Renewable energy investment to fall in 2012; emerging markets rule the roost


"The transition to a more resource-efficient and low-carbon economy is inevitable," states Gil Forer, Ernst & Young's global cleantech leader. And, while renewable energy investment is expected to fall for the first time in 8 years in 2012, from the record US$237 billion (€183.08 billion) reaped in 2011, the news should not necessarily be taken as negative.

Indeed, as Ben Warren, Ernst & Young’s energy and environmental finance leader points out, while prices have dropped, capacity is continuing to be added and emerging market activity is "booming".

"As corporations evaluate the risks in regards to energy security, energy prices, the regulatory environment, brand and pressure from stakeholders; they are beginning to focus on optimizing their energy mix through increasing their investment in – and deployment of – renewable energy," explains Forer.

Emerging markets

In its latest renewable energy country attractiveness indices, which rates 40 countries on the attractiveness of their renewable energy markets, energy infrastructure and suitability for individual technologies, Ernst & Young finds that, as was predicted both at the end of 2010 and 2011, emerging markets have ruled the clean energy roost in 2012.

Of particular note, says the company, are the United Arab Emirates (UAE) and Saudi Arabia, which have both been included in the renewable energy indices for the first time at number 35 and 27, respectively (although they are not featured in the solar indices).

Both have recently unveiled solar plans, with Masdar in the UAE announcing the commencement of commercial operations of its 100 MW Shams 1 CSP plant in Abu Dhabi by the end of the year, and its plans for the construction of the 100 MW Noor 1 photovoltaic plant. Meanwhile, in Saudi, the government has announced intentions to install 41 GW of solar by 2032.

In addition to the UAE and Saudi, Qatar, Jordan and Egypt have been identified as the most attractive MENA markets for renewable energy over the next 5 years.

As has already been reported, the lack of concrete government support currently represents the biggest barrier to the uptake of such renewables as solar in the region. However, it does display a proven track record in energy infrastructure, and robust financial markets, says Ernst & Young. Despite this, "these markets and others will also need to find ways to attract more private investment if they are to avoid overreliance on government-driven growth."

As with IHS, South Africa has also been identified as a promising emerging market by Ernst & Young, following the introduction of its Renewable Energy Independent Power Producer Programme (REIPPP). Overall, it has been ranked 17 in the renewables index and 19 in the solar index.

Likewise, Romania has been named by both IHS and Ernst & Young as an important emerging market. This is said to be due to its favorable regulatory environment and a "lack of investment outlets in other sectors". However, the solar industry has a lot of catch up to play, if it intends to make waves, with cumulative capacity just sitting at 5 MW.

It is hoped, however, that the "attractive" incentive scheme – 6 green certificates for every MW generated – combined with shorter construction times and improved development processes will speed development up. Ernst & Young has placed it number 13 in the renewables index, and 24th in the solar index.

While it slipped one place to third in the renewables index, the U.S. is in pole position in Ernst & Young’s solar league. Meanwhile, China tops the renewables pops, but is only ranked third in the solar index; and Germany appears second and fourth, respectively, in the renewable energy and solar indices.

Japan, ranked 8th and 5th in the renewables and solar indices, respectively, has been praised for undergoing "the biggest shift in national energy policy", on the back of its 2040 nuclear phase out and the introduction of its FIT in July. Already, Bloomberg New Energy Finance estimates that around 900 MW of utility-scale solar projects have been announced this year, of which 350 MW are already under construction.

"Over the next decade, other countries such as Morocco, Chile, Thailand, Jordan, Pakistan and the UAE are likely to follow suit by realigning their respective energy strategies to incorporate an increased focus on renewable energy, in order to address resource scarcity, job creation and national competitiveness," forecasts the company.

Looking at the South American photovoltaic market, Ernst & Young says that grid parity will remain a "key determinant" in its future. However, high solar irradiation and falling costs are helping to open opportunities in the region up. Increased energy demands are also presenting prospects for renewable energy. Both Brazil and Chile have reported marked increases in their solar market activities in recent months.

While Spain topped the renewables index 5 years ago, it has failed to feature in the top 10 this time around, following the government’s temporary suspension of renewable energy tariffs earlier this year, and the introduction of a 7% energy tax. Despite this, it is still ranked number 9 in the solar index.

Grid parity will also be key for the further development of the country's solar market. However, companies like Gehrlicher Solar are already planning to develop photovoltaic plants in Spain without the support of subsidies.

Demands & challenges

In conclusion, Ernst & Young predicts that global energy consumption will increase by an average of 3% over the next 10 years, primarily due to demands from emerging markets. As such, "Emerging markets’ decisions around managing this growth will be a critical factor in determining the next phase of the global clean energy transformation."

Looking ahead to 2013, the company forecasts another challenging year, with efforts to decrease the amount of oversupply in the market, and global governments aiming to reduce subsidy reliance.

The indices provide details for all the 40 countries listed. In the renewable energy index, the top 10 featured are: China, Germany, the U.S., India, France, the U.K., Canada, Japan, Italy and Brazil. In the solar index, the top 10 are: the U.S., India, China, Germany, Japan, Australia, France, Italy, Spain and Morocco.

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