Ernst & Young recently released its renewable energy attractiveness index, its quarterly index of how exciting various countries are for renewable energy deployment. The 42 page report gives us a snapshot into macro trends in the global environment for renewable energy deployment, ranging from the uncertainty surrounding subsidies in the U.S. to China’s recent move to increase its 2020 solar target to 50GW from 20GW.
While the report paid respect to the mature markets like Germany and the U.S., much of the future excitement should come from emerging markets as well as China’s position as the leading end market for renewable energy projects. I got on the phone with Gil Forer, Ernst & Young’s Global Cleantech Leader, to identify key trends in the global cleantech space, as well as consider how the report could be useful to startups in the renewable energy space.
China amped on solar: China is number one on the index, which largely is levered to wind and solar with a small input of biomass. It further strengthened its position, largely because the government more than doubled the 2020 target and also moved the 2015 target to 21GW from 15GW. Currently there’s just 3.1GW of installed capacity in China which leaves a lot of room for growth.
In truth, the driver for this was government concern that the glut of cheap solar panels needs to be absorbed somewhere and domestically is the easiest solution, particularly with recent tariffs in the U.S. and new concern that the E.U. may now impose tariffs in what is the biggest anti-dumping investigation in world history. The China Development Bank has extended a lot of credit to solar companies in China, which it would rather not see fail. The National Energy Bureau is looking at requiring power companies generating more than 5GW to attribute 11 percent of installed capacity to renewables. The Chinese government continues to drive the cleantech horse forward as the graph below shows how in 2005 the Chinese market (the red line) was relatively closed and today China is the leading market in the world.
Capital remains scarce: Project financing remains a challenge for everyone. I’ve written about new financing schemes like solar backed securities and peer-to-peer financing, and Forer referenced the possibility of direct financing from pension funds. Last week the Sparx Group, which manages just under $6 billion, inked a deal to direct finance a solar plant in Southern Japan. Also on the table in the U.S. is a bill called the Master Limited Partnerships Parity Act, which would allow renewable energy partnerships to avoid corporate taxes and trade like corporate stock on a market.
What about India? India remained in fourth place on the index, even if there is renewed interest as the recent historic blackout has everyone scratching their heads, looking for solutions to the growing energy needs of its burgeoning middle class. Because of the outdated grid infrastructure and the amount of time it would take to update the grid, even if significant capital becomes available, India is looking like a key test case for distributed power. Solar is an obvious contender for distributed power there, based on some success in poorer communities in Africa, but microgrids built around wind or biomass are also an option.
Not so fast
Forer cautioned readers not to ignore the mature renewable markets in the U.S. and Europe. He continues to believe that as the cost of solar and wind drop and get more price competitive, the issues related to subsidy rollbacks will be dampened. I agree here though I think that there remains a real possibility of multiple countries missing their energy targets as renewable energy prices don’t fall fast enough to spur organic growth.
But in regards to the global market Forer noted, “Startups need to look at the global map and monitor the developments in key markets around the globe. When you look at Africa, the Middle East, South America, those markets will take time to develop, but at least they have commitments from governments that have been announced in the last half year.”
Trying to innovate and transform the global electrical grid and shift the supply of energy is a game of patience. Though it’s one that could greatly benefit from continued reductions in the pricing of renewable energy, easier financing, and in the case of startups, technological advances.