Global Renewables 'Brightspots'

BMI View: UK offshore wind, Japan solar PV, Turkey onshore wind, Chile solar PV and South Africa solar PV, CSP and onshore wind are all 'brightspots' in the global renewables market. Companies with exposure to these markets are well-positioned to capitalise on the significant growth opportunities we anticipate to unfold in the coming years.

Our Renewables Risks/Rewards Ratings (RRRs) give a thorough overview of the investment climate in the renewables segment in a particular market, drawing on different factors that highlight the relative attractiveness of the sector. This proprietary tool provides the basis for our selection criteria for our top global renewables markets. In addition, a certain degree of analyst subjectivity has also been employed in order to fully assess the appeal of a market, as key drivers in renewable energy growth include factors such as government conviction towards renewable technology, diversification efforts and fuel import dependency/indigenous natural resources availability.

We have selected one country in each region (in the BMI universe) that we believe has particularly strong growth potential for renewable energy, supported by a solid project pipeline and a relatively investor friendly business environment. Each country outperforms the respective regional average Renewables RRRs score, even if the market does not top the regional ratings table.

Outperforming Regional Averages
Renewables Risk/Reward Ratings by Country and Region (Scores Out Of 100)

BMI View: UK offshore wind, Japan solar PV, Turkey onshore wind, Chile solar PV and South Africa solar PV, CSP and onshore wind are all 'brightspots' in the global renewables market. Companies with exposure to these markets are well-positioned to capitalise on the significant growth opportunities we anticipate to unfold in the coming years.

Our Renewables Risks/Rewards Ratings (RRRs) give a thorough overview of the investment climate in the renewables segment in a particular market, drawing on different factors that highlight the relative attractiveness of the sector. This proprietary tool provides the basis for our selection criteria for our top global renewables markets. In addition, a certain degree of analyst subjectivity has also been employed in order to fully assess the appeal of a market, as key drivers in renewable energy growth include factors such as government conviction towards renewable technology, diversification efforts and fuel import dependency/indigenous natural resources availability.

We have selected one country in each region (in the BMI universe) that we believe has particularly strong growth potential for renewable energy, supported by a solid project pipeline and a relatively investor friendly business environment. Each country outperforms the respective regional average Renewables RRRs score, even if the market does not top the regional ratings table.

Outperforming Regional Averages
Renewables Risk/Reward Ratings by Country and Region (Scores Out Of 100)

We have covered these individual markets in detail in our previous analysis, highlighting the growth opportunities for investors across their renewables industries. However, this analysis will drill down into the specific technologies and sub-segments that we believe are the 'brightspots' in the market - with certain companies well-positioned to capitalise. These include:

  • UK offshore wind,

  • Japan solar PV,

  • Turkey onshore wind,

  • Chile solar PV and

  • South Africa solar PV, CSP and onshore wind

UK Offshore Wind

We have long-held a constructive outlook on the UK offshore wind market, given the UK government's strong commitment towards its offshore industry, despite other segments of the country's renewables industry looking increasingly unstable ( see, 'Offshore Wind Provides Bright Spot To Renewables Industry', October 2 2013).

Offshore Wind Bellwether
Cumulative and Annual Offshore Wind Capacity (LHS) and Top 5 European Offshore Markets, By Capacity, MW (RHS)

The country's position as global offshore leader is unrivalled at present, particularly if large-scale projects that are currently in the pipeline are successfully commissioned and the financial support levels on offer to offshore developers remain attractive ( see 'Investment Contracts Align With Renewables View', April 23 2014). We highlight that German manufacturer Siemens is in pole position to outperform the other turbine manufacturers in the European offshore market, and the company already dominates the offshore space for both total capacity and number of turbines installed. Danish company Dong Energy has long-been a key player in the offshore developers market, taking a market share of 48% of the total installed capacity in 2013.

Japan Solar PV

Although China's renewables sector clearly dominates the Asian market, Japan scores at the top of our regional ratings table thanks to its sound renewables policy and attractive regulatory framework. We highlight that solar power is by far the largest driver of growth in the Japanese renewable energy sector and the amount of new solar installations in Q2 2013/14 (July - September) was the greatest quarterly increase recorded in the history of Japan's solar sector ( see 'Renewables Outlook Stable, Solar Shines', January 15 2014).

From Strength To Strength
Japan - Solar PV Module Installations By Sector, MW (LHS); Proportion Of Modules Imported, % (RHS)

We believe this solar surge can be attributed to a reduction in sector bottlenecks, as well as an increase in participation from non-utilities as a result of sector deregulation and attractive returns. In particular, we have noticed many large Japanese corporations - over 125 companies at present - are registering as independent power sellers. Several companies such as mobile phone carrier Softbank have also commenced development of commercial-scale solar projects around the country ( see ' Marubeni : Aggressive Incursion Prompted By Reforms', January 13 2014).

Turkey Onshore Wind

In terms of our RRRs, Turkey actually ranks behind Poland in the Central and Eastern Europe (CEE) region; however, policy uncertainty in Poland (and the wider CEE region) has dampened investor sentiment and, in doing so, has boosted Turkey's relative appeal. Unlike many of its regional neighbours, Turkey's renewables policy has remained relatively stable and Turkey's Feed-in Tariff (FiT) programme has grown comparatively more attractive as cash-strapped European governments have reduced their subsidies. Furthermore, Turkey's widening current account deficit, thanks in part to the country's hefty fuel import bill, has driven the government towards energy security, and consequently to adopt renewable energy into the power mix.

Turkey's wind sector is looking particularly strong, as a number of underlying factors help bolster investor interest. These include: its developed domestic supply chain (ranging from construction companies, manufacturers and developers); limited environmental regulations governing wind power plant sites, allowing developers more flexibility when choosing project locations (relative to the rest of EU); and the local content requirement component of Turkey's FiT - which is strengthening Turkey's position as a supply hub for turbine manufacturing ( see 'Renewables Activity Robust Despite Headwinds', August 14 2013).

Chile Solar PV

We have long-held an optimistic outlook towards the Chilean renewable energy industry, in particular the solar PV sector - which recorded the highest installation rates in the Latin American region in Q114 ( see 'Solar Shining Bright', May 1 2014). A number of key fundamentals support this buoyant view, including strong government conviction towards power mix diversification, a mostly stable business environment and geographically advantageous conditions for solar electricity generation; in fact, insolation levels in the Atacama Desert are some of the highest in the world. This - coupled with the fact that electricity prices in Chile are already relatively elevated - has meant that large-scale solar projects are increasingly cost competitive with other energy sources.

A number of European companies have already targeted the Chilean renewables market, including Enel Green Power, Total and Terna and we expect Spanish companies to be particularly prevalent in the solar segment (such as Gamesa, Abengoa and Acciona).

South Africa - Solar PV/CSP and Onshore Wind

The outlook for the South African renewables industry is positive, principally for solar power (CSP and PV) and the onshore wind sector. The country's solid regulatory framework - the Renewable Energy Independent Power Producer Procurement (REIPPP) - has attracted significant foreign investor interest from the likes of Mainstream Renewable Power, Total, Enel Green Power, EDF and Vestas ( see 'Significant Interest As Auctions Progress', December 16 2013). As such, South Africa's renewables sector is not just relying on funding assistance from international financial institutions and development banks, like many of its Middle East and Africa (MEA) peers.

South Africa Driving Regional Growth
Total Non-Hydro Renewables Capacity By Country and Region, MW, 2014 and 2023 (LHS) and South Africa Non-Hydro Renewables Capacity By Type, MW, 2023 (RHS)

The project pipeline is strong for both CSP and PV solar plants and onshore wind, and we expect these technologies to drive growth over the coming decade. Furthermore, in stark contrast to South Africa's conventional power sector, numerous projects have already gone online without any delays.

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This article is tagged to:
Related sectors of this article: Renewables, Solar - Renewable, Solar - PV - Renewable, Solar - CSP - Renewable, Wind - Renewable, Wind - Onshore - Renewable, Wind - Offshore - Renewable, Regulatory/Policy, Technology, Manufacturing/Technology
Geography: Global, Chile, United Kingdom, Japan, Turkey, South Africa
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