Alongside them, Egypt has been plugging away solidly for a number of years, but now wants to significantly ramp up its build-rate. In Eastern Europe, Romania is poised for take-off, driven by EU commitments to increase the share of renewable energy in the generation mix. The African nations of Kenya, Ethiopia and South Africa have grand plans that are edging closer to fruition, while the Philippines could also be about to join the club.
These emerging markets are the focus of this report, which looks at countries with significant growth potential and a certain level of development. These countries have also made progress towards establishing the necessary regulations and support mechanisms. A further report in next month's Windpower Monthly will look in detail at sub-Saharan Africa.
The principal drivers behind growth in the emerging wind power markets mirror those in the mature markets: increasing demand for electricity, concerns over security of supply, rising fossil fuel prices, resource diversification and the need to curb carbon emissions. In addition, the economic benefits that can flow from green-job creation are increasingly important. Exporting electricity may also be on the cards in some regions. All these factors take on an extra significance, however, given that many of these markets are also middle-income or developing countries. Most are already struggling to meet demand, while at the same time trying to extend access to electricity and keep prices down in the face of severe budgetary constraints.
Rising fossil-fuel prices affect these countries particularly severely because the cost of energy imports goes through the roof. This is exacerbated in many cases by increased expenditure on electricity subsidies, plus loss of earnings as power cuts close factories and offices. It is not hard to find examples of public anger over power cuts and price hikes spilling onto the streets, most recently in Senegal and Kyrgyzstan. As a result, governments are looking hard at how best to tap their indigenous energy resources and ensure a diversified portfolio. Even those countries with their own oil and gas reserves are starting to realise it is better to save this fuel for export rather than use it to meet rising electricity demand - especially if the price is subsidised, explains Dana Younger, senior adviser in renewable energy and sustainability at the World Bank's International Finance Corporation (IFC).
For those countries with a large and reasonably accessible wind potential, developing the resource provides many benefits. Wind is a clean, free, predictable and reliable domestic energy source. Crucially, wind power projects have a short lead time and the electricity produced is increasingly competitive compared to thermal generation. This is particularly so in countries that are heavily dependent on imported fuel - if mitigation costs are taken into account. "If you look at all the additional mitigation costs now, such as carbon taxes and carbon credits, the cost of wind is actually on a par with or not that far off (conventional generation)," says Thomas Riboud, new markets manager of UK-based developer RES Group.
Risk and return
Nevertheless, financing wind power projects in emerging markets is still a major problem made worse by the current squeeze on lending. "A lot of the appetite of the foreign commercial banks has diminished dramatically," says Younger. However, there are signs that things are easing, he notes, especially for syndicated debt after the IFC or another development institution has stepped in as senior lender.
Naturally, commercial investors expect higher rates of return to compensate for the increased risk in the emerging markets. "Financing is much, much more conservative in these markets, with longer terms and higher margins," explains Eric McCartney of Chapin International, a project-finance and investment-banking advisory company. In some instances, financing costs can be almost double those in Europe.
The additional risk can be down to a number of things, including: the creditworthiness of the utility purchasing the power; a weak or practically non-existent grid; lack of adequate wind measurements; local skills shortages, particularly technical and financial; and foreign exchange and inflation risks. But the two overriding requirements are stable regulations and a sustainable support mechanism. The unwillingness - or inability - of governments to set realistic and long-term market frameworks is a key obstacle to significant growth.
"The most important thing is to have a sustainable, long-lasting feed-in tariff," argues Sven Teske, renewable energy director of Greenpeace International. John Jackman, associate director of global financial services group Macquarie Capital Advisors, agrees. "A lot of markets develop very quickly when a feed-in tariff or other support mechanism is introduced," he observes. Macquarie has had a presence in South Africa for several years but, when the government introduced a tariff last year, "that really crystallised for us that it was the appropriate time for development", Jackman says.
In the meantime, development institutions and export credit agencies are plugging the funding gap. For example, the World Bank's multi-billion-dollar Clean Technology Fund aims to finance the transfer of low-carbon technologies to developing countries. In addition, development banks such as Germany's KfW, the Asian Development Bank and the European Investment Bank (EIB) have programmes that drive investment by providing capital at favourable terms.
Various mechanisms are also under discussion to channel funds from industrialised nations to finance climate-change mitigation activity in developing countries. Such funds could be used to support feed-in tariffs for renewable energies, for example. One of the more concrete proposals is Deutsche Bank (DB) Climate Change Advisors' global energy transfer feed-in tariff for developing countries (Get Fit), which was presented to the UN secretary general's advisory group on energy and climate change in April.
Get Fit is a flexible structure that sees money from international donors, such as development banks, climate-related funds and national governments, being used to support renewable energy policies. Ideally, these would centre on well-designed feed-in tariffs or similar performance-based incentives that reduce investment risk and, therefore, "attract significant private capital to drive markets for commercially available technologies", explains Mark Fulton, global head of climate change investment research at DB Climate Change Advisors.
By subsidising feed-in tariff schemes, such a structure could allow developing countries - particularly those unable to raise their electricity prices or taxes sufficiently - to develop wind and other renewables projects. The idea has been well received and Fulton is hoping to launch a pilot scheme to demonstrate Get Fit's potential.