Having quadrupled its solar capacity target to 50 GW by 2020 and begun an accelerated domestic installation program to tackle the oversupply of solar panels, China looks set to continue its domination of the global renewable energy market, according to Ernst & Young's latest quarterly global renewable energy Country Attractiveness Indices (CAI) report.
The indices provide scores in 40 countries for national renewable energy markets, renewable energy infrastructures and their suitability for individual technologies. During the second quarter of 2012 (Q2'12), China remained at the top of the All Renewable Index (ARI), but it has a number of challenges to overcome, such as the oversupply of wind turbines and solar panels and the resolution of grid transmission issues.
During the same period, the U.S. dropped 1.5 points to share second position with Germany. This decrease was caused by ongoing uncertainty over the U.S.' long-term renewable energy strategy and a failure to indicate if there will be an extension to the critical production tax credit (PTC) for wind projects. The drop in the U.S. score coincided with Germany's gaining a point – the result of the German government's proactive approach to addressing barriers to offshore wind development and creating stability in the solar sector.
‘While the U.S. and Germany markets are level within the ARI, the contrast between these two markets is evident,’ says Gil Forer, Ernst & Young's global cleantech leader. ‘The upcoming elections have led to an understandable slowdown in the decision-making process in the U.S., while Germany is pushing ahead with its ambitious renewable energy agenda, including the introduction of a new solar PV tariff and compensation for offshore grid connection delays.
‘Having made positive progress, the challenge now facing Germany is making sure that the necessary infrastructure is in place to ensure the renewable power generated in the north of the country can be shipped to customers in the south,’ Forer adds. ‘It is important for any country not only to focus on policies that support supply, but also on those that will encourage and simulate demand.’
India, in fourth place, recently suffered severe blackouts, leading to speculation that the country has attracted insufficient private investment to modernize its power infrastructure and that renewable energy investment may suffer amid wider power system reforms. India fell a point in the ARI as a result.
Despite dropping half a point, the U.K. has risen to fifth place in the ARI, due to a fall in Italy's ranking, which was a response to worsening economic conditions. Although a number of U.K. policy and subsidy announcements were made during Q2'12, the general consensus appears to be that these announcements have fallen short of establishing transparency, longevity and certainty and have potentially created even greater uncertainty within the market, according to the report.
Overall, the renewable energy debt and asset finance markets saw total new investment up 24% from Q1'12. Total new investment in the sector was at $59.6 billion, up 24% from Q1'12. China experienced a 92% increase over the first quarter's total.
Europe and the U.S. saw an increase in total new investment of 11% and 18%, respectively, in Q2'12. The majority of these deals were driven by new-build asset finance, the report notes. Although the number of deals remained broadly the same, the value of these transactions increased by around 40% to 50% across the two regions.
Challenging market conditions were reflected in a 50% decline in the value of renewable energy deals in Q2'12, compared with the previous quarter. Most transaction activity reflected the continued consolidation of the market, which is almost inevitable given the competitive landscape, compressed prices and tightening in demand.
‘During Q2'12, major utilities and energy groups continued to rationalize their renewable energy portfolios through structured divestment programs to dispose of non-strategic businesses and assets, as they sought to deleverage their balance sheets,’ says Ben Warren, Ernst & Young's energy and environmental financial leader.
‘The Q2 slowdown in transaction activity and deal values may only be temporary,’ Warren adds. ‘For [the second half of the year], an increase in outbound Chinese activity is expected, with solar technology companies and wind-sector original equipment manufacturers looking to access new markets through the acquisition of development portfolios.’