Ernst & Young: Incentives Helped Make U.S. Top for Renewable Energy Investments

Public funding helped the U.S. surpass China last year as the number one country for renewable energy investments, reversing positions held since 2009, but China maintained its position as the country with the most favorable renewable energy markets and infrastructures, according to the United States Renewable Attractiveness Indices and Renewable Energy Country Attractiveness Index, two reports from Ernst & Young.

E&Yalso said that economic constraints will tend to restrict renewable energy project finance deals in 2012.

Renewables investment in the U.S. leapt 33 percent to $55 billion from 2010 to 2011, according to Bloomberg New Energy Finance data, cited by E&Y. In that time China’s renewables investment rose just one percent, to $47.4 billion.

The expiration of the Section 1603 Grant, which supplied about $10 billion in funding to more than 4,250 projects, leaves tax equity as a primary financing mechanism. However, according to EY’s U.S. report, the demand for tax equity in 2012 will not be met with supply.

Tax equity demand is expected to reach between $7 billion to $10 billion, while the 2012 tax equity supply may total only $3.2 billion. This is related to economic conditions, and the recovery rate for financial institutions and insurance companies, the report said.

Looking ahead, the production tax credit (PTC), a key incentive to the wind industry that is scheduled to expire in 2012, may be extended for four more years. EY said that the industry typically suffers without the PTC, as happened in 1999, 2001 and 2003.

The U.S. report highlights that, despite uncertain macroeconomic conditions, renewable energy – particularly in states like Massachusetts, Colorado, Texas and California – is positioned very favorably to benefit from future investments. California leads the U.S. All Renewables Index, Ernst & Young said.

Though American investment in solar and wind technologies dominated the global market in 2011, in the country attractiveness index the U.S. ranked in second-place position – under the assumption that the PTC will be extended for the wind industry. If the credit expires, the U.S. will fall several points on the indices, Ernst & Young said.