Will Asia overpass Europe as top renewable energies market in the coming years?

Security of energy supply and energy independence, combined with environmental concerns is driving several countries across the world to explore alternative energy technologies such as wind or solar PV. As a result, renewable power has starred tremendous growth in the last decade, thanks to reduced costs of generation enabled by technological advances and supportive policies. So far, specific policies and targets have already been formulated in more than 100 countries worldwide.

Europe has been traditionally the region with highest share in global renewable power generation. Nonetheless, in recent years the Asian region has shown great performance and has expanded its share, becoming a key region for players and investors within the renewable power market. Indeed, forecasts show that the Asian countries will most likely dominate the renewable market in the coming years. Japan and India are expected to become two of the main drivers for renewable energy deployment within the region.

Japan saw a boom in its renewable power market after the Fukushima nuclear disaster in 2011, when the Government decided to switch from nuclear power to renewables looking to reduce its reliance on nuclear power and counteract at the same time its energy import bills to become less reliant on foreign power supply, as Japan had been traditionally dependent on imports to cover its power needs. As a result, installed renewable power in Japan increased from 7.6 GW in 2001 to 24.4 GW in 2013 at a CAGR of 10.2%, supported by a highly attractive FiT scheme.

After Modi’s election in May 2014 and recent announcement of ambitious 100 GW solar and 60 GW wind targets for 2022, India has been in the spotlight of investors and large players within the renewable industry during the last months. The potential of the market is quite obvious but there has been much speculation about whether India will be able to achieve these targets. Although there is little doubt about the interest and commitment of Indian’s government to transform the country’s energy sector and achieve the settled goals, several difficulties and challenges have arisen within the market. However, the Indian Government has been showing real concerns to put the right legislative framework into force: for instance, it is planned to award US dollar nominated PPAs to lower the borrowing costs, which are among the highest of the world, resulting in high LCOE; and several solutions have been proposed regarding land acquisition issues. Modi’s government is working side by side with the market players, hearing their difficulties and suggestions and proposing accurate solutions to ease their activities.

One of the main issues the market has to deal with is the financial weakness of Indian power distributors (discoms). Until now they could only survive thanks to public subsidies. However, as discoms have been forced to sell electricity below cost to make it affordable for consumers, they have accumulated a debt of more than USD 40b.Thus, aware of this situation, delayed and defaulted payment is one of the major concerns amongst investors. Experts agree that foreign investment together with government’s capability to convince foreign investors of a financial stable framework and security is essential if India wants to meet these ambitious goals. Without any doubt there is a lot of appetite to invest in the country and, as China’s declining economy – the competitor within the region - will likely lose its attractiveness for investors, India is expected to receive about USD 300b over the next 10 years. Hence, solving these matters is essential to remove the existing obstacles for the further boost of the Indian market. Undoubtedly, the government is following the right path simplifying legislations, land acquisition, and securing foreign investments.

After all, figures show the potential of India as one of the main drivers of the Asian renewable energy deployment in the coming years. So far there are 23.86 GW of wind power capacity installed and India’s solar PV projects pipeline already exceeds 12 GW, including commissioned facilities, projects under development and announced tenders.

Vector Cuatro is a leading investment management and engineering firm in the renewable energy industry, especially in solar PV and wind. We offer our clients the experience of 8 years working on the renewable energy industry and the expertise gained with an accumulated track record in excess of advisory services to 16GW and over 1 GW of PV assets and wind projects under management in Europe and North America composed by more than 150 power plants. We are headquartered in Madrid, but we also have offices in 8 countries. Given the market’s potential within the region, Vector Cuatro has been working actively in Asia since 2013, when we opened our subsidiary in Japan. Growing up with the photovoltaic market, in 2014 projects number surpassed the hundred and client portfolio expanded accordingly. At present the Firm has positioned itself as a key reference in the renewable industry with an international client portfolio including the most active banks and companies in Japan. Aware of the relevance and potential of the Indian alternative energies market, Vector Cuatro attended the Solar Plaza Finance Tour Event held in Delhi and Hyderabad from 5^th to 9^th October 2015 with the aim to better understand recent developments and support players in the market with its international experience and expertise. Overall, as forecasts show that the very large group of Asian countries and the smaller group of Pacific will dominate the PV market in the coming years, the Firm aims to put a special focus on the region regarding its future positioning.