Times are tough for a number of nations that, only a short while ago, led the charge toward renewable energy.
In Germany, the government of Chancellor Angela Merkel is facing public push-back for the surcharge costs of its solar power feed-in tariff. In Britain, the Conservative and Labor parties have assailed the reigning Liberal Democrats over high energy prices, with Conservatives calling for a rollback of green energy initiatives.
Political wrangling over those and other renewable energy programs has soured the investment landscape in mature markets, according to a recently released index by Ernst & Young, potentially driving away capital that governments sorely need to modernize their energy infrastructure.
Meanwhile, many emerging markets have made steady progress toward their own renewable energy targets, potentially opening the field to larger injections of outside money, according to Ernst & Young's Renewable Energy Country Attractiveness Index (RECAI).
"When looking at markets from an investment perspective, we're seeing a gap developing in terms of attractiveness," said Gil Forer, global clean tech leader with Ernst & Young. "On one side are countries that are in the process of reviewing, revising or rescheduling their energy policies, which is leading to uncertainty in the markets. On the other side, countries are attracting investors by galvanizing large-scale deployment and removing barriers, as we're seeing in emerging markets such as Brazil and South Africa."
When policies fall prey to politics
While national renewable energy targets have provided some market stability in the past, those policies remain vulnerable to faults in the political landscape. In Australia, for example, the new government under Prime Minister Tony Abbott has radically shifted direction on clean energy, slashing funding for climate research and promising to abolish the nation's fledgling cap-and-trade system.
Shifting political head winds in Europe are threatening investment there as well, said Ben Warren, Ernst & Young's head of environmental finance.
In the United Kingdom, he said, "part of the £29 billion [$47 billion] worth of investment announced in the last three years is contingent on government policy stability in order to materialize. Political squabbling is widening the time gap between investors announcing their intentions and taking action."
The level of funding secured for renewable energy infrastructure in the United Kingdom fell 45 percent between 2009 and 2012, he said. Britain is counting on at least £325 billion of investment to replace aging thermal power plants over the coming decade.
U.S. is still on top
In spite of the current turmoil, developed countries still dominate the top ranks of the RECAI, with China the only emerging economy to make it into the upper eight rankings.
Despite ongoing concerns about the low cost of shale gas and the lack of a coherent national energy plan, the United States remains the top contender for renewable energy investment thanks to regional policies like California's cap-and-trade system, state renewable portfolio standards and funding initiatives like New York's recently launched $1 billion green bank.
China, which holds the No. 2 place in the ranking, is one of only a handful of countries that has held steady in its pursuit of a national renewable energy target. The world's most populous nation aims to add 35 gigawatts of solar power to its energy mix by 2015, through a combination of tax breaks, mandates and subsidies.
"China has very ambitious renewable energy targets," Warren said. "Through a variety of tools such as a 50 percent tax break on the sale of solar power ... and a requirement for 3 percent of annual revenue to be spent on research and development, the government is creating a strong pipeline of innovation and deployment."
Practical case for renewable energy
While developed countries are primarily adding renewables as part of broader plans to mitigate climate change, many developing countries see them as a practical -- albeit partial -- way to meet surging energy demand. Both Turkey and Thailand, for example, have seen demand for renewables rise on the back of high energy prices, and even relatively small economies like Morocco and Kenya have seen significant inflow of financing for green energy over the past year.
Brazil, whose economy -- and energy consumption -- has been rising steadily over the past several decades, has registered more than 40 GW worth of renewable energy projects for November and December auctions.
The practical case for renewable energy is likely to improve with time. Thanks to steadily declining costs, wind power -- and, in some places, solar photovoltaic -- is approaching price parity with more conventional forms of energy, Ernst & Young analysts noted. Once there, these technologies will likely attract strong interest from deep-pocketed investors like pension funds.
"In the medium to long term, as the renewable energy market reaches grid parity and is no longer hostage to the uncertainty of government-controlled tariffs, it seems likely that the public equity markets will once again start to believe in the renewable energy supply chain," Warren said.
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