• „  US, UK, Germany, Australia and Poland experiencing delayed investment, abandoned projects and market exits due to political interventions
• „  Emerging markets reap benefits of clear policies with growing project pipelines
• „  Stable yields of mature renewable technologies tempting new investor groups, but the technologies of tomorrow should not be overlooked

London, Kyiv, 18 December 2013: While energy affordability is becoming a major political issue in the mature markets, the emerging markets are becoming increasingly attractive to renewable energy investors looking for stable policy environments according to EY’s latest quarterly Renewable energy country attractiveness index (RECAI).

Gil Forer, EY’s Global Cleantech Leader comments: “When looking at markets from an investment perspective, we’re seeing a gap developing in terms of attractiveness. On one side are countries that are in the process of reviewing, revising or rescheduling their energy policies, which is leading to uncertainty in the markets. On the other side countries are attracting investors by galvanizing large-scale deployment and removing barriers, as we’re seeing in emerging markets such as Brazil and South Africa.

“Governments must work harder to create stable markets in order to secure energy investment. The climate change talks currently taking place in Poland highlight the significant added value of renewable energy from economic, social, and environmental perspectives; which can only help to focus governments’ attention further.”

Renewable energy developers must weather the political storms

The US remains in first place in the RECAI, which ranks countries on the attractiveness of their renewable energy investment and deployment opportunities, based on a number of macro, energy market and technology-specific indicators. However, while the US recently launched New York’s first green bank, to leverage at least US$1b in private investment for clean energy projects, concerns including the impact of shale prices on policy makers and a lack of long term energy policy may lead to renewable energy investor nervousness in the coming months.

Other markets experiencing delayed investment, abandoned projects and market exits due to political interventions include Australia, where the new government is drafting legislation to abolish the country’s carbon pricing mechanism in 2014. In Germany, which is placed third in the index, Chancellor Merkel is facing pressure from the energy sector to re-examine the renewable energy subsidies. Meanwhile in the UK, political point scoring on rising consumer energy bills only heightens uncertainty for investors. In Poland, a proposed switch from green certificates to competitive bidding has received mixed responses.

Not all markets are suffering from political indecision. China continues to pursue its ambitious 2015 solar target of 35GW, with the introduction of solar tax breaks and subsidies and the implementation of specific measures to facilitate consolidation. Internationally, the EU’s decision to impose minimum pricing and quotas on Chinese solar equipment is expected to leave the European solar industry facing an uncertain two years ahead.

Ben Warren EY’s Global Cleantech Transactions Leader comments: “China has ambitious renewable energy targets. Through a variety of tools such a 50% tax break on the sale of solar power until 2015, limits on solar factory expansions and a requirement for 3% of annual revenue to be spent on R&D, the government is creating a strong pipeline of innovation and deployment. While the minimum pricing proposed by the EU has handed Chinese manufacturers a very welcome boost to their margins, by guaranteeing prices for two years, what everyone is waiting to see is the impact this will have on European installers and developers.”

Victor Kovalenko, Head of Sustainability and Cleantech Services in Ukraine EY, comments: "Ukraine has quite predictably improved its results – and moved four positions up in the ranking. This was possible mainly due to a current green tariff. Taking into account the fact that many developed countries reduce state support of the renewable energy sector, the situation in Ukraine demonstrates relative stability to industry investors".

South America seeing healthy project pipelines to 2018

Looking outside the index’s top 10, South America continues to expand its presence in the renewables industry. In Brazil, 3GW of capacity has already been awarded in 2013 and almost 40GW of projects have registered for the November and December auctions. Chile continues to attract large-scale projects, including the world’s largest unsubsidized PV plant, while the government has officially doubled its target to 20% renewable electricity by 2025.

Markets such as Turkey and Thailand are also targeting renewables as a way to meet surging energy demand. Thailand’s government recently announced a 51% rise in its renewables target for 2021 to almost 14GW, or 25% of total electricity generation, up from 8% currently. High electricity market prices and a robust support framework in Turkey have resulted in significant oversubscription for its renewable energy auctions. While not in the index, Russia has seen a significant amount of activity in 2013 and if broad political and structural concerns can be overcome, the country could be a major force within the renewables industry in the next decade.

Renewable energy developers look for new investor options

Despite government intervention creating uncertainty in some markets, this year has seen resurgence in renewable energy initial public offerings (IPO), taking place at the fastest rate since 2010. The robust foundations underpinning the current surge in renewable energy “yieldco” IPOs – specifically, the promise of stable returns – indicates a potentially sustainable source of infrastructure financing. This is positive news for an industry still struggling to adapt to constrained balance sheets and scarce project financing.

Warren comments: “It remains to be seen how dependent the future success of listed yieldcos is on continued government policy. In the medium to long term, as the renewable energy market reaches grid parity and is no longer hostage to the uncertainty of government-controlled tariffs, it seems likely that the public equity markets will once again start to believe in the renewable energy supply chain and fast-growing and profitable development companies.”

Scarce project finance is also prompting renewable project developers to look for new investors with deep pockets and a long term outlook. Pension funds, managing approximately US$28t in assets globally, are becoming increasingly attracted to the long-term predictable yields offered by projects based on mature technologies such as solar PV and onshore wind. However, a recent EY survey highlights that more must be done to attract a bigger portion of the pension fund pot.

Looking ahead, Forer concludes: “Innovation remains critical to the renewable energy sector, from a technology and financing perspective. Political indecision and complacency over mature technologies could seriously hinder the evolution. However, while certain markets stumble, the future is looking very bright indeed for those markets which can deliver stable energy policy and investor confidence.”