Market turmoil leads to sharp drop in cleantech investments

May 29, 2012
Falling investement

Following a record 2011, investment in clean energy in Q1 2012 was the weakest since the worst of the financial crisis three years ago according to the latest Ernst & Young’s Country Attractiveness Indices report released yesterday.

The gap between developed and emerging markets in the indices has noticeably reduced. In the West, fiscal challenges have dampened public policy support, while developing countries are introducing incentive mechanisms and implementing national energy strategies.

Renewable technologies are becoming more cost competitive, stimulating global activity. The price of solar PV modules, for example, fell by 50 percent in 2011, the report stated.

However, the sector continues to face significant challenges, including reduced policy support in core European markets, competition from Asia, decreasing carbon prices, and tax credit uncertainty and a shale gas boom in the US.

As more mature technologies move closer to achieving grid parity, it looks like the sector will flourish long term. In the face of these challenges, though, the short- to medium-term outlook is less sure, the report warned.

While the rankings at the top of the renewables index unchanged, all five of the top countries have lost points.

China’s wind sector continues to suffer from insufficient grid access, while a boom-bust scenario has returned to the US following uncertainty over the expiry of key stimulus programs. In Germany, more solar tariff cuts and grid challenges for the offshore sector reduce short-term attractiveness, and the end of a key tax break incentive in India is likely to affect wind sector growth this year. More cuts to the preferential rates awarded to renewable projects in Italy complete this trend.

“The growth of China’s wind sector continues to be stifled by insufficient access to the grid, while a boom-bust scenario appears to have returned to the US as a result of uncertainty over the expiry of key stimulus programs,” said Gil Forer, Ernst & Young’s global cleantech leader.

“In Germany and Italy, tariff cuts and grid challenges have reduced short-term attractiveness, while the end of a key tax break incentive in India is likely to dampen wind sector growth through 2012.”

Consolidation among industry participants, however, means M&A activity was up in the quarter with USD21.7 billion worth of renewable energy transactions being completed, a rise of 41 per cent over the last quarter of 2011 and going forward it is likely to rise further.

"The next 12 months are likely to be characterized by further consolidation in the solar and wind supply chain, with a large number of outbound deals expected from Asia," E&Y Energy and Environmental Finance Leader Ben Warren said.

“Access to capital will remain the single biggest differentiator for companies in both the technology and infrastructure markets for the foreseeable future.”