China is the Most Attractive Country for Renewables Investment

China entered the Country Attractiveness Indices table in December 2004 and, since then, has progressed steadily to the top of the All Renewables Index. In the last index, it was tied with the US.

The US dropped two points in the indices, to fall behind China, after a federal Renewable Energy Standard was not enacted this summer. Construction of new renewable energy facilities is expected to further slow down following the December 2010 expiration of an important deadline in the Treasury grant program with no assurance of renewal, generating investor uncertainty about the continuation of an effective incentive mechanism.

Other markets, most notably Spain, are also showing signs of wavering support largely due to 'tariff deficits' and the underlying affordability of support mechanisms. This may remain a feature for some time, and points to the need for governments to continue to make the case for renewable energy and how it can add value to their economies.

Country comparisons

The indices see Spain receive a single point downgrade largely as a result of current deliberations regarding retroactive changes to the photovoltaic (PV) tariffs. If implemented, these are expected to have a significant detrimental impact on Spain's rating across the whole renewables sector, reflecting increased regulatory risk of investing in Spain. Germany also dropped a point, having finally announced cuts to solar PV tariffs, which are set to limit future installations given the frantic rush to install in the first half of the year prior to the announcement.

India, too, suffered a one-point drop following its government's mandate to use local PV manufacturers for the 22 GW National Solar Mission. Indian PV module makers may not be able to keep up with the surging domestic demand, impairing the country's ability to meet its ambitious solar energy target.

Australia increased its rating by one point, following its Senate passing amended legislation that targets 20% of energy from renewable sources while committing $652.5m (euro 458m) over four years to set up a Renewable Energy Future Fund. However, doubts still remain whether the new government will establish a national market for trading carbon emissions.

Japan saw a one-point increase, following a 2.6-fold growth in it solar cell market in the financial year to March 31, owing to the country's aggressive climate policies. New Zealand also rose a point, following the launch of an emissions trading scheme in a bid to curb carbon emissions. As a result, energy, transport and manufacturing industries will have to pay for their emissions of gases which is expected to have a knock-on effect in boosting renewable deployment in the country.

The full report from Ernst and Young can be accessed here.