Following a record year in 2011, clean energy investment during the first quarter of 2012 was the weakest since 2009, according to Ernst & Young’s latest quarterly global Country Attractiveness Indices (CAI) report.
The ongoing problems of sovereign debt issues and increased competition from Asian manufacturers remain the dominating issues for EU poliymakers, dimming the short to medium-term global sector outlooks. In the U.S., renewal energy projects are facing stiff headwinds from cheap natural gas and political resistance to tax credit extensions.
The federal Production Tax Credit (PTC), which is set to expire at the end of the year without an extension being passed in Congress, is crucial to the domestic wind industry. The tax credit finances renewable projects by reducing corporate income tax by 2.2 for every kilowatt-hour produced.
It’s not all bad news, according to the Ernst & Young report. 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.
The CAI report provides scores in 40 countries for national renewable energy markets, renewable energy infrastructures and their suitability for individual technologies. Although the rankings at the top of the index remain unchanged, all five of the top-ranking countries have dropped points during Q1’12.
“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.
Roughly $21.7 billion worth of global renewable energy transactions were completed in Q1’12, representing a 41% increase over the total for Q4’11.
For global initial public offering (IPO) markets, however, this was the poorest quarter for renewable energy since Q2’09, with approximately $14.3 billion raised from 157 issues, which is down by approximately 69% compared with Q1’11.
New asset finance also fell sharply, undermined by wavering political support and a continuing lack of liquidity in the project financing market, resulting in only $24.2 billion raised. This represents a 30% decline from the previous quarter and a 7% decline from the same period in 2011, according to the report.
“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,” predicts 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.”
More businesses in the private sector are implementing energy mixing strategies in order to cut rising energy costs. But wind and solar projects can be cost-prohibitive to build and maintain, so that energy mix may not be as beneficial as originally thought.
China leads the world in wind capacity additions. Data from a recent Worldwatch Climate and Energy report shows that the country has increased its wind capacity 40% since 2010. Contrasting that, U.S. installations accounted for a mere 17% of global wind power capacity last year. Wind power itself accounts for less than 3% of total U.S. power generation.
Access the full report HERE.