An uncertain world market characterised EY’s latest Renewable Energy Country Attractiveness Index (RECAI), where geopolitical instability, including ongoing trade hostility and Brexit, have resulted in little change across the top 10, as leading markets bide their time to see how such scenarios play out.

 

Now in its 16th year, the bi-annual RECAI report ranks 40 countries on the attractiveness of their renewable energy investment and deployment opportunities. This year, China and the US remain at first and second positions respectively on the ranking. 

 

Little movement in the top 10

 

Trade tensions between China and the US, including the US government’s introduction of 30-per-cent tariffs on solar panel imports, see the two markets in a holding pattern. Little movement among the top 10 RECAI markets also reflects that trend. Although India climbs one place to third position, progress toward the country’s 100GW solar target has been hampered recently by trade uncertainty, including a 25-per-cent tariff on solar cell imports. And in the UK, third quarter renewables investment fell 46-per-cent year-on-year amid speculation around how the outcome of Brexit will impact power exports to the EU and the price of imported equipment.

 

“An uncertain political climate – particularly the continuing trade disputes between the US and China among others – compounded by the increasing scarcity of subsidies, presents a challenging backdrop to the maturity of the renewables sector,” observed Ben Warren, EY Global Power & Utilities Corporate Finance Leader and RECAI Chief Editor. “However, oversupply will provide a short- to medium-term boost to the price competitiveness of renewables, while also likely to drive some consolidation upstream. In the longer-term, increasing demand for power from the mobility and heating sectors provides something other than trade disputes for policymakers to focus on.” 

 

Conversely, the latest RECAI indicates that less mature markets are more comfortable making bolder changes. Argentina enters the top 10 for the first time, with the government demonstrating political support for renewable energy; Egypt climbs five places to 15, with total wind capacity expected to expand by 3.3GW by 2027; and Greece rises from 34th to 28th position, as the government aims to reach its target of 18 per cent renewables by 2020. Meanwhile, Sweden falls victim to its own success and concedes 10 places to 32nd position, as large amounts of onshore wind cause future prices in power and green certificates to decline. 

 

Sector hedging its bets on EVs 

 

The Index further highlights how renewables technology, and the rise of electric vehicles (EVs) in particular, is playing into market caution. With EVs set to reach price and performance parity with internal combustion engine vehicles from 2025 according to EY research, some investors are hedging their bets on new technology. However, this has given rise to considerable uncertainty – not only regarding how quickly EVs will displace internal combustion engine vehicles, but also how usage of charging infrastructure will evolve.

 

“The promise of an all-electric future presents new opportunities and challenges, particularly in relation to charging infrastructure,” pointed out Mr Warren. “Investors are responding to the risk that over-investment could lead to heavy losses if utilisation falls short of expectations – or if the market changes direction, leaving investments stranded. Those players who take steps to mitigate the risks and test the value hypothesis of new business models, will be on the front foot.” 

 

For EY’s complete top 40 ranking and insights on why energy capacity growth could undermine its own economic viability, as well as in-depth analysis of the sector in Sub-Saharan Africa, Colombia and Peru, visit: ey.com/recai.