UK rises to fifth place in global renewable investment league

A report published by Ernst & Young shows that the UK has climbed up to fifth place in its global rankings of attractiveness for investment in renewable energy. However, the paper warns that the global outlook for the clean energy market is far less certain than 2011, which saw record investment in renewable technologies, especially solar photovoltaic.

Ernst & Young’s latest renewable energy Country Attractiveness Indices report (CAI) predicts that the renewable energy sector in more established markets, such as the Eurozone, will face increasing financial constraints reflected by aggressive cuts to solar incentives in Spain, Italy, Germany and the United Kingdom.

Emerging markets are set to further prosper, increasing pressure on established Western markets for the foreseeable future. Ambitious installation programmes that have secured scarce capital investment will propel the continued growth of emerging markets in 2012.

The report ranks 40 countries in order of their attractiveness for investment in renewable energy. China tops the table thanks to an ambitious solar target of 15GW by 2015, designed to soak up excess supply. The US closely follows China, due to a surge of around 7GW of wind energy installed in 2011.

The UK has climbed into the top five for the first time, leapfrogging Italy. The rise in position has been attributed to several large offshore wind projects that are currently in the pipeline, including the world’s largest wind farm in Scotland. The rapid growth of the UK solar industry, which installed 762MW of capacity in 2011, marked a significant development for the UK renewable industry.

The UK renewable market has been dominated by developments in the UK regulatory environment and the Court of Appeal’s rejection of the Department of Energy and Climate Change’s appeal.  Ben Warren, Ernst & Young's Energy and Environmental Finance Leader, explains: “Following on from its Court of Appeal rejection, the Government has announced two further consultations over its small-scale FiT, which make it clear that it intends to control expenditures going forward within its existing spending framework.”

He added: “The proposals reflect the encouraging trend that we have seen around cost reductions in the renewable technologies market - most notably in solar PV. This is good news for consumers and will result in more clean energy that can be deployed at a lower cost with the potential for lower bills for customers in the future.”

Ernst & Young predict that access to capital is likely to be a major factor facing the market in 2012. After total debt issued in European renewable and waste transactions peaked in 2008, then fell dramatically in 2009 and volumes somewhat recovered in 2010 and 2011, signals in the funding market at the beginning of 2012 suggest that the value of deals closed will fall in this year, coupled with shorter contract lengths and higher margins.

Warren concludes: “Access to capital over the next 12 months, whether debt or equity, is likely to define more than any other factor the difference between survival or failure. Capital constraints will therefore be a major driver for transaction activity, from distressed consolidation to creative joint ventures and partnerships.”