A new era is dawning in the renewable energy industry, says Ernst & Young. According to the company's 10th anniversary edition of the Renewable Energy Country Attractiveness Index (RECAI), global annual clean energy investment totaled $269 billion in 2012, representing a five-fold increase on 2004.
The sector now competes for investment with more traditional energy sources, and new technologies – such as solar panels, biomass boilers and mini wind turbines – are enabling energy users to run their own small power plants, changing the way businesses and consumers think about energy, Ernst & Young adds.
‘The renewable energy landscape today is truly global. From Japan and Southeast Asia to Africa and South America, renewable energy is a viable energy source that is gaining a solid and growing share in the energy mix,’ says Gil Forer, Ernst & Young's global cleantech leader.
‘But, the renewables industry is facing growing pains,’ Forer notes. ‘Not only is the future a place with less government support, but industry players also have to fight for market share across all corners of the globe and with some worrying signs of trade barriers emerging.
‘For an industry that is still relatively new, this is a seriously challenging time. Leaders need to be conversant in international business, conscious of global politics and clever in innovating new business models and business relationships to win in an increasingly global competitive world.’
Rising or stalling?
According to the report, South America and the Asia Pacific region continue to rise as Europe and the Middle East stall.
The index sees the U.S. regain the top spot, as high barriers to entry for external investors realign China into second place. However, the report says growth prospects for the sector in China remain strong with continued gross domestic product 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 MW to 400 MW concentrated solar power plants, while Peru has entered the index for the first time due to good resources and a strong investment climate, Ernst & Young says. 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.
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. 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, Ernst & Young adds.
In Europe, the report says Romania became the latest to slash its subsidies, reinforcing the relatively somber mood in Eastern Europe as policymakers try to find the balance between growth and sustainability.
Ernst & Young notes that a number of Middle Eastern and North African countries, including Egypt, Tunisia and the United Arab Emirates (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.
Ernst & Young says recent deal activity in the renewable energy sector has been characterized by 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 renewable energy 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, according to the report.
The mismatch between project sponsors' capital expenditure plans and the corporate capacity to finance this investment will continue to drive more asset disposals, Ernst & Young adds. 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. New markets are gaining momentum," says Ben Warren, Ernst & Young U.K. environmental finance and global cleantech transactions leader. ‘Countries and corporations are increasing their focus on changing their energy mix to ensure it provides financial, reputational, operational and social benefits.
‘We're also seeing the development and implementation of national renewable energy program best practices. In summary, with the shift in the democratization of the energy sector and the increasing power of the customer, the future of renewable energy in the energy mix is bright.’