Can Renewables Still Attract Investment?

19 january 2013

LONDON —  It seems that there is something of a crisis of confidence in the renewable energy investment market. A toxic mix of low growth and falling prices, a lack of certainty around policy stability and a move to more risk-averse investment strategies has effectively poisoned prospects for sustained vigorous growth in established markets.

Indeed, Richard Threlfall, UK head of infrastructure, building & construction at KPMG, eloquently summed up the overall energy infrastructure investment outlook when he recently commented that ‘It is no surprise that private finance for infrastructure has now virtually evaporated. Banks are under much greater commercial and regulatory pressure to recycle their capital. As a result, long-term bank finance for infrastructure is now effectively dead. In addition, capital markets won’t lend into infrastructure unless they are insulated from construction risk. The combination of no bank or capital markets access has… created the perfect storm.’

There has clearly been a distinct investment shift away from the established markets of Western Europe and North America, a fact amply reflected in the latest edition of the Ernst & Young Renewables Investment Country Attractiveness Index. At first glance this analysis also paints a depressing portrait of the current investment market, stating that growth in many countries is faltering and, even some five years after the start of the financial crisis, economies are yet to recover and fiscal deficits continue to ricochet across borders. In the West, with voters weary of recession, policymakers have little appetite for making long-term investment decisions that would necessitate short-term cost increases.

But, as gloomy as these observations appear, there is light at the end of the tunnel. In contrast with Europe and the US, green job creation schemes have surged across Asia, with countries competing to set out the most ambitious plans. For instance, Ernst & Young cites Chinese policymakers, who – having quadrupled the country’s solar capacity target to 50 GW by 2020 – are also addressing PV panel oversupply through accelerated domestic installations, which may help the nation weather the storm of import duties raining down from across the Pacific.

According to the CAI, continued development in emerging markets offers most hope for the sector. South Africa’s US$8.8 billion tender programme that will see it issue calls for around 1 GW of wind and solar capacity annually through to 2016 could open doors for the rest of sub-Saharan Africa. Meanwhile, Saudi Arabia’s $109 billion solar plan could signal a new green dawn for the Middle East – again see our News/Analysis section for more on this. South America, led by Brazil, is already showing great potential, and there are beacons of hope in other regions too. Overall, then, it seems that there is investment available for energy infrastructure financing. The key issue is where this availability is focused.

Lead image: Money pile via Shutterstock

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