Isra-Mart srl:Ernst & Young: Government cuts hamper renewable energy transition

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Ernst & Young will today release the latest analysis of global renewable energy markets with a warning that government spending cuts are threatening to undermine the industry's continued expansion.

The latest update of the consultancy giant's Renewable Energy Country Attractiveness Indices confirms that overall investment in clean energy hit record levels during 2010, rising 30 per cent year-on-year to $243bn, according to figures from analyst firm Bloomberg Energy Finance.

However, the report, which rates countries based on their renewable energy policies, technologies and infrastructure, found significant country-to-country variations in the level of support available to renewable energy projects.

For example, China again cemented its position as the most attractive market for renewable energy investment with total wind energy capacity soaring 64 per cent year-on-year to 42GW, while the US market continued to expand after the Obama administration extended its high-profile Treasury Grant Program and announced plans for new clean energy targets.

However, the outlook was mixed for many other countries as governments sought to tackle budget deficits by trimming renewable energy incentives. For example, feed-in tariff incentives were cut in Spain, Germany and Italy, while France imposed a three-month ban on new projects, and the Netherlands and Australia also scaled back incentives.

The UK remained fifth in the Ernst & Young rankings as the promise of improved support for clean energy contained in the government's Electricity Market Reforms was offset by the uncertainty created by the controversial decision to order an early review of feed-in tariff incentives for some solar projects.

"While the UK government can be commended for starting to create an energy market that reduces risk to investors, there is some uncertainty as to whether the new proposals will encourage competition and create a level playing field for investors," said Ben Warren, energy and environmental infrastructure advisory leader at Ernst & Young. "There is also concern over whether the proposed arrangements may end up too complex for investors to navigate."

He added that the willingness of some governments to scale back renewable energy incentives could impact long-term efforts to curb carbon emissions.

"Where energy policy is less directly linked to job growth in the clean energy sector, we are finding governments and policy-setters increasingly focused on delivering a low-carbon economy in the most affordable manner, possibly at the cost of longer-term economic value," he said. "Time will tell whether white-flag-waving, in terms of CO2 reduction ambitions and the pursuit of investment, will prove costly in some of the more mature renewable energy markets."

The report comes just a week after a landmark report from the UN Environment Programme (UNEP) concluded that the development of a green economy would lead to better GDP growth than business-as-usual and would require investment totalling just two per cent of GDP.