Ernst & Young: Political Uncertainty Making Clean Energy Investors Nervous

The renewable energy industry is being harmed by political uncertainty and party posturing and this must be rectified in order to attract more investment to the sector, Ernst & Young said in its latest Renewable Energy Country Attractiveness Indices report published this week.

Although renewable technology innovation presents a great opportunity, unintended consequences of political squabbling is stifling the sector’s growth, said Ben Warren, Global Cleantech Transaction Leader at E&Y.

The report was particularly critical of the UK, where infighting is “hampering any tangible cohesive long-term energy strategy, leaving wind developers and gas suppliers alike in the dark on what the future holds”.

Although there was little change at the top of the rankings, with the Unites States leading the way from China, a score deduction from Germany could threaten it’s third place ranking, especially if a decision on a governing coalition is not announced soon.  Also, the report points out that the impact of shale prices in the U.S. and the lack of a long-term energy policy may cause nervousness among clean energy investors over the next few months.

While stalemates are stalling growth in countries such as Germany and the UK, Ernst & Young was bullish on developments in growing economies such as Brazil, China and India.

Renewable energy made up a large portion of Brazil’s 2013 electricity auctions, which has created confidence and will see more capacity coming online in the near future.

Significant investment in power transmission systems in both India and Japan impressed Ernst & Young and consequently saw both countries retain their top ranking in the index.

South Korea entered the top 10 as nuclear shutdowns improve the outlook for wind and solar power generation.

The lingering effects of the Eurozone crisis affected Spain and Italy’s attractiveness as both countries have reduced the support mechanisms in place for renewable infrastructure.

Kenya entered the top 40 for the first time in Q3 as an attractive investment environment looks set to make it a hub for renewable energy in East Africa, with several large projects already in the works.

Kenya’s improved rating caused New Zealand to tumble out of the index as poor incentives for renewable energy have hindered the industry’s growth.

According to E&Y’s report, key advances in clean energy over the next few years will include:

  • Innovations in floating wind farms that can harvest wind from deep coastal areas in emerging offshore markets of U.S., Japan, and Norway.
  • The commercialization of new organic solar PV cells made from carbon-based molecules, which are much thinner, have lower costs and higher efficiency than traditional solar cells.
  • Further developments in emerging storage technologies that can exploit the full potential of clean energy sources, with advancements expected in: flow batteries, liquid metal batteries and compressed air batteries.

 

IPOs have seen a resurgence this year, particularly “YieldCo” IPOs, according to the report, with an estimated $6bn set to be raised by the end of 2013. The largest floatation was New Zealand’s Mighty River Power, which raised $1.4bn. Renewable energy firms have also gone public in the US, Canada, Brazil and the UK.

As projected yields appear to be based on solid ground, the report says the IPO trend could be here to stay as investors need no longer to be scared away by extreme volatility.

Pension funds have been particularly active in investing in clean energy projects offering stable yields, with Denmark’s PensionDanmark at the forefront, investing $200m in US-based Cape Wind this year, having already invested heavily across the world. Dutch pension fund PGGM Investment, which manages $178bn, has also allocated 15-20% of its infrastructure portfolio to renewable energy investment.

According to an E&Y survey, in order for pension funds to to continue to invest in clean energy, firms must be committed to greater investment transparency, while political regimes must ensure government support and stability in policy.

To download the full E&Y report, click here

 

 

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