US and Europe Outlook

Various incentives have driven growth in the US renewable energy industry in recent years, particularly the Treasury cash grant programme, investment and production tax credits, and the Department of Energy Loan Guarantee Program. However, the 1603 cash grant programme required applicants to meet certain benchmarks by the end of 2011, the Production Tax Credit (PTC) is set to expire at the end of 2012, and the loan guarantee programme essentially finished in September 2011. Hopes for a national renewable energy standard and broader climate policy have lost momentum amidst economic and budgetary woes. Similarly, lobbyists have failed to convince lawmakers to include cash grant or PTC extensions in the payroll tax deal forged at the end of 2011 or the subsequent payroll tax extension approved in February 2012. The momentum behind US renewables has slowed, with the wind industry feeling the greatest strain.

Meanwhile, Europe is having its own problems. The debt crises have placed huge budgetary constraints on European governments and some governments are looking to renewable energy incentives for cuts. Germany has made several cuts to its subsidy programmes. Spain attempted to make retroactive cuts to certain feed-in tariffs (FiTs) and further subsidy cuts were announced in January 2012, with Spain’s Prime Minister announcing in July that it would levy a new tax on the renewable energy sector. Italy and the UK announced cuts in subsidies during 2011. The sovereign debt crisis may also temper investment in the Eurozone.

Emerging Markets

As uncertainty looms in the US and Europe, investment in renewables is flowing into emerging markets. Some countries are trying to meet their obligations under the Kyoto Protocol; others want to promote their national resources, cut their dependence on imported oil, address increased power demand, or foster job creation.

Whatever the motivation, significant renewable energy investments are being directed to countries such as India, Turkey, Morocco, South Africa and Brazil, amongst many others.

As in the US and Europe, a key driver for investment in developing countries will be policy certainty. History has shown that investors look to nations with strong and stable policy support, and direct their money accordingly. In addition to the powerhouses of China and India, many other emerging markets are shifting policies to make a renewable energy play.

In the MENA region (Middle East and North Africa), Turkey established a renewable energy target of 30% by 2023, backed by FiTs for wind ($0.073/kWh), geothermal ($0.105/kWh), biomass and biogas ($0.133/kWh), and solar ($0.133/kWh).

Israel has established a FiT for wind installations up to 50 MW and for solar, and set a renewable energy target of 10% by 2020. In addition to significant research, development and infrastructure investment, Saudi Arabia is formulating a policy that includes a FiT as well as a programme that grants 20-year power purchase agreements (PPAs) to renewable energy project developers.

Jordan has set a target of 10% by 2020, and has created a project tendering programme and the Jordan Renewable Energy and Energy Efficiency Fund to provide financing support to qualified projects.

The UAE not only has a renewable energy target of 7%, but has arguably made the biggest investment in the MENA region through its state-owned entity, Masdar, which has the mandate to make the UAE a global leader in renewable energy. Masdar is developing Masdar City, a carbon neutral city that will deploy significant megawatts of renewable energy. It is also developing Shams 1, a utility-scale concentrated solar project, and has other ventures both inside and outside of the UAE using various sources of renewable energy.

Asian nations are also stepping up. In the Philippines, which aims to increase its renewable energy capacity to 15,300 MW by 2030, the recently enacted National Renewable Energy Programme sets specific targets for renewable energy and establishes dedicated investments totalling $27.6 billion by 2030.

Thailand established a target of 20% by 2020. This is supported by significant government investment which gradually decreases until 2022. Quasi-governmental entities, such as the ESCO Venture Capital Fund, have been established to provide venture capital, equity investments, and credit guarantees. Meanwhile, Indonesia has eased restrictions on foreign investment to expand use of its potentially enormous geothermal resources within the ‘Ring of Fire’ volcanic region.

In Latin America, Argentina has enacted a series of policies directed towards renewables. The Renewable Energy Generation Program has set a target of 8% renewable energy by 2016, and is supported by a tender programme from the public utility, ENARSA, for 1000 MW of renewable energy PPAs. The policy also created the Fiduciary Fund for Renewable Energy, which provides subsidies for solar photovoltaic, wind, geothermal, biomass, biogas and hydropower projects.

Brazil, which expects electricity consumption to increase by 52% through 2019, has unveiled the 2010-2019 Decennial Plan for Energy Expansion to phase out construction of fossil fuel plants by 2014 in favour of biomass and wind generation power plants. Brazil has also set targets on specific renewables by 2019: hydro (116 GW); small hydro (7 GW); biomass (8.5 GW); and wind (6 GW). Building on its popular biomass purchase contract auction, the nation has now introduced such an auction for wind energy.

In Africa, Kenya updated its FiT in 2010 so it now ranges from $0.08/kWh to $0.20/kWh, and includes geothermal, wind, biomass, small hydro, biogas and solar. South Africa established resource-specific targets by 2030 for wind (10.3%), concentrated solar (1.3%), photovoltaic (9.4%), and hydro (12.7%). This is complemented by a FiT enacted in 2009 ranging from approximately $0.11/kWh to $0.50/kWh, depending on the resource.

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