How can we boost activity in new markets?

Emerging markets are an attractive proposition for many companies given the potential for higher returns on investment. But, in wind, some countries are putting up obstacles that are curbing progress and putting off investors.

Most of these obstacles are not new. Companies have always faced challenges in emerging markets to secure permits, plan around shifting auction dates, and work with under-developed supply chains and electricity grids. But the issues are becoming more problematic now the energy transition needs to gain pace.

It also means that the competition we see for renewables assets in emerging markets is not solely due to high demand, but also low supply. This is pushing up prices and forcing companies to take on large risks for the returns on offer.

So, what can be done to help proposed wind projects to gain traction?

This is a topic we have looked at in a report, ‘How To Improve Investor Confidence in Emerging Markets’, which we published in October. This followed a Wind Investment Boardroom roundtable that we held on 22nd September, in conjunction with headline sponsor UL.

Our expert panel discussed the biggest challenges for investors in emerging markets for wind – and what needs to be done to combat them.

Obstacles for wind

Despite substantial investor appetite in emerging wind markets, challenges such as lack of political support, confusion around local permitting and slow momentum due to delayed auctions are hindering wind developers.

This is particularly challenging for offshore wind.

Javier Chavarria, managing director and head of Latin America at Northland Power, said offshore wind in Latin America will not be a realistic opportunity for a long time. The current lack of government incentives do not make offshore wind a competitive energy option and, therefore, it does not warrant the attention of foreign investors.

He also argued offshore wind presents difficulties for the already-undeveloped grid: “If you add the cost of connecting an offshore facility, you’re putting a bit more of a burden on the offshore side,” he said, which harms potential returns.

This lack of certainty is a challenge that affects onshore wind too.

In Africa, Lisa Pinsley, director and head of Africa energy infrastructure at Actis said that “energy sectors generally aren't unbundled and therefore government-owned utilities have to do the planning”.

This has resulted in fewer procurement rounds and leaves little chance for projects to gain the kickstart they need.

For South Africa in particular, the five-year gap between rounds four and five of the country’s renewable energy tendering process has been detrimental to momentum in the market. This lack of predictability hurt demand, particularly in the manufacturing sector, and could take a long time to build back.

How can companies help their projects?

When seeking to win political and regulatory support for offshore wind in Australia, Andy Evans, CEO and co-founder at Oceanex Energy, said it has been beneficial to pick an effective narrative early on.

“We picked jobs and investment and regional development rather than saving the planet and decarbonising,” he said. “We had to try and take the politics out of it to deal with the politicians.”

By doing so, Oceanex has been able to manoeuvre between the national government, which own the rights to the surrounding seabed, and the state electricity utilities, which run the transmission lines.

The remoteness of Australia from other parts of the world also means that an offshore wind supply chain will need to be developed in the country. Talking about those infrastructure and skills investments can play a vital role in winning support for wind in emerging markets, and also puts pressure on firms to bring emerging markets up to international standards for engineering, procurement and construction through local training. This can provide value for investors.

Seamus McCabe, vice president at Green Investment Group said: “There is so much growth potential in emerging markets [but] the scale isn’t there to deliver the projects and investment in manufacturing facilities is needed."

Ultimately, McCabe said companies must proactively engage with governments. This helps investors to “find the doors to open for the capital to be deployed”, and it enables governments to identify the obstacles that they need to remove so they can make good on their climate commitments.

That will be crucial to delivering the promises of COP26.