The United States regains the top spot in the latest quarterly Ernst & Young Renewable Energy Country Attractiveness Index (RECAI), as the government’s support for the industry and a permanent extension of the Production Tax Credit helped sentiment.
Barriers to external investors demoted China to second place following its top ranking in March, although growth prospects for the sector in the country remain promising on the back of continued GDP growth and increasing energy demand.
Germany, Australia, the UK and Japan ranked third, fourth, fifth and sixth respectively in the survey that ranks a total of 40 countries in terms of attractiveness of their renewable energy investment based on a number of macro, energy market and technology-specific indicators.
High levels of project activity and investment interest in Japan and Australia gives the Asia-Pacific region a stronger presence at the top of the rankings, E&Y says.
Australia is attracting “admiring glances” from investors eager for a slice of its A$10 billion Clean Energy Finance Corp, which will start issuing loans in July 2013.
However, interest may falter, with the 14 September election expected to see a change of government in favor of the Coalition, which has vowed to axe the program along with the country’s emissions trading scheme.
In Japan, the 10% cut in the solar feed-in tariff cut on 1 April had little impact on the market. Revised PV forecasts could see up to 9.4GW of capacity installed in 2013, E&Y says, putting Japan in second place behind China.
Elsewhere in the Asia-Pacific region, Thailand joins the index at 30, boasting strong solar resource and a healthy project pipeline.
South America continues to grow with Chile’s project pipeline includes 300MW-400MW concentrated solar power (CSP) plants, while Peru has entered the index for the first time.
Globally, investment in clean energy grew to $269 billion in 2012, a five-fold increase from 2004, the first full year of EY’s renewable energy index.
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, E&Y’s Global Cleantech leader.
“But, the renewables industry is facing growing pains. 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,” she says.
“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.”
The global financial crisis may have catalyzed the union of the young and capital hungry renewable energy market, and mature, deep pocketed institutional investors, E&Y says.
“As the demand for new capital sources increases from project sponsors, and institutions continue to seek long-term predictable yield-bearing investments, it is perhaps inevitable that increased volumes of capital will be derived from institutional investors,” E&Y says.
Global deal activity has been characterized by both incumbents and new entrants driving industry consolidation, E&Y says.
A strong appetite from Far East construction groups and OEMs seeking development pipelines of solar and wind assets to provide a distribution channel for their products has been a major driver.
The report notes utilities and financial buyers are finding greater value in buying operational plants than investing in plant construction.
The solar industry continues to grapple with falling materials prices and over-leveraged balance sheets, increasing the probability of renewed consolidation. Meanwhile, falling costs are prolonging pricing and margin uncertainty across the supply chain and buyer activity continues to be selective.
Oversupply in the wind and solar PV sectors is expected to lead to further consolidation during 2013, but currently stressed borrowing positions and restructurings remains challenging.
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