By Daniel Hunter
Intensified political point-scoring surrounding the energy sector leaves renewables investors in a state of heightened uncertainty, hindering high levels of announced investment from turning into reality, says EY in its Renewable Energy Country Attractiveness Indices (RECAI).
In the last three months alone the Labour party pledged to freeze energy prices for 20 months post 2015, the Conservative party vowed to cut consumer bills by reining back several green energy initiatives and the Liberal Democrats promised to stick to their guns on supporting green policies. These announcements signal inharmonious times ahead that can cause investors to push back their investment decisions, according to the report.
Ben Warren, Environmental Finance Leader at EY commented: “Over the past three years, total installed renewable capacity has almost doubled to reach 17.5 gigawatts. The equivalent to generating enough power to meet demand from 8 million homes. To ensure we stay on this path to a balanced future energy mix, we need this trend to continue.
“However, part of the £29bn worth of investment announced in the last three years is contingent on Government policy stability in order to materialise. Political squabbling is widening the time gap between investors announcing their intentions and taking action. As a result, the sector, and offshore wind in particular, are left susceptible to the mood of uncertainty.
"What we have also seen in the market is that primary funds secured for the construction of new renewable energy plants in the UK fell 45% between 2009 and 2012. If this trend continues, it could jeopardise billions worth of investment and thousands of much needed jobs.
“With the country facing decommissioning of old plants and a challenging 2020 renewables target, cross party collaboration is now needed more than ever to create a tangible, cohesive, long-term strategy for conventional and clean energy that will see investment intentions crystalise into action. Securing supply for future generations of energy users is too important an issue to be subject to political squabbles.”
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.
Warren 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.”
Join us on