A new report considers the top 40 countries for renewables in terms of the rapidly advancing prospect of ‘grip parity’, where market forces and distributed energy becomes disruptive. The US, China and India lead the pack, the UK ranks 13th.
The electricity market is undergoing a period of accelerating transition as social, political, technological and economic forces converge to bring about ‘grid parity’ for renewables. The occurrence of the phenomenon, as the need for sustainable energy becomes ever more pressing, is now almost inevitable and the implications for energy markets across the world will be profound. The rise of distributed energy resources, where consumers and businesses generate their own electricity at an equal or cheaper rate than they pay their utility, is likely to create considerable disruption to utilities. While some utilities are seeking to diversify their offerings and create new propositions, the acceleration towards renewables may leave other utilities in the lurch, and investors out of luck.
The electricity landscape is a complex one, however, with the intersection of long term investments, government policy, consumer demand and the rise of an existential requirement for renewables coupled with technological advances. The wide range of different stages for markets, as well as different levels of social and economic urgency with respect to the realities of climate change and associated risks, creates a relatively diverse global marketplace. In a new report from EY, titled ‘Recai Renewable Energy Country Attractiveness Index’, the consultancy considers the top 40 most attractive countries (markets) for renewable investment.
The index is developed from five key pillars, each with a range of differently weighted sub-indices, related to factors driving the attractiveness of country based markets “in a world where renewable energy has gone beyond decarbonisation and reliance on subsidies.”
The five pillars consider different fundamentals, such as whether, for instance, there is a long-term need for additional or replacement energy supply, and if so, whether there is a strong case for energy from particularly renewable resources. Other considerations include the policy environment, for instance, whether policy is hindering or helping the ability to exploit renewable opportunities in a country, or whether the market exists to support development i.e. are essential components in place to ensure project delivery — such as long-term contracts, grid infrastructure and availability of finance.
Information for the various indices are derived from datasets, weightings are based on EY’s assessment of the relative importance of each dataset, parameter and pillar in driving investment and deployment decisions. Each technology is also allocated a weighting based on its share of historical and projected investment levels. The specific weighting for the total score has not been disclosed by the consultancy.
The top ranked country in this year’s report is the US – which holds its standing from the previous report. The country boasts a new tax credit that has seen an additional 18GW of solar and wind added to its already planned 23GW and 38GW of wind and solar respectively through to 2021, although given that the total energy generation stands at 4TW, the addition is minor. China comes in second, and is expected to increase its 2020 wind target to 250GW, a realistic figure according to GWEC. Sights are also set on up to 200GW of solar. India is adding a further 1.7GW to its around 6.7GW total, which, according to the firm, represents a sizeable investment. At the same time there are, however, concerns that so much capacity being released in the market could push down prices and make lenders reluctant to finance.
Chile has moved up the ranking, on the back of attracting a plethora of multi-GW projects, and is one of the first markets in the world to enable economically viable renewables projects to compete directly with all other energy sources. Germany has declined in the ranking, even with its strong ‘Energiewende’ (energy transformation) initiative, in part due to policies that limit renewables to 40-45% of the total mix (currently at around 25%). Australia is up, even with its recently combative government policies, as State-level tenders and corporate tenders will likely drive activity in the near term.
The UK takes the 13th spot, on which the report comments “The UK Government’s noncommittal, if not antagonistic, approach to energy policy continues to go against the grain of almost universal global support for renewables. Not only stalling project development and investment inflows, this is arguably jeopardising UK energy security.”
The bottom 20 performers include a range of developing as well as developed nations. Greece again ranks last in the analysis, while Pakistan is new to the ranking at the 38th spot. Pakistan has pulled in $3 billion in investment, and already boasts mega projects such as the 1GW Quaid-e-Azam PV Solar Park and 1GW of proposed wind capacity in Punjab. This year the ranking is also joined by Jordan and Uruguay placing as 32nd and 33rd respectively. Kenya, Israel, Peru and the Philippines all manage to improve their performance in this year’s edition.
Ben Warren, EY Global Power & Utilities Corporate Finance Leader, remarks: “We are now in an era where policymakers and regulators must shift their focus on market access and fair play; where technology improvements and costs curves will lead to a level of renewables deployment not even imagined; where developers and independent power producers become energy services companies and value chains and business models are stretched; and, finally, where a rethink is necessary in the way capital flows around the globe to fuel the unstoppable move toward decarbonised generation. As the renewables industry gets more comfortable with taking and managing risks in ever more diverse markets, our index now reflects the truly global nature of our businesses.”
Another recent research from EY's Power & Utilities practice shows that the total value of deals in the industry hit close to $200 billion last year, up from around $177 billion the year previous.