In its latest Renewable Energy Country Attractiveness Indices report, in which it ranks the top 40 countries for renewable investment, it states that the UK’s fourth place position is at risk.
In the last three months in the UK the opposition Labour Party has pledged to freeze energy prices if it wins the 2015 general election, the ruling Conservative party has threatened to rein back on several green energy initiatives, and the Conservative’s coalition partners the Liberal Democrats have promised to continue to back green policies.
“These announcements signal inharmonious times ahead that can cause investors to push back their investment decisions,” says the report.
Ben Warren, environmental finance leader at EY, said: “Over the past three years, total installed renewable capacity has almost doubled to reach 17.5 gigawatts. 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.”
Warren added that primary funds secured for the construction of new renewable energy plants in the UK fell 45 per cent 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.”
In the report, Warren states that the renewables sector is falling victim to “the small ‘p’ of policy and the big ‘P’ of Politics.
“Making an unpopular decision is one thing,” he says. “The market adapts, and life goes on. But delayed decisions, inconsistent messaging and policy overhauls are another thing altogether. We talk about the impact of policy and regulation on renewable energy markets’ stability and attractiveness, but it is too often politics, not policy, in the driving seat.
He says you need only “to look at the US, UK, Germany, Australia and Poland to find boom-bust cycles, delayed investment, abandoned projects and market exits”.
“With most countries facing an energy imperative of some kind – whether surging demand or decommissioning old plants – governments must create stable markets for conventional and clean energy that are free from bureaucratic obstacles and political point-scoring.”
The top five of 40 countries on the Renewable Energy Country Attractiveness Indices are unchanged from EY’s last survey – the US is still number one, followed by China, Germany, the UK and Japan.
The US keeps its top slot thanks in part to the launch in September of New York’s first green bank, using “limited state resources” to leverage at least $1bn in private investment for clean energy projects.
The first investments are due in early 2014, with an initial $165m of public funds providing loan guarantees and package loans for resale into the secondary market, to help overcome capital constraints and push private lenders into the market.
Other countries viewed by EY as ‘hot’ are Brazil and France. EY states that Brazil has already awarded more than 3 GW of renewables capacity this year, with 15 GW of wind and 3 GW of solar projects registered for this month’s A-3 auction, and more than 20 GW of renewables projects competing in December’s A-5 tender.
“With average wind prices less than $50/MWh, this, along with possible solar-only auctions as early as next year, is good news for the fledgling solar sector,” states EY.
France, meanwhile, has introduced a carbon tax and nuclear levy as part of a new energy transition law, scheduled for early 2014, which EY says will help fund the annual €20bn ($27bn) per year needed to boost renewables and energy efficiency.
Countries of concern to EY – as well as the UK – are Germany and Australia.
Australia’s new Conservative government has published draft legislation abolishing the country’s carbon pricing mechanism from 1 July 2014. Since September, it has also abolished the independent Climate Change Commission and vowed to close the green development bank. EY notes that the Labour Party and the Greens hold the balance of power, making the passage of the law before July unlikely, but it warns that legislation could be applied retrospectively.
In Germany, Chancellor Merkel remains in coalition talks with the Social Democrats following failed negotiations with the Green Party in October. “While such a deal improves clean energy prospects relative to the previous coalition, prolonged uncertainty continues to slow momentum,” says EY. “Pressure to end renewables subsidies, and a further 18 per cent increase in the consumer surcharge used to finance renewables support, is also mounting.”
Elsewhere in the rankings, Italy and Spain have plummeted to 12th and 19th places respectively, as severe support reductions begin to impact on four-to-five year capacity projections.
South Korea has jumped to 10th place thanks to improved wind and solar forecasts triggered by nuclear shutdowns and an ambitious emissions trading scheme, and Sweden and the Netherlands have moved up because of increased levels of high-value deal activity and strong investment climates.
Poland has slipped two places to 25th because of prolonged uncertainty and reduced project activity following the government’s latest proposals to switch to an auction system.
Ireland has also fallen two places following claims it will not clinch a deal with the UK for the export of wind power until next year, and an absent solar market.
Greece has jumped three places due to significant improvements in its macroeconomic outlook, but it will struggle to rise further without more consistent renewables support and a stronger pipeline.
Also of note is the inclusion for the first time of Kenya, which comes in at 40th position. “With huge resource potential and a stable feed-in tariff regime, it is establishing a healthy project pipeline and is expected to become a renewables hub in the East Africa region,” says EY.