Deloitte report indicates rocky road ahead for renewable energy sector

New York – Global investment in the renewable energy sector is set to continue to decline in the short term from the 11 percent fall seen in 2012. This is according to the Deloitte Touche Tohmatsu Limited (DTTL) Alternative thinking 2013: Renewable energy under the microscope report.

The report identifies the important trends and opportunities in renewable energy for developers, investors, and policy-makers. The report also points out where significant barriers to progress lie, and suggests strategies for dealing with them. Despite the recent decline in investment, the study finds that renewables are becoming less alternative and increasingly mainstream, with 118 countries now having renewable energy targets in place and the wave of public demand for clean energy increasing.

Jane Allen, DTTL Global Leader, Renewable Energy comments, “Global investment into the renewable energy sector is likely to remain subdued in the near time. Yet over the long term, the sector will be more attractive, as technology improves and costs decline. In the meantime, investors need to choose their spots wisely, because it’s not going to get any easier anytime soon.”

The analysis outlines five crucial areas where planning and decision-making in the near term will be key, including:

* Bridging the cost disparity gap with fossil fuels – Fossil fuels received almost twice the amount of government-funded support than the total amount of public and private sector investment in renewable energy in 2012. This equates to a total of $523 billion in subsidies provided worldwide, in contrast to the $269 billion of total investment in renewable energy in 2012.
* Enduring the “shale revolution” – The shale gas revolution has created new uncertainty for the near-term investment prospects of renewable energies. There is no easy answer to the question of how to mitigate this risk or otherwise endure the revolution. In some ways, it is unavoidable: growth in the renewable energy sector is not likely to increase while gas prices are as low as they are.
* Weighing infrastructure investment – In many cases, the key deterrent to investment is the lack of regulatory frameworks suitable to ensuring economic returns. This leads to the question of whether it is more economical to upgrade existing energy infrastructure, build new facilities on the foundation of the existing infrastructure, or invest in the new infrastructure of the “Third Industrial Revolution"
* Navigating the subsidy environment – At least 118 countries had renewable energy targets in place in early 2012 according to the Renewables 2012 Global Status Report, while 109 countries had renewable power generation policies, of which feed-in tariffs (FITs; in at least 65 countries) and renewable portfolio standards (in at least 18 countries and 53 other jurisdictions) are the most common.1
* Coming to terms with energy “democratization” – Conventional energy companies will need to manage and sustain their businesses, whilst at the same time navigating their transition to a market were centralized power generation and distribution is less in demand, as consumers and businesses begin to generate their own energy.

“It is important for utilities, investors, developers, and governments to understand the evolving renewable energy landscape so that they have the long-term context for the short-term decisions they must make,” said Allen. “Subsidies and further technological refinement and innovation are going to continue to be needed in the short- to medium-term. Companies must take advantage of the subsidies where possible, but must also develop a strategy that takes into account their eventual phase out. The current low cost of natural gas in North America and the expectation of this dynamic spreading globally will also suppress investment in renewables for the short-term, but this is likely to ease as gas prices level out with rising demand.”

Notes to editors
To access the full report please visit: www.deloitte.com/alternativethinking.
1REN21. 2012. Renewables 2012 Global Status Report. (Paris: REN21 Secretariat).


About Deloitte
Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee, and its network of member firms, each of which is a legally separate and independent entity. Please see www.deloitte.com/about for a detailed description of the legal structure of Deloitte Touche Tohmatsu Limited and its member firms.

Deloitte provides audit, tax, consulting, and financial advisory services to public and private clients spanning multiple industries. With a globally connected network of member firms in more than 150 countries, Deloitte brings world-class capabilities and high-quality service to clients, delivering the insights they need to address their most complex business challenges. Deloitte has in the region of 200,000 professionals, all committed to becoming the standard of excellence