Following a record year in 2011, investment flows in clean energy during the first quarter of 2012 (Q1'12) were the weakest since 2009, according to Ernst & Young's latest quarterly global Country Attractiveness Indices (CAI) report.
The short- to medium-term global sector outlook is generally downbeat, as the ongoing problems with sovereign debt issues and increased competition from Asian manufacturers continue to focus the minds of European policymakers and the growth in shale gas and political resistance to tax credit extensions continue to pose significant challenges to the U.S. market.
However, as more mature technologies move ever closer to grid parity with traditional energy sources, there is good reason for longer-term optimism for the global renewable energy sector, Ernst & Young says.
The CAI report provides scores in 40 countries for national renewable energy markets, renewable energy infrastructures and their suitability for individual technologies. Although the rankings at the top of the index remain unchanged, all five of the top-ranking countries have dropped points during Q1'12.
‘The growth of China's wind sector continues to be stifled by insufficient access to the grid, while a boom-bust scenario appears to have returned to the U.S. as a result of uncertainty over the expiry of key stimulus programs,’ says Gil Forer, Ernst & Young's global cleantech leader. ‘In Germany and Italy, tariff cuts and grid challenges have reduced short-term attractiveness, while the end of a key tax break incentive in India is likely to dampen wind sector growth through 2012.
‘The news is more positive in other parts of the index, with several countries – including Mexico and Chile – announcing new national targets for clean energy generation or reaffirming government support through incentive schemes,’ Forer adds.
In contrast to all other countries in the top 10, Japan bucked the trend in the established markets by increasing its CAI score, following an announcement of favorable feed-in-tariff (FIT) levels to encourage additional investment from July 2012 onward.
Globally, an estimated $21.7 billion worth of renewable energy transactions were completed in Q1'12, representing a 41% increase over the total for Q4'11.
For global initial public offering (IPO) markets, however, this was the poorest quarter for renewable energy since Q2'09, with approximately $14.3 billion raised from 157 issues, which is down by approximately 69% compared with Q1'11.
New asset finance also fell sharply, undermined by wavering political support and a continuing lack of liquidity in the project financing market, resulting in only $24.2 billion raised. This represents a 30% decline from the previous quarter and a 7% decline from the same period in 2011, according to the report.
‘The next 12 months are likely to be characterized by further consolidation in the solar and wind supply chain, with a large number of outbound deals expected from Asia,’ predicts Ben Warren, Ernst & Young's energy and environmental finance leader. ‘Access to capital will remain the single biggest differentiator for companies in both the technology and infrastructure markets for the foreseeable future.’
To look at the impact on businesses, Ernst & Young commissioned a global survey of 100 $1 billion-plus companies operating within energy-intensive sectors to identify the key strategic issues they faced. Forty-one percent of respondents reported generating some form of renewable energy with company-owned or company-controlled resources.
However, this practice is not yet widespread, with only 11% of respondents reporting that clean energy accounts for more than 5% of their companies' total energy production.
‘In contrast to company-owned generation, 68 percent of respondents purchase some amount of electricity generated from renewable sources but only 39 percent of all respondents would be willing to pay a premium for renewables – highlighting the importance of achieving grid parity and developing innovative project financing models,’ notes Forer.
‘The main barriers to self-generation and renewables adoption are mainly related to risk and financial return, suggesting that adoption could come even faster with financing innovations and increasing cost-competitiveness of renewables,’ adds Warren. ‘Only those businesses with a comprehensive and diverse energy strategy will be able to create and maintain competitive advantage in the resource-constrained world of today.’
The full report is available here.