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Ernst & Young: investment in renewables to rebound in the long-term

A May 29 report finds that clean energy investment was the weakest in the first quarter of 2012 since the worst of the financial crisis in 2009.

This news comes from Ernst & Young’s most recent quarterly Country Attractiveness Indices report. The report ranks the top 40 countries in terms of national renewable energy markets, renewable energy infrastructures and suitability for individual technologies.

Though the top five countries in the ranking remain unchanged, all of them saw losses in Q1 2012. The report highlights the following drivers for dampening of cleantech investment:

  1. competition from Asia

  2. decreasing prices of carbon

  3. the Eurozone debt crisis and reduced policy support in European markets

  4. tax credit uncertainty and a shale gas boom in the US.

“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.

However, the investment gap between developed and developing countries has shrunk, thanks to an increase in incentives and national energy strategies in the latter.

“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,” adds Forer.

Around US$21.7b worth of renewable energy transactions were completed globally in Q1 2012, up 41 percent on the previous quarter. But it was the worst quarter on record since Q2 2009 for IPOs, with around US$14.3b raised from 157 issues, down by 69 percent from Q1 2011.

New asset finance fell by 30 percent from the last quarter, thanks to a lack of political support and insufficient liquidity in the project financing market.

Credit: Bloomberg New Energy Finance

For the solar market specifically, though incentive cuts in Germany and Italy will dampen demand growth in 2012 and 2013, Ernst & Young expects to see other markets expand thanks to the decline in module prices.

The report notes particular difficulties for thin-film manufacturers; these firms were taking off just as the price of crystalline silicon plummeted, making thin-film less attractive.

Having said that, investors are looking favorably at solar projects, seeing them as less risky than in the past.

“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,” says 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.”

Despite the negative outlook for the short- to medium-term, “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,” says the report.

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