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The Chinese government's energy policy has led to a large rise in investment in renewables, helping it to dislodge the UK in a ranking of the top five most attractive countries for investment in renewable energy, according to a study published on 19 August.

China has risen from sixth to joint fourth place with Spain — behind the US, Germany and India — in the quarterly Ernst & Young Country Attractiveness Indices. The UK, on the other hand, has dropped from fourth to sixth place — which the consultancy largely puts down to long delays in pushing through its new Energy Bill.

China gaining ground

According to Jonathan Johns, head of renewable energy at Ernst & Young, the Chinese success story has been driven by the government's commitment to generate 15% of the country's energy from non-carbon sources by 2020. China's rapidly-growing manufacturing base also means the country is likely to largely exceed its renewables goal, becoming a major player on a market where the EU has been hoping to obtain a competitive advantage thanks to its own ambitious renewable energy targets.

"The Chinese have rapidly built up supply chain capability and are likely to have nine gigawatts of manufacturing capacity in a few years," the report states, with Johns adding: "China is also likely to become a significant exporter of wind turbine equipment in a few years, adding to its already strong presence in the solar industry."

Slow progress in the UK

In the UK on the other hand, the decision to delay the Energy Bill means "there is now a two-year period of consultation and review before any of the proposals are implemented. This will leave just ten years for the UK to establish a renewables infrastructure strong enough to meet its 2020 target," the report notes. "The UK is possibly being overly dependent upon its ability to translate ambitious targets into reality and needs to concentrate and improve its delivery track record if its position is not to decline further," it continues, calling on the government to provide more "tangible incentives for investors".

Germany — a model to follow for the EU?

The report nevertheless indicates that other European countries are performing better and underlines that the UK situation comes in "strong contrast to the speed at which Germany has addressed the challenges placed by the EU Renewables Directive".

It further notes how Germany's feed-in tariff mechanism — which guarantees renewable energy producers a buy-back price that is higher than the market price for electricity — has enabled it to deliver higher levels of renewable power at lower cost than in the UK, where renewable energy obligations are fulfilled via a system whereby companies can trade 'green certificates'. While the European Commission has been looking to duplicate the UK model at EU level, the move has encountered much resistance.

The credit crunch and the 'oil price paradox'

While the report finds that "on the whole the credit crunch has not impacted [upon] the attractiveness of the sector" as an area which to lend, it warned that the recent spike in fossil fuel prices could result in "mixed fortunes" for the renewables industry.

Indeed, while on the one hand, the rising cost of energy helps make 'free' renewable energy inputs like wind, solar or marine more competitive, on the other, soaring energy bills are putting pressure on governments to think more carefully about the impact that renewables incentive programmes could have on taxpayers and the poorest in particular.

Positions

"To make the UK a world leader in attracting investment in this sector, and to avoid it slipping further down the index, the government needs to consider creating tangible incentives for investors, following the lead of Germany and the ambition of China," says Jonathan Johns , head of renewable energy at Ernst & Young .

However, according to the UK media BusinessGreen, a spokeswoman for the British department for Business, Enterprise and Regulatory Reform (BERR) said the government was committed to stepping up incentives for renewable energy developers through the Energy Bill and was also working to remove grid obstacles. "The UK is still an attractive place to invest and renewables are a good long term investment. A ten-fold increase in renewable energy will bring on around 160,000 jobs and an estimated £100bn of investment from the private sector," it quotes her as saying.