The global transition to a clean energy economy is taking many twists and turns along the way, the most recent one sees investment leaning towards so-called emerging markets and away from some of the most established markets. This is according to Ernst & Youngs renewable energy country attractiveness index (RECAI), which presents a bright future for renewables in Latin America, but not such a rosy picture for the European markets.
To assess the attractiveness of a country, Ernst & Youngs annual report takes into account five predominant factors; macro fundamentals, energy imperative, policy enablement, project delivery, and technology potential. This years RECAI comes at a critical time for renewable energies, as clean energy targets are increasing, while renewable technology prices are falling, but not all national policies are complimenting a transition towards renewable energy economies.
We are now in an era where policymakers and regulators must shift their focus on market access and fair play; where technology improvements and costs curves will lead to a level of renewables deployment not even imagined, said Ben Warren Ernst & Young Global Power & Utilities Corporate Finance Leader.
Before getting onto the big movers up and down the index, the top three remained unchanged, with the U.S. taking number one spot, China coming in at number two, and India at third. The situation in the U.S. is particularly encouraging, as it expects to see 41 GW and 56 GW of wind and solar respectively added in the next five years.
Latin America charging up the index
Another big success story within the 2016 RECAI came from south of the U.S. border, as a number of Latin American countries have risen up the index. Three Latin American countries Chile, Brazil and Mexico are within the top ten, while Argentina is the highest new entry on the index, coming in at number 18.
Highest of all the Latin American countries is Chile at number four. The growth of renewable energy in Chile is spurred by its governments ambitious target to have 70% of the countrys energy supplied by renewables by 2050, which has seen huge renewable projects being developed in the country. These projects look set to continue, as Bloomberg New Energy Finance forecasts at least 4.7GW of renewables capacity to be added in the next three years.
Mexico is another Latin American country to rise up the index, now in seventh place, as an energy reform policy has opened up the countrys power market to the private sector and has begun to attract huge investment in renewable energy projects.
The countrys first energy auction since the reforms was a symbolic event, which saw over 2 GW of solar and wind PPAs awarded across 16 projects. The auction, which took place in March, saw projects awarded at extremely competitive prices, and attracted an estimated US$2.5bn in investment.
A second auction is expected to take place later in the year, with 50% more energy than the first auction anticipated to be on offer. These encouraging signs show that the country is serious about meeting its target of 35% clean energy by 2024, and 50% by 2050.
Argentina made a sudden splash on this years RECAI, as the previously unlisted country entered the index at number 18. Renewable energy investors now have the spotlight on Argentina as a new government has been pushing through energy sector reforms.
Mauricio Macris government has added new clean energy targets and fiscal incentives to the countrys renewable energy law. Additionally, in April it established a new landmark renewable energy policy, which created a trust fund for renewable energy and outlined bidding processes for renewable energy projects. This is music to the ears of renewables investors, as the renewable energy resources in the country are abundant.
Aside from Latin America, other emerging markets from Africa and Asia have also risen up the chart including South Africa, Morocco, Egypt, Philippines, Kenya and Pakistan, indicating a change in the wind for the global renewable energy market.
"Emerging markets are transforming their energy industries at an unprecedented pace, said Warren. Last year, renewable energy investments in the developing world overtook those in the developed world for the first time. Latin America, in particular, has become something of a litmus test for how quickly markets can grow."
"Markets earlier in their renewables journey are benefiting from cheaper and more efficient technologies, lower cost of capital and more reliable resource forecasting. The increasingly global flow of capital proves that investors are becoming more comfortable with new markets. We can expect to see massive deployment of low carbon investment in developing markets.
Europe on the decline
Unfortunately, the same encouraging signs cannot be seen in the more established European markets, as all but two Denmark and Finland of the European countries on the index fell down the league table. The largest European markets to drop down were Germany, now at number five, France at number eight, and the U.K. at number 13; its lowest ever placing.
Once the global leader in solar PV and a champion of a renewable energy revolution, Germany has experienced an unexpected U-turn in the political discourse regarding renewables over the last couple of years. Symbolic evidence of this is a new proposal to limit renewables in the country to 40% to 45% of its total power generation, amid fears that it could increase consumer energy prices.
This figure was once the minimum target for the country, which at one stage was well on its way to achieving it. Last year, renewables supplied 33% of Germanys electricity, but the industry is stagnating, which is fueling investment hesitation and uncertainty over the countrys long-term renewable goals.
The U.K. fell to the lowest position that it has ever been on the index, lingering outside the top ten at number 13. The lack of appeal for investment in British renewable energy projects is being fueled by hostile renewable energy policies introduced by the U.K.s current government, which, among other things, have cut subsidies for solar installations.
A non-committal approach is putting the attractiveness of the U.K.s renewable energy sector on a landslide, commented Warren. The current approach is going against the grain of almost universal global support for renewables, and is masking the U.K.s advantages of a growing energy imperative.
With Europe now beginning to fall behind other parts of the world, it is unclear how they will begin to become more attractive for renewable energy investment, or if there is huge motivation to do so.
The ability to climb the index or remain in it at all will depend on both industry and policymakers delivering results, not just promises, added Warren. Tendered capacity must be converted into assets in the ground, and commercial viability must enable supply and demand to interact freely in the market.