SINGAPORE (June 3): The renewable energy sector is expected to “bounce back quickly” despite the global slowdown caused by Covid-19. This is due to the sector being a potentially safer-haven for long-term investments, according to the 55th EY Renewable Energy Country Attractiveness Index (RECAI).
The latest index considers the potential impact of the pandemic, looking at the resiliency of countries in both health and economic terms.
For the first time since 2016, the US has secured the top position in the index, largely due to a short-term extension to the Production Tax Credit and long-term growth in offshore wind. The US also has plans to install up to 30GW by 2030.
China came in second on the back of slower growth in renewables as the government looks to ease the market off subsidies towards a more competitive landscape. The lower demand also came about on the back of the Covid-19 pandemic.
In Southeast Asia, the Philippines and Vietnam made 28th and 39th place respectively.
According to the accompanying report, climate change and other environmental, social and governance (ESG) issues are being increasingly recognised as key determinants of a company’s future value creation potential.
Nowadays, institutional investors also look at how businesses make a positive contribution to society, in addition to their financial performance.
With companies now having to look at curbing their missions, enhance their governance, and improve their climate-related disclosures, institutional investors are increasing the capital they are allocating to renewable energy infrastructure as a means to hedge their climate exposure, according to EY.
“There was much discussion around ESG earlier this year and this, along with climate change, is still the dominant long-term driver for renewable investment, despite COVID-19,” says Ben Warren, finance leader for EY Global Power & Utilities Corporate, and RECAI Chief Editor.
“As a result of the pandemic, pollution levels have fallen dramatically through reduced fossil fuel consumption. A greater focus on a sustainable long-term energy future therefore works in favor of clean energy, in particular wind and solar, together with storage,” he adds.
“The balance sheet and cashflow of energy players are essentially supported by long-term contracts for the sale of renewable electricity; they are therefore not likely to be affected by any short-term fluctuations such as the COVID-19 pandemic,” says Sanjeev Gupta, the market segment leader for EY Asean Resources.
“Renewables are also seen as a less risky investment by the loan and capital markets and furthermore, prices of renewables are at parity with grid or even lower than thermal electricity, and not affected by changes in oil and gas prices. Hence, the economic case for renewables remains intact,” Gupta adds.
The report also examines how large-scale energy storage is critical to decarbonize electricity systems, as well as the conditions needed to encourage investment in utility-scale battery storage. According to the report, 2020 looks set to be a record year for energy storage growth. In the longer-term, a 13-fold increase in capacity growth, from around 17GWh currently to 230GWh by 2025, is anticipated.
