The map compares the potential rates of return and risks across technologies and according to the latest results, the business case for investing in gas is improving, which may seem surprising to some given the poor operating margins for gas-fired generation in recent years. The PA Consulting Group has offices in the UK, including Edinburgh, but is global, having bases in the US, Scandinavia, India, Singapore, New Zealand etc.
The newest edition of the map compares the potential rates of return and risks across technologies and countries and shows the changing energy landscape in 31 countries across Europe, Asia Pacific, the Gulf, BRICS and the US. The UK ranks sixth in the map’s renewable energy index and tenth in the map’s conventional energy index.
According to the map, renewable technologies look highly attractive, but uncertainty around the overall extent of subsidy allowed by government means this is unlikely to continue indefinitely. This is partly a question of available funding (that is ultimately paid for by consumers), but also reflects the industry’s calls for the level of carbon price support to be frozen and acknowledges the ultimate need for EU approval under State Aid regulations.
The map’s solar index score has dropped significantly since last year’s analysis as subsidies for solar generation are decreasing, in part to reflect lower costs as solar technologies mature. Onshore and offshore wind generation scores remain steady as strong UK policy support for wind continues, albeit with less certainty over financial outcomes and greater public debate over the extent of onshore wind development and the high cost of offshore wind.
The UK ranks tenth in the map’s conventional technology index and is up two places since the last analysis.
Prospects for gas-fired generation remain uncertain in the short term until support levels in the capacity market are made clearer. Economics for gas are also expected to improve once coal-fired generation reduces and existing nuclear plants reach the end of their life.
Mark Livingstone, energy expert, PA Consulting Group said:
“The UK has the potential to deliver excellent opportunities for investors in the coming years, but a big question remains around what they should invest in. As Electricity Market Reform, which aims to attract investment to replace the UK’s ageing energy infrastructure, has now passed into law, 2014 promises to give investors a greater level of clarity and certainty. The results from PA’s map indicate that gas could be the one to watch over the coming years.”
With the development of new offshore capacities progressing rapidly, Denmark has taken the lead from China and is expected to generate 50% of electricity from wind by 2020. Although China has dropped to third, the country remains a highly promising market for renewables, due to government support that provides attractive pricing.
The Philippines’ potential for new capacities and a robust market environment with feed-in tariffs for hydro, biomass, wind and solar projects, mean it has risen to second place in the index (from fifth) and is a key target for renewable energy investors.
Other countries appearing at the top of PA’s ranking are Austria, Sweden and the United Kingdom. Renewable projects are becoming more attractive in several European countries due to the improving economic and financial situation, allowing room for fiscal policies to support the renewables sector.
Poland tops the rank with vast coal and gas reserves, and has significant shale gas resources soon to be exploited, as well as a clear energy strategy though to 2030. India, which previously ranked first, now ranks second but continues to have increasing demand due to the country’s economic growth. Ireland (3) and Turkey (4) are pushed up the ranking as demand for new conventional power capacities drives investment potential.
The biggest change is the Czech Republic, which ranks sixth compared to 18 in the last analysis. The country has completely phased-out renewable energy subsidies and plans to focus on coal, gas and nuclear power generation; creating opportunities for investments in conventional power.
Olaf Remmler, energy expert, PA Consulting Group says: “Investors in energy generation must contend with significant uncertainty, complex market and regulatory conditions and the rapid advance of renewable technologies. To make the right decisions, they need to understand the regulatory and economic factors affecting their projects and investments.”