Against a backdrop of surging subsidy deficits and public outcry against escalating energy bills, capacity auctions are now becoming the preferred policy mechanism and this issue of the Country attractiveness indices (CAI) analyzes these dramatic changes.
The end of 2012 witnessed a host of projects under the major government-led procurement in South Africa reach financial close, while Morocco, France, India, Egypt and Argentina also announced various technology auctions, most due to take place in 2013.
However, the diminishing role of subsidies and other financial incentives should not be overstated. We need only look at the impact in the US of the 11th-hour extension of the Production Tax Credit (PTC) for wind projects to see that financial incentives are continuing to dramatically impact deployment.
But significant barriers remain. Investment in infrastructure has become a recurring theme, with many countries — China, India, Germany and Denmark to name just a few — now battling with aging or capacity-constrained grids, as well as balancing issues from increasing intermittency as more renewables are deployed.
The other “obstacle” is the “g” word. Cheap gas in the US has caused debates worldwide on the cost-effectiveness of renewables, and many in the sector fear that a “dash for gas” in pursuit of lower capital costs could divert attention away from greener energy solutions.
China retains its lead at the top of the index this issue, with the Government actively supporting outbound investment as Chinese companies seek opportunities to offer finance and equipment packages to projects across Latin America, MENA and Australia.
These capital flows from Asia, together with an increasingly diverse range of institutional investors and ongoing restructuring activity across Europe’s major energy companies, are expected to create significant transaction opportunities across the clean energy sector in the year ahead.
Chinese utilities and Japanese trading houses are continuing to seek out attractive assets across a range of markets and technologies. Capital flows from Asia are expected to generate significant transaction activity in the year ahead.
Map highlighting CAI countries and their respective Issue 36 rankings