“The UK is an attractive long-term prospect for electricity sector investment but is in the midst of a major policy transition, changing incentives for new generation for decades to come.”
Mark Livingstone, PA energy expert
PA Consulting Group creates renewable Energy Investment Map, helping businesses and investors identify countries and technologies where they might look for investment opportunities.
Investing in renewable technologies in Austria has come out on top according to the Energy Investment Map, launched by PA Consulting Group. The Energy Investment Mapis an online interactive energy map which assesses the investment credentials of 14 European countries and the business case and risk assessment factors for ten different technologies. The map ranked Austria top thanks to its wind, hydro and biomass investment opportunities.
The map also shows that the increase of solar projects in the most attractive countries to invest in this technology – Spain, Germany and Italy – is slowing down due to tariff cuts and the suspension of incentive schemes. From an economic perspective, wind power projects, mainly onshore, have overtaken other renewable technologies.
The map currently ranks the UK as the fifth best country to invest in, with high Internal Rate of Return (IRR) for investment in onshore and offshore wind and less in solar photovoltaic and hydro. The announcement of the Energy Bill has brought far greater certainty to investors interested in the UK for renewable, low carbon and conventional energy generation. Mark Livingstone, energy expert, PA Consulting Group, comments: “We expect scores to shift once likely strike prices for low carbon contracts-for-difference and further details on capacity market auction prices are understood.”
Despite ranking fifth out of the 14 countries included in PA’s analysis, Chinese investors and international funds are showing significant interest in investing in UK infrastructure assets. Mark says: “The UK is an attractive long-term prospect for electricity sector investment but is in the midst of a major policy transition, changing incentives for new generation for decades to come.
“Offshore wind and nuclear new build are both options with particularly strong support relative to other countries. Going forward, the UK government wants innovation to drive down low carbon generation costs so future support levels will decrease. Onshore wind and gas face uncertainty but are important elements in the generation mix.”
European rankings for opportunities in renewables
Elsewhere in Europe, Norway and Denmark rank second and third, respectively, both leading the way with their commitment to onshore wind. Renewable generation in Denmark is dominated by wind and has increased its wind generation capacity by 4,000 MW over the last decade.
Sweden ranks fourth with a high renewable index score for hydro power. This has led the country to generate more than 40 per cent of its electricity demand from renewable sources. Germany ranks sixth and is moving towards encouraging investment in offshore wind.
In contrast, France, Ireland, Finland and Spain are all falling short due to low or no feed-in tariffs (FiTs). In Germany, for example, the feed-in tariffs for wind power are almost two times higher than in Ireland. All countries except Finland have high country risk for renewable investments as a result of the debt crisis. However, the situation in France is expected to improve as the government looks to increase the share of renewables with high incentives seeing offshore wind as the most profitable.
Olaf Remmler, energy expert at PA Consulting Group who has led the work behind the investment map, says: “Mapping risk and return in energy markets is key for utilities, operators and investors assessing energy projects along the entire value chain, be it for renewable or conventional generation technologies. Changes to regulatory, financial and geopolitical conditions can significantly alter the global playing field.”
Notes to the editor
About the Energy Investment Map
Our initial analysis includes 14 European countries: Austria, Czech Republic, Denmark, Finland, France, Germany, Ireland, Italy, Norway, Poland, Spain, Sweden, Switzerland and the UK. PA will be adding more countries to the analysis in 2013.
Our analysis took place between August and October 2012 and includes seven renewable technologies: solar PV (photovoltaic), solar CSP (concentrated solar power); onshore wind; offshore wind; hydro; geothermal and biomass. We also look at three conventional technologies: nuclear; combined cycle gas turbine (CCGT) and coal.
Business case calculations
Our business case calculations award a maximum score of 90 points and this is calculated based on the distribution of the IRR. The higher the IRR, the more points are awarded up to a maximum of 90 points for each technology in all 14 countries. The IRR takes into account all factors that influence the financial performance of an energy project. These are:
operation and maintenance (O&M) costs
revenues – capacity factors, incentives, market price forecasts and revenues from combined heat & power
fuel costs – heat rates and fuel price forecasts
CO₂ emissions – emissions per MWh and CO₂ price forecasts.
Similarly, our risk assessment is also based on a score of a maximum 90 points and these are weighted across all risk factors for each technology in each country. These are:
country risk – specifically, credit default and financing risk (20)
market risk – revenue risk and market potential (25)
project risk – technology availability and grid access (27.5)
operational risk – sourcing and fuel risk, labour availability and O&M expertise (17.5).
Interpreting the results
Added together, the business case and risk assessment scores give a total score out of 180 for each technology in each country. We interpret the score as follows:
150–180 points: Relatively high internal rates of return (IRR) due to excellent market, regulatory and infrastructure conditions, high demand for new capacities and very low levels of country, financing, project, technology and operational risk
120–150 points: Moderate to relatively high IRRs due to good market, regulatory and infrastructure conditions, moderate to high demand for new capacities and low levels of country, financing, project, technology and operational risk
90–120 points: Relatively low to moderate IRRs due to poor to moderate market, regulatory and infrastructure conditions, low to moderate demand for new capacities, and moderate levels of country, financing, project, technology and operational risk
< 90 points: Comparatively low or negative IRRs due to poor market, regulatory and infrastructure conditions, relatively low demand for new capacities and high levels of country, financing, project, technology and operational risk
Next to calculations and assumptions based on PA proprietary databases gathered in numerous projects, PA used publically available data from:
National and European statistical offices: Eurostat and Destatis
National energy departments: Department of Energy and Climate Change, UK; Federal ministry for the environment, nature conservation and nuclear safety, Germany; Department of Energy, Communications and natural Resources, Ireland; Ministry of ecology, sustainable development and energy, France; Ministry for Climate and Energy, Denmark; Ministry of economy, Poland; Ministry of the Environment, Czech Republic; Federal Ministry of Economy, Family and Youth, Energy and Mining, Austria; Ministry of the Environment and Ministry of Enterprise, Energy and Communications, Sweden; Ministry of Employment and the Economy, Finland
Authorities, operators or agencies: European Commission; RES-Legal.com; German Energy Agency; Danish Energy Agency; Danish Energy Regulatory Authority; Agency for Renewable Energy and Energy Efficiency of Switzerland; Swedish Energy Agency; Stattnet, Energinet, Energy market regulator, Spain; Gestore Servizi Energetici, Italy.