The renewable energy industry is at a tipping point as the developed markets start to close the door on generous subsidy programs and emerging markets develop cost strategies to compete with fossil fuels, according toErnst & Young's latest quarterly global renewable energy country attractiveness indices report released today.
The indices provide scores in 40 countries for national renewable energy markets, renewable energy infrastructures and their suitability for individual technologies.
During Q3 2012, China remained at the top of the All Renewables Index (ARI), but dropped a point as its solar sector continued the consolidation process in an effort to boost domestic installation and rationalize government support, which could slow growth in the more immediate term. In recent months China has also seen a large outflow of Chinese investment in favor of markets such as Africa and South America.
The quarter also saw the US drop 1.5 points in the ARI, resulting in Germany moving up into second place ahead of the US. While the German government has recently increased the country's renewable energy target for electricity to 40% by 2020 and is proactively implementing policy measures to create sustainable growth, the downgraded score reflects the more immediate changes around possible subsidy caps for solar, wind and biomass.
Within the US, the uncertainty about long term US energy policy combined with concerns over the extension of key renewable energy incentives and the availability of low-priced natural gas are likely to continue slowing the growth in the sector in the short to medium term, particularly in the wind sector.
Globally, total clean energy investment fell 5% in Q3, to US $56.6 billion, with investor enthusiasm dampened by skepticism over policymakers' renewable energy commitments and the continued decrease in solar and wind technology costs impacting on total investment values.
New investment levels have varied globally with investment in Europe, Middle East and Africa rising 7% to US $21 billion in Q3, mainly driven by solar thermal and wind project financings in Morocco. However, in the same period, investment in the Americas and Asia-Pacific slipped by 25% and 3%, to US $10.4 billion and US $25.2 billion respectively.
Having taken note of the lessons learnt across markets in Europe and the US, where high levels of subsidization have been the key driver of growth in the sector, governments in emerging markets are driving business models that work without direct subsidies or grants that could potentially compete head-on with conventional fossil fuel sources.
The latest indices include Saudi Arabia and United Arab Emirates (UAE) for the first time, reflecting the growing presence of the Middle East within the clean energy market, with the UAE ranked 35th in the index, two places above Saudi Arabia. The rollout of solar initiatives places the UAE over Saudi Arabia in the Solar Index, while the reverse is true in the Wind Index based on natural resource.
