The Allianz Climate and Energy Monitor is an annual publication, developed jointly by NewClimate Institute, Germanwatch and Allianz SE. The focus is on power production from renewables in G20 countries as core solutions for the decarbonization of the power infrastructure.
While highlighting the section Policy Environment For Renewables, the following article presents an executive summary of the report which was first published in November 2019 and can be accessed in full version here.
FIGURE 1 - Overview of the composition of the Monitor which assesses G20 countries across five categories and benchmarks which are crucial for renewable energy investments.
Source: Allianz Climate and Energy Monitor 2018 p.3
The Overall Results
- France now most attractive for renewable energy investments, Brazil climbs 5 ranks and Italy 4 ranks with much improved conditions
- All countries need to improve their policy framework for required low-carbon investments
- Germany loses first rank, South Korea and Indonesia fall by 8 and 4 ranks
- Very few countries, like UK, France and Mexico follow a concrete and binding long-term strategy
- Previous stragglers like Saudi Arabia and Turkey are improving their policy environment, while some developed countries such as Australia and the US still have not taken charge
- Direct support policies for renewables are strong in many countries such as France, India, Brazil and Japan but all countries can improve certainty of policy signals and administrative procedures
FIGURE 2 - Overview of the results of the Allianz Climate and Energy Monitor 2018
Source: Allianz Climate and Energy Monitor 2018 p.4
Policy Environment for Renewables
- No country gets a high overall score for its policy environment for renewables because investment realization is constrained by policy signals and administrative procedures
- Positive developments in lower-ranking countries such as Saudi Arabia and Argentina
FIGURE 3 - Composition of the category “Policy environment for renewables”
Source: Allianz Climate and Energy Monitor 2018 p.11
A favorable policy environment for renewables sets the groundwork for any investment in renewables, since it defines the conditions for successful project execution. The applied assessment considers two indicators. First, the presence of a comprehensive package of direct support policies and financial incentives to promote deployment of renewables (direct support). Second, policy specific factors ensuring realization of projects (ensuring realization) − these include: mid-term certainty of policy signals, presence of streamlined administrative procedures for permitting, factors ensuring the renewable energy plants are set up on time (e.g. pre-defined realization period, pre-qualification requirements and effective penalties if timelines are not met) and factors that ensure the generated power is used (e.g. presence of priority dispatch for renewables and compensation in case of curtailment).2
No country scored highly in this category, partly because of lower scores on factors that ensure investments are realized smoothly. First of these factors is the regularity and predictability of policy support in a country or what the authors call mid-term certainty of policy signals. According to their assessment, a range of factors lowered the certainty of policy signals in countries. These were:
– on and off-policy support, e.g. federal level ambition in Australia and the US and delay of onshore and offshore wind auctions, no new tenders in the pipeline for offshore wind until 2021 in Germany;
– sub-optimal enforcement of a support policy, e.g. non-payment of FiT subsidies in China and lack of follow-through on awarded contracts in South Africa;
– regressive policy design, e.g. effective lowering of FiT support under Indonesia’s new regulation on tariff setting for renewables
– non-policy related fluctuations affecting uptake, e.g. confusion persisted throughout 2017 on import duties on solar panel components in India or delays in approval of Italy’s new support scheme within the country and at the EU level.
FIGURE 4 - Results for ‘Policy environment for renewables’
Source: Allianz Climate and Energy Monitor 2018 p.12
The second aspect that may impact investor interest is ease of processes in a country. Administrative procedures may severely restrict participation in an auction (AURES Consortium, 2017; del Río, 2017). Moreover, the authors found evidence of strenuous administrative procedures for renewable energy permitting in Brazil, France, Japan, Mexico, South Korea and Turkey.
Of the 16 G20 countries that conduct some form of competitive auctioning for renewables, a majority have some form of pre-qualification requirements (14), pre-define the timeframe in which projects must be completed (15) and set in place penalties in case of non-compliance (10) in place. Predefined realization periods, prequalification requirements and penalties are considered good practice to reduce the risk that awarded bidders do not realize their projects (AURES Consortium, 2017; del Río, 2017; Kreiss, Ehrhart and Haufe, 2017). The ‘right’ level of these safeguards depends on the context, however the authors found that in Brazil and Argentina, project delays have occurred despite these requirements, highlighting the importance of setting adequate requirements in place.
Once a project is up and running, another uncertainty for investors can arise if the power generated from the plant is not used. To check countries’ performance on this, the authors checked for presence of priority dispatch for renewables and compensation in case the generated power is curtailed. 14 of the 19 G20 countries give renewables a priority over conventional power for dispatch, but only 8 have some provision to compensate project developers in case the produced power is curtailed.
There has been some favorable development in the G20 as well, namely in the low-ranking Saudi Arabia, Argentina and Turkey, all of which conducted successful auctions in 2017. Others however, and especially the US, Australia and Indonesia, have drastically reduced their national efforts: The Australian government has announced to discontinue its national support policy along with its renewable energy target after 2020 (Murphy, 2018), showing a lack of political will. The US federal government displayed considerable opposition to the renewable energy industry, imposing import tariffs of 30% on solar cells in 2018 and with the national Environmental Protection Agency (EPA) announcing in 2017 that it would appeal the former administration’s Clean Power Plan (EPA, 2017; USTR, 2018). However, in both the US and Australia, some states maintain comprehensive renewable energy support schemes, most notably California and South Australia. In Indonesia, the FiT scheme has been reformed in January 2017, reducing the effective tariff for renewables, especially for solar PV (CEEW, 2018).