Rising interest rates and end of quantitative easing could make the funding of projects difficult for renewable energy developers, according to a recently released bi-annual report.
The 51st issue of the Renewable Energy Country Attractiveness Index Report (RECAI) by the U.K.-based accounting and consultancy firm Ernst & Young highlighted the trend of rising protectionism across the renewable energy sector.
'At a time when protectionism is on the rise, the renewable energy sector is at risk,' said Ben Warren, EY global power and utilities corporate finance leader, and RECAI chief editor.
'India is considering a 70 percent tariff on imported solar panels, threatening its ambitious 2022 solar power target,' Warren said, adding tens of thousands of solar installers in the U.S. could lose their jobs as a result of President Donald Trump's decision in January to impose a 30 percent tariff on imports of solar photovoltaics (PV) cells and modules.
'Rising interest rates and the end of quantitative easing are set to raise the cost and reduce the flow of cheap capital that has underwritten the dramatic roll-out of renewable energy capacity over recent years,' the chief editor said, noting financiers were anticipating tougher times for developers looking to fund their projects.
'At the same time, government subsidies for clean power are being reduced or eliminated around the world. In many markets, limited or even negative power demand growth is holding down electricity prices,' he added.
Although these factors are 'forcing a relentless focus' on costs within the sector, Warren pointed out that this focus was also 'paying dividends', and “movements in the Index suggest that these developments are just headwinds as the renewable energy sector continues to mature and markets expand'.
Warren also noted that most of the big oil companies were making increasingly significant investments in low-carbon energy.
'In the long term, they recognize that climate change and the rise of electric vehicles will crimp demand for hydrocarbons. In the short term, they see the rapid growth of renewable energy and an opportunity to deploy their capital and expertise in a fast-evolving new energy market,' he said.
He asserted that maturity of the renewable energy sector is evident. He explained that a few years ago, cuts to subsidies, import tariffs and rising interest rates would have combined to negatively impact the industry.
'Today, they create headwinds, but no hurricanes,” he concluded.
-China remains most attractive country
China topped the index for the third time in a row, with the U.S. and Germany overtaking India, which dropped from second place last October to fourth place in May.
The report noted that the U.S. climbed from third to second rank, despite the tariffs on solar imports, which it said pointed to the resilience of the U.S. market, 'as the solar tariffs are mostly absorbed and wind projects are not subject to subsidy cuts under the recently passed U.S. tax reform bill'.
'India’s 2022 solar power target looks increasingly over-ambitious amid investor concerns, in response to the threat of a 70 percent tariff on imported solar panels and low power bids', according to the report, which said tariffs and disputes between developers and distribution companies were raising investor concerns.
The U.K. and the Netherlands also rose on the index, to seventh and ninth positions, respectively, while Taiwan re-entered the bi-annual top 40 ranking.
Placed 10th last October following a large drop in renewables investment, the U.K. is 'bouncing back' with subsidy-free solar PV and onshore wind projects for merchant generation as well as repowering of old wind farms, according to the report.
Renewables are also expanding in the Netherlands, which made a notable rise from 15th to 9th position, as it “strives to meet its 14 percent EU target in 2020,” the report said.
'Recent offers for unsubsidized offshore wind and a growing solar PV market are strong contributors,' it added.
Turkey moved one rank down to 17th position in the latest ranking.
By Hale Turkes