The UK hits the heights for renewable energy investment
The latest Ernst & Young Renewable Energy Country Attractiveness Indices reveals that Britain and Spain are the most attractive national environments for renewable energy investment out of 20 countries in Europe and beyond.
Ernst & Young’s Jonathan Johns explains why the UK has gained in popularity to clinch first place on the index. “As wind projects pass through the development process, they are set to generate attractive economic returns for investors, due to the ratchet mechanism of the Renewable Obligation (RO) to 2015, which is increasing competition amongst the UK suppliers to secure Renewable Obligation Certificates (ROCs). Hence the suppliers are offering more attractive long-term power purchase agreements, both in terms of duration and the floor price [which] provides lenders with revenue security”, he says.
Meanwhile, although Spain continues to offer excellent market prospects with the government about to expand its wind capacity target for 2011 by 50% to 20 GW, the market mechanism in place in Spain presents an increased risk that revenues will fall below the fixed tariff, making the index score dip slightly.
In the US, the volatility of gas and coal prices and the proposed introduction of the Production Tax Credit have all combined to improve the potential for renewables investment, although the PTC is due to expire at the end of 2005. However, in the longer-term the US remains an attractive yet competitive market.
Germany has held its fourth place position from last year and remains a major force in the sector with a 2 GW installed capacity of renewables. Recent developments include a variety of new financing structures and project buyers. Improving European markets include France and Portugal which benefit from a better wind resource than Germany and have rapidly improving planning environments.
For the first time the index has measured the investment attractiveness of China and India. China in particular has set ambitious targets for wind and plans to introduce legislation to encourage renewable generation next year.
In the longer term, Johns believes that globally increasing scale and consolidation are inevitable, “As project sizes get bigger, more professional asset management and larger investment are required. As a result we are seeing institutional investors beginning to enter the market and build international portfolios.”