This is an extract from EY’s 60 edition Renewable Energy Country Attractiveness Index (RECAI) published in November 2022. The biannual RECAI has been ranking the world’s top 40 markets on the attractiveness of their renewable energy investment and deployment opportunities since 2003.
Governments around the world are accelerating their renewables programs to help reduce their reliance on imported energy, as geopolitical tensions and economic uncertainty continue to make this a volatile and unpredictable time. The report looks at key developments within 10 global markets — from the biggest change to German energy policy since 2017 to new US legislation that could be a game changer for its green hydrogen industry.
The US: Green hydrogen set for breakthrough after passing of Inflation Reduction Act
The Inflation Reduction Act, passed in August 2022, is being viewed as a game changer for the US green hydrogen industry. Tax credits of up to US $3/kg for 10 years will make green hydrogen produced in the US the cheapest form of hydrogen in the world. Green hydrogen is currently being produced in the US Northwest at US$3.73/kg, so a US$3/kg tax credit would bring the cost of production for a developer to US$0.73/kg, cheaper than blue and gray hydrogen.
Reaching this price would also make green steel cost competitive with steel made from fossil fuels, which would stimulate demand for green steel, and could spark demand for green cement and green glass made with green hydrogen. The landmark Act, which includes US$ 369b in spending and green energy-related tax credits, will also be a major boon for the market’s solar sector.4 With a target to reach 50GW of domestic manufacturing capacity by 2030, the Act’s tax credits, grants, low-cost loans and other support will play a key role in developing a full domestic solar supply chain. Last year, the US installed 23.6 GW of solar capacity, a 19% increase versus 2020.
China: Record year expected for wind and solar
The China Renewable Energy Engineering Institute, a leading think tank, has projected that the market will install a record 156GW of wind and solar power this year, up 25% from 2021, which was also a record year. The forecast predicts that 100GW of solar, 50GW of onshore wind and 6GW of offshore wind will be added. In the first five months of 2022, China added 35GW of wind and solar, but installations are expected to accelerate toward the end of the year as developers and local governments push to meet annual targets.
Despite challenges to global energy security, China remains committed to accelerating its renewable energy transition, and seeks to bring emissions to a peak by 2030. Its National Energy Administration says the market remains on target to increase the portion of non-fossil fuel energy in overall consumption by an average of one percentage point per year from 2022 to 2030. Last year, wind,
solar, nuclear and hydropower supplied 16.6% of China’s energy needs, an increase from 15.9% in 2020. As part of China’s five-year plan for the renewable energy industry, it is aiming to generate one-third of its electricity from green sources by 2025. The market has also vowed to increase total wind and solar capacity to 1,200 GW, nearly double the current rate, and is aiming to start cutting coal use from 2026.
Germany: Historic renewable energy package approved
Seeking to reform energy legislation to achieve climate neutrality and wean itself off Russian gas, the German government has approved the Easter Package, representing the greatest change to the market’s energy policy since the introduction of competitive auctions in 2017. It has set targets to raise the share of renewables in the power mix to 80% by 2030 and to nearly 100% by 2035. Last year, renewables comprised 42%. More ambitious annual auction volumes and wind energy installation targets have now been set. Beginning in 2025, Germany will aim to add 10GW of new onshore wind capacity each year, a huge commitment considering it added just 1.9GW last year. New offshore wind targets have also been set 30GW by 2030, 40GW by 2035 and 70GW by 2045 and permitting procedures shortened.
Meanwhile, annual auction volumes for onshore wind will be raised to 12GW annually, which would put Germany on a path to 115GW of onshore wind capacity by 2030. Solar power is expected to soar too, with a target set to reach 215GW of capacity by 2030, up from 59GW at the end of last year. This will require solar expansion to rise 22GW per year on average, up from 5.3GW last year. The expansion of renewables will be met with the addition of 36 new grid expansion and optimization projects. Renewable energies will also be classified as an “overriding matter of public interest and public security” in Germany’s constitution. This will accelerate approval of new projects and cut delays caused by legal appeals, particularly against wind power.
The UK: Offshore wind gets boost from Made in Britain 4 and Contracts for Difference
The UK lost its top ranking for installed offshore wind capacity this year to China, but does boast the largest pipeline. Offshore wind featured prominently in the government’s Made in Britain energy strategy, which set an ambitious target of 50GW by 2030, a significant increase from its current capacity of 12GW. New planning reforms are expected to slash approval times from four years to one. Floating wind will also be accelerated, with a target of 5GW. Interest in the sector was on full display early this year when Crown Estate Scotland awarded option agreements to 11 floating wind projects with 15GW capacity.
Meanwhile, the UK’s fourth allocation round of its Contracts for Difference scheme saw many successful offshore wind projects, including Ørsted’s 2.85GW Hornsea Three project, Red Rock and ESB’s Inch Cape 1.8GW phase 1, and Scottish Power’s East Anglia THREE 1.37GW phase 1. The strike price for offshore wind was the lowest of all technologies, at £37.35/MWh (US$42.04/MWh), which marks an almost 70% drop from the price in the first allocation round in 2015. A total of 93 green energy projects were given the go-ahead in the scheme, aiming to deliver nearly 11GW of renewable energy that will come online in 2023 and 2024. Investment flows have also been strong, with the UK Infrastructure Bank announcing a £22b (US$24.9b) investment plan in June.
Renewable energy will be its largest investment sector, with funding earmarked for low-carbon hydrogen, energy storage and grid networks. In July, the UK government also unveiled two hydrogen investment strategies — the Hydrogen Business Model and the Net Zero Hydrogen Fund that will offer subsidy options and grant funding.
Australia: Eyeing renewable energy exports by 2030 India: Offshore wind potential gets a boost
Australia is undergoing a major shift in energy policy following the Labor Party’s election victory in May. After years of general noncommitment, the Australian government passed legislation in September for a 2030 target of cutting greenhouse gas emissions by 43% below 2005 levels.It also announced it will cut tariffs and taxes on electric vehicles, and introduce subsidies, as well as building charge points every 150km along the national road network. Additionally, it will convert 75% of the government’s car fleet to zero emissions and establish a hydrogen refueling network for heavy vehicles. Australia now has its sights set on becoming a major exporter of renewable energy by 2030, through ramping up solar, onshore and offshore wind capacity, and generating export quantities of green hydrogen.
The market’s Offshore Electricity Infrastructure Act 2021,20 introduced in December 2021, has resulted in multiple offshore wind projects being proposed, with the federal government specifically identifying six regions that have world class potential. Meanwhile, the Illawarra Renewable Energy Zone in New South Wales, located about 100km south of Sydney, issued a call for registration of interest in developing large-scale projects. It has attracted AU$43b (US$28.7b) worth of potential investments, with 44 proposals received for onshore and offshore wind, solar, energy storage, pumped storage hydroelectricity, green hydrogen and green steel projects, with a potential capacity of 17GW. Wind power generated the most interest, with 10 projects proposed, accounting for AU$35b (US$23.4b) of investment and 12.9GW of potential capacity.
India: Offshore wind potential gets a boost
Facing sluggish wind power growth compared with solar, the Indian government has set its sights on accelerating offshore wind generation, with a target of reaching 30GW by 2030. It will put 4GW of capacity off the coast of Tamil Nadu, in the southeast of
India, up for auction before the end of 2022. This will be the first of three years of 4GW of annual bidding invited for projects in this region, as well as Gujarat in the northwest. After this three-year process, a project capacity of 5GW will be bid out each year until 2030. The high costs facing early offshore wind projects, combined with the low cost of onshore wind and solar power, have held back the offshore wind sector in India. To give it a boost, transmission from an offshore substation to the onshore grid will be provided by the government free of charge for all wind projects bid on before fiscal year 2029–30. Additionally, the first 8GW of
projects will qualify for benefits such as carbon credits.
Onshore wind has also lagged behind solar generation. From 2014 to 2021, wind capacity in India nearly doubled to 38.5GW, far behind the breakneck growth of solar during the same period, which grew more than tenfold to 39.2GW. Given that the market boasts a 12GW manufacturing base in the wind power sector, several lawmakers have called for its acceleration to be
prioritized. Currently, India’s renewable energy generation capacity is 160GW, but it has an ambitious target of 500GW by 2030.Consequently, it is looking to new emerging technologies, such as green hydrogen, to help it reach its goal. The state government of Karnataka and Indian solar developer ACME Group have promised to spend INR520b (US$6.7b) on a plant that will produce 1.2 million tonnes of green hydrogen and green ammonia per year by 2027.
Denmark: Renewables soaring despite challenging conditions on the horizon
2022 saw a record first six months for green energy in Denmark, with the share of renewables for power consumption rising to a new high of 53.3%, sparked by significant growth in wind and solar generation. Total production from green energy reached 10.9TWh, rising from 9.7TWh a year ago. Despite the record growth, there could be difficult times ahead for the sector, with developers required to pay for grid connections from January 2023. Previously, they were only required to pay a small down payment when applying for a connection. Now, fees will range from €20,000 to €40,000 (US$19,700 to US$39,500) per megawatt, with discounts for larger projects.
A new land tax is also planned, which will favor larger projects too. Given that solar projects need more land than wind, this will pose additional obstacles for solar developers and could spark more hybrid schemes with wind power in the future. Denmark has ambitious plans to be a net exporter of green energy by 2030. It is seeking to increase total generation from solar and onshore wind fourfold by 2030, and will bring into force procedures to reduce administrative delays. The government is also aiming for tenders for an additional 1GW to 4GW of offshore wind before the end of 2030.
Brazil: Biomass beats wind and solar in tenders
Brazil has retained its position as the leading market in Latin America for investment in renewable energy sources in the RECAI rankings. However, a weak economy is slowing the pace of uptake of renewable energy sources and has resulted in low power demand. Brazil’s A-4 power tender in May saw a small tender size, with renewable energy supply contracts awarded for projects with a combined capacity of 947.9 MW. Total investment is estimated at BRLR$7.9b (US$1.5b). For the first time, biomass surpassed wind and solar, with 407MW of capacity awarded. Hydropower was allocated 189.7MW, wind 183.1MW and solar 166.1MW. Biomass projects sold power at BRL314.93/MWh (US$60.9/MWh), hydro earned a price of BRL281.65/MWh (US$54.5/MWh), while wind and solar sold power at BRL178.84/MWh (US$34.6/MWh). The average sale price of BRL268.16/MWh (US$51.8/MWh) marks a 50% increase on last year’s auction. The biggest rise was for biomass projects, with the price up more than 60%.
The higher prices were largely attributed to national and global inflation. For wind and solar, the contracts awarded mark a major drop from last year, when 581MW of new wind capacity and 518MW of solar were awarded. In May’s auction, solar and wind technologies were placed together for the first time, as the cost of solar power had dropped significantly to make power delivery costs comparable for the two. The new wind and solar projects are required to come online by the beginning of 2026, with the start of 15-year power purchase agreements. Brazil has also taken key steps forward in developing a green hydrogen economy. In August, it established a green hydrogen secretariat to accelerate growth.Meanwhile, the state government of Ceará, in northeastern Brazil, has signed two memoranda of understanding (MoUs) for the development of a new green hydrogen hub at the Port of Pecém. In addition to the MoUs with Nexway and Energy Vault, the state government says it is preparing to sign MoUs with four other companies for the Pecém complex. Ports in Ceará are the closest to Europe within South America and, consequently, the green hydrogen hub will be structured around exports.
Greece: Favorable legislation will accelerate renewable energy expansion
Greek lawmakers have given the green light to developers to accelerate renewables by passing legislation in June to expedite licensing for energy projects. Currently, the average time for licensing green projects is five years, but the new legislation is expected to shorten that to 14 months, with firm deadlines established, and penalties and fines for delaying the permitting
process. The new law also calls for the development of at least 3.5GW of energy storage by 2030 and increased grid connections for renewables. The measures are expected to play a key role in helping the market reach its 2030 target of 25GW of non-hydropower renewable energy capacity.
In addition, in July Greece kickstarted its offshore wind program by passing its first offshore wind law. It is now identifying offshore wind zones and auction criteria, and has set a target under the market’s National Energy and Climate Plan (NECP) to add at least 2GW of offshore wind by 2030, most of which will be from floating offshore wind farms.Transmission system operators are now in the process of identifying connection possibilities for future deployments. In September, Greece awarded 538.4MW of capacity in its most recent renewables tender, with PV solar given 372MW for 14 farms at an average price of €47.98 (US$48.83)/MWh. Wind power projects secured 166MW at an average price of €57.66/MWh (US$56.9/MWh). Meanwhile, Greece continues to attract large investor interest, signing its first bilateral power purchase agreement with Axpo Group for a 100MW solar power project. The market also announced in July that private equity fund the Macquarie Green Investment Group’s Cero Generation will seek to add 1GW of renewable energy projects to its portfolio by 2025, and only for corporate PPAs.
Morocco: Favorable legislation will accelerate renewable energy expansion
Morocco’s renewable energy supplies soared by almost 10% last year — rising from 7.3TWh in 2020 to 7.9TWh in 2021 — as two solar power plants and a wind farm came online. Renewables now account for more than 19% of the market’s energy, up from 18.5% in 2020. Installed renewable energy capacity surpassed 5GW, representing major growth over the past two decades given that capacity was at 1.2GW in 2000.The government is seeking to more than double capacity by 2030 to reach 12GW, which would make up more than half of Morocco’s energy capacity. Currently, Morocco imports more than 90%41 of its energy needs. The market is also heavily reliant on coal-fired power plants, which supply more than two-thirds of overall output. With high costs of coal because of sanctions on coal imports from Russia, pressure has mounted on Morocco to accelerate its green energy ambitions. As it seeks to ramp up its renewable energy generation, Morocco expects to meet its targets with the aid of technological developments in energy storage, green hydrogen and lower renewable energy costs.
Morocco has been ranked by the International Renewable Energy Agency in the top five globally for potential to produce competitive green hydrogen. Last year, its National Hydrogen Commission unveiled a roadmap on green hydrogen and launched the Green H2 cluster, a five-hectare research and development pilot platform, with a focus on producing green ammonia. This is expected to begin in late 2023 and produce four tonnes of green ammonia daily.
This complete report can be accessed here.