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Leading renewable energy markets cautious amid geopolitical uncertainty and technology disruption

London - The latest EY Renewable energy country attractiveness index (RECAI) sees little movement among the top 10 markets, as governments and industry players continue to bide their time amid ongoing geopolitical instability. China and the US remain at first and second positions respectively on the top 40 ranking, while the UK falls one place to eighth position as concerns grow around the outcome of Brexit.

Trade tensions between China and the US, including the US Government’s introduction of 30% tariffs on solar panel imports, culminated in the top two markets retaining their positions on the Index. Little movement among the other top 10 RECAI markets also reflects this 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% tariff on solar cell imports. And in the UK, Q3 renewables investment fell 46% year-on-year amid speculation around how the outcome of Brexit will impact power exports to the European Union and the price of imported equipment.

Ben Warren, EY Global Power & Utilities Corporate Finance Leader and RECAI Chief Editor, says:

“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. However, oversupply will provide a short- to medium-term boost to the price competitiveness of renewables, and is 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% renewables by 2020. Meanwhile, Sweden falls 10 places from 22nd to 32nd position, as a large supply of onshore wind caused future prices in power and green certificates to decline.

The RECAI 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, investors are hedging their bets on new technology. However, this has given rise to considerable uncertainty, not only regarding how quickly EVs displace internal combustion engine vehicles, but also around how charging infrastructure will evolve.

Warren says: “The promise of an all-electric future presents new opportunities and challenges, particularly in relation to charging infrastructure. Investors are responding to the risk that over-investment could lead to heavy losses if utilization 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 gain a competitive edge.”