Despite a record surge of US$1.8 trillion in clean energy investment last year, including US$660 billion allocated for renewables, the world remains off course to meet the COP28 target of tripling renewable capacity by 2030. This significant shortfall is highlighted in the latest EY Renewable Energy Country Attractiveness Index (RECAI 63), which points to network gridlock and high capital costs as major obstacles hindering the necessary acceleration of renewable energy adoption.
Energy storage, particularly battery energy storage systems (BESS), is emerging as a critical solution to these challenges. BESS can alleviate network gridlock, stabilize infrastructure, and integrate more distributed energy resources into the grid. This edition of RECAI delves into the potential of BESS, underscoring its lucrative investment opportunities for sophisticated investors. Arnaud de Giovanni, EY Global Renewables Leader, emphasizes the importance of building a resilient investment case, maintaining technology competitiveness, establishing optimal business models, and mitigating supply chain risks to navigate this complex and rapidly evolving market.
The new EY battery storage ranking identifies the US, China, and the UK as the top markets for BESS investment. The US, benefiting from a 30% tax credit under the Inflation Reduction Act, leads the ranking. China follows closely with robust government support, subsidies, and plans to cut BESS costs by 30% by 2025. The UK secures the third spot with its advanced energy market design and recent legislation classifying BESS as a generation asset. A fourfold increase in global BESS deployment is projected from 2023 to 2030, reaching 572 GW/1,848 GWh.
Ben Warren, EY RECAI Chief Editor, notes the rising investor interest in BESS, which, despite its complexity and localized risks, presents significant long-term opportunities. Success in BESS investments requires an understanding of regional market dynamics, electricity market design, technology, financing, and an acceptance of market volatility.
The top positions in the RECAI index remain dominated by mature markets: the US, China, and Germany. Grid constraints in Spain have led to a drop in its ranking, while Canada and Japan have ascended into the top 10, driven by their focus on offshore wind potential. Notable movements include Belgium, which has advanced four spots due to its plans to triple offshore wind capacity by 2040, and Argentina, which has risen three spots due to new governmental commitments to economic revitalization. Conversely, changes in solar feed-in tariffs have caused Vietnam to fall six places.
The normalized index reveals smaller economies like Denmark, Greece, Chile, and Finland as attractive alternatives for potential investors. Denmark retains the top spot, while Greece, Chile, and Finland climb the rankings due to ambitious energy transition plans and government incentives. Greece has doubled its renewable energy capacity in four years, Chile’s sector is set to double within the next decade, and Finland aims to become Europe’s first carbon-negative economy.
For a complete view of the RECAI Top 40, the normalized RECAI ranking, the corporate power purchase agreement index, and an analysis of the latest global renewable energy developments, visit ey.com/recai.
SOURCE: EYGS LLP