Renewables attractiveness – developing countries up, developed down

More evidence emerges of a shift in attractiveness of renewables to developing countries.
Published: Thu 19 May 2016

A growing body of evidence indicates that there is a definite shift in renewables development to the world’s developing countries.

In its recent Global Advanced Energy Insights Report, solutions developer Mercatus indicated that for the first time, investments in the two regions were similar, with developing country projects also tending to be larger and providing more attractive returns on investment. [Engerati-The emerging market opportunity for renewables and Renewables for Africa]

In its latest Renewable energy country attractiveness index (RECAI), EY draws a similar conclusion, finding that the emerging markets now make up half of the countries in the 40 country index. Further, these countries are showing increased attractiveness while that of developed countries is decreasing.

The United States continues to top the ranking – an additional 41GW of wind and 56GW of solar are projected through 2021, with investor certainty provided through the five-year extension of federal tax credits for these technologies – followed by China and India. The size and scale of renewables activity in these countries surpassed all others.

Developing country renewables panorama

Latin American countries are strong in the top 10, with Chile in 4th place, Brazil in 6th and Mexico in 7th, all having climbed higher, while Germany (5th) and France (8th) fell.

Chile is one of the first markets to enable economically viable renewables projects to compete directly with all other energy sources. Brazil’s renewables sector shows surprising resilience amid an economic downturn and its underdeveloped solar market remains a potentially lucrative lure. Mexico’s recent power auctions have opened the door to multi-billion dollar opportunities under a new liberalized energy market.

Australia also just makes the top 10, with its renewables market bouncing back after near-paralysis caused by several years of hostile policies. [Engerati-Australian Households To Lead the Energy Revolution and New Australian PM Could Give Renewables Sector The Boost It Needs] State-level tenders and corporate off-take potential will likely drive activity in the near term, given the ongoing challenge of securing long-term PPAs.

The next group is led by African countries with South Africa in 11th position, Morocco in 14th and Egypt 16th – with Kenya making up the four from the region in the top 30. In Egypt, for example, interest continues to grow, with a mix of tendered projects and multi-GW bilateral agreements contributing to the estimated 13GW of additional capacity required to meet soaring domestic demand over the next five years.

Asia on the other hand, shows a mixed bag. Next after India is Japan in 12th position showing decreased attractiveness, as also are Taiwan (29th) and Thailand (37th). However, Philippines (22nd) is looking up as is Pakistan (38th), which enters the index for the first time with a robust policy framework and reported US$3 billion of foreign renewables investment in 2015. This is alongside mega projects such as the 1GW Quaid-e-Azam PV solar park and 1GW of proposed wind capacity in Punjab.

Developed country renewables outlook

Almost without exception, European markets slipped down the index as they appear to be scaling back their ambitions as they address the challenges of marrying up increasingly mainstream renewables with a legacy of centralized conventional power generation.

Notable among these is the UK, now ranked 13th, due to what EY describes as “the government’s noncommittal, if not antagonistic, approach to energy policy, which continues to go against the grain of almost universal global support for renewables.” Not only stalling project development and investment inflows, this is arguably jeopardizing UK energy security. [Engerati-Renewable Energy Plans: UK Takes Huge Step Backwards While Others Move Forward]

Commenting on the findings, Ben Warren, EY’s Global Power & Utilities Corporate Finance Leader and RECAI chief editor, says: “Emerging markets are transforming their energy industries at an unprecedented pace. Markets earlier in their renewables journey are benefiting from cheaper and more efficient technologies, lower cost of capital and more reliable resource forecasting. We can expect to see massive deployment of low carbon investment in developing markets.”

However, he cautions that ambitious targets and low pricing alone will not be enough to promise investment attractiveness. “The ability of markets to climb or stay in will depend on projects being built, and commercial viability enabling the supply of affordable energy in a competitive environment.”

Further reading

EY: Renewable energy country attractiveness index Issue 47

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