Outlook softens for renewables

Funding for solar declined by 34 per cent to $113.7 billion as a result of sharp cost reductions and slowdowns in China and Japan, two of the largest financing markets for the sector.

Jinko and Marubeni won Abu Dhabi’s Sweihan photovoltaic solar tender last year. Reuters
Powered by automated translation

More renewables installations were added to the world’s power supply for less money last year. But a market correction may be just around the corner.

Investment in renewables, excluding large hydro projects, fell last year by 23 per cent to US$241.6 billion while the amount of new capacity installed reached the highest amount to date, according to a new report by the UN Environment Programme, the Frankfurt School of Finance and Management and Bloomberg New Energy Finance (BNEF).

The Global Trends in Renewable Energy Investment report showed that wind, solar and other renewables added 138.5 gigawatts to the world’s power capacity, a rise of 8 per cent from 2015, or more than double Saudi Arabia’s total installed generating capacity.

Funding for solar declined by 34 per cent to $113.7bn as a result of sharp cost reductions and slowdowns in China and Japan, two of the largest financing markets for the sector. “The Chinese will remain an important market, but in terms of financing activity – it probably peaked in 2015,” said Angus McCrone, BNEF’s chief editor. “Chinese players are looking at what they can do in other countries.”

The Asian countries are interested in the sunbelt region of the Middle East, including Abu Dhabi. China’s Jinko and Marubeni of Japan won the latest solar tender in the emirate, the 1.17 gigawatt solar photovoltaic (PV) plant in Sweihan.

But Mr McCrone said that generally, there was a significant amount of money available to provide equity and debt for such projects. “The issue is in developing countries having the right policies in place to give investors confidence, and if the offtaker is financially secure to give confidence to debt providers,” he said. Yet there is the possibility that a sharp rise in interest rates could make it more difficult for these projects to access financing.

Market consolidation in the solar sector may signal the need for a correction. “Recent bust-ups of solar panel manufacturers and solar developers suggest we have been experiencing a bubble,” said Marc Norman, a Dubai-based associate at the law firm Chadbourne & Parke, which is active in the region’s renewables.

He said: “The race to the bottom on pricing cannot continue for too long.”

lgraves@thenational.ae

*This article has been amended to reflect the correct output of the solar PV plant in Sweihan.

Follow The National's Business section on Twitter