Stop me if you’ve heard this before – renewable energy technologies face global challenges from fossil fuels and a lack of public subsidies, but new financing mechanisms and government mandates may be key to their continued growth.
What’s different now, according to Ernst & Young’s (E&Y) latest “Renewable energy country attractiveness indices,” is how shale gas development and crashing public financing are changing the way renewable energy is funded across the globe.
Global clean energy investment totaled $267 billion in 2012, a decrease of 11% from 2011, but was buoyed by increasing private funding and outbound investment from Asian markets. All this means foreign and corporate interest, not public dollars, may now be the key to a clean energy future.
China, Germany, America Continue To Lead
What hasn’t changed, however, is the outlook for global markets relative to each other. The top ten ranked countries in terms of renewable energy attractiveness hardly changed from 2011 to 2012. China is the world’s hottest renewables market, followed closely by Germany and the US, with India and France rounding out the top five.
China remains the best renewables market largely on the strength of onshore wind, overall solar, and infrastructure investments. A massive government target of 48 gigawatts (GW) new installed renewable capacity for 2013 dwarfs all other markets, while outbound investment may give the country’s domestic manufacturing industry a long-term edge against other nations.
Germany retained the second overall position and narrowly edged the US by ranking highest in offshore wind, solar photovoltaic (PV), and biomass. Even though price shocks from the country’s shift away from nuclear power have rattled funding sources, E&Y predicts offshore wind and solar PV will continue powering the country’s renewable industries.
While the US held onto its third overall rank, it was mainly due to large leads in the concentrating solar power and geothermal categories, as well as a late surge in onshore wind driven by doubt over the federal production tax credit renewal. E&Y predicts many challenges remain for America’s clean energy industry, namely regulatory uncertainty and the shale gas revolution.
The Shale Gas “Game Changer”
Indeed, E&Y finds the global shale gas revolution to be the biggest energy policy “game changer” heading into 2013. According to the indices, shale gas is likely to have significant effects on renewables as it combines substantial financial rewards for investors with the prospect of lower emissions and tax revenue for governments.
America has led the shale gas charge, with development significantly reducing energy prices and emissions. Booming shale gas resources have pushed prices so low that they pose long-term challenges to other forms of energy, says E&Y, and may reduce renewables penetration by 10% in the US alone.
The shale gas effect is being felt globally and is creating different energy economics around the world. Energy prices are expected to remain low in the US, intermediate in Europe, and high in Asia, even if international shale gas exports become common. “A three-tier world energy market is emerging, with the greatest opportunities for renewables in Asia,” says E&Y.
Regardless, many other countries are following America’s dash by rushing to produce their own resources or exploit the shale gas glut, namely China, India, and Japan. However, the US example may not mean similar success around the world, with geology and environmental challenges limiting development.
“Not all markets will have the liberal planning policies or frontier culture that allowed the rapid expansion of shale gas that took place in the US, nor indeed a similar cost base”
Private Investment Steps Up
But just as government funding has fallen at the same time shale gas poses price challenges, private investment may present the best outlook yet for renewables. Corporations are shifting their focus to clean energy to create brand benefits by reducing emissions and minimize exposure to price volatility.
“Energy investments and long-term procurements are now a board-level decision for many corporates, due to the significant shareholder value at stake. The fear of rising and volatile costs and brand risk has elevated energy strategy from a tactical and technical challenge to a strategic and financial necessity.”
E&Y note large firms are switching investments from renewable energy certificates or offsets to their own renewable electricity generation. Notable examples exist of single firms investing in clean energy like Google and Ikea, but multiple corporations are also partnering on large projects to secure competitively priced power.
Renewables developers have embraced this new influx of corporate investment by offering innovative funding mechanisms and long-term power purchase agreements (PPA). E&Y notes PPAs are increasingly popular in the United Kingdom and with the US military, and expects the increased competition by independent power producers to spur similar efforts by traditional utilities, further boosting the outlook for renewable energy.
Silvio is Principal at Marcacci Communications, a full-service clean energy public relations company based in Washington, D.C.