Global investment in renewable energy has started to rebound, but on a much slower trajectory than most people predicted during the depths of the worldwide recession in 2009, according to the latest Renewable Energy Country Attractiveness report by Ernst & Young.
The report confirms that 2012 was a rough year for renewable energy markets, but cautions against too much pessimism, since both the volume and value of new projects rose by the fourth quarter, “indicating better fortunes for the year ahead.” As European and American utilities continue to privatize and divest to free up capital for expansion into new technologies and markets, much of the deal activity will be geared toward restructuring the ownership of existing renewable assets.
The report highlights the importance of well-financed and politically stable government support for renewables. Outbound investment from state-owned Chinese utilities and Japanese investors will drive deals worldwide in 2013. Domestically, China, named the most attractive country in the world for renewable projects, doubled down on its already sizable investment in renewables by committing to build another 49GW of hydropower, wind and solar capacity in 2013.
Behind such large numbers, however, “(t)he real innovation is in the fine print,” the report finds, as China combines government-backed financing deals with conditions requiring some or all of the components to be Chinese-made. Such deals open new markets for Chinese products, “while also offering foreign developers access to finance that is less expensive and easier to arrange than local bank loans,” the report found.
The U.S. held steady at No. 3 in the rankings. It won points for extending production tax credits. But the drawn-out political fight over PTCs will continue to hurt the project pipeline into 2014, as lingering questions about long-term energy policy and cheap natural gas keep the long-term investment horizon in limbo.
Perhaps the biggest improvement came in South Africa, where the government in November finally signed agreements for 28 projects with 1.4GW of new renewable capacity. Those deals come with significant financial backing from the government and South Africa’s major financial institutions, including ZAR25 billion (about $27.5 billion) from Industrial Development Corp., a state-owned lender, and ZAR9.4 billion ($10.3 billion) from Standard Bank Group Ltd., Africa’s largest lender, for the first two rounds of construction.
Another big driver of renewables financing will be major corporations, some of which find that a 20-percent cut in energy costs benefits their profits as much as a 5-percent increase in sales. McDonald’s, Google, 3M and Ikea all have significant energy efficiency programs. Large corporates also are teaming up in emerging markets to build renewable energy projects with built-in reliability and price stability, including a 164MW wind farm in Mexico that recently signed a 15-year PPA with corporations including Walmart and Arcelor Mittal Steel.
Deal activity in wind will rebound somewhat in 2013, especially in Europe. Investment activity in solar will continue to be concentrated on consolidation, the report predicts, as manufacturers buy smaller firms that are suffering due to oversupply, falling prices and rising protectionism. Surprisingly, one exception may be the U.S., where an extension of investment tax credits till 2016 offers stability in the medium term.
Geothermal’s slow and steady growth will continue largely unscathed by the global recession. The industry will add between 6GW and 13GW of new capacity over the next decade, requiring between $18 billion and $52 billion in investment.
To view the entire report, click here