In 2008 investors pumped $155 billion into clean energy companies and projects worldwide–not including large hydro–according to a United Nations report released last week.
Extremely difficult financial market conditions prevailed during 2008 as a result of the global economic crisis. Nevertheless investment in clean energy topped 2007’s record investments by 5% in large part as a result of China, Brazil and other emerging economies.
Of the $155 billion, $105 billion was spent directly developing 40 gigawatts (GW) of power generating capacity from wind, solar, small-hydro, biomass and geothermal sources.
A further $35 billion was spent on developing 25 GW of large hydropower, according to the report.
This $140 billion investment in 65 GW of low carbon electricity generation compares with the estimated $250 billion spent globally in 2008 constructing 157GW of new power generating capacity from all sources.
It means that renewables currently account for the majority of investment and over 40% of actual power generation capacity additions last year.
Achim Steiner, UN Under-Secretary General and UNEP Executive Director, said: "Without doubt the economic crisis has taken its toll on investments in clean energy when set against the record-breaking growth of recent years. Investment in the United States fell by 2% and in Europe growth was very much muted. However, there were also some bright points in 2008 especially in developing economies-China became the world’s second largest wind market in terms of new capacity and the world’s biggest photovoltaic manufacturer and a rise in geothermal energy may be getting underway in countries from Australia to Japan and Kenya."
Report Highlights
Wind attracted the highest new investment ($51.8 billion, 1% growth on 2007), although solar made the largest gains ($33.5 billion, 49% growth) while biofuels dropped somewhat ($16.9 billion, 9% decrease).
Total transaction value in the sustainable energy sector during 2008–including corporate acquisitions, asset re-financings and private equity buy-outs–was $223 billion, an increase of 7% over 2007. But capital raised via the public stock markets fell 51% to $11.4 billion as clean energy share prices lost 61% of their value during 2008.
Investment in the second half of 2008 was down 17% on the first half, and down 23% on the final six months of 2007, a trend that has continued into 2009.
The investment surge of recent years and softened commodity markets have started to ease supply chain bottlenecks, especially in the wind and solar sectors, which will cause prices to fall towards marginal costs and several players to consolidate. The price of solar PV modules, for example, is predicted to fall by over 43% in 2009.
Carbon Markets Continue Upward
Despite the turmoil in the world’s financial markets, transaction value in the global carbon market grew 87% during 2008, reaching a total of $120 billion. Following the lead of the EU and Kyoto compliance markets, several countries are now putting in place a system of interlinked carbon markets and working towards a global scheme under the UN Framework Convention on Climate Change (UNFCCC).
The Greening of Economic Stimulus Packages
Not surprisingly given market conditions, private sector investment was stalling in late 2008 but government investment looks ready to take up some of the slack in 2009.
Sustainable energy investments are a core part of key government fiscal stimulus packages announced in recent months, accounting for an estimated $183 billion of commitments to date.
Countries vary significantly in terms of investment and the clarity of their measures. The US and China remain the leaders, each devoting roughly $67 billion, but South Korea’s package is the "greenest" with 20% devoted to clean energy. This green stimuli illustrates the political will of an increasing number of governments for securing future growth through greener economic development.
According to Michael Liebreich, Chairman & CEO of New Energy Finance, "There is a strong case for further measures, such as requiring state-supported banks to raise lending to the sector, providing capital gains tax exemptions on investments in clean technology, creating a framework for Green Bonds and so on, all targeted at getting investment flowing."
"What’s most important is that stimulus funds start flowing immediately, not in a year or so. Many of the policies to achieve growth over the medium term are already in place, including feed-in tariff regimes, mandatory renewable energy targets and tax incentives. There is too much emphasis amongst some policy-makers on support mechanisms, and not enough on the urgent needs of investors right now."
Between 2009 and 2011 UNEP estimates that a minimum of $750 billion–or 37% of current economic stimulus packages and 1% of global GDP–is needed to finance a sustainable economic recovery by investing in the greening of five key sectors of the global economy: buildings, energy, transport, agriculture and water.
2009 and beyond: Climate change, energy security and green jobs
New investments in the first quarter of 2009 fell by 53% to $13.3 billion compared to the same period in 2008, reflecting the depth of the global financial crisis, according to the report, which notes "’green-shoots’ of recovery during the second quarter of 2009, but the sector has a long way to go this year to reach the investment levels of late 2007 and early 2008."
Climate change, economic recovery and energy security will spur far greater investments in coming years.
In particular, the growing understanding that global carbon emissions (CO2) must peak around 2015 to avoid dangerous climate change (based on the 4th assessment of the Intergovernmental Panel on Climate Change- UNEP/World Meteorological Organisation) will make clean energy investments national priorities.
Annual investments in renewable energy, energy efficiency and carbon capture and storage need to reach half a trillion dollars by 2020, representing an average investment of 0.44% of GDP.
These levels of investment are not impossible to achieve, especially in view of the recent four year growth from $35 billion to $155 billion. However, reaching them will require a further scale-up of societal commitments to a more sustainable, low-carbon energy paradigm.
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