) per watt," says the report.
Moving on to China, project development is expected to pick up, due to both the introduction of the feed-in tariff (FIT) and increased energy demands.
Germany could be facing large FIT cuts, according to Ernst & Young, with the next reduction on January 1, 2012 expected to exceed 18 percent "as it is likely that, between October 2010 and September 2011, more than 5.5 GW will be installed".
"This level would trigger an additional nine percent reduction on top of the base reduction of nine percent planned for January 2012," explains the report, which adds, "If the market exceeds 6.5 GW installed, the reduction will be 21 percent rising to 24 percent if more than 7.5 GW are installed.
"The range of currently feasible outcomes will mean that, in 2012, plants larger than one MW will receive between c16.39 and c18.33 per kWh; small roof-top installations (<30kW) will receive between c21.84 and c24.43 per kWh. With retail electricity prices at around c23 to c25 per kWh, grid parity will be reached in the rooftop segment."