While the last year has seen a surge of interest in renewable energy among potential investors, many of them are being deterred by concerns about policy U-turns from governments.
That conclusion comes from a poll of more than 200 G20 business leaders by international law firm Ashurst, Greentech Media reports. The study “found 88% of companies have pivoted their investment strategies toward low-carbon energy in the last year,” Greentech says.
“Much of this was in response to tougher government stances on climate change and decarbonization,” the industry newsletter adds, citing Antony Skinner, Ashurst’s global co-head of power and utilities. “However, 31% of respondents said a lack of government support poses a significant barrier to low-carbon investment,” and much of that support has to do with the stability of regulatory frameworks.
“Consistency and certainty, for any investment, [are] a really important element,” Skinner said. Greentech adds that “this appears to be more important even than maintaining subsidy schemes in the long term, since many investors are likely willing to bet on the gradual removal of subsidies, provided it happens in a predictable way.”
Greentech cites the United Kingdom, Australia, Saudi Arabia, and Spain as four of the jurisdictions that offered strong support for renewable energy development, only to scale it back soon afterwards. Skinner pointed to Spain as an instance where project risk pricing increased overnight because investors “had no longer any certainty or confidence that, if the government wanted to, it would change its mind on something.”
So “while renewable energy is now booming again in Spain, many plants are being built on a merchant basis, reflecting lingering mistrust in the government. It’s a similar story in Italy, which also reneged on an early subsidy scheme,” Greentech writes. In developing markets, where companies count on governments’ willingness to underwrite projects, “investor appetite will largely depend on the nature of the state.”
In Dubai, for example, a project announcement last month promised a record-low price of just US1.35¢ per kilowatt-hour for solar “because you’re selling to the Emirates government, which obviously has a very strong credit rating, and the load factor [for solar generation] is very high,” Skinner told Greentech. “In the UK, bizarrely, you’re taking a much higher risk.”
Ashurst found that business leaders’ concerns about government policy support were highest for China, at 46%, followed by India, at 43%.