China's renewables market is the most attractive destination for investors looking to invest in the sector, according to Ernst & Young's Renewable Energy Country Attractiveness Index (RECAI) published this week.
The RECAI ranks 40 renewables markets on the attractiveness of their energy prospects. In a significant reshuffle at the top of the index, China returns to the top for the first time since May 2013, while Europe and the US continue to lose ground to emerging markets. Despite significant deployment and investment opportunities in the US renewables market, congressional gridlock and drawn-out approvals have had a negative effect on the country's ability to provide investors with long-term certainty, causing it to fall to second place.
Gil Forer, EY's Global Cleantech Leader comments:
"China's government is placing increased emphasis on renewable energy as the country battles pollution, ushering in new market opportunities for foreign investors. Aggressive policy targets, an increased focus on consolidation and the roll-out of pilot carbon emissions trading schemes also support the country's pollution reduction initiatives and reflect the renewables sector's strategic economic value."
Elsewhere in the index, only two of the traditionally attractive markets managed to hold on to their previous rankings. Germany and Japan remain static, in third and fourth place respectively, as their markets reflect on the latest legislative and energy strategy updates. In contrast, mixed signals and policy tinkering have prompted yet another drop in the rankings for the UK and Australia, to seventh and tenth place respectively. At the same time Italy and Spain are seeing the repercussions of retroactive changes to support mechanisms, with both falling several places down the index.
On the other hand, dynamic emerging markets are becoming more prominent in the index. India jumped to sixth place as an energy sector overhaul by the new government looks set to galvanize public and private renewables investment. In what is becoming a consistent theme, Brazil, Chile, South Africa and Kenya have again risen up the index thanks to robust deployment pipelines and consistent policy support while major project financings in the Netherlands and Israel have prompted a boost in the rankings for these markets.
Forer continues, "The significant movement in our index reinforces the view that attractive renewable energy prospects are no longer the remit of only a few mature markets - they are truly global, providing opportunities in both developed and developing markets. This shifting landscape will drive corporations and governments to review their energy strategy to ensure long term competitive advantage."
The latest report highlights that Europe is currently at an inflexion point, striving to become a global sector leader but facing strain funding, infrastructure and supply capabilities.
According to Ben Warren, EY's Global Cleantech Transactions Leader, "The industry must liberate itself from the shackles of the past and go in search of grid parity as the fastest route to secure and affordable energy. The role of policy-makers therefore becomes one of enablement rather than fiscal support, as well as looking to create a level playing field across all energy sources through greater cost transparency."
Microfinance models to become more than just a trend
The report highlights that smaller-scale distributed applications are becoming increasingly more critical to both developed and emerging markets with the outlet for localized financing models, such as crowd-funding is expanding as a result. The pool of capital available for such financing has significant potential to increase if the risk-reward profile can be structured such that it becomes a viable alternative to other retail investment channels.
Warren comments: "Far from just being the remit of the 'socially conscious' investor, crowd and community sourced finance is increasingly becoming a smart investment channel with a significant role to play in shaping our future energy mix and creating the stimulus for new funding models to emerge."
The report also focuses on the imperative for more cost-effective and sustainable energy across the world's island nations, representing significant investment and deployment opportunities as well as the potential to lead in the creation of new energy microsystems. According to Warren, "The question is whether today's investors, developers and innovators want to be at the forefront of creating an island model of energy with potentially far-reaching implications for the global energy sector, or just wait to ride the second wave as micro goes macro."
With new clean energy investment of US$63.6b in Q2 representing the strongest quarterly performance in two years and indicating a rebound in annual global investment for 2014, the latest RECAI report concludes that an increasing shift toward democratic finance and the opening up of new markets will be critical in maintaining this uplift in global investment volumes.
"Consumers, including home owners, commercial businesses and corporations, are becoming more empowered to take control of their own energy supply and demand. As a result, investors are also becoming increasingly motivated and empowered. This is not only driving the democratization of energy, but is also channeling significant volumes of capital to where they are most needed," concludes Forer.
"Looking forward, advancements in technology, changes in policy, and continuous reduction in cost will enhance the new energy landscape and drive affordable, reliable and low carbon energy in more areas around the globe."
Download the full report here: EY Renewable Energy Country Attractiveness Index (RECAI)