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RENEWABLE ENERGY: Diversification is Key to Growth in Global Renewables Market


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China is bullish as it soars ahead of competitors....

Countries around the world are increasingly broadening the scope of their renewable energy portfolios amid challenging market conditions, according to Ernst and Young’s latest quarterly global Renewable Energy Country Attractiveness Indices. Although global events such as the Japanese tsunami and nuclear disaster and the unrest in the Middle East and North Africa continue to impact the power generation landscape, the increasing commercial viability of different technologies such as offshore wind and concentrated solar power (CSP) is also providing new opportunities for sustained growth.

China leads this trend and retains its top ranking in the Indices − a position it has held since August 2010. The country has attained its highest ever score during this quarter, following increased support for the development of shallow water offshore wind projects and the release of the ”greenest” five year plan to date. The plan includes a target of 11.3% in primary energy generated by non-fossil fuels by 2015.

The US remains a non-mover in second place this quarter as the battle over the future of its clean energy policy continues. Utility scale solar (both PV and CSP) projects have remained healthy despite the uncertainty, but wind projects have suffered, particularly in the light of the continued suppression of gas prices in the US.
From an emerging markets point of view, China, India and Brazil are the best performing countries, while South Africa is grouped closely with Morocco and Egypt on the list. South Africa is currently placed at 27 from an index universe of 35.

“This is a slight drop from where South Africa was placed last time the index was compiled,” says Norman B Ndaba, Ernst and Young’s Director for the Power and Utilities sector in Africa. “I suspect that the main reason South Africa has not improved its position is due to the uncertainty created by the announcement of a possible reduction in the renewable energy feed in tariff (REFIT).”

Ndaba points out that SA is by no means unique in its discussions around reducing the REFIT. He says that there have been numerous similar reductions or would-be reductions in European nations such as Spain, France, Italy and others. “What must be remembered is that even taking into account possible reductions, the tariffs in SA remain attractive for those would-be investors that have proven technology and are prepared to adopt a long term view. Furthermore, we anticipate that the situation around the REFIT will be made clearer within the next month, as an announcement by the Minister of Energy is expected shortly in this regard.

Ben Warren, Ernst and Young’s Environment and Energy Infrastructure Advisory Leader and author of the report, explains: “The picture for renewable energy this quarter has undoubtedly been mixed. Global events have had a significant impact on attitudes to renewable energy, with increased impetus in favour of renewables in Japan, the Middle East and a number of developing economies. Despite some momentum being lost in Europe largely as a fall-out of the economic crisis, the need for countries to diversify their energy mix and deliver security of energy supply suggests a continued robust outlook for the market.”

Sector focus
There are differing sector-specific indicators this quarter. Solar sector share prices appear to be weathering the current financial climate better than wind or biomass, gaining 40% since May 2010 despite the various feed–in tariff (FIT) reductions across Europe. Meanwhile, wind share prices have recently begun an upwards trajectory after losing 20% over the same period.

Gil Forer, Ernst and Young’s Global Cleantech Leader, comments: “It is clear that the solar sector faces both challenges and growth opportunities. This is a good time for solar companies to continue to focus on cost reduction efforts, supply chain efficiencies, risk management and capital management.”
Forer continues: “From a government perspective, it is important to overcome the misconception that renewable energy is too expensive, as we continue to see reduction in cost due to improvements in production and supply chain efficiencies as well as in technology. And as governments and corporations try to optimize their energy mix, solar will have a key role to play in any energy mix policy either at the country or corporate level.”
Country comparisons

Apart from Brazil, which − propelled by strong growth in its wind market − has risen four places to 12th position, most countries in the top 20 have dropped slightly in scores − largely as a result of diminishing incentives and restricted access to capital. India continues to slowly climb the rankings, overtaking Germany in fourth position, a sign that developers are favoring countries with high economic growth.

The lower half of the indices reveals several climbers and four new entrants, as the index expands to 35 countries. Morocco enters at number 27, on the back of strong solar and wind resources, and large increases in demand. Taiwan’s solar supply chain and offshore wind potential are attractive for investment, while Bulgaria’s and Chile’s natural resources are being hindered in the short-term by policy barriers.

Japan has dropped three places in the rankings as the short–term focus on natural gas and fuel oil imports to replace lost nuclear power capacity is likely to hamper renewable energy investment. Longer term, the government has indicated that it will promote more renewable power.

In the UK, the results of the Department of Energy and Climate Change‘s (DECC) “fast track” review of FITs for solar PV has resulted in dramatic cuts for installations over 50kW, due to come into effect on 1 August 2011.

The overall prognosis for South Africa remains positive, according to Ndaba. “We expect that by the time the Copenhagen 17 meeting sits down in Durban in December 2011, the SA market will have done enough to create the necessary conditions to show its commitment to renewable energy. During this period, we should have put in place the necessary policy and legal frameworks, grown investor confidence and identified and commissioned several projects. In this way, SA can demonstrate that it is not only serious about climate change and sustainability, but that it can also serve as a model for the continent, particularly the southern African region.”

Ben Warren concludes: “The continued momentum in China and a number of developing markets promises to sustain overall growth in the sector, as the race for green collar jobs, energy diversity and economic growth continues. We might be seeing a temporary slowdown in investment activity as a result of declining levels of support for renewable energy in some markets, but cost reductions in some technologies an improved picture for the future.”

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