Bloomberg New Energy Finance (BNEF) has launched a free online tool called Climatescope for analyzing clean-energy policy and investment opportunities in emerging markets. Climatescope has data on 58 countries across Africa, the Middle East, Asia, Latin America, and the Caribbean.
Clean-energy installation is rapidly expanding in emerging markets. Bloomberg estimates that emerging markets installed 10 GW more clean energy than OECD countries did in 2015.
New market entrants are constrained by the limited data available to assess investment opportunities.
Using Bloomberg’s Climatescope Tool
“What the tool primarily tries to do is address lack of information in emerging markets,” said Dario Traum, Bloomberg’s Climatescope project manager.
The tool measures market conditions through four indicators: enabling framework, financing and investment, value chains, and greenhouse-gas management.
- The enabling-framework indicator measures the clean-energy and power-sector policies that are in place to attract investment. It also takes energy pricing into account.
- The financing and investment indicator measures previous activity in the clean-energy sector. It also accounts for financing conditions, including the cumulative amount of investment and the cost of debt.
- The value-chains indicator measures the availability of complementary industries such as legal services and financial institutions.
- The greenhouse-gas-management indicator measures the carbon-offset market for additional revenue streams through clean-energy investment.
The tool’s default weights suggest the enabling framework and the financing investment indicators are the most important factors in Bloomberg’s rankings for determining clean-energy-market conditions and opportunities.
The default weights are:
- 40 percent for the enabling-framework indicator
- 30 percent for the financing-and-investment indicator
- 15 percent for the value-chains indicator
- 15 percent for the greenhouse-gas-management indicator
Climatescope ranks China number one with the default weights. China’s score on each indicator ranked among the top three emerging market countries except the enabling framework, where it ranked 17 out of 58 due in large part to the “lack of policy support for off-grid power projects.”
For financing and investment, China’s number-two rank reflects the large scale of clean-energy investment, totaling $114 billion. On greenhouse-gas management, China ranks third, having launched pilot cap-and-trade schemes. On value chain, China scores the maximum points due to the availability of adequate manufacturing, project development, and maintenance support.
The tool is also designed to allow users to adjust weights according to their own research needs or investment interests. “The users of the tool have been… investors, developers, journalists and researchers,” Traum said.
Investors use the tool in a variety of ways, depending on their stage of investment and the amount of risk they are are willing to take on. Two indicators, the enabling-framework indicator and the financing-and-investment indicator, are of particular interest to investors, Traum said.
Finding the Diamonds in the Rough
“A combination of the financing and investment and the enabling-framework indicators is where you can find diamonds in the rough,” Traum said.
If a country has a high enabling-framework score and a low financing and investment score, this signals a market that has a favorable policy structure and pricing scheme for clean-energy investment, but few incumbent investors. By this standard, Senegal, Cameroon, Rwanda and Nigeria have the highest clean-energy investment opportunities.
Future opportunity can also be assessed.
“If there is a gap between a country's long-term policy goals and the current capacity, there is an opportunity,” Traum said. “You could also look at how the power sector has been growing as an indicator of future growth.”
Looking to Market Maturity to Avert Risk
A risk-averse investor can understand market maturity through the financing and investment indicator. The financing and investment indicator measures cumulative investment. A country with high market activity will have less risk than unproven markets.
“The financing and investment indicator is a marker of activity and indicates a more mature market, and less risk,” Traum said.
Crosschecking Data with Qualitative Findings
The tool is best used in conjunction with market research. Traum said he recommends investors “relay what Climatescope says with their own business information.”
For example, although China is number one in Climatscope’s 2016 rankings, China’s high wind curtailment rates are not captured in Climatescope’s current methodology.
Curtailment is the rate at which energy is not absorbed by the grid. As developers are often paid at the point of off-take by the grid, high curtailment poses a risk to the investors’ revenue streams.
“Curtailment will be a new indicator for the 2017 methodology,” Traum said.
Including All Emerging Markets by 2019
The Climatescope tool will be expanded in 2017 to include 13 new countries, Traum said. The aim is provide data on all emerging markets by 2019.
By reducing the time burden of market research before entry into these emerging economies, the Climatescope tool can accelerate investment in emerging markets, thus accelerating the global installation of renewable energy.