Financial woes take its toll on global renewable energy sector

The continuing sovereign debt crisis and government austerity measures in the market are weighing heavily on this sector, says Ernst & Young.

According to a release by Ernst & Young, the ongoing Eurozone debt crisis and recent negotiations over US sovereign debt have had a significant impact on the financing of renewable energy projects, according to Ernst & Young’s latest quarterly global Renewable energy country attractiveness indices. Financing costs have risen to new highs in the most vulnerable economies, while less exposed markets are experiencing a return towards more competitive funding terms. The indices provide scores in thirty-five countries for national renewable energy markets, renewable energy infrastructures and their suitability for individual technologies.

Ben Warren, Ernst & Young’s Environmental Finance Leader, explains: “The dual pressures of the continuing sovereign debt crisis and Government austerity measures in a number of mature renewable energy markets are weighing heavily on the global renewable energy sector. The cost of finance is proving reasonably volatile, with sovereign risk being only partly countered by increasing competition from lenders. Meanwhile, institutional capital, hitherto frustrated with under-performing equities markets, is increasingly looking at infrastructure, including renewable energy as a relatively safe haven to deploy their not inconsiderable funds.”

Country comparisons

There was little movement in the top half of the indices’ All renewables index, which ranks countries in order of their attractiveness for investment in renewable energy, since the last quarter, with China maintaining its position in first place. The government has signaled its continued support for offshore wind by announcing that it will hold tenders for a total of two gigawatts (GW) of projects in order to reach its target of 5GW by 2015. Support for offshore wind has also been witnessed elsewhere in the index with France releasing its long-awaited tenders for 3GW of projects, while Germany launched a €5b program to provide incentives to the sector.

Review of nuclear energy

Governments have responded with mixed messages in the aftermath of the Fukushima nuclear disaster. Japan fell one place in the index – its government has now scrapped plans for new nuclear development, but in the short-term is focusing on rebuilding infrastructure, reducing energy demand and investing in natural gas to build up base-load capacity. Germany climbed two points in the index, up to third place, having announced an end to its nuclear program as of 2022, while France remained static in the index at seventh despite re-affirming its support for nuclear power. The UK, which rose one place to fifth in the index, has recently provided more clarity on its Electricity Market Reform, most notably with the confirmation of the Contracts for Difference feed-in tariff for low carbon sources of power.

Gil Forer, Ernst & Young’s Global Cleantech Leader, says: “Government and corporate responses to the Fukushima nuclear disaster and the Arab Spring put more emphasis on the strategic importance of energy mix which will have an increased role for renewable energy. Also, as the global debt crisis impacts government funding for renewable energy, cleantech companies, increasingly will have to take steps to develop new markets, improve efficiencies and implement innovative finance options from the private sector to sustain their growth strategies.”