The 50th issue of the Renewable Energy Country Attractiveness Index (RECAI) marks 15 years since EY began assessing and ranking the conditions for renewables investment in key jurisdictions.
The rise of new renewable energy technologies
When RECAI was launched, renewable energy was a climate change-led indulgence that only the developed world could afford. The top three spots in the first index went to the US, Germany and Spain: countries prepared to subsidize clean energy, with the goal of helping to build an industry of the future. Over time, many governments have encouraged deployment, effectively guaranteeing returns to developers and investors, by offering long-term feed-in tariffs or green certificate-based mechanisms. More recently, the emphasis has changed to policies that encourage cost reductions via competitive auctions. These policies have been enormously successful. As the renewable energy sector has grown, the cost of wind and solar power has fallen dramatically. No longer limited to first-world economies, renewables are increasingly becoming the first choice for new, large-scale capacity in fast-growing emerging markets. In the industrialized world, once-expensive renewable energy technologies are fast becoming competitive.
Utilities facing disruption
Renewable energy is entering its post-subsidy phase. As it does so, the ability of governments – and incumbent energy suppliers – to control their penetration fast diminishes. This democratization of renewable energy creates enormous opportunities for disruption and rapid growth, but will also pose significant challenges to these energy suppliers and to the very operation of energy markets. This presents utilities and their regulators with a clear choice. The utilities can either embrace innovation, by partnering with or acquiring the start-ups that are eroding their customer bases, or risk gradual decline. Regulators can enable that innovation, by ensuring flexibility in market rules and openness to new technologies – or they can protect the status quo, increasing costs for ratepayers and stifling the transition to cleaner, smarter and more resilient energy technologies.
Government policies and tomorrow’s energy landscape
Compared with 15 years ago, when renewables’ growth was closely linked to subsidy regimes, the levers that governments now have at their disposal are more complex, and the effects are less straightforward. Where governments do have a role to play is in facilitating the integration of renewables into the grid, managing the effects of disruption on existing electricity providers, enabling the digitization of energy supply, and addressing the interrelationships between renewable energy and other sectors, such as transport. How they manage these issues will dictate who tops our index over the years to come.
EY Renewable Energy Country Attractiveness Index (RECAI)
Picture credit: Sunrun, EY
Ben Warren, Partner at EY, leading the UK Energy Corporate Finance practice, with global responsibility for Corporate Finance services provided across the Power & Utilities sector, leading projects involving investments in excess of US$100b. He is Chief Editor of EY’s Renewable energy country attractiveness index (www.ey.com/recai), writing and publishing many articles covering all aspects of renewable energy and environmental finance.