Global investment in renewable energy decreased 11% in 2013, but an abundance of opportunities in new markets, new technologies and new sources of capital all signal brighter times ahead, according to EY's latest quarterly Renewable Energy Country Attractiveness Index (RECAI).
‘The 2013 fall in global investment reflects another challenging year for the renewables sector, with policy uncertainty in particular reducing investor appetite across many markets,’ says Gil Forer, EY's global cleantech leader.
"However, it also reflects a maturing sector, with falling technology costs filtering through to lower investment requirements: increasing the dollar power per megawatt. We must now, therefore, focus on what needs to be done to maximize investment and deployment in light of the fact renewable energy is becoming increasingly cost-competitive."
The U.S. maintained the top spot on EY's index, but the company notes that China closed the gap, installing a record-breaking 12 GW of solar capacity in 2013 and ramping up its consolidation effort to accelerate market recovery. The report says Germany remains in third place, but the country lost ground following the announcement of subsidy cuts and watered-down renewables targets by the new coalition government. Rapid solar market growth and a burgeoning offshore sector helped Japan to replace the U.K. in fourth place, while the U.K. continues to be hampered by political infighting and mixed policy measures, the report adds.
Prolonged energy strategy consultation and anti-renewables legislation have resulted in ranking falls for France and Australia, respectively, while ambitious targets and a series of large-scale project announcements have seen India jump to seventh place. The report notes that competitive bidding trendsetters Brazil and South Africa have also risen in the index, thanks to a plethora of new projects awarded in 2013 auctions.
Looking ahead, EY says industry growth this year will require governments to depoliticize the energy debate in order to support stable and long-term policy measures. In addition, EY anticipates a stronger focus on asset optimization and new ways to extract value or reduce costs.
"In short, 'efficiency' and 'effectiveness' need to be this year's buzzwords," comments
Ben Warren, EY's global cleantech transactions leader. "The market should be setting its sights on: value chain integration, consolidation on a global scale, repowering, transaction and capital efficiencies, and technology improvements.
"Renewable energy is now a truly global market, and stakeholders must develop a global strategy and a global supply chain, be flexible to market changes, and be willing to go in search of new markets."
The report says emerging markets now attract about half of new investment in the sector. According to the report, markets to watch this year include Ethiopia, Kenya, Indonesia, Malaysia and Uruguay.
Also, the report says that following the urgent call for new sources of capital and new investment vehicles in 2013, the theme of innovative financing will remain at the fore this year.
"As a capital-intensive sector, accessing diverse pools of capital is critical for the future of the industry," explains Warren. "Renewable energy financing is no longer just the remit of banks and utilities. There are deep pools of capital to be tapped, but creative solutions and new conduits must be identified to open up the finance markets once again and bridge the gap between investors and projects.
"The markets that will rise up the RECAI in 2014 are those that embed renewables as a core part of their energy strategy; to stimulate economic growth through addressing the fundamentals of energy security and low-cost energy generation."