Renewable energy country attractiveness indices
What will future generations say about 2012? New markets have ricocheted across the renewables sector, injecting some much-needed optimism and competition into an industry that remains scarred by the enduring legacy of the financial crisis. With more developed markets buckling under the pressures of continuing economic tumult, political change and social pressures, it is perhaps of little surprise that the top-ranking countries in our index have seen scores fall even further in Q3.
Grid issues, strong partisan views, mixed policy signals and austerity measures are just some of the tensions that are slowing the pace of expansion across our top five countries. This issue sees the US fall to third place behind Germany, as policy uncertainty continues to undermine the sector. Even Germany, so long a beacon of optimism, has seen rising energy costs for consumers prompt its policy-makers to rein in support for renewables. However, it is premature to write off these markets so easily. Each is simply trying to carve out a sustainable role for renewables in the face of competing agendas and short-term barriers. Emerging markets on the other hand — with untapped resources and high level of government support — are already learning from their predecessors’ mistakes, with many opting for capacity tenders in favor of financial incentives.
Increasing energy demand in these regions has strengthened government investment in clean energy. Our two new entrants to the index — Saudi Arabia and the United Arab Emirates (UAE) — are also supported by strong government initiatives, a proven track record in energy infrastructure, and robust financial markets. However, these markets others will also need to find ways to attract more private investment if they are to avoid over reliance on government-driven growth.
The real casualties of 2012 have been the sector’s manufacturers. Oversupply, falling technology costs, reduced demand in some European markets and ensuing trade protectionism have resulted in supply chain paralysis across some markets. Many manufacturers are likely to be left out in the cold as governments rationalize financial support and corporates favor divestment and restructuring. In the long term, greater cost-competitiveness should create a sustainable growth platform for both developed and emerging markets as well as manufacturers. Until then, however, Darwin’s “survival of the fittest” will inevitably result in some sector players becoming extinct along the way.
Also in this issue...
Lead article: Energy demand is now a key driver in shaping the landscape of the global energy market, creating a thirst for new energy sources.
Technology articles: An analytical insight into global trends in the biofuels market and a look at the role of anaerobic digestion in waste treatment solutions.
Feature articles: We look at the emerging market of Latin America and ask whether anaerobic digestion is a promising technology for waste treatment. We also present the findings of our recent MENA clean-tech survey.
Renewable energy country attractiveness indices - A shift in the global power base is under way
This year marks a turning point for renewable energy markets across the world. The latest investment data at Q3 indicates that total investment in 2012 is likely to be lower than that in the previous year, a situation that has not arisen for at least eight years. The last decade has witnessed significant growth and capacity build out in Europe, and significant financing and investment growth in the US. However, the next phase of renewable energy market leadership is likely to take place across a wide range of emerging markets in countries where economic growth and revised energy priorities will drive a sustained increase in the deployment of wind, solar, biofuels, smart transportation and energy-efficiency technologies. Further, these markets are likely to influence the direction and execution of cleantech financing, partnerships and transactions across the world.
Emerging markets get back to basics
The prediction that these emerging countries will be at the forefront of growth in the sector underscores the importance of the long-term drivers of the resource-efficient, low-carbon transformation that is under way globally. Resource scarcity, urbanization, population growth, energy security concerns and economic development objectives are key drivers that continue to propel the global market for cleantech solutions.
These drivers are most acutely felt in emerging markets and therefore it is no surprise that the contribution of renewable energy is forecast to rise across many countries in Asia Pacific, Middle East, Africa and Latin America.
Long-term security of energy supply remains a national priority for both governments and corporates operating in these emerging high-growth economies, especially where fossil fuel resources are scarce. Countries that are primarily dependent on petroleum — both domestically produced and imported — are seeking strategies to diversify their energy mix and have already begun formulating national strategies to invest in the build out of renewable projects.
At a secondary level, companies that find themselves processing materials such as water, cement, pulp, steel and aluminium, will need to secure significant amounts of energy to continue to produce and export these materials. Further, optimal resource sites for new generating assets — especially in resource-rich countries — may well be in remote environments away from key demand centers, where the build out of grid and existing capital intensive infrastructure is likely to be difficult. As such, distributed generation such as wind and solar is likely to become increasingly attractive. Distributed renewable energy, also referred to as “on-site” or “off-grid” energy, addresses the potential challenge faced by some emerging markets of providing energy access to remote or less developed communities where there is a lack of national or regional infrastructure. However, the scale of such installations is inevitably smaller than grid-connected projects.
Emerging markets have also seen the clean energy sector as a means of developing an increasingly entrepreneurial market and workforce. The development and deployment of a range of different renewable technologies is seen as an important vehicle for creating high quality jobs and developing a diverse set employment skills that are particularly critical for countries with a younger workforce and rising middle class.
Finally, as a result of continuous technological innovation across all regions and increasing efficiencies and improvements across the value chain of clean technologies, the cost of renewable energy is falling rapidly. With solar module prices falling over 75% in the past four years and wind turbine prices dropping 25% in three years, emerging markets are poised to take advantage of the falling costs as these countries become a growing consumer of global renewable energy. However, at the same time, emerging markets play a key role as manufacturers of wind and solar components. In this increasingly competitive environment, lower cost production has resulted in the oversupply of capacity globally at levels that are unsustainable. This environment of shrinking margins poses challenges for many equipment manufacturers located both in developed and emerging markets.
China, India and Brazil were the first emerging markets to refocus their national energy strategies toward renewable energy, but over the next five years we expect to see major shifts in the growth drivers of those countries that have signaled significant national commitment to clean energy. In the past year alone, we have witnessed Saudi Arabia’s US$100b solar development plan, while South Africa announced new electricity market plans and a commitment to develop 42% of new additional capacity in renewables by 2030.
By far the biggest shift in national energy policy has been in Japan, which has recently announced its commitment to phase out nuclear by 2040 and in July introduced a very generous feed-in tariff (FIT) scheme that, for some technologies, represents roughly three times the nation’s electricity prices. Over the next decade, other countries such as Morocco, Chile, Thailand, Jordan, Pakistan and the UAE are likely to follow suit by realigning their respective energy strategies to incorporate an increased focus on renewable energy, in order to address resource scarcity, job creation and national competitiveness.
Global energy demand at a crossroads
The global energy landscape has shifted considerably in the last decade. By the end of 2011, North America and Europe no longer consumed the lion’s share of global energy. Looking forward to the decade ahead, global energy consumption is expected to grow on an average 3% per year, though this will be primarily driven by emerging markets, with demand in some developed markets even shrinking incrementally. Emerging markets’ decisions around managing this growth will be a critical factor in determining the next phase of the global clean energy transformation.
Renewable energy country attractiveness indices
Looking back over the last decade, China has been a clear driver of shifted global energy dynamics, jumping from consumption of 11% of global energy in 2001 to 21% by 2011. But China isn’t alone — energy consumption in India and the Middle East has also grown rapidly in the last five years. Between 2007 and 2011, China’s energy consumption grew 34%, while India’s increased by 35% and the Middle East by 22%.
Looking ahead to the next five years, energy usage in these markets is not expected to slow down, with double-digit growth rates forecast across all three of these areas. On the other hand, the overall contribution of North America and Europe to the global energy mix is likely to remain the same.
The global recession saw energy consumption fall across all markets, but by 2011, energy use in developed markets had still not returned back up to 2008 levels. Energy intensity, or the unit of energy used relative to GDP, indicates that these markets have over time been able to use energy more productively. Realizing higher rates of energy efficiency in industrial and manufacturing processes as well as in buildings, has become a critical strategy for developed markets and has arguably been a cornerstone for continued growth in the clean-tech industry. The pursuit to identify and deploy more energy-efficiency innovations and technologies remains both a challenge and a priority across the globe. Between 2005 and 2010, the US and Japan spent more on energy-efficiency R&D than most other major economies, followed by Italy, Finland and South Korea.
Renewable energy growth set to change direction
Renewable energy generation over the past decade has experienced remarkable double-digit year-on-year growth, averaging 11% for developed markets and almost 15% in emerging markets. Since 2011, however, these paths have started to diverge, with European and North American markets forecasting an average of only 5% year-on-year growth in renewable energy generation, compared with an average 13% year-on-year growth across emerging markets.
Wind and solar markets on the move
The shift toward Asia is particularly distinct in the wind and solar markets. Forecasts show Asia’s share of global cumulative installed wind energy capacity growing from 12% in 2006 to 32% in 2011, and again to 40% in 2016. Solar capacity, meanwhile, has experienced a slightly slower expansion in the Asian markets. Over the past ten years, Europe has dominated the solar PV landscape, with the industry growing by an average of more than 40% per year and production costs decreasing by around 60%.
Underlying this progress has been the European Union’s (EU) commitment toward PV systems as a critical means of achieving its goal to generate 20% of energy from renewable sources by 2020. However, solar in European markets has arguably now reached a saturation point relative to other regions, and forecasts show other players such as the US and countries in Asia Pacific expanding their share incrementally by 2016. These technologies have been particularly sensitive to certain drivers over the past ten years; specifically the policy and regulatory environment in different countries has clearly influenced the uptake of wind and solar projects in terms of both scale and total capacity. The US is still slated to increase its base of installed
capacity for both wind and solar in the years ahead, however, the future short-to medium-term growth of the domestic wind market is arguably at the mercy of the production tax credit (PTC) being renewed beyond its current 31 December 2012 expiry date.
The role of emerging markets in renewables
The remaining question, therefore, is how emerging markets will grow and what energy choices they will make in the short to medium term. The competitive dynamics of many such markets are becoming highly attractive — the availability of land and relatively low cost labor, and the abundance of natural resources or materials that make the manufacturing and installation of components commercially viable (e.g., wind turbines or PV panels). At the same time, this competitive environment has resulted in overcapacity, particularly in the wind and solar markets, drawing a rationalization and consolidation of supply chains. The role of emerging markets as global manufacturing centers for renewable technologies, as well as their own adoption to diversify their energy mix, will depend on a range of factors including (i) the regulatory environment; (ii) level of political support; (iii) access to finance; and (iv) the infrastructure readiness of a particular country.
Policy and access to finance
Energy policies and regulatory frameworks are still evolving across many countries, with some key markets such as Chile, Mexico, Poland and Austria recently announcing new national targets for clean energy generation or reaffirming government support through incentive schemes. Policy developments have also encouraged different financing structures; for example, the loans and guarantees provided by Brazil’s national development bank (BNDES) have supported many of the wind projects emerging from the country’s various alternative energy auctions in recent years, and have proven to be an effective measure to provide stable access to debt financing.
Development bank financing is expected to increase in a number of markets. In late October, the Development Bank of Southern Africa (DBSA) approved loan facilities worth US$980m (€757.05m) that are earmarked for 13 solar projects in South Africa with a total capacity of 762.6MW. This was shortly after US development finance institution, the Overseas Private Investment Corporation (OPIC), approved US$250m (€193.13) for a 60MW solar project in South Africa, the agency’s first such solar project in the country.
Attempts to attract financing for renewable energy deployment has also led some countries to seek more innovative ways to provide indirect support through promotion programs, such as that adopted by Taiwan in late March. Taiwan’s Ministry of Economic Affairs has begun providing professional technical assistance and information on financing, insurance and maintenance services in a bid to increase and integrate the adoption of renewable sources into its energy network, in particular rooftop solar. While improving technical assistance, better information and the removal of administrative hurdles may not be direct project investments, it is hoped such measures will allow for the expansion of off-grid renewable sources and act as a foundation for energy data crucial for the uptake of energy efficiency or smart grid technologies. Infrastructure
For renewable energy uptake to increase to those levels required to meet projected long-term energy demand, in developing countries in particular, the investment in electricity infrastructure and the ease of grid connection must grow commensurately. Even where renewable energy is becoming increasingly costcompetitive, grid reliability and network integration may become a substantial hurdle. As shown in China and Brazil, governmentbacked transmission projects have experienced delays which have, in some cases, left installed wind capacity stranded and without connection, incurring additional government costs and wasting potential electricity. In addition, failure to secure power offtake can be a substantial barrier in some developing markets where utilities are unable to readily integrate and balance intermittent power loads.
Find the entire version of the study in the attached pdf